[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2014 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

                    Title 12

Banks and Banking


________________________

Parts 1026 to 1099

                         Revised as of January 1, 2014

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2014
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

U.S. GOVERNMENT OFFICIAL EDITION NOTICE

Legal Status and Use of Seals and Logos


The seal of the National Archives and Records Administration (NARA) 
authenticates the Code of Federal Regulations (CFR) as the official 
codification of Federal regulations established under the Federal Register 
Act. Under the provisions of 44 U.S.C. 1507, the contents of the CFR, a 
special edition of the Federal Register, shall be judicially noticed. The 
CFR is prima facie evidence of the original documents published in the 
Federal Register (44 U.S.C. 1510).

It is prohibited to use NARA's official seal and the stylized Code of 
Federal Regulations logo on any republication of this material without the 
express, written permission of the Archivist of the United States or the 
Archivist's designee. Any person using NARA's official seals and logos in a 
manner inconsistent with the provisions of 36 CFR part 1200 is subject to 
the penalties specified in 18 U.S.C. 506, 701, and 1017.

Use of ISBN Prefix

This is the Official U.S. Government edition of this publication and is 
herein identified to certify its authenticity. Use of the 0-16 ISBN prefix 
is for U.S. Government Printing Office Official Editions only. The 
Superintendent of Documents of the U.S. Government Printing Office requests 
that any reprinted edition clearly be labeled as a copy of the authentic 
work with a new ISBN.



U . S . G O V E R N M E N T P R I N T I N G O F F I C E



U.S. Superintendent of Documents  Washington, DC 20402-
0001

http://bookstore.gpo.gov

Phone: toll-free (866) 512-1800; DC area (202) 512-1800

[[Page iii]]





                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 12:
          Chapter X--Bureau of Consumer Financial Protection 
          (Continued)                                                3
  Finding Aids:
      Table of CFR Titles and Chapters........................    1149
      Alphabetical List of Agencies Appearing in the CFR......    1169
      List of CFR Sections Affected...........................    1179

[[Page iv]]





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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 12 CFR 1026.1 refers 
                       to title 12, part 1026, 
                       section 1.

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

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
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

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2014), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

PAST PROVISIONS OF THE CODE

    Provisions of the Code that are no longer in force and effect as of 
the revision date stated on the cover of each volume are not carried. 
Code users may find the text of provisions in effect on any given date 
in the past by using the appropriate List of CFR Sections Affected 
(LSA). For the convenience of the reader, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume. For changes to 
the Code prior to the LSA listings at the end of the volume, consult 
previous annual editions of the LSA. For changes to the Code prior to 
2001, consult the List of CFR Sections Affected compilations, published 
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
editorially to indicate that a portion of the CFR was left vacant and 
not accidentally dropped due to a printing or computer error.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed as 
an approved incorporation by reference, please contact the agency that 
issued the regulation containing that incorporation. If, after 
contacting the agency, you find the material is not available, please 
notify the Director of the Federal Register, National Archives and 
Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001, 
or call 202-741-6010.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Authorities 
and Rules. A list of CFR titles, chapters, subchapters, and parts and an 
alphabetical list of agencies publishing in the CFR are also included in 
this volume.

[[Page vii]]

    An index to the text of ``Title 3--The President'' is carried within 
that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, 8601 Adelphi Road, College Park, MD 
20740-6001 or e-mail [email protected].

SALES

    The Government Printing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll-free, 
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or 
fax your order to 202-512-2104, 24 hours a day. For payment by check, 
write to: US Government Printing Office - New Orders, P.O. Box 979050, 
St. Louis, MO 63197-9000.

ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers of the Presidents of the United 
States, Compilation of Presidential Documents and the Privacy Act 
Compilation are available in electronic format via www.ofr.gov. For more 
information, contact the GPO Customer Contact Center, U.S. Government 
Printing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-
mail, [email protected].
    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) World Wide Web 
site for public law numbers, Federal Register finding aids, and related 
information. Connect to NARA's web site at www.archives.gov/federal-
register.
    The e-CFR is a regularly updated, unofficial editorial compilation 
of CFR material and Federal Register amendments, produced by the Office 
of the Federal Register and the Government Printing Office. It is 
available at www.ecfr.gov.

    Charles A. Barth,
    Director,
    Office of the Federal Register.
    January 1, 2014.







[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of ten 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, 600-899, 900-1025, 1026-1099, and 
1100-end. The contents of these volumes represent all current 
regulations codified under this title of the CFR as of January 1, 2014.

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

[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                 (This book contains parts 1026 to 1099)

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

chapter x-- Bureau of Consumer Financial Protection.........        1026

[[Page 3]]



           CHAPTER X--BUREAU OF CONSUMER FINANCIAL PROTECTION




  --------------------------------------------------------------------
Part                                                                Page
1026            Truth in lending (Regulation Z).............           5
1030            Truth in savings (Regulation DD)............         992
1070            Disclosure of records and information.......        1031
1071            Rule implementing Equal Access to Justice 
                    Act.....................................        1062
1072            Enforcement of nondiscrimination on the 
                    basis of disability in programs and 
                    activities conducted by the Bureau of 
                    Consumer Financial Protection...........        1068
1073            Procedures for bureau debt collection.......        1074
1074            Procedure relating to rulemaking............        1084
1075            Consumer financial civil penalty fund rule..        1084
1076            Claims against the United States............        1089
1080            Rules relating to investigations............        1090
1081            Rules of practice for adjudication 
                    proceedings.............................        1096
1082            State official notification rules...........        1130
1090            Defining larger participants of certain 
                    consumer financial product and service 
                    markets.................................        1132
1091            Procedural rule to establish supervisory 
                    authority over certain nonbank-covered 
                    persons based on risk determination.....        1138

[[Page 5]]

                PART 1026_TRUTH IN LENDING (REGULATION Z)

                            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.
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 high-cost mortgages.
1026.33 Requirements for reverse mortgages.
1026.34 Prohibited acts or practices in connection with high-cost 
          mortgages.
1026.35 Requirements for higher-priced mortgage loans.
1026.36 Prohibited acts or practices and certain requirements for credit 
          secured by a dwelling.
1026.37 Content of disclosures for certain mortgage transactions (Loan 
          Estimate).
1026.38 Content of disclosures for certain mortgage transactions 
          (Closing Disclosure).
1026.39 Mortgage transfer disclosures.
1026.40 Requirements for home equity plans.
1026.41 Periodic statements for residential mortgage loans.
1026.42 Valuation independence.
1026.43 Minimum standards for transactions secured by a dwelling.
1026.44-1026.45 [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

[[Page 6]]

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
Appendix N to Part 226--Higher-Priced Mortgage Loan Appraisal Safe 
          Harbor Review
Appendix Q to Part 1026--Standards for Determining Monthly Debt and 
          Income
Supplement I to Part 1026--Official Interpretations

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

    Effective Date Note: At 78 FR 44718, July 24, 2013, the authority 
citation for part 1026 was revised, effective Jan. 10, 2014. For the 
convenience of the user, the revised text is set forth as follows:
    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 5511, 5512, 
5532, 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 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). Furthermore, this part 
implements certain provisions of the Real Estate Settlement Procedures 
Act of 1974, as amended (12 U.S.C. 2601 et seq.). The Bureau's 
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 (Truth 
in Lending).
    (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

[[Page 7]]

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.
    (5) No person is required to provide the disclosures required by 
sections 128(a)(16) through (19), 128(b)(4), 129C(f)(1), 129C(g)(2) and 
(3), 129C(h), 129D(h), 129D(j)(1)(A), or 129D(j)(1)(B) of the Truth in 
Lending Act or section 4(c) of the Real Estate Settlement Procedures 
Act.
    (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.
    (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

[[Page 8]]

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.

[76 FR 79772, Dec. 22, 2011, as amended at 77 FR 70114, Nov. 23, 2012]

    Effective Date Notes: 1. At 78 FR 6962, Jan. 31, 2013, Sec. 1026.1 
was amended by revising paragraph (d)(5), effective Jan. 10, 2014. For 
the convenience of the user, the revised text is set forth as follows:

Sec. 1026.1  Authority, purpose, coverage, organization, enforcement, 
          and liability.

                                * * * * *

    (d) * * *
    (5) Subpart E contains special rules for mortgage transactions. 
Section 1026.32 requires certain disclosures and provides limitations 
for closed-end credit transactions and open-end credit plans that have 
rates or fees above specified amounts or certain prepayment penalties. 
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 high-cost 
mortgages, as defined in Sec. 1026.32(a). 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.

                                * * * * *

    2. At 78 FR 80106, Dec. 31, 2013, Sec. 1026.1 was amended by 
revising paragraphs (b), (c)(5), (d)(5), and (e), effective Aug. 1, 
2015. For the convenience of the user, the revised text is set forth as 
follows:

Sec. 1026.1  Authority, purpose, coverage, organization, enforcement, 
          and liability.

                                * * * * *

    (b) Purpose. The purpose of this part is to promote the informed use 
of consumer credit by requiring disclosures about its terms and cost, to 
ensure that consumers are provided with greater and more timely 
information on the nature and costs of the residential real estate 
settlement process, and to effect certain changes in the settlement 
process for residential real estate that will result in more effective 
advance disclosure to home buyers and sellers of settlement costs. 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). In addition, 
it imposes certain limitations on increases in costs for mortgage 
transactions subject to Sec. 1026.19(e) and (f).
    (c) * * *
    (5) Except in transactions subject to Sec. 1026.19(e) and (f), no 
person is required to provide the disclosures required by sections 
128(a)(16) through (19), 128(b)(4), 129C(f)(1), 129C(g)(2) and (3), 
129D(h), or 129D(j)(1)(A) of the Truth in Lending Act, section 4(c) of 
the Real Estate Settlement Procedures Act, or the disclosure required 
prior to settlement by section 129C(h) of the Truth in Lending Act. 
Except in transactions subject to Sec. 1026.20(e), no person is 
required to provide the disclosure required by section 129D(j)(1)(B) of 
the Truth in Lending Act. Except in transactions subject to Sec. 
1026.39(d)(5), no person becoming a creditor with respect to an existing 
residential mortgage loan is required to provide the disclosure required 
by section 129C(h) of the Truth in Lending Act.
    (d) * * *
    (5) Subpart E contains special rules for mortgage transactions. 
Section 1026.32 requires certain disclosures and provides limitations 
for closed-end credit transactions and open-end credit plans that have 
rates or fees above specified amounts or certain prepayment penalties. 
Section 1026.33 requires

[[Page 9]]

special disclosures, including the total annual loan cost rate, for 
reverse mortgage transactions. Section 1026.34 prohibits specific acts 
and practices in connection with high-cost mortgages, as defined in 
Sec. 1026.32(a). 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. Sections 1026.37 and 1026.38 set forth special disclosure 
requirements for certain closed-end transactions secured by real 
property, as required by Sec. 1026.19(e) and (f).

                                * * * * *

    (e) Enforcement and liability. Section 108 of the Truth in Lending 
Act contains the administrative enforcement provisions for that Act. 
Sections 112, 113, 130, 131, and 134 contain provisions relating to 
liability for failure to comply with the requirements of the Truth in 
Lending 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 Truth in Lending 
Act. Section 19 of the Real Estate Settlement Procedures Act contains 
the administrative enforcement provisions for that 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, 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.

[[Page 10]]

    (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 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

[[Page 11]]

    (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 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.

    Effective Date Note: At 78 FR 80106, Dec. 31, 2013, Sec. 1026.2 was 
amended by revising paragraphs (a)(3), (a)(6), and (a)(25), effective 
Aug. 1, 2015. For the convenience of the user, the revised text is set 
forth as follows:

Sec. 1026.2  Definitions and rules of construction.

    (a) * * *
    (3)(i) Application means the submission of a consumer's financial 
information for the purposes of obtaining an extension of credit.
    (ii) For transactions subject to Sec. 1026.19(e), (f), or (g) of 
this part, an application consists of the submission of the consumer's 
name, the consumer's income, the consumer's social security number to 
obtain a credit report, the property address, an estimate of the value 
of the property, and the mortgage loan amount sought.

                                * * * * *

    (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), 1026.19(e)(1)(iii)(B), 1026.19(e)(1)(iv), 
1026.19(e)(2)(i)(A), 1026.19(e)(4)(ii), 1026.19(f)(1)(ii), 
1026.19(f)(1)(iii), 1026.20(e)(5), 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, 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.

                                * * * * *

    (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

[[Page 12]]

rebates, or interests in after-acquired property. For purposes of 
disclosures under Sec. Sec. 1026.6, 1026.18, 1026.19(e) and (f), and 
1026.38(l)(6), 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.

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 ).
    (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.).

    Effective Date Note: At 78 FR 80107, Dec. 31, 2013, Sec. 1026.3 was 
amended by revising the introductory text and adding paragraph (h), 
effective Aug. 1, 2015. For the convenience of the user, the added and 
revised text is set forth as follows:

Sec. 1026.3  Exempt transactions.

    The following transactions are not subject to this part or, if the 
exemption is limited to

[[Page 13]]

specified provisions of this part, are not subject to those provisions:

                                * * * * *

    (h) Partial exemption for certain mortgage loans. The special 
disclosure requirements in Sec. 1026.19(e), (f), and (g) do not apply 
to a transaction that satisfies all of the following criteria:
    (1) The transaction is secured by a subordinate lien;
    (2) The transaction is for the purpose of:
    (i) Downpayment, closing costs, or other similar home buyer 
assistance, such as principal or interest subsidies;
    (ii) Property rehabilitation assistance;
    (iii) Energy efficiency assistance; or
    (iv) Foreclosure avoidance or prevention;
    (3) The credit contract does not require the payment of interest;
    (4) The credit contract provides that repayment of the amount of 
credit extended is:
    (i) Forgiven either incrementally or in whole, at a date certain, 
and subject only to specified ownership and occupancy conditions, such 
as a requirement that the consumer maintain the property as the 
consumer's principal dwelling for five years;
    (ii) Deferred for a minimum of 20 years after consummation of the 
transaction;
    (iii) Deferred until sale of the property securing the transaction; 
or
    (iv) Deferred until the property securing the transaction is no 
longer the principal dwelling of the consumer;
    (5) The total of costs payable by the consumer in connection with 
the transaction at consummation is less than one percent of the amount 
of credit extended and includes no charges other than:
    (i) Fees for recordation of security instruments, deeds, and similar 
documents;
    (ii) A bona fide and reasonable application fee; and
    (iii) A bona fide and reasonable fee for housing counseling 
services; and
    (6) The creditor complies with all other applicable requirements of 
this part in connection with the transaction, including without 
limitation the disclosures required by Sec. 1026.18.

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

[[Page 14]]

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

[[Page 15]]

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 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.

[[Page 16]]

                        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 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

[[Page 17]]

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 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

[[Page 18]]

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.
    (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

[[Page 19]]

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.
    (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

[[Page 20]]

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.
    (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

[[Page 21]]

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 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

[[Page 22]]

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 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

[[Page 23]]

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 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.

[[Page 24]]

    (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 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:

[[Page 25]]

    (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.
    (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.

[[Page 26]]

    (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.
    (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

[[Page 27]]

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 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

[[Page 28]]

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'';
    (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

[[Page 29]]

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.

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

[[Page 30]]

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 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

[[Page 31]]

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 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

[[Page 32]]

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'' 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;

[[Page 33]]

    (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 
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

[[Page 34]]

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 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

[[Page 35]]

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 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

[[Page 36]]

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.
    (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

[[Page 37]]

(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 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

[[Page 38]]

    (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 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,

[[Page 39]]

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 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

[[Page 40]]

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 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.

[[Page 41]]

    (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.
    (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;

[[Page 42]]

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 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.

[[Page 43]]

    (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 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;

[[Page 44]]

    (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
    (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.

[[Page 45]]

    (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 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

[[Page 46]]

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 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.

[[Page 47]]

    (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.
    (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

[[Page 48]]

    (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 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:

[[Page 49]]

    (A) Promotional rate. The term ``promotional rate'' means, in a 
variable-rate plan, any annual percentage rate that is not based on the 
index and margin that will be used to make rate adjustments under the 
plan, if that rate is less than a reasonably current annual percentage 
rate that would be in effect under the index and margin that will be 
used to make rate adjustments under the plan.
    (B) Promotional payment. The term ``promotional payment'' means:
    (1) For a variable-rate plan, any minimum payment applicable for a 
promotional period that:
    (i) Is not derived by applying the index and margin to the 
outstanding balance when such index and margin will be used to determine 
other minimum payments under the plan; and
    (ii) Is less than other minimum payments under the plan derived by 
applying a reasonably current index and margin that will be used to 
determine the amount of such payments, given an assumed balance.
    (2) For a plan other than a variable-rate plan, any minimum payment 
applicable for a promotional period if that payment is less than other 
payments required under the plan given an assumed balance.
    (C) Promotional period. A ``promotional period'' means a period of 
time, less than the full term of the loan, that the promotional rate or 
promotional payment may be applicable.
    (ii) Stating the promotional period and post-promotional rate or 
payments. If any annual percentage rate that may be applied to a plan is 
a promotional rate, or if any payment applicable to a plan is a 
promotional payment, the following must be disclosed in any 
advertisement, other than television or radio advertisements, in a clear 
and conspicuous manner with equal prominence and in close proximity to 
each listing of the promotional rate or payment:
    (A) The period of time during which the promotional rate or 
promotional payment will apply;
    (B) In the case of a promotional rate, any annual percentage rate 
that will apply under the plan. If such rate is variable, the annual 
percentage rate must be disclosed in accordance with the accuracy 
standards in Sec. Sec. 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

[[Page 50]]

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;
    (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

[[Page 51]]

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.

                       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

[[Page 52]]

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.
    (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

[[Page 53]]

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 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.

    Effective Date Notes: 1. At 78 FR 11004, Feb. 14, 2013, Sec. 
1026.17 was amended by revising paragraphs (a)(1) and (b), effective 
Jan. 10, 2014. For the convenience of the user, the revised text is set 
forth as follows:

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

[[Page 54]]

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, 
Sec. 1026.20(c) and (d), or Sec. 1026.47. The disclosures required by 
Sec. 1026.20(d) shall be provided as a separate document from all other 
written materials. 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.

                                * * * * *

    (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) and (d). 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.

                                * * * * *

    2. At 78 FR 80107, Dec. 31, 2013, Sec. 1026.17 was amended by 
adding introductory text to paragraph (a) and revising paragraphs (b), 
(f) introductory text, (g) introductory text, and (h) introductory text, 
effective Aug. 1, 2015. For the convenience of the user, the added and 
revised text is set forth as follows:

Sec. 1026.17  General disclosure requirements.

    (a) Form of disclosures. Except for the disclosures required by 
Sec. 1026.19(e), (f), and (g):

                                * * * * *

    (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. Sec. 
1026.19(b) and 1026.20(c) and (d). 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. This paragraph (b) does not apply to the disclosures 
required by Sec. Sec. 1026.19(e), (f), and (g) and 1026.20(e).

                                * * * * *

    (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), 
(e), and (f)):

                                * * * * *

    (g) Mail or telephone orders--delay in disclosures. Except for 
private education loan disclosures made in compliance with Sec. 1026.47 
and mortgage disclosures made in compliance with Sec. 1026.19(a) or 
(e), (f), and (g), 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:

                                * * * * *

    (h) Series of sales--delay in disclosures. Except for mortgage 
disclosures made in compliance with Sec. 1026.19(a) or (e), (f), and 
(g), 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 due date of 
the first payment for the current sale, if the following two conditions 
are met:

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

[[Page 55]]

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 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,

[[Page 56]]

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 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

[[Page 57]]

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 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.''

[[Page 58]]

    (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), 
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

[[Page 59]]

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.

    Effective Date Note: At 78 FR 80108, Dec. 31, 2013, Sec. 1026.18 
was amended by revising the introductory text and paragraphs (k)(1) and 
(2), (s) introductory text, (s)(3)(i)(C), and (t)(1), effective August 
1, 2015. For the convenience of the user, the revised text is set forth 
as follows:

Sec. 1026.18  Content of disclosures.

    For each transaction other than a mortgage transaction subject to 
Sec. 1026.19(e) and (f), the creditor shall disclose the following 
information as applicable:

                                * * * * *

    (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 charge may be 
imposed for paying all or part of a loan's principal balance before the 
date on which the principal is due.
    (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 or in part.

                                * * * * *

    (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 that is subject to Sec. 1026.19(e) and (f), the 
creditor shall disclose the following information about the interest 
rate and payments:

                                * * * * *

    (3) * * *
    (i) * * *
    (C) If an escrow account will be established, an estimate of the 
amount of taxes and insurance, including any mortgage insurance or any 
functional equivalent, payable with each periodic payment; and

                                * * * * *

    (t) ``No-guarantee-to-refinance'' statement. (1) Disclosure. For a 
closed-end transaction secured by real property or a dwelling, other 
than a transaction that is subject to Sec. 1026.19(e) and (f), 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.

                                * * * * *

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

[[Page 60]]

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.
    (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

[[Page 61]]

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 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.

    Effective Date Note: At 78 FR 80108, Dec. 31, 2013, Sec. 1026.19 
was amended by revising paragraphs (a)(1)(i) and (ii), removing 
paragraph (a)(5), and adding new paragraphs (e), (f), and (g), effective 
Aug. 1, 2015. For the convenience of the user, the added and revised 
text is set forth as follows:

[[Page 62]]

Sec. 1026.19  Certain mortgage and variable-rate transactions.

    (a) Reverse mortgage transactions subject to RESPA. (1)(i) Time of 
disclosures. In a reverse mortgage transaction subject to both Sec. 
1026.33 and the Real Estate Settlement Procedures Act (12 U.S.C. 2601 et 
seq.) that is secured by the consumer's dwelling, the creditor shall 
provide the consumer with 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.
    (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 
reverse 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.

                                * * * * *

    (e) Mortgage loans secured by real property--early disclosures. (1) 
Provision of disclosures. (i) Creditor. In a closed-end consumer credit 
transaction secured by real property, other than a reverse mortgage 
subject to Sec. 1026.33, the creditor shall provide the consumer with 
good faith estimates of the disclosures in Sec. 1026.37.
    (ii) Mortgage broker. (A) If a mortgage broker receives a consumer's 
application, either the creditor or the mortgage broker shall provide a 
consumer with the disclosures required under paragraph (e)(1)(i) of this 
section in accordance with paragraph (e)(1)(iii) of this section. If the 
mortgage broker provides the required disclosures, the mortgage broker 
shall comply with all relevant requirements of this paragraph (e). The 
creditor shall ensure that such disclosures are provided in accordance 
with all requirements of this paragraph (e). Disclosures provided by a 
mortgage broker in accordance with the requirements of this paragraph 
(e) satisfy the creditor's obligation under this paragraph (e).
    (B) If a mortgage broker provides any disclosure under Sec. 
1026.19(e), the mortgage broker shall also comply with the requirements 
of Sec. 1026.25(c).
    (iii) Timing. (A) The creditor shall deliver or place in the mail 
the disclosures required under paragraph (e)(1)(i) of this section not 
later than the third business day after the creditor receives the 
consumer's application, as defined in Sec. 1026.2(a)(3).
    (B) Except as set forth in paragraph (e)(1)(iii)(C) of this section, 
the creditor shall deliver or place in the mail the disclosures required 
under paragraph (e)(1)(i) of this section not later than the seventh 
business day before consummation of the transaction.
    (C) For a transaction secured by a consumer's interest in a 
timeshare plan described in 11 U.S.C. 101(53D), paragraph (e)(1)(iii)(B) 
of this section does not apply.
    (iv) Receipt of early disclosures. If any disclosures required under 
paragraph (e)(1)(i) of this section are not provided to the consumer in 
person, the consumer is considered to have received the disclosures 
three business days after they are delivered or placed in the mail.
    (v) 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 for early disclosures required 
under paragraph (e)(1)(iii)(B) of this section, after receiving the 
disclosures required under paragraph (e)(1)(i) of this section. To 
modify or waive the 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.
    (vi) Shopping for settlement service providers. (A) Shopping 
permitted. A creditor permits a consumer to shop for a settlement 
service if the creditor permits the consumer to select the provider of 
that service, subject to reasonable requirements.
    (B) Disclosure of services. The creditor shall identify the 
settlement services for which the consumer is permitted to shop in the 
disclosures required under paragraph (e)(1)(i) of this section.
    (C) Written list of providers. If the consumer is permitted to shop 
for a settlement service, the creditor shall provide the consumer with a 
written list identifying available providers of that settlement service 
and stating that the consumer may choose a different provider for that 
service. The creditor must identify at least one available provider for 
each settlement service for which the consumer is permitted to shop. The 
creditor shall provide this written list of settlement service providers 
separately from the disclosures required by paragraph (e)(1)(i) of this 
section but in accordance with the timing requirements in paragraph 
(e)(1)(iii) of this section.
    (2) Predisclosure activity. (i) Imposition of fees on consumer. (A) 
Fee restriction. Except as provided in paragraph (e)(2)(i)(B) 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

[[Page 63]]

(e)(1)(i) of this section before the consumer has received the 
disclosures required under paragraph (e)(1)(i) of this section and 
indicated to the creditor an intent to proceed with the transaction 
described by those disclosures. A consumer may indicate an intent to 
proceed with a transaction in any manner the consumer chooses, unless a 
particular manner of communication is required by the creditor. The 
creditor must document this communication to satisfy the requirements of 
Sec. 1026.25.
    (B) Exception to fee restriction. A creditor or other person may 
impose a bona fide and reasonable fee for obtaining the consumer's 
credit report before the consumer has received the disclosures required 
under paragraph (e)(1)(i) of this section.
    (ii) Written information provided to consumer. If a creditor or 
other person provides a consumer with a written estimate of terms or 
costs specific to that consumer before the consumer receives the 
disclosures required under paragraph (e)(1)(i) of this section, the 
creditor or such person shall clearly and conspicuously state at the top 
of the front of the first page of the estimate in a font size that is no 
smaller than 12-point font: ``Your actual rate, payment, and costs could 
be higher. Get an official Loan Estimate before choosing a loan.'' The 
written estimate of terms or costs may not be made with headings, 
content, and format substantially similar to form H-24 or H-25 of 
appendix H to this part.
    (iii) Verification of information. The creditor or other person 
shall not require a consumer to submit documents verifying information 
related to the consumer's application before providing the disclosures 
required by paragraph (e)(1)(i) of this section.
    (3) Good faith determination for estimates of closing costs-- (i) 
General rule. An estimated closing cost disclosed pursuant to paragraph 
(e) of this section is in good faith if the charge paid by or imposed on 
the consumer does not exceed the amount originally disclosed under 
paragraph (e)(1)(i) of this section, except as otherwise provided in 
paragraphs (e)(3)(ii) through (iv) of this section.
    (ii) Limited increases permitted for certain charges. An estimate of 
a charge for a third-party service or a recording fee is in good faith 
if:
    (A) The aggregate amount of charges for third-party services and 
recording fees paid by or imposed on the consumer does not exceed the 
aggregate amount of such charges disclosed under paragraph (e)(1)(i) of 
this section by more than 10 percent;
    (B) The charge for the third-party service is not paid to the 
creditor or an affiliate of the creditor; and
    (C) The creditor permits the consumer to shop for the third-party 
service, consistent with paragraph (e)(1)(vi) of this section.
    (iii) Variations permitted for certain charges. An estimate of the 
following charges is in good faith if it is consistent with the best 
information reasonably available to the creditor at the time it is 
disclosed, regardless of whether the amount paid by the consumer exceeds 
the amount disclosed under paragraph (e)(1)(i) of this section:
    (A) Prepaid interest;
    (B) Property insurance premiums;
    (C) Amounts placed into an escrow, impound, reserve, or similar 
account;
    (D) Charges paid to third-party service providers selected by the 
consumer consistent with paragraph (e)(1)(vi)(A) of this section that 
are not on the list provided pursuant to paragraph (e)(1)(vi)(C) of this 
section; and
    (E) Charges paid for third-party services not required by the 
creditor. These charges may be paid to affiliates of the creditor.
    (iv) Revised estimates. For the purpose of determining good faith 
under paragraph (e)(3)(i) and (ii) of this section, a creditor may use a 
revised estimate of a charge instead of the estimate of the charge 
originally disclosed under paragraph (e)(1)(i) of this section if the 
revision is due to any of the following reasons:
    (A) Changed circumstance affecting settlement charges. Changed 
circumstances cause the estimated charges to increase or, in the case of 
estimated charges identified in paragraph (e)(3)(ii) of this section, 
cause the aggregate amount of such charges to increase by more than 10 
percent. For purposes of this paragraph, ``changed circumstance'' means:
    (1) An extraordinary event beyond the control of any interested 
party or other unexpected event specific to the consumer or transaction;
    (2) Information specific to the consumer or transaction that the 
creditor relied upon when providing the disclosures required under 
paragraph (e)(1)(i) of this section and that was inaccurate or changed 
after the disclosures were provided; or
    (3) New information specific to the consumer or transaction that the 
creditor did not rely on when providing the original disclosures 
required under paragraph (e)(1)(i) of this section.
    (B) Changed circumstance affecting eligibility. The consumer is 
ineligible for an estimated charge previously disclosed because a 
changed circumstance, as defined under paragraph (e)(3)(iv)(A) of this 
section, affected the consumer's creditworthiness or the value of the 
security for the loan.
    (C) Revisions requested by the consumer. The consumer requests 
revisions to the credit terms or the settlement that cause an estimated 
charge to increase.
    (D) Interest rate dependent charges. The points or lender credits 
change because the interest rate was not locked when the disclosures 
required under paragraph (e)(1)(i) of this section were provided. On the 
date the

[[Page 64]]

interest rate is locked, the creditor shall provide a revised version of 
the disclosures required under paragraph (e)(1)(i) of this section to 
the consumer with the revised interest rate, the points disclosed 
pursuant to Sec. 1026.37(f)(1), lender credits, and any other interest 
rate dependent charges and terms.
    (E) Expiration. The consumer indicates an intent to proceed with the 
transaction more than ten business days after the disclosures required 
under paragraph (e)(1)(i) of this section are provided pursuant to 
paragraph (e)(1)(iii) of this section.
    (F) Delayed settlement date on a construction loan. In transactions 
involving new construction, where the creditor reasonably expects that 
settlement will occur more than 60 days after the disclosures required 
under paragraph (e)(1)(i) of this section are provided pursuant to 
paragraph (e)(1)(iii) of this section, the creditor may provide revised 
disclosures to the consumer if the original disclosures required under 
paragraph (e)(1)(i) of this section state clearly and conspicuously that 
at any time prior to 60 days before consummation, the creditor may issue 
revised disclosures. If no such statement is provided, the creditor may 
not issue revised disclosures, except as otherwise provided in paragraph 
(f) of this section.
    (4) Provision and receipt of revised disclosures. (i) General rule. 
Subject to the requirements of paragraph (e)(4)(ii) of this section, if 
a creditor uses a revised estimate pursuant to paragraph (e)(3)(iv) of 
this section for the purpose of determining good faith under paragraphs 
(e)(3)(i) and (ii) of this section, the creditor shall provide a revised 
version of the disclosures required under paragraph (e)(1)(i) of this 
section reflecting the revised estimate within three business days of 
receiving information sufficient to establish that one of the reasons 
for revision provided under paragraphs (e)(3)(iv)(A) through (C), (E) 
and (F) of this section applies.
    (ii) Relationship to disclosures required under Sec. 
1026.19(f)(1)(i). The creditor shall not provide a revised version of 
the disclosures required under paragraph (e)(1)(i) of this section on or 
after the date on which the creditor provides the disclosures required 
under paragraph (f)(1)(i) of this section. The consumer must receive a 
revised version of the disclosures required under paragraph (e)(1)(i) of 
this section not later than four business days prior to consummation. If 
the revised version of the disclosures required under paragraph 
(e)(1)(i) of this section is not provided to the consumer in person, the 
consumer is considered to have received such version three business days 
after the creditor delivers or places such version in the mail.
    (f) Mortgage loans secured by real property--final disclosures. (1) 
Provision of disclosures. (i) Scope. In a closed-end consumer credit 
transaction secured by real property, other than a reverse mortgage 
subject to Sec. 1026.33, the creditor shall provide the consumer with 
the disclosures in Sec. 1026.38 reflecting the actual terms of the 
transaction.
    (ii) Timing. (A) In general. Except as provided in paragraphs 
(f)(1)(ii)(B), (f)(2)(i), (f)(2)(iii), (f)(2)(iv), and (f)(2)(v) of this 
section, the creditor shall ensure that the consumer receives the 
disclosures required under paragraph (f)(1)(i) of this section no later 
than three business days before consummation.
    (B) Timeshares. For transactions secured by a consumer's interest in 
a timeshare plan described in 11 U.S.C. 101(53D), the creditor shall 
ensure that the consumer receives the disclosures required under 
paragraph (f)(1)(i) of this section no later than consummation.
    (iii) Receipt of disclosures. If any disclosures required under 
paragraph (f)(1)(i) of this section are not provided to the consumer in 
person, the consumer is considered to have received the disclosures 
three business days after they are delivered or placed in the mail.
    (iv) 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 three-business-day waiting period under paragraph (f)(1)(ii)(A) or 
(f)(2)(ii) of this section, after receiving the disclosures required 
under paragraph (f)(1)(i) of this section. To modify or waive the 
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 consumers who are 
primarily liable on the legal obligation. Printed forms for this purpose 
are prohibited.
    (v) Settlement agent. A settlement agent may provide a consumer with 
the disclosures required under paragraph (f)(1)(i) of this section, 
provided the settlement agent complies with all relevant requirements of 
this paragraph (f). The creditor shall ensure that such disclosures are 
provided in accordance with all requirements of this paragraph (f). 
Disclosures provided by a settlement agent in accordance with the 
requirements of this paragraph (f) satisfy the creditor's obligation 
under this paragraph (f).
    (2) Subsequent changes. (i) Changes before consummation not 
requiring a new waiting period. Except as provided in paragraph 
(f)(2)(ii), if the disclosures provided under paragraph (f)(1)(i) of 
this section become inaccurate before consummation, the creditor shall 
provide corrected disclosures reflecting any changed terms to the 
consumer so that the consumer receives the corrected disclosures at or 
before consummation. Notwithstanding the requirement to provide 
corrected disclosures at or before consummation, the creditor shall 
permit the consumer to inspect the disclosures provided under

[[Page 65]]

this paragraph, completed to set forth those items that are known to the 
creditor at the time of inspection, during the business day immediately 
preceding consummation, but the creditor may omit from inspection items 
related only to the seller's transaction.
    (ii) Changes before consummation requiring a new waiting period. If 
one of the following disclosures provided under paragraph (f)(1)(i) of 
this section becomes inaccurate in the following manner before 
consummation, the creditor shall ensure that the consumer receives 
corrected disclosures containing all changed terms in accordance with 
the requirements of paragraph (f)(1)(ii)(A) of this section:
    (A) The annual percentage rate disclosed under Sec. 1026.38(o)(4) 
becomes inaccurate, as defined in Sec. 1026.22.
    (B) The loan product is changed, causing the information disclosed 
under Sec. 1026.38(a)(5)(iii) to become inaccurate.
    (C) A prepayment penalty is added, causing the statement regarding a 
prepayment penalty required under Sec. 1026.38(b) to become inaccurate.
    (iii) Changes due to events occurring after consummation. If during 
the 30-day period following consummation, an event in connection with 
the settlement of the transaction occurs that causes the disclosures 
required under paragraph (f)(1)(i) of this section to become inaccurate, 
and such inaccuracy results in a change to an amount actually paid by 
the consumer from that amount disclosed under paragraph (f)(1)(i) of 
this section, the creditor shall deliver or place in the mail corrected 
disclosures not later than 30 days after receiving information 
sufficient to establish that such event has occurred.
    (iv) Changes due to clerical errors. A creditor does not violate 
paragraph (f)(1)(i) of this section if the disclosures provided under 
paragraph (f)(1)(i) contain non-numeric clerical errors, provided the 
creditor delivers or places in the mail corrected disclosures no later 
than 60 days after consummation.
    (v) Refunds related to the good faith analysis. If amounts paid by 
the consumer exceed the amounts specified under paragraph (e)(3)(i) or 
(ii) of this section, the creditor complies with paragraph (e)(1)(i) of 
this section if the creditor refunds the excess to the consumer no later 
than 60 days after consummation, and the creditor complies with 
paragraph (f)(1)(i) of this section if the creditor delivers or places 
in the mail corrected disclosures that reflect such refund no later than 
60 days after consummation.
    (3) Charges disclosed. (i) Actual charge. The amount imposed upon 
the consumer for any settlement service shall not exceed the amount 
actually received by the settlement service provider for that service, 
except as otherwise provided in paragraph (f)(3)(ii) of this section.
    (ii) Average charge. A creditor or settlement service provider may 
charge a consumer or seller the average charge for a settlement service 
if the following conditions are satisfied:
    (A) The average charge is no more than the average amount paid for 
that service by or on behalf of all consumers and sellers for a class of 
transactions;
    (B) The creditor or settlement service provider defines the class of 
transactions based on an appropriate period of time, geographic area, 
and type of loan;
    (C) The creditor or settlement service provider uses the same 
average charge for every transaction within the defined class; and
    (D) The creditor or settlement service provider does not use an 
average charge:
    (1) For any type of insurance;
    (2) For any charge based on the loan amount or property value; or
    (3) If doing so is otherwise prohibited by law.
    (4) Transactions involving a seller. (i) Provision to seller. In a 
closed-end consumer credit transaction secured by real property that 
involves a seller, other than a reverse mortgage subject to Sec. 
1026.33, the settlement agent shall provide the seller with the 
disclosures in Sec. 1026.38 that relate to the seller's transaction 
reflecting the actual terms of the seller's transaction.
    (ii) Timing. The settlement agent shall provide the disclosures 
required under paragraph (f)(4)(i) of this section no later than the day 
of consummation. If during the 30-day period following consummation, an 
event in connection with the settlement of the transaction occurs that 
causes disclosures required under paragraph (f)(4)(i) of this section to 
become inaccurate, and such inaccuracy results in a change to the amount 
actually paid by the seller from that amount disclosed under paragraph 
(f)(4)(i) of this section, the settlement agent shall deliver or place 
in the mail corrected disclosures not later than 30 days after receiving 
information sufficient to establish that such event has occurred.
    (iii) Charges disclosed. The amount imposed on the seller for any 
settlement service shall not exceed the amount actually received by the 
service provider for that service, except as otherwise provided in 
paragraph (f)(3)(ii) of this section.
    (iv) Creditor's copy. When the consumer's and seller's disclosures 
under this paragraph (f) are provided on separate documents, as 
permitted under Sec. 1026.38(t)(5), the settlement agent shall provide 
to the creditor (if the creditor is not the settlement agent) a copy of 
the disclosures provided to the seller under paragraph (f)(4)(i) of this 
section.
    (5) No fee. No fee may be imposed on any person, as a part of 
settlement costs or otherwise, by a creditor or by a servicer (as that 
term is defined under 12 U.S.C. 2605(i)(2)) for

[[Page 66]]

the preparation or delivery of the disclosures required under paragraph 
(f)(1)(i) of this section.
    (g) Special information booklet at time of application. (1) Creditor 
to provide special information booklet. Except as provided in paragraphs 
(g)(1)(ii) and (iii) of this section, the creditor shall provide a copy 
of the special information booklet (required pursuant to section 5 of 
the Real Estate Settlement Procedures Act (12 U.S.C. 2604) to help 
consumers applying for federally related mortgage loans understand the 
nature and cost of real estate settlement services) to a consumer who 
applies for a consumer credit transaction secured by real property.
    (i) The creditor shall deliver or place in the mail the special 
information booklet not later than three business days after the 
consumer's application is received. However, if the creditor denies the 
consumer's application before the end of the three-business-day period, 
the creditor need not provide the booklet. If a consumer uses a mortgage 
broker, the mortgage broker shall provide the special information 
booklet and the creditor need not do so.
    (ii) In the case of a home equity line of credit subject to Sec. 
1026.40, a creditor or mortgage broker that provides the consumer 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.
    (iii) The creditor or mortgage broker need not provide the booklet 
to the consumer for a consumer credit transaction secured by real 
property, the purpose of which is not the purchase of a one-to-four 
family residential property, including, but not limited to, the 
following:
    (A) Refinancing transactions;
    (B) Closed-end loans secured by a subordinate lien; and
    (C) Reverse mortgages.
    (2) Permissible changes. Creditors may not make changes to, 
deletions from, or additions to the special information booklet other 
than the changes specified in paragraphs (g)(2)(i) through (iv) of this 
section.
    (i) In the ``Complaints'' section of the booklet, ``the Bureau of 
Consumer Financial Protection'' may be substituted for ``HUD's Office of 
RESPA'' and ``the RESPA office.''
    (ii) In the ``Avoiding Foreclosure'' section of the booklet, it is 
permissible to inform homeowners that they may find information on and 
assistance in avoiding foreclosures at http://www.consumerfinance.gov. 
The reference to the HUD Web site, http://www.hud.gov/foreclosure/, in 
the ``Avoiding Foreclosure'' section of the booklet shall not be 
deleted.
    (iii) In the ``No Discrimination'' section of the appendix to the 
booklet, ``the Bureau of Consumer Financial Protection'' may be 
substituted for the reference to the ``Board of Governors of the Federal 
Reserve System.'' In the Contact Information section of the appendix to 
the booklet, the following contact information for the Bureau may be 
added: ``Bureau of Consumer Financial Protection, 1700 G Street NW., 
Washington, DC 20552; www.consumerfinance.gov/learnmore.'' The contact 
information for HUD's Office of RESPA and Interstate Land Sales may be 
removed from the ``Contact Information'' section of the appendix to the 
booklet.
    (iv) The cover of the booklet may be in any form and may contain any 
drawings, pictures or artwork, provided that the title appearing on the 
cover shall not be changed. Names, addresses, and telephone numbers of 
the creditor 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.

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 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.

[[Page 67]]

    (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.

    Effective Date Notes: 1. At 78 FR 11004, Feb. 14, 2013, Sec. 
1026.20 was amended by revising the heading and paragraphs (c) and (d), 
effective Jan. 10, 2014. For the convenience of the user, the revised 
text is set forth as follows:

Sec. 1026.20  Disclosure requirements regarding post-consummation 
          events.

                                * * * * *

    (c) Rate adjustments with a corresponding change in payment. The 
creditor, assignee, or servicer of an adjustable-rate mortgage shall 
provide consumers with disclosures, as described in this paragraph (c), 
in connection with the adjustment of interest rates pursuant to the loan 
contract that results in a corresponding adjustment to the payment. To 
the extent that other provisions of this subpart C govern the 
disclosures required by this paragraph (c), those provisions apply to 
assignees and servicers as well as to creditors. The disclosures 
required by this paragraph (c) also shall be provided for an interest 
rate adjustment resulting from the conversion of an adjustable-rate 
mortgage to a fixed-rate transaction, if that interest rate adjustment 
results in a corresponding payment change.
    (1) Coverage. (i) In general. For purposes of this paragraph (c), an 
adjustable-rate mortgage or ``ARM'' is a closed-end consumer credit 
transaction secured by the consumer's principal dwelling in which the 
annual percentage rate may increase after consummation.
    (ii) Exemptions. The requirements of this paragraph (c) do not apply 
to:
    (A) ARMs with terms of one year or less; or
    (B) The first interest rate adjustment to an ARM if the first 
payment at the adjusted level is due within 210 days after consummation 
and the new interest rate disclosed at consummation pursuant to Sec. 
1026.20(d) was not an estimate.
    (2) Timing and content. Except as otherwise provided in paragraph 
(c)(2) of this section, the disclosures required by this paragraph (c) 
shall be provided to consumers at least 60, but no more than 120, days 
before the first payment at the adjusted level is due. The disclosures 
shall be provided to consumers at least 25, but no more than 120, days 
before the first payment at the adjusted level is due for ARMs with 
uniformly scheduled interest rate adjustments occurring every 60 days or

[[Page 68]]

more frequently and for ARMs originated prior to January 10, 2015 in 
which the loan contract requires the adjusted interest rate and payment 
to be calculated based on the index figure available as of a date that 
is less than 45 days prior to the adjustment date. The disclosures shall 
be provided to consumers as soon as practicable, but not less than 25 
days before the first payment at the adjusted level is due, for the 
first adjustment to an ARM if it occurs within 60 days of consummation 
and the new interest rate disclosed at consummation pursuant to Sec. 
1026.20(d) was an estimate. The disclosures required by this paragraph 
(c) shall include:
    (i) A statement providing:
    (A) An explanation that under the terms of the consumer's 
adjustable-rate mortgage, the specific time period in which the current 
interest rate has been in effect is ending and the interest rate and 
mortgage payment will change;
    (B) The effective date of the interest rate adjustment and when 
additional future interest rate adjustments are scheduled to occur; and
    (C) Any other changes to loan terms, features, or options taking 
effect on the same date as the interest rate adjustment, such as the 
expiration of interest-only or payment-option features.
    (ii) A table containing the following information:
    (A) The current and new interest rates;
    (B) The current and new payments and the date the first new payment 
is due; and
    (C) For interest-only or negatively-amortizing payments, the amount 
of the current and new payment allocated to principal, interest, and 
taxes and insurance in escrow, as applicable. The current payment 
allocation disclosed shall be the payment allocation for the last 
payment prior to the date of the disclosure. The new payment allocation 
disclosed shall be the expected payment allocation for the first payment 
for which the new interest rate will apply.
    (iii) An explanation of how the interest rate is determined, 
including:
    (A) The specific index or formula used in making interest rate 
adjustments and a source of information about the index or formula; and
    (B) The type and amount of any adjustment to the index, including 
any margin and an explanation that the margin is the addition of a 
certain number of percentage points to the index, and any application of 
previously foregone interest rate increases from past interest rate 
adjustments.
    (iv) Any limits on the interest rate or payment increases at each 
interest rate adjustment and over the life of the loan, as applicable, 
including the extent to which such limits result in the creditor, 
assignee, or servicer foregoing any increase in the interest rate and 
the earliest date that such foregone interest rate increases may apply 
to future interest rate adjustments, subject to those limits.
    (v) An explanation of how the new payment is determined, including:
    (A) The index or formula used;
    (B) Any adjustment to the index or formula, such as the addition of 
a margin or the application of any previously foregone interest rate 
increases from past interest rate adjustments;
    (C) The loan balance expected on the date of the interest rate 
adjustment; and
    (D) The length of the remaining loan term expected on the date of 
the interest rate adjustment and any change in the term of the loan 
caused by the adjustment.
    (vi) If applicable, a statement that the new payment will not be 
allocated to pay loan principal and will not reduce the loan balance. If 
the new payment will result in negative amortization, a statement that 
the new payment will not be allocated to pay loan principal and will pay 
only part of the loan interest, thereby adding to the balance of the 
loan. If the new payment will result in negative amortization as a 
result of the interest rate adjustment, the statement shall set forth 
the payment required to amortize fully the remaining balance at the new 
interest rate over the remainder of the loan term.
    (vii) The circumstances under which any prepayment penalty, as 
defined in Sec. 1026.32(b)(6)(i), may be imposed, such as when paying 
the loan in full or selling or refinancing the principal dwelling; the 
time period during which such a penalty may be imposed; and a statement 
that the consumer may contact the servicer for additional information, 
including the maximum amount of the penalty.
    (3) Format. (i) The disclosures required by this paragraph (c) shall 
be provided in the form of a table and in the same order as, and with 
headings and format substantially similar to, forms H-4(D)(1) and (2) in 
appendix H to this part; and
    (ii) The disclosures required by paragraph (c)(2)(ii) of this 
section shall be in the form of a table located within the table 
described in paragraph (c)(3)(i) of this section. These disclosures 
shall appear in the same order as, and with headings and format 
substantially similar to, the table inside the larger table in forms H-
4(D)(1) and (2) in appendix H to this part.
    (d) Initial rate adjustment. The creditor, assignee, or servicer of 
an adjustable-rate mortgage shall provide consumers with disclosures, as 
described in this paragraph (d), in connection with the initial interest 
rate adjustment pursuant to the loan contract. To the extent that other 
provisions of this subpart C govern the disclosures required by this 
paragraph (d), those provisions apply to

[[Page 69]]

assignees and servicers as well as to creditors. The disclosures 
required by this paragraph (d) shall be provided as a separate document 
from other documents provided by the creditor, assignee, or servicer. 
The disclosures shall be provided to consumers at least 210, but no more 
than 240, days before the first payment at the adjusted level is due. If 
the first payment at the adjusted level is due within the first 210 days 
after consummation, the disclosures shall be provided at consummation.
    (1) Coverage. (i) In general. For purposes of this paragraph (d), an 
adjustable-rate mortgage or ``ARM'' is a closed-end consumer credit 
transaction secured by the consumer's principal dwelling in which the 
annual percentage rate may increase after consummation.
    (ii) Exemptions. The requirements of this paragraph (d) do not apply 
to ARMs with terms of one year or less.
    (2) Content. If the new interest rate (or the new payment calculated 
from the new interest rate) is not known as of the date of the 
disclosure, an estimate shall be disclosed and labeled as such. This 
estimate shall be based on the calculation of the index reported in the 
source of information described in paragraph (d)(2)(iv)(A) of this 
section within fifteen business days prior to the date of the 
disclosure. The disclosures required by this paragraph (d) shall 
include:
    (i) The date of the disclosure.
    (ii) A statement providing:
    (A) An explanation that under the terms of the consumer's 
adjustable-rate mortgage, the specific time period in which the current 
interest rate has been in effect is ending and that any change in the 
interest rate may result in a change in the mortgage payment;
    (B) The effective date of the interest rate adjustment and when 
additional future interest rate adjustments are scheduled to occur; and
    (C) Any other changes to loan terms, features, or options taking 
effect on the same date as the interest rate adjustment, such as the 
expiration of interest-only or payment-option features.
    (iii) A table containing the following information:
    (A) The current and new interest rates;
    (B) The current and new payments and the date the first new payment 
is due; and
    (C) For interest-only or negatively-amortizing payments, the amount 
of the current and new payment allocated to principal, interest, and 
taxes and insurance in escrow, as applicable. The current payment 
allocation disclosed shall be the payment allocation for the last 
payment prior to the date of the disclosure. The new payment allocation 
disclosed shall be the expected payment allocation for the first payment 
for which the new interest rate will apply.
    (iv) An explanation of how the interest rate is determined, 
including:
    (A) The specific index or formula used in making interest rate 
adjustments and a source of information about the index or formula; and
    (B) The type and amount of any adjustment to the index, including 
any margin and an explanation that the margin is the addition of a 
certain number of percentage points to the index.
    (v) Any limits on the interest rate or payment increases at each 
interest rate adjustment and over the life of the loan, as applicable, 
including the extent to which such limits result in the creditor, 
assignee, or servicer foregoing any increase in the interest rate and 
the earliest date that such foregone interest rate increases may apply 
to future interest rate adjustments, subject to those limits.
    (vi) An explanation of how the new payment is determined, including:
    (A) The index or formula used;
    (B) Any adjustment to the index or formula, such as the addition of 
a margin;
    (C) The loan balance expected on the date of the interest rate 
adjustment;
    (D) The length of the remaining loan term expected on the date of 
the interest rate adjustment and any change in the term of the loan 
caused by the adjustment; and
    (E) If the new interest rate or new payment provided is an estimate, 
a statement that another disclosure containing the actual new interest 
rate and new payment will be provided to the consumer between two and 
four months before the first payment at the adjusted level is due for 
interest rate adjustments that result in a corresponding payment change.
    (vii) If applicable, a statement that the new payment will not be 
allocated to pay loan principal and will not reduce the loan balance. If 
the new payment will result in negative amortization, a statement that 
the new payment will not be allocated to pay loan principal and will pay 
only part of the loan interest, thereby adding to the balance of the 
loan. If the new payment will result in negative amortization as a 
result of the interest rate adjustment, the statement shall set forth 
the payment required to amortize fully the remaining balance at the new 
interest rate over the remainder of the loan term.
    (viii) The circumstances under which any prepayment penalty, as 
defined in Sec. 1026.32(b)(6)(i), may be imposed, such as when paying 
the loan in full or selling or refinancing the principal dwelling; the 
time period during which such a penalty may be imposed; and a statement 
that the consumer may contact the servicer for additional information, 
including the maximum amount of the penalty.
    (ix) The telephone number of the creditor, assignee, or servicer for 
consumers to call if

[[Page 70]]

they anticipate not being able to make their new payments.
    (x) The following alternatives to paying at the new rate that 
consumers may be able to pursue and a brief explanation of each 
alternative, expressed in simple and clear terms:
    (A) Refinancing the loan with the current or another creditor or 
assignee;
    (B) Selling the property and using the proceeds to pay the loan in 
full;
    (C) Modifying the terms of the loan with the creditor, assignee, or 
servicer; and
    (D) Arranging payment forbearance with the creditor, assignee, or 
servicer.
    (xi) The Web site to access either the Bureau list or the HUD list 
of homeownership counselors and counseling organizations, the HUD toll-
free telephone number to access the HUD list of homeownership counselors 
and counseling organizations, and the Bureau Web site to access contact 
information for State housing finance authorities (as defined in Sec. 
1301 of the Financial Institutions Reform, Recovery, and Enforcement Act 
of 1989).
    (3) Format. (i) Except for the disclosures required by paragraph 
(d)(2)(i) of this section, the disclosures required by this paragraph 
(d) shall be provided in the form of a table and in the same order as, 
and with headings and format substantially similar to, forms H-4(D)(3) 
and (4) in appendix H to this part;
    (ii) The disclosures required by paragraph (d)(2)(i) of this section 
shall appear outside of and above the table required in paragraph 
(d)(3)(i) of this section; and
    (iii) The disclosures required by paragraph (d)(2)(iii) of this 
section shall be in the form of a table located within the table 
described in paragraph (d)(3)(i) of this section. These disclosures 
shall appear in the same order as, and with headings and format 
substantially similar to, the table inside the larger table in forms H-
4(D)(3) and (4) in appendix H to this part.
    2. At 78 FR 63005, Oct. 23, 2013, Sec. 1026.20 was amended by 
removing ``or'' from the end of paragraph (c)(1)(ii)(A); removing the 
period from the end of paragraph (c)(1)(ii)(B) and adding in its place 
``; or''; adding paragraph (c)(1)(ii)(C), effective Jan. 10, 2014. For 
the convenience of the user, the added text is set forth as follows:

Sec. 1026.20  Disclosure requirements regarding post-consummation 
          events.

                                * * * * *

    (c) * * *
    (1) * * *
    (ii) * * *
    (C) The creditor, assignee or servicer of an adjustable-rate 
mortgage when the servicer on the loan is subject to the Fair Debt 
Collections Practices Act (FDCPA) (15 U.S.C. 1692 et seq.) with regard 
to the loan and the consumer has sent a notification pursuant to FDCPA 
section 805(c) (15 U.S.C. 1692c(c)).

                                * * * * *

    3. At 78 FR 80111, Dec. 31, 2013, Sec. 1026.20 was amended by 
adding paragraph (e), effective Aug. 1, 2015. For the convenience of the 
user, the added text is set forth as follows:

Sec. 1026.20  Disclosure requirements regarding post-consummation 
          events.

                                * * * * *

    (e) Escrow account cancellation notice for certain mortgage 
transactions--(1) Scope. In a closed-end consumer credit transaction 
secured by a first lien on real property or a dwelling, other than a 
reverse mortgage subject to Sec. 1026.33, for which an escrow account 
was established in connection with the transaction and will be 
cancelled, the creditor or servicer shall disclose the information 
specified in paragraph (e)(2) of this section in accordance with the 
form requirements in paragraph (e)(4) of this section, and the timing 
requirements in paragraph (e)(5) of this section. For purposes of this 
paragraph (e), the term ``escrow account'' has the same meaning as under 
12 CFR 1024.17(b), and the term ``servicer'' has the same meaning as 
under 12 CFR 1024.2(b).
    (2) Content requirements. If an escrow account was established in 
connection with a transaction subject to this paragraph (e) and the 
escrow account will be cancelled, the creditor or servicer shall clearly 
and conspicuously disclose, under the heading ``Escrow Closing Notice,'' 
the following information:
    (i) A statement informing the consumer of the date on which the 
consumer will no longer have an escrow account; a statement that an 
escrow account may also be called an impound or trust account; a 
statement of the reason why the escrow account will be closed; a 
statement that without an escrow account, the consumer must pay all 
property costs, such as taxes and homeowner's insurance, directly, 
possibly in one or two large payments a year; and a table, titled ``Cost 
to you,'' that contains an itemization of the amount of any fee the 
creditor or servicer imposes on the consumer in connection with the 
closure of the consumer's escrow account, labeled ``Escrow Closing 
Fee,'' and a statement that the fee is for closing the escrow account.
    (ii) Under the reference ``In the future'':
    (A) A statement of the consequences if the consumer fails to pay 
property costs, including the actions that a State or local government 
may take if property taxes are not paid and the actions the creditor or 
servicer may take if the consumer does not pay some or all property 
costs, such as adding amounts

[[Page 71]]

to the loan balance, adding an escrow account to the loan, or purchasing 
a property insurance policy on the consumer's behalf that may be more 
expensive and provide fewer benefits than a policy that the consumer 
could obtain directly;
    (B) A statement with a telephone number that the consumer can use to 
request additional information about the cancellation of the escrow 
account;
    (C) A statement of whether the creditor or servicer offers the 
option of keeping the escrow account open and, as applicable, a 
telephone number the consumer can use to request that the account be 
kept open; and
    (D) A statement of whether there is a cut-off date by which the 
consumer can request that the account be kept open.
    (3) Optional information. The creditor or servicer may, at its 
option, include its name or logo, the consumer's name, phone number, 
mailing address and property address, the issue date of the notice, the 
loan number, or the consumer's account number on the notice required by 
this paragraph (e). Except for the name and logo of the creditor or 
servicer, the information described in this paragraph may be placed 
between the heading required by paragraph (e)(2) of this section and the 
disclosures required by paragraphs (e)(2)(i) and (ii) of this section. 
The name and logo may be placed above the heading required by paragraph 
(e)(2) of this section.
    (4) Form of disclosures. The disclosures required by paragraph 
(e)(2) of this section shall be provided in a minimum 10-point font, 
grouped together on the front side of a one-page document, separate from 
all other materials, with the headings, content, order, and format 
substantially similar to model form H-29 in appendix H to this part. The 
disclosure of the heading required by paragraph (e)(2) of this section 
shall be more conspicuous than, and shall precede, the other disclosures 
required by paragraph (e)(2) of this section.
    (5) Timing--(i) Cancellation upon consumer's request. If the 
creditor or servicer cancels the escrow account at the consumer's 
request, the creditor or servicer shall ensure that the consumer 
receives the disclosures required by paragraph (e)(2) of this section no 
later than three business days before the closure of the consumer's 
escrow account.
    (ii) Cancellations other than upon the consumer's request. If the 
creditor or servicer cancels the escrow account and the cancellation is 
not at the consumer's request, the creditor or servicer shall ensure 
that the consumer receives the disclosures required by paragraph (e)(2) 
of this section no later than 30 business days before the closure of the 
consumer's escrow account.
    (iii) Receipt of disclosure. If the disclosures required by 
paragraph (e)(2) of this section are not provided to the consumer in 
person, the consumer is considered to have received the disclosures 
three business days after they are delivered or placed in the mail.

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 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

[[Page 72]]

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.
    (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

[[Page 73]]

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.

    Effective Date Note: At 78 FR 80112, Dec. 31, 2013, Sec. 1026.22 
was amended by revising paragraphs (a)(4) and (5), effective Aug. 1, 
2015. For the convenience of the user, the revised text is set forth as 
follows:

Sec. 1026.22  Determination of annual percentage rate.

    (a) * * *
    (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 Sec. 1026.38(o)(2), as applicable; 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. 1026.38(o)(2), as 
applicable, or Sec. 1026.23(g) or (h), the disclosed annual percentage 
rate shall be considered accurate:

                                * * * * *

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(e)(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

[[Page 74]]

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.
    (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)

[[Page 75]]

shall be considered accurate for purposes of this section if the 
disclosed finance charge:
    (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.

[76 FR 79772, Dec. 22, 2011, as amended at 78 FR 30745, May 23, 2013]

    Effective Date Note: At 78 FR 60440, Oct. 1, 2013, Sec. 1026.23 was 
amended by revising paragraph (a)(3)(ii), effective Jan. 10, 2014. For 
the convenience of the user, the revised text is set forth as follows:

Sec. 1026.23  Right of rescission.

    (a) * * *
    (3) * * *
    (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 1026.43(g).

                                * * * * *

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.

[[Page 76]]

    (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) 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

[[Page 77]]

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.
    (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

[[Page 78]]

    (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
    (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, and other than the requirements under Sec. 
1026.19(e) and (f)) for two 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.

[[Page 79]]

    (c) Records related to certain requirements for mortgage loans--(1) 
Records related to requirements for loans secured by real property--(i) 
General rule. Except as provided under paragraph (c)(1)(ii) of this 
section, a creditor shall retain evidence of compliance with the 
requirements of Sec. 1026.19(e) and (f) for three years after the later 
of the date of consummation, the date disclosures are required to be 
made, or the date the action is required to be taken.
    (ii) Closing disclosures. (A) A creditor shall retain each completed 
disclosure required under Sec. 1026.19(f)(1)(i) or (f)(4)(i), and all 
documents related to such disclosures, for five years after 
consummation, notwithstanding paragraph (c)(1)(ii)(B) of this section.
    (B) If a creditor sells, transfers, or otherwise disposes of its 
interest in a mortgage loan subject to Sec. 1026.19(f) and does not 
service the mortgage loan, the creditor shall provide a copy of the 
disclosures required under Sec. 1026.19(f)(1)(i) or (f)(4)(i) to the 
owner or servicer of the mortgage as a part of the transfer of the loan 
file. Such owner or servicer shall retain such disclosures for the 
remainder of the five-year period described under paragraph 
(c)(1)(ii)(A) of this section.
    (C) The Bureau shall have the right to require provision of copies 
of records related to the disclosures required under Sec. 
1026.19(f)(1)(i) and (f)(4)(i).
    (2) Records related to requirements for loan originator 
compensation. Notwithstanding paragraph (a) of this section, for 
transactions subject to Sec. 1026.36:
    (i) A creditor shall maintain records sufficient to evidence all 
compensation it pays to a loan originator, as defined in Sec. 
1026.36(a)(1), and the compensation agreement that governs those 
payments for three years after the date of payment.
    (ii) A loan originator organization, as defined in Sec. 
1026.36(a)(1)(iii), shall maintain records sufficient to evidence all 
compensation it receives from a creditor, a consumer, or another person; 
all compensation it pays to any individual loan originator, as defined 
in Sec. 1026.36(a)(1)(ii); and the compensation agreement that governs 
each such receipt or payment, for three years after the date of each 
such receipt or payment.
    (3) Records related to minimum standards for transactions secured by 
a dwelling. Notwithstanding paragraph (a) of this section, a creditor 
shall retain evidence of compliance with Sec. 1026.43 of this 
regulation for three years after consummation of a transaction covered 
by that section.

[76 FR 79772, Dec. 22, 2011, as amended at 78 FR 6583, Jan. 30, 2013; 78 
FR 11410, Feb. 15, 2013; 78 FR 60382, Oct. 1, 2013]

    Effective Date Notes: At 78 FR 6583, Jan. 30, 2013, Sec. 1026.25 
was amended by revising paragraph (a) and adding paragraph (c)(3), 
effective January 10, 2014. For the convenience of the user, the added 
text is set forth as follows:

Sec. 1026.25  Record retention.

    (a) General rule. A creditor shall retain evidence of compliance 
with this regulation, other than advertising requirements under 
Sec. Sec. 1026.16 and 1026.24 and certain requirements for mortgage 
loans under paragraph (c) of this section, for two 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 a creditor under their jurisdictions to retain records for a 
longer period if necessary to carry out their enforcement 
responsibilities under section 108 of the Act.

                                * * * * *

    (c) Records related to certain requirements for mortgage loans. (1) 
[Reserved]
    (2) [Reserved]
    (3) Records related to minimum standards for transactions secured by 
a dwelling. Notwithstanding paragraph (a) of this section, a creditor 
shall retain evidence of compliance with Sec. 1026.43 of this 
regulation for three years after consummation of a transaction covered 
by that section.
    2. At 78 FR 80112, Dec. 31, 2013, Sec. 1026.25 was amended by 
revising paragraph (a) and adding paragraph (c)(1), effective Aug. 1, 
2015. For the convenience of the user, the added and revised text is set 
forth as follows:

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, and other than the requirements under Sec. 
1026.19(e) and (f)) for two 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

[[Page 80]]

carry out their enforcement responsibilities under section 108 of the 
Act.

                                * * * * *

    (c) Records related to certain requirements for mortgage loans--(1) 
Records related to requirements for loans secured by real property--(i) 
General rule. Except as provided under paragraph (c)(1)(ii) of this 
section, a creditor shall retain evidence of compliance with the 
requirements of Sec. 1026.19(e) and (f) for three years after the later 
of the date of consummation, the date disclosures are required to be 
made, or the date the action is required to be taken.
    (ii) Closing disclosures. (A) A creditor shall retain each completed 
disclosure required under Sec. 1026.19(f)(1)(i) or (f)(4)(i), and all 
documents related to such disclosures, for five years after 
consummation, notwithstanding paragraph (c)(1)(ii)(B) of this section.
    (B) If a creditor sells, transfers, or otherwise disposes of its 
interest in a mortgage loan subject to Sec. 1026.19(f) and does not 
service the mortgage loan, the creditor shall provide a copy of the 
disclosures required under Sec. 1026.19(f)(1)(i) or (f)(4)(i) to the 
owner or servicer of the mortgage as a part of the transfer of the loan 
file. Such owner or servicer shall retain such disclosures for the 
remainder of the five-year period described under paragraph 
(c)(1)(ii)(A) of this section.
    (C) The Bureau shall have the right to require provision of copies 
of records related to the disclosures required under Sec. 
1026.19(f)(1)(i) and (f)(4)(i).

                                * * * * *

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.

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

[[Page 81]]

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 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.

    Effective Date Note: At 78 FR 80112, Dec. 31, 2013, Sec. 1026.28 
was amended by revising paragraph (a)(1), effective Aug. 1, 2015. For 
the convenience of the user, the revised text is set forth as follows:

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. A determination as to whether a State law is 
inconsistent with the requirements of sections 4 and 5 of RESPA (other 
than the RESPA section 5(c) requirements regarding provision of a list 
of certified homeownership counselors) and Sec. Sec. 1026.19(e) and 
(f), 1026.37, and 1026.38 shall be made in accordance with this section 
and not 12 CFR 1024.13.

                                * * * * *

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

[[Page 82]]

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 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.

[[Page 83]]

    (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.

    Effective Date Notes: 1. At 78 FR 6962, Jan. 31, 2013, Sec. 1026.31 
was amended by revising paragraph (c)(1) and adding paragraph (h), 
effective Jan. 10, 2014. For the convenience of the user, the added and 
revised text is set forth as follows:

Sec. 1026.31  General rules.

                                * * * * *

    (c) Timing of disclosure. (1) Disclosures for high-cost mortgages. 
The creditor shall furnish the disclosures required by Sec. 1026.32 at 
least three business days prior to consummation or account opening of a 
high-cost mortgage as defined in Sec. 1026.32(a).
    (i) Change in terms. After complying with this paragraph (c)(1) and 
prior to consummation or account opening, 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 
required by paragraph (c)(1)(i) of this section by telephone if the 
consumer initiates the change and if, prior to or at consummation or 
account opening:
    (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 or account opening, as applicable.
    (iii) Consumer's waiver of waiting period before consummation or 
account opening. The consumer may, after receiving the disclosures 
required by this paragraph (c)(1), modify or waive the three-day waiting 
period between delivery of those disclosures and consummation or account 
opening 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 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).

                                * * * * *

    (h) Corrections and unintentional violations. A creditor or assignee 
in a high-cost mortgage, as defined in Sec. 1026.32(a), who, when 
acting in good faith, failed to comply with any requirement under 
section 129 of the Act will not be deemed to have violated such 
requirement if the creditor or assignee satisfies either of the 
following sets of conditions:
    (1)(i) Within 30 days of consummation or account opening and prior 
to the institution of any action, the consumer is notified of or 
discovers the violation;
    (ii) Appropriate restitution is made within a reasonable time; and

[[Page 84]]

    (iii) Within a reasonable time, whatever adjustments are necessary 
are made to the loan or credit plan to either, at the choice of the 
consumer:
    (A) Make the loan or credit plan satisfy the requirements of this 
chapter; or
    (B) Change the terms of the loan or credit plan in a manner 
beneficial to the consumer so that the loan or credit plan will no 
longer be a high-cost mortgage.
    (2)(i) Within 60 days of the creditor's discovery or receipt of 
notification of an unintentional violation or bona fide error and prior 
to the institution of any action, the consumer is notified of the 
compliance failure;
    (ii) Appropriate restitution is made within a reasonable time; and
    (iii) Within a reasonable time, whatever adjustments are necessary 
are made to the loan or credit plan to either, at the choice of the 
consumer:
    (A) Make the loan or credit plan satisfy the requirements of this 
chapter; or
    (B) Change the terms of the loan or credit plan in a manner 
beneficial to the consumer so that the loan or credit plan will no 
longer be a high-cost mortgage.
    2. At 78 FR 60440, Oct. 1, 2013, Sec. 1026.31 was amended by 
revising paragraphs (g), (h)(1)(iii)(A), and (h)(2)(iii)(A), effective 
Jan. 10, 2014. For the convenience of the user, the revised text is set 
forth as follows:

Sec. 1026.31  General rules.

                                * * * * *

    (g) Accuracy of annual percentage rate. For purposes of section 
1026.32, the annual percentage rate shall be considered accurate, and 
may be used in determining whether a transaction is covered by section 
1026.32, if it is accurate according to the requirements and within the 
tolerances under section 1026.22 for closed-end credit transactions or 
1026.6(a) for open-end credit plans. The finance charge tolerances for 
rescission under section 1026.23(g) or (h) shall not apply for this 
purpose.
    (h) * * *
    (1) * * *
    (iii) * * *
    (A) Make the loan or credit plan satisfy the requirements of 15 
U.S.C. 1631-1651; or

                                * * * * *

    (2) * * *
    (iii) * * *
    (A) Make the loan or credit plan satisfy the requirements of 15 
U.S.C. 1631-1651; or

                                * * * * *

Sec. 1026.32  Requirements for high-cost 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:
    (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

[[Page 85]]

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 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:

[[Page 86]]

    (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.

    Effective Date Notes: 1. At 78 FR 6583, Jan. 30, 2013, Sec. 1026.32 
was amended by revising the section heading, revising paragraph (b)(1), 
removing and reserving paragraph (b)(2), adding paragraphs (b)(3) 
through (6), effective Jan. 10, 2014. For the convenience of the user, 
the added and revised text is set forth as follows:

Sec. 1026.32  Requirements for high-cost mortgages.

                                * * * * *

    (b) Definitions. For purposes of this subpart, the following 
definitions apply:
    (1) In connection with a closed-end credit transaction, points and 
fees means the following fees or charges that are known at or before 
consummation:
    (i) All items included in the finance charge under Sec. 1026.4(a) 
and (b), except that the following items are excluded:
    (A) Interest or the time-price differential;
    (B) Any premium or other charge imposed in connection with any 
Federal or State agency program for any guaranty or insurance that 
protects the creditor against the consumer's default or other credit 
loss;
    (C) For any guaranty or insurance that protects the creditor against 
the consumer's default or other credit loss and that is not in 
connection with any Federal or State agency program:
    (1) If the premium or other charge is payable after consummation, 
the entire amount of such premium or other charge; or
    (2) If the premium or other charge is payable at or before 
consummation, the portion of any such premium or other charge that is 
not in excess of the amount payable under policies in effect at the time 
of origination under section 203(c)(2)(A) of the National Housing Act 
(12 U.S.C. 1709(c)(2)(A)), provided that the premium or charge is 
required to be refundable on a pro rata basis and the refund is 
automatically issued upon notification of the satisfaction of the 
underlying mortgage loan;
    (D) Any bona fide third-party charge not retained by the creditor, 
loan originator, or an affiliate of either, unless the charge is 
required to be included in points and fees under paragraph (b)(1)(i)(C), 
(iii), or (iv) of this section;
    (E) Up to two bona fide discount points paid by the consumer in 
connection with the transaction, if the interest rate without any 
discount does not exceed:
    (1) The average prime offer rate, as defined in Sec. 1026.35(a)(2), 
by more than one percentage point; or
    (2) For purposes of paragraph (a)(1)(ii) of this section, for 
transactions that are secured by personal property, the average rate for 
a loan insured under title I of the National Housing Act (12 U.S.C. 1702 
et seq.) by more than one percentage point; and
    (F) If no discount points have been excluded under paragraph 
(b)(1)(i)(E) of this section, then up to one bona fide discount point 
paid by the consumer in connection with the transaction, if the interest 
rate without any discount does not exceed:
    (1) The average prime offer rate, as defined in Sec. 1026.35(a)(2), 
by more than two percentage points; or
    (2) For purposes of paragraph (a)(1)(ii) of this section, for 
transactions that are secured by personal property, the average rate for 
a loan insured under title I of the National Housing Act (12 U.S.C. 1702 
et seq.) by more than two percentage points;
    (ii) All compensation paid directly or indirectly by a consumer or 
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that 
can be attributed to that transaction at the time the interest rate is 
set;
    (iii) All items listed in Sec. 1026.4(c)(7) (other than amounts 
held for future payment of taxes), unless:
    (A) The charge is reasonable;

[[Page 87]]

    (B) The creditor receives no direct or indirect compensation in 
connection with the charge; and
    (C) The charge is not paid to an affiliate of the creditor;
    (iv) Premiums or other charges payable at or before consummation for 
any credit life, credit disability, credit unemployment, or credit 
property insurance, or any other life, accident, health, or loss-of-
income insurance for which the creditor is a beneficiary, or any 
payments directly or indirectly for any debt cancellation or suspension 
agreement or contract;
    (v) The maximum prepayment penalty, as defined in paragraph 
(b)(6)(i) of this section, that may be charged or collected under the 
terms of the mortgage loan; and
    (vi) The total prepayment penalty, as defined in paragraph (b)(6)(i) 
of this section, incurred by the consumer if the consumer refinances the 
existing mortgage loan with the current holder of the existing loan, a 
servicer acting on behalf of the current holder, or an affiliate of 
either.
    (2) [Reserved]
    (3) Bona fide discount point--(i) Closed-end credit. The term bona 
fide discount point means an amount equal to 1 percent of the loan 
amount paid by the consumer that reduces the interest rate or time-price 
differential applicable to the transaction based on a calculation that 
is consistent with established industry practices for determining the 
amount of reduction in the interest rate or time-price differential 
appropriate for the amount of discount points paid by the consumer.
    (ii) [Reserved]
    (4) Total loan amount--(i) Closed-end credit. The total loan amount 
for a closed-end credit transaction 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), (iv), or (vi) that is both 
included as points and fees under Sec. 1026.32(b)(1) and financed by 
the creditor.
    (ii) [Reserved]
    (5) 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.).
    (6) Prepayment penalty--(i) Closed-end credit transactions. For a 
closed-end credit transaction, prepayment penalty means a charge imposed 
for paying all or part of the transaction's principal before the date on 
which the principal is due, other than a waived, bona fide third-party 
charge that the creditor imposes if the consumer prepays all of the 
transaction's principal sooner than 36 months after consummation, 
provided, however, that interest charged consistent with the monthly 
interest accrual amortization method is not a prepayment penalty for 
extensions of credit insured by the Federal Housing Administration that 
are consummated before January 21, 2015.
    (ii) [Reserved]

                                * * * * *

    2. At 78 FR 6962, Jan. 31, 2013, Sec. 1026.32 was amended by adding 
paragraphs (b)(2), (b)(3)(ii), (b)(4)(ii), and (b)(6)(ii); revising 
paragraph (a); revising paragraphs (c)(3) through (5); and revising 
paragraph (d) introductory text, revising paragraphs (d)(1) and (6), 
removing and reserving paragraph (d)(7), and revising paragraph (d)(8), 
effective Jan. 10, 2014. For the convenience of the user, the added and 
revised text is set forth as follows:

Sec. 1026.32  Requirements for high-cost mortgages.

    (a) Coverage. (1) The requirements of this section apply to a high-
cost mortgage, which is any consumer credit transaction that is secured 
by the consumer's principal dwelling, other than as provided in 
paragraph (a)(2) of this section, and in which:
    (i) The annual percentage rate applicable to the transaction, as 
determined in accordance with paragraph (a)(3) of this section, will 
exceed the average prime offer rate, as defined in Sec. 1026.35(a)(2), 
for a comparable transaction by more than:
    (A) 6.5 percentage points for a first-lien transaction, other than 
as described in paragraph (a)(1)(i)(B) of this section;
    (B) 8.5 percentage points for a first-lien transaction if the 
dwelling is personal property and the loan amount is less than $50,000; 
or
    (C) 8.5 percentage points for a subordinate-lien transaction; or
    (ii) The transaction's total points and fees, as defined in 
paragraphs (b)(1) and (2) of this section, will exceed:
    (A) 5 percent of the total loan amount for a transaction with a loan 
amount of $20,000 or more; the $20,000 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; or
    (B) The lesser of 8 percent of the total loan amount or $1,000 for a 
transaction with a loan amount of less than $20,000; the $1,000 and 
$20,000 figures 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; or
    (iii) Under the terms of the loan contract or open-end credit 
agreement, the creditor can charge a prepayment penalty, as defined in 
paragraph (b)(6) of this section, more than 36 months after consummation 
or account opening, or prepayment penalties that can exceed, in total, 
more than 2 percent of the amount prepaid.
    (2) Exemptions. This section does not apply to the following:

[[Page 88]]

    (i) A reverse mortgage transaction subject to Sec. 1026.33;
    (ii) A transaction to finance the initial construction of a 
dwelling;
    (iii) A transaction originated by a Housing Finance Agency, where 
the Housing Finance Agency is the creditor for the transaction;
    (iv) A transaction originated pursuant to the United States 
Department of Agriculture's Rural Development Section 502 Direct Loan 
Program.
    (3) Determination of annual percentage rate. For purposes of 
paragraph (a)(1)(i) of this section, a creditor shall determine the 
annual percentage rate for a closed- or open-end credit transaction 
based on the following:
    (i) For a transaction in which the annual percentage rate will not 
vary during the term of the loan or credit plan, the interest rate in 
effect as of the date the interest rate for the transaction is set;
    (ii) For a transaction in which the interest rate may vary during 
the term of the loan or credit plan in accordance with an index, the 
interest rate that results from adding the maximum margin permitted at 
any time during the term of the loan or credit plan to the value of the 
index rate in effect as of the date the interest rate for the 
transaction is set, or the introductory interest rate, whichever is 
greater; and
    (iii) For a transaction in which the interest rate may or will vary 
during the term of the loan or credit plan, other than a transaction 
described in paragraph (a)(3)(ii) of this section, the maximum interest 
rate that may be imposed during the term of the loan or credit plan.
    (b) * * *
    (2) In connection with an open-end credit plan, points and fees 
means the following fees or charges that are known at or before account 
opening:
    (i) All items included in the finance charge under Sec. 1026.4(a) 
and (b), except that the following items are excluded:
    (A) Interest or the time-price differential;
    (B) Any premium or other charge imposed in connection with any 
Federal or State agency program for any guaranty or insurance that 
protects the creditor against the consumer's default or other credit 
loss;
    (C) For any guaranty or insurance that protects the creditor against 
the consumer's default or other credit loss and that is not in 
connection with any Federal or State agency program:
    (1) If the premium or other charge is payable after account opening, 
the entire amount of such premium or other charge; or
    (2) If the premium or other charge is payable at or before account 
opening, the portion of any such premium or other charge that is not in 
excess of the amount payable under policies in effect at the time of 
account opening under section 203(c)(2)(A) of the National Housing Act 
(12 U.S.C. 1709(c)(2)(A)), provided that the premium or charge is 
required to be refundable on a pro rata basis and the refund is 
automatically issued upon notification of the satisfaction of the 
underlying mortgage transaction;
    (D) Any bona fide third-party charge not retained by the creditor, 
loan originator, or an affiliate of either, unless the charge is 
required to be included in points and fees under paragraphs 
(b)(2)(i)(C), (b)(2)(iii) or (b)(2)(iv) of this section;
    (E) Up to two bona fide discount points payable by the consumer in 
connection with the transaction, provided that the conditions specified 
in paragraph (b)(1)(i)(E) of this section are met; and
    (F) Up to one bona fide discount point payable by the consumer in 
connection with the transaction, provided that no discount points have 
been excluded under paragraph (b)(2)(i)(E) of this section and the 
conditions specified in paragraph (b)(1)(i)(F) of this section are met;
    (ii) All compensation paid directly or indirectly by a consumer or 
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that 
can be attributed to that transaction at the time the interest rate is 
set;
    (iii) All items listed in Sec. 1026.4(c)(7) (other than amounts 
held for future payment of taxes) unless:
    (A) The charge is reasonable;
    (B) The creditor receives no direct or indirect compensation in 
connection with the charge; and
    (C) The charge is not paid to an affiliate of the creditor;
    (iv) Premiums or other charges payable at or before account opening 
for any credit life, credit disability, credit unemployment, or credit 
property insurance, or any other life, accident, health, or loss-of-
income insurance for which the creditor is a beneficiary, or any 
payments directly or indirectly for any debt cancellation or suspension 
agreement or contract;
    (v) The maximum prepayment penalty, as defined in paragraph 
(b)(6)(ii) of this section, that may be charged or collected under the 
terms of the open-end credit plan;
    (vi) The total prepayment penalty, as defined in paragraph 
(b)(6)(ii) of this section, incurred by the consumer if the consumer 
refinances an existing closed-end credit transaction with an open-end 
credit plan, or terminates an existing open-end credit plan in 
connection with obtaining a new closed- or open-end credit transaction, 
with the current holder of the existing plan, a servicer acting on 
behalf of the current holder, or an affiliate of either;
    (vii) Any fees charged for participation in an open-end credit plan, 
payable at or before account opening, as described in Sec. 
1026.4(c)(4); and

[[Page 89]]

    (viii) Any transaction fee, including any minimum fee or per-
transaction fee, that will be charged for a draw on the credit line, 
where the creditor must assume that the consumer will make at least one 
draw during the term of the plan.
    (3) * * *
    (ii) Open-end credit. The term bona fide discount point means an 
amount equal to 1 percent of the credit limit for the plan when the 
account is opened, paid by the consumer, and that reduces the interest 
rate or time-price differential applicable to the transaction based on a 
calculation that is consistent with established industry practices for 
determining the amount of reduction in the interest rate or time-price 
differential appropriate for the amount of discount points paid by the 
consumer. See comment 32(b)(3)(i)-1 for additional guidance in 
determining whether a discount point is bona fide.
    (4) * * *
    (ii) Open-end credit. The total loan amount for an open-end credit 
plan is the credit limit for the plan when the account is opened.

                                * * * * *

    (6) * * *
    (ii) Open-end credit. For an open-end credit plan, prepayment 
penalty means a charge imposed by the creditor if the consumer 
terminates the open-end credit plan prior to the end of its term, other 
than a waived bona fide third-party charge that the creditor imposes if 
the consumer terminates the open-end credit plan sooner than 36 months 
after account opening.
    (c) * * *
    (3) Regular payment; minimum periodic payment example; balloon 
payment. (i) For a closed-end credit transaction, the amount of the 
regular monthly (or other periodic) payment and the amount of any 
balloon payment provided in the credit contract, if permitted under 
paragraph (d)(1) of this section. 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.
    (ii) For an open-end credit plan:
    (A) An example showing the first minimum periodic payment for the 
draw period, the first minimum periodic payment for any repayment 
period, and the balance outstanding at the beginning of any repayment 
period. The example must be based on the following assumptions:
    (1) The consumer borrows the full credit line, as disclosed in 
paragraph (c)(5) of this section, at account opening and does not obtain 
any additional extensions of credit;
    (2) The consumer makes only minimum periodic payments during the 
draw period and any repayment period; and
    (3) The annual percentage rate used to calculate the example 
payments remains the same during the draw period and any repayment 
period. The creditor must provide the minimum periodic payment example 
based on the annual percentage rate for the plan, as described in 
paragraph (c)(2) of this section, except that if an introductory annual 
percentage rate applies, the creditor must use the rate that will apply 
to the plan after the introductory rate expires.
    (B) If the credit contract provides for a balloon payment under the 
plan as permitted under paragraph (d)(1) of this section, a disclosure 
of that fact and an example showing the amount of the balloon payment 
based on the assumptions described in paragraph (c)(3)(ii)(A) of this 
section.
    (C) A statement that the example payments show the first minimum 
periodic payments at the current annual percentage rate if the consumer 
borrows the maximum credit available when the account is opened and does 
not obtain any additional extensions of credit, or a substantially 
similar statement.
    (D) A statement that the example payments are not the consumer's 
actual payments and that the actual minimum periodic payments will 
depend on the amount the consumer borrows, the interest rate applicable 
to that period, and whether the consumer pays more than the required 
minimum periodic payment, or a substantially similar statement.
    (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 included in the contract by Sec. 1026.30.
    (5) Amount borrowed; credit limit. (i) For a closed-end credit 
transaction, the total amount the consumer will borrow, as reflected by 
the face amount of the note. Where the amount borrowed includes financed 
charges that are not prohibited under Sec. 1026.34(a)(10), 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.
    (ii) For an open-end credit plan, the credit limit for the plan when 
the account is opened.
    (d) Limitations. A high-cost mortgage shall not include the 
following terms:
    (1)(i) Balloon payment. Except as provided by paragraphs (d)(1)(ii) 
and (iii) of this section, a payment schedule with a payment that is 
more than two times a regular periodic payment.
    (ii) Exceptions. The limitations in paragraph (d)(1)(i) of this 
section do not apply to:

[[Page 90]]

    (A) A mortgage transaction with a payment schedule that is adjusted 
to the seasonal or irregular income of the consumer;
    (B) A loan with maturity of 12 months or less, 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; or
    (C) A loan that meets the criteria set forth in Sec. Sec. 
1026.43(f)(1)(i) through (vi) and 1026.43(f)(2).
    (iii) Open-end credit plans. If the terms of an open-end credit plan 
provide for a repayment period during which no further draws may be 
taken, the limitations in paragraph (d)(1)(i) of this section do not 
apply to any adjustment in the regular periodic payment that results 
solely from the credit plan's transition from the draw period to the 
repayment period. If the terms of an open-end credit plan do not provide 
for any repayment period, the limitations in paragraph (d)(1)(i) of this 
section apply to all periods of the credit plan.

                                * * * * *

    (6) Prepayment penalties. A prepayment penalty, as defined in 
paragraph (b)(6) of this section.
    (7) [Reserved]
    (8) Acceleration of debt. A demand feature that permits the creditor 
to accelerate the indebtedness by terminating the high-cost mortgage 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 or open-end credit agreement;
    (ii) The consumer fails to meet the repayment terms of the agreement 
for any outstanding balance that results in a default in payment under 
the loan; 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.

                                * * * * *

    3. At 78 FR 35502, June 12, 2013, Sec. 1026.32 was amended by 
revising paragraphs (b)(1)(ii) and (b)(2)(ii), effective Jan. 10, 2014. 
For the convenience of the user, the revised text is set forth as 
follows:

Sec. 1026.32  Requirements for high-cost mortgages.

                                * * * * *

    (b) * * *
    (1) * * *
    (ii) All compensation paid directly or indirectly by a consumer or 
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that 
can be attributed to that transaction at the time the interest rate is 
set unless:
    (A) That compensation is paid by a consumer to a mortgage broker, as 
defined in Sec. 1026.36(a)(2), and already has been included in points 
and fees under paragraph (b)(1)(i) of this section;
    (B) That compensation is paid by a mortgage broker, as defined in 
Sec. 1026.36(a)(2), to a loan originator that is an employee of the 
mortgage broker; or
    (C) That compensation is paid by a creditor to a loan originator 
that is an employee of the creditor.

                                * * * * *

    (2) * * *
    (ii) All compensation paid directly or indirectly by a consumer or 
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that 
can be attributed to that transaction at the time the interest rate is 
set unless:
    (A) That compensation is paid by a consumer to a mortgage broker, as 
defined in Sec. 1026.36(a)(2), and already has been included in points 
and fees under paragraph (b)(2)(i) of this section;
    (B) That compensation is paid by a mortgage broker, as defined in 
Sec. 1026.36(a)(2), to a loan originator that is an employee of the 
mortgage broker; or
    (C) That compensation is paid by a creditor to a loan originator 
that is an employee of the creditor.

                                * * * * *

    4. At 78 FR 60440, Oct. 1, 2013, Sec. 1026.32 was amended by 
revising paragraphs (a)(2)(iii), (b)(1)(ii), (b)(1)(vi), and (b)(2)(ii), 
(b)(2)(vi), (b)(6)(ii), and (d)(1)(ii)(C), effective Jan. 10, 2014. For 
the convenience of the user, the revised text is set forth as follows:

Sec. 1026.32  Requirements for high-cost mortgages.

    (a) * * *
    (2) * * *
    (iii) A transaction originated by a Housing Finance Agency, where 
the Housing Finance Agency is the creditor for the transaction; or

                                * * * * *

    (b) * * *
    (1) * * *
    (ii) All compensation paid directly or indirectly by a consumer or 
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that 
can be attributed to that transaction at the time the interest rate is 
set unless:
    (A) That compensation is paid by a consumer to a mortgage broker, as 
defined in Sec. 1026.36(a)(2), and already has been included

[[Page 91]]

in points and fees under paragraph (b)(1)(i) of this section;
    (B) That compensation is paid by a mortgage broker, as defined in 
Sec. 1026.36(a)(2), to a loan originator that is an employee of the 
mortgage broker;
    (C) That compensation is paid by a creditor to a loan originator 
that is an employee of the creditor; or
    (D) That compensation is paid by a retailer of manufactured homes to 
its employee.

                                * * * * *

    (vi) The total prepayment penalty, as defined in paragraph (b)(6)(i) 
or (ii) of this section, as applicable, incurred by the consumer if the 
consumer refinances the existing mortgage loan, or terminates an 
existing open-end credit plan in connection with obtaining a new 
mortgage loan, with the current holder of the existing loan or plan, a 
servicer acting on behalf of the current holder, or an affiliate of 
either.
    (2) * * *
    (ii) All compensation paid directly or indirectly by a consumer or 
creditor to a loan originator, as defined in Sec. 1026.36(a)(1), that 
can be attributed to that transaction at the time the interest rate is 
set unless:
    (A) That compensation is paid by a consumer to a mortgage broker, as 
defined in Sec. 1026.36(a)(2), and already has been included in points 
and fees under paragraph (b)(2)(i) of this section;
    (B) That compensation is paid by a mortgage broker, as defined in 
Sec. 1026.36(a)(2), to a loan originator that is an employee of the 
mortgage broker;
    (C) That compensation is paid by a creditor to a loan originator 
that is an employee of the creditor; or
    (D) That compensation is paid by a retailer of manufactured homes to 
its employee.

                                * * * * *

    (vi) The total prepayment penalty, as defined in paragraph (b)(6)(i) 
or (ii) of this section, as applicable, incurred by the consumer if the 
consumer refinances an existing closed-end credit transaction with an 
open-end credit plan, or terminates an existing open-end credit plan in 
connection with obtaining a new open-end credit plan, with the current 
holder of the existing transaction or plan, a servicer acting on behalf 
of the current holder, or an affiliate of either;

                                * * * * *

    (6) * * *
    (ii) Open-end credit. For an open-end credit plan, prepayment 
penalty means a charge imposed by the creditor if the consumer 
terminates the open-end credit plan prior to the end of its term, other 
than a waived, bona fide third-party charge that the creditor imposes if 
the consumer terminates the open-end credit plan sooner than 36 months 
after account opening.

                                * * * * *

    (d) * * *
    (1) * * *
    (ii) * * *
    (C) A loan that meets the criteria set forth in Sec. Sec. 
1026.43(f)(1)(i) through (vi) and 1026.43(f)(2), or the conditions set 
forth in Sec. 1026.43(e)(6).

                                * * * * *

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,

[[Page 92]]

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 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

[[Page 93]]

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), and similar expenses.
    (ii) Verification of repayment ability. Under this paragraph (a)(4) 
a creditor 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.

[76 FR 79772, Dec. 22, 2011, as amended at 78 FR 30745, May 23, 2013]

    Effective Date Notes: 1. At 78 FR 6964, Jan. 31, 2013, Sec. 1026.34 
was revised, effective Jan. 10, 2014. For the convenience of the user, 
the revised text is set forth as follows:

Sec. 1026.34  Prohibited acts or practices in connection with high-cost 
          mortgages.

    (a) Prohibited acts or practices for high-cost mortgages. (1) Home 
improvement contracts. A creditor shall not pay a contractor under a 
home improvement contract from the proceeds of a high-cost mortgage, 
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. A creditor may not sell or otherwise assign 
a high-cost mortgage

[[Page 94]]

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 
consumer could assert against the creditor.''
    (3) Refinancings within one-year period. Within one year of having 
extended a high-cost mortgage, a creditor shall not refinance any high-
cost mortgage to the same consumer into another high-cost mortgage, 
unless the refinancing is in the consumer's interest. An assignee 
holding or servicing a high-cost mortgage shall not, for the remainder 
of the one-year period following the date of origination of the credit, 
refinance any high-cost mortgage to the same consumer into another high-
cost mortgage, unless the refinancing is in the consumer'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.
    (4) Repayment ability for high-cost mortgages. In connection with an 
open-end, high-cost mortgage, a creditor shall not open a plan for a 
consumer where credit is or will be extended without regard to the 
consumer's repayment ability as of account opening, including the 
consumer's current and reasonably expected income, employment, assets 
other than the collateral, and current obligations including any 
mortgage-related obligations that are required by another credit 
obligation undertaken prior to or at account opening, and are secured by 
the same dwelling that secures the high-cost mortgage transaction. The 
requirements set forth in Sec. 1026.34(a)(4)(i) through (iv) apply to 
open-end high-cost mortgages, but do not apply to closed-end high-cost 
mortgages. In connection with a closed-end, high-cost mortgage, a 
creditor must comply with the repayment ability requirements set forth 
in Sec. 1026.43. 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, are 
exempt from this repayment ability requirement.
    (i) Mortgage-related obligations. For purposes of this paragraph 
(a)(4), mortgage-related obligations are property taxes; premiums and 
similar charges identified in Sec. 1026.4(b)(5), (7), (8), and (10) 
that are required by the creditor; fees and special assessments imposed 
by a condominium, cooperative, or homeowners association; ground rent; 
and leasehold payments.
    (ii) Basis for determination of repayment ability. Under this 
paragraph (a)(4) a creditor must determine the consumer's repayment 
ability in connection with an open-end, high cost mortgage 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) A creditor must verify the consumer's current obligations, 
including any mortgage-related obligations that are required by another 
credit obligation undertaken prior to or at account opening, and are 
secured by the same dwelling that secures the high-cost mortgage 
transaction.
    (iii) Presumption of compliance. For an open-end, high cost 
mortgage, a creditor is presumed to have complied with this paragraph 
(a)(4) with respect to a transaction if the creditor:
    (A) Determines the consumer's repayment ability as provided in 
paragraph (a)(4)(ii);
    (B) Determines the consumer's repayment ability taking into account 
current obligations and mortgage-related obligations as defined in 
paragraph (a)(4)(i) of this section, and using the largest required 
minimum periodic payment based on the following assumptions:
    (1) The consumer borrows the full credit line at account opening 
with no additional extensions of credit;
    (2) The consumer makes only required minimum periodic payments 
during the draw period and any repayment period;
    (3) If the annual percentage rate may increase during the plan, the 
maximum annual percentage rate that is included in the contract, as 
required by Sec. 1026.30, applies to the plan at account opening and 
will apply during the draw period and any repayment period.
    (C) Assesses the consumer's repayment ability taking into account at 
least one of the following: The ratio of total current obligations, 
including any mortgage-related obligations that are required by another 
credit obligation undertaken prior to or at account opening, and are 
secured by the same dwelling that secures the high-cost mortgage 
transaction, to income, or the income the consumer will have after 
paying current obligations.
    (iv) Exclusions from presumption of compliance. Notwithstanding the 
previous paragraph, no presumption of compliance is available for an 
open-end, high-cost mortgage transaction for which the regular periodic 
payments when aggregated do not fully amortize the outstanding principal 
balance except as otherwise provided by Sec. 1026.32(d)(1)(ii).

[[Page 95]]

    (5) Pre-loan counseling. (i) Certification of counseling required. A 
creditor shall not extend a high-cost mortgage to a consumer unless the 
creditor receives written certification that the consumer has obtained 
counseling on the advisability of the mortgage from a counselor that is 
approved to provide such counseling by the Secretary of the U.S. 
Department of Housing and Urban Development or, if permitted by the 
Secretary, by a State housing finance authority.
    (ii) Timing of counseling. The counseling required under this 
paragraph (a)(5) must occur after the consumer receives either the good 
faith estimate required by section 5(c) of the Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2604(c)) or the disclosures required 
by Sec. 1026.40.
    (iii) Affiliation prohibited. The counseling required under this 
paragraph (a)(5) shall not be provided by a counselor who is employed by 
or affiliated with the creditor.
    (iv) Content of certification. The certification of counseling 
required under paragraph (a)(5)(i) must include:
    (A) The name(s) of the consumer(s) who obtained counseling;
    (B) The date(s) of counseling;
    (C) The name and address of the counselor;
    (D) A statement that the consumer(s) received counseling on the 
advisability of the high-cost mortgage based on the terms provided in 
either the good faith estimate required by section 5(c) of the Real 
Estate Settlement Procedures Act of 1974 (12 U.S.C. 2604(c)) or the 
disclosures required by Sec. 1026.40; and
    (E) A statement that the counselor has verified that the consumer(s) 
received the disclosures required by either Sec. 1026.32(c) or the Real 
Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.) with 
respect to the transaction.
    (v) Counseling fees. A creditor may pay the fees of a counselor or 
counseling organization for providing counseling required under this 
paragraph (a)(5) but may not condition the payment of such fees on the 
consummation or account-opening of a mortgage transaction. If the 
consumer withdraws the application that would result in the extension of 
a high-cost mortgage, a creditor may not condition the payment of such 
fees on the receipt of certification from the counselor required by 
paragraph (a)(5)(i) of this section. A creditor may, however, confirm 
that a counselor has provided counseling to the consumer pursuant to 
this paragraph (a)(5) prior to paying the fee of a counselor or 
counseling organization.
    (vi) Steering prohibited. A creditor that extends a high-cost 
mortgage shall not steer or otherwise direct a consumer to choose a 
particular counselor or counseling organization for the counseling 
required under this paragraph (a)(5).
    (6) Recommended default. A creditor or mortgage broker, as defined 
in section 1026.36(a)(2), may not recommend or encourage default on an 
existing loan or other debt prior to and in connection with the 
consummation or account opening of a high-cost mortgage that refinances 
all or any portion of such existing loan or debt.
    (7) Modification and deferral fees. A creditor, successor-in-
interest, assignee, or any agent of such parties may not charge a 
consumer any fee to modify, renew, extend or amend a high-cost mortgage, 
or to defer any payment due under the terms of such mortgage.
    (8) Late fees. (i) General. Any late payment charge imposed in 
connection with a high-cost mortgage must be specifically permitted by 
the terms of the loan contract or open-end credit agreement and may not 
exceed 4 percent of the amount of the payment past due. No such charge 
may be imposed more than once for a single late payment.
    (ii) Timing. A late payment charge may be imposed in connection with 
a high-cost mortgage only if the payment is not received by the end of 
the 15-day period beginning on the date the payment is due or, in the 
case of a high-cost mortgage on which interest on each installment is 
paid in advance, the end of the 30-day period beginning on the date the 
payment is due.
    (iii) Multiple late charges assessed on payment subsequently paid. A 
late payment charge may not be imposed in connection with a high-cost 
mortgage payment if any delinquency is attributable only to a late 
payment charge imposed on an earlier payment, and the payment otherwise 
is a full payment for the applicable period and is paid by the due date 
or within any applicable grace period.
    (iv) Failure to make required payment. The terms of a high-cost 
mortgage agreement may provide that any payment shall first be applied 
to any past due balance. If the consumer fails to make a timely payment 
by the due date and subsequently resumes making payments but has not 
paid all past due payments, the creditor may impose a separate late 
payment charge for any payment(s) outstanding (without deduction due to 
late fees or related fees) until the default is cured.
    (9) Payoff statements. (i) Fee prohibition. In general, a creditor 
or servicer (as defined in 12 CFR 1024.2(b)) may not charge a fee for 
providing to a consumer, or a person authorized by the consumer to 
obtain such information, a statement of the amount due to pay off the 
outstanding balance of a high-cost mortgage.
    (ii) Processing fee. A creditor or servicer may charge a processing 
fee to cover the cost of providing a payoff statement, as described in 
paragraph (a)(9)(i) of this section, by fax or courier, provided that 
such fee may not exceed an amount that is comparable to fees

[[Page 96]]

imposed for similar services provided in connection with consumer credit 
transactions that are secured by the consumer's principal dwelling and 
are not high-cost mortgages. A creditor or servicer shall make a payoff 
statement available to a consumer, or a person authorized by the 
consumer to obtain such information, by a method other than by fax or 
courier and without charge pursuant to paragraph (a)(9)(i) of this 
section.
    (iii) Processing fee disclosure. Prior to charging a processing fee 
for provision of a payoff statement by fax or courier, as permitted 
pursuant to paragraph (a)(9)(ii) of this section, a creditor or servicer 
shall disclose to a consumer or a person authorized by the consumer to 
obtain the consumer's payoff statement that payoff statements, as 
described in paragraph (a)(9)(i) of this section, are available by a 
method other than by fax or courier without charge.
    (iv) Fees permitted after multiple requests. A creditor or servicer 
that has provided a payoff statement, as described in paragraph 
(a)(9)(i) of this section, to a consumer, or a person authorized by the 
consumer to obtain such information, without charge, other than the 
processing fee permitted under paragraph (a)(9)(ii) of this section, 
four times during a calendar year, may thereafter charge a reasonable 
fee for providing such statements during the remainder of the calendar 
year. Fees for payoff statements provided to a consumer, or a person 
authorized by the consumer to obtain such information, in a subsequent 
calendar year are subject to the requirements of this section.
    (v) Timing of delivery of payoff statements. A payoff statement, as 
described in paragraph (a)(9)(i) of this section, for a high-cost 
mortgage shall be provided by a creditor or servicer within five 
business days after receiving a request for such statement by a consumer 
or a person authorized by the consumer to obtain such statement.
    (10) Financing of points and fees. A creditor that extends credit 
under a high-cost mortgage may not finance charges that are required to 
be included in the calculation of points and fees, as that term is 
defined in Sec. 1026.32(b)(1) and (2). Credit insurance premiums or 
debt cancellation or suspension fees that are required to be included in 
points and fees under Sec. 1026.32(b)(1)(iv) or (2)(iv) shall not be 
considered financed by the creditor when they are calculated and paid in 
full on a monthly basis.
    (b) Prohibited acts or practices for dwelling-secured loans; 
structuring loans to evade high-cost mortgage requirements. A creditor 
shall not structure any transaction that is otherwise a high-cost 
mortgage in a form, for the purpose, and with the intent to evade the 
requirements of a high-cost mortgage subject to this subpart, including 
by dividing any loan transaction into separate parts.
    2. At 78 FR 63005, Oct. 23, 2013, Sec. 1026.34 was amended by 
revising paragraphs (a)(5)(ii), (a)(5)(iv)(D), and (a)(5)(iv)(E), and 
adding paragraph (a)(5)(iv)(F), effective Jan. 10, 2014. For the 
convenience of the user, the added and revised text is set forth as 
follows:

Sec. 1026.34  Prohibited acts or practices in connection with high-cost 
          mortgages.

    (a) * * *
    (5) * * *
    (ii) Timing of counseling. The counseling required under this 
paragraph (a)(5) must occur after:
    (A) The consumer receives either the disclosure required by section 
5(c) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 
2604(c)) or the disclosures required by Sec. 1026.40; or
    (B) The consumer receives the disclosures required by Sec. 
1026.32(c), for transactions in which neither of the disclosures listed 
in paragraph (a)(5)(ii)(A) of this section are provided.

                                * * * * *

    (iv) * * *
    (D) A statement that the consumer(s) received counseling on the 
advisability of the high-cost mortgage based on the terms provided in 
either the disclosure required by section 5(c) of the Real Estate 
Settlement Procedures Act of 1974 (12 U.S.C. 2604(c)) or the disclosures 
required by Sec. 1026.40.
    (E) For transactions for which neither of the disclosures listed in 
paragraph (a)(5)(ii)(A) of this section are provided, a statement that 
the consumer(s) received counseling on the advisability of the high-cost 
mortgage based on the terms provided in the disclosures required by 
Sec. 1026.32(c); and
    (F) A statement that the counselor has verified that the consumer(s) 
received the disclosures required by either Sec. 1026.32(c) or the Real 
Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.) with 
respect to the transaction.

                                * * * * *

Sec. 1026.35  Requirements for higher-priced mortgage loans.

    (a) Definitions. For purposes of this section:
    (1) ``Higher-priced mortgage loan'' means a closed-end 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:
    (i) By 1.5 or more percentage points for loans secured by a first 
lien with a

[[Page 97]]

principal obligation at consummation that does not exceed 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;
    (ii) By 2.5 or more percentage points for loans secured by a first 
lien 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; or
    (iii) By 3.5 or more percentage points for loans secured by a 
subordinate lien.
    (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.
    (b) Escrow accounts--(1) Requirement to escrow for property taxes 
and insurance. Except as provided in paragraph (b)(2) of this section, a 
creditor may not extend a higher-priced mortgage loan secured by a first 
lien on a consumer's 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. For purposes of this paragraph (b), the term ``escrow account'' 
has the same meaning as under Regulation X (12 CFR 1024.17(b)), as 
amended.
    (2) Exemptions. Notwithstanding paragraph (b)(1) of this section:
    (i) An escrow account need not be established for:
    (A) A transaction secured by shares in a cooperative;
    (B) A transaction to finance the initial construction of a dwelling;
    (C) A temporary or ``bridge'' loan with a loan 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; or
    (D) A reverse mortgage transaction subject to Sec. 1026.33.
    (ii) Insurance premiums described in paragraph (b)(1) of this 
section need not be included in escrow accounts for loans secured by 
dwellings in condominiums, planned unit developments, or other common 
interest communities in which dwelling ownership requires participation 
in a governing association, where the governing association has an 
obligation to the dwelling owners to maintain a master policy insuring 
all dwellings.
    (iii) Except as provided in paragraph (b)(2)(v) of this section, an 
escrow account need not be established for a transaction if, at the time 
of consummation:
    (A) During any of the three preceding calendar years, the creditor 
extended more than 50 percent of its total covered transactions, as 
defined by Sec. 1026.43(b)(1), secured by a first lien, on properties 
that are located in counties that are either ``rural'' or 
``underserved,'' as set forth in paragraph (b)(2)(iv) of this section;
    (B) During the preceding calendar year, the creditor and its 
affiliates together originated 500 or fewer covered transactions, as 
defined by Sec. 1026.43(b)(1), secured by a first lien; and
    (C) As of the end of the preceding calendar year, the creditor had 
total assets of less than $2,000,000,000; this asset threshold shall 
adjust automatically each year, 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 12-month period ending in 
November, with rounding to the nearest million dollars (see comment 
35(b)(2)(iii)-1.iii for the current threshold); and
    (D) Neither the creditor nor its affiliate maintains an escrow 
account of the type described in paragraph (b)(1) of this section for 
any extension of consumer credit secured by real property

[[Page 98]]

or a dwelling that the creditor or its affiliate currently services, 
other than:
    (1) Escrow accounts established for first-lien higher-priced 
mortgage loans on or after April 1, 2010, and before January 1, 2014; or
    (2) Escrow accounts established after consummation as an 
accommodation to distressed consumers to assist such consumers in 
avoiding default or foreclosure.
    (iv) For purposes of paragraph (b)(2)(iii)(A) of this section:
    (A) A county is ``rural'' during a calendar year if it is neither in 
a metropolitan statistical area nor in a micropolitan statistical area 
that is adjacent to a metropolitan statistical area, as those terms are 
defined by the U.S. Office of Management and Budget and as they are 
applied under currently applicable Urban Influence Codes (UICs), 
established by the United States Department of Agriculture's Economic 
Research Service (USDA-ERS). A creditor may rely as a safe harbor on the 
list of counties published by the Bureau to determine whether a county 
qualifies as ``rural'' for a particular calendar year.
    (B) A county is ``underserved'' during a calendar year if, according 
to Home Mortgage Disclosure Act (HMDA) data for the preceding calendar 
year, no more than two creditors extended covered transactions, as 
defined in Sec. 1026.43(b)(1), secured by a first lien, five or more 
times in the county. A creditor may rely as a safe harbor on the list of 
counties published by the Bureau to determine whether a county qualifies 
as ``underserved'' for a particular calendar year.
    (v) Notwithstanding paragraph (b)(2)(iii) of this section, an escrow 
account must be established pursuant to paragraph (b)(1) of this section 
for any first-lien higher-priced mortgage loan that, at consummation, is 
subject to a commitment to be acquired by a person that does not satisfy 
the conditions in paragraph (b)(2)(iii) of this section, unless 
otherwise exempted by this paragraph (b)(2).
    (3) Cancellation--(i) General. Except as provided in paragraph 
(b)(3)(ii) of this section, a creditor or servicer may cancel an escrow 
account required in paragraph (b)(1) of this section only upon the 
earlier of:
    (A) Termination of the underlying debt obligation; or
    (B) Receipt no earlier than five years after consummation of a 
consumer's request to cancel the escrow account.
    (ii) Delayed cancellation. Notwithstanding paragraph (b)(3)(i) of 
this section, a creditor or servicer shall not cancel an escrow account 
pursuant to a consumer's request described in paragraph (b)(3)(i)(B) of 
this section unless the following conditions are satisfied:
    (A) The unpaid principal balance is less than 80 percent of the 
original value of the property securing the underlying debt obligation; 
and
    (B) The consumer currently is not delinquent or in default on the 
underlying debt obligation.
    (c) [Reserved]
    (d) 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.
    (e) Repayment ability, prepayment penalties. Except as provided in 
paragraph (e)(3) of this section, 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

[[Page 99]]

may not change during the four-year period following consummation.
    (3) Exclusions. This paragraph (e) does not apply to 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; or a reverse mortgage transaction subject 
to Sec. 1026.33.
    (4) Sunset of requirements on repayment ability and prepayment 
penalties. The requirements described in this paragraph (e) shall expire 
at 11:59 p.m. on January 9, 2014.

[78 FR 4753, Jan. 22, 2013, as amended at 78 FR 10442, Feb. 13, 2013; 78 
FR 30745, May 23, 2013; 78 FR 44718, July 24, 2013; 78 FR 60441, Oct. 1, 
2013]

    Effective Date Notes:  1. At 78 FR 30745, May 23, 2013, Sec. 
1026.35 was amended by adding paragraph (e), effective June 1, 2013 
through Jan. 9, 2014.
    2. At 78 FR 10442, Feb, 13, 2013, Sec. 1026.35 was amended by 
adding paragraph (c), effective Jan. 18, 2014. For the convenience of 
the user, the added text is set forth as follows:

Sec. 1026.35  Prohibited acts or practices in connection with higher-
          priced mortgage loans.

                                * * * * *

    (c) Appraisals for higher-priced mortgage loans--(1) Definitions. 
For purposes of this section:
    (i) Certified or licensed appraiser means a person who is certified 
or licensed by the State agency in the State in which the property that 
secures the transaction is located, and who performs the appraisal in 
conformity with the Uniform Standards of Professional Appraisal Practice 
and the requirements applicable to appraisers in title XI of the 
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as 
amended (12 U.S.C. 3331 et seq.), and any implementing regulations in 
effect at the time the appraiser signs the appraiser's certification.
    (ii) Manufactured home has the same meaning as in 24 CFR 3280.2.
    (iii) National Registry means the database of information about 
State certified and licensed appraisers maintained by the Appraisal 
Subcommittee of the Federal Financial Institutions Examination Council.
    (iv) State agency means a ``State appraiser certifying and licensing 
agency'' recognized in accordance with section 1118(b) of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 
3347(b)) and any implementing regulations.
    (2) Exemptions. The requirements in paragraphs (c)(3) through (6) of 
this section do not apply to the following types of transactions:
    (i) A qualified mortgage as defined in 12 CFR 1026.43(e).
    (ii) A transaction secured by a new manufactured home.
    (iii) A transaction secured by a mobile home, boat, or trailer.
    (iv) A transaction to finance the initial construction of a 
dwelling.
    (v) A loan with maturity of 12 months or less, if the purpose of the 
loan is a ``bridge'' loan connected with the acquisition of a dwelling 
intended to become the consumer's principal dwelling.
    (vi) A reverse-mortgage transaction subject to 12 CFR 1026.33(a).
    (3) Appraisals required--(i) In general. Except as provided in 
paragraph (c)(2) of this section, a creditor shall not extend a higher-
priced mortgage loan to a consumer without obtaining, prior to 
consummation, a written appraisal of the property to be mortgaged. The 
appraisal must be performed by a certified or licensed appraiser who 
conducts a physical visit of the interior of the property that will 
secure the transaction.
    (ii) Safe harbor. A creditor obtains a written appraisal that meets 
the requirements for an appraisal required under paragraph (c)(3)(i) of 
this section if the creditor:
    (A) Orders that the appraiser perform the appraisal in conformity 
with the Uniform Standards of Professional Appraisal Practice and title 
XI of the Financial Institutions Reform, Recovery, and Enforcement Act 
of 1989, as amended (12 U.S.C. 3331 et seq.), and any implementing 
regulations in effect at the time the appraiser signs the appraiser's 
certification;
    (B) Verifies through the National Registry that the appraiser who 
signed the appraiser's certification was a certified or licensed 
appraiser in the State in which the appraised property is located as of 
the date the appraiser signed the appraiser's certification;
    (C) Confirms that the elements set forth in appendix N to this part 
are addressed in the written appraisal; and
    (D) Has no actual knowledge contrary to the facts or certifications 
contained in the written appraisal.
    (4) Additional appraisal for certain higher-priced mortgage loans--
(i) In general. Except as provided in paragraphs (c)(2) and (c)(4)(vii) 
of this section, a creditor shall not extend a higher-priced mortgage 
loan to a consumer to finance the acquisition of the consumer's 
principal dwelling without obtaining, prior to consummation, two written 
appraisals, if:
    (A) The seller acquired the property 90 or fewer days prior to the 
date of the consumer's agreement to acquire the property

[[Page 100]]

and the price in the consumer's agreement to acquire the property 
exceeds the seller's acquisition price by more than 10 percent; or
    (B) The seller acquired the property 91 to 180 days prior to the 
date of the consumer's agreement to acquire the property and the price 
in the consumer's agreement to acquire the property exceeds the seller's 
acquisition price by more than 20 percent.
    (ii) Different certified or licensed appraisers. The two appraisals 
required under paragraph (c)(4)(i) of this section may not be performed 
by the same certified or licensed appraiser.
    (iii) Relationship to general appraisal requirements. If two 
appraisals must be obtained under paragraph (c)(4)(i) of this section, 
each appraisal shall meet the requirements of paragraph (c)(3)(i) of 
this section.
    (iv) Required analysis in the additional appraisal. One of the two 
required appraisals must include an analysis of:
    (A) The difference between the price at which the seller acquired 
the property and the price that the consumer is obligated to pay to 
acquire the property, as specified in the consumer's agreement to 
acquire the property from the seller;
    (B) Changes in market conditions between the date the seller 
acquired the property and the date of the consumer's agreement to 
acquire the property; and
    (C) Any improvements made to the property between the date the 
seller acquired the property and the date of the consumer's agreement to 
acquire the property.
    (v) No charge for the additional appraisal. If the creditor must 
obtain two appraisals under paragraph (c)(4)(i) of this section, the 
creditor may charge the consumer for only one of the appraisals.
    (vi) Creditor's determination of prior sale date and price--(A) 
Reasonable diligence. A creditor must obtain two written appraisals 
under paragraph (c)(4)(i) of this section unless the creditor can 
demonstrate by exercising reasonable diligence that the requirement to 
obtain two appraisals does not apply. A creditor acts with reasonable 
diligence if the creditor bases its determination on information 
contained in written source documents, such as the documents listed in 
Appendix O to this part.
    (B) Inability to determine prior sale date or price--modified 
requirements for additional appraisal. If, after exercising reasonable 
diligence, a creditor cannot determine whether the conditions in 
paragraphs (c)(4)(i)(A) and (c)(4)(i)(B) are present and therefore must 
obtain two written appraisals in accordance with paragraphs (c)(4)(i) 
through (v) of this section, one of the two appraisals shall include an 
analysis of the factors in paragraph (c)(4)(iv) of this section only to 
the extent that the information necessary for the appraiser to perform 
the analysis can be determined.
    (vii) Exemptions from the additional appraisal requirement. The 
additional appraisal required under paragraph (c)(4)(i) of this section 
shall not apply to extensions of credit that finance a consumer's 
acquisition of property:
    (A) From a local, State or Federal government agency;
    (B) From a person who acquired title to the property through 
foreclosure, deed-in-lieu of foreclosure, or other similar judicial or 
non-judicial procedure as a result of the person's exercise of rights as 
the holder of a defaulted mortgage loan;
    (C) From a non-profit entity as part of a local, State, or Federal 
government program under which the non-profit entity is permitted to 
acquire title to single-family properties for resale from a seller who 
acquired title to the property through the process of foreclosure, deed-
in-lieu of foreclosure, or other similar judicial or non-judicial 
procedure;
    (D) From a person who acquired title to the property by inheritance 
or pursuant to a court order of dissolution of marriage, civil union, or 
domestic partnership, or of partition of joint or marital assets to 
which the seller was a party;
    (E) From an employer or relocation agency in connection with the 
relocation of an employee;
    (F) From a servicemember, as defined in 50 U.S.C. App. 511(1), who 
received a deployment or permanent change of station order after the 
servicemember purchased the property;
    (G) Located in an area designated by the President as a federal 
disaster area, if and for as long as the Federal financial institutions 
regulatory agencies, as defined in 12 U.S.C. 3350(6), waive the 
requirements in title XI of the Financial Institutions Reform, Recovery, 
and Enforcement Act of 1989, as amended (12 U.S.C. 3331 et seq.), and 
any implementing regulations in that area; or
    (H) Located in a rural county, as defined in 12 CFR 
1026.35(b)(2)(iv)(A).
    (5) Required disclosure--(i) In general. Except as provided in 
paragraph (c)(2) of this section, a creditor shall disclose the 
following statement, in writing, to a consumer who applies for a higher-
priced mortgage loan: ``We may order an appraisal to determine the 
property's value and charge you for this appraisal. We will give you a 
copy of any appraisal, even if your loan does not close. You can pay for 
an additional appraisal for your own use at your own cost.'' Compliance 
with the disclosure requirement in Regulation B, 12 CFR 1002.14(a)(2), 
satisfies the requirements of this paragraph.
    (ii) Timing of disclosure. The disclosure required by paragraph 
(c)(5)(i) of this section shall be delivered or placed in the mail no 
later than the third business day after the

[[Page 101]]

creditor receives the consumer's application for a higher-priced 
mortgage loan subject to paragraph (c) of this section. In the case of a 
loan that is not a higher-priced mortgage loan subject to paragraph (c) 
of this section at the time of application, but becomes a higher-priced 
mortgage loan subject to paragraph (c) of this section after 
application, the disclosure shall be delivered or placed in the mail not 
later than the third business day after the creditor determines that the 
loan is a higher-priced mortgage loan subject to paragraph (c) of this 
section.
    (6) Copy of appraisals--(i) In general. Except as provided in 
paragraph (c)(2) of this section, a creditor shall provide to the 
consumer a copy of any written appraisal performed in connection with a 
higher-priced mortgage loan pursuant to paragraphs (c)(3) and (c)(4) of 
this section.
    (ii) Timing. A creditor shall provide to the consumer a copy of each 
written appraisal pursuant to paragraph (c)(6)(i) of this section:
    (A) No later than three business days prior to consummation of the 
loan; or
    (B) In the case of a loan that is not consummated, no later than 30 
days after the creditor determines that the loan will not be 
consummated.
    (iii) Form of copy. Any copy of a written appraisal required by 
paragraph (c)(6)(i) of this section 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.).
    (iv) No charge for copy of appraisal. A creditor shall not charge 
the consumer for a copy of a written appraisal required to be provided 
to the consumer pursuant to paragraph (c)(6)(i) of this section.
    (7) Relation to other rules. The rules in this paragraph (c) were 
adopted jointly by the Federal Reserve Board (Board), the Office of the 
Comptroller of the Currency (OCC), the Federal Deposit Insurance 
Corporation, the National Credit Union Administration, the Federal 
Housing Finance Agency, and the Bureau. These rules are substantively 
identical to the Board's and the OCC's higher-priced mortgage loan 
appraisal rules published separately in 12 CFR 226.43 (for the Board) 
and in 12 CFR part 34, subpart G and 12 CFR part 164, subpart B (for the 
OCC).

                                * * * * *

    3. At 78 FR 44718, July 24, 2013, Sec. 1026.35 was amended by 
revising paragraph (e) introductory text, redesignating paragraph (e)(3) 
as paragraph (e)(4), and adding new paragraph (e)(3), effective 
effective July 24, 2013 through Jan. 9, 2014.
    4. At 78 FR 60441, Oct. 1, 2013, Sec. 1026.35(b)(2)(i)(D) was 
revised, effective January 10, 2014. For the convenience of the user, 
the revised text is set forth as follows:

Sec. 1026.35  Requirements for higher-priced mortgage loans.

                                * * * * *

    (b) * * *
    (2) * * *
    (i) * * *
    (D) A reverse mortgage transaction subject to Sec. 1026.33.

                                * * * * *

    5. At 78 FR 78585, Dec. 26, 2013, Sec. 1026.35 was amended by 
revising the paragraph (c) subject heading and paragraphs (c)(1)(ii) 
through (iv); adding paragraphs (c)(1)(v) through (vii); revising 
paragraphs (c)(2) introductory text, (c)(2)(i) and (ii), and (v); and 
adding paragraphs (c)(2)(vii) and (viii), effective Jan. 18, 2014. For 
the convenience of the user, the added and revised text is set forth as 
follows:

Sec. 1026.35  Requirements for higher-priced mortgage loans.

                                * * * * *

    (c) Appraisals--(1) * * *
    (ii) Credit risk means the financial risk that a consumer will 
default on a loan.
    (iii) Manufactured home has the same meaning as in 24 CFR 3280.2.
    (iv) Manufacturer's invoice means a document issued by a 
manufacturer and provided with a manufactured home to a retail dealer 
that separately details the wholesale (base) prices at the factory for 
specific models or series of manufactured homes and itemized options 
(large appliances, built-in items and equipment), plus actual itemized 
charges for freight from the factory to the dealer's lot or the homesite 
(including any rental of wheels and axles) and for any sales taxes to be 
paid by the dealer. The invoice may recite such prices and charges on an 
itemized basis or by stating an aggregate price or charge, as 
appropriate, for each category.
    (v) National Registry means the database of information about State 
certified and licensed appraisers maintained by the Appraisal 
Subcommittee of the Federal Financial Institutions Examination Council.
    (vi) New manufactured home means a manufactured home that has not 
been previously occupied.
    (vii) State agency means a ``State appraiser certifying and 
licensing agency'' recognized in accordance with section 1118(b) of the 
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 
U.S.C. 3347(b)) and any implementing regulations.
    (2) Exemptions. Unless otherwise specified, the requirements in 
paragraph (c)(3) through

[[Page 102]]

(6) of this section do not apply to the following types of transactions:
    (i) A loan that satisfies the criteria of a qualified mortgage as 
defined pursuant to 15 U.S.C. 1639c;
    (ii) An extension of credit for which the amount of credit extended 
is equal to or less than the applicable threshold amount, which is 
adjusted every year to reflect increases in the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, as applicable, and published in 
the official staff commentary to this paragraph (c)(2)(ii);

                                * * * * *

    (v) A loan with a maturity of 12 months or less, if the purpose of 
the loan is a ``bridge'' loan connected with the acquisition of a 
dwelling intended to become the consumer's principal dwelling.

                                * * * * *

    (vii) An extension of credit that is a refinancing secured by a 
first lien, with refinancing defined as in Sec. 1026.20(a) (except that 
the creditor need not be the original creditor or a holder or servicer 
of the original obligation), provided that the refinancing meets the 
following criteria:
    (A) Either--
    (1) The credit risk of the refinancing is retained by the person 
that held the credit risk of the existing obligation and there is no 
commitment, at consummation, to transfer the credit risk to another 
person; or
    (2) The refinancing is insured or guaranteed by the same Federal 
government agency that insured or guaranteed the existing obligation;
    (B) The regular periodic payments under the refinance loan do not--
    (1) Cause the principal balance to increase;
    (2) Allow the consumer to defer repayment of principal; or
    (3) Result in a balloon payment, as defined in Sec. 
1026.18(s)(5)(i); and
    (C) The proceeds from the refinancing are used solely to satisfy the 
existing obligation and amounts attributed solely to the costs of the 
refinancing; and
    (viii) A transaction secured in whole or in part by a manufactured 
home.
    6. At 78 FR 78586, Dec. 26, 2013, Sec. 1026.35 was amended by 
revising (c)(2)(viii), effective July 18, 2015. For the convenience of 
the user, the revised text is set forth as follows:

Sec. 1026.35  Requirements for higher-priced mortgage loans.

                                * * * * *

    (c) * * *
    (2) * * *
    (viii) A transaction secured by:
    (A) A new manufactured home and land, but the exemption shall only 
apply to the requirement in paragraph (c)(3)(i) of this section that the 
appraiser conduct a physical visit of the interior of the new 
manufactured home; or
    (B) A manufactured home and not land, for which the creditor obtains 
one of the following and provides a copy to the consumer no later than 
three business days prior to consummation of the transaction--
    (1) For a new manufactured home, the manufacturer's invoice for the 
manufactured home securing the transaction, provided that the date of 
manufacture is no earlier than 18 months prior to the creditor's receipt 
of the consumer's application for credit;
    (2) A cost estimate of the value of the manufactured home securing 
the transaction obtained from an independent cost service provider; or
    (3) A valuation, as defined in Sec. 1026.42(b)(3), of the 
manufactured home performed by a person who has no direct or indirect 
interest, financial or otherwise, in the property or transaction for 
which the valuation is performed and has training in valuing 
manufactured homes.

                                * * * * *

Sec. 1026.36  Prohibited acts or practices and certain requirements for 
          credit secured by a dwelling.

    (a) Definitions. (1) Loan originator. (i) For purposes of this 
section, the term ``loan originator'' means a person who, in expectation 
of direct or indirect compensation or other monetary gain or for direct 
or indirect compensation or other monetary gain, performs any of the 
following activities: takes an application, offers, arranges, assists a 
consumer in obtaining or applying to obtain, negotiates, or otherwise 
obtains or makes an extension of consumer credit for another person; or 
through advertising or other means of communication represents to the 
public that such person can or will perform any of these activities. The 
term ``loan originator'' includes an employee, agent, or contractor of 
the creditor or loan originator organization if the employee, agent, or 
contractor meets this definition. The term ``loan originator'' includes 
a creditor that engages in loan origination activities if the creditor 
does not finance the transaction at consummation out of the creditor's 
own resources, including by drawing on a bona fide warehouse line of 
credit or

[[Page 103]]

out of deposits held by the creditor. All creditors that engage in any 
of the foregoing loan origination activities are loan originators for 
purposes of paragraphs (f) and (g) of this section. The term does not 
include:
    (A) A person who does not take a consumer credit application or 
offer or negotiate credit terms available from a creditor, but who 
performs purely administrative or clerical tasks on behalf of a person 
who does engage in such activities.
    (B) An employee of a manufactured home retailer who does not take a 
consumer credit application, offer or negotiate credit terms available 
from a creditor, or advise a consumer on credit terms (including rates, 
fees, and other costs) available from a creditor.
    (C) A person that performs only real estate brokerage activities and 
is licensed or registered in accordance with applicable State law, 
unless such person is compensated by a creditor or loan originator or by 
any agent of such creditor or loan originator for a particular consumer 
credit transaction subject to this section.
    (D) A seller financer that meets the criteria in paragraph (a)(4) or 
(a)(5) of this section, as applicable.
    (E) A servicer or servicer's employees, agents, and contractors who 
offer or negotiate terms for purposes of renegotiating, modifying, 
replacing, or subordinating principal of existing mortgages where 
consumers are behind in their payments, in default, or have a reasonable 
likelihood of defaulting or falling behind. This exception does not 
apply, however, to a servicer or servicer's employees, agents, and 
contractors who offer or negotiate a transaction that constitutes a 
refinancing under Sec. 1026.20(a) or obligates a different consumer on 
the existing debt.
    (ii) An ``individual loan originator'' is a natural person who meets 
the definition of ``loan originator'' in paragraph (a)(1)(i) of this 
section.
    (iii) A ``loan originator organization'' is any loan originator, as 
defined in paragraph (a)(1)(i) of this section, that is not an 
individual loan originator.
    (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.
    (3) Compensation. The term ``compensation'' includes salaries, 
commissions, and any financial or similar incentive.
    (4) Seller financers; three properties. A person (as defined in 
Sec. 1026.2(a)(22)) that meets all of the following criteria is not a 
loan originator under paragraph (a)(1) of this section:
    (i) The person provides seller financing for the sale of three or 
fewer properties in any 12-month period to purchasers of such 
properties, each of which is owned by the person and serves as security 
for the financing.
    (ii) The person has not constructed, or acted as a contractor for 
the construction of, a residence on the property in the ordinary course 
of business of the person.
    (iii) The person provides seller financing that meets the following 
requirements:
    (A) The financing is fully amortizing.
    (B) The financing is one that the person determines in good faith 
the consumer has a reasonable ability to repay.
    (C) The financing has a fixed rate or an adjustable rate that is 
adjustable after five or more years, subject to reasonable annual and 
lifetime limitations on interest rate increases. If the financing 
agreement has an adjustable rate, the rate is determined by the addition 
of a margin to an index rate and is subject to reasonable rate 
adjustment limitations. The index the adjustable rate is based on is a 
widely available index such as indices for U.S. Treasury securities or 
LIBOR.
    (5) Seller financers; one property. A natural person, estate, or 
trust that meets all of the following criteria is not a loan originator 
under paragraph (a)(1) of this section:
    (i) The natural person, estate, or trust provides seller financing 
for the sale of only one property in any 12-month period to purchasers 
of such property, which is owned by the natural person, estate, or trust 
and serves as security for the financing.
    (ii) The natural person, estate, or trust has not constructed, or 
acted as a contractor for the construction of, a

[[Page 104]]

residence on the property in the ordinary course of business of the 
person.
    (iii) The natural person, estate, or trust provides seller financing 
that meets the following requirements:
    (A) The financing has a repayment schedule that does not result in 
negative amortization.
    (B) The financing has a fixed rate or an adjustable rate that is 
adjustable after five or more years, subject to reasonable annual and 
lifetime limitations on interest rate increases. If the financing 
agreement has an adjustable rate, the rate is determined by the addition 
of a margin to an index rate and is subject to reasonable rate 
adjustment limitations. The index the adjustable rate is based on is a 
widely available index such as indices for U.S. Treasury securities or 
LIBOR.
    (b) Scope. Paragraph (c) of this section applies to closed-end 
consumer credit transactions secured by a consumer's principal dwelling. 
Paragraphs (d), (e), (f), (g), (h), and (i) of this section apply to 
closed-end consumer credit transactions secured by a dwelling. This 
section does not apply to a home equity line of credit subject to Sec. 
1026.40, except that paragraphs (h) and (i) of this section apply to 
such credit when secured by the consumer's principal dwelling. 
Paragraphs (d), (e), (f), (g), (h), and (i) of this section 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).
    (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 a 
term of a transaction. (i) Except as provided in paragraph (d)(1)(iii) 
or (iv) of this section, 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 a term of a transaction, the 
terms of multiple transactions by an individual loan originator, or the 
terms of multiple transactions by multiple individual loan originators. 
If a loan originator's compensation is based in whole or in part on a 
factor that is a proxy for a term of a transaction, the loan 
originator's compensation is based on a term of a transaction. A factor 
that is not itself a term of a transaction is a proxy for a term of the 
transaction if the factor consistently varies with that term over a 
significant number of transactions, and the loan originator has the 
ability, directly or indirectly, to add, drop, or change the factor in 
originating the transaction.
    (ii) For purposes of this paragraph (d)(1) only, a ``term of a 
transaction'' is any right or obligation of the parties to a credit 
transaction. The amount of credit extended is not a term of a 
transaction or a proxy for a term of a transaction, provided that 
compensation received by or paid to a loan originator, directly or 
indirectly, is based on a fixed percentage of the amount of

[[Page 105]]

credit extended; however, such compensation may be subject to a minimum 
or maximum dollar amount.
    (iii) An individual loan originator may receive, and a person may 
pay to an individual loan originator, compensation in the form of a 
contribution to a defined contribution plan that is a designated tax-
advantaged plan or a benefit under a defined benefit plan that is a 
designated tax-advantaged plan. In the case of a contribution to a 
defined contribution plan, the contribution shall not be directly or 
indirectly based on the terms of that individual loan originator's 
transactions. As used in this paragraph (d)(1)(iii), ``designated tax-
advantaged plan'' means any plan that meets the requirements of Internal 
Revenue Code section 401(a), 26 U.S.C. 401(a); employee annuity plan 
described in Internal Revenue Code section 403(a), 26 U.S.C. 403(a); 
simple retirement account, as defined in Internal Revenue Code section 
408(p), 26 U.S.C. 408(p); simplified employee pension described in 
Internal Revenue Code section 408(k), 26 U.S.C. 408(k); annuity contract 
described in Internal Revenue Code section 403(b), 26 U.S.C. 403(b); or 
eligible deferred compensation plan, as defined in Internal Revenue Code 
section 457(b), 26 U.S.C. 457(b).
    (iv) An individual loan originator may receive, and a person may pay 
to an individual loan originator, compensation under a non-deferred 
profits-based compensation plan (i.e., any arrangement for the payment 
of non-deferred compensation that is determined with reference to the 
profits of the person from mortgage-related business), provided that:
    (A) The compensation paid to an individual loan originator pursuant 
to this paragraph (d)(1)(iv) is not directly or indirectly based on the 
terms of that individual loan originator's transactions that are subject 
to this paragraph (d); and
    (B) At least one of the following conditions is satisfied:
    (1) The compensation paid to an individual loan originator pursuant 
to this paragraph (d)(1)(iv) does not, in the aggregate, exceed 10 
percent of the individual loan originator's total compensation 
corresponding to the time period for which the compensation under the 
non-deferred profits-based compensation plan is paid; or
    (2) The individual loan originator was a loan originator for ten or 
fewer transactions subject to this paragraph (d) consummated during the 
12-month period preceding the date of the compensation determination.
    (2) Payments by persons other than consumer. (i) Dual compensation. 
(A) Except as provided in paragraph (d)(2)(i)(C) of this section, if any 
loan originator receives compensation directly from a consumer in a 
consumer credit transaction secured by a dwelling:
    (1) No loan originator shall receive compensation, directly or 
indirectly, from any person other than the consumer in connection with 
the transaction; and
    (2) 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.
    (B) Compensation received directly from a consumer includes payments 
to a loan originator made pursuant to an agreement between the consumer 
and a person other than the creditor or its affiliates, under which such 
other person agrees to provide funds toward the consumer's costs of the 
transaction (including loan originator compensation).
    (C) If a loan originator organization receives compensation directly 
from a consumer in connection with a transaction, the loan originator 
organization may pay compensation to an individual loan originator, and 
the individual loan originator may receive compensation from the loan 
originator organization, subject to paragraph (d)(1) of this section.
    (ii) Exemption. A payment to a loan originator that is otherwise 
prohibited by section 129B(c)(2)(A) of the Truth in Lending Act is 
nevertheless permitted pursuant to section 129B(c)(2)(B) of the Act, 
regardless of whether the consumer makes any upfront payment of discount 
points, origination points, or fees, as described in section 
129B(c)(2)(B)(ii) of the Act, as long as the loan originator does not 
receive any compensation directly from the

[[Page 106]]

consumer as described in section 129B(c)(2)(B)(i) of the Act.
    (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
    (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 of discount points, 
origination points or origination fees (or, if two or more loans have 
the same total dollar amount of discount points, origination points or 
origination fees, the loan with the lowest interest rate that has the 
lowest total dollar amount of discount points, origination points or 
origination fees).
    (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) Loan originator qualification requirements. A loan originator 
for a consumer credit transaction secured by a dwelling must, when 
required by applicable State or Federal law, be registered and licensed 
in accordance with those laws, including the Secure and Fair Enforcement 
for Mortgage Licensing Act of 2008 (SAFE Act, 12 U.S.C. 5102 et seq.), 
its implementing regulations (12 CFR part 1007 or part 1008), and State 
SAFE Act implementing law. To comply with this paragraph (f), a loan 
originator organization that is not a government agency or State housing 
finance agency must:
    (1) Comply with all applicable State law requirements for legal 
existence and foreign qualification;
    (2) Ensure that each individual loan originator who works for the 
loan originator organization is licensed or registered to the extent the 
individual is required to be licensed or registered under the SAFE Act, 
its implementing regulations, and State SAFE Act implementing law before 
the individual acts as a loan originator in a consumer credit 
transaction secured by a dwelling; and

[[Page 107]]

    (3) For each of its individual loan originator employees who is not 
required to be licensed and is not licensed as a loan originator 
pursuant to Sec. 1008.103 of this chapter or State SAFE Act 
implementing law:
    (i) Obtain for any individual whom the loan originator organization 
hired on or after January 10, 2014 (or whom the loan originator 
organization hired before this date but for whom there were no 
applicable statutory or regulatory background standards in effect at the 
time of hire or before January 10, 2014, used to screen the individual) 
and for any individual regardless of when hired who, based on reliable 
information known to the loan originator organization, likely does not 
meet the standards under Sec. 1026.36(f)(3)(ii), before the individual 
acts as a loan originator in a consumer credit transaction secured by a 
dwelling:
    (A) A criminal background check through the Nationwide Mortgage 
Licensing System and Registry (NMLSR) or, in the case of an individual 
loan originator who is not a registered loan originator under the NMLSR, 
a criminal background check from a law enforcement agency or commercial 
service;
    (B) A credit report from a consumer reporting agency described in 
section 603(p) of the Fair Credit Reporting Act (15 U.S.C. 1681a(p)) 
secured, where applicable, in compliance with the requirements of 
section 604(b) of the Fair Credit Reporting Act, 15 U.S.C. 1681b(b); and
    (C) Information from the NMLSR about any administrative, civil, or 
criminal findings by any government jurisdiction or, in the case of an 
individual loan originator who is not a registered loan originator under 
the NMLSR, such information from the individual loan originator;
    (ii) Determine on the basis of the information obtained pursuant to 
paragraph (f)(3)(i) of this section and any other information reasonably 
available to the loan originator organization, for any individual whom 
the loan originator organization hired on or after January 10, 2014 (or 
whom the loan originator organization hired before this date but for 
whom there were no applicable statutory or regulatory background 
standards in effect at the time of hire or before January 10, 2014, used 
to screen the individual) and for any individual regardless of when 
hired who, based on reliable information known to the loan originator 
organization, likely does not meet the standards under this Sec. 
1026.36(f)(3)(ii), before the individual acts as a loan originator in a 
consumer credit transaction secured by a dwelling, that the individual 
loan originator:
    (A)(1) Has not been convicted of, or pleaded guilty or nolo 
contendere to, a felony in a domestic or military court during the 
preceding seven-year period or, in the case of a felony involving an act 
of fraud, dishonesty, a breach of trust, or money laundering, at any 
time;
    (2) For purposes of this paragraph (f)(3)(ii)(A):
    (i) A crime is a felony only if at the time of conviction it was 
classified as a felony under the law of the jurisdiction under which the 
individual was convicted;
    (ii) Expunged convictions and pardoned convictions do not render an 
individual unqualified; and
    (iii) A conviction or plea of guilty or nolo contendere does not 
render an individual unqualified under this Sec. 1026.36(f) if the loan 
originator organization has obtained consent to employ the individual 
from the Federal Deposit Insurance Corporation (or the Board of 
Governors of the Federal Reserve System, as applicable) pursuant to 
section 19 of the Federal Deposit Insurance Act (FDIA), 12 U.S.C. 1829, 
the National Credit Union Administration pursuant to section 205 of the 
Federal Credit Union Act (FCUA), 12 U.S.C. 1785(d), or the Farm Credit 
Administration pursuant to section 5.65(d) of the Farm Credit Act of 
1971 (FCA), 12 U.S.C. 227a-14(d), notwithstanding the bars posed with 
respect to that conviction or plea by the FDIA, FCUA, and FCA, as 
applicable; and
    (B) Has demonstrated financial responsibility, character, and 
general fitness such as to warrant a determination that the individual 
loan originator will operate honestly, fairly, and efficiently; and

[[Page 108]]

    (iii) Provide periodic training covering Federal and State law 
requirements that apply to the individual loan originator's loan 
origination activities.
    (g) Name and NMLSR ID on loan documents. (1) For a consumer credit 
transaction secured by a dwelling, a loan originator organization must 
include on the loan documents described in paragraph (g)(2) of this 
section, whenever each such loan document is provided to a consumer or 
presented to a consumer for signature, as applicable:
    (i) Its name and NMLSR ID, if the NMLSR has provided it an NMLSR ID; 
and
    (ii) The name of the individual loan originator (as the name appears 
in the NMLSR) with primary responsibility for the origination and, if 
the NMLSR has provided such person an NMLSR ID, that NMLSR ID.
    (2) The loan documents that must include the names and NMLSR IDs 
pursuant to paragraph (g)(1) of this section are:
    (i) The credit application;
    (ii) [Reserved]
    (iii) The note or loan contract; and
    (iv) The security instrument.
    (3) For purposes of this section, NMLSR ID means a number assigned 
by the Nationwide Mortgage Licensing System and Registry to facilitate 
electronic tracking and uniform identification of loan originators and 
public access to the employment history of, and the publicly adjudicated 
disciplinary and enforcement actions against, loan originators.
    (h) Prohibition on mandatory arbitration clauses and waivers of 
certain consumer rights. (1) Arbitration. A contract or other agreement 
for a consumer credit transaction secured by a dwelling (including a 
home equity line of credit secured by the consumer's principal dwelling) 
may not include terms that require arbitration or any other non-judicial 
procedure to resolve any controversy or settle any claims arising out of 
the transaction. This prohibition does not limit a consumer and creditor 
or any assignee from agreeing, after a dispute or claim under the 
transaction arises, to settle or use arbitration or other non-judicial 
procedure to resolve that dispute or claim.
    (2) No waivers of Federal statutory causes of action. A contract or 
other agreement relating to a consumer credit transaction secured by a 
dwelling (including a home equity line of credit secured by the 
consumer's principal dwelling) may not be applied or interpreted to bar 
a consumer from bringing a claim in court pursuant to any provision of 
law for damages or other relief in connection with any alleged violation 
of any Federal law. This prohibition does not limit a consumer and 
creditor or any assignee from agreeing, after a dispute or claim under 
the transaction arises, to settle or use arbitration or other non-
judicial procedure to resolve that dispute or claim.
    (i) [Reserved]
    (i) Prohibition on financing single-premium credit insurance. (1) A 
creditor may not finance, directly or indirectly, any premiums or fees 
for credit insurance in connection with a consumer credit transaction 
secured by a dwelling (including a home equity line of credit secured by 
the consumer's principal dwelling). This prohibition does not apply to 
credit insurance for which premiums or fees are calculated and paid in 
full on a monthly basis.
    (2) For purposes of this paragraph (i), ``credit insurance'':
    (i) Means credit life, credit disability, credit unemployment, or 
credit property insurance, or any other accident, loss-of-income, life, 
or health insurance, or any payments directly or indirectly for any debt 
cancellation or suspension agreement or contract, but
    (ii) Excludes credit unemployment insurance for which the 
unemployment insurance premiums are reasonable, the creditor receives no 
direct or indirect compensation in connection with the unemployment 
insurance premiums, and the unemployment insurance premiums are paid 
pursuant to a separate insurance contract and are not paid to an 
affiliate of the creditor.
    (j) Policies and procedures to ensure and monitor compliance. (1) A 
depository institution must establish and maintain written policies and 
procedures reasonably designed to ensure and

[[Page 109]]

monitor the compliance of the depository institution, its employees, its 
subsidiaries, and its subsidiaries' employees with the requirements of 
paragraphs (d), (e), (f), and (g) of this section. These written 
policies and procedures must be appropriate to the nature, size, 
complexity, and scope of the mortgage lending activities of the 
depository institution and its subsidiaries.
    (2) For purposes of this paragraph (j), ``depository institution'' 
has the meaning in section 1503(2) of the SAFE Act, 12 U.S.C. 5102(2). 
For purposes of this paragraph (j), ``subsidiary'' has the meaning in 
section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813.
    (j) Policies and procedures to ensure and monitor compliance. (1) A 
depository institution must establish and maintain written policies and 
procedures reasonably designed to ensure and monitor the compliance of 
the depository institution, its employees, its subsidiaries, and its 
subsidiaries' employees with the requirements of paragraphs (d), (e), 
(f), and (g) of this section. These written policies and procedures must 
be appropriate to the nature, size, complexity, and scope of the 
mortgage lending activities of the depository institution and its 
subsidiaries.
    (2) For purposes of this paragraph (j), ``depository institution'' 
has the meaning in section 1503(2) of the SAFE Act, 12 U.S.C. 5102(2). 
For purposes of this paragraph (j), ``subsidiary'' has the meaning in 
section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813.

[76 FR 79772, Dec. 22, 2011, as amended at 78 FR 11410, Feb. 15, 2013; 
78 FR 60441, Oct. 1, 2013]

    Effective Date Notes: At 78 FR 6966, Jan. 31, 2013, Sec. 1026.36 
was amended by adding and reserving paragraphs (g) and (j) and adding 
paragraph (k), effective Jan. 10, 2014. For the convenience of the user, 
the added text is set forth as follows:

Sec. 1026.36  Prohibited acts or practices in connection with credit 
          secured by a dwelling.

                                * * * * *

    (g) [Reserved]

                                * * * * *

    (j) [Reserved]
    (k) Negative amortization counseling. (1) Counseling required. A 
creditor shall not extend credit to a first-time borrower in connection 
with a closed-end transaction secured by a dwelling, other than a 
reverse mortgage transaction subject to Sec. 1026.33 or a transaction 
secured by a consumer's interest in a timeshare plan described in 11 
U.S.C. 101(53D), that may result in negative amortization, unless the 
creditor receives documentation that the consumer has obtained 
homeownership counseling from a counseling organization or counselor 
certified or approved by the U.S. Department of Housing and Urban 
Development to provide such counseling.
    (2) Definitions. For the purposes of this paragraph (k), the 
following definitions apply:
    (i) A ``first-time borrower'' means a consumer who has not 
previously received a closed-end credit transaction or open-end credit 
plan secured by a dwelling.
    (ii) ``Negative amortization'' means a payment schedule with regular 
periodic payments that cause the principal balance to increase.
    (3) Steering prohibited. A creditor that extends credit to a first-
time borrower in connection with a closed-end transaction secured by a 
dwelling, other than a reverse mortgage transaction subject to Sec. 
1026.33 or a transaction secured by a consumer's interest in a timeshare 
plan described in 11 U.S.C. 101(53D), that may result in negative 
amortization shall not steer or otherwise direct a consumer to choose a 
particular counselor or counseling organization for the counseling 
required under this paragraph (k).
    2. At 78 FR 11006, Feb. 14, 2013, Sec. 1026.36 was amended by 
revising paragraph (c), effective Jan. 10, 2014. For the convenience of 
the user, the revised text is set forth as follows:

Sec. 1026.36  Prohibited acts or practices in connection with credit 
          secured by a dwelling.

                                * * * * *

    (c) Servicing practices. For purposes of this paragraph (c), the 
terms ``servicer'' and ``servicing'' have the same meanings as provided 
in 12 CFR 1024.2(b).
    (1) Payment processing. In connection with a consumer credit 
transaction secured by a consumer's principal dwelling:
    (i) Periodic payments. No servicer shall fail to credit a periodic 
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)(1)(iii) of this section.

[[Page 110]]

A periodic payment, as used in this paragraph (c), is an amount 
sufficient to cover principal, interest, and escrow (if applicable) for 
a given billing cycle. A payment qualifies as a periodic payment even if 
it does not include amounts required to cover late fees, other fees, or 
non-escrow payments a servicer has advanced on a consumer's behalf.
    (ii) Partial payments. Any servicer that retains a partial payment, 
meaning any payment less than a periodic payment, in a suspense or 
unapplied funds account shall:
    (A) Disclose to the consumer the total amount of funds held in such 
suspense or unapplied funds account on the periodic statement as 
required by Sec. 1026.41(d)(3), if a periodic statement is required; 
and
    (B) On accumulation of sufficient funds to cover a periodic payment 
in any suspense or unapplied funds account, treat such funds as a 
periodic payment received in accordance with paragraph (c)(1)(i) of this 
section.
    (iii) Non-conforming payments. 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 five days after receipt.
    (2) No pyramiding of late fees. In connection with a consumer credit 
transaction secured by a consumer's principal dwelling, a servicer shall 
not impose any late fee or delinquency charge for a payment if:
    (i) Such a fee or charge is attributable solely to failure of the 
consumer to pay a late fee or delinquency charge on an earlier payment; 
and
    (ii) The payment is otherwise a periodic payment received on the due 
date, or within any applicable courtesy period.
    (3) Payoff statements. In connection with a consumer credit 
transaction secured by a consumer's dwelling, a creditor, assignee or 
servicer, as applicable, must provide an accurate statement of the total 
outstanding balance that would be required to pay the consumer's 
obligation in full as of a specified date. The statement shall be sent 
within a reasonable time, but in no case more than seven business days, 
after receiving a written request from the consumer or any person acting 
on behalf of the consumer. When a creditor, assignee, or servicer, as 
applicable, is not able to provide the statement within seven business 
days of such a request because a loan is in bankruptcy or foreclosure, 
because the loan is a reverse mortgage or shared appreciation mortgage, 
or because of natural disasters or other similar circumstances, the 
payoff statement must be provided within a reasonable time. A creditor 
or assignee that does not currently own the mortgage loan or the 
mortgage servicing rights is not subject to the requirement in this 
paragraph (c)(3) to provide a payoff statement.

                                * * * * *

    3. At 78 FR 11410, Feb. 15, 2013, Sec. 1026.36 was amended by 
revising the section heading, the heading of paragraph (a), and 
paragraph (a)(1); adding paragraphs (a)(3), (a)(4), (a)(5), and (b); 
revising paragraphs (d)(1), (d)(2), (e)(3)(i)(C), and (f); and adding 
paragraphs (g) through (j), effective Jan. 10, 2014, with the exception 
of paragraphs (h) and (i) which were to become effective June 1, 2013. A 
subsequent May 31, 2013 rule delayed the effective date of 1026.36(i) to 
January 10, 2014. An Oct. 1, 2013 rule advanced the effective date from 
Jan. 10, 2014 to Jan. 1, 2014 for the amendments to paragraphs 
1026.36(a), (b), (d), (e), (f) and (j) that published in the issue of 
February 15, 2013, at 78 FR 11280. For the convenience of the user, the 
added to be effective Jan. 10, 2014 is set forth as follows:

Sec. 1026.36  Prohibited acts or practices and certain requirements for 
          credit secured by a dwelling.

                                * * * * *

    (i) Prohibition on financing single-premium credit insurance. (1) A 
creditor may not finance, directly or indirectly, any premiums or fees 
for credit insurance in connection with a consumer credit transaction 
secured by a dwelling (including a home equity line of credit secured by 
the consumer's principal dwelling). This prohibition does not apply to 
credit insurance for which premiums or fees are calculated and paid in 
full on a monthly basis.
    (2) For purposes of this paragraph (i), ``credit insurance'':
    (i) Means credit life, credit disability, credit unemployment, or 
credit property insurance, or any other accident, loss-of-income, life, 
or health insurance, or any payments directly or indirectly for any debt 
cancellation or suspension agreement or contract, but
    (ii) Excludes credit unemployment insurance for which the 
unemployment insurance premiums are reasonable, the creditor receives no 
direct or indirect compensation in connection with the unemployment 
insurance premiums, and the unemployment insurance premiums are paid 
pursuant to a separate insurance contract and are not paid to an 
affiliate of the creditor.

                                * * * * *

[[Page 111]]

Sec. 1026.37  Content of disclosures for certain mortgage transactions 
          (Loan Estimate).

    For each transaction subject to Sec. 1026.19(e), the creditor shall 
disclose the information in this section:
    (a) General information--(1) Form title. The title of the form, 
``Loan Estimate,'' using that term.
    (2) Form purpose. The statement, ``Save this Loan Estimate to 
compare with your Closing Disclosure.''
    (3) Creditor. The name and address of the creditor making the 
disclosures.
    (4) Date issued. The date the disclosures are mailed or delivered to 
the consumer by the creditor, labeled ``Date Issued.''
    (5) Applicants. The name and mailing address of the consumer(s) 
applying for the credit, labeled ``Applicants.''
    (6) Property. The address including the zip code of the property 
that secures or will secure the transaction, or if the address is 
unavailable, the location of such property including a zip code, labeled 
``Property.''
    (7) Sale price. (i) For transactions that involve a seller, the 
contract sale price of the property identified in paragraph (a)(6) of 
this section, labeled ``Sale Price.''
    (ii) For transactions that do not involve a seller, the estimated 
value of the property identified in paragraph (a)(6), labeled ``Prop. 
Value.''
    (8) Loan term. The term to maturity of the credit transaction, 
stated in years or months, or both, as applicable, labeled ``Loan 
Term.''
    (9) Purpose. The consumer's intended use for the credit, labeled 
``Purpose,'' using one of the following terms:
    (i) Purchase. If the credit is to finance the acquisition of the 
property identified in paragraph (a)(6) of this section, the creditor 
shall disclose that the loan is for a ``Purchase.''
    (ii) Refinance. If the credit is not for the purpose described in 
paragraph (a)(9)(i) of this section, and if the credit will be used to 
refinance an existing obligation, as defined in Sec. 1026.20(a) (but 
without regard to whether the creditor is the original creditor or a 
holder or servicer of the original obligation), that is secured by the 
property identified in paragraph (a)(6) of this section, the creditor 
shall disclose that the loan is for a ``Refinance.''
    (iii) Construction. If the credit is not for one of the purposes 
described in paragraphs (a)(9)(i) or (ii) of this section and the credit 
will be used to finance the initial construction of a dwelling on the 
property identified in paragraph (a)(6) of this section, the creditor 
shall disclose that the loan is for ``Construction.''
    (iv) Home equity loan. If the credit is not for one of the purposes 
described in paragraphs (a)(9)(i) through (iii) of this section, the 
creditor shall disclose that the loan is a ``Home Equity Loan.''
    (10) Product. A description of the loan product, labeled 
``Product.''
    (i) The description of the loan product shall include one of the 
following terms:
    (A) Adjustable rate. If the interest rate may increase after 
consummation, but the rates that will apply or the periods for which 
they will apply are not known at consummation, the creditor shall 
disclose the loan product as an ``Adjustable Rate.''
    (B) Step rate. If 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, the creditor shall disclose the loan product 
as a ``Step Rate.''
    (C) Fixed rate. If the loan product is not an Adjustable Rate or a 
Step Rate, as described in paragraphs (a)(10)(i)(A) and (B) of this 
section, respectively, the creditor shall disclose the loan product as a 
``Fixed Rate.''
    (ii) The description of the loan product shall include the features 
that may change the periodic payment using the following terms, subject 
to paragraph (a)(10)(iii) of this section, as applicable:
    (A) Negative amortization. If the principal balance may increase due 
to the addition of accrued interest to the principal balance, the 
creditor shall disclose that the loan product has a ``Negative 
Amortization'' feature.
    (B) Interest only. If one or more regular periodic payments may be 
applied only to interest accrued and not to the loan principal, the 
creditor shall disclose that the loan product has an ``Interest Only'' 
feature.

[[Page 112]]

    (C) Step payment. If scheduled variations in regular periodic 
payment amounts occur that are not caused by changes to the interest 
rate during the loan term, the creditor shall disclose that the loan 
product has a ``Step Payment'' feature.
    (D) Balloon payment. If the terms of the legal obligation include a 
``balloon payment,'' as that term is defined in paragraph (b)(5) of this 
section, the creditor shall disclose that the loan has a ``Balloon 
Payment'' feature.
    (E) Seasonal payment. If the terms of the legal obligation expressly 
provide that regular periodic payments are not scheduled between 
specified unit-periods on a regular basis, the creditor shall disclose 
that the loan product has a ``Seasonal Payment'' feature.
    (iii) The disclosure of a loan feature under paragraph (a)(10)(ii) 
of this section shall precede the disclosure of the loan product under 
paragraph (a)(10)(i) of this section. If a transaction has more than one 
of the loan features described in paragraph (a)(10)(ii) of this section, 
the creditor shall disclose only the first applicable feature in the 
order the features are listed in paragraph (a)(10)(ii) of this section.
    (iv) The disclosures required by paragraphs (a)(10)(i)(A) and (B), 
and (a)(10)(ii)(A) through (D) of this section must each be preceded by 
the duration of any introductory rate or payment period, and the first 
adjustment period, as applicable.
    (11) Loan type. The type of loan, labeled ``Loan Type,'' offered to 
the consumer using one of the following terms, as applicable:
    (i) Conventional. If the loan is not guaranteed or insured by a 
Federal or State government agency, the creditor shall disclose that the 
loan is a ``Conventional.''
    (ii) FHA. If the loan is insured by the Federal Housing 
Administration, the creditor shall disclose that the loan is an ``FHA.''
    (iii) VA. If the loan is guaranteed by the U.S. Department of 
Veterans Affairs, the creditor shall disclose that the loan is a ``VA.''
    (iv) Other. For federally-insured or guaranteed loans other than 
those described in paragraphs (a)(11)(ii) and (iii) of this section, and 
for loans insured or guaranteed by a State agency, the creditor shall 
disclose the loan type as ``Other,'' and provide a brief description of 
the loan type.
    (12) Loan identification number (Loan ID #). A number that may be 
used by the creditor, consumer, and other parties to identify the 
transaction, labeled ``Loan ID .''
    (13) Rate lock. A statement of whether the interest rate disclosed 
pursuant to paragraph (b)(2) of this section is locked for a specific 
period of time, labeled ``Rate Lock.''
    (i) For transactions in which the interest rate is locked for a 
specific period of time, the creditor must provide the date and time 
(including the applicable time zone) when that period ends.
    (ii) The ``Rate Lock'' statement required by this paragraph (a)(13) 
shall be accompanied by a statement that the interest rate, any points, 
and any lender credits may change unless the interest rate has been 
locked, and the date and time (including the applicable time zone) at 
which estimated closing costs expire.
    (b) Loan terms. A separate table under the heading ``Loan Terms'' 
that contains the following information and satisfies the following 
requirements:
    (1) Loan amount. The amount of credit to be extended under the terms 
of the legal obligation, labeled ``Loan Amount.''
    (2) Interest rate. The interest rate that will be applicable to the 
transaction at consummation, labeled ``Interest Rate.'' For an 
adjustable rate transaction, if the interest rate at consummation is not 
known, the rate disclosed shall be the fully-indexed rate, which, for 
purposes of this paragraph, means the interest rate calculated using the 
index value and margin at the time of consummation.
    (3) Principal and interest payment. The initial periodic payment 
amount that will be due under the terms of the legal obligation, labeled 
``Principal & Interest,'' immediately preceded by the applicable unit-
period, and a statement referring to the payment amount that includes 
any mortgage insurance and escrow payments that is required to be 
disclosed pursuant to paragraph (c) of this section. If the interest 
rate at consummation is not known, the amount

[[Page 113]]

disclosed shall be calculated using the fully-indexed rate disclosed 
under paragraph (b)(2) of this section.
    (4) Prepayment penalty. A statement of whether the transaction 
includes a prepayment penalty, labeled ``Prepayment Penalty.'' For 
purposes of this paragraph (b)(4), ``prepayment penalty'' means a charge 
imposed for paying all or part of a transaction's principal before the 
date on which the principal is due, other than a waived, bona fide 
third-party charge that the creditor imposes if the consumer prepays all 
of the transaction's principal sooner than 36 months after consummation.
    (5) Balloon payment. A statement of whether the transaction includes 
a balloon payment, labeled ``Balloon Payment.'' For purposes of this 
paragraph (b)(5), ``balloon payment'' means a payment that is more than 
two times a regular periodic payment. ``Balloon payment'' includes the 
payment or payments under a transaction that requires only one or two 
payments during the loan term.
    (6) Adjustments after consummation. For each amount required to be 
disclosed by paragraphs (b)(1) through (3) of this section, a statement 
of whether the amount may increase after consummation as an affirmative 
or negative answer to the question, and under such question disclosed as 
a subheading, ``Can this amount increase after closing?'' and, in the 
case of an affirmative answer, the following additional information, as 
applicable:
    (i) Adjustment in loan amount. The maximum principal balance for the 
transaction and the due date of the last payment that may cause the 
principal balance to increase. The disclosure further shall indicate 
whether the maximum principal balance is potential or is scheduled to 
occur under the terms of the legal obligation.
    (ii) Adjustment in interest rate. The frequency of interest rate 
adjustments, the date when the interest rate may first adjust, the 
maximum interest rate, and the first date when the interest rate can 
reach the maximum interest rate, followed by a reference to the 
disclosure required by paragraph (j) of this section. If the loan term, 
as defined under paragraph (a)(8) of this section, may increase based on 
an interest rate adjustment, the disclosure required by this paragraph 
(b)(6)(ii) shall also state that fact and the maximum possible loan term 
determined in accordance with paragraph (a)(8) of this section.
    (iii) Increase in periodic payment. The scheduled frequency of 
adjustments to the periodic principal and interest payment, the due date 
of the first adjusted principal and interest payment, the maximum 
possible periodic principal and interest payment, and the date when the 
periodic principal and interest payment may first equal the maximum 
principal and interest payment. If any adjustments to the principal and 
interest payment are not the result of a change to the interest rate, a 
reference to the disclosure required by paragraph (i) of this section. 
If there is a period during which only interest is required to be paid, 
the disclosure required by this paragraph (b)(6)(iii) shall also state 
that fact and the due date of the last periodic payment of such period.
    (7) Details about prepayment penalty and balloon payment. The 
information required to be disclosed by paragraphs (b)(4) and (5) of 
this section shall be disclosed as an affirmative or negative answer to 
the question, and under such question disclosed as a subheading, ``Does 
the loan have these features?'' If an affirmative answer for a 
prepayment penalty or balloon payment is required to be disclosed, the 
following information shall be included, as applicable:
    (i) The maximum amount of the prepayment penalty that may be imposed 
and the date when the period during which the penalty may be imposed 
terminates; and
    (ii) The maximum amount of the balloon payment and the due date of 
such payment.
    (8) Timing. (i) The dates required to be disclosed by paragraph 
(b)(6)(ii) of this section shall be disclosed as the year in which the 
event occurs, counting from the date that interest for the first 
scheduled periodic payment begins to accrue after consummation.
    (ii) The dates required to be disclosed by paragraphs (b)(6)(i), 
(b)(6)(iii) and (b)(7)(ii) of this section shall be disclosed as the 
year in which the event

[[Page 114]]

occurs, counting from the due date of the initial periodic payment.
    (iii) The date required to be disclosed by paragraph (b)(7)(i) of 
this section shall be disclosed as the year in which the event occurs, 
counting from the date of consummation.
    (c) Projected payments. In a separate table under the heading 
``Projected Payments,'' an itemization of each separate periodic payment 
or range of payments, together with an estimate of taxes, insurance, and 
assessments and the payments to be made with escrow account funds.
    (1) Periodic payment or range of payments. (i) The initial periodic 
payment or range of payments is a separate periodic payment or range of 
payments and, except as otherwise provided in paragraph (c)(1)(ii) and 
(iii) of this section, the following events require the disclosure of 
additional separate periodic payments or ranges of payments:
    (A) The periodic principal and interest payment or range of such 
payments may change;
    (B) A scheduled balloon payment, as defined in paragraph (b)(5) of 
this section;
    (C) The creditor must automatically terminate mortgage insurance or 
any functional equivalent under applicable law; and
    (D) The anniversary of the due date of the initial periodic payment 
or range of payments that immediately follows the occurrence of multiple 
events described in paragraph (c)(1)(i)(A) of this section during a 
single year.
    (ii) The table required by this paragraph (c) shall not disclose 
more than four separate periodic payments or ranges of payments. For all 
events requiring disclosure of additional separate periodic payments or 
ranges of payments described in paragraph (c)(1)(i)(A) through (D) of 
this section occurring after the third separate periodic payment or 
range of payments disclosed, the separate periodic payments or ranges of 
payments shall be disclosed as a single range of payments, subject to 
the following exceptions:
    (A) A balloon payment that is scheduled as a final payment under the 
terms of the legal obligation shall always be disclosed as a separate 
periodic payment or range of payments, in which case all events 
requiring disclosure of additional separate periodic payments or ranges 
of payments described in paragraph (c)(1)(i)(A) through (D) of this 
section occurring after the second separate periodic payment or range of 
payments disclosed, other than the balloon payment that is scheduled as 
a final payment, shall be disclosed as a single range of payments.
    (B) The automatic termination of mortgage insurance or any 
functional equivalent under applicable law shall require disclosure of 
an additional separate periodic payment or range of payments only if the 
total number of separate periodic payments or ranges of payments 
otherwise disclosed pursuant to this paragraph (c)(1) does not exceed 
three.
    (iii) When a range of payments is required to be disclosed under 
this paragraph (c)(1), the creditor must disclose the minimum and 
maximum amount for both the principal and interest payment under 
paragraph (c)(2)(i) of this section and the total periodic payment under 
paragraph (c)(2)(iv) of this section. A range of payments is required to 
be disclosed under this paragraph (c)(1) when:
    (A) Multiple events described in paragraph (c)(1)(i) of this section 
are combined in a single range of payments pursuant to paragraph 
(c)(1)(ii) of this section;
    (B) Multiple events described in paragraph (c)(1)(i)(A) of this 
section occur during a single year or an event described in paragraph 
(c)(1)(i)(A) of this section occurs during the same year as the initial 
periodic payment or range of payments, in which case the creditor 
discloses the range of payments that would apply during the year in 
which the events occur; or
    (C) The periodic principal and interest payment may adjust based on 
index rates at the time an interest rate adjustment may occur.
    (2) Itemization. Each separate periodic payment or range of payments 
disclosed on the table required by this paragraph (c) shall be itemized 
as follows:

[[Page 115]]

    (i) The amount payable for principal and interest, labeled 
``Principal & Interest,'' including the term ``only interest'' if the 
payment or range of payments includes any interest only payment:
    (A) In the case of a loan that has an adjustable interest rate, the 
maximum principal and interest payment amounts are determined by 
assuming that the interest rate in effect throughout the loan term is 
the maximum possible interest rate, and the minimum amounts are 
determined by assuming that the interest rate in effect throughout the 
loan term is the minimum possible interest rate;
    (B) In the case of a loan that has an adjustable interest rate and 
also contains a negative amortization feature, the maximum principal and 
interest payment amounts after the end of the period of the loan's term 
during which the loan's principal balance may increase due to the 
addition of accrued interest are determined by assuming the maximum 
principal amount permitted under the terms of the legal obligation at 
the end of such period, and the minimum amounts are determined pursuant 
to paragraph (c)(2)(i)(A) of this section;
    (ii) The maximum amount payable for mortgage insurance premiums 
corresponding to the principal and interest payment disclosed pursuant 
to paragraph (c)(2)(i) of this section, labeled ``Mortgage Insurance'';
    (iii) The amount payable into an escrow account to pay some or all 
of the charges described in paragraph (c)(4)(ii), as applicable, labeled 
``Escrow,'' together with a statement that the amount disclosed can 
increase over time; and
    (iv) The total periodic payment, calculated as the sum of the 
amounts disclosed pursuant to paragraphs (c)(2)(i) through (iii) of this 
section, labeled ``Total Monthly Payment.''
    (3) Subheadings. (i) The labels required pursuant to paragraph 
(c)(2) of this section must be listed under the subheading ``Payment 
Calculation.''
    (ii) Except as provided in paragraph (c)(3)(iii) of this section, 
each separate periodic payment or range of payments to be disclosed 
under this paragraph (c) must be disclosed under a subheading that 
states the years of the loan during which that payment or range of 
payments will apply. The subheadings must be stated in a sequence of 
whole years from the due date of the initial periodic payment.
    (iii) A balloon payment that is scheduled as a final payment under 
the terms of the legal obligation must be disclosed under the subheading 
``Final Payment.''
    (4) Taxes, insurance, and assessments. Under the information 
required by paragraphs (c)(1) through (3) of this section:
    (i) The label ``Taxes, Insurance & Assessments'';
    (ii) The sum of the charges identified in Sec. 1026.43(b)(8), other 
than amounts identified in Sec. 1026.4(b)(5), expressed as a monthly 
amount, even if no escrow account for the payment of some or any of such 
charges will be established;
    (iii) A statement that the amount disclosed pursuant to paragraph 
(c)(4)(ii) of this section can increase over time;
    (iv) A statement of whether the amount disclosed pursuant to 
paragraph (c)(4)(ii) of this section includes payments for property 
taxes, amounts identified in Sec. 1026.4(b)(8), and other amounts 
described in paragraph (c)(4)(ii) of this section, along with a 
description of any such other amounts, and an indication of whether such 
amounts will be paid by the creditor using escrow account funds;
    (v) A statement that the consumer must pay separately any amounts 
described in paragraph (c)(4)(ii) of this section that are not paid by 
the creditor using escrow account funds; and
    (vi) A reference to the information disclosed pursuant to paragraph 
(g)(3) of this section.
    (5) Calculation of taxes and insurance. For purposes of paragraphs 
(c)(2)(iii) and (c)(4)(ii) of this section, estimated property taxes and 
homeowner's insurance shall reflect:
    (i) The taxable assessed value of the real property securing the 
transaction after consummation, including the value of any improvements 
on the property or to be constructed on the property, if known, whether 
or not such construction will be financed from

[[Page 116]]

the proceeds of the transaction, for property taxes; and
    (ii) The replacement costs of the property during the initial year 
after the transaction, for amounts identified in Sec. 1026.4(b)(8).
    (d) Costs at closing. (1) Costs at closing table. In a separate 
table, under the heading ``Costs at Closing'':
    (i) Labeled ``Closing Costs,'' the dollar amount disclosed pursuant 
to paragraph (g)(6) of this section, together with:
    (A) A statement that the amount disclosed pursuant to paragraph 
(d)(1)(i) of this section includes the amounts disclosed pursuant to 
paragraphs (f)(4), (g)(5), and (g)(6)(ii);
    (B) The dollar amount disclosed pursuant to paragraph (f)(4) of this 
section, labeled ``Loan Costs'';
    (C) The dollar amount disclosed pursuant to paragraph (g)(5) of this 
section, labeled ``Other Costs'':
    (D) The dollar amount disclosed pursuant to paragraph (g)(6)(ii) of 
this section, labeled ``Lender Credits''; and
    (E) A statement referring the consumer to the tables disclosed 
pursuant to paragraphs (f) and (g) of this section for details.
    (ii) Labeled ``Cash to Close,'' the dollar amount calculated in 
accordance with paragraph (h)(1)(viii) of this section, together with:
    (A) A statement that the amount includes the amount disclosed 
pursuant to paragraph (d)(1)(i) of this section, and
    (B) A statement referring the consumer to the location of the table 
required pursuant to paragraph (h) of this section for details.
    (2) Optional alternative table for transactions without a seller. 
For transactions that do not involve a seller, instead of the amount and 
statements described in paragraph (d)(1)(ii) of this section, the 
creditor may alternatively disclose, using the label ``Cash to Close'':
    (i) The amount calculated in accordance with (h)(2)(iv) of this 
section;
    (ii) A statement of whether the disclosed estimated amount is due 
from or to the consumer; and
    (iii) A statement referring the consumer to the alternative table 
disclosed pursuant to paragraph (h)(2) of this section for details.
    (e) Web site reference. A statement that the consumer may obtain 
general information and tools at the Web site of the Bureau, and the 
link or uniform resource locator address to the Web site: 
www.consumerfinance.gov/mortgage-estimate.
    (f) Closing cost details; loan costs. Under the master heading 
``Closing Cost Details,'' in a table under the heading ``Loan Costs,'' 
all loan costs associated with the transaction. The table shall contain 
the items and amounts listed under four subheadings, described in 
paragraphs (f)(1) through (4) of this section.
    (1) Origination charges. Under the subheading ``Origination 
Charges,'' an itemization of each amount, and a subtotal of all such 
amounts, that the consumer will pay to each creditor and loan originator 
for originating and extending the credit.
    (i) The points paid to the creditor to reduce the interest rate 
shall be itemized separately, as both a percentage of the amount of 
credit extended and a dollar amount, and using the label ``----% of Loan 
Amount (Points).'' If points to reduce the interest rate are not paid, 
the disclosure required by this paragraph (f)(1)(i) must be blank.
    (ii) The number of items disclosed under this paragraph (f)(1), 
including the points disclosed under paragraph (f)(1)(i) of this 
section, shall not exceed 13.
    (2) Services you cannot shop for. Under the subheading ``Services 
You Cannot Shop For,'' an itemization of each amount, and a subtotal of 
all such amounts, the consumer will pay for settlement services for 
which the consumer cannot shop in accordance with Sec. 
1026.19(e)(1)(vi)(A) and that are provided by persons other than the 
creditor or mortgage broker.
    (i) For any item that is a component of title insurance or is for 
conducting the closing, the introductory description ``Title --'' shall 
appear at the beginning of the label for that item.
    (ii) The number of items disclosed under this paragraph (f)(2) shall 
not exceed 13.

[[Page 117]]

    (3) Services you can shop for. Under the subheading ``Services You 
Can Shop For,'' an itemization of each amount and a subtotal of all such 
amounts the consumer will pay for settlement services for which the 
consumer can shop in accordance with Sec. 1026.19(e)(1)(vi)(A) and that 
are provided by persons other than the creditor or mortgage broker.
    (i) For any item that is a component of title insurance or is for 
conducting the closing, the introductory description ``Title --'' shall 
appear at the beginning of the label for that item.
    (ii) The number of items disclosed under this paragraph (f)(3) shall 
not exceed 14.
    (4) Total loan costs. Under the subheading ``Total Loan Costs,'' the 
sum of the subtotals disclosed under paragraphs (f)(1) through (3) of 
this section.
    (5) Item descriptions and ordering. The items listed as loan costs 
pursuant to this paragraph (f) shall be labeled using terminology that 
describes each item, subject to the requirements of paragraphs 
(f)(1)(i), (f)(2)(i), and (f)(3)(i) of this section.
    (i) The item prescribed in paragraph (f)(1)(i) of this section for 
points shall be the first item listed in the disclosure pursuant to 
paragraph (f)(1) of this section.
    (ii) All other items must be listed in alphabetical order by their 
labels under the applicable subheading.
    (6) Use of addenda. (i) An addendum to a form of disclosures 
prescribed by this section may not be used for items described in 
paragraph (f)(1) or (2) of this section. If the creditor is not able to 
itemize every service and every corresponding charge required to be 
disclosed in the number of lines provided by paragraph (f)(1)(ii) or 
(f)(2)(ii) of this section, the remaining charges shall be disclosed as 
an aggregate amount in the last line permitted under paragraph 
(f)(1)(ii) or (f)(2)(ii), as applicable, labeled ``Additional Charges.''
    (ii) An addendum to a form of disclosures prescribed by this section 
may be used for items described in paragraph (f)(3) of this section. If 
the creditor is not able to itemize all of the charges required to be 
disclosed in the number of lines provided by paragraph (f)(3)(ii), the 
remaining charges shall be disclosed as follows:
    (A) Label the last line permitted under paragraph (f)(3)(ii) with an 
appropriate reference to an addendum and list the remaining items on the 
addendum in accordance with the requirements in paragraphs (f)(3) and 
(5) of this section; or
    (B) Disclose the remaining charges as an aggregate amount in the 
last line permitted under paragraph (f)(3)(ii), labeled ``Additional 
Charges.''
    (g) Closing cost details; other costs. Under the master heading 
``Closing Cost Details,'' in a table under the heading ``Other Costs,'' 
all costs associated with the transaction that are in addition to the 
costs disclosed under paragraph (f) of this section. The table shall 
contain the items and amounts listed under six subheadings, described in 
paragraphs (g)(1) through (6) of this section.
    (1) Taxes and other government fees. Under the subheading ``Taxes 
and Other Government Fees,'' the amounts to be paid to State and local 
governments for taxes and other government fees, and the subtotal of all 
such amounts, as follows:
    (i) On the first line, the sum of all recording fees and other 
government fees and taxes, except for transfer taxes paid by the 
consumer and disclosed pursuant to paragraph (g)(1)(ii) of this section, 
labeled ``Recording Fees and Other Taxes.''
    (ii) On the second line, the sum of all transfer taxes paid by the 
consumer, labeled ``Transfer Taxes.''
    (iii) If an amount required to be disclosed by this paragraph (g)(1) 
is not charged to the consumer, the amount disclosed on the applicable 
line required by this paragraph (g)(1) must be blank.
    (2) Prepaids. Under the subheading ``Prepaids,'' an itemization of 
the amounts to be paid by the consumer in advance of the first scheduled 
payment, and the subtotal of all such amounts, as follows:
    (i) On the first line, the number of months for which homeowner's 
insurance premiums are to be paid by the consumer at consummation and 
the total dollar amount to be paid by the consumer at consummation for 
such

[[Page 118]]

premiums, labeled ``Homeowner's Insurance Premium ( ---- months).''
    (ii) On the second line, the number of months for which mortgage 
insurance premiums are to be paid by the consumer at consummation and 
the total dollar amount to be paid by the consumer at consummation for 
such premiums, labeled ``Mortgage Insurance Premium ( ---- months).''
    (iii) On the third line, the amount of prepaid interest to be paid 
per day, the number of days for which prepaid interest will be 
collected, the interest rate, and the total dollar amount to be paid by 
the consumer at consummation for such interest, labeled ``Prepaid 
Interest ( ------ per day for ---- days @---- %).''
    (iv) On the fourth line, the number of months for which property 
taxes are to be paid by the consumer at consummation and the total 
dollar amount to be paid by the consumer at consummation for such taxes, 
labeled ``Property Taxes ( ---- months).''
    (v) If an amount is not charged to the consumer for any item for 
which this paragraph (g)(2) prescribes a label, each of the amounts 
required to be disclosed on that line must be blank.
    (vi) A maximum of three additional items may be disclosed under this 
paragraph (g)(2), and each additional item must be identified and 
include the applicable time period covered by the amount to be paid by 
the consumer at consummation and the total amount to be paid.
    (3) Initial escrow payment at closing. Under the subheading 
``Initial Escrow Payment at Closing,'' an itemization of the amounts 
that the consumer will be expected to place into a reserve or escrow 
account at consummation to be applied to recurring periodic charges, and 
the subtotal of all such amounts, as follows:
    (i) On the first line, the amount escrowed per month, the number of 
months covered by an escrowed amount collected at consummation, and the 
total amount to be paid into the escrow account by the consumer at 
consummation for homeowner's insurance premiums, labeled ``Homeowner's 
Insurance ---- per month for ---- mo.''
    (ii) On the second line, the amount escrowed per month, the number 
of months covered by an escrowed amount collected at consummation, and 
the total amount to be paid into the escrow account by the consumer at 
consummation for mortgage insurance premiums, labeled ``Mortgage 
Insurance ---- per month for ---- mo.''
    (iii) On the third line, the amount escrowed per month, the number 
of months covered by an escrowed amount collected at consummation, and 
the total amount to be paid into the escrow account by the consumer at 
consummation for property taxes, labeled ``Property Taxes ---- per month 
for ---- mo.''
    (iv) If an amount is not charged to the consumer for any item for 
which this paragraph (g)(3) prescribes a label, each of the amounts 
required to be disclosed on that line must be blank.
    (v) A maximum of five items may be disclosed pursuant to this 
paragraph (g)(3) in addition to the items described in paragraph 
(g)(3)(i) through (iii) of this section, and each such additional item 
must be identified with a descriptive label and include the applicable 
amount per month, the number of months collected at consummation, and 
the total amount to be paid.
    (4) Other. Under the subheading ``Other,'' an itemization of any 
other amounts in connection with the transaction that the consumer is 
likely to pay or has contracted with a person other than the creditor or 
loan originator to pay at closing and of which the creditor is aware at 
the time of issuing the Loan Estimate, a descriptive label of each such 
amount, and the subtotal of all such amounts.
    (i) For any item that is a component of title insurance, the 
introductory description ``Title --'' shall appear at the beginning of 
the label for that item.
    (ii) The parenthetical description ``(optional)'' shall appear at 
the end of the label for items disclosing any premiums paid for separate 
insurance, warranty, guarantee, or event-coverage products.
    (iii) The number of items disclosed under this paragraph (g)(4) 
shall not exceed five.
    (5) Total other costs. Under the subheading ``Total Other Costs,'' 
the sum of the subtotals disclosed pursuant to paragraphs (g)(1) through 
(4) of this section.

[[Page 119]]

    (6) Total closing costs. Under the subheading ``Total Closing 
Costs,'' the component amounts and their sum, as follows:
    (i) The sum of the amounts disclosed as loan costs and other costs 
under paragraphs (f)(4) and (g)(5) of this section, labeled ``D + I''; 
and
    (ii) The amount of any lender credits, disclosed as a negative 
number with the label ``Lender Credits'' provided that, if no such 
amount is disclosed, the amount must be blank.
    (7) Item descriptions and ordering. The items listed as other costs 
pursuant to this paragraph (g) shall be labeled using terminology that 
describes each item.
    (i) The items prescribed in paragraphs (g)(1)(i) and (ii), (g)(2)(i) 
through (iv), and (g)(3)(i) through (iii) of this section must be listed 
in the order prescribed as the initial items under the applicable 
subheading, with any additional items to follow.
    (ii) All additional items must be listed in alphabetical order under 
the applicable subheading.
    (8) Use of addenda. An addendum to a form of disclosures prescribed 
by this section may not be used for items required to be disclosed by 
this paragraph (g). If the creditor is not able to itemize all of the 
charges described in this paragraph (g) in the number of lines provided 
by paragraphs (g)(2)(vi), (3)(v), or (4)(iii) of this section, the 
remaining charges shall be disclosed as an aggregate amount in the last 
line permitted under paragraphs (g)(2)(vi), (g)(3)(v), or (g)(4)(iii), 
as applicable, using the label ``Additional Charges.''
    (h) Calculating cash to close--(1) For all transactions. Under the 
master heading ``Closing Cost Details,'' under the heading ``Calculating 
Cash to Close,'' the total amount of cash or other funds that must be 
provided by the consumer at consummation, with an itemization of that 
amount into the following component amounts:
    (i) Total closing costs. The amount disclosed under paragraph (g)(6) 
of this section, disclosed as a positive number, labeled ``Total Closing 
Costs'';
    (ii) Closing costs to be financed. The amount of any closing costs 
to be paid out of loan proceeds, disclosed as a negative number, labeled 
``Closing Costs Financed (Paid from your Loan Amount)'';
    (iii) Downpayment and other funds from borrower. Labeled ``Down 
Payment/Funds from Borrower'':
    (A) In a purchase transaction as defined in paragraph (a)(9)(i) of 
this section, the amount of the difference between the purchase price of 
the property and the principal amount of the loan, disclosed as a 
positive number; or
    (B) In all transactions other than purchase transactions as defined 
in paragraph (a)(9)(i) of this section, the estimated funds from the 
consumer as determined in accordance with paragraph (h)(1)(v) of this 
section;
    (iv) Deposit. (A) In a purchase transaction as defined in paragraph 
(a)(9)(i) of this section, the amount that is paid to the seller or held 
in trust or escrow by an attorney or other party under the terms of the 
agreement for the sale of the property, disclosed as a negative number, 
labeled ``Deposit'';
    (B) In all transactions other than purchase transactions as defined 
in paragraph (a)(9)(i) of this section, the amount of $0, labeled 
``Deposit'';
    (v) Funds for borrower. The amount of funds for the consumer, 
labeled ``Funds for Borrower.'' The amount of funds from the consumer 
disclosed under paragraph (h)(1)(iii)(B) of this section, and of funds 
for the consumer disclosed under this paragraph (h)(1)(v) of this 
section, are determined by subtracting the principal amount of the 
credit extended (excluding any amount disclosed pursuant to paragraph 
(h)(1)(ii) of this section) from the total amount of all existing debt 
being satisfied in the transaction (except to the extent the 
satisfaction of such existing debt is disclosed under paragraph (g) of 
this section);
    (A) If the calculation under this paragraph (h)(1)(v) yields an 
amount that is a positive number, such amount is disclosed under 
paragraph (h)(1)(iii)(B) of this section, and $0 is disclosed under this 
paragraph (h)(1)(v);
    (B) If the calculation under this paragraph (h)(1)(v) yields an 
amount that is a negative number, such amount is disclosed under this 
paragraph (h)(1)(v) as a negative number, and $0 is disclosed under 
paragraph (h)(1)(iii)(B) of this section;

[[Page 120]]

    (C) If the calculation under this paragraph (h)(1)(v) of this 
section yields $0, then $0 is disclosed under paragraphs (h)(1)(iii)(B) 
and paragraph (h)(1)(v) of this section;
    (vi) Seller credits. The total amount that the seller will pay for 
total loan costs as determined by paragraph (f)(4) of this section and 
total other costs as determined by paragraph (g)(5) of this section, to 
the extent known, disclosed as a negative number, labeled ``Seller 
Credits'';
    (vii) Adjustments and other credits. The amount of all loan costs 
determined pursuant to paragraph (f) and other costs determined pursuant 
to paragraph (g) that are paid by persons other than the loan 
originator, creditor, consumer, or seller, together with any other 
amounts that are required to be paid by the consumer at closing pursuant 
to a purchase and sale contract, disclosed as a negative number, labeled 
``Adjustments and Other Credits''; and
    (viii) Estimated Cash to Close. The sum of the amounts disclosed 
under paragraphs (h)(1)(i) through (vii) of this section labeled ``Cash 
to Close.''
    (2) Optional alternative calculating cash to close table for 
transactions without a seller. For transactions that do not involve a 
seller, instead of the table described in paragraph (h)(1) above, the 
creditor may alternatively provide, in a separate table, under the 
master heading ``Closing Cost Details,'' under the heading ``Calculating 
Cash to Close,'' the total amount of cash or other funds that must be 
provided by the consumer at consummation with an itemization of that 
amount into the following component amounts:
    (i) Loan amount. The amount disclosed under paragraph (b)(1) of this 
section, labeled ``Loan Amount'';
    (ii) Total closing costs. The amount disclosed under paragraph 
(g)(6) of this section, disclosed as a negative number, labeled ``Total 
Closing Costs'';
    (iii) Payoffs and payments. The total amount of payoffs and payments 
to be made to third parties not otherwise disclosed pursuant to 
paragraphs (f) and (g) of this section, disclosed as a negative number, 
labeled ``Total Payoffs and Payments'';
    (iv) Cash to or from consumer. The amount of cash or other funds due 
from or to the consumer and a statement of whether the disclosed 
estimated amount is due from or to the consumer, calculated by the sum 
of the amounts disclosed under paragraphs (h)(2)(i) through (iii) of 
this section, labeled ``Cash to Close''; and
    (v) Closing costs financed. The sum of the amounts disclosed under 
paragraphs (h)(2)(i) and (iii) of this section, but only to the extent 
that the sum is greater than zero and less than or equal to the sum 
disclosed under paragraph (g)(6) of this section, labeled ``Closing 
Costs Financed (Paid from your Loan Amount).''
    (i) Adjustable payment table. If the periodic principal and interest 
payment may change after consummation but not based on an adjustment to 
the interest rate, or if the transaction is a seasonal payment product 
as described in paragraph (a)(10)(ii)(E) of this section, a separate 
table under the master heading ``Closing Cost Details'' required by 
paragraph (f) of this section and under the heading ``Adjustable Payment 
(AP) Table'' that contains the following information and satisfies the 
following requirements:
    (1) Interest only payments. Whether the transaction is an interest 
only product pursuant to paragraph (a)(10)(ii)(B) of this section as an 
affirmative or negative answer to the question ``Interest Only 
Payments?'' and, if an affirmative answer is disclosed, the period 
during which interest only periodic payments are scheduled.
    (2) Optional payments. Whether the terms of the legal obligation 
expressly provide that the consumer may elect to pay a specified 
periodic principal and interest payment in an amount other than the 
scheduled amount of the payment, as an affirmative or negative answer to 
the question ``Optional Payments?'' and, if an affirmative answer is 
disclosed, the period during which the consumer may elect to make such 
payments.
    (3) Step payments. Whether the transaction is a step payment product 
pursuant to paragraph (a)(10)(ii)(C) of this section as an affirmative 
or negative answer to the question ``Step Payments?'' and, if an 
affirmative answer is disclosed, the period during which

[[Page 121]]

the regular periodic payments are scheduled to increase.
    (4) Seasonal payments. Whether the transaction is a seasonal payment 
product pursuant to paragraph (a)(10)(ii)(E) of this section as an 
affirmative or negative answer to the question ``Seasonal Payments?'' 
and, if an affirmative answer is disclosed, the period during which 
periodic payments are not scheduled.
    (5) Principal and interest payments. Under the subheading 
``Principal and Interest Payments,'' which subheading is immediately 
preceded by the applicable unit-period, the following information:
    (i) The number of the payment of the first periodic principal and 
interest payment that may change under the terms of the legal obligation 
disclosed under this paragraph (i), counting from the first periodic 
payment due after consummation, and the amount or range of the periodic 
principal and interest payment for such payment, labeled ``First Change/
Amount'';
    (ii) The frequency of subsequent changes to the periodic principal 
and interest payment, labeled ``Subsequent Changes''; and
    (iii) The maximum periodic principal and interest payment that may 
occur during the term of the transaction, and the first periodic 
principal and interest payment that can reach such maximum, counting 
from the first periodic payment due after consummation, labeled 
``Maximum Payment.''
    (j) Adjustable interest rate table. If the interest rate may 
increase after consummation, a separate table under the master heading 
``Closing Cost Details'' required by paragraph (f) of this section and 
under the heading ``Adjustable Interest Rate (AIR) Table'' that contains 
the following information and satisfies the following requirements:
    (1) Index and margin. If the interest rate may adjust and the 
product type is not a ``Step Rate'' under paragraph (a)(10)(i)(B) of 
this section, the index upon which the adjustments to the interest rate 
are based and the margin that is added to the index to determine the 
interest rate, if any, labeled ``Index + Margin.''
    (2) Increases in interest rate. If the product type is a ``Step 
Rate'' and not also an ``Adjustable Rate'' under paragraph (a)(10)(i)(A) 
of this section, the maximum amount of any adjustments to the interest 
rate that are scheduled and pre-determined, labeled ``Interest Rate 
Adjustments.''
    (3) Initial interest rate. The interest rate at consummation of the 
loan transaction, labeled ``Initial Interest Rate.''
    (4) Minimum and maximum interest rate. The minimum and maximum 
interest rates for the loan, after any introductory period expires, 
labeled ``Minimum/Maximum Interest Rate.''
    (5) Frequency of adjustments. The following information, under the 
subheading ``Change Frequency'':
    (i) The month when the interest rate after consummation may first 
change, calculated from the date interest for the first scheduled 
periodic payment begins to accrue, labeled ``First Change''; and
    (ii) The frequency of interest rate adjustments after the initial 
adjustment to the interest rate, labeled, ``Subsequent Changes.''
    (6) Limits on interest rate changes. The following information, 
under the subheading ``Limits on Interest Rate Changes'':
    (i) The maximum possible change for the first adjustment of the 
interest rate after consummation, labeled ``First Change''; and
    (ii) The maximum possible change for subsequent adjustments of the 
interest rate after consummation, labeled ``Subsequent Changes.''
    (k) Contact information. Under the master heading, ``Additional 
Information About This Loan,'' the following information:
    (1) The name and Nationwide Mortgage Licensing System and Registry 
identification number (NMLSR ID) (labeled ``NMLS ID/License ID'') for 
the creditor (labeled ``Lender'') and the mortgage broker (labeled 
``Mortgage Broker''), if any. In the event the creditor or the mortgage 
broker has not been assigned an NMLSR ID, the license number or other 
unique identifier issued by the applicable jurisdiction or regulating 
body with which the creditor or mortgage broker is licensed and/or 
registered shall be disclosed, with the abbreviation for the State of

[[Page 122]]

the applicable jurisdiction or regulatory body stated before the word 
``License'' in the label, if any;
    (2) The name and NMLSR ID of the individual loan officer (labeled 
``Loan Officer'' and ``NMLS ID/License ID,'' respectively) of the 
creditor and the mortgage broker, if any, who is the primary contact for 
the consumer. In the event the individual loan officer has not been 
assigned an NMLSR ID, the license number or other unique identifier 
issued by the applicable jurisdiction or regulating body with which the 
loan officer is licensed and/or registered shall be disclosed with the 
abbreviation for the State of the applicable jurisdiction or regulatory 
body stated before the word ``License'' in the label, if any; and
    (3) The email address and telephone number of the loan officer 
(labeled ``Email'' and ``Phone,'' respectively).
    (l) Comparisons. Under the master heading, ``Additional Information 
About This Loan'' required by paragraph (k) of this section, in a 
separate table under the heading ``Comparisons'' along with the 
statement ``Use these measures to compare this loan with other loans'':
    (1) In five years. Using the label ``In 5 Years'':
    (i) The total principal, interest, mortgage insurance, and loan 
costs scheduled to be paid through the end of the 60th month after the 
due date of the first periodic payment, expressed as a dollar amount, 
along with the statement ``Total you will have paid in principal, 
interest, mortgage insurance, and loan costs''; and
    (ii) The principal scheduled to be paid through the end of the 60th 
month after the due date of the first periodic payment, expressed as a 
dollar amount, along with the statement ``Principal you will have paid 
off.''
    (2) Annual percentage rate. The ``Annual Percentage Rate,'' using 
that term and the abbreviation ``APR'' and expressed as a percentage, 
and the following statement: ``Your costs over the loan term expressed 
as a rate. This is not your interest rate.''
    (3) Total interest percentage. The total amount of interest that the 
consumer will pay over the life of the loan, expressed as a percentage 
of the amount of credit extended, using the term ``Total Interest 
Percentage,'' the abbreviation ``TIP,'' and the statement ``The total 
amount of interest that you will pay over the loan term as a percentage 
of your loan amount.''
    (m) Other considerations. Under the master heading ``Additional 
Information About This Loan'' required by paragraph (k) of this section 
and under the heading ``Other Considerations'':
    (1) Appraisal. For transactions subject to 15 U.S.C. 1639h or 
1691(e), as implemented in this part or Regulation B, 12 CFR part 1002, 
respectively, a statement, labeled ``Appraisal,'' that:
    (i) The creditor may order an appraisal to determine the value of 
the property identified in paragraph (a)(6) of this section and may 
charge the consumer for that appraisal;
    (ii) The creditor will promptly provide the consumer a copy of any 
appraisal, even if the transaction is not consummated; and
    (iii) The consumer may choose to pay for an additional appraisal of 
the property for the consumer's use.
    (2) Assumption. A statement of whether a subsequent purchaser of the 
property may be permitted to assume the remaining loan obligation on its 
original terms, labeled ``Assumption.''
    (3) Homeowner's insurance. At the option of the creditor, a 
statement that homeowner's insurance is required on the property and 
that the consumer may choose the insurance provider, labeled 
``Homeowner's Insurance.''
    (4) Late payment. A statement detailing any charge that may be 
imposed for a late payment, stated as a dollar amount or percentage 
charge of the late payment amount, and the number of days that a payment 
must be late to trigger the late payment fee, labeled ``Late Payment.''
    (5) Refinance. The following statement, labeled ``Refinance'': 
``Refinancing this loan will depend on your future financial situation, 
the property value, and market conditions. You may not be able to 
refinance this loan.''
    (6) Servicing. A statement of whether the creditor intends to 
service the loan or transfer the loan to another servicer, labeled 
``Servicing.''
    (7) Liability after foreclosure. If the purpose of the credit 
transaction is to

[[Page 123]]

refinance an extension of credit as described in paragraph (a)(9)(ii) of 
this section, a brief statement that certain State law protections 
against liability for any deficiency after foreclosure may be lost, the 
potential consequences of the loss of such protections, and a statement 
that the consumer should consult an attorney for additional information, 
labeled ``Liability after Foreclosure.''
    (n) Signature statement. (1) At the creditor's option, under the 
master heading required by paragraph (k) of this section and under the 
heading ``Confirm Receipt,'' a line for the signatures of the consumers 
in the transaction. If the creditor includes a line for the consumer's 
signature, the creditor must disclose the following above the signature 
line: ``By signing, you are only confirming that you have received this 
form. You do not have to accept this loan because you have signed or 
received this form.''
    (2) If the creditor does not include a line for the consumer's 
signature, the creditor must disclose the following statement under the 
heading ``Other Considerations'' required by paragraph (m) of this 
section, labeled ``Loan Acceptance'': ``You do not have to accept this 
loan because you have received this form or signed a loan application.''
    (o) Form of disclosures--(1) General requirements. (i) The creditor 
shall make the disclosures required by this section clearly and 
conspicuously in writing, in a form that the consumer may keep. The 
disclosures also shall be grouped together and segregated from 
everything else.
    (ii) Except as provided in paragraph (o)(5) of this section, the 
disclosures shall contain only the information required by paragraphs 
(a) through (n) of this section and shall be made in the same order, and 
positioned relative to the master headings, headings, subheadings, 
labels, and similar designations in the same manner, as shown in form H-
24, set forth in appendix H to this part.
    (2) Headings and labels. If a master heading, heading, subheading, 
label, or similar designation contains the word ``estimated'' or a 
capital letter designation in form H-24, set forth in appendix H to this 
part, that heading, label, or similar designation shall contain the word 
``estimated'' and the applicable capital letter designation.
    (3) Form. Except as provided in paragraph (o)(5) of this section:
    (i) For a transaction subject to Sec. 1026.19(e) that is a 
federally related mortgage loan, as defined in Regulation X, 12 CFR 
1024.2, the disclosures must be made using form H-24, set forth in 
appendix H to this part.
    (ii) For any other transaction subject to this section, the 
disclosures must be made with headings, content, and format 
substantially similar to form H-24, set forth in appendix H to this 
part.
    (iii) 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 (15 U.S.C. 7001 et seq.).
    (4) Rounding--(i) Nearest dollar. (A) The dollar amounts required to 
be disclosed by paragraphs (b)(6) and (7), (c)(1)(iii), (c)(2)(ii) and 
(iii), (c)(4)(ii), (f), (g), (h), (i), and (l) of this section shall be 
rounded to the nearest whole dollar, except that the per diem amount 
required to be disclosed by paragraph (g)(2)(iii) of this section and 
the monthly amounts required to be disclosed by paragraphs (g)(3)(i) 
through (iv) of this section shall not be rounded.
    (B) The dollar amount required to be disclosed by paragraph (b)(1) 
of this section shall not be rounded, and if the amount is a whole 
number then the amount disclosed shall be truncated at the decimal 
point.
    (C) The dollar amounts required to be disclosed by paragraph 
(c)(2)(iv) of this section shall be rounded to the nearest whole dollar, 
if any of the component amounts are required by paragraph (o)(4)(i)(A) 
of this section to be rounded to the nearest whole dollar.
    (ii) Percentages. The percentage amounts required to be disclosed 
under paragraphs (b)(2) and (6), (f)(1)(i), (g)(2)(iii), (j), and (l)(3) 
of this section shall not be rounded and shall be disclosed up to two or 
three decimal places. The percentage amount required to be disclosed 
under paragraph (l)(2) of this section shall be disclosed

[[Page 124]]

up to three decimal places. If the amount is a whole number then the 
amount disclosed shall be truncated at the decimal point.
    (5) Exceptions--(i) Unit-period. Wherever the form or this section 
uses ``monthly'' to describe the frequency of any payments or uses 
``month'' to describe the applicable unit-period, the creditor shall 
substitute the appropriate term to reflect the fact that the 
transaction's terms provide for other than monthly periodic payments, 
such as bi-weekly or quarterly payments.
    (ii) Translation. The form may be translated into languages other 
than English, and creditors may modify form H-24 of appendix H to this 
part to the extent that translation prevents the headings, labels, 
designations, and required disclosure items under this section from 
fitting in the space provided on form H-24.
    (iii) Logo or slogan. The creditor providing the form may use a logo 
for, and include a slogan with, the information required by paragraph 
(a)(3) of this section in any font size or type, provided that such logo 
or slogan does not cause the information required by paragraph (a)(3) of 
this section to exceed the space provided for that information, as 
illustrated in form H-24 of appendix H to this part. If the creditor 
does not use a logo for the information required by paragraph (a)(3) of 
this section, the information shall be disclosed in a similar format as 
form H-24.
    (iv) Business card. The creditor may physically attach a business 
card over the information required to be disclosed by paragraph (a)(3) 
of this section.
    (v) Administrative information. The creditor may insert at the 
bottom of each page under the disclosures required by this section as 
illustrated by form H-24 of appendix H to this part, any administrative 
information, text, or codes that assist in identification of the form or 
the information disclosed on the form, provided that the space provided 
on form H-24 of appendix H to this part for any of the information 
required by this section is not altered.

[78 FR 80113, Dec. 31, 2013]

    Effective Date Note: At 78 FR 80113, Dec. 31, 2013, Sec. 1026.37 
was added, effective Aug. 1, 2015.

Sec. 1026.38  Content of disclosures for certain mortgage transactions 
          (Closing Disclosure).

    For each transaction subject to Sec. 1026.19(f), the creditor shall 
disclose the information in this section:
    (a) General information--(1) Form title. The title of the form, 
``Closing Disclosure,'' using that term.
    (2) Form purpose. The following statement: ``This form is a 
statement of final loan terms and closing costs. Compare this document 
with your Loan Estimate.''
    (3) Closing information. Under the heading ``Closing Information'':
    (i) Date issued. The date the disclosures required by this section 
are delivered to the consumer, labeled ``Date Issued.''
    (ii) Closing date. The date of consummation, labeled ``Closing 
Date.''
    (iii) Disbursement date. The date the amounts disclosed pursuant to 
paragraphs (j)(3)(iii) and (k)(3)(iii) of this section are expected to 
be paid in a purchase transaction under Sec. 1026.37(a)(9)(i) to the 
consumer and seller, respectively, as applicable, or the date the 
amounts disclosed pursuant to paragraphs (j)(2)(iii) or (t)(5)(vii)(B) 
of this section are expected to be paid to the consumer or a third party 
in a transaction that is not a purchase transaction under Sec. 
1026.37(a)(9)(i), labeled ``Disbursement Date.''
    (iv) Settlement agent. The name of the settlement agent conducting 
the closing, labeled ``Settlement Agent.''
    (v) File number. The number assigned to the transaction by the 
settlement agent for identification purposes, labeled ``File 
.''
    (vi) Property. The address or location of the property required to 
be disclosed under Sec. 1026.37(a)(6), labeled ``Property.''
    (vii) Sale price. (A) In credit transactions where there is a 
seller, the contract sale price of the property identified in paragraph 
(a)(3)(vi) of this section, labeled ``Sale Price.''
    (B) In credit transactions where there is no seller, the appraised 
value of the property identified in paragraph (a)(3)(vi) of this 
section, labeled ``Appraised Prop. Value.''

[[Page 125]]

    (4) Transaction information. Under the heading ``Transaction 
Information'':
    (i) Borrower. The consumer's name and mailing address, labeled 
``Borrower.''
    (ii) Seller. Where applicable, the seller's name and mailing 
address, labeled ``Seller.''
    (iii) Lender. The name of the creditor making the disclosure, 
labeled ``Lender.''
    (5) Loan information. Under the heading ``Loan Information'':
    (i) Loan term. The information required to be disclosed under Sec. 
1026.37(a)(8), labeled ``Loan Term.''
    (ii) Purpose. The information required to be disclosed under Sec. 
1026.37(a)(9), labeled ``Purpose.''
    (iii) Product. The information required to be disclosed under Sec. 
1026.37(a)(10), labeled ``Product.''
    (iv) Loan type. The information required to be disclosed under Sec. 
1026.37(a)(11), labeled ``Loan Type.''
    (v) Loan identification number. The information required to be 
disclosed under Sec. 1026.37(a)(12), labeled ``Loan ID .''
    (vi) Mortgage insurance case number. The case number for any 
mortgage insurance policy, if required by the creditor, labeled ``MIC 
.''
    (b) Loan terms. A separate table under the heading ``Loan Terms'' 
that includes the information required by Sec. 1026.37(b).
    (c) Projected payments. A separate table, under the heading 
``Projected Payments,'' that includes and satisfies the following 
information and requirements:
    (1) Projected payments or range of payments. The information 
required to be disclosed pursuant to Sec. 1026.37(c)(1) through (4), 
other than Sec. 1026.37(c)(4)(vi). In disclosing estimated escrow 
payments as described in Sec. 1026.37(c)(2)(iii) and (c)(4)(ii), the 
amount disclosed on the Closing Disclosure:
    (i) For transactions subject to RESPA, is determined under the 
escrow account analysis described in Regulation X, 12 CFR 1024.17;
    (ii) For transactions not subject to RESPA, may be determined under 
the escrow account analysis described in Regulation X, 12 CFR 1024.17 or 
in the manner set forth in Sec. 1026.37(c)(5).
    (2) Estimated taxes, insurance, and assessments. A reference to the 
disclosure required by paragraph (l)(7) of this section.
    (d) Costs at closing--(1) Costs at closing table. In a separate 
table, under the heading ``Costs at Closing'':
    (i) Labeled ``Closing Costs,'' the sum of the dollar amounts 
disclosed pursuant to paragraphs (f)(4), (g)(5), and (h)(3) of this 
section, together with:
    (A) A statement that the amount disclosed pursuant to paragraph 
(d)(1)(i) of this section includes the amounts disclosed pursuant to 
paragraphs (f)(4), (g)(5), and (h)(3) of this section;
    (B) The dollar amount disclosed pursuant to paragraph (f)(4) of this 
section, labeled ``Loan Costs'';
    (C) The dollar amount disclosed pursuant to paragraph (g)(5) of this 
section, labeled ``Other Costs'';
    (D) The dollar amount disclosed pursuant to paragraph (h)(3) of this 
section, labeled ``Lender Credits''; and
    (E) A statement referring the consumer to the tables disclosed 
pursuant to paragraphs (f) and (g) of this section for details.
    (ii) Labeled ``Cash to Close,'' the sum of the dollar amounts 
calculated in accordance with paragraph (i)(9)(ii) of this section, 
together with:
    (A) A statement that the amount disclosed pursuant to paragraph 
(d)(1)(ii) of this section includes the amount disclosed pursuant to 
paragraph (d)(1)(i) of this section; and
    (B) A statement referring the consumer to the table required 
pursuant to paragraph (i) of this section for details.
    (2) Alternative table for transactions without a seller. For 
transactions that do not involve a seller and where the creditor 
disclosed the optional alternative table pursuant to Sec. 
1026.37(d)(2), the creditor shall disclose, with the label ``Cash to 
Close,'' instead of the sum of the dollar amounts described in paragraph 
(d)(1)(ii) of this section:
    (i) The amount calculated in accordance with paragraph (e)(5)(ii) of 
this section;
    (ii) A statement of whether the disclosed amount is due from or to 
the consumer; and

[[Page 126]]

    (iii) A statement referring the consumer to the table required 
pursuant to paragraph (e) of this section for details.
    (e) Alternative calculating cash to close table for transactions 
without a seller. For transactions that do not involve a seller and 
where the creditor disclosed the optional alternative table pursuant to 
Sec. 1026.37(h)(2), the creditor shall disclose, instead of the table 
described in paragraph (i) of this section, in a separate table, under 
the heading ``Calculating Cash to Close,'' together with the statement 
``Use this table to see what has changed from your Loan Estimate'':
    (1) Loan amount. Labeled ``Loan Amount:''
    (i) Under the subheading ``Loan Estimate,'' the loan amount 
disclosed on the Loan Estimate under Sec. 1026.37(b)(1);
    (ii) Under the subheading ``Final,'' the loan amount disclosed under 
paragraph (b) of this section;
    (iii) Disclosed more prominently than the other disclosures under 
paragraph (e)(1)(i) and (ii) of this section, under the subheading ``Did 
this change?'':
    (A) If the amount disclosed under paragraph (e)(1)(ii) of this 
section is different than the amount disclosed under paragraph (e)(1)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact along with a statement of whether this amount increased or 
decreased; or
    (B) If the amount disclosed under paragraph (e)(1)(i) of this 
section is equal to the amount disclosed under paragraph (e)(1)(ii) of 
this section a statement of that fact.
    (2) Total closing costs. Labeled ``Total Closing Costs'':
    (i) Under the subheading ``Loan Estimate,'' the amount disclosed on 
the Loan Estimate under Sec. 1026.37(h)(2)(ii);
    (ii) Under the subheading ``Final,'' the amount disclosed under 
paragraph (h)(1) of this section, disclosed as a negative number; and
    (iii) Disclosed more prominently than the other disclosures under 
this paragraph (e)(2)(i) and (ii) of this section, under the subheading 
``Did this change?'':
    (A) If the amount disclosed under paragraph (e)(2)(ii) of this 
section is different than the amount disclosed under paragraph (e)(2)(i) 
of this section (unless the difference is due to rounding):
    (1) A statement of that fact;
    (2) If the difference in the amounts disclosed under paragraphs 
(e)(2)(i) and (e)(2)(ii) is attributable to differences in itemized 
charges that are included in either or both subtotals, a statement that 
the consumer should see the total loan costs and total other costs 
subtotals disclosed under paragraphs (f)(4) and (g)(5) of this section 
(together with references to such disclosures), as applicable; and
    (3) If the increase exceeds the limitations on increases in closing 
costs under Sec. 1026.19(e)(3), a statement that such increase exceeds 
the legal limits by the dollar amount of the excess and if any refund is 
provided pursuant to Sec. 1026.19(f)(2)(v), a statement directing the 
consumer to the disclosure required under paragraph (h)(3) of this 
section. Such dollar amount shall equal the sum total of all excesses of 
the limitations on increases in closing costs under Sec. 1026.19(e)(3), 
taking into account the different methods of calculating excesses of the 
limitations on increases in closing costs under Sec. 1026.19(e)(3)(i) 
and (ii).
    (B) If the amount disclosed under paragraph (e)(2)(i) of this 
section is equal to the amount disclosed under paragraph (e)(2)(ii) of 
this section, a statement of that fact.
    (3) Closing costs paid before closing. Labeled ``Closing Costs Paid 
Before Closing:''
    (i) Under the subheading ``Loan Estimate,'' the amount of $0;
    (ii) Under the subheading ``Final,'' any amount designated as 
borrower-paid before closing under paragraph (h)(2) of this section, 
disclosed as a positive number; and
    (iii) Disclosed more prominently than the other disclosures under 
this paragraph (e)(3)(i) and (ii) of this section, under the subheading 
``Did this change?'':
    (A) If the amount disclosed under paragraph (e)(3)(ii) of this 
section is different than the amount disclosed under paragraph (e)(3)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact along

[[Page 127]]

with a statement that the consumer included the closing costs in the 
loan amount, which increased the loan amount; or
    (B) If the amount disclosed under paragraph (e)(3)(ii) of this 
section is equal to the amount disclosed under paragraph (e)(3)(i) of 
this section, a statement of that fact.
    (4) Payoffs and payments. Labeled ``Total Payoffs and Payments,''
    (i) Under the subheading ``Loan Estimate,'' the total payoffs and 
payments disclosed on the Loan Estimate under Sec. 1026.37(h)(2)(iii);
    (ii) Under the subheading ``Final,'' the total amount of payoffs and 
payments made to third parties not otherwise disclosed pursuant to 
paragraph (t)(5)(vii)(B) of this section, to the extent known, disclosed 
as a negative number;
    (iii) Disclosed more prominently than the other disclosures under 
this paragraph (e)(4)(i) and (ii), under the subheading ``Did this 
change?'':
    (A) If the amount disclosed under paragraph (e)(4)(ii) of this 
section is different than the amount disclosed under paragraph (e)(4)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact along with a reference to the table disclosed under 
paragraph (t)(5)(vii)(B) of this section; or
    (B) If the amount disclosed under paragraph (e)(4)(ii) of this 
section is equal to the amount disclosed under paragraph (e)(4)(i) of 
this section, a statement of that fact.
    (5) Cash to or from consumer. Labeled ``Cash to Close:''
    (i) Under the subheading ``Loan Estimate,'' the estimated cash to 
close on the Loan Estimate together with the statement of whether the 
estimated amount is due from or to the consumer as disclosed under Sec. 
1026.37(h)(2)(iv);
    (ii) Under the subheading ``Final,'' the amount due from or to the 
consumer, calculated by the sum of the amounts disclosed under 
paragraphs (e)(1)(ii), (e)(2)(ii), (e)(3)(ii), and (e)(4)(ii) of this 
section, disclosed as a positive number, together with a statement of 
whether the disclosed amount is due from or to the consumer.
    (6) Closing costs financed. Labeled ``Closing Costs Financed (Paid 
from your Loan Amount),'' the sum of the amounts disclosed under 
paragraphs (e)(1)(ii) and (e)(4)(ii) of this section, but only to the 
extent that the sum is greater than zero and less than or equal to the 
sum disclosed under paragraph (h)(1) of this section minus the sum 
disclosed under paragraph (h)(2) of this section designated borrower-
paid before closing.
    (f) Closing cost details; loan costs. Under the master heading 
``Closing Cost Details'' with columns stating whether the charge was 
borrower-paid at or before closing, seller-paid at or before closing, or 
paid by others, all loan costs associated with the transaction, listed 
in a table under the heading ``Loan Costs.'' The table shall contain the 
items and amounts listed under four subheadings, described in paragraphs 
(f)(1) through (5) of this section.
    (1) Origination charges. Under the subheading ``Origination 
Charges,'' and in the applicable columns as described in paragraph (f) 
of this section, an itemization of each amount paid for charges 
described in Sec. 1026.37(f)(1), the amount of compensation paid by the 
creditor to a third-party loan originator along with the name of the 
loan originator ultimately receiving the payment, and the total of all 
such itemized amounts that are designated borrower-paid at or before 
closing.
    (2) Services borrower did not shop for. Under the subheading 
``Services Borrower Did Not Shop For'' and in the applicable columns as 
described in paragraph (f) of this section, an itemization of the 
services and corresponding costs for each of the settlement services 
required by the creditor for which the consumer did not shop in 
accordance with Sec. 1026.19(e)(1)(vi)(A) and that are provided by 
persons other than the creditor or mortgage broker, the name of the 
person ultimately receiving the payment for each such amount, and the 
total of all such itemized amounts that are designated borrower-paid at 
or before closing. Items that were disclosed pursuant to Sec. 
1026.37(f)(3) must be disclosed under this paragraph (f)(2) if the 
consumer was provided a written list of settlement service providers 
under Sec. 1026.19(e)(1)(vi)(C) and the consumer

[[Page 128]]

selected a settlement service provider contained on that written list.
    (3) Services borrower did shop for. Under the subheading ``Services 
Borrower Did Shop For'' and in the applicable column as described in 
paragraph (f) of this section, an itemization of the services and 
corresponding costs for each of the settlement services required by the 
creditor for which the consumer shopped in accordance with Sec. 
1026.19(e)(1)(vi)(A) and that are provided by persons other than the 
creditor or mortgage broker, the name of the person ultimately receiving 
the payment for each such amount, and the total of all such itemized 
costs that are designated borrower-paid at or before closing. Items that 
were disclosed pursuant to Sec. 1026.37(f)(3) must be disclosed under 
this paragraph (f)(3) if the consumer was provided a written list of 
settlement service providers under Sec. 1026.19(e)(1)(vi)(C) and the 
consumer did not select a settlement service provider contained on that 
written list.
    (4) Total loan costs. Under the subheading ``Total Loan Costs 
(Borrower-Paid),'' the sum of the amounts disclosed as borrower-paid 
pursuant to paragraph (f)(5) of this section.
    (5) Subtotal of loan costs. The sum of loan costs, calculated by 
totaling the amounts described in paragraphs (f)(1) through (3) of this 
section for costs designated borrower-paid at or before closing, labeled 
``Loan Costs Subtotals.''
    (g) Closing cost details; other costs. Under the master heading 
``Closing Cost Details'' disclosed pursuant to paragraph (f) of this 
section, with columns stating whether the charge was borrower-paid at or 
before closing, seller-paid at or before closing, or paid by others, all 
costs in connection with the transaction, other than those disclosed 
under paragraph (f) of this section, listed in a table with a heading 
disclosed as ``Other Costs.'' The table shall contain the items and 
amounts listed under five subheadings, described in paragraphs (g)(1) 
through (6) of this section.
    (1) Taxes and other government fees. Under the subheading ``Taxes 
and Other Government Fees,'' and in the applicable column as described 
in paragraph (g) of this section, an itemization of each amount that is 
expected to be paid to State and local governments for taxes and 
government fees and the total of all such itemized amounts that are 
designated borrower-paid at or before closing, as follows:
    (i) Recording fees and the amounts paid in the applicable columns; 
and
    (ii) An itemization of transfer taxes, with the name of the 
government entity assessing the transfer tax.
    (2) Prepaids. Under the subheading ``Prepaids'' and in the 
applicable column as described in paragraph (g) of this section, an 
itemization of each amount for charges described in Sec. 1026.37(g)(2), 
the name of the person ultimately receiving the payment or government 
entity assessing the property tax, provided that the person ultimately 
receiving the payment need not be disclosed for the disclosure required 
by Sec. 1026.37(g)(2)(iii) when disclosed pursuant to this paragraph, 
and the total of all such itemized amounts that are designated borrower-
paid at or before closing.
    (3) Initial escrow payment at closing. Under the subheading 
``Initial escrow payment at closing'' and in the applicable column as 
described in paragraph (g) of this section, an itemization of each 
amount for charges described in Sec. 1026.37(g)(3), the applicable 
aggregate adjustment pursuant to 12 CFR 1024.17(d)(2) along with the 
label ``aggregate adjustment,'' and the total of all such itemized 
amounts that are designated borrower-paid at or before closing.
    (4) Other. Under the subheading ``Other'' and in the applicable 
column as described in paragraph (g) of this section, an itemization of 
each amount for charges in connection with the transaction that are in 
addition to the charges disclosed under paragraphs (f) and (g)(1) 
through (3) for services that are required or obtained in the real 
estate closing by the consumer, the seller, or other party, the name of 
the person ultimately receiving the payment, and the total of all such 
itemized amounts that are designated borrower-paid at or before closing.
    (i) For any cost that is a component of title insurance services, 
the introductory description ``Title --'' shall appear at the beginning 
of the label for that actual cost.

[[Page 129]]

    (ii) The parenthetical description ``(optional)'' shall appear at 
the end of the label for costs designated borrower-paid at or before 
closing for any premiums paid for separate insurance, warranty, 
guarantee, or event-coverage products.
    (5) Total other costs. Under the subheading ``Total Other Costs 
(Borrower-Paid),'' the sum of the amounts disclosed as borrower-paid 
pursuant to paragraph (g)(6) of this section.
    (6) Subtotal of costs. The sum of other costs, calculated by 
totaling the costs disclosed in paragraphs (g)(1) through (4) of this 
section designated borrower-paid at or before closing, labeled ``Other 
Costs Subtotals.''
    (h) Closing cost totals. (1) The sum of the costs disclosed as 
borrower-paid pursuant to paragraph (h)(2) of this section and the 
amount disclosed in paragraph (h)(3) of this section, under the 
subheading ``Total Closing Costs (Borrower-Paid).''
    (2) The sum of the amounts disclosed in paragraphs (f)(5) and (g)(6) 
of this section, designated borrower-paid at or before closing, and the 
sum of the costs designated seller-paid at or before closing or paid by 
others disclosed pursuant to paragraphs (f) and (g) of this section, 
labeled ``Closing Costs Subtotals.''
    (3) The amount described in Sec. 1026.37(g)(6)(ii) as a negative 
number, labeled ``Lender Credits'' and designated borrower-paid at 
closing, and if a refund is provided pursuant to Sec. 1026.19(f)(2)(v), 
a statement that this amount includes a credit for an amount that 
exceeds the limitations on increases in closing costs under Sec. 
1026.19(e)(3), and the amount of such credit under Sec. 
1026.19(f)(2)(v).
    (4) The services and costs disclosed pursuant to paragraphs (f) and 
(g) of this section on the Closing Disclosure shall be labeled using 
terminology that describes the item disclosed, in a manner that is 
consistent with the descriptions or prescribed labels, as applicable, 
used for such items on the Loan Estimate pursuant to Sec. 1026.37. The 
creditor must also list the items on the Closing Disclosure in the same 
sequential order as on the Loan Estimate pursuant to Sec. 1026.37.
    (i) Calculating cash to close. In a separate table, under the 
heading ``Calculating Cash to Close,'' together with the statement ``Use 
this table to see what has changed from your Loan Estimate'':
    (1) Total closing costs. (i) Under the subheading ``Loan Estimate,'' 
the ``Total Closing Costs'' disclosed on the Loan Estimate under Sec. 
1026.37(h)(1)(i), labeled using that term.
    (ii) Under the subheading ``Final,'' the amount disclosed under 
paragraph (h)(1) of this section.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(1):
    (A) If the amount disclosed under paragraph (i)(1)(ii) of this 
section is different than the amount disclosed under paragraph (i)(1)(i) 
of this section (unless the difference is due to rounding):
    (1) A statement of that fact;
    (2) If the difference in the ``Total Closing Costs'' is attributable 
to differences in itemized charges that are included in either or both 
subtotals, a statement that the consumer should see the total loan costs 
and total other costs subtotals disclosed under paragraphs (f)(4) and 
(g)(5) of this section (together with references to such disclosures), 
as applicable; and
    (3) If the increase exceeds the limitations on increases in closing 
costs under Sec. 1026.19(e)(3), a statement that such increase exceeds 
the legal limits by the dollar amount of the excess, and if any refund 
is provided pursuant to Sec. 1026.19(f)(2)(v), a statement directing 
the consumer to the disclosure required under paragraph (h)(3) of this 
section. Such dollar amount shall equal the sum total of all excesses of 
the limitations on increases in closing costs under Sec. 1026.19(e)(3), 
taking into account the different methods of calculating excesses of the 
limitations on increases in closing costs under Sec. 1026.19(e)(3)(i) 
and (ii).
    (B) If the amount disclosed under paragraph (i)(1)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(1)(i) of 
this section, a statement of that fact.

[[Page 130]]

    (2) Closing costs paid before closing. (i) Under the subheading 
``Loan Estimate,'' the dollar amount ``$0,'' labeled ``Closing Costs 
Paid Before Closing.''
    (ii) Under the subheading ``Final,'' the amount of ``Total Closing 
Costs'' disclosed under paragraph (h)(2) of this section and designated 
as borrower-paid before closing, stated as a negative number.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(2):
    (A) If the amount disclosed under paragraph (i)(2)(ii) of this 
section is different than the amount disclosed under paragraph (i)(2)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact, along with a statement that the consumer paid such amounts 
prior to consummation of the transaction; or
    (B) If the amount disclosed under paragraph (i)(2)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(2)(i) of 
this section, a statement of that fact.
    (3) Closing costs financed. (i) Under the subheading ``Loan 
Estimate,'' the amount disclosed under Sec. 1026.37(h)(1)(ii), labeled 
``Closing Costs Financed (Paid from your Loan Amount).''
    (ii) Under the subheading ``Final,'' the actual amount of the 
closing costs that are to be paid out of loan proceeds, if any, stated 
as a negative number.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(3):
    (A) If the amount disclosed under paragraph (i)(3)(ii) of this 
section is different than the amount disclosed under paragraph (i)(3)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact, along with a statement that the consumer included the 
closing costs in the loan amount, which increased the loan amount; or
    (B) If the amount disclosed under paragraph (i)(3)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(3)(i) of 
this section, a statement of that fact.
    (4) Down payment/funds from borrower. (i) Under the subheading 
``Loan Estimate,'' the amount disclosed under Sec. 1026.37(h)(1)(iii), 
labeled ``Down Payment/Funds from Borrower.''
    (ii) Under the subheading ``Final'':
    (A) In a transaction that is a purchase as defined in Sec. 
1026.37(a)(9)(i), the amount of the difference between the purchase 
price of the property and the principal amount of the credit extended, 
stated as a positive number, labeled ``Down Payment/Funds from 
Borrower''; or
    (B) In a transaction other than the type described in paragraph 
(i)(4)(ii)(A) of this section, the ``Funds from Borrower'' as determined 
in accordance with paragraph (i)(6)(iv) of this section, labeled ``Down 
Payment/Funds from Borrower.''
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(4):
    (A) If the amount disclosed under paragraph (i)(4)(ii) of this 
section is different than the amount disclosed under paragraph (i)(4)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact, along with a statement that the consumer increased or 
decreased this payment and that the consumer should see the details 
disclosed under paragraph (j)(1) or (j)(2) of this section, as 
applicable; or
    (B) If the amount disclosed under paragraph (i)(4)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(4)(i) of 
this section, a statement of that fact.
    (5) Deposit. (i) Under the subheading ``Loan Estimate,'' the amount 
disclosed under Sec. 1026.37(h)(1)(iv), labeled ``Deposit.''
    (ii) Under the subheading ``Final,'' the amount disclosed under 
paragraph (j)(2)(ii) of this section, stated as a negative number.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(5):
    (A) If the amount disclosed under paragraph (i)(5)(ii) of this 
section is different than the amount disclosed under paragraph (i)(5)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact, along with a statement that the consumer increased

[[Page 131]]

or decreased this payment, as applicable, and that the consumer should 
see the details disclosed under paragraph (j)(2)(ii) of this section; or
    (B) If the amount disclosed under paragraph (i)(5)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(5)(i) of 
this section, a statement of that fact.
    (6) Funds for borrower. (i) Under the subheading ``Loan Estimate,'' 
the amount disclosed under Sec. 1026.37(h)(1)(v), labeled ``Funds for 
Borrower.''
    (ii) Under the subheading ``Final,'' the ``Funds for Borrower,'' 
labeled using that term, as determined in accordance with paragraph 
(i)(6)(iv) of this section.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(6):
    (A) If the amount disclosed under paragraph (i)(6)(ii) of this 
section is different than the amount disclosed under paragraph (i)(6)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact, along with a statement that the consumer's available funds 
from the loan amount have increased or decreased, as applicable; or
    (B) If the amount disclosed under paragraph (i)(6)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(6)(i) of 
this section, a statement of that fact.
    (iv) The ``Funds from Borrower'' to be disclosed under paragraph 
(i)(4)(ii)(B) of this section and ``Funds for Borrower'' to be disclosed 
under paragraph (i)(6)(ii) of this section are determined by subtracting 
the principal amount of the credit extended (excluding any amount 
disclosed pursuant to paragraph (i)(3)(ii) of this section) from the 
total amount of all existing debt being satisfied in the real estate 
closing and disclosed under paragraph (j)(1)(v) of this section (except 
to the extent the satisfaction of such existing debt is disclosed under 
paragraph (g) of this section).
    (A) If the calculation under this paragraph (i)(6)(iv) yields an 
amount that is a positive number, such amount shall be disclosed under 
paragraph (i)(4)(ii)(B) of this section, and $0 shall be disclosed under 
paragraph (i)(6)(ii) of this section.
    (B) If the calculation under this paragraph (i)(6)(iv) yields an 
amount that is a negative number, such amount shall be disclosed under 
paragraph (i)(6)(ii) of this section, stated as a negative number, and 
$0 shall be disclosed under paragraph (i)(4)(ii)(B) of this section.
    (C) If the calculation under this paragraph (i)(6)(iv) yields $0, $0 
shall be disclosed under paragraph (i)(4)(ii)(B) of this section and 
under paragraph (i)(6)(ii) of this section.
    (7) Seller credits. (i) Under the subheading ``Loan Estimate,'' the 
amount disclosed under Sec. 1026.37(h)(1)(vi), labeled ``Seller 
Credits.''
    (ii) Under the subheading ``Final,'' the amount disclosed under 
paragraph (j)(2)(v) of this section, stated as a negative number.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(7):
    (A) If the amount disclosed under paragraph (i)(7)(ii) of this 
section is different than the amount disclosed under paragraph (i)(7)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact, along with a statement that the consumer should see the 
details disclosed under paragraph (j)(2)(v) of this section; or
    (B) If the amount disclosed under paragraph (i)(7)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(7)(i) of 
this section, a statement of that fact.
    (8) Adjustments and other credits. (i) Under the subheading ``Loan 
Estimate,'' the amount disclosed on the Loan Estimate under Sec. 
1026.37(h)(1)(vii) rounded to the nearest whole dollar, labeled 
``Adjustments and Other Credits.''
    (ii) Under the subheading ``Final,'' the amount equal to the total 
of the amounts disclosed under paragraphs (j)(1)(v) through (x) of this 
section reduced by the total of the amounts disclosed under paragraphs 
(j)(2)(vi) through (xi) of this section.
    (iii) Under the subheading ``Did this change?,'' disclosed more 
prominently than the other disclosures under this paragraph (i)(8):

[[Page 132]]

    (A) If the amount disclosed under paragraph (i)(8)(ii) of this 
section is different than the amount disclosed under paragraph (i)(8)(i) 
of this section (unless the difference is due to rounding), a statement 
of that fact, along with a statement that the consumer should see the 
details disclosed under paragraphs (j)(1)(v) through (x) and (j)(2)(vi) 
through (xi) of this section; or
    (B) If the amount disclosed under paragraph (i)(8)(ii) of this 
section is equal to the amount disclosed under paragraph (i)(8)(i) of 
this section, a statement of that fact.
    (9) Cash to close. (i) Under the subheading ``Loan Estimate,'' the 
amount disclosed on the Loan Estimate under Sec. 1026.37(h)(1)(viii), 
labeled ``Cash to Close'' and disclosed more prominently than the other 
disclosures under this paragraph (i).
    (ii) Under the subheading ``Final,'' the sum of the amounts 
disclosed under paragraphs (i)(1) through (i)(8) of this section under 
the subheading ``Final,'' and disclosed more prominently than the other 
disclosures under this paragraph (i).
    (j) Summary of borrower's transaction. Under the heading ``Summaries 
of Transactions,'' with a statement to ``Use this table to see a summary 
of your transaction,'' two separate tables are disclosed. The first 
table shall include, under the subheading ``Borrower's Transaction,'' 
the following information and shall satisfy the following requirements:
    (1) Itemization of amounts due from borrower. (i) The total amount 
due from the consumer at closing, calculated as the sum of items 
required to be disclosed by paragraph (j)(1)(ii) through (x) of this 
section, excluding items paid from funds other than closing funds as 
described in paragraph (j)(4)(i) of this section, labeled ``Due from 
Borrower at Closing'';
    (ii) The amount of the contract sales price of the property being 
sold in a purchase real estate transaction, excluding the price of any 
tangible personal property if the consumer and seller have agreed to a 
separate price for such items, labeled ``Sale Price of Property'';
    (iii) The amount of the sales price of any tangible personal 
property excluded from the contract sales price pursuant to paragraph 
(j)(1)(ii) of this section, labeled ``Sale Price of Any Personal 
Property Included in Sale'';
    (iv) The total amount of closing costs disclosed that are designated 
borrower-paid at closing, calculated pursuant to paragraph (h)(2) of 
this section, labeled ``Closing Costs Paid at Closing'';
    (v) A description and the amount of any additional items that the 
seller has paid prior to the real estate closing, but reimbursed by the 
consumer at the real estate closing, and a description and the amount of 
any other items owed by the consumer at the real estate closing not 
otherwise disclosed pursuant to paragraph (f), (g), or (j) of this 
section;
    (vi) The description ``Adjustments for Items Paid by Seller in 
Advance'';
    (vii) The prorated amount of any prepaid taxes due from the consumer 
to reimburse the seller at the real estate closing, and the time period 
corresponding to that amount, labeled ``City/Town Taxes'';
    (viii) The prorated amount of any prepaid taxes due from the 
consumer to reimburse the seller at the real estate closing, and the 
time period corresponding to that amount, labeled ``County Taxes'';
    (ix) The prorated amount of any prepaid assessments due from the 
consumer to reimburse the seller at the real estate closing, and the 
time period corresponding to that amount, labeled ``Assessments''; and
    (x) A description and the amount of any additional items paid by the 
seller prior to the real estate closing that are due from the consumer 
at the real estate closing.
    (2) Itemization of amounts already paid by or on behalf of borrower. 
(i) The sum of the amounts disclosed in this paragraphs (j)(2)(ii) 
through (xi) of this section, excluding items paid from funds other than 
closing funds as described in paragraph (j)(4)(i) of this section, 
labeled ``Paid Already by or on Behalf of Borrower at Closing'';
    (ii) Any amount that is paid to the seller or held in trust or 
escrow by an attorney or other party under the terms of the agreement 
for the sale of the property, labeled ``Deposit'';

[[Page 133]]

    (iii) The amount of the consumer's new loan amount or first user 
loan as disclosed pursuant to paragraph (b) of this section, labeled 
``Loan Amount'';
    (iv) The amount of any existing loans that the consumer is assuming, 
or any loans subject to which the consumer is talking title to the 
property, labeled ``Existing Loan(s) Assumed or Taken Subject to'';
    (v) The total amount of money that the seller will provide at the 
real estate closing as a lump sum not otherwise itemized to pay for loan 
costs as determined by paragraph (f) of this section and other costs as 
determined by paragraph (g) of this section and any other obligations of 
the seller to be paid directly to the consumer, labeled ``Seller 
Credit'';
    (vi) The description ``Other Credits,'' together with a description 
and amount of other items paid by or on behalf of the consumer and not 
otherwise disclosed pursuant to paragraphs (f), (g), (h), and (j)(2) of 
this section;
    (vii) The description ``Adjustments for Items Unpaid by Seller'';
    (viii) The prorated amount of any unpaid taxes due from the seller 
to reimburse the consumer at the real estate closing, and the time 
period corresponding to that amount, labeled ''City/Town Taxes'';
    (ix) The prorated amount of any unpaid taxes due from the seller to 
reimburse the consumer at the real estate closing, and the time period 
corresponding to that amount, labeled ``County Taxes'';
    (x) The prorated amount of any unpaid assessments due from the 
seller to reimburse the consumer at the real estate closing, and the 
time period corresponding to that amount, labeled ``Assessments''; and
    (xi) A description and the amount of any additional items which have 
not yet been paid and which the consumer is expected to pay after the 
real estate closing, but which are attributable in part to a period of 
time prior to the real estate closing.
    (3) Calculation of borrower's transaction. Under the label 
``Calculation'':
    (i) The amount disclosed pursuant to paragraph (j)(1)(i) of this 
section, labeled ``Total Due from Borrower at Closing'';
    (ii) The amount disclosed pursuant to paragraph (j)(2)(i) of this 
section, if any, disclosed as a negative number, labeled ``Total Paid 
Already by or on Behalf of Borrower at Closing''; and
    (iii) A statement that the disclosed amount is due from or to the 
consumer, and the amount due from or to the consumer at the real estate 
closing, calculated by the sum of the amounts disclosed under paragraphs 
(j)(3)(i) and (ii) of this section, labeled ``Cash to Close.''
    (4) Items paid outside of closing funds. (i) Costs that are not paid 
from closing funds but that would otherwise be disclosed in the table 
required pursuant to paragraph (j) of this section, should be marked 
with the phrase ``Paid Outside of Closing'' or the abbreviation 
``P.O.C.'' and include the name of the party making the payment.
    (ii) For purposes of this paragraph (j), ``closing funds'' means 
funds collected and disbursed at real estate closing.
    (k) Summary of seller's transaction. Under the heading ``Summaries 
of Transactions'' required by paragraph (j) of this section, a separate 
table under the subheading ``Seller's Transaction,'' that includes the 
following information and satisfies the following requirements:
    (1) Itemization of amounts due to seller. (i) The total amount due 
to the seller at the real estate closing, calculated as the sum of items 
required to be disclosed pursuant to paragraphs (k)(1)(ii) through (ix) 
of this section, excluding items paid from funds other than closing 
funds as described in paragraph (k)(4)(i) of this section, labeled ``Due 
to Seller at Closing'';
    (ii) The amount of the contract sales price of the property being 
sold, excluding the price of any tangible personal property if the 
consumer and seller have agreed to a separate price for such items, 
labeled ``Sale Price of Property'';
    (iii) The amount of the sales price of any tangible personal 
property excluded from the contract sales price pursuant to paragraph 
(k)(1)(ii) of this section, labeled ``Sale Price of Any Personal 
Property Included in Sale'';
    (iv) A description and the amount of other items paid to the seller 
by the consumer pursuant to the contract of

[[Page 134]]

sale or other agreement, such as charges that were not disclosed 
pursuant to Sec. 1026.37 on the Loan Estimate or items paid by the 
seller prior to the real estate closing but reimbursed by the consumer 
at the real estate closing;
    (v) The description ``Adjustments for Items Paid by Seller in 
Advance'';
    (vi) The prorated amount of any prepaid taxes due from the consumer 
to reimburse the seller at the real estate closing, and the time period 
corresponding to that amount, labeled ``City/Town Taxes'';
    (vii) The prorated amount of any prepaid taxes due from the consumer 
to reimburse the seller at the real estate closing, and the time period 
corresponding to that amount, labeled ``County Taxes'';
    (viii) The prorated amount of any prepaid assessments due from the 
consumer to reimburse the seller at the real estate closing, and the 
time period corresponding to that amount, labeled ``Assessments''; and
    (ix) A description and the amount of additional items paid by the 
seller prior to the real estate closing that are reimbursed by the 
consumer at the real estate closing.
    (2) Itemization of amounts due from seller. (i) The total amount due 
from the seller at the real estate closing, calculated as the sum of 
items required to be disclosed pursuant to paragraphs (k)(2)(ii) through 
(xiii) of this section, excluding items paid from funds other than 
closing funds as described in paragraph (k)(4)(i) of this section, 
labeled ``Due from Seller at Closing'';
    (ii) The amount of any excess deposit disbursed to the seller prior 
to the real estate closing, labeled ``Excess Deposit'';
    (iii) The amount of closing costs designated seller-paid at closing 
disclosed pursuant to paragraph (h)(2) of this section, labeled 
``Closing Costs Paid at Closing'';
    (iv) The amount of any existing loans that the consumer is assuming, 
or any loans subject to which the consumer is taking title to the 
property, labeled ``Existing Loan(s) Assumed or Taken Subject to'';
    (v) The amount of any loan secured by a second lien on the property 
that will be paid off as part of the real estate closing, labeled 
``Payoff of First Mortgage Loan'';
    (vi) The amount of any loan secured by a first lien on the property 
that will be paid off as part of the real estate closing, labeled 
``Payoff of Second Mortgage Loan'';
    (vii) The total amount of money that the seller will provide at the 
real estate closing as a lump sum not otherwise itemized to pay for loan 
costs as determined by paragraph (f) of this section and other costs as 
determined by paragraph (g) of this section and any other obligations of 
the seller to be paid directly to the consumer, labeled ``Seller 
Credit'';
    (viii) A description and amount of any and all other obligations 
required to be paid by the seller at the real estate closing, including 
any lien-related payoffs, fees, or obligations;
    (ix) The description ``Adjustments for Items Unpaid by Seller'';
    (x) The prorated amount of any unpaid taxes due from the seller to 
reimburse the consumer at the real estate closing, and the time period 
corresponding to that amount, labeled ``City/Town Taxes'';
    (xi) The prorated amount of any unpaid taxes due from the seller to 
the consumer at the real estate closing, and the time period 
corresponding to that amount, labeled ``County Taxes'';
    (xii) The prorated amount of any unpaid assessments due from the 
seller to reimburse the consumer at the real estate closing, and the 
time period corresponding to that amount, labeled ``Assessments''; and
    (xiii) A description and the amount of any additional items which 
have not yet been paid and which the consumer is expected to pay after 
the real estate closing, but which are attributable in part to a period 
of time prior to the real estate closing.
    (3) Calculation of seller's transaction. Under the label 
``Calculation'':
    (i) The amount described in paragraph (k)(1)(i) of this section, 
labeled ``Total Due to Seller at Closing'';
    (ii) The amount described in paragraph (k)(2)(i) of this section, 
disclosed as a negative number, labeled ``Total Due from Seller at 
Closing''; and

[[Page 135]]

    (iii) A statement that the disclosed amount is due from or to the 
seller, and the amount due from or to the seller at closing, calculated 
by the sum of the amounts disclosed pursuant to paragraphs (k)(3)(i) and 
(ii) of this section, labeled ``Cash.''
    (4) Items paid outside of closing funds. (i) Charges that are not 
paid from closing funds but that would otherwise be disclosed in the 
table described in paragraph (k) of this section, should be marked with 
the phrase ``Paid Outside of Closing'' or the acronym ``P.O.C.'' and 
include a statement of the party making the payment.
    (ii) For purposes of this paragraph (k), ``closing funds'' are 
defined as funds collected and disbursed at real estate closing.
    (l) Loan disclosures. Under the master heading ``Additional 
Information About This Loan'' and under the heading ``Loan 
Disclosures'':
    (1) Assumption. Under the subheading ``Assumption,'' the information 
required by Sec. 1026.37(m)(2).
    (2) Demand feature. Under the subheading ``Demand Feature,'' a 
statement of whether the legal obligation permits the creditor to demand 
early repayment of the loan and, if the statement is affirmative, a 
reference to the note or other loan contract for details.
    (3) Late payment. Under the subheading ``Late Payment,'' the 
information required by Sec. 1026.37(m)(4).
    (4) Negative amortization. Under the subheading ``Negative 
Amortization (Increase in Loan Amount),'' a statement of whether the 
regular periodic payments may cause the principal balance to increase.
    (i) If the regular periodic payments do not cover all of the 
interest due, the creditor must provide a statement that the principal 
balance will increase, such balance will likely become larger than the 
original loan amount, and increases in such balance lower the consumer's 
equity in the property.
    (ii) If the consumer may make regular periodic payments that do not 
cover all of the interest due, the creditor must provide a statement 
that, if the consumer chooses a monthly payment option that does not 
cover all of the interest due, the principal balance may become larger 
than the original loan amount and the increases in the principal balance 
lower the consumer's equity in the property.
    (5) Partial payment policy. Under the subheading ``Partial 
Payments'':
    (i) If periodic payments that are less than the full amount due are 
accepted, a statement that the creditor, using the term ``lender,'' may 
accept partial payments and apply such payments to the consumer's loan;
    (ii) If periodic payments that are less than the full amount due are 
accepted but not applied to a consumer's loan until the consumer pays 
the remainder of the full amount due, a statement that the creditor, 
using the term ``lender,'' may hold partial payments in a separate 
account until the consumer pays the remainder of the payment and then 
apply the full periodic payment to the consumer's loan;
    (iii) If periodic payments that are less than the full amount due 
are not accepted, a statement that the creditor, using the term 
``lender,'' does not accept any partial payments; and
    (iv) A statement that, if the loan is sold, the new creditor, using 
the term ``lender,'' may have a different policy.
    (6) Security interest. Under the subheading ``Security Interest,'' a 
statement that the consumer is granting a security interest in the 
property securing the transaction, the property address including a zip 
code, and a statement that the consumer may lose the property if the 
consumer does not make the required payments or satisfy other 
requirements under the legal obligation.
    (7) Escrow account. Under the subheading ``Escrow Account'':
    (i) Under the reference ``For now,'' a statement that an escrow 
account may also be called an impound or trust account, a statement of 
whether the creditor has established or will establish, at or before 
consummation, an escrow account in connection with the transaction for 
the costs that will be paid using escrow account funds described in 
paragraph (l)(7)(i)(A)(1) of this section:
    (A) A statement that the creditor may be liable for penalties and 
interest if it fails to make a payment for any

[[Page 136]]

cost for which the escrow account is established, a statement that the 
consumer would have to pay such costs directly in the absence of the 
escrow account, and a table, titled ``Escrow'' that contains, if an 
escrow account is or will be established, an itemization of the 
following:
    (1) The total amount the consumer will be required to pay into an 
escrow account over the first year after consummation for payment of the 
charges described in Sec. 1026.37(c)(4)(ii), labeled ``Escrowed 
Property Costs over Year 1,'' together with a descriptive name of each 
such charge, calculated as the amount disclosed under paragraph 
(l)(7)(i)(A)(4) of this section multiplied by the number of periodic 
payments scheduled to be made to the escrow account during the first 
year after consummation;
    (2) The estimated amount the consumer is likely to pay during the 
first year after consummation for charges described in Sec. 
1026.37(c)(4)(ii) that are known to the creditor and that will not be 
paid using escrow account funds, labeled ``Non-Escrowed Property Costs 
over Year 1,'' together with a descriptive name of each such charge and 
a statement that the consumer may have to pay other costs that are not 
listed;
    (3) The total amount disclosed pursuant to paragraph (g)(3) of this 
section, a statement that the payment is a cushion for the escrow 
account, labeled ``Initial Escrow Payment,'' and a reference to the 
information disclosed pursuant to paragraph (g)(3) of this section;
    (4) The amount the consumer will be required to pay into the escrow 
account with each periodic payment during the first year after 
consummation for payment of the charges described in Sec. 
1026.37(c)(4)(ii), labeled ``Monthly Escrow Payment.''
    (5) A creditor complies with the requirements of paragraphs 
(l)(7)(i)(A)(1) and (l)(7)(i)(A)(4) of this section if the creditor 
bases the numerical disclosures required by those paragraphs on amounts 
derived from the escrow account analysis required under Regulation X, 12 
CFR 1024.17.
    (B) A statement of whether the consumer will not have an escrow 
account, the reason why an escrow account will not be established, a 
statement that the consumer must pay all property costs, such as taxes 
and homeowner's insurance, directly, a statement that the consumer may 
contact the creditor to inquire about the availability of an escrow 
account, and a table, titled ``No Escrow,'' that contains, if an escrow 
account will not be established, an itemization of the following:
    (1) The estimated total amount the consumer will pay directly for 
charges described in Sec. 1026.37(c)(4)(ii) during the first year after 
consummation that are known to the creditor and a statement that, 
without an escrow account, the consumer must pay the identified costs, 
possibly in one or two large payments, labeled ``Property Costs over 
Year 1''; and
    (2) The amount of any fee the creditor imposes on the consumer for 
not establishing an escrow account in connection with the transaction, 
labeled ``Escrow Waiver Fee.''
    (ii) Under the reference ``In the future'':
    (A) A statement that the consumer's property costs may change and 
that, as a result, the consumer's escrow payment may change;
    (B) A statement that the consumer may be able to cancel any escrow 
account that has been established, but that the consumer is responsible 
for directly paying all property costs in the absence of an escrow 
account; and
    (C) A description of the consequences if the consumer fails to pay 
property costs, including the actions that a State or local government 
may take if property taxes are not paid and the actions the creditor may 
take if the consumer does not pay some or all property costs, such as 
adding amounts to the loan balance, adding an escrow account to the 
loan, or purchasing a property insurance policy on the consumer's behalf 
that may be more expensive and provide fewer benefits than what the 
consumer could obtain directly.
    (m) Adjustable payment table. Under the master heading ``Additional 
Information About This Loan'' required by paragraph (l) of this section, 
and under the heading ``Adjustable Payment (AP) Table,'' the table 
required to be disclosed by Sec. 1026.37(i).

[[Page 137]]

    (n) Adjustable interest rate table. Under the master heading 
``Additional Information About This Loan'' required by paragraph (l) of 
this section, and under the heading ``Adjustable Interest Rate (AIR) 
Table,'' the table required to be disclosed by Sec. 1026.37(j).
    (o) Loan calculations. In a separate table under the heading ``Loan 
Calculations'':
    (1) Total of payments. The ``Total of Payments,'' using that term 
and expressed as a dollar amount, and a statement that the disclosure is 
the total the consumer will have paid after making all payments of 
principal, interest, mortgage insurance, and loan costs, as scheduled.
    (2) Finance charge. The ``Finance Charge,'' using that term and 
expressed as a dollar amount, and the following statement: ``The dollar 
amount the loan will cost you.'' The disclosed finance charge and other 
disclosures affected by the disclosed financed 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.
    (3) Amount financed. The ``Amount Financed,'' using that term and 
expressed as a dollar amount, and the following statement: ``The loan 
amount available after paying your upfront finance charge.''
    (4) Annual percentage rate. The ``Annual Percentage Rate,'' using 
that term and the abbreviation ``APR'' and expressed as a percentage, 
and the following statement: ``Your costs over the loan term expressed 
as a rate. This is not your interest rate.''
    (5) Total interest percentage. The ``Total Interest Percentage,'' 
using that term and the abbreviation ``TIP'' and expressed as a 
percentage, and the following statement: ``The total amount of interest 
that you will pay over the loan term as a percentage of your loan 
amount.''
    (p) Other disclosures. Under the heading ``Other Disclosures'':
    (1) Appraisal. For transactions subject to 15 U.S.C. 1639h or 
1691(e), as implemented in this part or Regulation B, 12 CFR part 1002, 
respectively, under the subheading ``Appraisal,'' that:
    (i) If there was an appraisal of the property in connection with the 
loan, the creditor is required to provide the consumer with a copy at no 
additional cost to the consumer at least three days prior to 
consummation; and
    (ii) If the consumer has not yet received a copy of the appraisal, 
the consumer should contact the creditor using the information disclosed 
pursuant to paragraph (r) of this section.
    (2) Contract details. A statement that the consumer should refer to 
the appropriate loan document and security instrument for information 
about nonpayment, what constitutes a default under the legal obligation, 
circumstances under which the creditor may accelerate the maturity of 
the obligation, and prepayment rebates and penalties, under the 
subheading ``Contract Details.''
    (3) Liability after foreclosure. A brief statement of whether, and 
the conditions under which, the consumer may remain responsible for any 
deficiency after foreclosure under applicable State law, a brief 
statement that certain protections may be lost if the consumer 
refinances or incurs additional debt on the property, and a statement 
that the consumer should consult an attorney for additional information, 
under the subheading ``Liability after Foreclosure.''
    (4) Refinance. Under the subheading ``Refinance,'' the statement 
required by Sec. 1026.37(m)(5).
    (5) Tax deductions. Under the subheading ``Tax Deductions,'' a 
statement that, if the extension of credit exceeds the fair market value 
of the property, the interest on the portion of the credit extension 
that is greater than the fair market value of the property is not tax 
deductible for Federal income tax purposes and a statement that the 
consumer should consult a tax adviser for further information.
    (q) Questions notice. In a separate notice labeled ``Questions?'':
    (1) A statement directing the consumer to use the contact 
information disclosed under paragraph (r) of this section if the 
consumer has any questions about the disclosures required pursuant to 
Sec. 1026.19(f);

[[Page 138]]

    (2) A reference to the Bureau's Web site to obtain more information 
or to submit a complaint; and the link or uniform resource locator 
address to the Web site: www.consumerfinance.gov/mortgage-closing; and
    (3) A prominent question mark.
    (r) Contact information. In a separate table, under the heading 
``Contact Information,'' the following information for each creditor 
(under the subheading ``Lender''), mortgage broker (under the subheading 
``Mortgage Broker''), consumer's real estate broker (under the 
subheading ``Real Estate Broker (B)''), seller's real estate broker 
(under the subheading ``Real Estate Broker (S)''), and settlement agent 
(under the subheading ``Settlement Agent'') participating in the 
transaction:
    (1) Name of the person, labeled ``Name'';
    (2) Address, using that label;
    (3) Nationwide Mortgage Licensing System & Registry (NMLSR ID) 
identification number, labeled ``NMLS ID,'' or, if none, license number 
or other unique identifier issued by the applicable jurisdiction or 
regulating body with which the person is licensed and/or registered, 
labeled ``License ID,'' with the abbreviation for the State of the 
applicable jurisdiction or regulatory body stated before the word 
``License'' in the label, for the persons identified in paragraph (r)(1) 
of this section;
    (4) Name of the natural person who is the primary contact for the 
consumer with the person identified in paragraph (r)(1) of this section, 
labeled ``Contact'';
    (5) NMLSR ID, labeled ``Contact NMLS ID,'' or, if none, license 
number or other unique identifier issued by the applicable jurisdiction 
or regulating body with which the person is licensed and/or registered, 
labeled ``Contact License ID,'' with the abbreviation for the State of 
the applicable jurisdiction or regulatory body stated before the word 
``License'' in the label, for the natural person identified in paragraph 
(r)(4) of this section,
    (6) Email address for the person identified in paragraph (r)(4) of 
this section, labeled ``Email''; and
    (7) Telephone number for the person identified in paragraph (r)(4) 
of this section, labeled ``Phone.''
    (s) Signature statement. (1) At the creditor's option, under the 
heading ``Confirm Receipt,'' a line for the signatures of the consumers 
in the transaction. If the creditor provides a line for the consumer's 
signature, the creditor must disclose above the signature line the 
statement required to be disclosed under Sec. 1026.37(n)(1).
    (2) If the creditor does not provide a line for the consumer's 
signature, the statement required to be disclosed under Sec. 
1026.37(n)(2) under the heading ``Other Disclosures'' required by 
paragraph (p) of this section.
    (t) Form of disclosures--(1) General requirements. (i) The creditor 
shall make the disclosures required by this section clearly and 
conspicuously in writing, in a form that the consumer may keep. The 
disclosures also shall be grouped together and segregated from 
everything else.
    (ii) Except as provided in paragraph (t)(5), the disclosures shall 
contain only the information required by paragraphs (a) through (s) of 
this section and shall be made in the same order, and positioned 
relative to the master headings, headings, subheadings, labels, and 
similar designations in the same manner, as shown in form H-25, set 
forth in appendix H to this part.
    (2) Headings and labels. If a master heading, heading, subheading, 
label, or similar designation contains the word ``estimated'' or a 
capital letter designation in form H-25, set forth in appendix H to this 
part, that heading, label, or similar designation shall contain the word 
``estimated'' and the applicable capital letter designation.
    (3) Form. Except as provided in paragraph (t)(5) of this section:
    (i) For a transaction subject to Sec. 1026.19(f) that is a 
federally related mortgage loan, as defined in Regulation X, 12 CFR 
1024.2, the disclosures must be made using form H-25, set forth in 
appendix H to this part.
    (ii) For any other transaction subject to this section, the 
disclosures must be made with headings, content, and format 
substantially similar to form H-25, set forth in appendix H to this 
part.
    (iii) The disclosures required by this section may be provided to 
the consumer in electronic form, subject to compliance with the consumer 
consent

[[Page 139]]

and other applicable provisions of the Electronic Signatures in Global 
and National Commerce Act (15 U.S.C. 7001 et seq.).
    (4) Rounding--(i) Nearest dollar. The following dollar amounts are 
required to be rounded to the nearest whole dollar:
    (A) The dollar amounts required to be disclosed by paragraph (b) of 
this section that are required to be rounded by Sec. 
1026.37(o)(4)(i)(A) when disclosed under Sec. 1026.37(b)(6) and (7);
    (B) The dollar amounts required to be disclosed by paragraph (c) of 
this section that are required to be rounded by Sec. 
1026.37(o)(4)(i)(A) when disclosed under Sec. 1026.37(c)(1)(iii);
    (C) The dollar amounts required to be disclosed by paragraphs (e) 
and (i) of this section under the subheading ``Loan Estimate'';
    (D) The dollar amounts required to be disclosed by paragraph (m) of 
this section; and
    (E) The dollar amounts required to be disclosed by paragraph (c) of 
this section that are required to be rounded by Sec. 
1026.37(o)(4)(i)(C) when disclosed under Sec. 1026.37(c)(2)(iv).
    (ii) Percentages. The percentage amounts required to be disclosed 
under paragraphs (b), (f)(1)(i), (g)(2)(iii), (l)(3), (n), and (o)(5) of 
this section shall not be rounded and shall be disclosed up to two or 
three decimal places. The percentage amount required to be disclosed 
under paragraph (o)(4) of this section shall not be rounded and shall be 
disclosed up to three decimal places. If the amount is a whole number 
then the amount disclosed shall be truncated at the decimal point.
    (iii) Loan amount. The dollar amount required to be disclosed by 
paragraph (b) of this section as required by Sec. 1026.37(b)(1) shall 
be disclosed as an unrounded number, except that if the amount is a 
whole number then the amount disclosed shall be truncated at the decimal 
point.
    (5) Exceptions--(i) Unit-period. Wherever the form or this section 
uses ``monthly'' to describe the frequency of any payments or uses 
``month'' to describe the applicable unit-period, the creditor shall 
substitute the appropriate term to reflect the fact that the 
transaction's terms provide for other than monthly periodic payments, 
such as bi-weekly or quarterly payments.
    (ii) Lender credits. The amount required to be disclosed by 
paragraph (d)(1)(i)(D) of this section may be omitted from the form if 
the amount is zero.
    (iii) Administrative information. The creditor may insert at the 
bottom of each page under the disclosures required by this section as 
illustrated by form H-25 of appendix H to this part, any administrative 
information, text, or codes that assist in identification of the form or 
the information disclosed on the form, provided that the space provided 
on form H-25 for any of the information required by this section is not 
altered.
    (iv) Closing cost details--(A) Additional line numbers. Line numbers 
provided on form H-25 of appendix H to this part for the disclosure of 
the information required by paragraphs (f)(1) through (3) and (g)(1) 
through (4) of this section that are not used may be deleted and the 
deleted line numbers added to the space provided for any other of those 
paragraphs as necessary to accommodate the disclosure of additional 
items.
    (B) Two pages. To the extent that adding or deleting line numbers 
provided on form H-25 of appendix H to this part, as permitted by 
paragraph (t)(5)(iv)(A) of this section, does not accommodate an 
itemization of all information required to be disclosed by paragraphs 
(f) through (h) on one page, the information required to be disclosed by 
paragraphs (f) through (h) of this section may be disclosed on two 
pages, provided that the information required by paragraph (f) is 
disclosed on a page separate from the information required by paragraph 
(g). The information required by paragraph (g), if disclosed on a page 
separate from paragraph (f), shall be disclosed on the same page as the 
information required by paragraph (h).
    (v) Separation of consumer and seller information. The creditor or 
settlement agent preparing the form may use form H-25 of appendix H to 
this part for the disclosure provided to both the consumer and the 
seller, with the following modifications to separate the information of 
the consumer and seller, as necessary:

[[Page 140]]

    (A) The information required to be disclosed by paragraphs (j) and 
(k) of this section may be disclosed on separate pages to the consumer 
and the seller, respectively, with the information required by the other 
paragraph left blank. The information disclosed to the consumer pursuant 
to paragraph (j) of this section must be disclosed on the same page as 
the information required by paragraph (i) of this section.
    (B) The information required to be disclosed by paragraphs (f) and 
(g) of this section with respect to costs paid by the consumer may be 
left blank on the disclosure provided to the seller.
    (C) The information required by paragraphs (a)(2), (a)(4)(iii), 
(a)(5), (b) through (d), (i), (l) through (p), (r) with respect to the 
creditor and mortgage broker, and (s)(2) of this section may be left 
blank on the disclosure provided to the seller.
    (vi) Modified version of the form for a seller or third-party. The 
information required by paragraphs (a)(2), (a)(4)(iii), (a)(5), (b) 
through (d), (f), and (g) with respect to costs paid by the consumer, 
(i), (j), (l) through (p), (q)(1), and (r) with respect to the creditor 
and mortgage broker, and (s) of this section may be deleted from the 
form provided to the seller or a third-party, as illustrated by form H-
25(I) of appendix H to this part.
    (vii) Transaction without a seller. The following modifications to 
form H-25 of appendix H to this part may be made for a transaction that 
does not involve a seller and for which the alternative tables are 
disclosed pursuant to paragraphs (d)(2) and (e) of this section, as 
illustrated by form H-25(J) of appendix H to this part:
    (A) The information required by paragraph (a)(4)(ii), and paragraphs 
(f), (g), and (h) of this section with respect to costs paid by the 
seller, may be deleted.
    (B) A table under the master heading ``Closing Cost Details'' 
required by paragraph (f) of this section may be added with the heading 
``Payoffs and Payments'' that itemizes the amounts of payments made at 
closing to other parties from the credit extended to the consumer or 
funds provided by the consumer in connection with the transaction, 
including designees of the consumer; the payees and a description of the 
purpose of such disbursements under the subheading ``To''; and the total 
amount of such payments labeled ``Total Payoffs and Payments.''
    (C) The tables required to be disclosed by paragraphs (j) and (k) of 
this section may be deleted.
    (viii) Translation. The form may be translated into languages other 
than English, and creditors may modify form H-25 of appendix H to this 
part to the extent that translation prevents the headings, labels, 
designations, and required disclosure items under this section from 
fitting in the space provided on form H-25.
    (ix) Customary recitals and information. An additional page may be 
attached to the form for the purpose of including customary recitals and 
information used locally in real estate settlements.

[78 FR 80120, Dec. 31, 2013]

    Effective Date Note: At 78 FR 80120, Dec. 31, 2013, Sec. 1026.38 
was added, effective Aug. 1, 2015.

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

[[Page 141]]

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.
    (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.

[[Page 142]]

    (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.

    Effective Date Note: At 78 FR 80130, Dec. 31, 2013, Sec. 1026.39 
was amended by revising paragraphs (a)(2) and (d) introductory text and 
adding paragraph (d)(5), effective Aug. 1, 2015. For the convenience of 
the user, the added and revised text is set forth as follows:

Sec. 1026.39  Mortgage transfer disclosures.

    (a) * * *
    (2) A ``mortgage loan'' means:
    (i) An open-end consumer credit transaction that is secured by the 
principal dwelling of a consumer; and
    (ii) A closed-end consumer credit transaction secured by a dwelling 
or real property.

                                * * * * *

    (d) Content of required disclosures. The disclosures required by 
this section shall identify the mortgage loan that was sold, assigned or 
otherwise transferred, and state the following, except that the 
information required by paragraph (d)(5) of this section shall be stated 
only for a mortgage loan that is a closed-end consumer credit 
transaction secured by a dwelling or real property other than a reverse 
mortgage transaction subject to Sec. 1026.33 of this part:

                                * * * * *

    (5) Partial payment policy. Under the subheading ``Partial 
Payment'':
    (i) If periodic payments that are less than the full amount due are 
accepted, a statement that the covered person, using the term 
``lender,'' may accept partial payments and apply such payments to the 
consumer's loan;
    (ii) If periodic payments that are less than the full amount due are 
accepted but not applied to a consumer's loan until the consumer pays 
the remainder of the full amount due, a statement that the covered 
person, using the term ``lender,'' may hold partial payments in a 
separate account until the consumer pays the remainder of the payment 
and then apply the full periodic payment to the consumer's loan;
    (iii) If periodic payments that are less than the full amount due 
are not accepted, a statement that the covered person, using the term 
``lender,'' does not accept any partial payments; and
    (iv) A statement that, if the loan is sold, the new covered person, 
using the term ``lender,'' may have a different policy.

                                * * * * *

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 
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

[[Page 143]]

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 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.

[[Page 144]]

    (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.
    (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.

[[Page 145]]

    (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;
    (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

[[Page 146]]

consumer, the consumer is considered to have received them three 
business days after they are mailed.

Sec. 1026.41  Periodic statements for residential mortgage loans.

    (a) In general. (1) Scope. This section applies to a closed-end 
consumer credit transaction secured by a dwelling, unless an exemption 
in paragraph (e) of this section applies. A closed-end consumer credit 
transaction secured by a dwelling is referred to as a mortgage loan for 
purposes of this section.
    (2) Periodic statements. A servicer of a transaction subject to this 
section shall provide the consumer, for each billing cycle, a periodic 
statement meeting the requirements of paragraphs (b), (c), and (d) of 
this section. If a mortgage loan has a billing cycle shorter than a 
period of 31 days (for example, a bi-weekly billing cycle), a periodic 
statement covering an entire month may be used. For the purposes of this 
section, servicer includes the creditor, assignee, or servicer, as 
applicable. A creditor or assignee that does not currently own the 
mortgage loan or the mortgage servicing rights is not subject to the 
requirement in this section to provide a periodic statement.
    (b) Timing of the periodic statement. The periodic statement must be 
delivered or placed in the mail within a reasonably prompt time after 
the payment due date or the end of any courtesy period provided for the 
previous billing cycle.
    (c) Form of the periodic statement. The servicer must make the 
disclosures required by this section clearly and conspicuously in 
writing, or electronically if the consumer agrees, and in a form that 
the consumer may keep. Sample forms for periodic statements are provided 
in appendix H-30. Proper use of these forms complies with the 
requirements of this paragraph (c) and the layout requirements in 
paragraph (d) of this section.
    (d) Content and layout of the periodic statement. The periodic 
statement required by this section shall include:
    (1) Amount due. Grouped together in close proximity to each other 
and located at the top of the first page of the statement:
    (i) The payment due date;
    (ii) The amount of any late payment fee, and the date on which that 
fee will be imposed if payment has not been received; and
    (iii) The amount due, shown more prominently than other disclosures 
on the page and, if the transaction has multiple payment options, the 
amount due under each of the payment options.
    (2) Explanation of amount due. The following items, grouped together 
in close proximity to each other and located on the first page of the 
statement:
    (i) The monthly payment amount, including a breakdown showing how 
much, if any, will be applied to principal, interest, and escrow and, if 
a mortgage loan has multiple payment options, a breakdown of each of the 
payment options along with information on whether the principal balance 
will increase, decrease, or stay the same for each option listed;
    (ii) The total sum of any fees or charges imposed since the last 
statement; and
    (iii) Any payment amount past due.
    (3) Past Payment Breakdown. The following items, grouped together in 
close proximity to each other and located on the first page of the 
statement:
    (i) The total of all payments received since the last statement, 
including a breakdown showing the amount, if any, that was applied to 
principal, interest, escrow, fees and charges, and the amount, if any, 
sent to any suspense or unapplied funds account; and
    (ii) The total of all payments received since the beginning of the 
current calendar year, including a breakdown of that total showing the 
amount, if any, that was applied to principal, interest, escrow, fees 
and charges, and the amount, if any, currently held in any suspense or 
unapplied funds account.
    (4) Transaction activity. A list of all the transaction activity 
that occurred since the last statement. For purposes of this paragraph 
(d)(4), transaction activity means any activity that causes a credit or 
debit to the amount currently due. This list must include the date of 
the transaction, a brief description of the transaction, and the amount 
of the transaction for each activity on the list.

[[Page 147]]

    (5) Partial payment information. If a statement reflects a partial 
payment that was placed in a suspense or unapplied funds account, 
information explaining what must be done for the funds to be applied. 
The information must be on the front page of the statement or, 
alternatively, may be included on a separate page enclosed with the 
periodic statement or in a separate letter.
    (6) Contact information. A toll-free telephone number and, if 
applicable, an electronic mailing address that may be used by the 
consumer to obtain information about the consumer's account, located on 
the front page of the statement.
    (7) Account information. The following information:
    (i) The amount of the outstanding principal balance;
    (ii) The current interest rate in effect for the mortgage loan;
    (iii) The date after which the interest rate may next change;
    (iv) The existence of any prepayment penalty, as defined in Sec. 
1026.32(b)(6)(i), that may be charged;
    (v) The Web site to access either the Bureau list or the HUD list of 
homeownership counselors and counseling organizations and the HUD toll-
free telephone number to access contact information for homeownership 
counselors or counseling organizations; and
    (8) Delinquency information. If the consumer is more than 45 days 
delinquent, the following items, grouped together in close proximity to 
each other and located on the first page of the statement or, 
alternatively, on a separate page enclosed with the periodic statement 
or in a separate letter:
    (i) The date on which the consumer became delinquent;
    (ii) A notification of possible risks, such as foreclosure, and 
expenses, that may be incurred if the delinquency is not cured;
    (iii) An account history showing, for the previous six months or the 
period since the last time the account was current, whichever is 
shorter, the amount remaining past due from each billing cycle or, if 
any such payment was fully paid, the date on which it was credited as 
fully paid;
    (iv) A notice indicating any loss mitigation program to which the 
consumer has agreed, if applicable;
    (v) A notice of whether the servicer has made the first notice or 
filing required by applicable law for any judicial or non-judicial 
foreclosure process, if applicable;
    (vi) The total payment amount needed to bring the account current; 
and
    (vii) A reference to the homeownership counselor information 
disclosed pursuant to paragraph (d)(7)(v) of this section.
    (e) Exemptions. (1) Reverse mortgages. Reverse mortgage 
transactions, as defined by Sec. 1026.33(a), are exempt from the 
requirements of this section.
    (2) Timeshare plans. Transactions secured by consumers' interests in 
timeshare plans, as defined by 11 U.S.C. 101(53D), are exempt from the 
requirements of this section.
    (3) Coupon books. The requirements of paragraph (a) of this section 
do not apply to fixed-rate loans if the servicer:
    (i) Provides the consumer with a coupon book that includes on each 
coupon the information listed in paragraph (d)(1) of this section;
    (ii) Provides the consumer with a coupon book that includes anywhere 
in the coupon book:
    (A) The account information listed in paragraph (d)(7) of this 
section;
    (B) The contact information for the servicer, listed in paragraph 
(d)(6) of this section; and
    (C) Information on how the consumer can obtain the information 
listed in paragraph (e)(3)(iii) of this section;
    (iii) Makes available upon request to the consumer by telephone, in 
writing, in person, or electronically, if the consumer consents, the 
information listed in paragraph (d)(2) through (5) of this section; and
    (iv) Provides the consumer the information listed in paragraph 
(d)(8) of this section in writing, for any billing cycle during which 
the consumer is more than 45 days delinquent.
    (4) Small servicers. (i) Exemption. A creditor, assignee, or 
servicer is exempt from the requirements of this section for mortgage 
loans serviced by a small servicer.

[[Page 148]]

    (ii) Small servicer defined. A small servicer is a servicer that 
either:
    (A) Services, together with any affiliates, 5,000 or fewer mortgage 
loans, for all of which the servicer (or an affiliate) is the creditor 
or assignee; or
    (B) Is a Housing Finance Agency, as defined in 24 CFR 266.5.
    (iii) Small servicer determination. In determining whether a 
servicer is a small servicer, the servicer is evaluated based on the 
mortgage loans serviced by the servicer and any affiliates as of January 
1 for the remainder of the calendar year. A servicer that ceases to 
qualify as a small servicer will have six months from the time it ceases 
to qualify or until the next January 1, whichever is later, to comply 
with any requirements from which the servicer is no longer exempt as a 
small servicer. The following mortgage loans are not considered in 
determining whether a servicer qualifies as a small servicer:
    (A) Mortgage loans voluntarily serviced by the servicer for a 
creditor or assignee that is not an affiliate of the servicer and for 
which the servicer does not receive any compensation or fees.
    (B) Reverse mortgage transactions.
    (C) Mortgage loans secured by consumers' interests in timeshare 
plans.
    (5) Consumers in bankruptcy. A servicer is exempt from the 
requirements of this section for a mortgage loan while the consumer is a 
debtor in bankruptcy under Title 11 of the United States Code.

[78 FR 11007, Feb. 14, 2013, as amended at 78 FR 44718, July 24, 2013; 
78 FR 63005, Oct. 23, 2013]

    Effective Date Note: At 78 FR 11007, Feb. 14, 2013, Sec. 1026.41 
was added, effective Jan. 10, 2014. Section 1026.41 was further amended 
by at 78 FR 44718, July 24, 2013 by revising paragraphs (a)(1) and 
(e)(4)(ii) and (iii), effective Jan. 10, 2014. Paragraph (e)(5) was 
added at 78 FR 63005, Oct. 23, 2013, eff. Jan. 10, 2014.

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

[[Page 149]]

consumer's principal dwelling at or above a certain amount;
    (C) Implying to a person that prepares valuations that current or 
future 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

[[Page 150]]

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 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

[[Page 151]]

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.
    (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;

[[Page 152]]

    (C) Manage the process of having an appraisal performed, including 
providing administrative services such as 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. 1026.43  Minimum standards for transactions secured by a dwelling.

    (a) Scope. This section applies to any consumer credit transaction 
that is secured by a dwelling, as defined in Sec. 1026.2(a)(19), 
including any real property attached to a dwelling, other than:
    (1) A home equity line of credit subject to Sec. 1026.40;
    (2) A mortgage transaction secured by a consumer's interest in a 
timeshare plan, as defined in 11 U.S.C. 101(53(D)); or
    (3) For purposes of paragraphs (c) through (f) of this section:
    (i) A reverse mortgage subject to Sec. 1026.33;
    (ii) A temporary or ``bridge'' loan with a term of 12 months or 
less, such as a loan to finance the purchase of a new dwelling where the 
consumer plans to sell a current dwelling within 12 months or a loan to 
finance the initial construction of a dwelling;
    (iii) A construction phase of 12 months or less of a construction-
to-permanent loan;
    (iv) An extension of credit made pursuant to a program administered 
by a Housing Finance Agency, as defined under 24 CFR 266.5;
    (v) An extension of credit made by:
    (A) A creditor designated as a Community Development Financial 
Institution, as defined under 12 CFR 1805.104(h);
    (B) A creditor designated as a Downpayment Assistance through 
Secondary Financing Provider, pursuant to 24 CFR 200.194(a), operating 
in accordance with regulations prescribed by the U.S. Department of 
Housing and Urban Development applicable to such persons;
    (C) A creditor designated as a Community Housing Development 
Organization provided that the creditor has entered into a commitment 
with a participating jurisdiction and is undertaking a project under the 
HOME program, pursuant to the provisions of 24 CFR 92.300(a), and as the 
terms community housing development organization, commitment, 
participating jurisdiction, and project are defined under 24 CFR 92.2; 
or
    (D) A creditor with a tax exemption ruling or determination letter 
from the Internal Revenue Service under section 501(c)(3) of the 
Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3); 26 CFR 1.501(c)(3)-
1), provided that:
    (1) During the calendar year preceding receipt of the consumer's 
application, the creditor extended credit secured by a dwelling no more 
than 200 times;

[[Page 153]]

    (2) During the calendar year preceding receipt of the consumer's 
application, the creditor extended credit secured by a dwelling only to 
consumers with income that did not exceed the low- and moderate-income 
household limit as established pursuant to section 102 of the Housing 
and Community Development Act of 1974 (42 U.S.C. 5302(a)(20)) and 
amended from time to time by the U.S. Department of Housing and Urban 
Development, pursuant to 24 CFR 570.3;
    (3) The extension of credit is to a consumer with income that does 
not exceed the household limit specified in paragraph (a)(3)(v)(D)(2) of 
this section; and
    (4) The creditor determines, in accordance with written procedures, 
that the consumer has a reasonable ability to repay the extension of 
credit.
    (vi) An extension of credit made pursuant to a program authorized by 
sections 101 and 109 of the Emergency Economic Stabilization Act of 2008 
(12 U.S.C. 5211; 5219);
    (b) Definitions. For purposes of this section:
    (1) Covered transaction means a consumer credit transaction that is 
secured by a dwelling, as defined in Sec. 1026.2(a)(19), including any 
real property attached to a dwelling, other than a transaction exempt 
from coverage under paragraph (a) of this section.
    (2) Fully amortizing payment means a periodic payment of principal 
and interest that will fully repay the loan amount over the loan term.
    (3) Fully indexed rate means the interest rate calculated using the 
index or formula that will apply after recast, as determined at the time 
of consummation, and the maximum margin that can apply at any time 
during the loan term.
    (4) Higher-priced covered transaction means a covered transaction 
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 a first-lien covered transaction, 
other than a qualified mortgage under paragraph (e)(5), (e)(6), or (f) 
of this section; by 3.5 or more percentage points for a first-lien 
covered transaction that is a qualified mortgage under paragraph (e)(5), 
(e)(6), or (f) of this section; or by 3.5 or more percentage points for 
a subordinate-lien covered transaction.
    (5) Loan amount means the principal amount the consumer will borrow 
as reflected in the promissory note or loan contract.
    (6) Loan term means the period of time to repay the obligation in 
full.
    (7) Maximum loan amount means the loan amount plus any increase in 
principal balance that results from negative amortization, as defined in 
Sec. 1026.18(s)(7)(v), based on the terms of the legal obligation 
assuming:
    (i) The consumer makes only the minimum periodic payments for the 
maximum possible time, until the consumer must begin making fully 
amortizing payments; and
    (ii) The maximum interest rate is reached at the earliest possible 
time.
    (8) Mortgage-related obligations mean property taxes; premiums and 
similar charges identified in Sec. 1026.4(b)(5), (7), (8), and (10) 
that are required by the creditor; fees and special assessments imposed 
by a condominium, cooperative, or homeowners association; ground rent; 
and leasehold payments.
    (9) Points and fees has the same meaning as in Sec. 1026.32(b)(1).
    (10) Prepayment penalty has the same meaning as in Sec. 
1026.32(b)(6).
    (11) Recast means:
    (i) For an adjustable-rate mortgage, as defined in Sec. 
1026.18(s)(7)(i), the expiration of the period during which payments 
based on the introductory fixed interest rate are permitted under the 
terms of the legal obligation;
    (ii) For an interest-only loan, as defined in Sec. 
1026.18(s)(7)(iv), the expiration of the period during which interest-
only payments are permitted under the terms of the legal obligation; and
    (iii) For a negative amortization loan, as defined in Sec. 
1026.18(s)(7)(v), the expiration of the period during which negatively 
amortizing payments are permitted under the terms of the legal 
obligation.
    (12) Simultaneous loan means another covered transaction or home 
equity line of credit subject to Sec. 1026.40 that will be secured by 
the same dwelling and made to the same consumer at or before 
consummation of the covered

[[Page 154]]

transaction or, if to be made after consummation, will cover closing 
costs of the first covered transaction.
    (13) Third-party record means:
    (i) A document or other record prepared or reviewed by an 
appropriate person other than the consumer, the creditor, or the 
mortgage broker, as defined in Sec. 1026.36(a)(2), or an agent of the 
creditor or mortgage broker;
    (ii) A copy of a tax return filed with the Internal Revenue Service 
or a State taxing authority;
    (iii) A record the creditor maintains for an account of the consumer 
held by the creditor; or
    (iv) If the consumer is an employee of the creditor or the mortgage 
broker, a document or other record maintained by the creditor or 
mortgage broker regarding the consumer's employment status or employment 
income.
    (c) Repayment ability--(1) General requirement. A creditor shall not 
make a loan that is a covered transaction unless the creditor makes a 
reasonable and good faith determination at or before consummation that 
the consumer will have a reasonable ability to repay the loan according 
to its terms.
    (2) Basis for determination. Except as provided otherwise in 
paragraphs (d), (e), and (f) of this section, in making the repayment 
ability determination required under paragraph (c)(1) of this section, a 
creditor must consider the following:
    (i) The consumer's current or reasonably expected income or assets, 
other than the value of the dwelling, including any real property 
attached to the dwelling, that secures the loan;
    (ii) If the creditor relies on income from the consumer's employment 
in determining repayment ability, the consumer's current employment 
status;
    (iii) The consumer's monthly payment on the covered transaction, 
calculated in accordance with paragraph (c)(5) of this section;
    (iv) The consumer's monthly payment on any simultaneous loan that 
the creditor knows or has reason to know will be made, calculated in 
accordance with paragraph (c)(6) of this section;
    (v) The consumer's monthly payment for mortgage-related obligations;
    (vi) The consumer's current debt obligations, alimony, and child 
support;
    (vii) The consumer's monthly debt-to-income ratio or residual income 
in accordance with paragraph (c)(7) of this section; and
    (viii) The consumer's credit history.
    (3) Verification using third-party records. A creditor must verify 
the information that the creditor relies on in determining a consumer's 
repayment ability under Sec. 1026.43(c)(2) using reasonably reliable 
third-party records, except that:
    (i) For purposes of paragraph (c)(2)(i) of this section, a creditor 
must verify a consumer's income or assets that the creditor relies on in 
accordance with Sec. 1026.43(c)(4);
    (ii) For purposes of paragraph (c)(2)(ii) of this section, a 
creditor may verify a consumer's employment status orally if the 
creditor prepares a record of the information obtained orally; and
    (iii) For purposes of paragraph (c)(2)(vi) of this section, if a 
creditor relies on a consumer's credit report to verify a consumer's 
current debt obligations and a consumer's application states a current 
debt obligation not shown in the consumer's credit report, the creditor 
need not independently verify such an obligation.
    (4) Verification of income or assets. A creditor must verify the 
amounts of income or assets that the creditor relies on under Sec. 
1026.43(c)(2)(i) to determine a consumer's ability to repay a covered 
transaction using third-party records that provide reasonably reliable 
evidence of the consumer's income or assets. A creditor may verify the 
consumer's income using a tax-return transcript issued by the Internal 
Revenue Service (IRS). Examples of other records the creditor may use to 
verify the consumer's income or assets include:
    (i) Copies of tax returns the consumer filed with the IRS or a State 
taxing authority;
    (ii) IRS Form W-2s or similar IRS forms used for reporting wages or 
tax withholding;
    (iii) Payroll statements, including military Leave and Earnings 
Statements;
    (iv) Financial institution records;

[[Page 155]]

    (v) Records from the consumer's employer or a third party that 
obtained information from the employer;
    (vi) Records from a Federal, State, or local government agency 
stating the consumer's income from benefits or entitlements;
    (vii) Receipts from the consumer's use of check cashing services; 
and
    (viii) Receipts from the consumer's use of a funds transfer service.
    (5) Payment calculation--(i) General rule. Except as provided in 
paragraph (c)(5)(ii) of this section, a creditor must make the 
consideration required under paragraph (c)(2)(iii) of this section 
using:
    (A) The fully indexed rate or any introductory interest rate, 
whichever is greater; and
    (B) Monthly, fully amortizing payments that are substantially equal.
    (ii) Special rules for loans with a balloon payment, interest-only 
loans, and negative amortization loans. A creditor must make the 
consideration required under paragraph (c)(2)(iii) of this section for:
    (A) A loan with a balloon payment, as defined in Sec. 
1026.18(s)(5)(i), using:
    (1) The maximum payment scheduled during the first five years after 
the date on which the first regular periodic payment will be due for a 
loan that is not a higher-priced covered transaction; or
    (2) The maximum payment in the payment schedule, including any 
balloon payment, for a higher-priced covered transaction;
    (B) An interest-only loan, as defined in Sec. 1026.18(s)(7)(iv), 
using:
    (1) The fully indexed rate or any introductory interest rate, 
whichever is greater; and
    (2) Substantially equal, monthly payments of principal and interest 
that will repay the loan amount over the term of the loan remaining as 
of the date the loan is recast.
    (C) A negative amortization loan, as defined in Sec. 
1026.18(s)(7)(v), using:
    (1) The fully indexed rate or any introductory interest rate, 
whichever is greater; and
    (2) Substantially equal, monthly payments of principal and interest 
that will repay the maximum loan amount over the term of the loan 
remaining as of the date the loan is recast.
    (6) Payment calculation for simultaneous loans. For purposes of 
making the evaluation required under paragraph (c)(2)(iv) of this 
section, a creditor must consider, taking into account any mortgage-
related obligations, a consumer's payment on a simultaneous loan that 
is:
    (i) A covered transaction, by following paragraph (c)(5)of this 
section; or
    (ii) A home equity line of credit subject to Sec. 1026.40, by using 
the periodic payment required under the terms of the plan and the amount 
of credit to be drawn at or before consummation of the covered 
transaction.
    (7) Monthly debt-to-income ratio or residual income--(i) 
Definitions. For purposes of this paragraph (c)(7), the following 
definitions apply:
    (A) Total monthly debt obligations. The term total monthly debt 
obligations means the sum of: the payment on the covered transaction, as 
required to be calculated by paragraphs (c)(2)(iii) and (c)(5) of this 
section; simultaneous loans, as required by paragraphs (c)(2)(iv) and 
(c)(6) of this section; mortgage-related obligations, as required by 
paragraph (c)(2)(v) of this section; and current debt obligations, 
alimony, and child support, as required by paragraph (c)(2)(vi) of this 
section.
    (B) Total monthly income. The term total monthly income means the 
sum of the consumer's current or reasonably expected income, including 
any income from assets, as required by paragraphs (c)(2)(i) and (c)(4) 
of this section.
    (ii) Calculations-- (A) Monthly debt-to-income ratio. If a creditor 
considers the consumer's monthly debt-to-income ratio under paragraph 
(c)(2)(vii) of this section, the creditor must consider the ratio of the 
consumer's total monthly debt obligations to the consumer's total 
monthly income.
    (B) Monthly residual income. If a creditor considers the consumer's 
monthly residual income under paragraph (c)(2)(vii) of this section, the 
creditor must consider the consumer's remaining income after subtracting 
the consumer's total monthly debt obligations from the consumer's total 
monthly income.

[[Page 156]]

    (d) Refinancing of non-standard mortgages--(1) Definitions. For 
purposes of this paragraph (d), the following definitions apply:
    (i) Non-standard mortgage. The term non-standard mortgage means a 
covered transaction that is:
    (A) An adjustable-rate mortgage, as defined in Sec. 
1026.18(s)(7)(i), with an introductory fixed interest rate for a period 
of one year or longer;
    (B) An interest-only loan, as defined in Sec. 1026.18(s)(7)(iv); or
    (C) A negative amortization loan, as defined in Sec. 
1026.18(s)(7)(v).
    (ii) Standard mortgage. The term standard mortgage means a covered 
transaction:
    (A) That provides for regular periodic payments that do not:
    (1) Cause the principal balance to increase;
    (2) Allow the consumer to defer repayment of principal; or
    (3) Result in a balloon payment, as defined in Sec. 
1026.18(s)(5)(i);
    (B) For which the total points and fees payable in connection with 
the transaction do not exceed the amounts specified in paragraph (e)(3) 
of this section;
    (C) For which the term does not exceed 40 years;
    (D) For which the interest rate is fixed for at least the first five 
years after consummation; and
    (E) For which the proceeds from the loan are used solely for the 
following purposes:
    (1) To pay off the outstanding principal balance on the non-standard 
mortgage; and
    (2) To pay closing or settlement charges required to be disclosed 
under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.
    (iii) Refinancing. The term refinancing has the same meaning as in 
Sec. 1026.20(a).
    (2) Scope. The provisions of this paragraph (d) apply to the 
refinancing of a non-standard mortgage into a standard mortgage when the 
following conditions are met:
    (i) The creditor for the standard mortgage is the current holder of 
the existing non-standard mortgage or the servicer acting on behalf of 
the current holder;
    (ii) The monthly payment for the standard mortgage is materially 
lower than the monthly payment for the non-standard mortgage, as 
calculated under paragraph (d)(5) of this section.
    (iii) The creditor receives the consumer's written application for 
the standard mortgage no later than two months after the non-standard 
mortgage has recast.
    (iv) The consumer has made no more than one payment more than 30 
days late on the non-standard mortgage during the 12 months immediately 
preceding the creditor's receipt of the consumer's written application 
for the standard mortgage.
    (v) The consumer has made no payments more than 30 days late during 
the six months immediately preceding the creditor's receipt of the 
consumer's written application for the standard mortgage; and
    (vi) If the non-standard mortgage was consummated on or after 
January 10, 2014, the non-standard mortgage was made in accordance with 
paragraph (c) or (e) of this section, as applicable.
    (3) Exemption from repayment ability requirements. A creditor is not 
required to comply with the requirements of paragraph (c) of this 
section if:
    (i) The conditions in paragraph (d)(2) of this section are met; and
    (ii) The creditor has considered whether the standard mortgage 
likely will prevent a default by the consumer on the non-standard 
mortgage once the loan is recast.
    (4) Offer of rate discounts and other favorable terms. A creditor 
making a covered transaction under this paragraph (d) may offer to the 
consumer rate discounts and terms that are the same as, or better than, 
the rate discounts and terms that the creditor offers to new consumers, 
consistent with the creditor's documented underwriting practices and to 
the extent not prohibited by applicable State or Federal law.
    (5) Payment calculations. For purposes of determining whether the 
consumer's monthly payment for a standard mortgage will be materially 
lower than the monthly payment for the non-standard mortgage, the 
following provisions shall be used:

[[Page 157]]

    (i) Non-standard mortgage. For purposes of the comparison conducted 
pursuant to paragraph (d)(2)(ii) of this section, the creditor must 
calculate the monthly payment for a non-standard mortgage based on 
substantially equal, monthly, fully amortizing payments of principal and 
interest using:
    (A) The fully indexed rate as of a reasonable period of time before 
or after the date on which the creditor receives the consumer's written 
application for the standard mortgage;
    (B) The term of the loan remaining as of the date on which the 
recast occurs, assuming all scheduled payments have been made up to the 
recast date and the payment due on the recast date is made and credited 
as of that date; and
    (C) A remaining loan amount that is:
    (1) For an adjustable-rate mortgage under paragraph (d)(1)(i)(A) of 
this section, the outstanding principal balance as of the date of the 
recast, assuming all scheduled payments have been made up to the recast 
date and the payment due on the recast date is made and credited as of 
that date;
    (2) For an interest-only loan under paragraph (d)(1)(i)(B) of this 
section, the outstanding principal balance as of the date of the recast, 
assuming all scheduled payments have been made up to the recast date and 
the payment due on the recast date is made and credited as of that date; 
or
    (3) For a negative amortization loan under paragraph (d)(1)(i)(C) of 
this section, the maximum loan amount, determined after adjusting for 
the outstanding principal balance.
    (ii) Standard mortgage. For purposes of the comparison conducted 
pursuant to paragraph (d)(2)(ii) of this section, the monthly payment 
for a standard mortgage must be based on substantially equal, monthly, 
fully amortizing payments based on the maximum interest rate that may 
apply during the first five years after consummation.
    (e) Qualified mortgages--(1) Safe harbor and presumption of 
compliance. (i) Safe harbor for loans that are not higher-priced covered 
transactions. A creditor or assignee of a qualified mortgage, as defined 
in paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, 
that is not a higher-priced covered transaction, as defined in paragraph 
(b)(4) of this section, complies with the repayment ability requirements 
of paragraph (c) of this section.
    (ii) Presumption of compliance for higher-priced covered 
transactions. (A) A creditor or assignee of a qualified mortgage, as 
defined in paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this 
section, that is a higher-priced covered transaction, as defined in 
paragraph (b)(4) of this section, is presumed to comply with the 
repayment ability requirements of paragraph (c) of this section.
    (B) To rebut the presumption of compliance described in paragraph 
(e)(1)(ii)(A) of this section, it must be proven that, despite meeting 
the prerequisites of paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of 
this section, the creditor did not make a reasonable and good faith 
determination of the consumer's repayment ability at the time of 
consummation, by showing that the consumer's income, debt obligations, 
alimony, child support, and the consumer's monthly payment (including 
mortgage-related obligations) on the covered transaction and on any 
simultaneous loans of which the creditor was aware at consummation would 
leave the consumer with insufficient residual income or assets other 
than the value of the dwelling (including any real property attached to 
the dwelling) that secures the loan with which to meet living expenses, 
including any recurring and material non-debt obligations of which the 
creditor was aware at the time of consummation.
    (2) Qualified mortgage defined--general. Except as provided in 
paragraph (e)(4), (e)(5), (e)(6), or (f) of this section, a qualified 
mortgage is a covered transaction:
    (i) That provides for regular periodic payments that are 
substantially equal, except for the effect that any interest rate change 
after consummation has on the payment in the case of an adjustable-rate 
or step-rate mortgage, that do not:
    (A) Result in an increase of the principal balance;
    (B) Allow the consumer to defer repayment of principal, except as 
provided in paragraph (f) of this section; or

[[Page 158]]

    (C) Result in a balloon payment, as defined in Sec. 
1026.18(s)(5)(i), except as provided in paragraph (f) of this section;
    (ii) For which the loan term does not exceed 30 years;
    (iii) For which the total points and fees payable in connection with 
the loan do not exceed the amounts specified in paragraph (e)(3) of this 
section;
    (iv) For which the creditor underwrites the loan, taking into 
account the monthly payment for mortgage-related obligations, using:
    (A) 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
    (B) Periodic payments of principal and interest that will repay 
either:
    (1) The outstanding principal balance over the remaining term of the 
loan as of the date the interest rate adjusts to the maximum interest 
rate set forth in paragraph (e)(2)(iv)(A) of this section, assuming the 
consumer will have made all required payments as due prior to that date; 
or
    (2) The loan amount over the loan term;
    (v) For which the creditor considers and verifies at or before 
consummation the following:
    (A) The consumer's current or reasonably expected income or assets 
other than the value of the dwelling (including any real property 
attached to the dwelling) that secures the loan, in accordance with 
appendix Q and paragraphs (c)(2)(i) and (c)(4) of this section; and
    (B) The consumer's current debt obligations, alimony, and child 
support in accordance with appendix Q and paragraphs (c)(2)(vi) and 
(c)(3) of this section; and
    (vi) For which the ratio of the consumer's total monthly debt to 
total monthly income at the time of consummation does not exceed 43 
percent. For purposes of this paragraph (e)(2)(vi), the ratio of the 
consumer's total monthly debt to total monthly income is determined:
    (A) Except as provided in paragraph (e)(2)(vi)(B) of this section, 
in accordance with the standards in appendix Q;
    (B) Using the consumer's monthly payment on:
    (1) The covered transaction, including the monthly payment for 
mortgage-related obligations, in accordance with paragraph (e)(2)(iv) of 
this section; and
    (2) Any simultaneous loan that the creditor knows or has reason to 
know will be made, in accordance with paragraphs (c)(2)(iv) and (c)(6) 
of this section.
    (3) Limits on points and fees for qualified mortgages. (i) A covered 
transaction is not a qualified mortgage unless the transaction's total 
points and fees, as defined in Sec. 1026.32(b)(1), do not exceed:
    (A) For a loan amount greater than or equal to $100,000 (indexed for 
inflation): 3 percent of the total loan amount;
    (B) For a loan amount greater than or equal to $60,000 (indexed for 
inflation) but less than $100,000 (indexed for inflation): $3,000 
(indexed for inflation);
    (C) For a loan amount greater than or equal to $20,000 (indexed for 
inflation) but less than $60,000 (indexed for inflation): 5 percent of 
the total loan amount;
    (D) For a loan amount greater than or equal to $12,500 (indexed for 
inflation) but less than $20,000 (indexed for inflation): $1,000 
(indexed for inflation);
    (E) For a loan amount less than $12,500 (indexed for inflation): 8 
percent of the total loan amount.
    (ii) The dollar amounts, including the loan amounts, in paragraph 
(e)(3)(i) of this section shall be adjusted annually on January 1 by the 
annual percentage change in the Consumer Price Index for All Urban 
Consumers (CPI-U) that was reported on the preceding June 1. See the 
official commentary to this paragraph (e)(3)(ii) for the current dollar 
amounts.
    (4) Qualified mortgage defined--special rules--(i) General. 
Notwithstanding paragraph (e)(2) of this section, a qualified mortgage 
is a covered transaction that satisfies:
    (A) The requirements of paragraphs (e)(2)(i) through (iii) of this 
section; and
    (B) One or more of the criteria in paragraph (e)(4)(ii) of this 
section.
    (ii) Eligible loans. A qualified mortgage under this paragraph 
(e)(4) must be one of the following at consummation:

[[Page 159]]

    (A) A loan that is eligible, except with regard to matters wholly 
unrelated to ability to repay:
    (1) To be purchased or guaranteed by the Federal National Mortgage 
Association or the Federal Home Loan Mortgage Corporation operating 
under the conservatorship or receivership of the Federal Housing Finance 
Agency pursuant to section 1367(a) of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617(a)); or
    (2) To be purchased or guaranteed by any limited-life regulatory 
entity succeeding the charter of either the Federal National Mortgage 
Association or the Federal Home Loan Mortgage Corporation pursuant to 
section 1367(i) of the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (12 U.S.C. 4617(i));
    (B) A loan that is eligible to be insured, except with regard to 
matters wholly unrelated to ability to repay, by the U.S. Department of 
Housing and Urban Development under the National Housing Act (12 U.S.C. 
1707 et seq.);
    (C) A loan that is eligible to be guaranteed, except with regard to 
matters wholly unrelated to ability to repay, by the U.S. Department of 
Veterans Affairs;
    (D) A loan that is eligible to be guaranteed, except with regard to 
matters wholly unrelated to ability to repay, by the U.S. Department of 
Agriculture pursuant to 42 U.S.C. 1472(h); or
    (E) A loan that is eligible to be insured, except with regard to 
matters wholly unrelated to ability to repay, by the Rural Housing 
Service.
    (iii) Sunset of special rules. (A) Each respective special rule 
described in paragraph (e)(4)(ii)(B), (C), (D), or (E) of this section 
shall expire on the effective date of a rule issued by each respective 
agency pursuant to its authority under TILA section 129C(b)(3)(ii) to 
define a qualified mortgage.
    (B) Unless otherwise expired under paragraph (e)(4)(iii)(A) of this 
section, the special rules in this paragraph (e)(4) are available only 
for covered transactions consummated on or before January 10, 2021.
    (5) Qualified mortgage defined--small creditor portfolio loans. (i) 
Notwithstanding paragraph (e)(2) of this section, a qualified mortgage 
is a covered transaction:
    (A) That satisfies the requirements of paragraph (e)(2) of this 
section other than the requirements of paragraph (e)(2)(vi) and without 
regard to the standards in appendix Q to this part;
    (B) For which the creditor considers at or before consummation the 
consumer's monthly debt-to-income ratio or residual income and verifies 
the debt obligations and income used to determine that ratio in 
accordance with paragraph (c)(7) of this section, except that the 
calculation of the payment on the covered transaction for purposes of 
determining the consumer's total monthly debt obligations in paragraph 
(c)(7)(i)(A) shall be determined in accordance with paragraph (e)(2)(iv) 
of this section instead of paragraph (c)(5) of this section;
    (C) That is not subject, at consummation, to a commitment to be 
acquired by another person, other than a person that satisfies the 
requirements of paragraph (e)(5)(i)(D) of this section; and
    (D) For which the creditor satisfies the requirements stated in 
Sec. 1026.35(b)(2)(iii)(B) and (C).
    (ii) A qualified mortgage extended pursuant to paragraph (e)(5)(i) 
of this section immediately loses its status as a qualified mortgage 
under paragraph (e)(5)(i) if legal title to the qualified mortgage is 
sold, assigned, or otherwise transferred to another person except when:
    (A) The qualified mortgage is sold, assigned, or otherwise 
transferred to another person three years or more after consummation of 
the qualified mortgage;
    (B) The qualified mortgage is sold, assigned, or otherwise 
transferred to a creditor that satisfies the requirements of paragraph 
(e)(5)(i)(D) of this section;
    (C) The qualified mortgage is sold, assigned, or otherwise 
transferred to another person pursuant to a capital restoration plan or 
other action under 12 U.S.C. 1831o, actions or instructions of any 
person acting as conservator, receiver, or bankruptcy trustee, an order 
of a State or Federal government agency with jurisdiction to examine the 
creditor pursuant to State or Federal

[[Page 160]]

law, or an agreement between the creditor and such an agency; or
    (D) The qualified mortgage is sold, assigned, or otherwise 
transferred pursuant to a merger of the creditor with another person or 
acquisition of the creditor by another person or of another person by 
the creditor.
    (6) Qualified mortgage defined--temporary balloon-payment qualified 
mortgage rules. (i) Notwithstanding paragraph (e)(2) of this section, a 
qualified mortgage is a covered transaction:
    (A) That satisfies the requirements of paragraph (f) of this section 
other than the requirements of paragraph (f)(1)(vi); and
    (B) For which the creditor satisfies the requirements stated in 
Sec. 1026.35(b)(2)(iii)(B) and (C).
    (ii) The provisions of this paragraph (e)(6) apply only to covered 
transactions consummated on or before January 10, 2016.
    (f) Balloon-payment qualified mortgages made by certain creditors--
(1) Exemption. Notwithstanding paragraph (e)(2) of this section, a 
qualified mortgage may provide for a balloon payment, provided:
    (i) The loan satisfies the requirements for a qualified mortgage in 
paragraphs (e)(2)(i)(A), (e)(2)(ii), (e)(2)(iii), and (e)(2)(v) of this 
section, but without regard to the standards in appendix Q;
    (ii) The creditor determines at or before consummation that the 
consumer can make all of the scheduled payments under the terms of the 
legal obligation, as described in paragraph (f)(1)(iv) of this section, 
together with the consumer's monthly payments for all mortgage-related 
obligations and excluding the balloon payment, from the consumer's 
current or reasonably expected income or assets other than the dwelling 
that secures the loan;
    (iii) The creditor considers at or before consummation the 
consumer's monthly debt-to-income ratio or residual income and verifies 
the debt obligations and income used to determine that ratio in 
accordance with paragraph (c)(7) of this section, except that the 
calculation of the payment on the covered transaction for purposes of 
determining the consumer's total monthly debt obligations in 
(c)(7)(i)(A) shall be determined in accordance with paragraph (f)(iv)(A) 
of this section, together with the consumer's monthly payments for all 
mortgage-related obligations and excluding the balloon payment;
    (iv) The legal obligation provides for:
    (A) Scheduled payments that are substantially equal, calculated 
using an amortization period that does not exceed 30 years;
    (B) An interest rate that does not increase over the term of the 
loan; and
    (C) A loan term of five years or longer.
    (v) The loan is not subject, at consummation, to a commitment to be 
acquired by another person, other than a person that satisfies the 
requirements of paragraph (f)(1)(vi) of this section; and
    (vi) The creditor satisfies the requirements stated in Sec. 
1026.35(b)(2)(iii)(A), (B), and (C).
    (2) Post-consummation transfer of balloon-payment qualified 
mortgage. A balloon-payment qualified mortgage, extended pursuant to 
paragraph (f)(1), immediately loses its status as a qualified mortgage 
under paragraph (f)(1) if legal title to the balloon-payment qualified 
mortgage is sold, assigned, or otherwise transferred to another person 
except when:
    (i) The balloon-payment qualified mortgage is sold, assigned, or 
otherwise transferred to another person three years or more after 
consummation of the balloon-payment qualified mortgage;
    (ii) The balloon-payment qualified mortgage is sold, assigned, or 
otherwise transferred to a creditor that satisfies the requirements of 
paragraph (f)(1)(vi) of this section;
    (iii) The balloon-payment qualified mortgage is sold, assigned, or 
otherwise transferred to another person pursuant to a capital 
restoration plan or other action under 12 U.S.C. 1831o, actions or 
instructions of any person acting as conservator, receiver or bankruptcy 
trustee, an order of a State or Federal governmental agency with 
jurisdiction to examine the creditor pursuant to State or Federal law, 
or an agreement between the creditor and such an agency; or

[[Page 161]]

    (iv) The balloon-payment qualified mortgage is sold, assigned, or 
otherwise transferred pursuant to a merger of the creditor with another 
person or acquisition of the creditor by another person or of another 
person by the creditor.
    (g) Prepayment penalties--(1) When permitted. A covered transaction 
must not include a prepayment penalty unless:
    (i) The prepayment penalty is otherwise permitted by law; and
    (ii) The transaction:
    (A) Has an annual percentage rate that cannot increase after 
consummation;
    (B) Is a qualified mortgage under paragraph (e)(2), (e)(4), (e)(5), 
(e)(6), or (f) of this section; and
    (C) Is not a higher-priced mortgage loan, as defined in Sec. 
1026.35(a).
    (2) Limits on prepayment penalties. A prepayment penalty:
    (i) Must not apply after the three-year period following 
consummation; and
    (ii) Must not exceed the following percentages of the amount of the 
outstanding loan balance prepaid:
    (A) 2 percent, if incurred during the first two years following 
consummation; and
    (B) 1 percent, if incurred during the third year following 
consummation.
    (3) Alternative offer required. A creditor must not offer a consumer 
a covered transaction with a prepayment penalty unless the creditor also 
offers the consumer an alternative covered transaction without a 
prepayment penalty and the alternative covered transaction:
    (i) Has an annual percentage rate that cannot increase after 
consummation and has the same type of interest rate as the covered 
transaction with a prepayment penalty; for purposes of this paragraph 
(g), the term ``type of interest rate'' refers to whether a transaction:
    (A) Is a fixed-rate mortgage, as defined in Sec. 
1026.18(s)(7)(iii); or
    (B) Is a step-rate mortgage, as defined in Sec. 1026.18(s)(7)(ii);
    (ii) Has the same loan term as the loan term for the covered 
transaction with a prepayment penalty;
    (iii) Satisfies the periodic payment conditions under paragraph 
(e)(2)(i) of this section;
    (iv) Satisfies the points and fees conditions under paragraph 
(e)(2)(iii) of this section, based on the information known to the 
creditor at the time the transaction is offered; and
    (v) Is a transaction for which the creditor has a good faith belief 
that the consumer likely qualifies, based on the information known to 
the creditor at the time the creditor offers the covered transaction 
without a prepayment penalty.
    (4) Offer through a mortgage broker. If the creditor offers a 
covered transaction with a prepayment penalty to the consumer through a 
mortgage broker, as defined in Sec. 1026.36(a)(2), the creditor must:
    (i) Present the mortgage broker an alternative covered transaction 
without a prepayment penalty that satisfies the requirements of 
paragraph (g)(3) of this section; and
    (ii) Establish by agreement that the mortgage broker must present 
the consumer an alternative covered transaction without a prepayment 
penalty that satisfies the requirements of paragraph (g)(3) of this 
section, offered by:
    (A) The creditor; or
    (B) Another creditor, if the transaction offered by the other 
creditor has a lower interest rate or a lower total dollar amount of 
discount points and origination points or fees.
    (5) Creditor that is a loan originator. If the creditor is a loan 
originator, as defined in Sec. 1026.36(a)(1), and the creditor presents 
the consumer a covered transaction offered by a person to which the 
creditor would assign the covered transaction after consummation, the 
creditor must present the consumer an alternative covered transaction 
without a prepayment penalty that satisfies the requirements of 
paragraph (g)(3) of this section, offered by:
    (i) The assignee; or
    (ii) Another person, if the transaction offered by the other person 
has a lower interest rate or a lower total dollar amount of origination 
discount points and points or fees.
    (6) Applicability. This paragraph (g) applies only if a covered 
transaction is

[[Page 162]]

consummated with a prepayment penalty and is not violated if:
    (i) A covered transaction is consummated without a prepayment 
penalty; or
    (ii) The creditor and consumer do not consummate a covered 
transaction.
    (h) Evasion; open-end credit. In connection with credit secured by a 
consumer's dwelling that does not meet the definition of open-end credit 
in Sec. 1026.2(a)(20), a creditor shall not structure the loan as an 
open-end plan to evade the requirements of this section.

[78 FR 6584, Jan. 30, 2013]

    Effective Date Note: At 78 FR 6584, Jan. 30, 2013, Sec. 1026.43 was 
added, effective Jan. 10, 2014. At June 12, 2013, 78 FR 35502, 
paragrasphs (a)(3)(ii), (iii), (b)(4), (e)(1), (2) and (g)(1)(ii)(B) 
were revised and (a)(3)(iv), (v), (vi), (e)(5) and (6) added; At July 
24, 2013, 78 FR 44718, paragraphs (e)(4)(ii)(A) introductory text, (B) 
through (E) were revised; at 78 FR 60442, Oct. 1, 2013 paragraphs 
(a)(2), (e)(4)(ii) introductory text and (C) revised; at 78 FR 63006, 
Oct. 1, 2013, paragraph (e)(4)(ii)(C) was revised, eff. Jan. 10, 2014.

Sec. Sec. 1026.44-1026.45  [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:
    (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:

[[Page 163]]

    (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 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

[[Page 164]]

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.
    (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

[[Page 165]]

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) 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.

[[Page 166]]

    (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 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

[[Page 167]]

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 (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

[[Page 168]]

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 ability to make the required minimum periodic payments under 
the terms of the account based on the consumer's income or assets and 
the consumer's current obligations.
    (ii) Reasonable policies and procedures. Card issuers must establish 
and maintain reasonable written policies and procedures to consider the 
consumer's ability to make the required minimum payments under the terms 
of the account based on a consumer's income or assets and a consumer's 
current obligations. Reasonable policies and procedures include treating 
any income and assets to which the consumer has a reasonable expectation 
of access as the consumer's income or assets, or limiting consideration 
of the consumer's income or assets to the consumer's independent income 
and assets. Reasonable policies and procedures also include 
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 not to review any information about a 
consumer's income or assets and current obligations, or to issue a 
credit card to a consumer who does not have any 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 
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

[[Page 169]]

    (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; 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 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. (i) If a credit card 
account has been opened pursuant to paragraph (b)(1)(i) of this section, 
no increase in the credit limit may be made on such account before the 
consumer attains the age of 21 unless:
    (A) At the time of the contemplated increase, the consumer has an 
independent ability to make the required minimum periodic payments on 
the increased limit consistent with paragraph (b)(1)(i) of this section; 
or
    (B) A cosigner, guarantor, or joint applicant who is at least 21 
years old agrees in writing to assume liability for any debt incurred on 
the account, consistent with paragraph (b)(1)(ii) of this section.
    (ii) 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.

[76 FR 79772, Dec. 22, 2011, as amended at 78 FR 25837, May 3, 2013]

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 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

[[Page 170]]

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 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) $26;
    (B) $37 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.

[76 FR 79772, Dec. 22, 2011, as amended at 78 FR 18797, Mar. 28, 2013; 
78 FR 76035, Dec. 16, 2013]

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

[[Page 171]]

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, 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

[[Page 172]]

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 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

[[Page 173]]

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 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

[[Page 174]]

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 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

[[Page 175]]

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 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

[[Page 176]]

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 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)

[[Page 177]]

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 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.

[[Page 178]]

    (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:
    (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

[[Page 179]]

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 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

[[Page 180]]

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 
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

[[Page 181]]

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 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.

[[Page 182]]

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 
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;

[[Page 183]]

    (iv) Lines of credit accessed solely by account numbers;
    (v) Additions of a credit or charge card to an existing open-end 
plan;
    (vi) General purpose applications unless the application, or 
material accompanying it, indicates that it can be used to open a credit 
or charge card account; or
    (vii) Consumer-initiated requests for applications.
    (b) Required disclosures. The card issuer shall disclose the items 
in this paragraph on or with an application or a solicitation in 
accordance with the requirements of paragraphs (c), (d), (e)(1) or (f) 
of this section. A credit card issuer shall disclose all applicable 
items in this paragraph except for paragraph (b)(7) of this section. A 
charge card issuer shall disclose the applicable items in paragraphs 
(b)(2), (4), (7) through (12), and (15) of this section.
    (1) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer, expressed as an annual percentage 
rate (as determined by Sec. 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

[[Page 184]]

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 
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,

[[Page 185]]

in disclosing this fact in the tabular format, the phrase ``Paying 
Interest'' shall be used as the heading for the row describing this 
fact.
    (6) Balance computation method. The name of the balance computation 
method listed in paragraph (g) of this section that is used to determine 
the balance for purchases on which the finance charge is computed, or an 
explanation of the method used if it is not listed. In determining which 
balance computation method to disclose, the card issuer shall assume 
that credit extended for purchases will not be repaid within the grace 
period, if any.
    (7) Statement on charge card payments. A statement that charges 
incurred by use of the charge card are due when the periodic statement 
is received.
    (8) Cash advance fee. Any fee imposed for an extension of credit in 
the form of cash or its equivalent.
    (9) Late payment fee. Any fee imposed for a late payment.
    (10) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (11) Balance transfer fee. Any fee imposed to transfer an 
outstanding balance.
    (12) Returned-payment fee. Any fee imposed by the card issuer for a 
returned payment.
    (13) Required insurance, debt cancellation or debt suspension 
coverage. (i) A fee for insurance described in Sec. 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

[[Page 186]]

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
    (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

[[Page 187]]

charge begins to accrue on the transaction date or the date of posting 
the transaction, the existence or length of a grace period, and whether 
the balance is adjusted by charges such as late payment fees, annual 
fees and unpaid finance charges do not constitute separate balance 
computation methods.
    (1)(i) Average daily balance (including new purchases). This balance 
is figured by adding the outstanding balance (including new purchases 
and deducting payments and credits) for each day in the billing cycle, 
and then dividing by the number of days in the billing cycle.
    (ii) Average daily balance (excluding new purchases). This balance 
is figured by adding the outstanding balance (excluding new purchases 
and deducting payments and credits) for each day in the billing cycle, 
and then dividing by the number of days in the billing cycle.
    (2) Adjusted balance. This balance is figured by deducting payments 
and credits made during the billing cycle from the outstanding balance 
at the beginning of the billing cycle.
    (3) Previous balance. This balance is the outstanding balance at the 
beginning of the billing cycle.
    (4) Daily balance. For each day in the billing cycle, this balance 
is figured by taking the beginning balance each day, adding any new 
purchases, and subtracting any payment and credits.

              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.

                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.

[[Page 188]]

    (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.
    (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.

      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.

[[Page 189]]

      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.

            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.

[[Page 190]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.000

     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.

[[Page 191]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.001


[[Page 192]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.002


    Effective Date Note: At 78 FR 80130, Dec. 31, 2013, appendix D was 
amended by revising paragraph C of part II, effective Aug. 1, 2015. For 
the convenience of the user, the revised text is set forth as follows:

      Appendix D to Part 1026--Multiple Advance Construction Loans

                                * * * * *

     Part II--Construction and Permanent Financing Disclosed as One 
                               Transaction

                                * * * * *

    C. The creditor shall disclose the repayment schedule as follows:
    1. For loans under paragraph A.1 of part II, other than loans that 
are subject to Sec. 1026.19(e) and (f), 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 and loans under 
paragraph A.1 of part II that are subject to Sec. 1026.19(e) and (f), 
including any payments of interest only that are made during the 
construction period.

                                * * * * *

[[Page 193]]

     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 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.

 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\1/2\% applicable to the average daily balance. The numerator 
is the amount of the finance charge, which is $4.50. The denominator is 
the amount of the transaction (which is $100), plus the amount by which 
the balance subject to the periodic rate exceeds the amount of the 
specific transactions (such excess in this case is 0), totaling $100.
    The annual percentage rate is the quotient (which is 4\1/2\%) 
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\1/2\% applicable to the average daily balance. The numerator is the 
amount of the finance charge

[[Page 194]]

which is $5.25. The denominator is the amount of the transaction (which 
is $100), plus the amount by which the balance subject to the periodic 
rate exceeds the amount of the specific transaction (such excess in this 
case is $50), totaling $150. As explained in example 1, the annual 
percentage rate is 3\1/2\% 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\1/4\% 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\1/2\% 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\1/2\% 
applied to the average daily balance. The numerator is the amount of the 
finance charge, which is $2.50 and includes the $.25 check charge and 
the $2.25 resulting from the application of the periodic rate. The 
denominator is the full amount of the specific transaction (which is 
$100) plus the amount by which the average daily balance exceeds the 
amount of the specific transaction (which in this case is $50), totaling 
$150. As explained in example 1, the annual percentage rate would be 1-
2/3% 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\1/2\% 
per month applied to the average daily balance. The numerator is the 
amount of the finance charge, which is $3.75, including the $3.00 
transaction charge and $.75 resulting from application of the periodic 
rate. The denominator is the full amount of the specific transaction 
($100) plus the amount by which the balance subject to the periodic rate 
exceeds the amount of the transaction ($0). Where the specific 
transaction amount exceeds the balance subject to the periodic rate, the 
resulting number is considered to be zero rather than a negative number 
($50 - $100 = -$50). The denominator, in this case, is $100. As 
explained in example 1, the annual percentage rate is 3\3/4\% x 12 = 
45%.

        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-15 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))

[[Page 195]]

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))
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

[[Page 196]]

    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the beginning of each billing 
cycle. We do not subtract any payments or credits received during the 
billing cycle.
(c) Average Daily Balance Method (Excluding Current Transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To get 
the ``average daily balance'' we take the beginning balance of your 
account each day and subtract [any unpaid interest or other finance 
charges and] any payments or credits. We do not add in any new 
[purchases/advances/fees]. This gives us the daily balance. Then, we add 
all the daily balances for the billing cycle together and divide the 
total by the number of days in the billing cycle. This gives us the 
``average daily balance.''
(d) Average Daily Balance Method (Including Current Transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To get 
the ``average daily balance'' we take the beginning balance of your 
account each day, add any new [purchases/advances/fees], and subtract 
[any unpaid interest or other finance charges and] any payments or 
credits. This gives us the daily balance. Then, we add up all the daily 
balances for the billing cycle and divide the total by the number of 
days in the billing cycle. This gives us the ``average daily balance.''
(e) Ending Balance Method
    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the end of each billing cycle 
(including new [purchases/advances/fees] and deducting payments and 
credits made during the billing cycle).
(f) Daily Balance Method (Including Current Transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``daily balance'' of your account for each day in 
the billing cycle. To get the ``daily balance'' we take the beginning 
balance of your account each day, add any new [purchases/advances/fees], 
and subtract [any unpaid interest or other finance charges and] any 
payments or credits. This gives us the daily balance.
G-2--Liability for Unauthorized Use Model Clause (Home-Equity Plans)
    You may be liable for the unauthorized use of your credit card [or 
other term that describes the credit card]. You will not be liable for 
unauthorized use that occurs after you notify [name of card issuer or 
its designee] at [address], orally or in writing, of the loss, theft, or 
possible unauthorized use. [You may also contact us on the Web: 
[Creditor Web or 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.

[[Page 197]]

    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.

                 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.

[[Page 198]]

    If you receive our explanation but still believe your bill is wrong, 
you must write to us within 10 days telling us that you still refuse to 
pay. If you do so, we cannot report you as delinquent without also 
reporting that you are questioning your bill. We must tell you the name 
of anyone to whom we reported you as delinquent, and we must let those 
organizations know when the matter has been settled between us.
    If we do not follow all of the rules above, you do not have to pay 
the first $50 of the amount you question even if your bill is correct.

   Your Rights If You Are Dissatisfied With Your Credit Card Purchases

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

[[Page 199]]

     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 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.
[GRAPHIC] [TIFF OMITTED] TR22DE11.003


[[Page 200]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.004


[[Page 201]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.005


[[Page 202]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.006


[[Page 203]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.007


[[Page 204]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.008


[[Page 205]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.009


[[Page 206]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.010


[[Page 207]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.011


[[Page 208]]



   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.

[[Page 209]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.012


[[Page 210]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.013


[[Page 211]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.014


[[Page 212]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.015


[[Page 213]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.016


[[Page 214]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.017


[[Page 215]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.018


[[Page 216]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.019

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

[[Page 217]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.020


[[Page 218]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.021


[[Page 219]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.022


[[Page 220]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.023


[[Page 221]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.024

                    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%.

[[Page 222]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.025


[[Page 223]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.026

                           G-18(E) [Reserved]

[[Page 224]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.027


[[Page 225]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.028


[[Page 226]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.029


[[Page 227]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.030

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

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

[[Page 228]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.031


[[Page 229]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.032

                  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.]

[[Page 230]]

                      (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]:_______________________________________________________

       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))
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

[[Page 231]]

H-21 Private Education Loan Application and Solicitation Sample
H-22 Private Education Loan Approval Sample
H-23 Private Education Loan Final Sample
[GRAPHIC] [TIFF OMITTED] TR22DE11.033


[[Page 232]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.034


[[Page 233]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.035

                   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
     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.]

[[Page 234]]

    --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:

[[Page 235]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.036


[[Page 236]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.037


[[Page 237]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.038


[[Page 238]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.039

                 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.

[[Page 239]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.040


[[Page 240]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.041


[[Page 241]]



     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____________________________________________________________________

[[Page 242]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.042


[[Page 243]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.043


[[Page 244]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.044


[[Page 245]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.045

                   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.

[[Page 246]]

                   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:

[[Page 247]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.046


[[Page 248]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.047

    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.]

[[Page 249]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.048


[[Page 250]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.049

                  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_______________________________________________________________________

[[Page 251]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.050


[[Page 252]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.051


[[Page 253]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.052


[[Page 254]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.053


[[Page 255]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.054


[[Page 256]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.055


[[Page 257]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.056


[[Page 258]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.057


[[Page 259]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.058


[[Page 260]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.059


[[Page 261]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.060


[[Page 262]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.061


    Effective Date Notes: At 78 FR 11008, Feb. 14, 2013, Appendix H was 
amended by removing the entry for H-4(D) and adding entries in 
alphanumerical order for H-4(D)(1) through H-4(D)(4), and H-30(A), 
through H-30(D), in the table of contents at the beginning of the 
appendix; republishing the note to H-4(C); removing H-4(D); adding model 
and sample forms H-4(D)(1) through H-4(D)(4), and H-30(A) through H-
30(C), and sample clause H-30(D), in alphanumerical order; and 
republishing H-4(E) and H-4(F), effective Jan. 10, 2014. For the 
convenience of the user, the added and republished text is set forth as 
follows:

       Appendix H to Part 1026--Closed-End Model Forms and Clauses

                                * * * * *

H-4(D)(1) Adjustable-Rate Mortgage Model Form (Sec. 1026.20(c))
H-4(D)(2) Adjustable-Rate Mortgage Sample Form (Sec. 1026.20(c))
H-4(D)(3) Adjustable-Rate Mortgage Model Form (Sec. 1026.20(d))
H-4(D)(4) Adjustable-Rate Mortgage Sample Form (Sec. 1026.20(d))

                                * * * * *

H-30(A) Sample Form of Periodic Statement (Sec. 1026.41)
H-30(B) Sample Form of Periodic Statement with Delinquency Box (Sec. 
1026.41)
H-30(C) Sample Form of Periodic Statement for a Payment-Options Loan 
(Sec. 1026.41)
H-30(D) Sample Clause for Homeownership Counselor Contact Information 
(Sec. 1026.41)

                                * * * * *
[GRAPHIC] [TIFF OMITTED] TR14FE13.002


[[Page 263]]


[GRAPHIC] [TIFF OMITTED] TR14FE13.003


[[Page 264]]


[GRAPHIC] [TIFF OMITTED] TR14FE13.004


[[Page 265]]


[GRAPHIC] [TIFF OMITTED] TR14FE13.005


[[Page 266]]


[GRAPHIC] [TIFF OMITTED] TR14FE13.006


[[Page 267]]


[GRAPHIC] [TIFF OMITTED] TR14FE13.007

                                * * * * *

[[Page 268]]

[GRAPHIC] [TIFF OMITTED] TR14FE13.008


[[Page 269]]


[GRAPHIC] [TIFF OMITTED] TR14FE13.009


[[Page 270]]


[GRAPHIC] [TIFF OMITTED] TR14FE13.010

H-30(D) Sample Clause for Homeownership Counselor Contact Information

    Housing Counselor Information: If you would like counseling or 
assistance, you can contact the following:

[[Page 271]]

     U.S. Department of Housing and Urban Development 
(HUD): For a list of homeownership counselors or counseling 
organizations in your area, go to http://www.hud.gov/ offices/ hsg/ sfh/ 
hcc/ hcs.cfm or call 800-569-4287.

                                * * * * *

    2. At 78 FR 60442, Oct. 1, 2013, Appendix H, as amended February 14, 
2013, was further amended by revising the entry for H-30(C) in the table 
of contents at the beginning of the appendix, and revising the heading 
of H-30(C), effective Jan. 10, 2014. For the convenience of the user, 
the revised text is set forth as follows:

       Appendix H to Part 1026--Closed-End Model Forms and Clauses

                                * * * * *

   H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan



    Effective Date Notes: 3. At 78 FR 80130, Dec. 31, 2013, Appendix H 
was amended by revising H-13 and H-15, adding H-24 through H-29, and 
revising and adding their respective entries to the table of contents at 
the beginning of the appendix in numerical order, effective Aug. 1, 
2015. For the convenience of the user, the added and revised text is set 
forth as follows:

          Appendix H to Part 1026--Closed-End Forms and Clauses

                                * * * * *

H-13 Closed-End Transaction With Demand Feature Sample

                                * * * * *

H-15 Closed-End Graduated-Payment Transaction Sample

                                * * * * *

H-24(A) Mortgage Loan Transaction Loan Estimate--Model Form
H-24(B) Mortgage Loan Transaction Loan Estimate--Fixed Rate Loan Sample
H-24(C) Mortgage Loan Transaction Loan Estimate--Interest Only 
Adjustable Rate Loan Sample
H-24(D) Mortgage Loan Transaction Loan Estimate--Refinance Sample
H-24(E) Mortgage Loan Transaction Loan Estimate--Balloon Payment Sample
H-24(F) Mortgage Loan Transaction Loan Estimate--Negative Amortization 
Sample
H-24(G) Mortgage Loan Transaction Loan Estimate--Modification to Loan 
Estimate for Transaction Not Involving Seller--Model Form
H-25(A) Mortgage Loan Transaction Closing Disclosure--Model Form
H-25(B) Mortgage Loan Transaction Closing Disclosure--Fixed Rate Loan 
Sample
H-25(C) Mortgage Loan Transaction Closing Disclosure--Borrower Funds 
From Second-Lien Loan in Summaries of Transactions Sample
H-25(D) Mortgage Loan Transaction Closing Disclosure--Borrower 
Satisfaction of Seller's Second-Lien Loan Outside of Closing in 
Summaries of Transactions Sample
H-25(E) Mortgage Loan Transaction Closing Disclosure--Refinance 
Transaction Sample
H-25(F) Mortgage Loan Transaction Closing Disclosure--Refinance 
Transaction Sample (amount in excess of Sec. 1026.19(e)(3))
H-25(G) Mortgage Loan Transaction Closing Disclosure--Refinance 
Transaction With Cash From Consumer at Consummation Sample
H-25(H) Mortgage Loan Transaction Closing Disclosure--Modification to 
Closing Cost Details--Model Form
H-25(I) Mortgage Loan Transaction Closing Disclosure--Modification to 
Closing Disclosure for Disclosure Provided to Seller--Model Form
H-25(J) Mortgage Loan Transaction Closing Disclosure--Modification to 
Closing Disclosure for Transaction Not Involving Seller--Model Form
H-26 Mortgage Loan Transaction--Pre-Loan Estimate Statement--Model Form
H-27(A) Mortgage Loan Transaction --Written List of Providers--Model 
Form
H-27(B) Mortgage Loan Transaction--Sample of Written List of Providers
H-27(C) Mortgage Loan Transaction--Sample of Written List of Providers 
with Services You Cannot Shop For
H-28(A) Mortgage Loan Transaction Loan Estimate--Spanish Language Model 
Form
H-28(B) Mortgage Loan Transaction Loan Estimate--Spanish Language 
Purchase Sample
H-28(C) Mortgage Loan Transaction Loan Estimate--Spanish Language 
Refinance Sample
H-28(D) Mortgage Loan Transaction Loan Estimate--Spanish Language 
Balloon Payment Sample
H-28(E) Mortgage Loan Transaction Loan Estimate--Spanish Language 
Negative Amortization Sample
H-28(F) Mortgage Loan Transaction Closing Disclosure--Spanish Language 
Model Form
H-28(G) Mortgage Loan Transaction Closing Disclosure--Spanish Language 
Purchase Sample
H-28(H) Mortgage Loan Transaction Closing Disclosure--Spanish Language 
Refinance Sample
H-28(I) Mortgage Loan Transaction Loan Estimate--Modification to Loan 
Estimate for

[[Page 272]]

Transaction Not Involving Seller--Spanish Language Model Form
H-28(J) Mortgage Loan Transaction Closing Disclosure--Modification to 
Closing Disclosure for Transaction Not Involving Seller--Spanish 
Language Model Form
H-29 Escrow Cancellation Notice Model Form (Sec. 1026.20(e))

                                * * * * *

         H-13--Closed-End Transaction With Demand Feature Sample
[GRAPHIC] [TIFF OMITTED] TR31DE13.004

                                * * * * *

          H-15 Closed-End Graduated Payment Transaction Sample

[[Page 273]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.005

                                * * * * *

       H-24(A) Mortgage Loan Transaction Loan Estimate--Model Form

    Description: This is a blank model Loan Estimate that illustrates 
the application of the content requirements in Sec. 1026.37. This form 
provides two variations of page one, four variations of page two, and 
four variations of page three, reflecting the variable content 
requirements in Sec. 1026.37.

[[Page 274]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.006


[[Page 275]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.007


[[Page 276]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.008


[[Page 277]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.009


[[Page 278]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.010


[[Page 279]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.011


[[Page 280]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.012


[[Page 281]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.013


[[Page 282]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.014


[[Page 283]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.015

 H-24(B) Mortgage Loan Transaction Loan Estimate--Fixed Rate Loan Sample

    Description: This is a sample of a completed Loan Estimate for a 
fixed rate loan. This loan is for the purchase of property at a sale 
price of $180,000 and has a loan amount of $162,000, a 30-year loan 
term, a fixed interest

[[Page 284]]

rate of 3.875 percent, and a prepayment penalty equal to 2.00 percent of 
the outstanding principal balance of the loan for the first two years 
after consummation of the transaction. The consumer has elected to lock 
the interest rate. The creditor requires an escrow account and that the 
consumer pay for private mortgage insurance.
[GRAPHIC] [TIFF OMITTED] TR31DE13.016


[[Page 285]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.017


[[Page 286]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.018


[[Page 287]]



     H-24(C) Mortgage Loan Transaction Loan Estimate--Interest Only 
                       Adjustable Rate Loan Sample

    Description: This is a sample of a completed Loan Estimate for an 
adjustable rate loan with interest only payments. This loan is for the 
purchase of property at a sale price of $240,000 and has a loan amount 
of $211,000 and a 30-year loan term. For the first five years of the 
loan term, the scheduled payments cover only interest and the loan has 
an introductory interest rate that is fixed at 4.00 percent. After five 
years, the payments include principal and the interest rate adjusts 
every three years based on the value of the Monthly Treasury Average 
index plus a margin of 4.00 percent. The consumer has elected to lock 
the interest rate. The creditor does not require an escrow account with 
the loan. The creditor requires that the consumer pay for private 
mortgage insurance.

[[Page 288]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.019


[[Page 289]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.020


[[Page 290]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.021

    H-24(D) Mortgage Loan Transaction Loan Estimate--Refinance Sample

    Description: This is a sample of a completed Loan Estimate for a 
transaction that is for a refinance of an existing mortgage loan that 
secures the property, for which the consumer is estimated to receive 
funds from the transaction. The estimated property value is

[[Page 291]]

$180,000, the loan amount is $150,000, the estimated outstanding balance 
of the existing mortgage loan is $120,000, and the interest rate is 4.25 
percent. The consumer has elected to lock the interest rate. The 
creditor requires an escrow account and that the consumer pay for 
private mortgage insurance.
[GRAPHIC] [TIFF OMITTED] TR31DE13.022


[[Page 292]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.023


[[Page 293]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.024

 H-24(E) Mortgage Loan Transaction Loan Estimate--Balloon Payment Sample

    Description: This is a sample of the information required by Sec. 
1026.37(a) through (c) for a transaction with a loan term of seven years 
that includes a final balloon payment.

[[Page 294]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.025

 H-24(F) Mortgage Loan Transaction Loan Estimate--Negative Amortization 
                                 Sample

    Description: This is a sample of the information required by Sec. 
1026.37(a) and (b) for a transaction with negative amortization.

[[Page 295]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.026

 H-24(G) Mortgage Loan Transaction Loan Estimate--Modification to Loan 
        Estimate for Transaction Not Involving Seller--Model Form

    Description: This is a blank model Loan Estimate that illustrates 
the application of the content requirements in Sec. 1026.37, with the 
optional alternative tables permitted by Sec. 1026.37(d)(2) and (h)(2) 
for transactions without a seller. This form provides two variations of 
page one, four variations of page two, and four variations of page 
three, reflecting the variable content requirements in Sec. 1026.37.

[[Page 296]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.027


[[Page 297]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.028


[[Page 298]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.029


[[Page 299]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.030


[[Page 300]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.031


[[Page 301]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.032


[[Page 302]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.033


[[Page 303]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.034


[[Page 304]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.035

    H-25(A) Mortgage Loan Transaction Closing Disclosure--Model Form

    Description: This is a blank model Closing Disclosure that 
illustrates the content requirements in Sec. 1026.38. This form 
provides three variations of page one, one page two, one page three, 
four variations of page four, and four variations of page five, 
reflecting

[[Page 305]]

the variable content requirements in Sec. 1026.38. This form does not 
reflect modifications permitted under Sec. 1026.38(t).
[GRAPHIC] [TIFF OMITTED] TR31DE13.036


[[Page 306]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.037


[[Page 307]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.038


[[Page 308]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.039


[[Page 309]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.041


[[Page 310]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.042


[[Page 311]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.043


[[Page 312]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.044


[[Page 313]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.045


[[Page 314]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.046


[[Page 315]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.047


[[Page 316]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.048


[[Page 317]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.049


[[Page 318]]



 H-25(B) Mortgage Loan Transaction Closing Disclosure--Fixed Rate Loan 
                                 Sample

    Description: This is a sample of a completed Closing Disclosure for 
the fixed rate loan illustrated by form H-24(B). The purpose, product, 
sale price, loan amount, loan term, and interest rate have not changed 
from the estimates provided on the Loan Estimate. The creditor requires 
an escrow account and that the consumer pay for private mortgage 
insurance for the transaction.

[[Page 319]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.050


[[Page 320]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.051


[[Page 321]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.052


[[Page 322]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.053


[[Page 323]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.054


[[Page 324]]



  H-25(C) Mortgage Loan Transaction Closing Disclosure--Borrower Funds 
        From Second-Lien Loan in Summaries of Transactions Sample

    Description: This is a sample of the information required on the 
Closing Disclosure by Sec. 1026.38(j) for disclosure of consumer funds 
from a simultaneous second-lien credit transaction not otherwise 
disclosed pursuant to Sec. 1026.38(j)(2)(iii) or (iv) that is used to 
finance part of the purchase price of the property subject to the 
transaction.
[GRAPHIC] [TIFF OMITTED] TR31DE13.055

     H-25(D) Mortgage Loan Transaction Closing Disclosure--Borrower 
    Satisfaction of Seller's Second-Lien Loan Outside of Closing in 
                    Summaries of Transactions Sample

    Description: This is a sample of the information required on the 
Closing Disclosure by Sec. 1026.38(j) and (k) for the satisfaction of a 
junior-lien transaction by the consumer, which was not paid from closing 
funds.

[[Page 325]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.056

    H-25(E) Mortgage Loan Transaction Closing Disclosure--Refinance 
                           Transaction Sample

    Description: This is a sample of a completed Closing Disclosure for 
the refinance transaction illustrated by form H-24(D). The purpose, loan 
amount, loan term, and interest rate have not changed from the estimates 
provided on the Loan Estimate. The outstanding balance of the existing 
mortgage loan securing the property was less than estimated on the Loan 
Estimate. The creditor requires an escrow account and that the consumer 
pay for private mortgage insurance for the transaction.

[[Page 326]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.057


[[Page 327]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.058


[[Page 328]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.059


[[Page 329]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.060


[[Page 330]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.061


[[Page 331]]



    H-25(F) Mortgage Loan Transaction Closing Disclosure--Refinance 
      Transaction Sample (Amount in Excess of Sec. 1026.19(e)(3))

    Description: This is a sample of the completed disclosures required 
by Sec. 1026.38(e) and (h) for a completed Closing Disclosure for the 
refinance transaction illustrated by form H-24(D). The Closing Costs 
have increased in excess of the good faith requirements of Sec. 
1026.19(e)(3) by $200, for which the creditor has provided a refund 
under Sec. 1026.19(f)(2)(v).
[GRAPHIC] [TIFF OMITTED] TR31DE13.062

    H-25(G) Mortgage Loan Transaction Closing Disclosure--Refinance 
           Transaction With Cash From Consumer at Consummation

    Description: This is a sample of a completed Closing Disclosure for 
a refinance transaction in which the consumer must pay additional funds 
to satisfy the existing mortgage loan securing the property and other 
existing debt to consummate the transaction.

[[Page 332]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.063


[[Page 333]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.064


[[Page 334]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.065


[[Page 335]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.066


[[Page 336]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.067


[[Page 337]]



 H-25(H) Mortgage Loan Transaction Closing Disclosure--Modification to 
                    Closing Cost Details--Model Form

    Description: This is a blank model form of the modification to 
Closing Cost Details permitted by Sec. 1026.38(t)(5)(iv)(B).

[[Page 338]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.068


[[Page 339]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.069


[[Page 340]]



 H-25(I) Mortgage Loan Transaction Closing Disclosure--Modification to 
    Closing Disclosure for Disclosure Provided to Seller--Model Form

    Description: This is a blank model form of the modification 
permitted by Sec. 1026.38(t)(5)(vi).

[[Page 341]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.070


[[Page 342]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.071


[[Page 343]]



 H-25(J) Mortgage Loan Transaction Closing Disclosure--Modification to 
   Closing Disclosure for Transaction Not Involving Seller--Model Form

    Description: This is a blank model form of the alternative 
disclosures and modifications permitted by Sec. 1026.38(d)(2), (e), and 
(t)(5)(vii) for transactions without a seller.

[[Page 344]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.072


[[Page 345]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.073


[[Page 346]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.074


[[Page 347]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.075


[[Page 348]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.076


[[Page 349]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.077


[[Page 350]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.078


[[Page 351]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.079


[[Page 352]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.080


[[Page 353]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.081


[[Page 354]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.082


[[Page 355]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.083


[[Page 356]]



 H-26 Mortgage Loan Transaction--Pre-Loan Estimate Statement--Model Form

    Description: This is a model of the statement required by Sec. 
1026.19(e)(2)(ii) to be stated at the top of the front of the first page 
of a written estimate of terms or costs specific to a consumer that is 
provided to a consumer before the consumer receives the disclosures 
required under Sec. 1026.19(e)(1)(i).
[GRAPHIC] [TIFF OMITTED] TR31DE13.084

H-27(A) Mortgage Loan Transaction--Written List of Providers--Model Form

    Description: This is a blank model form for the written list of 
settlement service providers required by Sec. 1026.19(e)(1)(vi) and the 
statement required by Sec. 1026.19(e)(1)(vi)(C) that the consumer may 
select a settlement service provider that is not on the list.

[[Page 357]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.085

 H-27(B) Mortgage Loan Transaction--Sample of Written List of Providers

    Description: This is a sample of the Written List of Providers for 
the transaction in the sample Loan Estimate illustrated by form H-24(B).

[[Page 358]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.086


[[Page 359]]



 H-27(C) Mortgage Loan Transaction--Sample of Written List of Providers 
                    With Services You Cannot Shop for

    Description: This is a sample of the Written List of Providers with 
information about the providers selected by the creditor for the charges 
disclosed pursuant to Sec. 1026.37(f)(2).
[GRAPHIC] [TIFF OMITTED] TR31DE13.087


[[Page 360]]



H-28(A) Mortgage Loan Transaction Loan Estimate--Spanish Language Model 
                                  Form

    Description: This is a blank model Loan Estimate that illustrates 
the application of the content requirements in Sec. 1026.37, and is 
translated into the Spanish language as permitted by Sec. 
1026.37(o)(5)(ii). This form provides two variations of page one, four 
variations of page two, and four variations of page three, reflecting 
the variable content requirements in Sec. 1026.37.

[[Page 361]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.088


[[Page 362]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.089


[[Page 363]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.090


[[Page 364]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.091


[[Page 365]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.092


[[Page 366]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.093


[[Page 367]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.094


[[Page 368]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.095


[[Page 369]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.096


[[Page 370]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.097


[[Page 371]]



   H-28(B) Mortgage Loan Transaction Loan Estimate--Spanish Language 
                             Purchase Sample

    Description: This is a sample of the Loan Estimate illustrated by 
form H-24(C) for a 5 Year Interest Only, 5/3 Adjustable Rate loan, 
translated into the Spanish language as permitted by Sec. 
1026.37(o)(5)(ii).

[[Page 372]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.098


[[Page 373]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.099


[[Page 374]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.100


[[Page 375]]



   H-28(C) Mortgage Loan Transaction Loan Estimate--Spanish Language 
                            Refinance Sample

    Description: This is a sample of the Loan Estimate illustrated by 
form H-24(D) for a refinance transaction in which the consumer is 
estimated to receive funds from the transaction, translated into the 
Spanish language as permitted by Sec. 1026.37(o)(5)(ii).

[[Page 376]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.101


[[Page 377]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.102


[[Page 378]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.103


[[Page 379]]



   H-28(D) Mortgage Loan Transaction Loan Estimate--Spanish Language 
                         Balloon Payment Sample

    Description: This is a sample of the information required by Sec. 
1026.37(a) through (c) for a transaction with a loan term of seven years 
that includes a final balloon payment illustrated by form H-24(E), 
translated into the Spanish language as permitted by Sec. 
1026.37(o)(5)(ii).
[GRAPHIC] [TIFF OMITTED] TR31DE13.104

   H-28(E) Mortgage Loan Transaction Loan Estimate--Spanish Language 
                      Negative Amortization Sample

    Description: This is a sample of the information required by Sec. 
1026.37(a) and (b) for a transaction with negative amortization 
illustrated by form H-24(F), translated into the Spanish language as 
permitted by Sec. 1026.37(o)(5)(ii).

[[Page 380]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.105

 H-28(F) Mortgage Loan Transaction Closing Disclosure--Spanish Language 
                               Model Form

    Description: This is a blank model Closing Disclosure that 
illustrates the content requirements in Sec. 1026.38, and is translated 
into the Spanish language as permitted by Sec. 1026.38(t)(5)(viii). 
This form provides three variations of page one, one page two, one page 
three, four variations of page four, four variations of page five, and 
two variations of page six reflecting the variable content requirements 
in Sec. 1026.38. This form does not reflect any other modifications 
permitted under Sec. 1026.38(t).

[[Page 381]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.106


[[Page 382]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.107


[[Page 383]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.108


[[Page 384]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.109


[[Page 385]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.110


[[Page 386]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.111


[[Page 387]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.112


[[Page 388]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.113


[[Page 389]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.114


[[Page 390]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.115


[[Page 391]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.116


[[Page 392]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.117


[[Page 393]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.118


[[Page 394]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.119


[[Page 395]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.120


[[Page 396]]



 H-28(G) Mortgage Loan Transaction Closing Disclosure--Spanish Language 
                             Purchase Sample

    Description: This is a sample of the Closing Disclosure illustrated 
by form H-25(B) translated into the Spanish language as permitted by 
Sec. 1026.38(t)(5)(viii).

[[Page 397]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.121


[[Page 398]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.122


[[Page 399]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.123


[[Page 400]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.124


[[Page 401]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.125


[[Page 402]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.126


[[Page 403]]



 H-28(H) Mortgage Loan Transaction Closing Disclosure--Spanish Language 
                            Refinance Sample

    Description: This is a sample of the Closing Disclosure illustrated 
by form H-25(E) translated into the Spanish language as permitted by 
Sec. 1026.38(t)(5)(viii).

[[Page 404]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.127


[[Page 405]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.128


[[Page 406]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.129


[[Page 407]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.130


[[Page 408]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.131


[[Page 409]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.132


[[Page 410]]



 H-28(I) Mortgage Loan Transaction Loan Estimate--Modification to Loan 
 Estimate for Transaction Not Involving Seller--Spanish Language Model 
                                  Form

    Description: This is a blank model Loan Estimate that illustrates 
form H-24(G), with the optional alternative disclosures permitted by 
Sec. 1026.37(d)(2) and (h)(2) for transactions without a seller, 
translated into the Spanish language as permitted by Sec. 
1026.37(o)(5)(ii).

[[Page 411]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.133


[[Page 412]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.134


[[Page 413]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.135


[[Page 414]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.136


[[Page 415]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.137


[[Page 416]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.138


[[Page 417]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.139


[[Page 418]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.140


[[Page 419]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.141


[[Page 420]]



 H-28(J) Mortgage Loan Transaction Closing Disclosure--Modification to 
    Closing Disclosure for Transaction Not Involving Seller--Spanish 
                           Language Model Form

    Description: This is a blank model Closing Disclosure that 
illustrates form H-25(J), with the alternative disclosures under Sec. 
1026.38(d)(2), (e), and (t)(5)(vii) for transactions without a seller, 
translated into the Spanish language as permitted by Sec. 
1026.38(t)(5)(viii).

[[Page 421]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.142


[[Page 422]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.143


[[Page 423]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.144


[[Page 424]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.145


[[Page 425]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.146


[[Page 426]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.147


[[Page 427]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.148


[[Page 428]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.149


[[Page 429]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.150


[[Page 430]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.151


[[Page 431]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.152


[[Page 432]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.153


[[Page 433]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.154


[[Page 434]]


[GRAPHIC] [TIFF OMITTED] TR31DE13.155

      H-29 Escrow Cancellation Notice Model Form (Sec. 1026.20(e))

    Description: This is a blank model form of the disclosures required 
by Sec. 1026.20(e).

[[Page 435]]

[GRAPHIC] [TIFF OMITTED] TR31DE13.156


[[Page 436]]



                   Appendix I to Part 1026 [Reserved]

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 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.

[[Page 437]]

    (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 438]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.062


[[Page 439]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.063


[[Page 440]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.064


[[Page 441]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.065


[[Page 442]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.066


[[Page 443]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.067


[[Page 444]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.068


[[Page 445]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.069


[[Page 446]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.070


[[Page 447]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.071


[[Page 448]]



 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 449]]

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 450]]

    (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 451]]

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 452]]

    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

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 (in      period (in     (life expectancy)  Loan period 3 (in
                                            years)            years)]           (in years)           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 453]]

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

             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 454]]

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 455]]

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 456]]

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.

 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 457]]

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;

  Appendix N to Part 1026--Higher-Priced Mortgage Loan Appraisal Safe 
                              Harbor Review

    To qualify for the safe harbor provided in Sec. 226.43(c)(2), a 
creditor must confirm that the written appraisal:
    1. Identifies the creditor who ordered the appraisal and the 
property and the interest being appraised.
    2. Indicates whether the contract price was analyzed.
    3. Addresses conditions in the property's neighborhood.
    4. Addresses the condition of the property and any improvements to 
the property.
    5. Indicates which valuation approaches were used, and includes a 
reconciliation if more than one valuation approach was used.
    6. Provides an opinion of the property's market value and an 
effective date for the opinion.
    7. Indicates that a physical property visit of the interior of the 
property was performed, as applicable.
    8. Includes a certification signed by the appraiser that the 
appraisal was prepared in accordance with the requirements of the 
Uniform Standards of Professional Appraisal Practice.
    9. Includes a certification signed by the appraiser that the 
appraisal was prepared in accordance with the requirements of title XI 
of the Financial Institutions Reform, Recovery and Enforcement Act of 
1989, as amended (12 U.S.C. 3331 et seq.), and any implementing 
regulations.

[78 FR 10444, Feb. 13, 2013]

    Effective Date Note: At 78 FR 10444, Feb. 13, 2013, Appendix N was 
added, effective Jan. 18, 2014. This appendix was further amended at 78 
FR 78586, Dec. 26, 2013, by revising paragraph 7, effective Jan. 18, 
2014.

   Appendix O to Part 1026--Illustrative Written Source Documents for 
               Higher-Priced Mortgage Loan Appraisal Rules

    A creditor acts with reasonable diligence under Sec. 
226.43(d)(6)(i) if the creditor bases its determination on information 
contained in written source documents, such as:
    1. A copy of the recorded deed from the seller.
    2. A copy of a property tax bill.

[[Page 458]]

    3. A copy of any owner's title insurance policy obtained by the 
seller.
    4. A copy of the RESPA settlement statement from the seller's 
acquisition (i.e., the HUD-1 or any successor form).
    5. A property sales history report or title report from a third-
party reporting service.
    6. Sales price data recorded in multiple listing services.
    7. Tax assessment records or transfer tax records obtained from 
local governments.
    8. A written appraisal performed in compliance with Sec. 
226.43(c)(1) for the same transaction.
    9. A copy of a title commitment report detailing the seller's 
ownership of the property, the date it was acquired, or the price at 
which the seller acquired the property.
    10. A property abstract.

[78 FR 10444, Feb. 13, 2013]

    Effective Date Note: At 78 FR 10444, Feb. 13, 2013, Appendix O was 
added, effective Jan. 18, 2014.

                   Appendix P to Part 1026--[Reserved]

  Appendix Q to Part 1026--Standards for Determining Monthly Debt and 
                                 Income

    Section 1026.43(e)(2)(vi) provides that, to satisfy the requirements 
for a qualified mortgage under Sec. 1026.43(e)(2), the ratio of the 
consumer's total monthly debt payments to total monthly income at the 
time of consummation cannot exceed 43 percent. Section 
1026.43(e)(2)(vi)(A) requires the creditor to calculate the ratio of the 
consumer's total monthly debt payments to total monthly income using the 
following standards, with additional requirements for calculating debt 
and income appearing in Sec. 1026.43(e)(2)(vi)(B). Where guidance 
issued by the U.S. Department of Housing and Urban Development, the U.S. 
Department of Veterans Affairs, the U.S. Department of Agriculture, or 
the Rural Housing Service, or issued by the Federal National Mortgage 
Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation 
(Freddie Mac) while operating under the conservatorship or receivership 
of the Federal Housing Finance Agency, or issued by a limited-life 
regulatory entity succeeding the charter of either Fannie Mae or Freddie 
Mac (collectively, Agency or GSE guidance) is in accordance with 
appendix Q, creditors may look to that guidance as a helpful resource in 
applying appendix Q. Moreover, when the following standards do not 
resolve how a specific kind of debt or income should be treated, the 
creditor may either (1) exclude the income or include the debt, or (2) 
rely on Agency or GSE guidance to resolve the issue. The following 
standards resolve the appropriate treatment of a specific kind of debt 
or income where the standards provide a discernible answer to the 
question of how to treat the debt or income. However, a creditor may not 
rely on Agency or GSE guidance to reach a resolution contrary to that 
provided by the following standards, even if such Agency or GSE guidance 
specifically addresses the particular type of debt or income but the 
following standards provide more generalized guidance.

                  I. Consumer Employment Related Income

                         A. Stability of Income

    1. Effective Income. Income may not be used in calculating the 
consumer's debt-to-income ratio if it comes from any source that cannot 
be verified, is not stable, or will not continue.
    2. Verifying Employment History.
    a. The creditor must verify the consumer's employment for the most 
recent two full years, and the creditor must require the consumer to:
    i. Explain any gaps in employment that span one or more months, and
    ii. Indicate if he/she was in school or the military for the recent 
two full years, providing evidence supporting this claim, such as 
college transcripts, or discharge papers.
    b. Allowances can be made for seasonal employment, typical for the 
building trades and agriculture, if documented by the creditor.
    Note: A consumer with a 25 percent or greater ownership interest in 
a business is considered self-employed and will be evaluated as a self-
employed consumer.
    3. Analyzing a Consumer's Employment Record.
    a. When analyzing a consumer's employment, creditors must examine:
    i. The consumer's past employment record; and
    ii. The employer's confirmation of current, ongoing employment 
status.
    Note: Creditors may assume that employment is ongoing if a 
consumer's employer verifies current employment and does not indicate 
that employment has been, or is set to be terminated. Creditors should 
not rely upon a verification of current employment that includes an 
affirmative statement that the employment is likely to cease, such as a 
statement that indicates the employee has given (or been given) notice 
of employment suspension or termination.
    b. Creditors may favorably consider the stability of a consumer's 
income if he/she changes jobs frequently within the same line of work, 
but continues to advance in income or benefits. In this analysis, income 
stability takes precedence over job stability.
    4. Consumers Returning to Work After an Extended Absence. A 
consumer's income may be considered effective and stable when recently 
returning to work after an extended absence if he/she:

[[Page 459]]

    a. Is employed in the current job for six months or longer; and
    b. Can document a two year work history prior to an absence from 
employment using:
    i. Traditional employment verifications; and/or
    ii. Copies of IRS Form W-2s or pay stubs.
    Note: An acceptable employment situation includes individuals who 
took several years off from employment to raise children, then returned 
to the workforce.
    c. Important: Situations not meeting the criteria listed above may 
not be used in qualifying. Extended absence is defined as six months.

                B. Salary, Wage and Other Forms of Income

    1. General Policy on Consumer Income Analysis.
    a. The income of each consumer who will be obligated for the 
mortgage debt and whose income is being relied upon in determining 
ability to repay must be analyzed to determine whether his/her income 
level can be reasonably expected to continue.
    b. In most cases, a consumer's income is limited to salaries or 
wages. Income from other sources can be considered as effective, when 
properly verified and documented by the creditor.
    Notes: i. Effective income for consumers planning to retire during 
the first three-year period must include the amount of:
    a. Documented retirement benefits;
    b. Social Security payments; or
    c. Other payments expected to be received in retirement.
    ii. Creditors must not ask the consumer about possible, future 
maternity leave.
    iii. Creditors may assume that salary or wage income from employment 
verified in accordance with section I.A.3 above can be reasonably 
expected to continue if a consumer's employer verifies current 
employment and income and does not indicate that employment has been, or 
is set to be terminated. Creditors should not assume that income can be 
reasonably expected to continue if a verification of current employment 
includes an affirmative statement that the employment is likely to 
cease, such as a statement that indicates the employee has given (or 
been given) notice of employment suspension or termination.
    2. Overtime and Bonus Income.
    a. Overtime and bonus income can be used to qualify the consumer if 
he/she has received this income for the past two years, and 
documentation submitted for the loan does not indicate this income will 
likely cease. If, for example, the employment verification states that 
the overtime and bonus income is unlikely to continue, it may not be 
used in qualifying.
    b. The creditor must develop an average of bonus or overtime income 
for the past two years. Periods of overtime and bonus income less than 
two years may be acceptable, provided the creditor can justify and 
document in writing the reason for using the income for qualifying 
purposes.
    3. Establishing an Overtime and Bonus Income Earning Trend.
    a. The creditor must establish and document an earnings trend for 
overtime and bonus income. If either type of income shows a continual 
decline, the creditor must document in writing a sound rationalization 
for including the income when qualifying the consumer.
    b. A period of more than two years must be used in calculating the 
average overtime and bonus income if the income varies significantly 
from year to year.
    4. Qualifying Part-Time Income.
    a. Part-time and seasonal income can be used to qualify the consumer 
if the creditor documents that the consumer has worked the part-time job 
uninterrupted for the past two years, and plans to continue. Many low 
and moderate income families rely on part-time and seasonal income for 
day to day needs, and creditors should not restrict consideration of 
such income when qualifying the income of these consumers.
    b. Part-time income received for less than two years may be included 
as effective income, provided that the creditor justifies and documents 
that the income is likely to continue.
    c. Part-time income not meeting the qualifying requirements may not 
be used in qualifying.
    Note: For qualifying purposes, ``part-time'' income refers to 
employment taken to supplement the consumer's income from regular 
employment; part-time employment is not a primary job and it is worked 
less than 40 hours.
    5. Income from Seasonal Employment.
    a. Seasonal income is considered uninterrupted, and may be used to 
qualify the consumer, if the creditor documents that the consumer:
    i. Has worked the same job for the past two years, and
    ii. Expects to be rehired the next season.
    b. Seasonal employment includes, but is not limited to:
    i. Umpiring baseball games in the summer; or
    ii. Working at a department store during the holiday shopping 
season.
    6. Primary Employment Less Than 40 Hour Work Week.
    a. When a consumer's primary employment is less than a typical 40-
hour work week, the creditor should evaluate the stability of that 
income as regular, on-going primary employment.
    b. Example: A registered nurse may have worked 24 hours per week for 
the last year. Although this job is less than the 40-hour

[[Page 460]]

work week, it is the consumer's primary employment, and should be 
considered effective income.
    7. Commission Income.
    a. Commission income must be averaged over the previous two years. 
To qualify commission income, the consumer must provide:
    i. Copies of signed tax returns for the last two years; and
    ii. The most recent pay stub.
    b. Consumers whose commission income was received for more than one 
year, but less than two years may be considered favorably if the 
underwriter can:
    i. Document the likelihood that the income will continue, and
    ii. Soundly rationalize accepting the commission income.
    Notes: i. Unreimbursed business expenses must be subtracted from 
gross income.
    ii. A commissioned consumer is one who receives more than 25 percent 
of his/her annual income from commissions.
    iii. A tax transcript obtained directly from the IRS may be used in 
lieu of signed tax returns.
    8. Qualifying Commission Income Earned for Less Than One Year.
    a. Commission income earned for less than one year is not considered 
effective income. Exceptions may be made for situations in which the 
consumer's compensation was changed from salary to commission within a 
similar position with the same employer.
    b. A consumer's income may also qualify when the portion of earnings 
not attributed to commissions would be sufficient to qualify the 
consumer for the mortgage.
    9. Employer Differential Payments.
    If the employer subsidizes a consumer's mortgage payment through 
direct payments, the amount of the payments:
    a. Is considered gross income, and
    b. Cannot be used to offset the mortgage payment directly, even if 
the employer pays the servicing creditor directly.
    10. Retirement Income.
    Retirement income must be verified from the former employer, or from 
Federal tax returns. If any retirement income, such as employer pensions 
or 401(k)'s, will cease within the first full three years of the 
mortgage loan, such income may not be used in qualifying.
    11. Social Security Income.
    Social Security income must be verified by a Social Security 
Administration benefit verification letter (sometimes called a ``proof 
of income letter,'' ``budget letter,'' ``benefits letter,'' or ``proof 
of award letter''). If any benefits expire within the first full three 
years of the loan, the income source may not be used in qualifying.
    Notes: i. If the Social Security Administration benefit verification 
letter does not indicate a defined expiration date within three years of 
loan origination, the creditor shall consider the income effective and 
likely to continue. Pending or current re-evaluation of medical 
eligibility for benefit payments is not considered an indication that 
the benefit payments are not likely to continue.
    ii. Some portion of Social Security income may be ``grossed up'' if 
deemed nontaxable by the IRS.
    12. Automobile Allowances and Expense Account Payments.
    a. Only the amount by which the consumer's automobile allowance or 
expense account payments exceed actual expenditures may be considered 
income.
    b. To establish the amount to add to gross income, the consumer must 
provide the following:
    i. IRS Form 2106, Employee Business Expenses, for the previous two 
years; and
    ii. Employer verification that the payments will continue.
    c. If the consumer uses the standard per-mile rate in calculating 
automobile expenses, as opposed to the actual cost method, the portion 
that the IRS considers depreciation may be added back to income.
    d. Expenses that must be treated as recurring debt include:
    i. The consumer's monthly car payment; and
    ii. Any loss resulting from the calculation of the difference 
between the actual expenditures and the expense account allowance.

            C. Consumers Employed by a Family Owned Business.

    1. Income Documentation Requirement.
    In addition to normal employment verification, a consumer employed 
by a family owned business is required to provide evidence that he/she 
is not an owner of the business, which may include:
    a. Copies of signed personal tax returns, or
    b. A signed copy of the corporate tax return showing ownership 
percentage.
    Note: A tax transcript obtained directly from the IRS may be used in 
lieu of signed tax returns.

 D. General Information on Self-Employed Consumers and Income Analysis.

    1. Definition: Self-Employed Consumer.
    A consumer with a 25 percent or greater ownership interest in a 
business is considered self-employed.
    2. Types of Business Structures.
    There are four basic types of business structures. They include:
    a. Sole proprietorships;
    b. Corporations;
    c. Limited liability or ``S'' corporations; and
    d. Partnerships.
    3. Minimum Length of Self Employment.
    a. Income from self-employment is considered stable, and effective, 
if the consumer

[[Page 461]]

has been self-employed for two or more years.
    b. Due to the high probability of failure during the first few years 
of a business, the requirements described in the table below are 
necessary for consumers who have been self-employed for less than two 
years.
[GRAPHIC] [TIFF OMITTED] TR24JY13.000

    4. General Documentation Requirements for Self-Employed Consumers.
    Self-employed consumers must provide the following documentation:
    a. Signed, dated individual tax returns, with all applicable tax 
schedules for the most recent two years;
    b. For a corporation, ``S'' corporation, or partnership, signed 
copies of Federal business income tax returns for the last two years, 
with all applicable tax schedules; and
    c. Year to date profit and loss (P&L) statement and balance sheet.
    5. Establishing a Self-Employed Consumer's Earnings Trend.
    a. When qualifying income, the creditor must establish the 
consumer's earnings trend from the previous two years using the 
consumer's tax returns.
    b. If a consumer:
    i. Provides quarterly tax returns, the income analysis may include 
income through the period covered by the tax filings, or
    ii. Is not subject to quarterly tax returns, or does not file them, 
then the income shown on the P&L statement may be included in the 
analysis, provided the income stream based on the P&L is consistent with 
the previous years' earnings.
    c. If the P&L statements submitted for the current year show an 
income stream considerably greater than what is supported by the 
previous year's tax returns, the creditor must base the income analysis 
solely on the income verified through the tax returns.
    d. If the consumer's earnings trend for the previous two years is 
downward and the most recent tax return or P&L is less than the prior 
year's tax return, the consumer's most recent year's tax return or P&L 
must be used to calculate his/her income.
    6. Analyzing the Business's Financial Strength.
    The creditor must consider the business's financial strength by 
examining annual earnings. Annual earnings that are stable or increasing 
are acceptable, while businesses that show a significant decline in 
income over the analysis period are not acceptable.

       E. Income Analysis: Individual Tax Returns (IRS Form 1040).

    1. General Policy on Adjusting Income Based on a Review of IRS Form 
1040.
    The amount shown on a consumer's IRS Form 1040 as adjusted gross 
income must either be increased or decreased based on the creditor's 
analysis of the individual tax return and any related tax schedules.
    2. Guidelines for Analyzing IRS Form 1040.
    The table below contains guidelines for analyzing IRS Form 1040:

[[Page 462]]

[GRAPHIC] [TIFF OMITTED] TR24JY13.001

       F. Income Analysis: Corporate Tax Returns (IRS Form 1120).

    1. Description: Corporation.
    A corporation is a State-chartered business owned by its 
stockholders.
    2. Need To Obtain Consumer Percentage of Ownership Information.

[[Page 463]]

    a. Corporate compensation to the officers, generally in proportion 
to the percentage of ownership, is shown on the:
    i. Corporate tax return IRS Form 1120; and
    ii. Individual tax returns.
    b. When a consumer's percentage of ownership does not appear on the 
tax returns, the creditor must obtain the information from the 
corporation's accountant, along with evidence that the consumer has the 
right to any compensation.
    3. Analyzing Corporate Tax Returns.
    a. In order to determine a consumer's self-employed income from a 
corporation the adjusted business income must:
    i. Be determined; and
    ii. Multiplied by the consumer's percentage of ownership in the 
business.
    b. The table below describes the items found on IRS Form 1120 for 
which an adjustment must be made in order to determine adjusted business 
income.
[GRAPHIC] [TIFF OMITTED] TR24JY13.002

   G. Income Analysis: ``S'' Corporation Tax Returns (IRS Form 1120S).

    1. Description: ``S'' Corporation.
    a. An ``S'' corporation is generally a small, start-up business, 
with gains and losses passed to stockholders in proportion to each 
stockholder's percentage of business ownership.
    b. Income for owners of ``S'' corporations comes from IRS Form W-2 
wages, and is taxed at the individual rate. The IRS Form 1120S, 
Compensation of Officers line item is transferred to the consumer's 
individual IRS Form 1040.
    2. Analyzing ``S'' Corporation Tax Returns.
    a. ``S'' corporation depreciation and depletion may be added back to 
income in proportion to the consumer's share of the corporation's 
income.
    b. In addition, the income must also be reduced proportionately by 
the total obligations payable by the corporation in less than one year.
    c. Important: The consumer's withdrawal of cash from the corporation 
may have a severe negative impact on the corporation's ability to 
continue operating, and must be considered in the income analysis.

      H. Income Analysis: Partnership Tax Returns (IRS Form 1065).

    1. Description: Partnership.
    a. A partnership is formed when two or more individuals form a 
business, and share in profits, losses, and responsibility for running 
the company.
    b. Each partner pays taxes on his/her proportionate share of the 
partnership's net income.
    2. Analyzing Partnership Tax Returns.
    a. Both general and limited partnerships report income on IRS Form 
1065, and the partners' share of income is carried over to Schedule E of 
IRS Form 1040.
    b. The creditor must review IRS Form 1065 to assess the viability of 
the business. Both depreciation and depletion may be added back to the 
income in proportion to the consumer's share of income.
    c. Income must also be reduced proportionately by the total 
obligations payable by the partnership in less than one year.
    d. Important: Cash withdrawals from the partnership may have a 
severe negative impact on the partnership's ability to continue 
operating, and must be considered in the income analysis.

               II. Non-Employment Related Consumer Income

       A. Alimony, Child Support, and Maintenance Income Criteria.

    Alimony, child support, or maintenance income may be considered 
effective, if:
    1. Payments are likely to be received consistently for the first 
three years of the mortgage;
    2. The consumer provides the required documentation, which includes 
a copy of the:

[[Page 464]]

    i. Final divorce decree;
    ii. Legal separation agreement;
    iii. Court order; or
    iv. Voluntary payment agreement; and
    3. The consumer can provide acceptable evidence that payments have 
been received during the last 12 months, such as:
    i. Cancelled checks;
    ii. Deposit slips;
    iii. Tax returns; or
    iv. Court records.
    Notes: i. Periods less than 12 months may be acceptable, provided 
the creditor can adequately document the payer's ability and willingness 
to make timely payments.
    ii. Child support may be ``grossed up'' under the same provisions as 
non-taxable income sources.

                     B. Investment and Trust Income.

    1. Analyzing Interest and Dividends.
    a. Interest and dividend income may be used as long as tax returns 
or account statements support a two-year receipt history. This income 
must be averaged over the two years.
    b. Subtract any funds that are derived from these sources, and are 
required for the cash investment, before calculating the projected 
interest or dividend income.
    2. Trust Income.
    a. Income from trusts may be used if constant payments will continue 
for at least the first three years of the mortgage term as evidenced by 
trust income documentation.
    b. Required trust income documentation includes a copy of the Trust 
Agreement or other trustee statement, confirming the:
    i. Amount of the trust;
    ii. Frequency of distribution; and
    iii. Duration of payments.
    c. Trust account funds may be used for the required cash investment 
if the consumer provides adequate documentation that the withdrawal of 
funds will not negatively affect income. The consumer may use funds from 
the trust account for the required cash investment, but the trust income 
used to determine repayment ability cannot be affected negatively by its 
use.
    3. Notes Receivable Income.
    a. In order to include notes receivable income, the consumer must 
provide:
    i. A copy of the note to establish the amount and length of payment, 
and
    ii. Evidence that these payments have been consistently received for 
the last 12 months through deposit slips, deposit receipts, cancelled 
checks, bank or other account statements, or tax returns.
    b. If the consumer is not the original payee on the note, the 
creditor must establish that the consumer is able to enforce the note.
    4. Eligible Investment Properties.
    Follow the steps in the table below to calculate an investment 
property's income or loss if the property to be subject to a mortgage is 
an eligible investment property.
[GRAPHIC] [TIFF OMITTED] TR24JY13.003

     C. Military, Government Agency, and Assistance Program Income.

    1. Military Income.
    a. Military personnel not only receive base pay, but often times are 
entitled to additional forms of pay, such as:
    i. Income from variable housing allowances;
    ii. Clothing allowances;
    iii. Flight or hazard pay;
    iv. Rations; and
    v. Proficiency pay.
    b. These types of additional pay are acceptable when analyzing a 
consumer's income as long as the probability of such pay to continue is 
verified in writing.
    Note: The tax-exempt nature of some of the above payments should 
also be considered.
    2. VA Benefits.
    a. Direct compensation for service-related disabilities from the 
Department of Veterans Affairs (VA) is acceptable, provided the creditor 
receives documentation from the VA.

[[Page 465]]

    b. Education benefits used to offset education expenses are not 
acceptable.
    3. Government Assistance Programs.
    a. Income received from government assistance programs is acceptable 
as long as the paying agency provides documentation indicating that the 
income is expected to continue for at least three years.
    b. If the income from government assistance programs will not be 
received for at least three years, it may not be used in qualifying.
    c. Unemployment income must be documented for two years, and there 
must be reasonable assurance that this income will continue. This 
requirement may apply to seasonal employment.
    Note: Social Security income is acceptable as provided in section 
I.B.11.
    4. Mortgage Credit Certificates.
    a. If a government entity subsidizes the mortgage payments either 
through direct payments or tax rebates, these payments may be considered 
as acceptable income.
    b. Either type of subsidy may be added to gross income, or used 
directly to offset the mortgage payment, before calculating the 
qualifying ratios.
    5. Homeownership Subsidies.
    a. A monthly subsidy may be treated as income, if a consumer is 
receiving subsidies under the housing choice voucher home ownership 
option from a public housing agency (PHA). Although continuation of the 
homeownership voucher subsidy beyond the first year is subject to 
Congressional appropriation, for the purposes of underwriting, the 
subsidy will be assumed to continue for at least three years.
    b. If the consumer is receiving the subsidy directly, the amount 
received is treated as income. The amount received may also be treated 
as nontaxable income and be ``grossed up'' by 25 percent, which means 
that the amount of the subsidy, plus 25 percent of that subsidy may be 
added to the consumer's income from employment and/or other sources.
    c. Creditors may treat this subsidy as an ``offset'' to the monthly 
mortgage payment (that is, reduce the monthly mortgage payment by the 
amount of the home ownership assistance payment before dividing by the 
monthly income to determine the payment-to-income and debt-to-income 
ratios). The subsidy payment must not pass through the consumer's hands.
    d. The assistance payment must be:
    i. Paid directly to the servicing creditor; or
    ii. Placed in an account that only the servicing creditor may 
access.
    Note: Assistance payments made directly to the consumer must be 
treated as income.

                            D. Rental Income.

    1. Analyzing the Stability of Rental Income.
    a. Rent received for properties owned by the consumer is acceptable 
as long as the creditor can document the stability of the rental income 
through:
    i. A current lease;
    ii. An agreement to lease; or
    iii. A rental history over the previous 24 months that is free of 
unexplained gaps greater than three months (such gaps could be explained 
by student, seasonal, or military renters, or property rehabilitation).
    b. A separate schedule of real estate is not required for rental 
properties as long as all properties are documented on the Uniform 
Residential Loan Application.
    Note: The underwriting analysis may not consider rental income from 
any property being vacated by the consumer, except under the 
circumstances described below.
    2. Rental Income From Consumer Occupied Property.
    a. The rent for multiple unit property where the consumer resides in 
one or more units and charges rent to tenants of other units may be used 
for qualifying purposes.
    b. Projected rent for the tenant-occupied units only may:
    i. Be considered gross income, only after deducting vacancy and 
maintenance factors, and
    ii. Not be used as a direct offset to the mortgage payment.
    3. Income from Roommates or Boarders in a Single Family Property.
    a. Rental income from roommates or boarders in a single family 
property occupied as the consumer's primary residence is acceptable.
    b. The rental income may be considered effective if shown on the 
consumer's tax return. If not on the tax return, rental income paid by 
the roommate or boarder may not be used in qualifying.
    4. Documentation Required To Verify Rental Income.
    Analysis of the following required documentation is necessary to 
verify all consumer rental income:
    a. IRS Form 1040 Schedule E; and
    b. Current leases/rental agreements.
    5. Analyzing IRS Form 1040 Schedule E.
    a. The IRS Form 1040 Schedule E is required to verify all rental 
income. Depreciation shown on Schedule E may be added back to the net 
income or loss.
    b. Positive rental income is considered gross income for qualifying 
purposes, while negative income must be treated as a recurring 
liability.
    c. The creditor must confirm that the consumer still owns each 
property listed, by comparing Schedule E with the real estate owned 
section of the Uniform Residential Loan Application (URLA).
    6. Using Current Leases To Analyze Rental Income.

[[Page 466]]

    a. The consumer can provide a current signed lease or other rental 
agreement for a property that was acquired since the last income tax 
filing, and is not shown on Schedule E.
    b. In order to calculate the rental income:
    i. Reduce the gross rental amount by 25 percent for vacancies and 
maintenance;
    ii. Subtract PITI and any homeowners association dues; and
    iii. Apply the resulting amount to income, if positive, or recurring 
debts, if negative.
    7. Exclusion of Rental Income From Property Being Vacated by the 
Consumer. Underwriters may not consider any rental income from a 
consumer's principal residence that is being vacated in favor of another 
principal residence, except under the conditions described below:
    Notes: i. This policy assures that a consumer either has sufficient 
income to make both mortgage payments without any rental income, or has 
an equity position not likely to result in defaulting on the mortgage on 
the property being vacated.
    ii. This applies solely to a principal residence being vacated in 
favor of another principal residence. It does not apply to existing 
rental properties disclosed on the loan application and confirmed by tax 
returns (Schedule E of form IRS 1040).
    8. Policy Exceptions Regarding the Exclusion of Rental Income From a 
Principal Residence Being Vacated by a Consumer.
    When a consumer vacates a principal residence in favor of another 
principal residence, the rental income, reduced by the appropriate 
vacancy factor, may be considered in the underwriting analysis under the 
circumstances listed in the table below.
[GRAPHIC] [TIFF OMITTED] TR24JY13.004

                   E. Non-Taxable and Projected Income

    1. Types of Non-Taxable Income.
    Certain types of regular income may not be subject to Federal tax. 
Such types of non-taxable income include:
    a. Some portion of Social Security, some Federal government employee 
retirement income, Railroad Retirement Benefits, and some State 
government retirement income;
    b. Certain types of disability and public assistance payments;
    c. Child support;
    d. Military allowances; and
    e. Other income that is documented as being exempt from Federal 
income taxes.
    2. Adding Non-Taxable Income to a Consumer's Gross Income.
    a. The amount of continuing tax savings attributed to regular income 
not subject to Federal taxes may be added to the consumer's gross 
income.
    b. The percentage of non-taxable income that may be added cannot 
exceed the appropriate tax rate for the income amount. Additional 
allowances for dependents are not acceptable.
    c. The creditor:

[[Page 467]]

    i. Must document and support the amount of income grossed up for any 
non-taxable income source, and
    ii. Should use the tax rate used to calculate the consumer's last 
year's income tax.
    Note: If the consumer is not required to file a Federal tax return, 
the tax rate to use is 25 percent.
    3. Analyzing Projected Income.
    a. Projected or hypothetical income is not acceptable for qualifying 
purposes. However, exceptions are permitted for income from the 
following sources:
    i. Cost-of-living adjustments;
    ii. Performance raises; and
    iii. Bonuses.
    b. For the above exceptions to apply, the income must be:
    i. Verified in writing by the employer; and
    ii. Scheduled to begin within 60 days of loan closing.
    4. Projected Income for New Job.
    a. Projected income is acceptable for qualifying purposes for a 
consumer scheduled to start a new job within 60 days of loan closing if 
there is a guaranteed, non-revocable contract for employment.
    b. The creditor must verify that the consumer will have sufficient 
income or cash reserves to support the mortgage payment and any other 
obligations between loan closing and the start of employment. Examples 
of this type of scenario are teachers whose contracts begin with the new 
school year, or physicians beginning a residency after the loan closes.
    c. The income does not qualify if the loan closes more than 60 days 
before the consumer starts the new job.

            III. Consumer Liabilities: Recurring Obligations

    1. Types of Recurring Obligation. Recurring obligations include:
    a. All installment loans;
    b. Revolving charge accounts;
    c. Real estate loans;
    d. Alimony;
    e. Child support; and
    f. Other continuing obligations.
    2. Debt to Income Ratio Computation for Recurring Obligations.
    a. The creditor must include the following when computing the debt 
to income ratios for recurring obligations:
    i. Monthly housing expense; and
    ii. Additional recurring charges extending ten months or more, such 
as
    a. Payments on installment accounts;
    b. Child support or separate maintenance payments;
    c. Revolving accounts; and
    d. Alimony.
    b. Debts lasting less than ten months must be included if the amount 
of the debt affects the consumer's ability to pay the mortgage during 
the months immediately after loan closing, especially if the consumer 
will have limited or no cash assets after loan closing.
    Note: Monthly payments on revolving or open-ended accounts, 
regardless of the balance, are counted as a liability for qualifying 
purposes even if the account appears likely to be paid off within 10 
months or less.
    3. Revolving Account Monthly Payment Calculation. If the credit 
report shows any revolving accounts with an outstanding balance but no 
specific minimum monthly payment, the payment must be calculated as the 
greater of:
    a. 5 percent of the balance; or
    b. $10.
    Note: If the actual monthly payment is documented from the creditor 
or the creditor obtains a copy of the current statement reflecting the 
monthly payment, that amount may be used for qualifying purposes.
    4. Reduction of Alimony Payment for Qualifying Ratio Calculation. 
Since there are tax consequences of alimony payments, the creditor may 
choose to treat the monthly alimony obligation as a reduction from the 
consumer's gross income when calculating the ratio, rather than treating 
it as a monthly obligation.

             IV. Consumer Liabilities: Contingent Liability

    1. Definition: Contingent Liability. A contingent liability exists 
when an individual is held responsible for payment of a debt if another 
party, jointly or severally obligated, defaults on the payment.
    2. Application of Contingent Liability Policies. The contingent 
liability policies described in this topic apply unless the consumer can 
provide conclusive evidence from the debt holder that there is no 
possibility that the debt holder will pursue debt collection against 
him/her should the other party default.
    3. Contingent Liability on Mortgage Assumptions. Contingent 
liability must be considered when the consumer remains obligated on an 
outstanding FHA-insured, VA-guaranteed, or conventional mortgage secured 
by property that:
    a. Has been sold or traded within the last 12 months without a 
release of liability, or
    b. Is to be sold on assumption without a release of liability being 
obtained.
    4. Exemption From Contingent Liability Policy on Mortgage 
Assumptions. When a mortgage is assumed, contingent liabilities need not 
be considered if the:
    a. Originating creditor of the mortgage being underwritten obtains, 
from the servicer of the assumed loan, a payment history showing that 
the mortgage has been current during the previous 12 months, or
    b. Value of the property, as established by an appraisal or the 
sales price on the HUD-1 Settlement Statement from the sale of the

[[Page 468]]

property, results in a loan-to-value (LTV) ratio of 75 percent or less.
    5. Contingent Liability on Cosigned Obligations.
    a. Contingent liability applies, and the debt must be included in 
the underwriting analysis, if an individual applying for a mortgage is a 
cosigner/co-obligor on:
    i. A car loan;
    ii. A student loan;
    iii. A mortgage; or
    iv. Any other obligation.
    b. If the creditor obtains documented proof that the primary obligor 
has been making regular payments during the previous 12 months, and does 
not have a history of delinquent payments on the loan during that time, 
the payment does not have to be included in the consumer's monthly 
obligations.

   V. Consumer Liabilities: Projected Obligations and Obligations Not 
                             Considered Debt

                        1. Projected Obligations

    a. Debt payments, such as a student loan or balloon-payment note 
scheduled to begin or come due within 12 months of the mortgage loan 
closing, must be included by the creditor as anticipated monthly 
obligations during the underwriting analysis.
    b. Debt payments do not have to be classified as projected 
obligations if the consumer provides written evidence that the debt will 
be deferred to a period outside the 12-month timeframe.
    c. Balloon-payment notes that come due within one year of loan 
closing must be considered in the underwriting analysis.

                   2. Obligations Not Considered Debt

    Obligations not considered debt, and therefore not subtracted from 
gross income, include:
    a. Federal, State, and local taxes;
    b. Federal Insurance Contributions Act (FICA) or other retirement 
contributions, such as 401(k) accounts (including repayment of debt 
secured by these funds):
    c. Commuting costs;
    d. Union dues;
    e. Open accounts with zero balances;
    f. Automatic deductions to savings accounts;
    g. Child care; and
    h. Voluntary deductions.

[78 FR 44718, July 24, 2013]

    Effective Date Note: At 78 FR 44718, July 24, 2013, Part 1026, 
Appendix Q was revised, effective Jan. 10, 2014.

           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.

                           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

[[Page 469]]

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.
    Paragraph 1(c)(5)--1. Temporary exemption. Section 1026.1(c)(5) 
implements sections 128(a)(16) through (19), 128(b)(4), 129C(f)(1), 
129C(g)(2) and (3), 129C(h), 129D(h), 129D(j)(1)(A), and 129D(j)(1)(B) 
of the Truth in Lending Act and section 4(c) of the Real Estate 
Settlement Procedures Act, by exempting persons from the disclosure 
requirements of those sections. These exemptions are intended to be 
temporary, lasting only until regulations implementing the integrated 
disclosures required by sections 1032(f), 1098, and 1100A of the Dodd-
Frank Act (12 U.S.C. 5532(f), 12 U.S.C. 2603(a), 15 U.S.C. 1604(b)) 
become mandatory. Section 1026.1(c)(5) does not exempt any person from 
any other requirement of this part, Regulation X (12 CFR part 1024), the 
Truth in Lending Act, or the Real Estate Settlement Procedures Act.

          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

[[Page 470]]

month) that the creditor regularly uses, the intervals between 
statements are considered equal. The requirement that cycles be equal 
applies even if the creditor applies a daily periodic rate to determine 
the finance charge. The requirement that intervals be equal does not 
apply to the first billing cycle on an open-end account (i.e., the time 
period between account opening and the generation of the first periodic 
statement) or to a transitional billing cycle that can occur if the 
creditor occasionally changes its billing cycles so as to establish a 
new statement day or date. (See comments 9(c)(1)-3 and 9(c)(2)-3.)
    4. Payment reminder. The sending of a regular payment reminder 
(rather than a late payment notice) establishes a cycle for which the 
creditor must send periodic statements.

                          2(a)(6) Business Day

    1. Business function test. Activities that indicate that the 
creditor is open for substantially all of its business functions include 
the availability of personnel to make loan disbursements, to open new 
accounts, and to handle credit transaction inquiries. Activities that 
indicate that the creditor is not open for substantially all of its 
business functions include a retailer's merely accepting credit cards 
for purchases or a bank's having its customer-service windows open only 
for limited purposes such as deposits and withdrawals, bill paying, and 
related services.
    2. Rule for rescission, disclosures for certain mortgage 
transactions, and private education loans. A more precise rule for what 
is a business day (all calendar days except Sundays and the Federal 
legal holidays specified in 5 U.S.C. 6103(a)) applies when the right of 
rescission, the receipt of disclosures for certain dwelling-secured 
mortgage transactions under Sec. Sec. 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).

[[Page 471]]

    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).)

                       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

[[Page 472]]

is paid by the agency. No finance charge is imposed on the subsidy 
amount, and that amount is due in a lump-sum payment on a set date or 
upon the occurrence of certain events. (If payment is not made when due, 
a new note imposing a finance charge may be written, which may then be 
subject to the regulation.)
    2. Payday loans; deferred presentment. Credit includes a transaction 
in which a cash advance is made to a consumer in exchange for the 
consumer's personal check, or in exchange for the consumer's 
authorization to debit the consumer's deposit account, and where the 
parties agree either that the check will not be cashed or deposited, or 
that the 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

[[Page 473]]

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. 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

[[Page 474]]

becomes a creditor for the succeeding extensions of credit, whether or 
not they are secured by a dwelling. On the other hand, extensions of 
consumer credit not secured by a dwelling are not counted towards the 
number of credit extensions secured by a dwelling. For example, if in 
2007 a person extends credit not secured by a dwelling 8 times and 
credit secured by a dwelling 3 times, it is not a creditor.
    6. Effect of satisfying one test. Once one of the numerical tests is 
satisfied, the person is also a creditor for the other type of credit. 
For example, in 2007 a person extends consumer credit secured by a 
dwelling 5 times. That person is a creditor for all succeeding credit 
extensions, whether they involve credit secured by a dwelling or not.
    7. Trusts. In the case of credit extended by trusts, each individual 
trust is considered a separate entity for purposes of applying the 
criteria. For example:
    i. A bank is the trustee for three trusts. Trust A makes 15 
extensions of consumer credit annually; Trust B makes 10 extensions of 
consumer credit annually; and Trust C makes 30 extensions of consumer 
credit annually. Only Trust C is a creditor for purposes of the 
regulation.

                    Paragraph 2(a)(17)(ii) [Reserved]

                         Paragraph 2(a)(17)(iii)

    1. Card issuers subject to Subpart B. Section 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.)

[[Page 475]]

    2. Use as a residence. Mobile homes, boats, and trailers are 
dwellings if they are in fact used as residences, just as are 
condominium and cooperative units. Recreational vehicles, campers, and 
the like not used as residences are not dwellings.
    3. Relation to exemptions. Any transaction involving a security 
interest in a consumer's principal dwelling (as well as in any real 
property) remains subject to the regulation despite the general 
exemption in Sec. 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

[[Page 476]]

credit distinguishes open-end credit from a series of advances made 
pursuant to a closed-end credit loan commitment. For example:
    i. Under a closed-end commitment, the creditor might agree to lend a 
total of $10,000 in a series of advances as needed by the consumer. When 
a consumer has borrowed the full $10,000, no more is advanced under that 
particular agreement, even if there has been repayment of a portion of 
the debt. (See Sec. 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

[[Page 477]]

$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 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

[[Page 478]]

the commentary do exclude specific interests, such as after-acquired 
property and accessories, from the scope of the definition regardless of 
their categorization under applicable law, and these named exclusions 
may not be disclosed as security interests under the regulation. (But 
see the discussion of exclusions elsewhere in the commentary to Sec. 
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

[[Page 479]]

apply to consumer-purpose extensions of credit using a business-purpose 
credit card.
    ii. Consumer-purpose credit cards--extensions of credit for business 
purposes. If a consumer-purpose credit card is issued to a person, the 
provisions of the regulation apply, even to occasional extensions of 
credit for business purposes made using that consumer-purpose credit 
card. For example, a consumer may assert a billing error with respect to 
any extension of credit using a consumer-purpose credit card, even if 
the specific extension of credit on such credit card or open-end credit 
plan that is the subject of the dispute was made for business purposes.
    3. Factors. In determining whether credit to finance an 
acquisition--such as securities, antiques, or art--is primarily for 
business or commercial purposes (as opposed to a consumer purpose), the 
following factors should be considered:
    i. General. A. The relationship of the borrower's primary occupation 
to the acquisition. The more closely related, the more likely it is to 
be business purpose.
    B. The degree to which the borrower will personally manage the 
acquisition. The more personal involvement there is, the more likely it 
is to be business purpose.
    C. The ratio of income from the acquisition to the total income of 
the borrower. The higher the ratio, the more likely it is to be business 
purpose.
    D. The size of the transaction. The larger the transaction, the more 
likely it is to be business purpose.
    E. The borrower's statement of purpose for the loan.
    ii. Business-purpose examples. Examples of business-purpose credit 
include:
    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.

[[Page 480]]

    9. Organizational credit. The exemption for transactions in which 
the borrower is not a natural person applies, for example, to loans to 
corporations, partnerships, associations, churches, unions, and 
fraternal organizations. The exemption applies regardless of the purpose 
of the credit extension and regardless of the fact that a natural person 
may guarantee or provide security for the credit.
    10. Land trusts. Credit extended for consumer purposes to a land 
trust is considered to be credit extended to a natural person rather 
than credit extended to an organization. In some jurisdictions, a 
financial institution financing a residential real estate transaction 
for an individual uses a land trust mechanism. Title to the property is 
conveyed to the land trust for which the financial institution itself is 
trustee. The underlying installment note is executed by the financial 
institution in its capacity as trustee and payment is secured by a trust 
deed, reflecting title in the financial institution as trustee. In some 
instances, the consumer executes a personal guaranty of the 
indebtedness. The note provides that it is payable only out of the 
property specifically described in the trust deed and that the trustee 
has no personal liability on the note. Assuming the transactions are for 
personal, family, or household purposes, these transactions are subject 
to the regulation since in substance (if not form) consumer credit is 
being extended.

              3(b) Credit Over 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.
    iv. From January 1, 2013 through December 31, 2013, the threshold 
amount is $53,000.
    v. From January 1, 2014 through December 31, 2014, the threshold 
amount is $53,500.
    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

[[Page 481]]

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 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

[[Page 482]]

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 
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

[[Page 483]]

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 $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

[[Page 484]]

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 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

[[Page 485]]

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.
    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.

[[Page 486]]

    3. Compensation by lender. The rule requires all mortgage broker 
fees to be included in the finance charge. Creditors sometimes 
compensate mortgage brokers under a separate arrangement with those 
parties. Creditors may draw on amounts paid by the consumer, such as 
points or closing costs, to fund their payment to the broker. 
Compensation paid by a creditor to a mortgage broker under an agreement 
is not included as a separate component of a consumer's total finance 
charge (although this compensation may be reflected in the finance 
charge if it comes from amounts paid by the consumer to the creditor 
that are finance charges, such as points and interest).

                    4(b) Examples of Finance Charges

    1. Relationship to other provisions. Charges or fees shown as 
examples of finance charges in Sec. 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

[[Page 487]]

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 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

[[Page 488]]

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.

                            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

[[Page 489]]

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 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,

[[Page 490]]

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 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

[[Page 491]]

the consumer is under no obligation to continue the coverage, whether or 
not the consumer has made an initial payment.
    ii. Open-end plans. For open-end plans, a creditor also has the 
option of providing unit-cost disclosure on the basis of a period that 
is less than one year if the consumer has agreed to pay a premium or fee 
that is assessed periodically, for example monthly, but the consumer is 
under no obligation to continue the coverage.
    iii. Examples. To illustrate:
    A. A credit life insurance policy providing coverage for a 30-year 
mortgage loan has an initial term of 30 years, even though premiums are 
paid monthly and the consumer is not required to continue the coverage. 
Disclosures may be based on the initial term, but the creditor also has 
the option of making disclosures on the basis of coverage for an assumed 
initial term of one year.
    13. Loss-of-income insurance. The loss-of-income insurance mentioned 
in Sec. 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

[[Page 492]]

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 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.).

[[Page 493]]

                         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.

                           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

[[Page 494]]

a card issuer's solicitation for a credit card account subject to Sec. 
1026.60 that offers a range of balance transfer annual percentage rates, 
based on the consumer's creditworthiness. If the creditor opens an 
account for the consumer, the creditor would comply with the timing 
rules of this section by providing the consumer with the annual 
percentage rate (along with the fees and other required disclosures) 
that would apply to the balance transfer in time for the consumer to 
contact the creditor and withdraw the request. A creditor that permits 
consumers to withdraw the request by telephone has met this timing 
standard if the creditor does not effect the balance transfer until 10 
days after the creditor has sent account-opening disclosures to the 
consumer, assuming the consumer has not contacted the creditor to 
withdraw the request. Card issuers that are subject to the requirements 
of Sec. 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

[[Page 495]]

that the consumer would be likely to notice the fee.

                    5(b)(1)(iii) Telephone Purchases

    1. Return policies. In order for creditors to provide disclosures in 
accordance with the timing requirements of this paragraph, consumers 
must be permitted to return merchandise purchased at the time the plan 
was established without paying mailing or return-shipment costs. 
Creditors may impose costs to return subsequent purchases of merchandise 
under the plan, or to return merchandise purchased by other means such 
as a credit card issued by another creditor. A reasonable return policy 
would be of sufficient duration that the consumer is likely to have 
received the disclosures and had sufficient time to make a decision 
about the financing plan before his or her right to return the goods 
expires. Return policies need not provide a right to return goods if the 
consumer consumes or damages the goods, or for installed appliances or 
fixtures, provided there is a reasonable repair or replacement policy to 
cover defective goods or installations. If the consumer chooses to 
reject the financing plan, creditors comply with the requirements of 
this paragraph by permitting the consumer to pay for the goods with 
another reasonable form of payment acceptable to the merchant and keep 
the goods although the creditor cannot require the consumer to do so.

                       5(b)(1)(iv) Membership Fees

    1. Membership fees. See Sec. 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

[[Page 496]]

third party would not constitute instituting a collection proceeding.

                     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.

[[Page 497]]

    ii. Applicability of Sec. 1026.5(b)(2)(ii)(B)(1). Section 
1026.5(b)(2)(ii)(B)(1) applies if an account 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.

[[Page 498]]

    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, 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:

[[Page 499]]

    i. If only one periodic rate may be applied to the entire account 
balance.
    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.

[[Page 500]]

    11. Increased penalty rates. If the initial rate may increase upon 
the occurrence of one or more specific events, such as a late payment 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),

[[Page 501]]

if the credit plan provides that the consumer may make payments on the 
account by another reasonable means, such as by standard 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 502]]

         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 503]]

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 504]]

  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 505]]

    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 506]]

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 507]]

    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 508]]

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 509]]

    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 510]]

              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 511]]

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 512]]

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 513]]

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 514]]

    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 515]]

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 516]]

    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 517]]

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 518]]

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 519]]

    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 520]]

    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 521]]

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 522]]

    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 523]]

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 524]]

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 525]]

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 526]]

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 527]]

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 528]]

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 529]]

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 530]]

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 531]]

                            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 532]]

    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 533]]

    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 534]]

    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 535]]

    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 536]]

    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 537]]

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 538]]

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 539]]

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 540]]

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 541]]

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 542]]

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 543]]

                           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 544]]

    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 545]]

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 546]]

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 547]]

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 548]]

    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 549]]

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 550]]

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 551]]

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 552]]

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 553]]

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 554]]

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 555]]

    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 556]]

           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 557]]

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 558]]

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 559]]

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. 
1026.19(b) 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 560]]

    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 561]]

    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) 
and (d), 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, mean that disclosures

[[Page 562]]

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 563]]

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 \1/4\ 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 564]]

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 565]]

    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 566]]

    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 567]]

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 568]]

    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 569]]

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 570]]

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 571]]

    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 572]]

    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 573]]

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 574]]

                         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 575]]

                           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 576]]

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 577]]

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 578]]

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 579]]

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 580]]

    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 581]]

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 582]]

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 583]]

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 584]]

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 585]]

                        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 586]]

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 587]]

               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 588]]

    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 589]]

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 590]]

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). The exception is also

[[Page 591]]

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: Sec. 1026.19(b)(2)(i), (iii), (iv), (v), (vi), (vii), 
(viii), and (ix). (See comments 20(c)(1)(ii)-3.ii, 20(d)(1)(ii)-2.ii, 
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 592]]

    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 593]]

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 594]]

    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 595]]

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 596]]

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) and (d) regarding notices of adjustments.) For 
example, the disclosure provided pursuant to Sec. 1026.20(d) might 
state, ``You will be notified at least 210, but no more than 240, days 
before the first payment at the adjusted level is due after the initial 
interest rate adjustment of the loan. This notice will contain 
information about the adjustment, including the interest rate, payment 
amount, and loan balance.'' The disclosure provided pursuant to Sec. 
1026.20(c) might state, ``You will be notified at least 60, but no more 
than 120, days before the first payment at the adjusted level is due 
after any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, 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

[[Page 597]]

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 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 Disclosure Requirements Regarding Post-Consummation 
                                 Events

                           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

[[Page 598]]

corresponding change in the payment schedule is not a refinancing. If 
the annual percentage rate is subsequently increased (even 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

[[Page 599]]

creditor should disregard any prepaid finance charges paid by the 
original obligor, 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) Rate adjustments with a corresponding change in payment.
    1. Creditors, assignees, and servicers. Creditors, assignees, and 
servicers that own either the applicable adjustable-rate mortgage or the 
applicable mortgage servicing rights or both are subject to the 
requirements of Sec. 1026.20(c). Creditors, assignees, and servicers 
are also subject to the requirements of any provision of subpart C that 
governs Sec. 1026.20(c). For example, the form requirements of Sec. 
1026.17(a) apply to Sec. 1026.20(c) disclosures and thus, assignees and 
servicers, as well as creditors, are subject to those requirements. 
While creditors, assignees, and servicers are all subject to the 
requirements of Sec. 1026.20(c), they may decide among themselves which 
of them will provide the required disclosures.
    2. Loan modifications. Under Sec. 1026.20(c), the interest rate 
adjustment disclosures are required only for interest rate adjustments 
occurring pursuant to the loan contract. Accordingly, creditors, 
assignees, and servicers need not provide the disclosures for interest 
rate adjustments occurring in loan modifications made for loss 
mitigation purposes. Subsequent interest rate adjustments resulting in a 
corresponding payment change occurring pursuant to the modified loan 
contract, however, are subject to the requirements of Sec. 1026.20(c).
    3. Conversions. In addition to the disclosures required for interest 
rate adjustments under an adjustable-rate mortgage, Sec. 1026.20(c) 
also requires the disclosures for an ARM converting to a fixed-rate 
transaction when the conversion changes the interest rate and results in 
a corresponding payment change. When an open-end account converts to a 
closed-end adjustable-rate mortgage, the Sec. 1026.20(c) disclosure is 
not required until the implementation of an interest rate adjustment 
post-conversion that results in a corresponding payment change. For 
example, for an open-end account that converts to a closed-end 3/1 
hybrid ARM, i.e., an ARM with a fixed rate of interest for the first 
three years after which the interest rate adjusts annually, the first 
Sec. 1026.20(c) disclosure would not be required until three years 
after the conversion, and only if that first adjustment resulted in a 
payment change.
    Paragraph 20(c)(1)(i).
    1. In general. An adjustable-rate mortgage, as defined in Sec. 
1026.20(c)(1)(i), is a variable-rate transaction as that term is used in 
subpart C, except as distinguished by comment Sec. 1026.20(c)(1)(ii)-3. 
The requirements of this section are not limited to transactions 
financing the initial acquisition of the consumer's principal dwelling.
    Paragraph 20(c)(1)(ii).
    1. Short-term ARMs. Under Sec. 1026.20(c)(1)(ii), construction, 
home improvement, bridge, and other loans with terms of one year or less 
are not subject to the requirements in Sec. 1026.20(c). In determining 
the term of a construction loan that may be permanently financed by the 
same creditor or assignee, the creditor or assignee may treat the 
construction and the permanent phases as separate transactions with 
distinct terms to maturity or as a single combined transaction.
    2. First new payment due within 210 days after consummation. Section 
1026.20(c) disclosures are not required if the first payment at the 
adjusted level is due within 210 days after consummation, when the new 
interest rate disclosed at consummation pursuant to Sec. 1026.20(d) is 
not an estimate. For example, the creditor, assignee, or servicer would 
not be required to provide the disclosures required by Sec. 1026.20(c) 
for the first time an ARM interest rate adjusts if the first payment at 
the adjusted level was due 120 days after consummation and the adjusted 
interest rate disclosed at consummation pursuant to Sec. 1026.20(d) was 
not an estimate.
    3. Non-adjustable-rate mortgages. The following transactions, if 
structured as fixed-rate and not as adjustable-rate mortgages based on 
an index or formula, are not subject to Sec. 1026.20(c):

[[Page 600]]

    i. Shared-equity or shared-appreciation mortgages;
    ii. Price-level adjusted 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. Graduated-payment mortgages or step-rate transactions;
    iv. Renewable balloon-payment instruments; and
    v. Preferred-rate loans.
    Paragraph 20(c)(2).
    1. Timing. The requirement that Sec. 1026.20(c) disclosures be 
provided to consumers within a certain timeframe means that the 
creditor, assignee, or servicer must deliver the notice or place it in 
the mail within that timeframe, excluding any grace or courtesy periods. 
The requirement that the Sec. 1026.20(c) disclosures must be provided 
between 25 and 120 days before the first payment at the adjusted level 
is due for frequently-adjusting ARMs, applies to ARMs that adjust 
regularly at a maximum of every 60 days.
    Paragraph 20(c)(2)(ii)(A).
    1. Current and new interest rates. The current interest rate is the 
interest rate that applies on the date the disclosure is provided to the 
consumer. The new interest rate is the actual interest rate that will 
apply on the date of the adjustment. The new interest rate is used to 
determine the new payment. The ``new interest rate'' has the same 
meaning as the ``adjusted interest rate.'' The requirements of Sec. 
1026.20(c)(2)(ii)(A) do not preclude creditors, assignees, and servicers 
from rounding the interest rate, pursuant to the requirements of the ARM 
contract.
    Paragraph 20(c)(2)(iv).
    1. Rate limits and foregone interest rate increases. Interest rate 
carryover, or foregone interest rate increases, is the amount of 
interest rate increase foregone at any ARM interest rate adjustment 
that, subject to rate caps, can be added to future interest rate 
adjustments to increase, or to offset decreases in, the rate determined 
by using the index or formula. The disclosures required by Sec. 
1026.20(c)(2)(iv) regarding foregone interest rate increases apply only 
to transactions permitting interest rate carryover.
    Paragraph 20(c)(2)(v)(B).
    1. Application of previously foregone interest rate increases. The 
disclosures regarding the application of previously foregone interest 
rate increases apply only to transactions permitting interest rate 
carryover.
    Paragraph 20(c)(2)(vi).
    1. Amortization statement. For ARMs requiring the payment of 
interest only, such as interest-only loans, Sec. 1026.20(c)(2)(vi) 
requires a statement that the new payment covers all of the interest but 
none of the principal, and therefore will not reduce the loan balance. 
For negatively-amortizing ARMs, Sec. 1026.20(c)(2)(vi) requires a 
statement that the new payment covers only part of the interest and none 
of the principal, and therefore the unpaid interest will be added to the 
principal balance.
    2. Amortization payment. Disclosure of the payment needed to 
amortize fully the outstanding balance at the new interest rate over the 
remainder of the loan term is required only when negative amortization 
occurs as a result of the interest rate adjustment. The disclosure is 
not required simply because a loan has interest-only or partially-
amortizing payments. For example, an ARM with a five-year term and 
payments based on a longer amortization schedule, in which the final 
payment will equal the periodic payment plus the remaining unpaid 
balance, does not require disclosure of the payment necessary to 
amortize fully the loan in the remainder of the five-year term. A 
disclosure is also not required when the new payment is sufficient to 
prevent negative amortization but the final loan payment will be a 
different amount due to rounding.
    Paragraph 20(c)(2)(vii).
    1. Prepayment penalty. The creditor, assignee, or servicer of an ARM 
with no prepayment penalty, as that term is used in Sec. 
1026.20(c)(2)(vii), may decide to exclude the prepayment section from 
the Sec. 1026.20(c) disclosure, retain the prepayment section and 
insert after the heading ``None'' or other indication that there is no 
prepayment penalty, or indicate there is no prepayment penalty in some 
other manner. See also comment 1.vi to Appendices G and H--Open-End and 
Closed-End Model Forms and Clauses.
    Paragraph 20(c)(3)(i).
    1. Format of disclosures. The requirements of Sec. 1026.20(c)(3)(i) 
and (ii) to provide the Sec. 1026.20(c) disclosures in the same order 
as, and with headings and format substantially similar to, the model and 
sample forms do not preclude creditors, assignees, and servicers from 
modifying the disclosures to accommodate particular consumer 
circumstances or transactions not addressed by the forms. For example, 
in the case of a consumer bankruptcy or under certain State laws, the 
creditor, assignee, or servicer may modify the forms to remove language 
regarding personal liability. Creditors, assignees, and servicers 
providing the required notice to a consumer whose ARM is converting to a 
fixed-rate mortgage, may modify the model language to explain that the 
interest rate will no longer adjust. Creditors, assignees, and servicers 
electing to provide consumers with interest rate notices in cases where 
the interest rate adjusts without a corresponding change in payment may 
modify

[[Page 601]]

the forms to fit that circumstance. A payment-option ARM, which is an 
ARM permitting consumers to choose among several different payment 
options for each billing period, is an example of a loan that may 
require modification of the Sec. 1026.20(c) model and sample forms. See 
appendix H-30(C) for an example of an allocation table for a payment-
option loan.
    20(d) Initial rate adjustment.
    1. Creditors, assignees, and servicers. Creditors, assignees, and 
servicers that own either the applicable adjustable-rate mortgage or the 
applicable mortgage servicing rights or both are subject to the 
requirements of Sec. 1026.20(d). Creditors, assignees, and servicers 
are also subject to the requirements of any provision of subpart C that 
governs Sec. 1026.20(d). For example, the form requirements of Sec. 
1026.17(a) apply to Sec. 1026.20(d) disclosures and thus, assignees and 
servicers, as well as creditors, are subject to those requirements. 
While creditors, assignees, and servicers are all subject to the 
requirements of Sec. 1026.20(d), they may decide among themselves which 
of them will provide the required disclosures.
    2. Loan modifications. Under Sec. 1026.20(d), the interest rate 
adjustment disclosures are required only for the initial interest rate 
adjustment occurring pursuant to the loan contract. Accordingly, 
creditors, assignees, and servicers need not provide the disclosures for 
interest rate adjustments occurring in loan modifications made for loss 
mitigation purposes. The initial interest rate adjustment occurring 
pursuant to the modified loan contract, however, is subject to the 
requirements of Sec. 1026.20(d).
    3. Timing and form of initial rate adjustment. The requirement that 
Sec. 1026.20(d) disclosures be provided in writing, separate and 
distinct from all other correspondence, means that the initial ARM 
interest rate adjustment notice must be provided to consumers as a 
separate document but may, in the case of mailing the disclosure, be in 
the same envelope with other material and, in the case of emailing the 
disclosure, be a separate attachment from other attachments in the same 
email. The requirement that the disclosures be provided to consumers 
between 210 and 240 days ``before the first payment at the adjusted 
level is due'' means the creditor, assignee, or servicer must deliver 
the notice or place it in the mail between 210 and 240 days prior to the 
due date, excluding any grace or courtesy periods, of the first payment 
calculated using the adjusted interest rate.
    4. Conversions. When an open-end account converts to a closed-end 
adjustable-rate mortgage, the Sec. 1026.20(d) disclosure is not 
required until the implementation of the initial interest rate 
adjustment post-conversion. For example, for an open-end account that 
converts to a closed-end 3/1 hybrid ARM, i.e., an ARM with a fixed rate 
of interest for the first three years after which the interest rate 
adjusts annually, the Sec. 1026.20(d) disclosure would not be required 
until three years after the conversion when the interest rate adjusts 
for the first time.
    Paragraph 20(d)(1)(i).
    1. In general. An adjustable-rate mortgage, as defined in Sec. 
1026.20(d)(1)(i), is a variable-rate transaction as that term is used in 
subpart C, except as distinguished by comment Sec. 1026.20(d)(1)(ii)-2. 
The requirements of this section are not limited to transactions 
financing the initial acquisition of the consumer's principal dwelling.
    Paragraph 20(d)(1)(ii).
    1. Short-term ARMs. Under Sec. 1026.20(d)(1)(ii), construction, 
home improvement, bridge, and other loans with terms of one year or less 
are not subject to the requirements in Sec. 1026.20(d). In determining 
the term of a construction loan that may be permanently financed by the 
same creditor or assignee, the creditor or assignee may treat the 
construction and the permanent phases as separate transactions with 
distinct terms to maturity or as a single combined transaction.
    2. Non-adjustable-rate mortgages. The following transactions, if 
structured as fixed-rate and not as adjustable-rate mortgages based on 
an index or formula, are not subject to Sec. 1026.20(d):
    i. Shared-equity or shared-appreciation mortgages;
    ii. Price-level adjusted 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. Graduated-payment mortgages or step-rate transactions;
    iv. Renewable balloon-payment instruments; and
    v. Preferred-rate loans.
    Paragraph 20(d)(2)(i).
    1. Date of the disclosure. The date that must appear on the 
disclosure is the date the creditor, assignee, or servicer generates the 
notice to be provided to the consumer.
    Paragraph 20(d)(2)(iii)(A).
    1. Current and new interest rates. The current interest rate is the 
interest rate that applies on the date of the disclosure. The new 
interest rate is the interest rate used to calculate the new payment and 
may be an estimate pursuant to Sec. 1026.20(d)(2). The new payment, if 
calculated from an estimated new interest rate, will also be an 
estimate. The ``new interest rate'' has the same meaning as the 
``adjusted interest rate.'' The requirements of Sec. 
1026.20(d)(2)(iii)(A) do not preclude creditors, assignees, and 
servicers from rounding the interest rate, pursuant to the requirements 
of the ARM contract.
    Paragraph 20(d)(2)(v).

[[Page 602]]

    1. Rate limits and foregone interest rate increases. Interest rate 
carryover, or foregone interest rate increases, is the amount of 
interest rate increase foregone at the first ARM interest rate 
adjustment that, subject to rate caps, can be added to future interest 
rate adjustments to increase, or to offset decreases in, the rate 
determined by using the index or formula. The disclosures required by 
Sec. 1026.20(d)(2)(v) regarding foregone interest rate increases apply 
only to transactions permitting interest rate carryover.
    Paragraph 20(d)(2)(vii).
    1. Amortization statement. For ARMs requiring the payment of 
interest only, such as interest-only loans, Sec. 1026.20(d)(2)(vii) 
requires a statement that the new payment covers all of the interest but 
none of the principal, and therefore will not reduce the loan balance. 
For negatively-amortizing ARMs, Sec. 1026.20(d)(2)(vii) requires a 
statement that the new payment covers only part of the interest and none 
of the principal, and therefore the unpaid interest will be added to the 
principal balance.
    2. Amortization payment. Disclosure of the payment needed to 
amortize fully the outstanding balance at the new interest rate over the 
remainder of the loan term is required only when negative amortization 
occurs as a result of the interest rate adjustment. The disclosure is 
not required simply because a loan has interest-only or partially-
amortizing payments. For example, an ARM with a five-year term and 
payments based on a longer amortization schedule, in which the final 
payment will equal the periodic payment plus the remaining unpaid 
balance, does not require disclosure of the payment necessary to 
amortize fully the loan in the remainder of the five-year term. A 
disclosure is also not required when the new payment is sufficient to 
prevent negative amortization but the final loan payment will be a 
different amount due to rounding.
    Paragraph 20(d)(2)(viii).
    1. Prepayment penalty. The creditor, assignee, or servicer of an ARM 
with no prepayment penalty, as that term is used in Sec. 
1026.20(d)(2)(viii), may decide to exclude the prepayment section from 
the Sec. 1026.20(d) disclosure, retain the prepayment section and 
insert after the heading ``None'' or other indication that there is no 
prepayment penalty, or indicate there is no prepayment penalty in some 
other manner. See also comment to Appendices G and H--Open-End and 
Closed-End Model Forms and Clauses--1.vi.
    Paragraph 20(d)(3)(i).
    1. Format of disclosures. The requirements of Sec. 1026.20(d)(3)(i) 
and (iii) to provide the Sec. 1026.20(d) disclosures in the same order 
as, and with headings and format substantially similar to, the model and 
sample forms do not preclude creditors, assignees, and servicers from 
modifying the disclosures to accommodate particular consumer 
circumstances or transactions not addressed by the forms. For example, 
in the case of a consumer bankruptcy or under certain State laws, the 
creditor, assignee, or servicer may modify the forms to remove language 
regarding personal liability. A payment-option ARM, which is an ARM 
permitting consumers to choose among several different payment options 
for each billing period, is an example of a loan that may require 
modification of the Sec. 1026.20(d) model and sample forms. See 
appendix H-30(C) for an example of an allocation table for a payment-
option loan.

              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.

[[Page 603]]

                             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 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

[[Page 604]]

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 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.

[[Page 605]]

    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.
    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.

[[Page 606]]

    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 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.

[[Page 607]]

    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.
    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),

[[Page 608]]

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.

                        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,

[[Page 609]]

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.

                      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

[[Page 610]]

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 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.

[[Page 611]]

    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.
    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

[[Page 612]]

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.

    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

[[Page 613]]

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.
    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

[[Page 614]]

$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.''

                        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 by any method 
that reproduces records accurately (including computer programs). Unless 
otherwise required, 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.)

      25(c)(2) Records Related to Requirements for Loan Originator 
                              Compensation

    1. Scope of records of loan originator compensation. Section 
1026.25(c)(2)(i) requires a creditor to maintain records sufficient to 
evidence all compensation it pays to a loan originator, as well as the 
compensation agreements that govern those payments, for three years 
after the date of the payments. Section 1026.25(c)(2)(ii) requires that 
a loan originator organization maintain records sufficient to evidence 
all compensation it receives from a creditor, a consumer, or another 
person and all compensation it pays to any individual loan originators, 
as well as the compensation agreements that govern those payments or 
receipts, for three years after the date of the receipts or payments.
    i. Records sufficient to evidence payment and receipt of 
compensation. Records are sufficient to evidence payment and receipt of 
compensation if they demonstrate the following facts: The nature and 
amount of the compensation; that the compensation was paid, and by whom; 
that the compensation was received, and by whom; and when the payment 
and receipt of compensation occurred. The compensation agreements 
themselves are to be retained in all circumstances consistent with Sec. 
1026.25(c)(2)(i). The additional records that are sufficient necessarily 
will vary on a case-by-case basis depending on the facts and 
circumstances, particularly with regard to the nature of the 
compensation. For example, if the compensation is in the form of a 
salary, records to be retained might include copies of required filings 
under the Internal Revenue Code that demonstrate the amount of the 
salary. If the compensation is in the form of a contribution to or a 
benefit under a designated tax-advantaged plan, records to be maintained 
might include copies of required filings under the Internal Revenue Code 
or other applicable Federal law relating to the plan, copies of the plan 
and amendments thereto in which individual loan originators participate 
and the names of any loan originators covered by the plan, or 
determination letters from the Internal Revenue Service regarding the 
plan. If the compensation is in the nature of a commission or bonus, 
records to be retained might include a settlement agent ``flow of 
funds'' worksheet or other written record or a creditor closing 
instructions letter directing disbursement of fees at consummation. 
Where a loan originator is a mortgage broker, a disclosure of 
compensation or broker agreement required

[[Page 615]]

by applicable State law that recites the broker's total compensation for 
a transaction is a record of the amount actually paid to the loan 
originator in connection with the transaction, unless actual 
compensation deviates from the amount in the disclosure or agreement. 
Where compensation has been decreased to defray the cost, in whole or 
part, of an unforeseen increase in an actual settlement cost over an 
estimated settlement cost disclosed to the consumer pursuant to section 
5(c) of RESPA (or omitted from that disclosure), records to be 
maintained are those documenting the decrease in compensation and 
reasons for it.
    ii. Compensation agreement. For purposes of Sec. 1026.25(c)(2), a 
compensation agreement includes any agreement, whether oral, written, or 
based on a course of conduct that establishes a compensation arrangement 
between the parties (e.g., a brokerage agreement between a creditor and 
a mortgage broker or provisions of employment contracts between a 
creditor and an individual loan originator employee addressing payment 
of compensation). Where a compensation agreement is oral or based on a 
course of conduct and cannot itself be maintained, the records to be 
maintained are those, if any, evidencing the existence or terms of the 
oral or course of conduct compensation agreement. Creditors and loan 
originators are free to specify what transactions are governed by a 
particular compensation agreement as they see fit. For example, they may 
provide, by the terms of the agreement, that the agreement governs 
compensation payable on transactions consummated on or after some future 
effective date (in which case, a prior agreement governs transactions 
consummated in the meantime). For purposes of applying the record 
retention requirement to transaction-specific commissions, the relevant 
compensation agreement for a given transaction is the agreement pursuant 
to which compensation for that transaction is determined.
    iii. Three-year retention period. The requirements in Sec. 
1026.25(c)(2)(i) and (ii) that the records be retained for three years 
after the date of receipt or payment, as applicable, means that the 
records are retained for three years after each receipt or payment, as 
applicable, even if multiple compensation payments relate to a single 
transaction. For example, if a loan originator organization pays an 
individual loan originator a commission consisting of two separate 
payments of $1,000 each on June 5 and July 7, 2014, then the loan 
originator organization is required to retain records sufficient to 
evidence the two payments through June 4, 2017, and July 6, 2017, 
respectively.
    2. Example. An example of the application of Sec. 1026.25(c)(2) to 
a loan originator organization is as follows: Assume a loan originator 
organization originates only transactions that are not subject to Sec. 
1026.36(d)(2), thus all of its origination compensation is paid 
exclusively by creditors that fund its originations. Further assume that 
the loan originator organization pays its individual loan originator 
employees commissions and annual bonuses. The loan originator 
organization must retain a copy of the agreement with any creditor that 
pays the loan originator organization compensation for originating 
consumer credit transactions subject to Sec. 1026.36 and documentation 
evidencing the specific payment it receives from the creditor for each 
transaction originated. In addition, the loan originator organization 
must retain copies of the agreements with its individual loan originator 
employees governing their commissions and their annual bonuses and 
records of any specific commissions and bonuses paid.

   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,

[[Page 616]]

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 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.

[[Page 617]]

    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.
    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

[[Page 618]]

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.
    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

[[Page 619]]

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 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

[[Page 620]]

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 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

[[Page 621]]

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 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

[[Page 622]]

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 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 high-cost mortgages.

    1. Pre-consummation or account opening waiting period. A creditor 
must furnish Sec. 1026.32 disclosures at least three business days 
prior to consummation for a closed-end, high-cost mortgage and at least 
three business days prior to account opening for an open-end, high-cost 
mortgage. 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 or account opening 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 or account opening 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. Premiums or other charges financed at consummation or account 
opening. If the consumer finances the payment of premiums or other 
charges as permitted under Sec. 1026.34(a)(10), 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.

                   31(c)(1)(ii) Telephone Disclosures

    1. Telephone disclosures. Disclosures by telephone must be furnished 
at least three business days prior to consummation or account opening, 
as applicable, calculated in accordance with the timing rules under 
Sec. 1026.31(c)(1).
    31(c)(1)(iii) Consumer's waiver of waiting period before 
consummation or account opening.
    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

[[Page 623]]

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 as estimates. (See comment 
17(c)(2)(ii)-1 generally.)
    31(h) Corrections and unintentional violations.
    1. Notice requirements. Notice of a violation pursuant to Sec. 
1026.31(h)(1) or (2) should be in writing. The notice should make the 
consumer aware of the choices available under Sec. 1026.31(h)(1)(iii) 
and (2)(iii). For notice to be adequate, the consumer should have at 
least 60 days in which to consider the available options and communicate 
a choice to the creditor or assignee.
    2. Reasonable time. To claim the benefit of Sec. 1026.31(h), a 
creditor or assignee must implement appropriate restitution and the 
consumer's elected adjustment within a reasonable time after the 
consumer provides notice of that election to the creditor or assignee. 
What length of time is reasonable will depend on what changes to a loan 
or credit plan's documentation, disclosure, or terms are necessary to 
effectuate the adjustment. In general, implementing appropriate 
restitution and completing an adjustment within 30 days of the 
consumer's providing notice of the election can be considered 
reasonable.

          Section 1026.32--Requirements for High-Cost Mortgages

                             32(a) Coverage

    Paragraph 32(a)(1).
    1. The term high-cost mortgage includes both a closed-end credit 
transaction and an open-end credit plan secured by the consumer's 
principal dwelling. For purposes of determining coverage under Sec. 
1026.32, an open-end consumer credit transaction is the account opening 
of an open-end credit plan. An advance of funds or a draw on the credit 
line under an open-end credit plan subsequent to account opening does 
not constitute an open-end ``transaction.''
    Paragraph 32(a)(1)(i).
    1. Average prime offer rate. High-cost mortgages include closed- and 
open-end consumer credit transactions 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 amount. The term ``average prime 
offer rate'' is defined in Sec. 1026.35(a)(2).
    2. Comparable transaction. Guidance for determining a comparable 
transaction is set forth in comments 35(a)(1)-1 and 35(a)(2)-2 and -3, 
which direct creditors to published tables of average prime offer rates 
for fixed- and variable-rate closed-end credit transactions. Creditors 
opening open-end credit plans must compare the annual percentage rate 
for the plan to the average prime offer rate for the most closely 
comparable closed-end transaction. To identify the most closely 
comparable closed-end transaction, the creditor should identify whether 
the credit plan is fixed- or variable-rate; if the plan is fixed-rate, 
the term of the plan to maturity; if the plan is variable-rate, the 
duration of any initial, fixed-rate period; and the date the interest 
rate for the plan is set. If a fixed-rate plan has no definite plan 
length, a creditor must use the average prime offer rate for a 30-year 
fixed-rate loan. If a variable-rate plan has an optional, fixed-rate 
feature, a creditor must use the rate table for variable-rate 
transactions. If a variable-rate plan has an initial, fixed-rate period 
that is not in whole years, a creditor must identify the most closely-
comparable transaction by using the number of whole years closest to the 
actual fixed-rate period. For example, if a variable-rate plan has an 
initial fixed-rate period of 20 months, a creditor must use the average 
prime offer rate for a two-year adjustable-rate loan. If a variable-rate 
plan has no initial fixed-rate period, or if it has an initial fixed-
rate period of less than one year, a creditor must use the average prime 
offer rate for a one-year adjustable-rate loan. Thus, for example, if 
the initial fixed-rate period is six months, a creditor must use the 
average prime offer rate for a one-year adjustable-rate loan.
    3. Rate set. Comment 35(a)(1)-2 provides guidance for determining 
the average prime offer rate in effect on the date that the interest 
rate for the transaction is set.
    Paragraph 32(a)(1)(i)(B).
    1. Loan amount less than $50,000. The creditor must determine 
whether to apply the APR threshold in Sec. 1026.32(a)(1)(i)(B) based on 
the loan amount, which is the face amount of the note.
    Paragraph 32(a)(1)(ii).
    1. Annual adjustment of $1,000 amount. The $1,000 figure in Sec. 
1026.32(a)(1)(ii)(B) 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

[[Page 624]]

publish adjustments after the June figures become available each year.
    2. Historical adjustment of $400 amount. Prior to January 10, 2014, 
a mortgage loan was covered by Sec. 1026.32 if the total points and 
fees payable by the consumer at or before loan consummation exceeded the 
greater of $400 or 8 percent of the total loan amount. The $400 figure 
was adjusted annually on January 1 by the annual percentage change in 
the CPI that was in effect on the preceding June 1, as follows:

                         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).
    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.

[[Page 625]]

    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.
    xviii. For 2013, $625, reflecting a 2.3 percent increase in the CPI-
U from June 2011 to June 2012, rounded to the nearest whole dollar.
    xix. For 2014, $632, reflecting a 1.1 percent increase in the CPI-U 
from June 2012 to June 2013, rounded to the nearest whole dollar.
    3. Applicable threshold. For purposes of Sec. 1026.32(a)(1)(ii), a 
creditor must determine the applicable points and fees threshold based 
on the face amount of the note (or, in the case of an open-end credit 
plan, the credit limit for the plan when the account is opened). 
However, the creditor must apply the allowable points and fees 
percentage to the ``total loan amount,'' as defined in Sec. 
1026.32(b)(4). For closed-end credit transactions, the total loan amount 
may be different than the face amount of the note. The $20,000 amount in 
Sec. 1026.32(a)(1)(ii)(A) and (B) is adjusted annually on January 1 by 
the annual percentage change in the CPI that was in effect on the 
preceding June 1.
    Paragraph 32(a)(1)(iii).
    1. Maximum period and amount. Section 1026.32(a)(1)(iii) provides 
that a closed-end credit transaction or an open-end credit plan is a 
high-cost mortgage if, under the terms of the loan contract or open-end 
credit agreement, a creditor can charge either a prepayment penalty more 
than 36 months after consummation or account opening, or total 
prepayment penalties that exceed 2 percent of any amount prepaid. 
Section 1026.32(a)(1)(iii) applies only for purposes of determining 
whether a transaction is subject to the high-cost mortgage requirements 
and restrictions in Sec. 1026.32(c) and (d) and Sec. 1026.34. However, 
if a transaction is subject to those requirements and restrictions by 
operation of any provision of Sec. 1026.32(a)(1), including by 
operation of Sec. 1026.32(a)(1)(iii), then the transaction may not 
include a prepayment penalty. See Sec. 1026.32(d)(6). As a result, 
Sec. 1026.32(a)(1)(iii) effectively establishes a maximum period during 
which a prepayment penalty may be imposed, and a maximum prepayment 
penalty amount that may be imposed, on a closed-end credit transaction 
or open-end credit plan (other than such a mortgage as described in 
Sec. 1026.32(a)(2)) secured by a consumer's principal dwelling. Closed-
end credit transactions covered by Sec. 1026.43 are subject to the 
additional prepayment penalty restrictions set forth in Sec. 
1026.43(g).
    2. Examples; open-end credit. If the terms of an open-end credit 
agreement allow for a prepayment penalty that exceeds 2 percent of the 
initial credit limit for the plan, the agreement will be deemed to be a 
transaction with a prepayment penalty that exceeds 2 percent of the 
``amount prepaid'' within the meaning of Sec. 1026.32(a)(1)(iii). The 
following examples illustrate how to calculate whether the terms of an 
open-end credit agreement comply with the maximum prepayment penalty 
period and amounts described in Sec. 1026.32(a)(1)(iii).
    i. Assume that the terms of a home-equity line of credit with an 
initial credit limit of $10,000 require the consumer to pay a $500 flat 
fee if the consumer terminates the plan less than 36 months after 
account opening. The $500 fee constitutes a prepayment penalty under 
Sec. 1026.32(b)(6)(ii), and the penalty is greater than 2 percent of 
the $10,000 initial credit limit, which is $200. Under Sec. 
1026.32(a)(1)(iii), the plan is a high-cost mortgage subject to the 
requirements and restrictions set forth in Sec. Sec. 1026.32 and 
1026.34.
    ii. Assume that the terms of a home-equity line of credit with an 
initial credit limit of $10,000 and a ten-year term require the consumer 
to pay a $200 flat fee if the consumer terminates the plan prior to its 
normal expiration. The $200 prepayment penalty does not exceed 2 percent 
of the initial credit limit, but the terms of the agreement permit the 
creditor to charge the fee more than 36 months after account opening. 
Thus, under Sec. 1026.32(a)(1)(iii), the plan is a high-cost mortgage 
subject to the requirements and restrictions set forth in Sec. Sec. 
1026.32 and 1026.34.
    iii. Assume that, under the terms of a home-equity line of credit 
with an initial credit limit of $150,000, the creditor may charge the 
consumer any closing costs waived by the creditor if the consumer 
terminates the plan less than 36 months after account opening. Assume 
also that the creditor waived closing costs of $1,000. Bona fide third-
party charges comprised $800 of the $1,000 in waived closing costs, and 
origination charges retained by the creditor or its affiliate comprised 
the remaining $200. Under Sec. 1026.32(b)(6)(ii), the $800 in bona fide 
third-party charges is not a prepayment penalty, while the $200 for the 
creditor's own originations costs is a prepayment penalty. The total 
prepayment penalty of $200 is less than 2 percent of the initial 
$150,000 credit limit, and the penalty does not apply if the consumer 
terminates the plan more than 36 months after account opening. Thus, the 
plan is not a high-cost mortgage under Sec. 1026.32(a)(1)(iii).
    32(a)(2) Exemptions.
    Paragraph 32(a)(2)(ii).
    1. Construction-permanent loans. Section 1026.32 does not apply to a 
transaction to finance the initial construction of a dwelling. This 
exemption applies to a construction-only loan as well as to the 
construction phase of a construction-to-permanent loan. Section 1026.32 
may apply, however, to permanent financing that replaces a construction 
loan, whether the permanent financing

[[Page 626]]

is extended by the same or a different creditor. When a construction 
loan may be permanently financed by the same creditor, Sec. 
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 each of the two phases 
as though they were two separate transactions. See also comment 
17(c)(6)-2. Section 1026.17(c)(6)(ii) addresses only how a creditor may 
elect to disclose a construction to permanent transaction. Which 
disclosure option a creditor elects under Sec. 1026.17(c)(6)(ii) does 
not affect the determination of whether the permanent phase of the 
transaction is subject to Sec. 1026.32. When the creditor discloses the 
two phases as separate transactions, the annual percentage rate for the 
permanent phase must be compared to the average prime offer rate for a 
transaction that is comparable to the permanent financing to determine 
coverage under Sec. 1026.32. Likewise, a single amount of points and 
fees, also reflecting the appropriate charges from the permanent phase, 
must be calculated and compared with the total loan amount to determine 
coverage under Sec. 1026.32. When the creditor discloses the two phases 
as a single transaction, a single annual percentage rate, reflecting the 
appropriate charges from both phases, must be calculated for the 
transaction in accordance with Sec. 1026.32(a)(3) and appendix D to 
part 1026. This annual percentage rate must be compared to the average 
prime offer rate for a transaction that is comparable to the permanent 
financing to determine coverage under Sec. 1026.32. Likewise, a single 
amount of points and fees, also reflecting the appropriate charges from 
both phases of the transaction, must be calculated and compared with the 
total loan amount to determine coverage under Sec. 1026.32. If the 
transaction is determined to be a high-cost mortgage, only the permanent 
phase is subject to the requirements of Sec. Sec. 1026.32 and 1026.34.
    Paragraph 32(a)(2)(iii).
    1. Housing Finance Agency. For purposes of Sec. 1026.32(a)(2)(iii), 
a Housing Finance Agency means a housing finance agency as defined in 24 
CFR 266.5.
    32(a)(3) Determination of annual percentage rate.
    1. In general. The guidance set forth in the commentary to Sec. 
1026.17(c)(1) and in Sec. 1026.40 addresses calculation of the annual 
percentage rate disclosures for closed-end credit transactions and open-
end credit plans, respectively. Section 1026.32(a)(3) requires a 
different calculation of the annual percentage rate solely to determine 
coverage under Sec. 1026.32(a)(1)(i).
    2. Open-end credit. The annual percentage rate for an open-end 
credit plan must be determined in accordance with Sec. 1026.32(a)(3), 
regardless of whether there is an advance of funds at account opening. 
Section 1026.32(a)(3) does not require the calculation of the annual 
percentage rate for any extensions of credit subsequent to account 
opening. Any draw on the credit line subsequent to account opening is 
not treated as a separate transaction for purposes of determining annual 
percentage rate threshold coverage.
    3. Rates that vary; index rate plus maximum margin. i. Section 
1026.32(a)(3)(ii) applies in the case of a closed- or open-end credit 
transaction when the interest rate for the transaction varies solely in 
accordance with an index. For purposes of Sec. 1026.32(a)(3)(ii), a 
transaction's interest rate varies in accordance with an index even if 
the transaction has an initial rate that is not determined by the index 
used to make later interest rate adjustments provided that, following 
the first rate adjustment, the interest rate for the transaction varies 
solely in accordance with an index.
    ii. In general, for transactions subject to Sec. 1026.32(a)(3)(ii), 
the annual percentage rate is determined by adding the index rate in 
effect on the date that the interest rate for the transaction is set to 
the maximum margin for the transaction, as set forth in the agreement 
for the loan or plan. In some cases, a transaction subject to Sec. 
1026.32(a)(3)(ii) may have an initial rate that is a premium rate and is 
higher than the index rate plus the maximum margin as of the date the 
interest rate for the transaction is set. In such cases, the annual 
percentage rate is determined based on the initial ``premium'' rate.
    iii. The following examples illustrate the rule:
    A. Assume that the terms of a closed-end, adjustable-rate mortgage 
loan provide for a fixed, initial interest rate of 2 percent for two 
years following consummation, after which the interest rate will adjust 
annually in accordance with an index plus a 2 percent margin. Also 
assume that the applicable index is 3 percent as of the date the 
interest rate for the transaction is set, and a lifetime interest rate 
cap of 15 percent applies to the transaction. Pursuant to Sec. 
1026.32(a)(3)(ii), for purposes of determining the annual percentage 
rate for Sec. 1026.32(a)(1)(i), the interest rate for the transaction 
is 5 percent (3 percent index rate plus 2 percent margin).
    B. Assume the same transaction terms set forth in paragraph 3.iii.A, 
except that an initial interest rate of 6 percent applies to the 
transaction. Pursuant to Sec. 1026.32(a)(3)(ii), for purposes of 
determining the annual percentage rate for Sec. 1026.32(a)(1)(i), the 
interest rate for the transaction is 6 percent.
    C. Assume that the terms of an open-end credit agreement with a 
five-year draw period and a five-year repayment period provide for a 
fixed, initial interest rate of 2 percent for the first year of the 
repayment period, after which the interest rate will adjust annually 
pursuant to a publicly-available

[[Page 627]]

index outside the creditor's control, in accordance with the limitations 
applicable to open-end credit plans in Sec. 1026.40(f). Also assume 
that, pursuant to the terms of the open-end credit agreement, a margin 
of 2 percent applies because the consumer is employed by the creditor, 
but that the margin will increase to 4 percent if the consumer's 
employment with the creditor ends. Finally, assume that the applicable 
index rate is 3.5 percent as of the date the interest rate for the 
transaction is set, and a lifetime interest rate cap of 15 percent 
applies to the transaction. Pursuant to Sec. 1026.32(a)(3)(ii), for 
purposes of determining the annual percentage rate for Sec. 
1026.32(a)(1)(i), the interest rate for the transaction is 7.5 percent 
(3.5 percent index rate plus 4 percent maximum margin).
    D. Assume the same transaction terms set forth in paragraph 3.iii.C, 
except that an initial interest rate of 8 percent applies to the 
transaction. Pursuant to Sec. 1026.32(a)(3)(ii), for purposes of 
determining the annual percentage rate for Sec. 1026.32(a)(1)(i), the 
interest rate for the transaction is 8 percent.
    4. Rates that vary other than in accordance with an index. Section 
1026.32(a)(3)(iii) applies when the interest rate applicable to a 
closed- or open-end transaction may or will vary, except as described in 
Sec. 1026.32(a)(3)(ii). Section 1026.32(a)(3)(iii) thus applies where 
multiple fixed rates apply to a transaction, such as in a step-rate 
mortgage. For example, assume the following interest rates will apply to 
a transaction: 3 percent for the first six months, 4 percent for the 
next 10 years, and 5 percent for the remaining loan term. In this 
example, Sec. 1026.32(a)(3)(iii) would be used to determine the 
interest rate, and 5 percent would be the maximum interest rate 
applicable to the transaction used to determine the annual percentage 
rate for purposes of Sec. 1026.32(a)(1)(i). Section 1026.32(a)(3)(iii) 
also applies to any other adjustable-rate loan where the interest rate 
may vary but according to a formula other than the sum of an index and a 
margin.
    5. Fixed-rate and -term payment options. If an open-end credit plan 
has only a fixed rate during the draw period, a creditor must use the 
interest rate applicable to that feature to determine the annual 
percentage rate, as required by Sec. 1026.32(a)(3)(i). However, if an 
open-end credit plan has a variable rate, but also offers a fixed-rate 
and -term payment option during the draw period, Sec. 1026.32(a)(3) 
requires a creditor to use the terms applicable to the variable-rate 
feature for determining the annual percentage rate, as described in 
Sec. 1026.32(a)(3)(ii).
    32(b) Definitions.

                            32(b) Definitions

    Paragraph 32(b)(1).
    1. Known at or before consummation. Section 1026.32(b)(1) includes 
in points and fees for closed-end credit transactions those items listed 
in Sec. 1026.32(b)(1)(i) through (vi) that are known at or before 
consummation. The following examples clarify how to determine whether a 
charge or fee is known at or before consummation.
    i. General. In general, a charge or fee is ``known at or before 
consummation'' if the creditor knows at or before consummation that the 
charge or fee will be imposed in connection with the transaction, even 
if the charge or fee is scheduled to be paid after consummation. Thus, 
for example, if the creditor charges the consumer $400 for an appraisal 
conducted by an affiliate of the creditor, the $400 is included in 
points and fees, even if the consumer finances it and repays it over the 
loan term, because the creditor knows at or before consummation that the 
charge or fee is imposed in connection with the transaction. By 
contrast, if a creditor does not know whether a charge or fee will be 
imposed, it is not included in points and fees. For example, charges or 
fees that the creditor may impose if the consumer seeks to modify a loan 
after consummation are not included in points and fees, because the 
creditor does not know at or before consummation whether the consumer 
will seek to modify the loan and therefore incur the fees or charges.
    ii. Prepayment penalties. Notwithstanding the guidance in comment 
32(b)(1)-1.i, under Sec. 1026.32(b)(1)(v) the maximum prepayment 
penalty that may be charged or collected under the terms of the mortgage 
loan is included in points and fees because the amount of the maximum 
prepayment penalty that may be charged or collected is known at or 
before consummation.
    iii. Certain mortgage and credit insurance premiums. Notwithstanding 
the guidance in comment 32(b)(1)-1.i, under Sec. 1026.32(b)(1)(i)(C)(1) 
and (iii) premiums and charges for private mortgage insurance and credit 
insurance that are payable after consummation are not included in points 
and fees, even if the amounts of such premiums and charges are known at 
or before consummation.
    2. Charges paid by parties other than the consumer. Under Sec. 
1026.32(b)(1), points and fees may include charges paid by third parties 
in addition to charges paid by the consumer. Specifically, charges paid 
by third parties that fall within the definition of points and fees set 
forth in Sec. 1026.32(b)(1)(i) through (vi) are included in points and 
fees. In calculating points and fees in connection with a transaction, 
creditors may rely on written statements from the consumer or third 
party paying for a charge, including the seller, to determine the source 
and purpose of any third-party payment for a charge.
    i. Examples--included in points and fees. A creditor's origination 
charge paid by a consumer's employer on the consumer's behalf

[[Page 628]]

that is included in the finance charge as defined in Sec. 1026.4(a) or 
(b), must be included in points and fees under Sec. 1026.32(b)(1)(i), 
unless other exclusions under Sec. 1026.4 or Sec. 1026.32(b)(1)(i)(A) 
through (F) apply. In addition, consistent with comment 32(b)(1)(i)-1, a 
third-party payment of an item excluded from the finance charge under a 
provision of Sec. 1026.4, while not included in the total points and 
fees under Sec. 1026.32(b)(1)(i), may be included under Sec. 
1026.32(b)(1)(ii) through (vi). For example, a payment by a third party 
of a creditor-imposed fee for an appraisal performed by an employee of 
the creditor is included in points and fees under Sec. 
1026.32(b)(1)(iii). See comment 32(b)(1)(i)-1.
    ii. Examples--not included in points and fees. A charge paid by a 
third party is not included in points and fees under Sec. 
1026.32(b)(1)(i) if the exclusions to points and fees in Sec. 
1026.32(b)(1)(i)(A) through (F) apply. For example, certain bona fide 
third-party charges not retained by the creditor, loan originator, or an 
affiliate of either are excluded from points and fees under Sec. 
1026.32(b)(1)(i)(D), regardless of whether those charges are paid by a 
third party or the consumer.
    iii. Seller's points. Seller's points, as described in Sec. 
1026.4(c)(5) and commentary, are excluded from the finance charge and 
thus are not included in points and fees under Sec. 1026.32(b)(1)(i). 
However, charges paid by the seller for items listed in Sec. 
1026.32(b)(1)(ii) through (vi) are included in points and fees.
    iv. Creditor-paid charges. Charges that are paid by the creditor, 
other than loan originator compensation paid by the creditor that is 
required to be included in points and fees under Sec. 
1026.32(b)(1)(ii), are excluded from points and fees. See Sec. Sec. 
1026.32(b)(1)(i)(A), 1026.4(a), and comment 4(a)-(2).
    Paragraph 32(b)(1)(i).
    1. General. Section 1026.32(b)(1)(i) includes in the total ``points 
and fees'' items included in the finance charge under Sec. 1026.4(a) 
and (b). However, certain items that may be included in the finance 
charge are excluded from points and fees under Sec. 1026.32(b)(1)(i)(A) 
through (F). Items excluded from the finance charge under other 
provisions of Sec. 1026.4 are not included in the total points and fees 
under Sec. 1026.32(b)(1)(i), but may be included in points and fees 
under Sec. 1026.32(b)(1)(ii) through (vi). To illustrate: A fee imposed 
by the creditor for an appraisal performed by an employee of the 
creditor meets the definition of ``finance charge'' under Sec. 
1026.4(a) as ``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.'' However, Sec. 1026.4(c)(7) 
specifies that appraisal fees are not included in the finance charge. A 
fee imposed by the creditor for an appraisal performed by an employee of 
the creditor therefore would not be included in the finance charge and 
would not be counted in points and fees under Sec. 1026.32(b)(1)(i). 
Section 1026.32(b)(1)(iii), however, expressly includes in points and 
fees items listed in Sec. 1026.4(c)(7) (including appraisal fees) if 
the creditor receives compensation in connection with the charge. A 
creditor would receive compensation for an appraisal performed by its 
own employee. Thus, the appraisal fee in this example must be included 
in the calculation of points and fees.
    Paragraph 32(b)(1)(i)(B).
    1. Federal and State mortgage insurance premiums and guaranty fees. 
Under Sec. 1026.32(b)(1)(i)(B), mortgage insurance premiums or guaranty 
fees in connection with a Federal or State agency program are excluded 
from points and fees, even though they are included in the finance 
charge under Sec. 1026.4(a) and (b). For example, if a consumer is 
required to pay a $2,000 mortgage insurance premium for a loan insured 
by the Federal Housing Administration, the $2,000 must be included in 
the finance charge but is not counted in points and fees. Similarly, if 
a consumer pays a 2 percent funding fee for a loan guaranteed by the 
U.S. Department of Veterans Affairs or through the U.S Department of 
Agriculture's Rural Development Single Family Housing Guaranteed Loan 
Program, the fee is included in the finance charge but is not included 
in points and fees.
    Paragraph 32(b)(1)(i)(C).
    1. Private mortgage insurance premiums. i. Payable after 
consummation. Under Sec. 1026.32(b)(1)(i)(C)(1), private mortgage 
insurance premiums payable after consummation are excluded from points 
and fees.
    ii. Payable at or before consummation. A. General. Under Sec. 
1026.32(b)(1)(i)(C)(2), private mortgage insurance premiums payable at 
or before consummation (i.e., single or up-front premiums) may be 
excluded from points and fees, even though they are included in the 
finance charge under Sec. 1026.4(a) and (b). However, the portion of 
the premium that exceeds the amount payable under policies in effect at 
the time of origination under section 203(c)(2)(A) of the National 
Housing Act (12 U.S.C. 1709(c)(2)(A)) is included in points and fees. To 
determine whether any portion of the premium exceeds the amount payable 
under policies in effect at the time of origination under section 
203(c)(2)(A) of the National Housing Act, a creditor references the 
premium amount that would be payable for the transaction under that Act, 
as implemented by applicable regulations and other written authorities 
issued by the Federal Housing Administration (such as Mortgagee 
Letters), even if the transaction would not qualify to be insured under 
that Act (including, for example, because the principal amount exceeds 
the maximum insurable under that Act).

[[Page 629]]

    B. Non-refundable premiums. To qualify for the exclusion from points 
and fees, private mortgage insurance premiums payable at or before 
consummation must be required to be refunded on a pro rata basis and the 
refund must be automatically issued upon notification of the 
satisfaction of the underlying mortgage loan.
    C. Example. Assume that a $3,000 private mortgage insurance premium 
charged on a closed-end mortgage loan is payable at or before closing 
and is required to be refunded on a pro rata basis and that the refund 
is automatically issued upon notification of the satisfaction of the 
underlying mortgage loan. Assume also that the maximum premium allowable 
under the National Housing Act is $2,000. In this case, the creditor 
could exclude $2,000 from points and fees but would have to include the 
$1,000 that exceeds the allowable premium under the National Housing 
Act. However, if the $3,000 private mortgage insurance premium were not 
required to be refunded on a pro rata basis or if the refund were not 
automatically issued upon notification of the satisfaction of the 
underlying mortgage loan, the entire $3,000 premium would be included in 
points and fees.
    2. Method of paying private mortgage insurance premiums. The portion 
of any private mortgage insurance premiums payable at or before 
consummation that does not qualify for an exclusion from points and fees 
under Sec. 1026.32(b)(1)(i)(C)(2) must be included in points and fees 
for purposes of Sec. 1026.32(b)(1)(i) whether paid in cash or financed 
and whether the insurance is optional or required.
    Paragraph 32(b)(1)(i)(D).
    1. Charges not retained by the creditor, loan originator, or an 
affiliate of either. In general, a creditor is not required to count in 
points and fees any bona fide third-party charge not retained by the 
creditor, loan originator, or an affiliate of either. For example, if 
bona fide charges are imposed by a third-party settlement agent and are 
not retained by the creditor, loan originator, or an affiliate of 
either, those charges are not included in points and fees, even if those 
charges are included in the finance charge under Sec. 1026.4(a)(2). The 
term loan originator has the same meaning as in Sec. 1026.36(a)(1).
    2. Private mortgage insurance. The exclusion for bona fide third-
party charges not retained by the creditor, loan originator, or an 
affiliate of either is limited by Sec. 1026.32(b)(1)(i)(C) in the 
general definition of ``points and fees.'' Section 1026.32(b)(1)(i)(C) 
requires inclusion in points and fees of premiums or other charges 
payable at or before consummation for any private guaranty or insurance 
protecting the creditor against the consumer's default or other credit 
loss to the extent that the premium or charge exceeds the amount payable 
under policies in effect at the time of origination under section 
203(c)(2)(A) of the National Housing Act (12 U.S.C. 1709(c)(2)(A)). 
These premiums or charges must also be included if the premiums or 
charges are not required to be refundable on a pro-rated basis, or the 
refund is not required to be automatically issued upon notification of 
the satisfaction of the underlying mortgage loan. Under these 
circumstances, even if the premiums or other charges are not retained by 
the creditor, loan originator, or an affiliate of either, they must be 
included in the points and fees calculation for qualified mortgages. See 
comments 32(b)(1)(i)(c)-1 and -2 for further discussion of including 
private mortgage insurance premiums payable at or before consummation in 
the points and fees calculation.
    3. Real estate-related fees. The exclusion for bona fide third-party 
charges not retained by the creditor, loan originator, or an affiliate 
of either is limited by Sec. 1026.32(b)(1)(iii) in the general 
definition of points and fees. Section 1026.32(b)(1)(iii) requires 
inclusion in points and fees of items listed in Sec. 1026.4(c)(7) 
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. If a charge is required to be 
included in points and fees under Sec. 1026.32(b)(1)(iii), it may not 
be excluded under Sec. 1026.32(b)(1)(i)(D), even if the criteria for 
exclusion in Sec. 1026.32(b)(1)(i)(D) are satisfied.
    4. Credit insurance. The exclusion for bona fide third-party charges 
not retained by the creditor, loan originator, or an affiliate of either 
is limited by Sec. 1026.32(b)(1)(iv) in the general definition of 
points and fees. Section 1026.32(b)(1)(iv) requires inclusion in points 
and fees of premiums and other charges for credit insurance and certain 
other types of insurance. If a charge is required to be included in 
points and fees under Sec. 1026.32(b)(1)(iv), it may not be excluded 
under Sec. 1026.32(b)(1)(i)(D), even if the criteria for exclusion in 
Sec. 1026.32(b)(1)(i)(D) are satisfied.
    Paragraph 32(b)(1)(i)(E).
    1. Bona fide discount point. The term bona fide discount point is 
defined in Sec. 1026.32(b)(3).
    2. Average prime offer rate. The average prime offer rate for 
purposes of paragraph (b)(1)(i)(E) of this section is the average prime 
offer rate that applies to a comparable transaction as of the date the 
discounted interest rate for the transaction is set. For the meaning of 
``comparable transaction,'' refer to comment 35(a)(2)-2. The table of 
average prime offer rates published by the Bureau indicates how to 
identify the comparable transaction. See comment 35(a)(2)-2.
    3. Example. Assume a transaction that is a first-lien, purchase-
money home mortgage with a fixed interest rate and a 30-year term. 
Assume also that the consumer locks in an interest rate of 6 percent on 
May 1, 2014 that

[[Page 630]]

was discounted from a rate of 6.5 percent because the consumer paid two 
discount points. Finally, assume that the average prime offer rate as of 
May 1, 2014 for home mortgages with a fixed interest rate and a 30-year 
term is 5.5 percent. The creditor may exclude two bona fide discount 
points from the points and fees calculation because the rate from which 
the discounted rate was derived (6.5 percent) exceeded the average prime 
offer rate for a comparable transaction as of the date the rate on the 
transaction was set (5.5 percent) by only 1 percentage point.
    Paragraph 32(b)(1)(i)(F).
    1. Bona fide discount point and average prime offer rate. Comments 
32(b)(1)(i)(E)-1 and -2 provide guidance concerning the definition of 
bona fide discount point and average prime offer rate, respectively.
    2. Example. Assume a transaction that is a first-lien, purchase-
money home mortgage with a fixed interest rate and a 30-year term. 
Assume also that the consumer locks in an interest rate of 6 percent on 
May 1, 2014, that was discounted from a rate of 7 percent because the 
consumer paid four discount points. Finally, assume that the average 
prime offer rate as of May 1, 2014, for home mortgages with a fixed 
interest rate and a 30-year term is 5 percent. The creditor may exclude 
one discount point from the points and fees calculation because the rate 
from which the discounted rate was derived (7 percent) exceeded the 
average prime offer rate for a comparable transaction as of the date the 
rate on the transaction was set (5 percent) by only 2 percentage points.
    Paragraph 32(b)(1)(ii).
    1. Loan originator compensation--general. Compensation paid by a 
consumer or creditor to a loan originator is included in the calculation 
of points and fees for a transaction, provided that such compensation 
can be attributed to that particular transaction at the time the 
interest rate is set. Loan originator 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.
    2. Loan originator compensation--attributable to a particular 
transaction. i. Loan originator compensation includes the dollar value 
of compensation, such as a bonus, commission, or award of merchandise, 
services, trips, or similar prizes, that is paid by a consumer or 
creditor to a loan originator and can be attributed to that particular 
transaction. The amount of compensation that can be attributed to a 
particular transaction is the dollar value of compensation that the loan 
originator will receive if the transaction is consummated. As explained 
in comment 32(b)(1)(ii)-3, the amount of compensation that a loan 
originator will receive is calculated as of the date the interest rate 
is set and includes compensation that is paid before, at, or after 
consummation.
    ii. Loan originator compensation excludes compensation that cannot 
be attributed to that transaction, including, for example:
    A. Compensation based on the long term performance of the loan 
originator's loans.
    B. Compensation based on the overall quality of a loan originator's 
loan files.
    C. The base salary of a loan originator. However, any compensation 
in addition to the base salary that can be attributed to the transaction 
at the time the interest rate is set must be included in loan originator 
compensation for the purpose of calculating points and fees.
    3. Loan originator compensation--timing. Compensation paid to a loan 
originator that can be attributed to a transaction must be included in 
the points and fees calculation for that loan regardless of whether the 
compensation is paid before, at, or after consummation. The amount of 
loan originator compensation that can be attributed to a transaction is 
determined as of the date the interest rate is set. Thus, loan 
originator compensation for a transaction includes the portion of a 
bonus, commission, or award of merchandise, services, trips, or similar 
prizes that can be attributed to that transaction at the time the 
creditor sets the interest rate for the transaction, even if that bonus, 
commission, or award of merchandise, services, trips, or similar prizes 
is not paid until after consummation. For example, assume a $100,000 
transaction and that, as of the date the interest rate is set, the loan 
originator is entitled to receive a commission equal to 1 percent of the 
loan amount at consummation, i.e., $1,000, payable at the end of the 
month. In addition, assume that after the date the interest rate is set 
but before consummation of the transaction, the loan originator 
originates other transactions that enable the loan originator to meet a 
loan volume threshold, which increases the loan originator's commission 
to 1.25 percent of the loan amount, i.e., $1,250. In this case, the 
creditor need include only $1,000 as loan originator compensation in 
points and fees because, as of the date the interest rate was set, the 
loan originator would have been entitled to receive $1,000 upon 
consummation of the transaction.
    4. Loan originator compensation--examples. The following examples 
illustrate the rule:
    i. Assume that, according to a creditor's compensation policies, the 
creditor awards its loan officers a bonus every year based on the number 
of loan applications taken by the loan officer that result in 
consummated transactions during that year, and that each consummated 
transaction increases the year-end bonus by $100. In this case, $100 of 
the bonus is loan originator compensation that must be included in 
points and fees for the transaction.

[[Page 631]]

    ii. Assume that, according to a creditor's compensation policies, 
the creditor awards its loan officers a year-end bonus equal to a flat 
dollar amount for each of the consummated transactions originated by the 
loan officer during that year. Assume also that the per-transaction 
dollar amount is finalized at the end of the year, according to a 
predetermined schedule that provides for a specific per-transaction 
dollar amount based on the total dollar value of consummated 
transactions originated by the loan officer. If on the date the interest 
rate for a transaction is set, the loan officer has originated total 
volume that qualifies the loan officer to receive a $300 bonus per 
transaction under the predetermined schedule, then $300 of the year-end 
bonus can be attributed to that particular transaction and therefore is 
loan originator compensation that must be included in points and fees 
for that transaction.
    iii. Assume that, according to a creditor's compensation policies, 
the creditor awards its loan officers a bonus at the end of the year 
based on the number of consummated transactions originated by the loan 
officer during that year. Assume also that, for the first 10 
transactions originated by the loan officer in a given year, no bonus is 
awarded; for the next 10 transactions originated by the loan officer up 
to 20, a bonus of $100 per transaction is awarded; and for each 
transaction originated after the first 20, a bonus of $200 per 
transaction is awarded. In this case, if, on the date the interest rate 
for the transaction is set, the loan officer has originated 10 or fewer 
transactions that year, then none of the year-end bonus is attributable 
to the transaction and therefore none of the bonus is included in points 
and fees for that transaction. If, on the date the interest rate for the 
transaction is set, the loan officer has originated at more than 10 but 
no more than 20 transactions, $100 of the bonus is attributable to the 
transaction and is included in points and fees for that transaction. If, 
on the date the interest rate for the transaction is set, the loan 
officer has originated more than 20 transactions, $200 of the bonus is 
attributable to the transaction and is included in points and fees for 
the transaction.
    iv. Assume that, according to a creditor's compensation policies, 
the creditor pays its loan officers a base salary of $500 per week and 
awards its loan officers a bonus of $250 for each consummated 
transaction. For each transaction, none of the $500 base salary is 
counted in points and fees as loan originator compensation under Sec. 
1026.32(b)(1)(ii) because no precise portion of the base salary can be 
attributed to a particular transaction, but the $250 bonus is counted as 
loan originator compensation that is included in points and fees.
    5. Loan originator compensation--calculating loan originator 
compensation in manufactured home transactions. i. If a manufactured 
home retailer qualifies as a loan originator under Sec. 1026.36(a)(1), 
then compensation that is paid by a consumer or creditor to the retailer 
for loan origination activities and that can be attributed to the 
transaction at the time the interest rate is set must be included in 
points and fees. For example, assume a manufactured home retailer takes 
a residential mortgage loan application and is entitled to receive at 
consummation a $1,000 commission from the creditor for taking the 
mortgage loan application. The $1,000 commission is loan originator 
compensation that must be included in points and fees.
    ii. If the creditor has knowledge that the sales price of a 
manufactured home includes loan originator compensation, then such 
compensation can be attributed to the transaction at the time the 
interest rate is set and therefore is included in points and fees under 
Sec. 1026.32(b)(1)(ii). However, the creditor is not required to 
investigate the sales price of a manufactured home to determine if the 
sales price includes loan originator compensation.
    iii. As provided in Sec. 1026.32(b)(1)(ii)(D), compensation paid by 
a manufactured home retailer to its employees is not included in points 
and fees under Sec. 1026.32(b)(1)(ii).
    Paragraph 32(b)(1)(iii).
    1. Other charges. 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, unless certain exclusions apply. 
An item listed in Sec. 1026.4(c)(7) may be excluded from the points and 
fees calculation if the charge is reasonable; the creditor receives no 
direct or indirect compensation from the charge; and the charge is not 
paid 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 or its affiliate and no charge is paid to an affiliate). 
By contrast, 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. Credit insurance and debt cancellation or suspension coverage. In 
determining points and fees for purposes of Sec. 1026.32(b)(1), 
premiums paid at or before consummation for credit insurance or any debt 
cancellation or suspension agreement or contract are included in points 
and fees whether they are paid in cash or, if permitted by applicable 
law, financed and whether the insurance or coverage is optional or 
required. Such charges are also included whether the amount represents 
the entire premium or

[[Page 632]]

payment for the coverage or an initial payment.
    2. Credit property insurance. Credit property insurance includes 
insurance against loss of or damage to personal property, such as a 
houseboat or manufactured home. Credit property insurance covers the 
creditor's security interest in the property. Credit property insurance 
does not include homeowners' insurance, which, unlike credit property 
insurance, typically covers not only the dwelling but its contents and 
protects the consumer's interest in the property.
    3. Life, accident, health, or loss-of-income insurance. Premiums or 
other charges for these types of insurance are included in points and 
fees only if the creditor is a beneficiary. If the consumer or another 
person designated by the consumer is the sole beneficiary, then the 
premiums or other charges are not included in points and fees.
    Paragraph 32(b)(2).
    1. See comment 32(b)(1)-2 for guidance concerning the inclusion in 
points and fees of charges paid by parties other than the consumer.
    Paragraph 32(b)(2)(i).
    1. Finance charge. The points and fees calculation under Sec. 
1026.32(b)(2) generally does not include items that are included in the 
finance charge but that are not known until after account opening, such 
as minimum monthly finance charges or charges based on account activity 
or inactivity. Transaction fees also generally are not included in the 
points and fees calculation, except as provided in Sec. 
1026.32(b)(2)(vi). See comments 32(b)(1)-1 and 32(b)(1)(i)-1 for 
additional guidance concerning the calculation of points and fees.
    Paragraph 32(b)(2)(i)(B).
    1. See comment 32(b)(1)(i)(B)-1 for further guidance concerning the 
exclusion of mortgage insurance premiums payable in connection with any 
Federal or State agency program.
    Paragraph 32(b)(2)(i)(C).
    1. See comment 32(b)(1)(i)(C)-1 and -2 for further guidance 
concerning the exclusion of mortgage insurance premiums payable for any 
guaranty or insurance that protects the creditor against the consumer's 
default or other credit loss and that is not in connection with any 
Federal or State agency program.
    Paragraph 32(b)(2)(i)(D).
    1. For purposes of Sec. 1026.32(b)(2)(i)(D), the term loan 
originator means a loan originator as that term is defined in Sec. 
1026.36(a)(1), without regard to Sec. 1026.36(a)(2). See comments 
32(b)(1)(i)(D)-1 through -4 for further guidance concerning the 
exclusion of bona fide third-party charges from points and fees.
    1. See comments 32(b)(1)(i)(E)-1 through -3 for further guidance 
concerning the exclusion of up to two bona fide discount points from 
points and fees.
    Paragraph 32(b)(2)(i)(F).
    1. See comments 32(b)(1)(i)(F)-1 and -2 for further guidance 
concerning the exclusion of up to one bona fide discount point from 
points and fees.
    Paragraph 32(b)(2)(ii).
    1. For purposes of Sec. 1026.32(b)(2)(ii), the term loan originator 
means a loan originator as that term is defined in Sec. 1026.36(a)(1), 
without regard to Sec. 1026.36(a)(2). See the commentary to Sec. 
1026.32(b)(1)(ii) for additional guidance concerning the inclusion of 
loan originator compensation in points and fees.
    Paragraph 32(b)(2)(iii).
    1. Other charges. See comment 32(b)(1)(iii)-1 for further guidance 
concerning the inclusion of items listed in Sec. 1026.4(c)(7) in points 
and fees.
    Paragraph 32(b)(2)(iv).
    1. Credit insurance and debt cancellation or suspension coverage. 
See comments 32(b)(1)(iv)-1 through -3 for further guidance concerning 
the inclusion of premiums for credit insurance and debt cancellation or 
suspension coverage in points and fees.
    Paragraph 32(b)(2)(vii).
    1. Participation fees. Fees charged for participation in a credit 
plan must be included in the points and fees calculation for purposes of 
Sec. 1026.32 if payable at or before account opening. These fees 
include annual fees or other periodic fees that must be paid as a 
condition of access to the plan itself. See commentary to Sec. 
1026.4(c)(4) for a description of these fees.
    Paragraph 32(b)(2)(viii).
    1. Transaction fees to draw down the credit line. Section 
1026.32(b)(2)(viii) requires creditors in open-end credit plans to 
include in points and fees any transaction fee, including any per-
transaction fee, that will be charged for a draw on the credit line. 
Section 1026.32(b)(2)(viii) requires the creditor to assume that the 
consumer will make at least one draw during the term of the credit plan. 
Thus, if the terms of the open-end credit plan permit the creditor to 
charge a $10 transaction fee each time the consumer draws on the credit 
line, Sec. 1026.32(b)(2)(viii) requires the creditor to include one $10 
charge in the points and fees calculation.
    2. Fixed-rate loan option. If the terms of an open-end credit plan 
permit a consumer to draw on the credit line using either a variable-
rate feature or a fixed-rate feature, Sec. 1026.32(b)(2)(viii) requires 
the creditor to use the terms applicable to the variable-rate feature 
for determining the transaction fee that must be included in the points 
and fees calculation.
    32(b)(3) Bona fide discount point.
    32(b)(3)(i) Closed-end credit.
    1. Definition of bona fide discount point. Section 1026.32(b)(3) 
provides that, to be bona fide, a discount point must reduce the 
interest rate based on a calculation that is consistent with established 
industry practices

[[Page 633]]

for determining the amount of reduction in the interest rate or time-
price differential appropriate for the amount of discount points paid by 
the consumer. To satisfy this standard, a creditor may show that the 
reduction is reasonably consistent with established industry norms and 
practices for secondary mortgage market transactions. For example, a 
creditor may rely on pricing in the to-be-announced (TBA) market for 
mortgage-backed securities (MBS) to establish that the interest rate 
reduction is consistent with the compensation that the creditor could 
reasonably expect to receive in the secondary market. The creditor may 
also establish that its interest rate reduction is consistent with 
established industry practices by showing that its calculation complies 
with requirements prescribed in Fannie Mae or Freddie Mac guidelines for 
interest rate reductions from bona fide discount points. For example, 
assume that the Fannie Mae Single-Family Selling Guide or the Freddie 
Mac Single Family Seller/Servicer Guide imposes a cap on points and fees 
but excludes from the cap discount points that result in a bona fide 
reduction in the interest rate. Assume the guidelines require that, for 
a discount point to be bona fide so that it would not count against the 
cap, a discount point must result in at least a 25 basis point reduction 
in the interest rate. Accordingly, if the creditor offers a 25 basis 
point interest rate reduction for a discount point and the requirements 
of Sec. 1026.32(b)(1)(i)(E) or (F) are satisfied, the discount point is 
bona fide and is excluded from the calculation of points and fees.
    32(b)(4) Total loan amount.
    32(b)(4)(i) Closed-end credit.
    1. Total loan amount; examples. Below are several examples showing 
how to calculate the total loan amount for closed-end mortgage loans, 
each using a $10,000 amount borrowed, a $300 appraisal fee, and $400 in 
prepaid finance charges. A $500 single premium for optional credit 
unemployment insurance is used in one example.
    i. If the consumer finances a $300 fee for a creditor-conducted 
appraisal and pays $400 in prepaid finance charges 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). In 
this case, the amount financed is the same as the total loan amount: 
$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).
    iv. If the consumer finances a $300 fee for a creditor-conducted 
appraisal and a $500 single premium for optional credit unemployment 
insurance, and pays $400 in prepaid finance charges 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)(ii), 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.
    32(b)(6) Prepayment penalty.
    1. Examples of prepayment penalties; closed-end credit transactions. 
For purposes of Sec. 1026.32(b)(6)(i), the following are examples of 
prepayment penalties:
    i. A charge determined by treating the loan balance as outstanding 
for a period of time after prepayment in full and applying the interest 
rate to such ``balance,'' even if the charge results from interest 
accrual amortization used for other payments in the transaction under 
the terms of the loan contract. ``Interest accrual amortization'' refers 
to the method by which the amount of interest due for each period (e.g., 
month) in a transaction's term is determined. For example, ``monthly 
interest accrual amortization'' treats each payment as made on the 
scheduled, monthly due date even if it is actually paid early or late 
(until the expiration of any grace period). Thus, under the terms of a 
loan contract providing for monthly interest accrual amortization, if 
the amount of interest due on May 1 for the preceding month of April is 
$3,000, the loan contract will require payment of $3,000 in interest for 
the month of April whether the payment is made on April 20, on May 1, or 
on May 10. In this example, if the consumer prepays the loan in full on 
April 20 and if the accrued interest as of that date is $2,000, then 
assessment of a charge of $3,000 constitutes a prepayment penalty of 
$1,000 because the amount of interest actually earned through April 20 
is only $2,000.

[[Page 634]]

    ii. A fee, such as an origination or other loan closing cost, that 
is waived by the creditor on the condition that the consumer does not 
prepay the loan. However, the term prepayment penalty does not include a 
waived bona fide third-party charge imposed by the creditor if the 
consumer pays all of a covered transaction's principal before the date 
on which the principal is due sooner than 36 months after consummation. 
For example, assume that at consummation, the creditor waives $3,000 in 
closing costs to cover bona fide third-party charges but the terms of 
the loan agreement provide that the creditor may recoup the $3,000 in 
waived charges if the consumer repays the entire loan balance sooner 
than 36 months after consummation. The $3,000 charge is not a prepayment 
penalty. In contrast, for example, assume that at consummation, the 
creditor waives $3,000 in closing costs to cover bona fide third-party 
charges but the terms of the loan agreement provide that the creditor 
may recoup $4,500, in part to recoup waived charges, if the consumer 
repays the entire loan balance sooner than 36 months after consummation. 
The $3,000 that the creditor may impose to cover the waived bona fide 
third-party charges is not a prepayment penalty, but the additional 
$1,500 charge is a prepayment penalty and subject to the restrictions 
under Sec. 1026.43(g).
    iii. A minimum finance charge in a simple interest transaction.
    iv. 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). 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.
    2. Fees that are not prepayment penalties; closed-end credit 
transactions. For purposes of Sec. 1026.32(b)(6)(i), fees that are not 
prepayment penalties include, for example:
    i. Fees imposed for preparing and providing documents when a loan is 
paid in full if such fees are imposed whether or not the loan is 
prepaid. Examples include a loan payoff statement, a reconveyance 
document, or another document releasing the creditor's security interest 
in the dwelling that secures the loan.
    ii. Loan guarantee fees.
    32(b)(6) Prepayment penalty.
    1--2 [Reserved]
    3. Examples of prepayment penalties; open-end credit. For purposes 
of Sec. 1026.32(b)(6)(ii), the term prepayment penalty includes a 
charge, including a waived closing cost, imposed by the creditor if the 
consumer terminates the open-end credit plan prior to the end of its 
term. This includes a charge imposed if the consumer terminates the plan 
outright or, for example, if the consumer terminates the plan in 
connection with obtaining a new loan or plan with the current holder of 
the existing plan, a servicer acting on behalf of the current holder, or 
an affiliate of either. However, the term prepayment penalty does not 
include a waived bona fide third-party charge imposed by the creditor if 
the consumer terminates the open-end credit plan during the first 36 
months after account opening.
    4. Fees that are not prepayment penalties; open-end credit. For 
purposes of Sec. 1026.32(b)(6)(ii), fees that are not prepayment 
penalties include, for example:
    i. Fees imposed for preparing and providing documents when an open-
end credit plan is terminated, if such fees are imposed whether or not 
the consumer terminates the plan prior to the end of its term. Examples 
include a payoff statement, a reconveyance document, or another document 
releasing the creditor's security interest in the dwelling that secures 
the line of credit.
    ii. Loan guarantee fees.
    iii. Any fee that the creditor may impose in lieu of termination and 
acceleration under comment 40(f)(2)-2.

                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

[[Page 635]]

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)(2) Annual percentage rate.
    1. Disclosing annual percentage rate for open-end high-cost 
mortgages. In disclosing the annual percentage rate for an open-end, 
high-cost mortgage under Sec. 1026.32(c)(2), creditors must comply with 
Sec. 1026.6(a)(1). If a fixed-rate, discounted introductory or initial 
interest rate is offered on the transaction, Sec. 1026.32(c)(2) 
requires a creditor to disclose the annual percentage rate of the fixed-
rate, discounted introductory or initial interest rate feature, and the 
rate that would apply when the feature expires.
    32(c)(3) Regular payment; minimum periodic payment example; balloon 
payment.
    1. Balloon payment. Except as provided in Sec. 1026.32(d)(1)(ii) 
and (iii), a mortgage transaction subject to this section may not 
include a payment schedule that results in a balloon payment.
    Paragraph 32(c)(3)(i).
    1. General. The regular payment is the amount due from the consumer 
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. For a closed-end 
credit transaction, 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. For 
an open-end credit plan, the maximum monthly payment must be based on 
the following assumptions:
    i. The consumer borrows the full credit line at account opening with 
no additional extensions of credit.
    ii. The consumer makes only minimum periodic payments during the 
draw period and any repayment period.
    iii. If the annual percentage rate may increase during the plan, the 
maximum annual percentage rate that is included in the contract, as 
required by Sec. 1026.30, applies to the plan at account opening.

                        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.

[[Page 636]]

                       Paragraph 32(d) Limitations

    1. Additional prohibitions applicable under other sections. Section 
1026.34 sets forth certain prohibitions in connection with high-cost 
mortgages, in addition to the limitations in Sec. 1026.32(d). Further, 
Sec. 1026.35(b) prohibits certain practices in connection with closed-
end 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 closed-end high-cost 
mortgages 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 high-cost 
mortgage must fully amortize the outstanding principal balance through 
``regular periodic payments.'' A payment is a ``regular periodic 
payment'' if it is not more than two times the amount of other payments. 
For purposes of open-end credit plans, the term ``regular periodic 
payment'' or ``periodic payment'' means the required minimum periodic 
payment.
    2. Repayment period. If the terms of an open-end credit plan provide 
for a repayment period during which no further draws may be taken, the 
limitations in Sec. 1026.32(d)(1)(i) apply to regular periodic payments 
required by the credit plan during the draw period, but do not apply to 
any adjustment in the regular periodic payment that results from the 
transition from the credit plan's draw period to its repayment period. 
Further, the limitation on balloon payments in Sec. 1026.32(d)(1)(i) 
does not preclude increases in regular periodic payments that result 
solely from the initial draw or additional draws on the credit line 
during the draw period.
    3. No repayment period. If the terms of an open-end credit plan do 
not provide for a repayment period, the repayment schedule must fully 
amortize any outstanding principal balance in the draw period through 
regular periodic payments. However, the limitation on balloon payments 
in Sec. 1026.32(d)(1)(i) does not preclude increases in regular 
periodic payments that result solely from the initial draw or additional 
draws on the credit line during the draw period.

                     32(d)(2) Negative Amortization

    1. Negative amortization. The prohibition against negative 
amortization in a high-cost mortgage 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 applicable law 
and the consumer's 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)(7) Prepayment Penalty Exception

                     32(d)(8) Acceleration of debt.

    Paragraph 32(d)(8)(i).
    1. Fraud or material misrepresentation. A creditor may terminate a 
loan or open-end credit agreement and accelerate the balance if there 
has been fraud or material misrepresentation by the consumer in 
connection with the loan or open-end credit agreement. 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 32(d)(8)(ii)

    1. Failure to meet repayment terms. A creditor may terminate a loan 
or open-end credit agreement and accelerate the balance when the 
consumer fails to meet the repayment terms resulting in a default in 
payment under the agreement; a creditor may do so, however, only if the 
consumer actually fails to make payments resulting in a default in the 
agreement. 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 Sec. 1026.32(d)(8)(ii) if the consumer fails to meet 
the repayment terms resulting in a default of the agreement. Section 
1026.32(d)(8)(ii) does not override any State or other law that requires 
a creditor to notify a consumer of a right to cure, or otherwise places 
a duty on the creditor before it can terminate a loan or open-end credit 
agreement and accelerate the balance.

[[Page 637]]

                         Paragraph 32(d)(8)(iii)

    1. Impairment of security. A creditor may terminate a loan or open-
end credit agreement 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 
be cause for 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 and materially affected in violation of 
the loan or open-end credit agreement. If the consumer commits waste or 
otherwise destructively uses or fails to maintain the property, 
including demolishing or removing structures from the property, such 
that the action adversely affects the security in a material way, the 
loan or open-end credit agreement 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 in a 
material way, the creditor may terminate a loan or open-end credit 
agreement 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 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

[[Page 638]]

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, 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)).

[[Page 639]]

    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.)

      Paragraph 34(a)(4) Repayment Ability for High-Cost Mortgages

    1. Application of repayment ability rule. The Sec. 1026.34(a)(4) 
prohibition against making loans without regard to consumers' repayment 
ability applies to open-end, high-cost mortgages. The Sec. 1026.43 
repayment ability provisions apply to closed-end, high-cost mortgages. 
Accordingly, in connection with a closed-end, high-cost mortgage, Sec. 
1026.34(a)(4) requires a creditor to comply with the repayment ability 
requirements set forth in Sec. 1026.43.
    2. General prohibition. Section 1026.34(a)(4) prohibits a creditor 
from extending credit under a high-cost, open-end credit plan based on 
the value of the consumer's collateral without regard to the consumer's 
repayment ability as of account opening, 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 account 
opening and secured by the same dwelling that secures the high-cost 
mortgage transaction.
    4. Discounted introductory rates and non-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. 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 account opening. Section 1026.34(a)(4) 
prohibits a creditor from disregarding repayment ability based on the 
facts and circumstances known to the creditor as of account opening. 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 account opening. 
However, if a creditor has knowledge as of account opening 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.

[[Page 640]]

                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), 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.
    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. 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

[[Page 641]]

not required to independently verify the obligation. Similarly, a 
creditor is responsible for considering certain obligations undertaken 
just before or at account opening 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 Sec. 1026.34(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 
Sec. 1026.34(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 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. 1026.32(c)(3).

                       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(a)(5) Pre-loan counseling.
    34(a)(5)(i) Certification of counseling required.
    1. HUD-approved counselor. For purposes of Sec. 1026.34(a)(5), 
counselors approved by the Secretary of the U.S. Department of Housing 
and Urban Development are homeownership counselors certified pursuant to 
section 106(e) of the Housing and Urban Development Act of 1968 (12 
U.S.C. 1701x(e)), or as otherwise determined by the Secretary.
    2. State housing finance authority. For purposes of Sec. 
1026.34(a)(5), a ``State housing finance authority'' has the same 
meaning as ``State housing finance agency'' provided in 24 CFR 214.3.
    3. Processing applications. Prior to receiving certification of 
counseling, a creditor may not extend a high-cost mortgage, but may 
engage in other activities, such as processing an application that will 
result in the extension of a high-cost mortgage (by, for example, 
ordering an appraisal or title search).
    4. Form of certification. The written certification of counseling 
required by Sec. 1026.34(a)(5)(i) may be received by mail, email, 
facsimile, or any other method, so long as the certification is in a 
retainable form.
    5. Purpose of certification. Certification of counseling indicates 
that a consumer has received counseling as required by Sec. 
1026.34(a)(5), but it does not indicate that a counselor has made a 
judgment or determination as to the appropriateness of the transaction 
for the consumer.
    34(a)(5)(ii) Timing of counseling.
    1. Disclosures for open-end credit plans. Section 1026.34(a)(5)(ii) 
permits receipt of either the good faith estimate required by section 
5(c) of RESPA or the disclosures required under Sec. 1026.40 to allow 
counseling to occur. Pursuant to 12 CFR 1024.7(h), the disclosures 
required by Sec. 1026.40 can be provided in lieu of a good faith 
estimate for open-end credit plans.
    2. Initial disclosure. Counseling may occur after receipt of either 
an initial good faith estimate required by section 5(c) of RESPA or a 
disclosure form pursuant to Sec. 1026.40, regardless of whether a 
revised good faith estimate or revised disclosure form pursuant to Sec. 
1026.40 is subsequently provided to the consumer.
    34(a)(5)(iv) Content of certification.

[[Page 642]]

    1. Statement of counseling on advisability. A statement that a 
consumer has received counseling on the advisability of the high-cost 
mortgage means that the consumer has received counseling about key terms 
of the mortgage transaction, as set out in either the good faith 
estimate required by section 5(c) of RESPA or the disclosures provided 
to the consumer pursuant to Sec. 1026.40; the consumer's budget, 
including the consumer's income, assets, financial obligations, and 
expenses; and the affordability of the mortgage transaction for the 
consumer. Examples of such terms of the mortgage transaction include the 
initial interest rate, the initial monthly payment, whether the payment 
may increase, how the minimum periodic payment will be determined, and 
fees imposed by the creditor, as may be reflected in the applicable 
disclosure. A statement that a consumer has received counseling on the 
advisability of the high-cost mortgage does not require the counselor to 
have made a judgment or determination as to the appropriateness of the 
mortgage transaction for the consumer.
    2. Statement of verification. A statement that a counselor has 
verified that the consumer has received the disclosures required by 
either Sec. 1026.32(c) or by RESPA for the high-cost mortgage means 
that a counselor has confirmed, orally, in writing, or by some other 
means, receipt of such disclosures with the consumer.
    34(a)(5)(v) Counseling fees.
    1. Financing. Section 1026.34(a)(5)(v) does not prohibit a creditor 
from financing the counseling fee as part of the transaction for a high-
cost mortgage, if the fee is a bona fide third-party charge as provided 
by Sec. 1026.32(b)(1)(i)(D) and (b)(2)(i)(D).
    34(a)(5)(vi) Steering prohibited.
    1. An example of an action that constitutes steering would be when a 
creditor repeatedly highlights or otherwise distinguishes the same 
counselor in the notices the creditor provides to consumers pursuant to 
Sec. 1026.34(a)(5)(vii).
    2. Section 1026.34(a)(5)(vi) does not prohibit a creditor from 
providing a consumer with objective information related to counselors or 
counseling organizations in response to a consumer's inquiry. An example 
of an action that would not constitute steering would be when a consumer 
asks the creditor for information about the fees charged by a counselor, 
and the creditor responds by providing the consumer information about 
fees charged by the counselor to other consumers that previously 
obtained counseling pursuant to Sec. 1026.34(a)(5).
    34(a)(6) Recommended default.
    1. Facts and circumstances. Whether a creditor or mortgage broker 
``recommends or encourages'' default for purposes of Sec. 1026.34(a)(6) 
depends on all of the relevant facts and circumstances.
    2. Examples. i. A creditor or mortgage broker ``recommends or 
encourages'' default when the creditor or mortgage broker advises the 
consumer to stop making payments on an existing loan in a manner that is 
likely to cause the consumer to default on the existing loan.
    ii. When delay of consummation of a high-cost mortgage occurs for 
reasons outside the control of a creditor or mortgage broker, that 
creditor or mortgage broker does not ``recommend or encourage'' default 
because the creditor or mortgage broker informed a consumer that:
    A. The consumer's high-cost mortgage is scheduled to be consummated 
prior to the due date for the next payment due on the consumer's 
existing loan, which is intended to be paid by the proceeds of the new 
high-cost mortgage; and
    B. Any delay of consummation of the new high-cost mortgage beyond 
the payment due date of the existing loan will not relieve the consumer 
of the obligation to make timely payment on that loan.
    34(a)(8) Late fees.
    34(a)(8)(i) General.
    1. For purposes of Sec. 1026.34(a)(8), in connection with an open-
end credit plan, the amount of the payment past due is the required 
minimum periodic payment as provided under the terms of the open-end 
credit agreement.
    34(a)(8)(iii) Multiple late charges assessed on payment subsequently 
paid.
    1. Section 1026.34(a)(8)(iii) prohibits the pyramiding of late fees 
or charges in connection with a high-cost mortgage payment. For example, 
assume that a consumer's regular periodic payment of $500 is due on the 
1st of each month. On August 25, the consumer makes a $500 payment which 
was due on August 1, and as a result, a $10 late charge is assessed. On 
September 1, the consumer makes another $500 payment for the regular 
periodic payment due on September 1, but does not pay the $10 late 
charge assessed on the August payment. Under Sec. 1026.34(h)(2), it is 
impermissible to allocate $10 of the consumer's September 1 payment to 
cover the late charge, such that the September payment becomes 
delinquent. In short, because the $500 payment made on September 1 is a 
full payment for the applicable period and is paid by its due date or 
within any applicable grace period, no late charge may be imposed on the 
account in connection with the September payment.
    34(a)(8)(iv) Failure to make required payment.
    1. Under Sec. 1026.34(a)(8)(iv), if a consumer fails to make one or 
more required payments and then resumes making payments but fails to 
bring the account current, it is permissible, if permitted by the terms 
of the loan contract or open-end credit agreement, to apply the 
consumer's payments first to the past due payment(s) and to impose a 
late

[[Page 643]]

charge on each subsequent required payment until the account is brought 
current. To illustrate: Assume that a consumer's regular periodic 
payment of $500 is due on the 1st of each month, or before the 
expiration of a 15-day grace period. Also assume that the consumer fails 
to make a timely installment payment by August 1 (or within the 
applicable grace period), and a $10 late charge therefore is imposed. 
The consumer resumes making monthly payments on September 1. Under Sec. 
1026.34(a)(8)(iv), if permitted by the terms of the loan contract, the 
creditor may apply the $500 payment made on September 1 to satisfy the 
missed $500 payment that was due on August 1. If the consumer makes no 
other payment prior to the end of the grace period for the payment that 
was due on September 1, the creditor may also impose a $10 late fee for 
the payment that was due on September 1.
    34(a)(10) Financing of points and fees.
    1. Points and fees. For purposes of Sec. 1026.34(a)(10), ``points 
and fees'' means those items that are required to be included in the 
calculation of points and fees under Sec. 1026.32(b)(1) and (2). Thus, 
for example, in connection with the extension of credit under a high-
cost mortgage, a creditor may finance a fee charged by a third-party 
counselor in connection with the consumer's receipt of pre-loan 
counseling under Sec. 1026.34(a)(5), because, pursuant to Sec. 
1026.32(b)(1)(i)(D) and (b)(2)(i)(D), such a fee is excluded from the 
calculation of points and fees as a bona fide third-party charge.
    2. Examples of financing points and fees. For purposes of Sec. 
1026.34(a)(10), points and fees are financed if, for example, they are 
added to the loan balance or financed through a separate note, if the 
note is payable to the creditor or to an affiliate of the creditor. In 
the case of an open-end credit plan, a creditor also finances points and 
fees if the creditor advances funds from the credit line to cover the 
fees.
    34(b) Prohibited acts or practices for dwelling-secured loans; 
structuring loans to evade high-cost mortgage requirements.
    1. Examples. i. A creditor structures a transaction in violation of 
Sec. 1026.34(b) if, for example, the creditor structures a loan that 
would otherwise be a high-cost mortgage as two or more loans, whether 
made consecutively or at the same time, for example, to divide the loan 
fees to avoid the points and fees threshold for high-cost mortgages in 
Sec. 1026.32(a)(1)(ii).
    ii. A creditor does not structure a transaction in violation of 
Sec. 1026.34(b) when a loan to finance the initial construction of a 
dwelling may be permanently financed by the same creditor, such as a 
``construction-to-permanent'' loan, and the construction phase and the 
permanent phase are treated as separate transactions. 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 each of the two phases 
as though they were two separate transactions. See also comment 
17(c)(6)-2.
    2. 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. Thus, in determining the 
``total loan amount'' for purposes of applying the triggers under Sec. 
1026.32, 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.

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.

     Section 1026.35--Requirements for Higher-Priced Mortgage Loans

                            35(a) Definitions

    Paragraph 35(a)(1).
    1. 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.

[[Page 644]]

    2. 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.
    3. Threshold for ``jumbo'' loans. Section 1026.35(a)(1)(ii) provides 
a separate threshold for determining whether a transaction is a higher-
priced mortgage loan subject to Sec. 1026.35 when the principal balance 
exceeds the limit in effect as of the date the transaction's rate is set 
for the maximum principal obligation eligible for purchase by Freddie 
Mac (a ``jumbo'' loan). The Federal Housing Finance Agency (FHFA) 
establishes and adjusts the maximum principal obligation pursuant to 
rules under 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(a)(1)(ii) applies.

                           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. 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.
    3. Additional guidance on determination of average prime offer 
rates. The average prime offer rate has the same meaning in Sec. 
1026.35 as in Regulation C, 12 CFR part 1003. See 12 CFR 
1003.4(a)(12)(ii). Guidance on the average prime offer rate under Sec. 
1026.35(a)(2), such as when a transaction's rate is set and 
determination of the comparable transaction, is provided in the official 
commentary under Regulation C, the publication entitled ``A Guide to 
HMDA Reporting: Getting it Right!'', and the relevant ``Frequently Asked 
Questions'' on Home Mortgage Disclosure Act (HMDA) compliance posted on 
the FFIEC's Web site at http://www.ffiec.gov/hmda.

                          35(b) Escrow Accounts

    1. Principal dwelling. Section 1026.35(b)(1) 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 manufactured 
home, boat, or trailer used as the consumer's principal dwelling. See 
the commentary under Sec. Sec. 1026.2(a)(19) and(24), 1026.15, and 
1026.23. Section 1026.35(b)(1) also applies to a higher-priced mortgage 
loan secured by a first lien on a condominium if it is in fact used as 
the consumer's principal dwelling. But see Sec. 1026.35(b)(2) for 
exemptions from the escrow requirement that may apply to such 
transactions.

     35(b)(1) Requirement to escrow for property taxes and insurance

    1. Administration of escrow accounts. Section 1026.35(b)(1) requires 
creditors to establish an escrow account for payment of property taxes 
and premiums for mortgage-related insurance required by the creditor 
before the consummation of a higher-priced mortgage loan secured by a 
first lien on a principal dwelling. Section 6 of RESPA, 12 U.S.C. 2605, 
and Regulation X, 12 CFR 1024.17, address how escrow accounts must be 
administered.
    2. Optional insurance items. Section 1026.35(b)(1) does not require 
that an escrow account be established for premiums for mortgage-related 
insurance that the creditor does not require in connection with the 
credit transaction, such as earthquake insurance or credit life 
insurance, even if the consumer voluntarily obtains such insurance.
    3. Transactions not subject to Sec. 1026.35(b)(1). Section 
1026.35(b)(1) requires a creditor to establish an escrow account before 
consummation of a first-lien higher-priced mortgage loan. This 
requirement does not affect a creditor's ability, right, or obligation, 
pursuant to the terms of the legal obligation or applicable law, to 
offer or require an escrow account for a transaction that is not subject 
to Sec. 1026.35(b)(1).

[[Page 645]]

                           35(b)(2) Exemptions

    Paragraph 35(b)(2)(i).
    1. Construction-permanent loans. Under Sec. 1026.35(b)(2)(ii)(B), 
Sec. 1026.35 does not apply to a transaction to finance the initial 
construction of a dwelling. Section 1026.35 may apply, however, to 
permanent financing that replaces a construction loan, whether the 
permanent financing is extended by the same or a different creditor. 
When a construction loan may be permanently financed by the same 
creditor, Sec. 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 each of the 
two phases as though they were two separate transactions. See also 
comment 17(c)(6)-2. Section 1026.17(c)(6)(ii) addresses only how a 
creditor may elect to disclose a construction-permanent transaction. 
Which disclosure option a creditor elects under Sec. 1026.17(c)(6)(ii) 
does not affect the determination of whether the permanent phase of the 
transaction is subject to Sec. 1026.35. When the creditor discloses the 
two phases as separate transactions, the annual percentage rate for the 
permanent phase must be compared to the average prime offer rate for a 
transaction that is comparable to the permanent financing to determine 
whether the transaction is a higher-priced mortgage loan under Sec. 
1026.35(a). When the creditor discloses the two phases as a single 
transaction, a single annual percentage rate, reflecting the appropriate 
charges from both phases, must be calculated for the transaction in 
accordance with Sec. 1026.22(a)(1) and appendix D to part 1026. This 
annual percentage rate must be compared to the average prime offer rate 
for a transaction that is comparable to the permanent financing to 
determine the transaction is a higher-priced mortgage loan under Sec. 
1026.35(a). If the transaction is determined to be a higher-priced 
mortgage loan, only the permanent phase is subject to the requirement of 
Sec. 1026.35(b)(1) to establish and maintain an escrow account, and the 
period for which the escrow account must remain in place under Sec. 
1026.35(b)(3) is measured from the time the conversion to the permanent 
phase financing occurs.
    Paragraph 35(b)(2)(ii).
    1. Limited exemption. A creditor is required to escrow for payment 
of property taxes for all first-lien higher-priced mortgage loans 
secured by condominium, planned unit development, or similar dwellings 
or units regardless of whether the creditor escrows for insurance 
premiums for such dwellings or units.
    2. Planned unit developments. Planned unit developments (PUDs) are a 
form of property ownership often used in retirement communities, golf 
communities, and similar communities made up of homes located within a 
defined geographical area. PUDs usually have a homeowners' association 
or some other governing association, analogous to a condominium 
association and with similar authority and obligations. Thus, as with 
condominiums, PUDs often have master insurance policies that cover all 
units in the PUD. Under Sec. 1026.35(b)(2)(ii), if a PUD's governing 
association is obligated to maintain such a master insurance policy, an 
escrow account required by Sec. 1026.35(b)(1) for a transaction secured 
by a unit in the PUD need not include escrows for insurance. This 
exemption applies not only to condominiums and PUDs but also to any 
other type of property ownership arrangement that has a governing 
association with an obligation to maintain a master insurance policy.
    3. More than one governing association associated with a dwelling. 
The limited exemption provided pursuant to Sec. 1026.35(b)(2)(ii) 
applies to each master insurance policy for properties with multiple 
governing associations, to the extent each governing association has an 
obligation to maintain a master insurance policy.
    Paragraph 35(b)(2)(iii).
    1. Requirements for exemption. Under Sec. 1026.35(b)(2)(iii), 
except as provided in Sec. 1026.35(b)(2)(v), a creditor need not 
establish an escrow account for taxes and insurance for a higher-priced 
mortgage loan, provided the following four conditions are satisfied when 
the higher-priced mortgage loan is consummated:
    i. During the preceding calendar year, more than 50 percent of the 
creditor's total first-lien covered transactions, as defined in Sec. 
1026.43(b)(1), on properties located in counties that are either 
``rural'' or ``underserved,'' as set forth in Sec. 1026.35(b)(2)(iv). 
Pursuant to that section, the Bureau determines annually which counties 
in the United States are rural or underserved and publishes a list of 
those counties to enable creditors to determine whether they meet this 
condition for the exemption. Thus, for example, if a creditor originated 
90 first-lien covered transactions, as defined by Sec. 1026.43(b)(1), 
during 2013, the creditor meets this condition for an exemption in 2014 
if at least 46 of those transactions are secured by first liens on 
properties that are located in counties that are on the Bureau's lists 
of rural or underserved counties for 2013.
    ii. The creditor and its affiliates together originated 500 or fewer 
first-lien covered transactions, as defined in Sec. 1026.43(b)(1), 
during the preceding calendar year.
    iii. As of the end of the preceding calendar year, the creditor had 
total assets that are less than the asset threshold for the relevant 
calendar year. For calendar year 2013, the asset threshold is 
$2,000,000,000. Creditors that had total assets of less than 
$2,000,000,000 on December 31, 2012, satisfy this criterion for purposes 
of the exemption

[[Page 646]]

during 2013. This asset threshold shall adjust automatically each year 
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 12-month period ending in November, with rounding to 
the nearest million dollars. The Bureau will publish notice of the asset 
threshold each year by amending this comment.
    iv. The creditor and its affiliates do not maintain an escrow 
account for any mortgage transaction being serviced by the creditor or 
its affiliate at the time the transaction is consummated, except as 
provided in Sec. 1026.35(b)(2)(iii)(D)(1) and (2). Thus, the exemption 
applies, provided the other conditions of Sec. 1026.35(b)(2)(iii) are 
satisfied, even if the creditor previously maintained escrow accounts 
for mortgage loans, provided it no longer maintains any such accounts 
except as provided in Sec. 1026.35(b)(2)(iii)(D)(1) and (2). Once a 
creditor or its affiliate begins escrowing for loans currently serviced 
other than those addressed in Sec. 1026.35(b)(2)(iii)(D)(1) and (2), 
however, the creditor and its affiliate become ineligible for the 
exemption in Sec. 1026.35(b)(2)(iii) on higher-priced mortgage loans 
they make while such escrowing continues. Thus, as long as a creditor 
(or its affiliate) services and maintains escrow accounts for any 
mortgage loans, other than as provided in Sec. 1026.35(b)(2)(iii)(D)(1) 
and (2), the creditor will not be eligible for the exemption for any 
higher-priced mortgage loan it may make. For purposes of Sec. 
1026.35(b)(2)(iii), a creditor or its affiliate ``maintains'' an escrow 
account only if it services a mortgage loan for which an escrow account 
has been established at least through the due date of the second 
periodic payment under the terms of the legal obligation.
    Paragraph 35(b)(2)(iii)(D)(1).
    1. Exception for certain accounts. Escrow accounts established for 
first-lien higher-priced mortgage loans for which applications were 
received on or after April 1, 2010, and before January 1, 2014, are not 
counted for purposes of Sec. 1026.35(b)(2)(iii)(D). For applications 
received on and after January 1, 2014, creditors, together with their 
affiliates, that establish new escrow accounts, other than those 
described in Sec. 1026.35(b)(2)(iii)(D)(2), do not qualify for the 
exemption provided under Sec. 1026.35(b)(2)(iii). Creditors, together 
with their affiliates, that continue to maintain escrow accounts 
established for first-lien higher-priced mortgage loans for which 
applications were received on or after April 1, 2010, and before January 
1, 2014, still qualify for the exemption provided under Sec. 
1026.35(b)(2)(iii) so long as they do not establish new escrow accounts 
for transactions for which they received applications on or after 
January 1, 2014, other than those described in Sec. 
1026.35(b)(2)(iii)(D)(2), and they otherwise qualify under Sec. 
1026.35(b)(2)(iii).
    Paragraph 35(b)(2)(iii)(D)(2).
    1. Exception for post-consummation escrow accounts for distressed 
consumers. An escrow account established after consummation for a 
distressed consumer does not count for purposes of Sec. 
1026.35(b)(2)(iii)(D). Distressed consumers are consumers who are 
working with the creditor or servicer to attempt to bring the loan into 
a current status through a modification, deferral, or other 
accommodation to the consumer. A creditor, together with its affiliates, 
that establishes escrow accounts after consummation as a regular 
business practice, regardless of whether consumers are in distress, does 
not qualify for the exception described in Sec. 
1026.35(b)(2)(iii)(D)(2).

                         Paragraph 35(b)(2)(iv)

    1. Requirements for ``rural'' or ``underserved'' status. A county is 
considered to be ``rural'' or ``underserved'' for purposes of Sec. 
1026.35(b)(2)(iii)(A) if it satisfies either of the two tests in Sec. 
1026.35(b)(2)(iv). The Bureau applies both tests to each county in the 
United States. If a county satisfies either test, the Bureau will 
include the county on a published list of ``rural'' or ``underserved'' 
counties for a particular calendar year. To facilitate compliance with 
appraisal requirements in Sec. 1026.35(c), the Bureau will also create 
a list of only those counties that are ``rural'' but excluding those 
that are only ``underserved.'' The Bureau will post on its public Web 
site the applicable lists for each calendar year by the end of that 
year, thus permitting creditors to ascertain the availability to them of 
the exemption during the following year. For 2012, however, the list 
will be published before June 1, 2013. A creditor may rely as a safe 
harbor, pursuant to section 130(f) of the Truth in Lending Act, on the 
lists of counties published by the Bureau to determine whether a county 
qualifies as ``rural'' or ``underserved'' for a particular calendar 
year. A creditor's originations of covered transactions, as defined by 
Sec. 1026.43(b)(1), secured by a first lien, in such counties during 
that year are considered in determining whether the creditor satisfies 
the condition in Sec. 1026.35(b)(2)(iii)(A) and therefore will be 
eligible for the exemption during the following calendar year.
    i. Under Sec. 1026.35(b)(2)(iv)(A), a county is rural during a 
calendar year if it is neither in a metropolitan statistical area nor in 
a micropolitan statistical area that is adjacent to a metropolitan 
statistical area. These areas are defined by the Office of Management 
and Budget and applied under currently applicable Urban Influence Codes 
(UICs), established by the United States Department of Agriculture's 
Economic Research Service (USDA-ERS). Accordingly,

[[Page 647]]

for purposes of Sec. 1026.35(b)(2)(iv)(A), ``adjacent'' has the meaning 
applied by the USDA-ERS in determining a county's UIC; as so applied, 
``adjacent'' entails a county not only being physically contiguous with 
a metropolitan statistical area but also meeting certain minimum 
population commuting patterns. Specifically, a county is ``rural'' if 
the USDA-ERS categorizes the county under UIC 4, 6, 7, 8, 9, 10, 11, or 
12. Descriptions of UICs are available on the USDA-ERS Web site at 
http://www.ers.usda.gov/data-products/urban-influence-codes/
documentation.aspx. A county for which there is no currently applicable 
UIC (because the county has been created since the USDA-ERS last 
categorized counties) is rural only if all counties from which the new 
county's land was taken are themselves rural under currently applicable 
UICs.
    ii. Under Sec. 1026.35(b)(2)(iv)(B), a county is underserved during 
a calendar year if, according to Home Mortgage Disclosure Act (HMDA) 
data for the preceding calendar year, no more than two creditors 
extended covered transactions, as defined in Sec. 1026.43(b)(1), 
secured by a first lien, five or more times in the county. Specifically, 
a county is ``underserved'' if, in the applicable calendar year's public 
HMDA aggregate dataset, no more than two creditors have reported five or 
more first-lien covered transactions with HMDA geocoding that places the 
properties in that county. For purposes of this determination, because 
only covered transactions are counted, all first-lien originations (and 
only first-lien originations) reported in the HMDA data are counted 
except those for which the owner-occupancy status is reported as ``Not 
owner-occupied'' (HMDA code 2), the property type is reported as 
``Multifamily'' (HMDA code 3), the applicant's or co-applicant's race is 
reported as ``Not applicable'' (HMDA code 7), or the applicant's or co-
applicant's sex is reported as ``Not applicable'' (HMDA code 4). The 
most recent HMDA data are available at http://www.ffiec.gov/hmda.
    2. Examples. i. A county is considered ``rural'' for a given 
calendar year based on the most recent available UIC designations, which 
are updated by the USDA-ERS once every ten years. As an example, assume 
a creditor makes first-lien covered transactions in County X during 
calendar year 2014, and the most recent UIC designations have been 
published in the second quarter of 2013. To determine ``rural'' status 
for County X during calendar year 2014, the creditor will use the 2013 
UIC designations. However, to determine ``rural'' status for County X 
during 2012 or 2013, the creditor would use the UIC designations last 
published in 2003.
    ii. A county is considered ``underserved'' for a given calendar year 
based on the most recent available HMDA data. For example, assume a 
creditor makes first-lien covered transactions in County Y during 
calendar year 2013, and the most recent HMDA data is for calendar year 
2012, published in the third quarter of 2013. To determine 
``underserved'' status for County Y in calendar year 2013 for the 
purposes of qualifying for the ``rural or underserved'' exemption in 
calendar year 2014, the creditor will use the 2012 HMDA data.
    Paragraph 35(b)(2)(v).
    1. Forward commitments. A creditor may make a mortgage loan that 
will be transferred or sold to a purchaser pursuant to an agreement that 
has been entered into at or before the time the loan is consummated. 
Such an agreement is sometimes known as a ``forward commitment.'' Even 
if a creditor is otherwise eligible for the exemption in Sec. 
1026.35(b)(2)(iii), a first-lien higher-priced mortgage loan that will 
be acquired by a purchaser pursuant to a forward commitment is subject 
to the requirement to establish an escrow account under Sec. 
1026.35(b)(1) unless the purchaser is also eligible for the exemption in 
Sec. 1026.35(b)(2)(iii) or the transaction is otherwise exempt under 
Sec. 1026.35(b)(2). The escrow requirement applies to any such 
transaction, whether the forward commitment provides for the purchase 
and sale of the specific transaction or for the purchase and sale of 
mortgage obligations with certain prescribed criteria that the 
transaction meets. For example, assume a creditor that qualifies for the 
exemption in Sec. 1026.35(b)(2)(iii) makes a higher-priced mortgage 
loan that meets the purchase criteria of an investor with which the 
creditor has an agreement to sell such mortgage obligations after 
consummation. If the investor is ineligible for the exemption in Sec. 
1026.35(b)(2)(iii), an escrow account must be established for the 
transaction before consummation in accordance with Sec. 1026.35(b)(1) 
unless the transaction is otherwise exempt (such as a reverse mortgage 
or home equity line of credit).
    35(b)(3) Cancellation.
    1. Termination of underlying debt obligation. Section 
1026.35(b)(3)(i) provides that, in general, an escrow account required 
by Sec. 1026.35(b)(1) may not be cancelled until the underlying debt 
obligation is terminated or the consumer requests cancellation at least 
five years after consummation. Methods by which an underlying debt 
obligation may be terminated include, among other things, repayment, 
refinancing, rescission, and foreclosure.
    2. Minimum durations. Section 1026.35(b)(3) establishes minimum 
durations for which escrow accounts established pursuant to Sec. 
1026.35(b)(1) must be maintained. This requirement does not affect a 
creditor's right or obligation, pursuant to the terms of the legal 
obligation or applicable law, to offer or require an escrow account 
thereafter.

[[Page 648]]

    3. Less than eighty percent unpaid principal balance. The term 
``original value'' in Sec. 1026.35(b)(3)(ii)(A) means the lesser of the 
sales price reflected in the sales contract for the property, if any, or 
the appraised value of the property at the time the transaction was 
consummated. In determining whether the unpaid principal balance has 
reached less than 80 percent of the original value of the property 
securing the underlying debt, the creditor or servicer shall count any 
subordinate lien of which it has reason to know. If the consumer 
certifies in writing that the equity in the property securing the 
underlying debt obligation is unencumbered by a subordinate lien, the 
creditor or servicer may rely upon the certification in making its 
determination unless it has actual knowledge to the contrary.

                            35(c)--Appraisals

                          35(c)(1) Definitions

               35(c)(1)(i) Certified or Licensed Appraiser

    1. USPAP. The Uniform Standards of Professional Appraisal Practice 
(USPAP) are established by the Appraisal Standards Board of the 
Appraisal Foundation (as defined in 12 U.S.C. 3350(9)). Under Sec. 
1026.35(c)(1)(i), the relevant USPAP standards are those found in the 
edition of USPAP and that are in effect at the time the appraiser signs 
the appraiser's certification.
    2. Appraiser's certification. The appraiser's certification refers 
to the certification that must be signed by the appraiser for each 
appraisal assignment. This requirement is specified in USPAP Standards 
Rule 2-3.
    3. FIRREA title XI and implementing regulations. The relevant 
regulations are those prescribed under section 1110 of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), as 
amended (12 U.S.C. 3339), that relate to an appraiser's development and 
reporting of the appraisal in effect at the time the appraiser signs the 
appraiser's certification. Paragraph (3) of FIRREA section 1110 (12 
U.S.C. 3339(3)), which relates to the review of appraisals, is not 
relevant for determining whether an appraiser is a certified or licensed 
appraiser under Sec. 1026.35(c)(1)(i).

                           35(c)(2) Exemptions

                         Paragraph 35(c)(2)(ii)

    1. Secured by new manufactured home. A transaction secured by a new 
manufactured home, regardless of whether the transaction is also secured 
by the land on which it is sited, is not a ``higher-priced mortgage 
loan'' subject to the appraisal requirements of Sec. 1026.35(c).

                         Paragraph 35(c)(2)(iii)

    1. Secured by a mobile home. For purposes of the exemption in Sec. 
1026.35(c)(2)(iii), a mobile home does not include a manufactured home, 
as defined in Sec. 1026.35(c)(1)(ii).

                         Paragraph 35(c)(2)(iv)

    1. Construction-to-permanent loans. Section 1026.35(c) does not 
apply to a transaction to finance the initial construction of a 
dwelling. This exclusion applies to a construction-only loan as well as 
to the construction phase of a construction-to-permanent loan. Section 
1026.35(c) does apply, however, to permanent financing that replaces a 
construction loan, whether the permanent financing is extended by the 
same or a different creditor, unless the permanent financing is 
otherwise exempt from the requirements of Sec. 1026.35(c). See Sec. 
1026.35(c)(2). When a construction loan may be permanently financed by 
the same creditor, the general disclosure requirements for closed-end 
credit (Sec. 1026.17) provide that the creditor may give either one 
combined disclosure for both the construction financing and the 
permanent financing, or a separate set of disclosures for each of the 
two phases as though they were two separate transactions. See Sec. 
1026.17(c)(6)(ii) and comment 17(c)(6)-2. Section 1026.17(c)(6)(ii) 
addresses only how a creditor may elect to disclose a construction-to-
permanent transaction. Which disclosure option a creditor elects under 
Sec. 1026.17(c)(6)(ii) does not affect the determination of whether the 
permanent phase of the transaction is subject to Sec. 1026.35(c). When 
the creditor discloses the two phases as separate transactions, the 
annual percentage rate for the permanent phase must be compared to the 
average prime offer rate for a transaction that is comparable to the 
permanent financing to determine coverage under Sec. 1026.35(c). When 
the creditor discloses the two phases as a single transaction, a single 
annual percentage rate, reflecting the appropriate charges from both 
phases, must be calculated for the transaction in accordance with Sec. 
1026.35 and appendix D to part 1026. The annual percentage rate must be 
compared to the average prime offer rate for a transaction that is 
comparable to the permanent financing to determine coverage under Sec. 
1026.35(c). If the transaction is determined to be a higher-priced 
mortgage loan not otherwise exempt under Sec. 1026.35(c)(2), only the 
permanent phase is subject to the requirements of Sec. 1026.35(c).

                      35(c)(3) Appraisals Required

                         35(c)(3)(i) In General

    1. Written appraisal--electronic transmission. To satisfy the 
requirement that the appraisal be ``written,'' a creditor may obtain

[[Page 649]]

the appraisal in paper form or via electronic transmission.
    35(c)(3)(ii) Safe Harbor.
    1. Safe harbor. A creditor that satisfies the safe harbor conditions 
in Sec. 1026.35(c)(3)(ii)(A) through (D) complies with the appraisal 
requirements of Sec. 1026.35(c)(3)(i). A creditor that does not satisfy 
the safe harbor conditions in Sec. 1026.35(c)(3)(ii)(A) through (D) 
does not necessarily violate the appraisal requirements of Sec. 
1026.35(c)(3)(i).
    2. Appraiser's certification. For purposes of Sec. 
1026.35(c)(3)(ii), the appraiser's certification refers to the 
certification specified in item 9 of appendix N. See also comment 
35(c)(1)(i)-2.

                        Paragraph 35(c)(3)(ii)(C)

    1. Confirming elements in the appraisal. To confirm that the 
elements in appendix N to this part are included in the written 
appraisal, a creditor need not look beyond the face of the written 
appraisal and the appraiser's certification.

 35(c)(4) Additional Appraisal for Certain Higher-Priced Mortgage Loans

    1. Acquisition. For purposes of Sec. 1026.35(c)(4), the terms 
``acquisition'' and ``acquire'' refer to the acquisition of legal title 
to the property pursuant to applicable State law, including by purchase.

                         35(c)(4)(i) In General

    1. Appraisal from a previous transaction. An appraisal that was 
previously obtained in connection with the seller's acquisition or the 
financing of the seller's acquisition of the property does not satisfy 
the requirements to obtain two written appraisals under Sec. 
1026.35(c)(4)(i).
    2. 90-day, 180-day calculation. The time periods described in Sec. 
1026.35(c)(4)(i)(A) and (B) are calculated by counting the day after the 
date on which the seller acquired the property, up to and including the 
date of the consumer's agreement to acquire the property that secures 
the transaction. For example, assume that the creditor determines that 
date of the consumer's acquisition agreement is October 15, 2012, and 
that the seller acquired the property on April 17, 2012. The first day 
to be counted in the 180-day calculation would be April 18, 2012, and 
the last day would be October 15, 2012. In this case, the number of days 
from April 17 would be 181, so an additional appraisal is not required.
    3. Date seller acquired the property. For purposes of Sec. 
1026.35(c)(4)(i)(A) and (B), the date on which the seller acquired the 
property is the date on which the seller became the legal owner of the 
property pursuant to applicable State law.
    4. Date of the consumer's agreement to acquire the property. For the 
date of the consumer's agreement to acquire the property under Sec. 
1026.35(c)(4)(i)(A) and (B), the creditor should use the date on which 
the consumer and the seller signed the agreement provided to the 
creditor by the consumer. The date on which the consumer and the seller 
signed the agreement might not be the date on which the consumer became 
contractually obligated under State law to acquire the property. For 
purposes of Sec. 1026.35(c)(4)(i)(A) and (B), a creditor is not 
obligated to determine whether and to what extent the agreement is 
legally binding on both parties. If the dates on which the consumer and 
the seller signed the agreement differ, the creditor should use the 
later of the two dates.
    5. Price at which the seller acquired the property. The price at 
which the seller acquired the property refers to the amount paid by the 
seller to acquire the property. The price at which the seller acquired 
the property does not include the cost of financing the property.
    6. Price the consumer is obligated to pay to acquire the property. 
The price the consumer is obligated to pay to acquire the property is 
the price indicated on the consumer's agreement with the seller to 
acquire the property. The price the consumer is obligated to pay to 
acquire the property from the seller does not include the cost of 
financing the property. For purposes of Sec. 1026.35(c)(4)(i)(A) and 
(B), a creditor is not obligated to determine whether and to what extent 
the agreement is legally binding on both parties. See also comment 
35(c)(4)(i)-4.

         35(c)(4)(ii) Different Certified or Licensed Appraisers

    1. Independent appraisers. The requirements that a creditor obtain 
two separate appraisals under Sec. 1026.35(c)(4)(i), and that each 
appraisal be conducted by a different licensed or certified appraiser 
under Sec. 1026.35(c)(4)(ii), indicate that the two appraisals must be 
conducted independently of each other. If the two certified or licensed 
appraisers are affiliated, such as by being employed by the same 
appraisal firm, then whether they have conducted the appraisal 
independently of each other must be determined based on the facts and 
circumstances of the particular case known to the creditor.

      35(c)(4)(iii) Relationship to General Appraisal Requirements

    1. Safe harbor. When a creditor is required to obtain an additional 
appraisal under Sec. 1026(c)(4)(i), the creditor must comply with the 
requirements of both Sec. 1026.35(c)(3)(i) and Sec. 1026.35(c)(4)(ii) 
through (v) for that appraisal. The creditor complies with the 
requirements of Sec. 1026.35(c)(3)(i) for the additional appraisal if 
the creditor meets the safe harbor conditions in Sec. 1026.35(c)(3)(ii) 
for that appraisal.

[[Page 650]]

       35(c)(4)(iv) Required Analysis in the Additional Appraisal

    1. Determining acquisition dates and prices used in the analysis of 
the additional appraisal. For guidance on identifying the date on which 
the seller acquired the property, see comment 35(c)(4)(i)-3. For 
guidance on identifying the date of the consumer's agreement to acquire 
the property, see comment 35(c)(4)(i)-4. For guidance on identifying the 
price at which the seller acquired the property, see comment 
35(c)(4)(i)-5. For guidance on identifying the price the consumer is 
obligated to pay to acquire the property, see comment 35(c)(4)(i)-6.

             35(c)(4)(v) No Charge for Additional Appraisal

    1. Fees and mark-ups. The creditor is prohibited from charging the 
consumer for the performance of one of the two appraisals required under 
Sec. 1026.35(c)(4)(i), including by imposing a fee specifically for 
that appraisal or by marking up the interest rate or any other fees 
payable by the consumer in connection with the higher-priced mortgage 
loan.

   35(c)(4)(vi) Creditor's Determination of Prior Sale Date and Price

                       35(c)(4)(vi)(A) In General

    1. Estimated sales price. If a written source document describes the 
seller's acquisition price in a manner that indicates that the price 
described is an estimated or assumed amount and not the actual price, 
the creditor should look at an alternative document to satisfy the 
reasonable diligence standard in determining the price at which the 
seller acquired the property.
    2. Reasonable diligence--oral statements insufficient. Reliance on 
oral statements of interested parties, such as the consumer, seller, or 
mortgage broker, does not constitute reasonable diligence under Sec. 
1026.35(c)(4)(vi)(A).
    3. Lack of information and conflicting information--two appraisals 
required. If a creditor is unable to demonstrate that the requirement to 
obtain two appraisals under Sec. 1026.35(c)(4)(i) does not apply, the 
creditor must obtain two written appraisals before extending a higher-
priced mortgage loan subject to the requirements of Sec. 1026.35(c). 
See also comment 35(c)(4)(vi)(B)-1. For example:
    i. Assume a creditor orders and reviews the results of a title 
search, which shows that a prior sale occurred between 91 and 180 days 
ago, but not the price paid in that sale. Thus, based on the title 
search, the creditor would not be able to determine whether the price 
the consumer is obligated to pay under the consumer's acquisition 
agreement is more than 20 percent higher than the seller's acquisition 
price, pursuant to Sec. 1026.35(c)(4)(i)(B). Before extending a higher-
priced mortgage loan subject to the appraisal requirements of Sec. 
1026.35(c), the creditor must either: (1) Perform additional diligence 
to ascertain the seller's acquisition price and, based on this 
information, determine whether two written appraisals are required; or 
(2) obtain two written appraisals in compliance with Sec. 
1026.35(c)(4). See also comment 35(c)(4)(vi)(B)-1.
    ii. Assume a creditor reviews the results of a title search 
indicating that the last recorded purchase was more than 180 days before 
the consumer's agreement to acquire the property. Assume also that the 
creditor subsequently receives a written appraisal indicating that the 
seller acquired the property between 91 and 180 days before the 
consumer's agreement to acquire the property. In this case, unless one 
of these sources is clearly wrong on its face, the creditor would not be 
able to determine whether the seller acquired the property within 180 
days of the date of the consumer's agreement to acquire the property 
from the seller, pursuant to Sec. 1026.35(c)(4)(i)(B). Before extending 
a higher-priced mortgage loan subject to the appraisal requirements of 
Sec. 1026.35(c), the creditor must either: perform additional diligence 
to ascertain the seller's acquisition date and, based on this 
information, determine whether two written appraisals are required; or 
obtain two written appraisals in compliance with Sec. 1026.35(c)(4). 
See also comment 35(c)(4)(vi)(B)-1.

   35(c)(4)(vi)(B) Inability To Determine Prior Sales Date or Price--
             Modified Requirements for Additional Appraisal

    1. Required analysis. In general, the additional appraisal required 
under Sec. 1026.35(c)(4)(i) should include an analysis of the factors 
listed in Sec. 1026.35(c)(4)(iv)(A) through (C). However, if, following 
reasonable diligence, a creditor cannot determine whether the conditions 
in Sec. 1026.35(c)(4)(i)(A) or (B) are present due to a lack of 
information or conflicting information, the required additional 
appraisal must include the analyses required under Sec. 
1026.35(c)(4)(iv)(A) through (C) only to the extent that the information 
necessary to perform the analyses is known. For example, assume that a 
creditor is able, following reasonable diligence, to determine that the 
date on which the seller acquired the property occurred between 91 and 
180 days prior to the date of the consumer's agreement to acquire the 
property. However, the creditor is unable, following reasonable 
diligence, to determine the price at which the seller acquired the 
property. In this case, the creditor is required to obtain an additional 
written appraisal that includes an analysis under Sec. 
1026.35(c)(4)(iv)(B) and (c)(4)(iv)(C) of the changes in market 
conditions and any improvements made to the

[[Page 651]]

property between the date the seller acquired the property and the date 
of the consumer's agreement to acquire the property. However, the 
creditor is not required to obtain an additional written appraisal that 
includes analysis under Sec. 1026.35(c)(4)(iv)(A) of the difference 
between the price at which the seller acquired the property and the 
price that the consumer is obligated to pay to acquire the property.

   35(c)(4)(vii) Exemptions From the Additional Appraisal Requirement

                       Paragraph 35(c)(4)(vii)(C)

    1. Non-profit entity. For purposes of Sec. 1026.35(c)(4)(vii)(C), a 
``non-profit entity'' is a person with a tax exemption ruling or 
determination letter from the Internal Revenue Service under section 
501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)).

                       Paragraph 35(c)(4)(vii)(H)

    1. Bureau table of rural counties. The Bureau publishes on its Web 
site a table of rural counties under Sec. 1026.35(c)(4)(vii)(H) for 
each calendar year by the end of that calendar year. See comment 
35(b)(2)(iv)-1. A property securing an HPML subject to Sec. 1026.35(c) 
is in a rural county under Sec. 1026.35(c)(4)(vii)(H) if the county in 
which the property is located is on the table of rural counties most 
recently published by the Bureau. For example, for a transaction 
occurring in 2015, assume that the Bureau most recently published a 
table of rural counties at the end of 2014. The property securing the 
transaction would be located in a rural county for purposes of Sec. 
1026.35(c)(4)(vii)(H) if the county is on the table of rural counties 
published by the Bureau at the end of 2014.

                      35(c)(5) Required Disclosure

                         35(c)(5)(i) In General

    1. Multiple applicants. When two or more consumers apply for a loan 
subject to this section, the creditor is required to give the disclosure 
to only one of the consumers.
    2. Appraisal independence requirements not affected. Nothing in the 
text of the consumer notice required by Sec. 1026.35(c)(5)(i) should be 
construed to affect, modify, limit, or supersede the operation of any 
legal, regulatory, or other requirements or standards relating to 
independence in the conduct of appraisers or restrictions on the use of 
borrower-ordered appraisals by creditors.

                       35(c)(6) Copy of Appraisals

                         35(c)(6)(i) In General

    1. Multiple applicants. When two or more consumers apply for a loan 
subject to this section, the creditor is required to give the copy of 
each required appraisal to only one of the consumers.

                           35(c)(6)(ii) Timing

    1. ``Provide.'' For purposes of the requirement to provide a copy of 
the appraisal within a specified time under Sec. 1026.35(c)(6)(ii), 
``provide'' means ``deliver.'' Delivery occurs three business days after 
mailing or delivering the copies to the last-known address of the 
applicant, or when evidence indicates actual receipt by the applicant 
(which, in the case of electronic receipt, must be based upon consent 
that complies with the E-Sign Act), whichever is earlier.
    2. ``Receipt'' of the appraisal. For appraisals prepared by the 
creditor's internal appraisal staff, the date of ``receipt'' is the date 
on which the appraisal is completed.
    3. No waiver. Regulation B, 12 CFR 1002.14(a)(1), allowing the 
consumer to waive the requirement that the appraisal copy be provided 
three business days before consummation, does not apply to higher-priced 
mortgage loans subject to Sec. 1026.35(c). A consumer of a higher-
priced mortgage loan subject to Sec. 1026.35(c) may not waive the 
timing requirement to receive a copy of the appraisal under Sec. 
1026.35(c)(6)(i).

              35(c)(6)(iv) No Charge for Copy Of Appraisal

    1. Fees and mark-ups. The creditor is prohibited from charging the 
consumer for any copy of an appraisal required to be provided under 
Sec. 1026.35(c)(6)(i), including by imposing a fee specifically for a 
required copy of an appraisal or by marking up the interest rate or any 
other fees payable by the consumer in connection with the higher-priced 
mortgage loan.

              35(e) Rules for Higher-Priced Mortgage Loans

                        Paragraph 35(e)(2)(ii)(C)

    1. Payment change. Section 1026.35(e)(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(e)(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(e)(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.

[[Page 652]]

    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(e)(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(e)(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 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.

Section 1026.36--Prohibited Acts or Practices in Connection With Credit 
                          Secured by a Dwelling

    36(a) Definitions.
    1. Meaning of loan originator. i. General. A. Section 1026.36(a) 
defines the set of activities or services any one of which, if done for 
or in the expectation of compensation or gain, makes the person doing 
such activities or performing such services a loan originator, unless 
otherwise excluded. The scope of activities covered by the term loan 
originator includes:
    1. Referring a consumer to any person who participates in the 
origination process as a loan originator. Referring is an activity 
included under each of the activities of offering, arranging, or 
assisting a consumer in obtaining or applying to obtain an extension of 
credit. Referring includes any oral or written action directed to a 
consumer that can affirmatively influence the consumer to select a 
particular loan originator or creditor to obtain an extension of credit 
when the consumer will pay for such credit. See comment 36(a)-4 with 
respect to certain activities that do not constitute referring.
    2. Arranging a credit transaction, including initially contacting 
and orienting the consumer to a particular loan originator's or 
creditor's origination process or particular credit terms that are or 
may be available to that consumer selected based on the consumer's 
financial characteristics, assisting the consumer to apply for credit, 
taking an application, offering particular credit terms to the consumer 
selected based on the consumer's financial characteristics, negotiating 
credit terms, or otherwise obtaining or making an extension of credit.
    3. Assisting a consumer in obtaining or applying for consumer credit 
by advising on particular credit terms that are or may be available to 
that consumer based on the consumer's financial characteristics, filling 
out an application form, preparing application packages (such as a 
credit application or pre-approval application or supporting 
documentation), or collecting application and supporting information on 
behalf of the consumer to submit to a loan originator or creditor. A 
person who, acting on behalf of a loan originator or creditor, collects 
information or verifies information provided by the consumer, such as by 
asking the consumer for documentation to support the information the 
consumer provided or for the consumer's authorization to obtain 
supporting documents from third parties, is not collecting information 
on behalf of the consumer. See also comment 36(a)z4.i through iv with 
respect to application-related administrative and clerical tasks and 
comment 36(a)-1.v with respect to third-party advisors.
    4. Presenting particular credit terms for the consumer's 
consideration that are selected based on the consumer's financial 
characteristics, or communicating with a consumer for the purpose of 
reaching a mutual understanding about prospective credit terms.
    5. Advertising or communicating to the public that one can or will 
perform any loan origination services. Advertising the services of a 
third party that engages or intends to engage in loan origination 
activities does not make the advertiser a loan originator.
    B. The term ``loan originator'' includes employees, agents, and 
contractors of a creditor as well as employees, agents, and contractors 
of a mortgage broker that satisfy this definition.
    C. The term ``loan originator'' includes any creditor that satisfies 
the definition of loan originator but makes use of ``table funding'' by 
a third party. See comment 36(a)-1.ii discussing table funding. Solely 
for purposes of Sec. 1026.36(f) and (g) concerning loan originator

[[Page 653]]

qualifications, the term loan originator includes any creditor that 
satisfies the definition of loan originator, even if the creditor does 
not make use of table funding. Such a person is a creditor, not a loan 
originator, for general purposes of this part, including the provisions 
of Sec. 1026.36 other than Sec. 1026.36(f) and (g).
    D. A ``loan originator organization'' is a loan originator other 
than a natural person. The term includes any legal person or 
organization such as a sole proprietorship, trust, partnership, limited 
liability partnership, limited partnership, limited liability company, 
corporation, bank, thrift, finance company, or credit union. An 
``individual loan originator'' is limited to a natural person. (Under 
Sec. 1026.2(a)(22), the term ``person'' means a natural person or an 
organization.)
    E. The term ``loan originator'' does not include consumers who 
obtain extensions of consumer credit on their own behalf.
    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, for example, by 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. For example, if a person closes a 
transaction in its own name but does not fund the transaction from its 
own resources and assigns the transaction after consummation to the 
person providing the funds, 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 in its own name and finances a consumer 
credit transaction from the person's own resources, including drawing on 
a bona fide warehouse line of credit or out of deposits held by the 
person, and does not assign the loan at closing, the person is a 
creditor not making use of table funding but is included in the 
definition of loan originator for the purposes of Sec. 1026.36(f) and 
(g) concerning loan originator qualifications.
    iii. Servicing. A loan servicer or a loan servicer's employees, 
agents, or contractors that otherwise meet the definition of ``loan 
originator'' are excluded from the definition when modifying or offering 
to modify an existing loan on behalf of the current owner or holder of 
the loan (including an assignee or the servicer, if applicable). Other 
than Sec. 1026.36(c), Sec. 1026.36 applies to extensions of consumer 
credit. Thus, other than Sec. 1026.36(c), Sec. 1026.36 does not apply 
if a person renegotiates, modifies, replaces, or subordinates an 
existing obligation or its terms, unless the transaction constitutes a 
refinancing under Sec. 1026.20(a) or obligates a different consumer on 
the existing debt.
    iv. Real estate brokerage. The definition of ``loan originator'' 
does not include a person that performs only real estate brokerage 
activities (e.g., does not perform mortgage broker or consumer credit 
referral activities or extend consumer credit) if the person is licensed 
or registered under applicable State law governing real estate 
brokerage, unless such person is paid by a loan originator or a creditor 
for a particular consumer credit transaction subject to Sec. 1026.36. 
Such a person is not paid by a loan originator or a creditor if the 
person is paid by a loan originator or creditor on behalf of a buyer or 
seller solely for performing real estate brokerage activities. Such a 
person is not paid for a particular consumer credit transaction subject 
to Sec. 1026.36 if the person is paid compensation by a loan originator 
or creditor, or affiliate of the loan originator or creditor, solely for 
performing real estate brokerage activities in connection with a 
property owned by that loan originator or creditor.
    v. Third-party advisors. The definition of ``loan originator'' does 
not include bona fide third-party advisors such as accountants, 
attorneys, registered financial advisors, housing counselors, or others 
who do not receive compensation for engaging in loan origination 
activities. Advisory activity not constituting loan originator activity 
would include, for example, licensed accountants advising clients on tax 
implications of credit terms, registered financial advisors advising 
clients on potential effects of credit terms on client finances, HUD-
approved housing counselors assisting consumers with understanding the 
credit origination process and various credit terms or collecting and 
organizing documents to support a credit application, or a licensed 
attorney assisting clients with consummating a real property transaction 
or with divorce, trust, or estate planning matters. Such a person, 
however, who advises a consumer on credit terms offered by either the 
person or the person's employer, or who receives compensation or other 
monetary gain, directly or indirectly, from the loan originator or 
creditor on whose credit offer the person advises a consumer, generally 
would be a loan originator. A referral by such a person does not make 
the person a loan originator, however, where the person neither receives 
nor expects any compensation from a loan originator or creditor for 
referring the consumer. HUD-approved housing counselors who simply 
assist a consumer in obtaining or applying to obtain consumer credit 
from a loan originator

[[Page 654]]

or creditor are not loan originators if the compensation is not 
contingent on referrals or on engaging in additional loan origination 
activities and either of two alternative conditions is satisfied: The 
first alternative condition is that the compensation is expressly 
permitted by applicable local, State, or Federal law that requires 
counseling and the counseling performed complies with such law (for 
example, Sec. 1026.34(a)(5) and Sec. 1026.36(k)). The second 
alternative condition is that the compensation is a fixed sum received 
from a creditor, loan originator, or the affiliate of a loan originator 
or a creditor as a result of agreements between creditors or loan 
originators and local, State, or Federal agencies. However, HUD-approved 
housing counselors are loan originators if, for example, they receive 
compensation that is contingent on referrals or on engaging in loan 
originator activity other than assisting a consumer in obtaining or 
applying to obtain consumer credit from a loan originator or creditor.
    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, administrative and clerical staff. For purposes of 
Sec. 1026.36, managers, administrative and clerical staff, and similar 
individuals who are employed by (or contractor or agent of) a creditor 
or loan originator organization and take an application, offer, arrange, 
assist a consumer in obtaining or applying to obtain, negotiate, or 
otherwise obtain or make a particular extension of credit for another 
person are loan originators. The following examples describe activities 
that, in the absence of any other activities, do not render a manager, 
administrative or clerical staff member, or similar employee a loan 
originator:
    i. Application-related administrative and clerical tasks. The 
definition of loan originator does not include a loan originator's or 
creditor's employee who provides a credit application form from the 
entity for which the person works to the consumer for the consumer to 
complete or, without assisting the consumer in completing the credit 
application, processing or analyzing the information, or discussing 
particular credit terms that are or may be available from a creditor or 
loan originator to that consumer selected based on the consumer's 
financial characteristics, delivers the credit application from a 
consumer to a loan originator or creditor. A person does not assist the 
consumer in completing the application if the person explains to the 
consumer filling out the application the contents of the application or 
where particular consumer information is to be provided, or generally 
describes the credit application process to a consumer without 
discussing particular credit terms that are or may be available from a 
creditor or loan originator to that consumer selected based on the 
consumer's financial characteristics.
    ii. Responding to consumer inquiries and providing general 
information. The definition of loan originator does not include persons 
who:
    A. Provide general explanations, information, or descriptions in 
response to consumer queries, such as explaining credit terminology or 
lending policies or who confirm written offer terms already transmitted 
to the consumer;
    B. As employees of a creditor or loan originator, provide loan 
originator or creditor contact information of the loan originator or 
creditor entity for which he or she works, or of a person who works for 
that the same entity to a consumer, provided that the person does not 
discuss particular credit terms that are or may be available from a 
creditor or loan originator to that consumer selected based on the 
consumer's financial characteristics and does not direct the consumer, 
based on his or her assessment of the consumer's financial 
characteristics, to a particular loan originator or particular creditor 
seeking to originate credit transactions to consumers with those 
financial characteristics;
    C. Describe other product-related services (for example, persons who 
describe optional monthly payment methods via telephone or via automatic 
account withdrawals, the availability and features of online account 
access, the availability of 24-hour customer support, or free mobile 
applications to access account information); or
    D. Explain or describe the steps that a consumer would need to take 
to obtain an offer of credit, including providing general guidance on 
qualifications or criteria that would need to be met that is not 
specific to that consumer's circumstances.

[[Page 655]]

    iii. Loan processing. The definition of loan originator does not 
include persons who, acting on behalf of a loan originator or a 
creditor:
    A. Compile and assemble credit application packages and supporting 
documentation;
    B. Verify information provided by the consumer in a credit 
application such as by asking the consumer for supporting documentation 
or the consumer's authorization for the person to obtain supporting 
documentation from other persons;
    C. Coordinate consummation of the credit transaction or other 
aspects of the credit transaction process, including by communicating 
with a consumer about process deadlines and documents needed at 
consummation, provided that any communication that includes a discussion 
about credit terms available from a creditor to that consumer selected 
based on the consumer's financial characteristics only confirms credit 
terms already agreed to by the consumer;
    D. Provide a consumer with information unrelated to credit terms, 
such as the best days of the month for scheduling consummation; or
    E. Communicate on behalf of a loan originator that a written credit 
offer has been sent to a consumer without providing any details of that 
offer.
    iv. Underwriting, credit approval, and credit pricing. The 
definition of loan originator does not include persons who:
    A. Receive and evaluate a consumer's information to make 
underwriting decisions on whether a consumer qualifies for an extension 
of credit and communicate decisions to a loan originator or creditor, 
provided that only a loan originator communicates such underwriting 
decisions to the consumer;
    B. Approve particular credit terms or set particular credit terms 
available from a creditor to that consumer selected based on the 
consumer's financial characteristics in offer or counter-offer 
situations, provided that only a loan originator communicates to or with 
the consumer regarding these credit terms, an offer, or provides or 
engages in negotiation, a counter-offer, or approval conditions; or
    C. Establish credit pricing that the creditor offers generally to 
the public, via advertisements or other marketing or via other persons 
that are loan originators.
    v. Producing managers. Managers that work for creditors or loan 
originator organizations sometimes engage themselves in loan origination 
activities, as set forth in the definition of loan originator in Sec. 
1026.36(a)(1)(i) (such managers are sometimes referred to as ``producing 
managers''). The definition of loan originator includes persons, 
including managers, who are employed by a creditor or loan originator 
organization and take an application, offer, arrange, assist a consumer 
with obtaining or applying to obtain, negotiate, or otherwise obtain or 
make a particular extension of credit for another person, even if such 
persons are also employed by the creditor or loan originator 
organization to perform duties that are not loan origination activities. 
Thus, such producing managers are loan originators.
    5. Compensation. i. General. For purposes of Sec. 1026.36, 
compensation is defined in Sec. 1026.36(a)(3) as salaries, commissions, 
and any financial or similar incentive. 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 compensation for purposes of Sec. 1026.36, 
including 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.
    iii. Amounts for third-party charges. Compensation does not include 
amounts the loan originator receives as payment for bona fide and 
reasonable charges, such as credit reports, where those amounts are 
passed on to a third party that is not the creditor, its affiliate, or 
the affiliate of the loan originator. See comment 36(a)-5.v.
    iv. Amounts for charges for services that are not loan origination 
activities. A. Compensation does not include:
    1. A payment received by a loan originator organization for bona 
fide and reasonable charges for services it performs that are not loan 
origination activities;
    2. A payment received by an affiliate of a loan originator 
organization for bona fide and reasonable charges for services it 
performs that are not loan origination activities; or
    3. A payment received by a loan originator organization for bona 
fide and reasonable charges for services that are not loan origination 
activities where those amounts are not retained by the loan originator 
but are paid to the creditor, its affiliate, or the affiliate of the 
loan originator organization. See comment 36(a)-5.v.
    B. Compensation includes any salaries, commissions, and any 
financial or similar incentive to an individual loan originator, 
regardless of whether it is labeled as payment for services that are not 
loan origination activities.
    C. Loan origination activities for purposes of this comment means 
activities described in Sec. 1026.36(a)(1)(i) (e.g., taking an 
application, offering, arranging, negotiating, or otherwise obtaining an 
extension of consumer credit for another person) that would make a

[[Page 656]]

person performing those activities for compensation a loan originator as 
defined in Sec. 1026.36(a)(1)(i).
    v. Amounts that exceed the actual charge for a service. In some 
cases, amounts received by the loan originator organization for payment 
for third-party charges described in comment 36(a)-5.iii or payment for 
services to the creditor, its affiliates, or the affiliates of the loan 
originator organization described in comment 36(a)-5.iv.A.3 may exceed 
the actual charge because, for example, the loan originator organization 
cannot determine with accuracy what the actual charge will be when it is 
imposed and instead uses average charge pricing (in accordance with the 
Real Estate Settlement Procedures Act). In such a case, the difference 
retained by the loan originator organization is not compensation if the 
charge imposed on the consumer or collected from a person other than the 
consumer was bona fide and reasonable and also complies with State and 
other applicable law. On the other hand, if the loan originator 
organization marks up the 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, including Sec. 1026.36(d) and (e). For example:
    A. Assume a loan originator organization receives compensation 
directly from either a consumer or a creditor. Further assume the loan 
originator organization uses average charge pricing in accordance with 
the Real Estate Settlement Procedures Act and, based on its past average 
cost for credit reports, charges the consumer $25 for a credit report 
provided by a third party. Under the loan originator organization's 
agreement with the consumer reporting agency, the cost of the credit 
report is to be paid in a month-end bill and will vary between $15 and 
$35 depending on how many credit reports the originator obtains that 
month. Assume the $25 for the credit report is paid by the consumer or 
is paid by the creditor with proceeds from a rebate. At the end of the 
month, the cost for the credit report is determined to be $15 for this 
consumer's transaction, based on the loan originator organization's 
credit report volume that month. In this case, the $10 difference 
between the $25 credit report fee imposed on the consumer and the actual 
$15 cost for the credit report is not compensation for purposes of Sec. 
1026.36, even though the $10 is retained by the loan originator 
organization.
    B. Using the same example as in comment 36(a)-5.v.A, the $10 
difference would be compensation for purposes of Sec. 1026.36 if the 
price for a credit report varies between $10 and $15.
    vi. Returns on equity interests and dividends on equity holdings. 
The term ``compensation'' for purposes of Sec. 1026.36(d) and (e) also 
includes, for example, awards of stock, stock options and equity 
interests. Thus, the awarding of stock, stock options, or equity 
interests to loan originators is subject to the restrictions in Sec. 
1026.36(d) and (e). For example, a person may not award additional stock 
or a preferable type of equity interest to a loan originator based on 
the terms of a consumer credit transaction subject to Sec. 1026.36 
originated by that loan originator. However, bona fide returns or 
dividends paid on stock or other equity holdings, including those paid 
to owners or shareholders of a loan originator organization who own such 
stock or equity interests, are not compensation for purposes of Sec. 
1026.36(d) and (e). Bona fide returns or dividends are those returns and 
dividends that are paid pursuant to documented ownership or equity 
interests and that are not functionally equivalent to compensation. 
Ownership and equity interests must be bona fide. Bona fide ownership 
and equity interests are allocated according to a loan originator's 
respective capital contribution where the allocation is not a mere 
subterfuge for the payment of compensation based on terms of a 
transaction. Ownership and equity interests also are not bona fide if 
the formation or maintenance of the business from which returns or 
dividends are paid is a mere subterfuge for the payment of compensation 
based on the terms of a transaction. For example, assume that three 
individual loan originators form a loan originator organization that is 
a limited liability company (LLC). The three individual loan originators 
are members of the LLC, and the LLC agreement governing the loan 
originator organization's structure calls for regular distributions 
based on the members' respective equity interests. If the members' 
respective equity interests are allocated based on the members' terms of 
transactions, rather than according to their respective capital 
contributions, then distributions based on such equity interests are not 
bona fide and, thus, are compensation for purposes of Sec. 1026.36(d) 
and (e).
    36(a)(1)(i)(B) Employee of a retailer of manufactured homes.
    1. The definition of loan originator does not include an employee of 
a manufactured home retailer that ``assists'' a consumer in obtaining or 
applying for consumer credit as defined in comment 36(a)-1.i.A.3, 
provided the employee does not advise the consumer on specific credit 
terms, or otherwise engage in loan originator activity as defined in 
Sec. 1026.36(a)(1). The following examples describe activities that, in 
the absence of other activities, do not define a manufactured home 
retailer employee as a loan originator:
    i. Generally describing the credit application process to a consumer 
without advising on credit terms available from a creditor.

[[Page 657]]

    ii. Preparing residential mortgage loan packages, which means 
compiling and processing loan application materials and supporting 
documentation, and providing general application instructions to 
consumers so consumers can complete an application, without interacting 
or communicating with the consumer regarding transaction terms, but not 
filling out a consumer's application, inputting the information into an 
online application or other automated system, or taking information from 
the consumer over the phone to complete the application.
    iii. Collecting information on behalf of the consumer with regard to 
a residential mortgage loan. Collecting information ``on behalf of the 
consumer'' would include gathering information or supporting 
documentation from third parties on behalf of the consumer to provide to 
the consumer, for the consumer then to provide in the application or for 
the consumer to submit to the loan originator or creditor.
    iv. Providing or making available general information about 
creditors or loan originators that may offer financing for manufactured 
homes in the consumer's general area, when doing so does not otherwise 
amount to ``referring'' as defined in comment 36(a)-1.i.A.1. This 
includes making available, in a neutral manner, general brochures or 
information about the different creditors or loan originators that may 
offer financing to a consumer, but does not include recommending a 
particular creditor or loan originator or otherwise influencing the 
consumer's decision.

               36(a)(4) Seller Financers; Three Properties

    1. Reasonable ability to repay safe harbors. A person in good faith 
determines that the consumer to whom the person extends seller financing 
has a reasonable ability to repay the obligation if the person complies 
with Sec. 1026.43(c) of this part or complies with the alternative 
criteria discussed in this comment. If the consumer intends to make 
payments from income, the person considers evidence of the consumer's 
current or reasonably expected income. If the consumer intends to make 
payments with income from employment, the person considers the 
consumer's earnings, which may be reflected in payroll statements or 
earnings statements, IRS Form W-2s or similar IRS forms used for 
reporting wages or tax withholding, or military Leave and Earnings 
Statements. If the consumer intends to make payments from other income, 
the person considers the consumer's income from sources such as a 
Federal, State, or local government agency providing benefits and 
entitlements. If the consumer intends to make payments from income 
earned from assets, the person considers the relevant assets, such as 
funds held in accounts with financial institutions, equity ownership 
interests, or rental property. However, the value of the dwelling that 
secures the financing does not constitute evidence of the consumer's 
ability to repay. In considering these and other potential sources of 
income to determine in good faith that the consumer has a reasonable 
ability to repay the obligation, the person making that determination 
may rely on copies of tax returns the consumer filed with the Internal 
Revenue Service or a State taxing authority.
    2. Adjustable rate safe harbors. i. Annual rate increase. An annual 
rate increase of two percentage points or less is reasonable.
    ii. Lifetime increase. A lifetime limitation of an increase of six 
percentage points or less, subject to a minimum floor of the person's 
choosing and maximum ceiling that does not exceed the usury limit 
applicable to the transaction, is reasonable.

                 36(a)(5) Seller Financers; One Property

    1. Adjustable rate safe harbors. For a discussion of reasonable 
annual and lifetime interest rate increases, see comment 36(a)(4)-2.

                              36(b) Scope.

    1. Scope of coverage. Section 1026.36(c)(1) and (c)(2) applies to 
closed-end consumer credit transactions secured by a consumer's 
principal dwelling. Section 1026.36(c)(3) applies to a consumer credit 
transaction, including home equity lines of credit under Sec. 1026.40, 
secured by a consumer's dwelling. Paragraphs (h) and (i) of Sec. 
1026.36 apply to home equity lines of credit under Sec. 1026.40 secured 
by a consumer's principal dwelling. Paragraphs (d), (e), (f), (g), (h), 
and (i) of Sec. 1026.36 apply to closed-end consumer credit 
transactions secured by a dwelling. Closed-end consumer credit 
transactions include transactions 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(b) for additional restrictions on the 
scope of Sec. 1026.36, and Sec. Sec. 1026.1(c) and 1026.3(a) and 
corresponding commentary for further discussion of extensions of credit 
subject to Regulation Z.

                        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

[[Page 658]]

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. Method of crediting periodic payments. The method by which 
periodic payments shall be credited is based on the legal obligation 
between the creditor and consumer, subject to applicable 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.
    Paragraph 36(c)(1)(ii).
    1. Handling of partial payments. If a servicer receives a partial 
payment from a consumer, to the extent not prohibited by applicable law 
or the legal obligation between the parties, the servicer may take any 
of the following actions:
    i. Credit the partial payment upon receipt.
    ii. Return the partial payment to the consumer.
    iii. Hold the payment in a suspense or unapplied funds account. If 
the payment is held in a suspense or unapplied funds account, this fact 
must be reflected on future periodic statements, in accordance with 
Sec. 1026.41(d)(3). When sufficient funds accumulate to cover a 
periodic payment, as defined in Sec. 1026.36(c)(1)(i), they must be 
treated as a periodic payment received in accordance with Sec. 
1026.36(c)(1)(i).
    Paragraph 36(c)(1)(iii).
    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.
    Paragraph 36(c)(2).
    1. Pyramiding of late fees. The prohibition on pyramiding of late 
fees in Sec. 1026.36(c)(2) should be construed consistently with the 
``credit practices rule'' of the Federal Trade Commission, 16 CFR 444.4.
    Paragraph 36(c)(3).
    1. Person acting on behalf of the consumer. For purposes of Sec. 
1026.36(c)(3), 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 creditor, assignee or 
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.
    2. Payment requirements. The creditor, assignee or servicer may 
specify reasonable requirements for making payoff requests, such as 
requiring requests to be directed to a mailing address, email address, 
or fax number specified by the creditor, assignee or servicer or any 
other reasonable requirement or method. If the consumer does not follow 
these requirements, a longer timeframe for responding to the request 
would be reasonable.
    3. Accuracy of payoff statements. Payoff statements must be accurate 
when issued.

              36(d) Prohibited Payments to Loan Originators

    1. Persons covered. Section 1026.36(d) prohibits any person 
(including a creditor) from paying compensation to a loan originator in 
connection with a covered credit transaction, if the amount of the 
payment is based on a term of a transaction. For example, a person that 
purchases an extension of credit from the creditor after consummation 
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

[[Page 659]]

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 a Term of a Transaction

    1. Compensation that is ``based on'' a term of a transaction. i. 
Objective facts and circumstances. Whether compensation is ``based on'' 
a term of a transaction does not require a comparison of multiple 
transactions or proof that any person subjectively intended that there 
be a relationship between the amount of the compensation paid and a 
transaction term. Instead, the determination is based on the objective 
facts and circumstances indicating that compensation would have been 
different if a transaction term had been different. Generally, when 
there is a compensation policy in place and the objective facts and 
circumstances indicate the policy was followed, the determination of 
whether compensation would have been different if a transaction term had 
been different is made by analysis of the policy. In the absence of a 
compensation policy, or when a compensation policy is not followed, the 
determination may be made based on a comparison of transactions 
originated and the amounts of compensation paid.
    ii. Single or multiple transactions. The prohibition on payment and 
receipt of compensation under Sec. 1026.36(d)(1)(i) encompasses 
compensation that directly or indirectly is based on the terms of a 
single transaction of a single individual loan originator, the terms of 
multiple transactions by that single individual loan originator, or the 
terms of multiple transactions by multiple individual loan originators. 
Compensation to an individual loan originator that is based upon profits 
determined with reference to a mortgage-related business is considered 
compensation that is based on the terms of multiple transactions by 
multiple individual loan originators. For clarification about the 
exceptions permitting compensation based upon profits determined with 
reference to mortgage-related business pursuant to either a designated 
tax-advantaged plan or a non-deferred profits-based compensation plan, 
see comment 36(d)(1)-3. For clarification about ``mortgage-related 
business,'' see comments 36(d)(1)-3.v.B and -3.v.E.
    A. Assume that a creditor pays a bonus to an individual loan 
originator out of a bonus pool established with reference to the 
creditor's profits and the profits are determined with reference to the 
creditor's revenue from origination of closed-end consumer credit 
transactions secured by a dwelling. In such instance, the bonus is 
considered compensation that is based on the terms of multiple 
transactions by multiple individual loan originators. Therefore, the 
bonus is prohibited under Sec. 1026.36(d)(1)(i), unless it is otherwise 
permitted under Sec. 1026.36(d)(1)(iv).
    B. Assume that an individual loan originator's employment contract 
with a creditor guarantees a quarterly bonus in a specified amount 
conditioned upon the individual loan originator meeting certain 
performance benchmarks (e.g., volume of originations monthly). A bonus 
paid following the satisfaction of those contractual conditions is not 
directly or indirectly based on the terms of a transaction by an 
individual loan originator, the terms of multiple transactions by that 
individual loan originator, or the terms of multiple transactions by 
multiple individual loan originators under Sec. 1026.36(d)(1)(i) as 
clarified by this comment 36(d)(1)-1.ii, because the creditor is 
obligated to pay the bonus, in the specified amount, regardless of the 
terms of transactions of the individual loan originator or multiple 
individual loan originators and the effect of those terms of multiple 
transactions on the creditor's profits. Because this type of bonus is 
not directly or indirectly based on the terms of multiple transactions 
by multiple individual loan originators, as described in Sec. 
1026.36(d)(1)(i) (as clarified by this comment 36(d)(1)-1.ii), it is not 
subject to the 10-percent total compensation limit described in Sec. 
1026.36(d)(1)(iv)(B)(1).
    iii. Transaction term defined. A ``term of a transaction'' under 
Sec. 1026.36(d)(1)(ii) is any right or obligation of any of the parties 
to a credit transaction. A ``credit transaction'' is the operative acts 
(e.g., the consumer's purchase of certain goods or services essential to 
the transaction) and written and oral agreements that, together, create 
the consumer's right to defer payment of debt or to incur debt and defer 
its payment. For the purposes of Sec. 1026.36(d)(1)(ii), this 
definition includes:
    A. The rights and obligations, or part of any rights or obligations, 
memorialized in a promissory note or other credit contract, as well as 
the security interest created by a mortgage, deed of trust, or other 
security instrument, and in any document incorporated by reference in 
the note, contract, or security instrument;
    B. The payment of any loan originator or creditor fees or charges 
for the credit, or for a product or service provided by the loan 
originator or creditor related to the extension of that credit, imposed 
on the consumer, including any fees or charges financed through the 
interest rate; and
    C. The payment of any fees or charges imposed on the consumer, 
including any fees or charges financed through the interest rate, for 
any product or service required to be obtained or performed as a 
condition of the extension of credit.
    D. The fees and charges described above in paragraphs B and C can 
only be a term of a

[[Page 660]]

transaction if the fees or charges are required to be disclosed in the 
Good Faith Estimate, the HUD-1, or the HUD-1A (and subsequently in any 
integrated disclosures promulgated by the Bureau under TILA section 
105(b) (15 U.S.C. 1604(b)) and RESPA section 4 (12 U.S.C. 2603) as 
amended by sections 1098 and 1100A of the Dodd-Frank Act).
    2. Compensation that is or is not based on a term of a transaction 
or a proxy for a term of a transaction. Section 1026.36(d)(1) does not 
prohibit compensating a loan originator differently on different 
transactions, provided the difference is not based on a term of a 
transaction or a proxy for a term of a transaction. The rule prohibits 
compensation to a loan originator for a transaction based on, among 
other things, that transaction's interest rate, annual percentage rate, 
collateral type (e.g., condominium, cooperative, detached home, or 
manufactured housing), or the existence of a prepayment penalty. The 
rule also prohibits compensation to a loan originator that is based on 
any factor that is a proxy for a term of a transaction. Compensation 
paid to a loan originator organization directly by a consumer in a 
transaction is not prohibited by Sec. 1026.36(d)(1) simply because that 
compensation itself is a term of the transaction. Nonetheless, that 
compensation may not be based on any other term of the transaction or a 
proxy for any other term of the transaction. In addition, in a 
transaction where a loan originator organization is paid compensation 
directly by a consumer, compensation paid by the loan originator 
organization to individual loan originators is not prohibited by Sec. 
1026.36(d)(1) simply because it is based on the amount of compensation 
paid directly by the consumer to the loan originator organization but 
the compensation to the individual loan originator may not be based on 
any other term of the transaction or proxy for any other term of the 
transaction.
    i. Permissible methods of compensation. Compensation based on the 
following factors is not compensation based on a term of a transaction 
or a proxy for a term of a transaction:
    A. The loan originator's overall dollar volume (i.e., total dollar 
amount of credit extended or total number of transactions originated), 
delivered to the creditor. See comment 36(d)(1)-9 discussing variations 
of compensation based on the amount of credit extended.
    B. The long-term performance of the originator's loans.
    C. An hourly rate of pay to compensate the originator for the actual 
number of hours worked.
    D. Whether the consumer is an existing customer of the creditor or a 
new customer.
    E. A payment that is fixed in advance for every loan the originator 
arranges for the creditor (e.g., $600 for every credit transaction 
arranged for the creditor, or $1,000 for the first 1,000 credit 
transactions arranged and $500 for each additional credit transaction 
arranged).
    F. The percentage of applications submitted by the loan originator 
to the creditor that results in consummated transactions.
    G. The quality of the loan originator's loan files (e.g., accuracy 
and completeness of the loan documentation) submitted to the creditor.
    ii. Proxies for terms of a transaction. If the loan originator's 
compensation is based in whole or in part on a factor that is a proxy 
for a term of a transaction, then the loan originator's compensation is 
based on a term of a transaction. A factor (that is not itself a term of 
a transaction) is a proxy for a term of a transaction if the factor 
consistently varies with a term or terms of the transaction over a 
significant number of transactions, and the loan originator has the 
ability, directly or indirectly, to add, drop, or change the factor when 
originating the transaction. For example:
    A. Assume a creditor pays a loan originator a higher commission for 
transactions to be held by the creditor in portfolio than for 
transactions sold by the creditor into the secondary market. The 
creditor holds in portfolio only extensions of credit that have a fixed 
interest rate and a five-year term with a final balloon payment. The 
creditor sells into the secondary market all other extensions of credit, 
which typically have a higher fixed interest rate and a 30-year term. 
Thus, whether an extension of credit is held in portfolio or sold into 
the secondary market for this creditor consistently varies with the 
interest rate and whether the credit has a five-year term or a 30-year 
term (which are terms of the transaction) over a significant number of 
transactions. Also, the loan originator has the ability to change the 
factor by, for example, advising the consumer to choose an extension of 
credit a five-year term. Therefore, under these circumstances, whether 
or not an extension of credit will be held in portfolio is a proxy for a 
term of a transaction.
    B. Assume a loan originator organization pays loan originators 
higher commissions for transactions secured by property in State A than 
in State B. For this loan originator organization, over a significant 
number of transactions, transactions in State B have substantially lower 
interest rates than transactions in State A. The loan originator, 
however, does not have any ability to influence whether the transaction 
is secured by property located in State A or State B. Under these 
circumstances, the factor that affects compensation (the location of the 
property) is not a proxy for a term of a transaction.
    iii. Pooled compensation. Section 1026.36(d)(1) prohibits the 
sharing of pooled compensation among loan originators who

[[Page 661]]

originate transactions with different terms and are compensated 
differently. For example, assume that Loan Originator A receives a 
higher commission than Loan Originator B and that loans originated by 
Loan Originator A generally have higher interest rates than loans 
originated by Loan Originator B. Under these circumstances, the two loan 
originators may not share pooled compensation because each receives 
compensation based on the terms of the transactions they collectively 
make.
    3. Interpretation of Sec. 1026.36(d)(1)(iii) and (iv). Subject to 
certain restrictions, Sec. 1026.36(d)(1)(iii) and Sec. 
1026.36(d)(1)(iv) permit contributions to or benefits under designated 
tax-advantaged plans and compensation under a non-deferred profits-based 
compensation plan even if the contributions, benefits, or compensation, 
respectively, are based on the terms of multiple transactions by 
multiple individual loan originators.
    i. Designated tax-advantaged plans. Section 1026.36(d)(1)(iii) 
permits an individual loan originator to receive, and a person to pay, 
compensation in the form of contributions to a defined contribution plan 
or benefits under a defined benefit plan provided the plan is a 
designated tax-advantaged plan (as defined in Sec. 1026.36(d)(1)(iii)), 
even if contributions to or benefits under such plans are directly or 
indirectly based on the terms of multiple transactions by multiple 
individual loan originators. In the case of a designated tax-advantaged 
plan that is a defined contribution plan, Sec. 1026.36(d)(1)(iii) does 
not permit the contribution to be directly or indirectly based on the 
terms of that individual loan originator's transactions. A defined 
contribution plan has the meaning set forth in Internal Revenue Code 
section 414(i), 26 U.S.C. 414(i). A defined benefit plan has the meaning 
set forth in Internal Revenue Code section 414(j), 26 U.S.C. 414(j).
    ii. Non-deferred profits-based compensation plans. As used in Sec. 
1026.36(d)(1)(iv), a ``non-deferred profits-based compensation plan'' is 
any compensation arrangement where an individual loan originator may be 
paid variable, additional compensation based in whole or in part on the 
mortgage-related business profits of the person paying the compensation, 
any affiliate, or a business unit within the organizational structure of 
the person or the affiliate, as applicable (i.e., depending on the level 
within the person's or affiliate's organization at which the non-
deferred profits-based compensation plan is established). A non-deferred 
profits-based compensation plan does not include a designated tax-
advantaged plan or other forms of deferred compensation that are not 
designated tax-advantaged plans, such as those created pursuant to 
Internal Revenue Code section 409A, 26 U.S.C. 409A. Thus, if 
contributions to or benefits under a designated tax-advantaged plan or 
compensation under another form of deferred compensation plan are 
determined with reference to the mortgage-related business profits of 
the person making the contribution, then the contribution, benefits, or 
other compensation, as applicable, are not permitted by Sec. 
1026.36(d)(1)(iv) (although, in the case of contributions to or benefits 
under a designated tax-advantaged plan, the benefits or contributions 
may be permitted by Sec. 1026.36(d)(1)(iii)). Under a non-deferred 
profits-based compensation plan, the individual loan originator may, for 
example, be paid directly in cash, stock, or other non-deferred 
compensation, and the compensation under the non-deferred profits-based 
compensation plan may be determined by a fixed formula or may be at the 
discretion of the person (e.g., the person may elect not to pay 
compensation under a non-deferred profits-based compensation plan in a 
given year), provided the compensation is not directly or indirectly 
based on the terms of the individual loan originator's transactions. As 
used in Sec. 1026.36(d)(1)(iv) and this commentary, non-deferred 
profits-based compensation plans include, without limitation, bonus 
pools, profits pools, bonus plans, and profit-sharing plans. 
Compensation under a non-deferred profits-based compensation plan could 
include, without limitation, annual or periodic bonuses, or awards of 
merchandise, services, trips, or similar prizes or incentives where the 
bonuses, contributions, or awards are determined with reference to the 
profits of the person, business unit, or affiliate, as applicable. As 
used in Sec. 1026.36(d)(1)(iv) and this commentary, a business unit is 
a division, department, or segment within the overall organizational 
structure of the person or the person's affiliate that performs discrete 
business functions and that the person or the affiliate treats 
separately for accounting or other organizational purposes. For example, 
a creditor that pays its individual loan originators bonuses at the end 
of a calendar year based on the creditor's average net return on assets 
for the calendar year is operating a non-deferred profits-based 
compensation plan under Sec. 1026.36(d)(1)(iv). A bonus that is paid to 
an individual loan originator from a source other than a non-deferred 
profits-based compensation plan (or a deferred compensation plan where 
the bonus is determined with reference to mortgage-related business 
profits), such as a retention bonus budgeted for in advance or a 
performance bonus paid out of a bonus pool set aside at the beginning of 
the company's annual accounting period as part of the company's 
operating budget, does not violate the prohibition on payment of 
compensation based on the terms of multiple transactions by multiple 
individual loan originators under Sec. 1026.36(d)(1)(i), as clarified 
by comment 36(d)(1)-1.ii; therefore, Sec. 1026.36(d)(1)(iv) does not 
apply to such bonuses.

[[Page 662]]

    iii. Compensation that is not directly or indirectly based on the 
terms of multiple transactions by multiple individual loan originators. 
The compensation arrangements addressed in Sec. 1026.36(d)(1)(iii) and 
(iv) are permitted even if they are directly or indirectly based on the 
terms of multiple transactions by multiple individual loan originators. 
See comment 36(d)(1)-1 for additional interpretation. If a loan 
originator organization's revenues are exclusively derived from 
transactions subject to Sec. 1026.36(d) (whether paid by creditors, 
consumers, or both) and that loan originator organization pays its 
individual loan originators a bonus under a non-deferred profits-based 
compensation plan, the bonus is not directly or indirectly based on the 
terms of multiple transactions by multiple individual loan originators 
if Sec. 1026.36(d)(1)(i) is otherwise complied with.
    iv. Compensation based on terms of an individual loan originator's 
transactions. Under both Sec. 1026.36(d)(1)(iii), with regard to 
contributions made to a defined contribution plan that is a designated 
tax-advantaged plan, and Sec. 1026.36(d)(1)(iv)(A), with regard to 
compensation under a non-deferred profits-based compensation plan, the 
payment of compensation to an individual loan originator may not be 
directly or indirectly based on the terms of that individual loan 
originator's transaction or transactions. Consequently, for example, 
where an individual loan originator makes loans that vary in their 
interest rate spread, the compensation payment may not take into account 
the average interest rate spread on the individual loan originator's 
transactions during the relevant calendar year.
    v. Compensation under non-deferred profits-based compensation plans. 
Assuming that the conditions in Sec. 1026.36(d)(1)(iv)(A) are met, 
Sec. 1026.36(d)(1)(iv)(B)(1) permits certain compensation to an 
individual loan originator under a non-deferred profits-based 
compensation plan. Specifically, if the compensation is determined with 
reference to the profits of the person from mortgage-related business, 
compensation under a non-deferred profits-based compensation plan is 
permitted provided the compensation does not, in the aggregate, exceed 
10 percent of the individual loan originator's total compensation 
corresponding to the time period for which compensation under the non-
deferred profits-based compensation plan is paid. The compensation 
restrictions under Sec. 1026.36(d)(1)(iv)(B)(1) are sometimes referred 
to in this commentary as the ``10-percent total compensation limit'' or 
the ``10-percent limit.''
    A. Total compensation. For purposes of Sec. 
1026.36(d)(1)(iv)(B)(1), the individual loan originator's total 
compensation consists of the sum total of: (1) All wages and tips 
reportable for Medicare tax purposes in box 5 on IRS form W-2 (or, if 
the individual loan originator is an independent contractor, reportable 
compensation on IRS form 1099-MISC) that are actually paid during the 
relevant time period (regardless of when the wages and tips are earned), 
except for any compensation under a non-deferred profits-based 
compensation plan that is earned during a different time period (see 
comment 36(d)(1)-3.v.C); (2) at the election of the person paying the 
compensation, all contributions that are actually made during the 
relevant time period by the creditor or loan originator organization to 
the individual loan originator's accounts in designated tax-advantaged 
plans that are defined contribution plans (regardless of when the 
contributions are earned); and (3) at the election of the person paying 
the compensation, all compensation under a non-deferred profits-based 
compensation plan that is earned during the relevant time period, 
regardless of whether the compensation is actually paid during that time 
period (see comment 36(d)(1)-3.v.C). If an individual loan originator 
has some compensation that is reportable on the W-2 and some that is 
reportable on the 1099-MISC, the total compensation is the sum total of 
what is reportable on each of the two forms.
    B. Profits of the Person. Under Sec. 1026.36(d)(1)(iv), a plan is a 
non-deferred profits-based compensation plan if compensation is paid, 
based in whole or in part, on the profits of the person paying the 
compensation. As used in Sec. 1026.36(d)(1)(iv), ``profits of the 
person'' include, as applicable depending on where the non-deferred 
profits-based compensation plan is set, the profits of the person, the 
business unit to which the individual loan originators are assigned for 
accounting or other organizational purposes, or any affiliate of the 
person. Profits from mortgage-related business are profits determined 
with reference to revenue generated from transactions subject to Sec. 
1026.36(d). Pursuant to Sec. 1026.36(b) and comment 36(b)-1, Sec. 
1026.36(d) applies to closed-end consumer credit transactions secured by 
dwellings. This revenue includes, without limitation, and as applicable 
based on the particular sources of revenue of the person, business unit, 
or affiliate, origination fees and interest associated with dwelling-
secured transactions for which individual loan originators working for 
the person were loan originators, income from servicing of such 
transactions, and proceeds of secondary market sales of such 
transactions. If the amount of the individual loan originator's 
compensation under non-deferred profits-based compensation plans paid 
for a time period does not, in the aggregate, exceed 10 percent of the 
individual loan originator's total compensation corresponding to the 
same time period, compensation under non-deferred profits-based 
compensation plans may be paid under Sec. 1026.36(d)(1)(iv)(B)(1) 
regardless

[[Page 663]]

of whether or not it was determined with reference to the profits of the 
person from mortgage-related business.
    C. Time period for which the compensation under the non-deferred 
profits-based compensation plan is paid and to which the total 
compensation corresponds. Under Sec. 1026.36(d)(1)(iv)(B)(1), 
determination of whether payment of compensation under a non-deferred 
profits-based compensation plan complies with the 10-percent limit 
requires a calculation of the ratio of the compensation under the non-
deferred profits-based compensation plan (i.e., the compensation subject 
to the 10-percent limit) and the total compensation corresponding to the 
relevant time period. For compensation subject to the 10-percent limit, 
the relevant time period is the time period for which a person makes 
reference to profits in determining the compensation (i.e., when the 
compensation was earned). It does not matter whether the compensation is 
actually paid during that particular time period. For total 
compensation, the relevant time period is the same time period, but only 
certain types of compensation may be included in the total compensation 
amount for that time period (see comment 36(d)(1)-3.v.A). For example, 
assume that during calendar year 2014 a creditor pays an individual loan 
originator compensation in the following amounts: $80,000 in commissions 
based on the individual loan originator's performance and volume of 
loans generated during the calendar year; and $10,000 in an employer 
contribution to a designated tax-advantaged defined contribution plan on 
behalf of the individual loan originator. The creditor desires to pay 
the individual loan originator a year-end bonus of $10,000 under a non-
deferred profits-based compensation plan. The commissions are paid and 
employer contributions to the designated tax-advantaged defined 
contribution plan are made during calendar year 2014, but the year-end 
bonus will be paid in January 2015. For purposes of the 10-percent 
limit, the year-end bonus is counted toward the 10-percent limit for 
calendar year 2014, even though it is not actually paid until 2015. 
Therefore, for calendar year 2014 the individual loan originator's 
compensation that is subject to the 10-percent limit would be $10,000 
(i.e., the year-end bonus) and the total compensation would be $100,000 
(i.e., the sum of the commissions, the designated tax-advantaged plan 
contribution (assuming the creditor elects to include it in total 
compensation for calendar year 2014), and the bonus (assuming the 
creditor elects to include it in total compensation for calendar year 
2014)); the bonus would be permissible under Sec. 1026.36(d)(1)(iv) 
because it does not exceed 10 percent of total compensation. The 
determination of total compensation corresponding to 2014 also would not 
take into account any compensation subject to the 10-percent limit that 
is actually paid in 2014 but is earned during a different calendar year 
(e.g., an annual bonus determined with reference to mortgage-related 
business profits for calendar year 2013 that is paid in January 2014). 
If the employer contribution to the designated tax-advantaged plan is 
earned in 2014 but actually made in 2015, however, it may not be 
included in total compensation for 2014. A company, business unit, or 
affiliate, as applicable, may pay compensation subject to the 10-percent 
limit during different time periods falling within its annual accounting 
period for keeping records and reporting income and expenses, which may 
be a calendar year or a fiscal year depending on the annual accounting 
period. In such instances, however, the 10-percent limit applies both as 
to each time period and cumulatively as to the annual accounting period. 
For example, assume that a creditor uses a calendar-year accounting 
period. If the creditor pays an individual loan originator a bonus at 
the end of each quarter under a non-deferred profits-based compensation 
plan, the payment of each quarterly bonus is subject to the 10-percent 
limit measured with respect to each quarter. The creditor can also pay 
an annual bonus under the non-deferred profits-based compensation plan 
that does not exceed the difference of 10 percent of the individual loan 
originator's total compensation corresponding to the calendar year and 
the aggregate amount of the quarterly bonuses.
    D. Awards of merchandise, services, trips, or similar prizes or 
incentives. If any compensation paid to an individual loan originator 
under Sec. 1026.36(d)(1)(iv) consists of an award of merchandise, 
services, trips, or similar prize or incentive, the cash value of the 
award is factored into the calculation of the 10-percent total 
compensation limit. For example, during a given calendar year, 
individual loan originator A and individual loan originator B are each 
employed by a creditor and paid $40,000 in salary, and $45,000 in 
commissions. The creditor also contributes $5,000 to a designated tax-
advantaged defined contribution plan for each individual loan originator 
during that calendar year, which the creditor elects to include in the 
total compensation amount. Neither individual loan originator is paid 
any other form of compensation by the creditor. In December of the 
calendar year, the creditor rewards both individual loan originators for 
their performance during the calendar year out of a bonus pool 
established with reference to the profits of the mortgage origination 
business unit. Individual loan originator A is paid a $10,000 cash 
bonus, meaning that individual loan originator A's total compensation is 
$100,000 (assuming the creditor elects to include the bonus in the total 
compensation amount). Individual loan originator B is paid a $7,500 cash 
bonus and awarded a vacation package

[[Page 664]]

with a cash value of $3,000, meaning that individual loan originator B's 
total compensation is $100,500 (assuming the creditor elects to include 
the reward in the total compensation amount). Under Sec. 
1026.36(d)(1)(iv)(B)(1), individual loan originator A's $10,000 bonus is 
permissible because the bonus would not constitute more than 10 percent 
of individual loan originator A's total compensation for the calendar 
year. The creditor may not pay individual loan originator B the $7,500 
bonus and award the vacation package, however, because the total value 
of the bonus and the vacation package would be $10,500, which is greater 
than 10 percent (10.45 percent) of individual loan originator B's total 
compensation for the calendar year. One way to comply with Sec. 
1026.36(d)(1)(iv)(B)(1) would be if the amount of the bonus were reduced 
to $7,000 or less or the vacation package were structured such that its 
cash value would be $2,500 or less.
    E. Compensation determined only with reference to non-mortgage-
related business profits. Compensation under a non-deferred profits-
based compensation plan is not subject to the 10-percent total 
compensation limit under Sec. 1026.36(d)(1)(iv)(B)(1) if the non-
deferred profits-based compensation plan is determined with reference 
only to profits from business other than mortgage-related business, as 
determined in accordance with reasonable accounting principles. 
Reasonable accounting principles reflect an accurate allocation of 
revenues, expenses, profits, and losses among the person, any affiliate 
of the person, and any business units within the person or affiliates, 
and are consistent with the accounting principles applied by the person, 
the affiliate, or the business unit with respect to, as applicable, its 
internal budgeting and auditing functions and external reporting 
requirements. Examples of external reporting and filing requirements 
that may be applicable to creditors and loan originator organizations 
are Federal income tax filings, Federal securities law filings, or 
quarterly reporting of income, expenses, loan origination activity, and 
other information required by government-sponsored enterprises. As used 
in Sec. 1026.36(d)(1)(iv)(B)(1), profits means positive profits or 
losses avoided or mitigated.
    F. Additional examples. 1. Assume that, during a given calendar 
year, a loan originator organization pays an individual loan originator 
employee $40,000 in salary and $125,000 in commissions, and makes a 
contribution of $15,000 to the individual loan originator's 401(k) plan. 
At the end of the year, the loan originator organization wishes to pay 
the individual loan originator a bonus based on a formula involving a 
number of performance metrics, to be paid out of a profit pool 
established at the level of the company but that is determined in part 
with reference to the profits of the company's mortgage origination 
unit. Assume that the loan originator organization derives revenues from 
sources other than transactions covered by Sec. 1026.36(d). In this 
example, the performance bonus would be directly or indirectly based on 
the terms of multiple individual loan originators' transactions as 
described in Sec. 1026.36(d)(1)(i), because it is being determined with 
reference to profits from mortgage-related business. Assume, 
furthermore, that the loan originator organization elects to include the 
bonus in the total compensation amount for the calendar year. Thus, the 
bonus is permissible under Sec. 1026.36(d)(1)(iv)(B)(1) if it does not 
exceed 10 percent of the loan originator's total compensation, which in 
this example consists of the individual loan originator's salary and 
commissions, the contribution to the 401(k) plan (if the loan originator 
organization elects to include the contribution in the total 
compensation amount), and the performance bonus. Therefore, if the loan 
originator organization elects to include the 401(k) contribution in 
total compensation for these purposes, the loan originator organization 
may pay the individual loan originator a performance bonus of up to 
$20,000 (i.e., 10 percent of $200,000 in total compensation). If the 
loan originator organization does not include the 401(k) contribution in 
calculating total compensation, or the 401(k) contribution is actually 
made in January of the following calendar year (in which case it cannot 
be included in total compensation for the initial calendar year), the 
bonus may be up to $18,333.33. If the loan originator organization 
includes neither the 401(k) contribution nor the performance bonus in 
the total compensation amount, the bonus may not exceed $16,500.
    2. Assume that the compensation during a given calendar year of an 
individual loan originator employed by a creditor consists of only 
salary and commissions, and the individual loan originator does not 
participate in a designated tax-advantaged defined contribution plan. 
Assume further that the creditor uses a calendar-year accounting period. 
At the end of the calendar year, the creditor pays the individual loan 
originator two bonuses: A ``performance'' bonus based on the individual 
loan originator's aggregate loan volume for a calendar year that is paid 
out of a bonus pool determined with reference to the profits of the 
mortgage origination business unit, and a year-end ``holiday'' bonus in 
the same amount to all company employees that is paid out of a company-
wide bonus pool. Because the performance bonus is paid out of a bonus 
pool that is determined with reference to the profits of the mortgage 
origination business unit, it is compensation that is determined with 
reference to mortgage-related business profits, and the bonus is 
therefore subject to the 10-percent total compensation limit. If the 
company-wide

[[Page 665]]

bonus pool from which the ``holiday'' bonus is paid is derived in part 
from profits of the creditor's mortgage origination business unit, then 
the combination of the ``holiday'' bonus and the performance bonus is 
subject to the 10-percent total compensation limit. The ``holiday'' 
bonus is not subject to the 10-percent total compensation limit if the 
bonus pool is determined with reference only to the profits of business 
units other than the mortgage origination business unit, as determined 
in accordance with reasonable accounting principles. If the 
``performance'' bonus and the ``holiday'' bonus in the aggregate do not 
exceed 10 percent of the individual loan originator's total 
compensation, the bonuses may be paid under Sec. 
1026.36(d)(1)(iv)(B)(1) without the necessity of determining from which 
bonus pool they were paid or whether they were determined with reference 
to the profits of the creditor's mortgage origination business unit.
    G. Reasonable reliance by individual loan originator on accounting 
or statement by person paying compensation. An individual loan 
originator is deemed to comply with its obligations regarding receipt of 
compensation under Sec. 1026.36(d)(1)(iv)(B)(1) if the individual loan 
originator relies in good faith on an accounting or a statement provided 
by the person who determined the individual loan originator's 
compensation under a non-deferred profits-based compensation plan 
pursuant to Sec. 1026.36(d)(1)(iv)(B)(1) and where the statement or 
accounting is provided within a reasonable time period following the 
person's determination.
    vi. Individual loan originators who originate ten or fewer 
transactions. Assuming that the conditions in Sec. 1026.36(d)(1)(iv)(A) 
are met, Sec. 1026.36(d)(1)(iv)(B)(2) permits compensation to an 
individual loan originator under a non-deferred profits-based 
compensation plan even if the payment or contribution is directly or 
indirectly based on the terms of multiple individual loan originators' 
transactions if the individual is a loan originator (as defined in Sec. 
1026.36(a)(1)(i)) for ten or fewer consummated transactions during the 
12-month period preceding the compensation determination. For example, 
assume a loan originator organization employs two individual loan 
originators who originate transactions subject to Sec. 1026.36 during a 
given calendar year. Both employees are individual loan originators as 
defined in Sec. 1026.36(a)(1)(ii), but only one of them (individual 
loan originator B) acts as a loan originator in the normal course of 
business, while the other (individual loan originator A) is called upon 
to do so only occasionally and regularly performs other duties (such as 
serving as a manager). In January of the following calendar year, the 
loan originator organization formally determines the financial 
performance of its mortgage business for the prior calendar year. Based 
on that determination, the loan originator organization on February 1 
decides to pay a bonus to the individual loan originators out of a 
company bonus pool. Assume that, between February 1 of the prior 
calendar year and January 31 of the current calendar year, individual 
loan originator A was the loan originator for eight consummated 
transactions, and individual loan originator B was the loan originator 
for 15 consummated transactions. The loan originator organization may 
award the bonus to individual loan originator A under Sec. 
1026.36(d)(1)(iv)(B)(2). The loan originator organization may not award 
the bonus to individual loan originator B relying on the exception under 
Sec. 1026.36(d)(1)(iv)(B)(2) because it would not apply, although it 
could award a bonus pursuant to the 10-percent total compensation limit 
under Sec. 1026.36(d)(1)(iv)(B)(1) if the requirements of that 
provision are complied with.
    4. Creditor's flexibility in setting loan terms. Section 1026.36(d) 
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. If a creditor pays compensation 
to a loan originator in compliance with Sec. 1026.36(d), the creditor 
may recover the costs of the loan originator's compensation and other 
costs of the transaction by charging the consumer points or fees or a 
higher interest rate or a combination of these. Thus, in these 
transactions, a creditor may charge a higher interest rate to a consumer 
who will pay fewer of the costs of the transaction at or before closing 
or it may offer the consumer a lower rate if the consumer pays more of 
the transaction costs at or before closing. For example, if the consumer 
pays half of the transaction costs at or before closing, a creditor may 
charge an interest rate of 6.0 percent but, if the consumer pays none of 
the transaction costs at or before closing, the creditor may charge an 
interest rate of 6.5 percent. In these transactions, a creditor also may 
offer different consumers varying interest rates that include a 
consistent interest rate premium to recoup the loan originator's 
compensation through increased interest paid by the consumer (such as by 
consistently adding 0.25 percentage points to the interest rate on each 
transaction where the loan originator is compensated based on a 
percentage of the amount of the credit extended).
    5. Effect of modification of transaction terms. Under Sec. 
1026.36(d)(1), a loan originator's compensation may not be based on any 
of the terms of a credit transaction. Thus, a creditor and a loan 
originator may not agree to set the loan 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

[[Page 666]]

extend credit 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 credit 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. Thus, while the creditor may change credit terms or 
pricing to match a competitor, to avoid triggering high-cost mortgage 
provisions, or for other reasons, the loan originator's compensation on 
that transaction may not be changed for those reasons. A loan originator 
therefore may not agree to reduce its compensation or provide a credit 
to the consumer to pay a portion of the consumer's closing costs, for 
example, to avoid high-cost mortgage provisions. A loan originator 
organization may not reduce its own compensation in a transaction where 
the loan originator organization receives compensation directly from the 
consumer, with or without a corresponding reduction in compensation paid 
to an individual loan originator. See comment 36(d)(1)-7 for further 
interpretation.
    6. Periodic changes in loan originator compensation and terms of 
transactions. Section 1026.36 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 not 
result in payments to the loan originator that are based on the terms 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 loan originator compensation, and 
prospectively revise the compensation it agrees to pay to a loan 
originator. For example, assume that during the first six months of the 
year, a creditor pays $3,000 to a particular loan originator for each 
loan delivered, regardless of the terms of the transaction. After 
considering the volume of business produced by that loan originator, the 
creditor could decide that as of July 1, it will pay $3,250 for each 
loan delivered by that particular loan originator, regardless of the 
terms of the transaction. 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. Permitted decreases in loan originator compensation. 
Notwithstanding comment 36(d)(1)-5, Sec. 1026.36(d)(1) does not 
prohibit a loan originator from decreasing its compensation to defray 
the cost, in whole or part, of an unforeseen increase in an actual 
settlement cost over an estimated settlement cost disclosed to the 
consumer pursuant to section 5(c) of RESPA or an unforeseen actual 
settlement cost not disclosed to the consumer pursuant to section 5(c) 
of RESPA. For purposes of comment 36(d)(1)-7, an increase in an actual 
settlement cost over an estimated settlement cost or a cost not 
disclosed is unforeseen if the increase occurs even though the estimate 
provided to the consumer is consistent with the best information 
reasonably available to the disclosing person at the time of the 
estimate. For example:
    i. Assume that a consumer agrees to lock an interest rate with a 
creditor in connection with the financing of a purchase-money 
transaction. A title issue with the property being purchased delays 
closing by one week, which in turn causes the rate lock to expire. The 
consumer desires to re-lock the interest rate. Provided that the title 
issue was unforeseen, the loan originator may decrease the loan 
originator's compensation to pay for all or part of the rate-lock 
extension fee.
    ii. Assume that when applying the tolerance requirements under the 
regulations implementing RESPA sections 4 and 5(c), there is a tolerance 
violation of $70 that must be cured. Provided the violation was 
unforeseen, the rule is not violated if the individual loan originator's 
compensation decreases to pay for all or part of the amount required to 
cure the tolerance violation.
    8. Record retention. See comment 25(c)(2)-1 and -2 for commentary on 
complying with the record retention requirements of Sec. 1026.25(c)(2) 
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.
    10. Amount of credit extended under a reverse mortgage. For closed-
end reverse mortgage loans, the ``amount of credit extended'' for 
purposes of Sec. 1026.36(d)(1) means either:

[[Page 667]]

    i. The maximum proceeds available to the consumer under the loan; or
    ii. The maximum claim amount as defined in 24 CFR 206.3 if the 
mortgage is subject to 24 CFR part 206, or the appraised value of the 
property, as determined by the appraisal used in underwriting the loan, 
if the mortgage is not subject to 24 CFR part 206.

            36(d)(2) Payments by Persons Other Than Consumer

                      36(d)(2)(i) Dual Compensation

    1. Compensation in connection with a particular transaction. Under 
Sec. 1026.36(d)(2)(i)(A), if any loan originator receives compensation 
directly from a consumer in a transaction, no other person may provide 
any compensation to any loan originator, directly or indirectly, in 
connection with that particular credit transaction, whether before, at, 
or after consummation. See comment 36(d)(2)(i)-2 discussing compensation 
received directly from the consumer. The restrictions imposed under 
Sec. 1026.36(d)(2)(i) 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. In a transaction where a loan originator receives 
compensation directly from a consumer, a creditor still may provide 
funds for the benefit of the consumer in that transaction, provided such 
funds are applied solely toward costs of the transaction other than loan 
originator compensation. Section 1026.36(d)(2)(i)(C) provides that, if a 
loan originator organization receives compensation directly from a 
consumer, the loan originator organization may provide compensation to 
individual loan originators, and the individual loan originator may 
receive compensation from the loan originator organization, subject to 
the restriction in Sec. 1026.36(d)(1). (See comment 36(a)(1)-1.i for an 
explanation of the use of the term ``loan originator organization'' and 
``individual loan originator'' for purposes of Sec. 
1026.36(d)(2)(i)(C).) For example, payments by a mortgage broker to an 
individual loan originator as compensation for originating a specific 
credit transaction do not violate Sec. 1026.36(d)(2)(i)(A) even if the 
consumer directly pays the mortgage broker a fee in connection with that 
transaction. However, neither the mortgage broker nor the individual 
loan originator can receive compensation from the creditor in connection 
with that particular credit transaction.
    2. Compensation received directly from a consumer. i. Payments by a 
consumer to a loan originator from 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, payments by a consumer to the 
creditor are not considered payments to the loan originator that are 
received directly from the consumer whether they are paid directly by 
the consumer (for example, in cash or by check) or out of the loan 
proceeds. See the definition of ``compensation'' in Sec. 1026.36(a)(3) 
and related commentary.
    ii. Funds from the creditor that will be applied to reduce the 
consumer's settlement charges, including origination fees paid by a 
creditor to the loan originator, that are characterized on the 
disclosures made pursuant to the Real Estate Settlement Procedures Act 
as a ``credit'' are nevertheless not considered to be received by the 
loan originator directly from the consumer for purposes of Sec. 
1026.36(d)(2)(i).
    iii. Section 1026.36(d)(2)(i)(B) provides that compensation received 
directly from a consumer includes payments to a loan originator made 
pursuant to an agreement between the consumer and a person other than 
the creditor or its affiliates, under which such other person agrees to 
provide funds toward the consumer's costs of the transaction (including 
loan originator compensation). Compensation to a loan originator is 
sometimes paid on the consumer's behalf by a person other than a 
creditor or its affiliates, such as a non-creditor seller, home builder, 
home improvement contractor or real estate broker or agent. Such 
payments to a loan originator are considered compensation received 
directly from the consumer for purposes of Sec. 1026.36(d)(2) if they 
are made pursuant to an agreement between the consumer and the person 
other than the creditor or its affiliates. State law determines whether 
there is an agreement between the parties. See Sec. 1026.2(b)(3). The 
parties do not have to agree specifically that the payments will be used 
to pay for the loan originator's compensation, but just that the person 
will make a payment to the loan originator toward the consumer's costs 
of the transaction, or ``closing costs'' and the loan originator retains 
such payment. For example, assume that a non-creditor seller (that is 
not the creditor's affiliate) has an agreement with the consumer to pay 
$1,000 of the consumer's closing costs on a transaction. Any of the 
$1,000 that is paid by the non-creditor seller to the loan originator 
and constitutes ``compensation'' as defined in Sec. 1026.36(a)(3) to 
the loan originator is compensation received directly from the consumer, 
even if the agreement does not specify that some or all of $1,000 must 
be used to compensate the loan originator. Nonetheless, payments by the 
consumer to the creditor are not payments to the loan originator that 
are received directly from the consumer. See comment 36(d)(2)(i)-2.i. 
Accordingly, payments in the transaction to the creditor on behalf of 
the consumer by a person other than the creditor or its affiliates are 
not payments to

[[Page 668]]

the loan originator that are received directly from the consumer.

                           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 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

[[Page 669]]

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 
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) for 
which the loan originator has a good faith belief that the consumer is 
likely to qualify. The criteria are: the loan with the lowest interest 
rate; the loan with the lowest total dollar amount of discount points, 
origination points or origination 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. The loan with the lowest interest rate for which the 
consumer likely qualifies is the loan with the lowest rate the consumer 
can likely obtain, regardless of how many discount points, origination 
points or origination fees the consumer must pay to obtain it. 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 uses 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 uses 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 uses the highest rate that 
would apply during the first five years.

[[Page 670]]

    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.

            36(f) Loan Originator Qualification Requirements

    1. Scope. Section 1026.36(f) sets forth qualification requirements 
that a loan originator must meet. As provided in Sec. 1026.36(a)(1) and 
accompanying commentary, the term ``loan originator'' includes natural 
persons and organizations and does not exclude creditors for purposes of 
the qualification requirements in Sec. 1026.36(f).
    2. Licensing and registration requirements. Section 1026.36(f) 
requires loan originators to comply with applicable State and Federal 
licensing and registration requirements, including any such requirements 
imposed by the SAFE Act and its implementing regulations and State laws. 
SAFE Act licensing and registration requirements apply to individual 
loan originators, but many State licensing and registration requirements 
apply to loan originator organizations as well.
    3. No effect on licensing and registration requirements. Section 
1026.36(f) does not affect which loan originators must comply with State 
and Federal licensing and registration requirements. For example, the 
fact that the definition of loan originator in Sec. 1026.36(a)(1) 
differs somewhat from that in the SAFE Act does not affect who must 
comply with the SAFE Act. To illustrate, assume an individual is an 
employee of an organization that a State has determined to be a bona 
fide nonprofit organization and the State has not subjected the employee 
to that State's SAFE Act loan originator licensing. If that same 
individual meets the definition of loan originator in Sec. 
1026.36(a)(1), the individual is subject to the requirements of Sec. 
1026.36, but the State may continue not to subject the employee to that 
State's SAFE Act licensing requirements. Similarly, the qualification 
requirements imposed under Sec. 1026.36(f) do not add to or affect the 
criteria that States must consider in determining whether a loan 
originator organization is a bona fide nonprofit organization under the 
SAFE Act.

                           Paragraph 36(f)(1)

    1. Legal existence and foreign qualification. Section 1026.36(f)(1) 
requires a loan originator organization to comply with applicable State 
law requirements governing the legal existence and foreign qualification 
of the loan originator organization. Covered State law requirements 
include those that must be complied with to bring the loan originator 
organization into legal existence, to maintain its legal existence, to 
be permitted to transact business in another State, or to facilitate 
service of process. For example, covered State law requirements include 
those for incorporation or other type of legal formation and for 
designating and maintaining a registered agent for service of process. 
State law requirements to pay taxes and other requirements that do not 
relate to legal accountability of the loan originator organization to 
consumers are outside the scope of Sec. 1026.36(f)(1).

                           Paragraph 36(f)(2)

    1. License or registration. Section 1026.36(f)(2) requires the loan 
originator organization to ensure that individual loan originators who 
work for it are licensed or registered in compliance with the SAFE Act 
and other applicable law. The individual loan originators who work for a 
loan originator organization include individual loan originators who are 
its employees or who operate under a brokerage agreement with the loan 
originator organization. Thus, for example, a brokerage is responsible 
for verifying that the loan originator individuals who work directly for 
it are licensed and registered in accordance with applicable law, 
whether the individual loan originators are its employees or independent 
contractors who operate pursuant to a brokerage agreement. A loan 
originator organization can meet this duty by confirming the 
registration or license status of an individual at 
www.nmlsconsumeraccess.org.

                           Paragraph 36(f)(3)

    1. Unlicensed individual loan originators. Section 1026.36(f)(3) 
sets forth actions that a loan originator organization must take for any 
of its individual loan originator employees who are not required to be 
licensed and are not licensed as a loan originator pursuant to the SAFE 
Act. Individual loan originators who are not subject to SAFE Act 
licensing generally include employees of depository institutions and 
their Federally regulated subsidiaries and employees of bona

[[Page 671]]

fide nonprofit organizations that a State has exempted from licensing 
under the criteria in 12 CFR 1008.103(e)(7).
    Paragraph 36(f)(3)(i).
    1. Criminal and credit histories. Section 1026.36(f)(3)(i) requires 
the loan originator organization to obtain, for any of its individual 
loan originator employees who is not required to be licensed and is not 
licensed as a loan originator pursuant to the SAFE Act, a criminal 
background check, a credit report, and information related to any 
administrative, civil, or criminal determinations by any government 
jurisdiction. The requirement applies to individual loan originator 
employees who were hired on or after January 1, 2014 (or whom the loan 
originator organization hired before this date but for whom there were 
no applicable statutory or regulatory background standards in effect at 
the time of hire or before January 1, 2014, used to screen the 
individual). A credit report may be obtained directly from a consumer 
reporting agency or through a commercial service. A loan originator 
organization with access to the NMLSR can meet the requirement for the 
criminal background check by reviewing any criminal background check it 
receives upon compliance with the requirement in 12 CFR 1007.103(d)(1) 
and can meet the requirement to obtain information related to any 
administrative, civil, or criminal determinations by any government 
jurisdiction by obtaining the information through the NMLSR. Loan 
originator organizations that do not have access to these items through 
the NMLSR may obtain them by other means. For example, a criminal 
background check may be obtained from a law enforcement agency or 
commercial service. Information on any past administrative, civil, or 
criminal findings (such as from disciplinary or enforcement actions) may 
be obtained from the individual loan originator.
    2. Retroactive obtaining of information not required. Section 
1026.36(f)(3)(i) does not require the loan originator organization to 
obtain the covered information for an individual whom the loan 
originator organization hired as a loan originator before January 1, 
2014, and screened under applicable statutory or regulatory background 
standards in effect at the time of hire. However, if the individual 
subsequently ceases to be employed as a loan originator by that loan 
originator organization, and later resumes employment as a loan 
originator by that loan originator organization (or any other loan 
originator organization), the loan originator organization is subject to 
the requirements of Sec. 1026.36(f)(3)(i).
    Paragraph 36(f)(3)(ii).
    1. Scope of review. Section 1026.36(f)(3)(ii) requires the loan 
originator organization to review the information that it obtains under 
Sec. 1026.36(f)(3)(i) and other reasonably available information to 
determine whether the individual loan originator meets the standards in 
Sec. 1026.36(f)(3)(ii). Other reasonably available information includes 
any information the loan originator organization has obtained or would 
obtain as part of a reasonably prudent hiring process, including 
information obtained from application forms, candidate interviews, other 
reliable information and evidence provided by a candidate, and reference 
checks. The requirement applies to individual loan originator employees 
who were hired on or after January 1, 2014 (or whom the loan originator 
organization hired before this date but for whom there were no 
applicable statutory or regulatory background standards in effect at the 
time of hire or before January 1, 2014, used to screen the individual).
    2. Retroactive determinations not required. Section 
1026.36(f)(3)(ii) does not require the loan originator organization to 
review the covered information and make the required determinations for 
an individual whom the loan originator organization hired as a loan 
originator on or before January 1, 2014 and screened under applicable 
statutory or regulatory background standards in effect at the time of 
hire. However, if the individual subsequently ceases to be employed as a 
loan originator by that loan originator organization, and later resumes 
employment as a loan originator by that loan originator organization (or 
any other loan originator organization), the loan originator 
organization employing the individual is subject to the requirements of 
Sec. 1026.36(f)(3)(ii).
    3. Subsequent determinations. The loan originator organization must 
make the required determinations for an individual before the individual 
acts as a loan originator. Subsequent reviews and assessments are 
required only if the loan originator organization knows of reliable 
information indicating that the individual loan originator likely no 
longer meets the required standards in Sec. 1026.36(f)(3). For example, 
if the loan originator organization has knowledge of criminal conduct of 
its individual loan originator through a newspaper article, a previously 
obtained criminal background report, or the NMLSR, the loan originator 
organization must determine whether any resulting conviction, or any 
other information, causes the individual to fail to meet the standards 
in Sec. 1026.36(f)(3)(ii), regardless of when the loan originator was 
hired or previously screened.

                        Paragraph 36(f)(3)(ii)(B)

    1. Financial responsibility, character, and general fitness. The 
determination of financial responsibility, character, and general 
fitness required under Sec. 1026.36(f)(3)(ii)(B) requires an assessment 
of all information obtained pursuant to paragraph (f)(3)(i) and any 
other reasonably available information, including information that is 
known to the

[[Page 672]]

loan originator organization or would become known to the loan 
originator organization as part of a reasonably prudent hiring process. 
The absence of any significant adverse information is sufficient to 
support an affirmative determination that the individual meets the 
standards. A review and assessment of financial responsibility is 
sufficient if it considers, as relevant factors, the existence of 
current outstanding judgments, tax liens, other government liens, 
nonpayment of child support, or a pattern of bankruptcies, foreclosures, 
or delinquent accounts. A review and assessment of financial 
responsibility is not required to consider debts arising from medical 
expenses. A review and assessment of character and general fitness is 
sufficient if it considers, as relevant factors, acts of unfairness or 
dishonesty, including dishonesty by the individual in the course of 
seeking employment or in connection with determinations pursuant to the 
qualification requirements of Sec. 1026.36(f), and any disciplinary 
actions by regulatory or professional licensing agencies. No single 
factor necessarily requires a determination that the individual does not 
meet the standards for financial responsibility, character, or general 
fitness, provided that the loan originator organization considers all 
relevant factors and reasonably determines that, on balance, the 
individual meets the standards.
    2. Written procedures for making determinations. A loan originator 
organization that establishes written procedures for determining whether 
individuals meet the financial responsibility, character, and general 
fitness standards under Sec. 1026.36(f)(3)(ii)(B) and comment 
36(f)(3)(ii)(B)-1 and follows those written procedures for an individual 
and complies with the requirement for that individual. Such procedures 
may provide that bankruptcies and foreclosures are considered under the 
financial responsibility standard only if they occurred within a recent 
timeframe established in the procedures. Such procedures are not 
required to include review of a credit score.

                         Paragraph 36(f)(3)(iii)

    1. Training. The periodic training required in Sec. 
1026.36(f)(3)(iii) must be sufficient in frequency, timing, duration, 
and content to ensure that the individual loan originator has the 
knowledge of State and Federal legal requirements that apply to the 
individual loan originator's loan origination activities. The training 
must take into consideration the particular responsibilities of the 
individual loan originator and the nature and complexity of the mortgage 
loans with which the individual loan originator works. An individual 
loan originator is not required to receive training on requirements and 
standards that apply to types of mortgage loans that the individual loan 
originator does not originate, or on subjects in which the individual 
loan originator already has the necessary knowledge and skill. Training 
may be delivered by the loan originator organization or any other person 
and may utilize workstation, internet, teleconferencing, or other 
interactive technologies and delivery methods. Training that a 
government agency or housing finance agency has established for an 
individual to originate mortgage loans under a program sponsored or 
regulated by a Federal, State, or other government agency or housing 
finance agency satisfies the requirement in Sec. 1026.36(f)(3)(iii), to 
the extent that the training covers the types of loans the individual 
loan originator originates and applicable Federal and State laws and 
regulations. Training that the NMLSR has approved to meet the licensed 
loan originator continuing education requirement at Sec. 1008.107(a)(2) 
of this chapter satisfies the requirement of Sec. 1026.36(f)(3)(iii), 
to the extent that the training covers the types of loans the individual 
loan originator originates and applicable Federal and State laws and 
regulations. The training requirements under Sec. 1026.36(f)(3)(iii) 
apply to individual loan originators regardless of when they were hired.

                36(g) Name and NMLSR ID on Loan Documents

                           Paragraph 36(g)(1)

    1. NMLSR ID. Section 1026.36(g) requires a loan originator 
organization to include its name and NMLSR ID and the name and NMLSR ID 
of the individual loan originator on certain loan documents. As provided 
in Sec. 1026.36(a)(1), the term ``loan originator'' includes creditors 
that engage in loan originator activities for purposes of this 
requirement. Thus, for example, if an individual loan originator 
employed by a bank originates a loan, the names and NMLSR IDs of the 
individual and the bank must be included on covered loan documents. The 
NMLSR ID is a number generally assigned by the NMLSR to individuals 
registered or licensed through NMLSR to provide loan origination 
services. For more information, see the SAFE Act sections 1503(3) and 
(12) and 1504 (12 U.S.C. 5102(3) and (12) and 5103), and its 
implementing regulations (12 CFR 1007.103(a) and 1008.103(a)(2)). A loan 
originator organization may also have an NMLSR unique identifier.
    2. Loan originators without NMLSR IDs. An NMLSR ID is not required 
by Sec. 1026.36(g) to be included on loan documents if the loan 
originator is not required to obtain and has not been issued an NMLSR 
ID. For example, certain loan originator organizations and individual 
loan originators who are employees of bona fide nonprofit organizations 
may not be required to obtain a unique identifier

[[Page 673]]

under State law. However, some loan originators may have obtained NMLSR 
IDs, even if they are not required to have one for their current jobs. 
If a loan originator organization or an individual loan originator has 
been provided a unique identifier by the NMLSR, it must be included on 
the covered loan documents, regardless of whether the loan originator 
organization or individual loan originator is required to obtain an 
NMLSR unique identifier. In any event, the name of the loan originator 
is required by Sec. 1026.36(g) to be included on the covered loan 
documents.
    3. Inclusion of name and NMLSR ID. Section 1026.36(g)(1) requires 
the inclusion of loan originator names and NMLSR IDs on each loan 
document. Those items need not be included more than once on each loan 
document on which loan originator names and NMLSR IDs are required, such 
as by including them on every page of a document.

                         Paragraph 36(g)(1)(ii)

    1. Multiple individual loan originators. If more than one individual 
meets the definition of a loan originator for a transaction, the name 
and NMLSR ID of the individual loan originator with primary 
responsibility for the transaction at the time the loan document is 
issued must be included. A loan originator organization that establishes 
and follows a reasonable, written policy for determining which 
individual loan originator has primary responsibility for the 
transaction at the time the document is issued complies with the 
requirement. If the individual loan originator with primary 
responsibility for a transaction at the time a document is issued is not 
the same individual loan originator who had primary responsibility for 
the transaction at the time that a previously issued document was 
issued, the previously issued document is not required to be reissued 
merely to change a loan originator name and NMLSR ID.
    36(i) Prohibition on financing credit insurance.
    1. Financing credit insurance premiums or fees. In the case of 
single-premium credit insurance, a creditor violates Sec. 1026.36(i) by 
adding the credit insurance premium or fee to the amount owed by the 
consumer at closing. In the case of monthly-pay credit insurance, a 
creditor violates Sec. 1026.36(i) if, upon the close of the monthly 
period in which the premium or fee is due, the creditor includes the 
premium or fee in the amount owed by the consumer.
    36(k) Negative amortization counseling.
    36(k)(1) Counseling required.
    1. HUD-certified or -approved counselor or counseling organization. 
For purposes of Sec. 1026.36(k), organizations or counselors certified 
or approved by the U.S. Department of Housing and Urban Development 
(HUD) to provide the homeownership counseling required by Sec. 
1026.36(k) include counselors and counseling organizations that are 
certified or approved pursuant to section 106(e) of the Housing and 
Urban Development Act of 1968 (12 U.S.C. 1701x(e)) or 24 CFR part 214, 
unless HUD determines otherwise.
    2. Homeownership counseling. The counseling required under Sec. 
1026.36(k) must include information regarding the risks and consequences 
of negative amortization.
    3. Documentation. Examples of documentation that demonstrate a 
consumer has received the counseling required under Sec. 1026.36(k) 
include a certificate of counseling, letter, or email from a HUD-
certified or -approved counselor or counseling organization indicating 
that the consumer has received homeownership counseling.
    4. Processing applications. Prior to receiving documentation that a 
consumer has received the counseling required under Sec. 1026.36(k), a 
creditor may not extend credit to a first-time borrower in connection 
with a closed-end transaction secured by a dwelling that may result in 
negative amortization, but may engage in other activities, such as 
processing an application for such a transaction (by, for example, 
ordering an appraisal or title search).
    36(k)(3) Steering prohibited.
    1. See comments 34(a)(5)(vi)-1 and -2 for guidance concerning 
steering.

             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.

[[Page 674]]

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 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

[[Page 675]]

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 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

[[Page 676]]

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 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

[[Page 677]]

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 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.

[[Page 678]]

    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 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

[[Page 679]]

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 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

[[Page 680]]

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.)

                      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

[[Page 681]]

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.
    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

[[Page 682]]

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 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

[[Page 683]]

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 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.''

[[Page 684]]

    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-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

[[Page 685]]

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 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.)

[[Page 686]]

    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 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.

[[Page 687]]

                           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 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

[[Page 688]]

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 
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

[[Page 689]]

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 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

[[Page 690]]

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 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.

[[Page 691]]

    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 1026.41--Periodic Statements for Residential Mortgage Loans

    41(a) In general.
    1. Recipient of periodic statement. When two consumers are joint 
obligors with primary liability on a closed-end consumer credit 
transaction secured by a dwelling, subject to Sec. 1026.41, the 
periodic statement may be sent to either one of them. For example, if a 
husband and wife jointly own a home, the servicer need not send 
statements to both the husband and the wife; a single statement may be 
sent.
    2. Billing cycles shorter than a 31-day period. If a loan has a 
billing cycle shorter than a period of 31 days (for example, a bi-weekly 
billing cycle), a periodic statement covering an entire month may be 
used. Such statement would separately list the upcoming payment due 
dates and amounts due, as required by Sec. 1026.20(d)(1), and list all 
transaction activity that occurred during the related time period, as 
required by paragraph (d)(4). Such statement may aggregate the 
information for the explanation of amount due, as required by paragraph 
(d)(2), and past payment breakdown, as required by paragraph (d)(3).
    3. One statement per billing cycle. The periodic statement 
requirement in Sec. 1026.41 applies to the ``creditor, assignee, or 
servicer as applicable.'' The creditor, assignee, and servicer are all 
subject to this requirement (but see comment 41(a)-4), but only one 
statement must be sent to the consumer each billing cycle. When two or 
more parties are subject to this requirement, they may decide among 
themselves which of them will send the statement.
    4. Opting out. A consumer may not opt out of receiving periodic 
statements altogether. However, consumers who have demonstrated the 
ability to access statements online may opt out of receiving 
notifications that statements are available. Such an ability may be 
demonstrated, for example, by the consumer receiving notification that 
the statements is available, going to the Web site where the information 
is available, viewing the information about their account and selecting 
a link or option there to indicate they no longer would like to receive 
notifications when new statements are available.
    41(b) Timing of the periodic statement.
    1. Reasonably prompt time. Section 1026.41(b) requires that the 
periodic statement be delivered or placed in the mail no later than a 
reasonably prompt time after the payment due date or the end of any 
courtesy period. Delivering, emailing or placing the periodic statement 
in the mail within four days of the close of the courtesy period of the 
previous billing cycle generally would be considered reasonably prompt.
    2. Courtesy period. The meaning of ``courtesy period'' is explained 
in comment 7(b)(11)-1.
    41(c) Form of the periodic statement.
    1. Clear and conspicuous standard. The ``clear and conspicuous'' 
standard generally requires that disclosures be in a reasonably 
understandable form. Except where otherwise provided, the standard does 
not prohibit adding to the required disclosures, as long as the 
additional information does not overwhelm or obscure the required 
disclosures. For example, while certain information about the escrow 
account (such as the account balance) is not required on the periodic 
statement, this information may be included.
    2. Additional information; disclosures required by other laws. 
Nothing in Sec. 1026.41 prohibits a servicer from including additional 
information or combining disclosures required by other laws with the 
disclosures required by this subpart, unless such prohibition is 
expressly set forth in this subpart, or other applicable law.
    3. Electronic distribution. The periodic statement may be provided 
electronically if the consumer agrees. The consumer must give 
affirmative consent to receive statements electronically. If statements 
are provided electronically, the creditor, assignee, or servicer may 
send a notification that a consumer's statement is available, with a 
link to where the statement can be accessed, in place of the statement 
itself.
    4. Presumed consent. Any consumer who is currently receiving 
disclosures for any account (for example, a mortgage or checking 
account) electronically from their servicer shall be deemed to have 
consented to receiving e-statements in place of paper statements.
    41(d) Content and layout of the periodic statement.
    1. Close proximity. Paragraph (d) requires several disclosures to be 
provided in close proximity to one another. To meet this requirement, 
the items to be provided in close proximity must be grouped together, 
and set

[[Page 692]]

off from the other groupings of items. This could be accomplished in a 
variety of ways, for example, by presenting the information in boxes, or 
by arranging the items on the document and including spacing between the 
groupings. Items in close proximity may not have any intervening text 
between them.'
    2. Not applicable. If an item required by paragraph (d) or (e) of 
this section is not applicable to the loan, it may be omitted from the 
periodic statement or coupon book. For example, if there is no 
prepayment penalty associated with a loan, the prepayment penalty 
disclosures need not be provided on the periodic statement.
    3. Terminology. A servicer may use terminology other than that found 
on the sample periodic statements in appendix H-30, so long as the new 
terminology is commonly understood. For example, servicers may take into 
consideration regional differences in terminology and refer to the 
account for the collection of taxes and insurance, referred to in Sec. 
1026.41(d) as the ``escrow account,'' as an ``impound account.''
    41(d)(3) Past payment breakdown.
    1. Partial payments. The disclosure of any partial payments received 
since the previous statement that were sent to a suspense or unapplied 
funds account as required by Sec. 1026.41(d)(3)(i) should reflect any 
funds that were received in the time period covered by the current 
statement and that were placed in such account. The disclosure of any 
portion of payments since the beginning of the calendar year that was 
sent to a partial payment or suspense account as required by Sec. 
1026.41(d)(3)(ii) should reflect all funds that are currently held in a 
suspense or unapplied funds account. For example:
    i. Suppose a payment of $1,000 is due, but the consumer sends in 
only $600 on January 1, which is held in a suspense account. Further 
assume there are no fees charged on this account. Assuming there are no 
other funds in the suspense account, the January statement should 
reflect: Unapplied funds since last statement--$600. Unapplied funds 
YTD--$600.
    ii. Assume the same facts as in the preceding paragraph, except that 
during February the consumer sends in $300 and this too is held in the 
suspense account. The statement should reflect: Unapplied funds since 
last statement--$300. Unapplied funds YTD--$900.
    iii. Assume the same facts as in the preceding paragraph, except 
that during March the consumer sends in $400. Of this payment, $100 
completes a full periodic payment when added to the $900 in funds 
already held in the suspense account. This $1,000 is applied to the 
January payment, and the remaining $300 remains in the suspense account. 
The statement should reflect: Unapplied funds since last statement--
$300. Unapplied Funds YTD--$300.
    41(d)(4) Transaction Activity.
    1. Meaning. Transaction activity includes any transaction that 
credits or debits the amount currently due. This is the same amount that 
is required to be disclosed under Sec. 1026.41(d)(1)(iii). Examples of 
such transactions include, without limitation:
    i. Payments received and applied;
    ii. Payments received and held in a suspense account;
    iii. The imposition of any fees (for example late fees); and
    iv. The imposition of any charges (for example, private mortgage 
insurance).
    2. Description of late fees. The description of any late fee charges 
includes the date of the late fee, the amount of the late fee, and the 
fact that a late fee was imposed.
    3. Partial payments. If a partial payment is sent to a suspense or 
unapplied funds account, this fact must be in the transaction 
description along with the date and amount of the payment.
    41(e)(3) Coupon book exemption.
    1. Fixed rate. For guidance on the meaning of ``fixed rate'' for 
purposes of Sec. 1026.41(e)(3), see Sec. 1026.18(s)(7)(iii) and its 
commentary.
    2. Coupon book. A coupon book is a booklet provided to the consumer 
with a page for each billing cycle during a set period of time (often 
covering one year). These pages are designed to be torn off and returned 
to the servicer with a payment for each billing cycle. Additional 
information about the loan is often included on or inside the front or 
back cover, or on filler pages in the coupon book.
    3. Information location. The information required by paragraph 
(e)(3)(ii) need not be provided on each coupon, but should be provided 
somewhere in the coupon book. Such information could be located, e.g., 
on or inside the front or back cover, or on filler pages in the coupon 
book.
    4. Outstanding principal balance. Paragraph (e)(3)(ii)(A) requires 
the information listed in paragraph (d)(7) to be included in the coupon 
book. Paragraph (d)(7)(i) requires the disclosure of the outstanding 
principal balance. If the servicer makes use of a coupon book and the 
exemption in Sec. 1026.41(e)(3), the servicer need only disclose the 
principal balance at the beginning of the time period covered by the 
coupon book.
    41(e)(4) Small servicers.
    41(e)(4)(ii) Small servicer defined.
    1. Small servicers that do not qualify for the exemption. A servicer 
that services any mortgage loans for which a servicer or an affiliate is 
not the creditor or assignee is not a small servicer. For example, a 
servicer that owns mortgage servicing rights for mortgage loans that are 
not owned by the servicer or an affiliate, or for which the servicer or 
an affiliate was not the entity to whom the obligation was initially 
payable, is not a small servicer.

[[Page 693]]

    2. Master servicing and subservicing. Both a master servicer and a 
subservicer, as those terms are defined in 12 CFR 1024.31, must meet the 
requirements of a small servicer. For example, if a master servicer 
meets the definition of a small servicer, but retains a subservicer that 
does not meet the definition of a small servicer, the subservicer is not 
a small servicer for the purposes of determining any exemption, and must 
comply with the requirements of a servicer.
    41(e)(4)(iii) Small servicer determination.
    41(e)(4)(iii) Small servicer determination.
    1. Loans obtained by merger or acquisition. Any mortgage loans 
obtained by a servicer or an affiliate as part of a merger or 
acquisition, or as part of the acquisition of all of the assets or 
liabilities of a branch office of a creditor, should be considered 
mortgage loans for which the servicer or an affiliate is the creditor to 
which the mortgage loan is initially payable. A branch office means 
either an office of a depository institution that is approved as a 
branch by a Federal or State supervisory agency or an office of a for-
profit mortgage lending institution (other than a depository 
institution) that takes applications from the public for mortgage loans.
    2. Application of evaluation threshold. The following examples 
demonstrate when a servicer either is considered or is no longer 
considered a small servicer:
    i. A servicer that begins servicing more than 5,000 mortgage loans 
on October 1, and services more than 5,000 mortgage loans as of January 
1 of the following year, would no longer be considered a small servicer 
on April 1 of that following year.
    ii. A servicer that begins servicing more than 5,000 mortgage loans 
on February 1, and services more than 5,000 mortgage loans as of January 
1 of the following year, would no longer be considered a small servicer 
on January 1 of that following year.
    iii. A servicer that begins servicing more than 5,000 mortgage loans 
on February 1, but services less than 5,000 mortgage loans as of January 
1 of the following year, is considered a small servicer for that 
following year.

                 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).
    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

[[Page 694]]

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 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

[[Page 695]]

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 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

[[Page 696]]

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 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

[[Page 697]]

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.

               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.

[[Page 698]]

    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 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-

[[Page 699]]

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 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

[[Page 700]]

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).

    Section 1026.43--Minimum Standards for Transactions Secured by a 
                                Dwelling

    1. Record retention. See Sec. 1026.25(c)(3) and comments 25(c)(3)-1 
and -2 for guidance on the required retention of records as evidence of 
compliance with Sec. 1026.43.
    43(a) Scope.
    1. Consumer credit. In general, Sec. 1026.43 applies to consumer 
credit transactions secured by a dwelling, but certain dwelling-secured 
consumer credit transactions are exempt or partially exempt from 
coverage under Sec. 1026.43(a)(1) through (3). (See Sec. 1026.2(a)(12) 
for the definition of ``consumer credit.'') Section 1026.43 does not 
apply to an extension of credit primarily for a business, commercial, or 
agricultural purpose, even if it is secured by a dwelling. See Sec. 
1026.3 and associated commentary for guidance in determining the primary 
purpose of an extension of credit. In addition, Sec. 1026.43 does not 
apply to any change to an existing loan that is not treated as a 
refinancing under Sec. 1026.20(a).
    2. Real property. ``Dwelling'' means a residential structure that 
contains one to four units, whether or not the structure is attached to 
real property. See Sec. 1026.2(a)(19). For purposes of Sec. 1026.43, 
the term ``dwelling'' includes any real property to which the 
residential structure is attached that also secures the covered 
transaction. For example, for purposes of Sec. 1026.43(c)(2)(i), the 
value of the dwelling that secures the covered transaction includes the 
value of any real property to which the residential structure is 
attached that also secures the covered transaction.
    Paragraph 43(a)(3).
    1. Renewable temporary or ``bridge'' loan. Under Sec. 
1026.43(a)(3)(ii), a temporary or ``bridge'' loan with a term of 12 
months or less is exempt from Sec. 1026.43(c) through (f). Examples of 
such a loan are a loan to finance the purchase of a new dwelling where 
the consumer plans to sell a current dwelling within 12 months and a 
loan to finance the initial construction of a dwelling. Where a 
temporary or ``bridge loan'' is renewable, the loan term does not 
include any additional period of time that could result from a renewal 
provision provided that any renewal possible under the loan contract is 
for one year or less. For example, if a construction loan has an initial 
loan term of 12 months but is renewable for another 12-month loan term, 
the loan is exempt from Sec. 1026.43(c) through (f) because the initial 
loan term is 12 months.
    2. Construction phase of a construction-to-permanent loan. Under 
Sec. 1026.43(a)(3)(iii), a construction phase of 12 months or less of a 
construction-to-permanent loan is exempt from Sec. 1026.43(c) through 
(f). A construction-to-permanent loan is a potentially multiple-

[[Page 701]]

advance loan to finance the construction, rehabilitation, or improvement 
of a dwelling that may be permanently financed by the same creditor. For 
such a loan, the construction phase and the permanent phase may be 
treated as separate transactions for the purpose of compliance with 
Sec. 1026.43(c) through (f), and the construction phase of the loan is 
exempt from Sec. 1026.43(c) through (f), provided the initial term is 
12 months or less. See Sec. 1026.17(c)(6)(ii), allowing similar 
treatment for disclosures. Where the construction phase of a 
construction-to-permanent loan is renewable for a period of one year or 
less, the term of that construction phase does not include any 
additional period of time that could result from a renewal provision. 
For example, if the construction phase of a construction-to-permanent 
loan has an initial term of 12 months but is renewable for another 12-
month term before permanent financing begins, the construction phase is 
exempt from Sec. 1026.43(c) through (f) because the initial term is 12 
months. Any renewal of one year or less also qualifies for the 
exemption. The permanent phase of the loan is treated as a separate 
transaction and is not exempt under Sec. 1026.43(a)(3)(iii). It may be 
a qualified mortgage if it satisfies the appropriate requirements.
    43(b) Definitions.
    43(b)(1) Covered transaction.
    1. The definition of covered transaction restates the scope of the 
rule as described at Sec. 1026.43(a).
    43(b)(3) Fully indexed rate.
    1. Discounted and premium adjustable-rate transactions. In some 
adjustable-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. In some cases, the initial rate charged to 
consumers is lower than the rate would be if it were calculated using 
the index or formula that will apply after recast, as determined at 
consummation (i.e., a ``discounted rate''). In other cases, the initial 
rate may be higher (i.e., a ``premium rate''). For purposes of 
determining the fully indexed rate where the initial interest rate is 
not determined using the index or formula for subsequent interest rate 
adjustments, the creditor must use the interest rate that would have 
applied had the creditor used such index or formula plus margin at the 
time of consummation. That is, in determining the fully indexed rate, 
the creditor must not take into account any discounted or premium rate. 
To illustrate, assume an adjustable-rate transaction where the initial 
interest rate is not based on an index or formula, or is based on an 
index or formula that will not apply after recast, and is set at 5 
percent for the first five years. The loan agreement provides that 
future interest rate adjustments will be calculated based on a specific 
index plus a 3 percent margin. If the value of the index at consummation 
is 5 percent, the interest rate that would have been applied at 
consummation had the creditor based the initial rate on this index is 8 
percent (5 percent plus 3 percent margin). For purposes of Sec. 
1026.43(b)(3), the fully indexed rate is 8 percent. For discussion of 
payment calculations based on the greater of the fully indexed rate or 
premium rate for purposes of the repayment ability determination under 
Sec. 1026.43(c), see Sec. 1026.43(c)(5)(i) and comment 43(c)(5)(i)-2.
    2. Index or formula value at consummation. The value at consummation 
of the index or formula need not be used if the contract provides for a 
delay in the implementation of changes in an index value or formula. For 
example, if the contract specifies that rate changes are based on the 
index value in effect 45 days before the change date, the creditor may 
use any index value in effect during the 45 days before consummation in 
calculating the fully indexed rate.
    3. Interest rate adjustment caps. If the terms of the legal 
obligation contain a periodic interest rate adjustment cap that would 
prevent the initial rate, at the time of the first adjustment, from 
changing to the rate determined using the index or formula value at 
consummation (i.e., the fully indexed rate), the creditor must not give 
any effect to that rate cap when determining the fully indexed rate. 
That is, a creditor must determine the fully indexed rate without taking 
into account any periodic interest rate adjustment cap that may limit 
how quickly the fully indexed rate may be reached at any time during the 
loan term under the terms of the legal obligation. To illustrate, assume 
an adjustable-rate mortgage has an initial fixed rate of 5 percent for 
the first three years of the loan, after which the rate will adjust 
annually to a specified index plus a margin of 3 percent. The loan 
agreement provides for a 2 percent annual interest rate adjustment cap, 
and a lifetime maximum interest rate of 10 percent. The index value in 
effect at consummation is 4.5 percent; the fully indexed rate is 7.5 
percent (4.5 percent plus 3 percent), regardless of the 2 percent annual 
interest rate adjustment cap that would limit when the fully indexed 
rate would take effect under the terms of the legal obligation.
    4. Lifetime maximum interest rate. A creditor may choose, in its 
sole discretion, to take into account the lifetime maximum interest rate 
provided under the terms of the legal obligation when determining the 
fully indexed rate. To illustrate, assume an adjustable-rate mortgage 
has an initial fixed rate of 5 percent for the first three years of the 
loan, after which the rate will adjust annually to a specified index 
plus a margin of 3 percent. The loan agreement provides for a 2 percent 
annual interest rate adjustment cap and a lifetime maximum interest rate 
of 7

[[Page 702]]

percent. The index value in effect at consummation is 4.5 percent; under 
the generally applicable rule, the fully indexed rate is 7.5 percent 
(4.5 percent plus 3 percent). Nevertheless, the creditor may choose to 
use the lifetime maximum interest rate of 7 percent as the fully indexed 
rate, rather than 7.5 percent, for purposes of Sec. 1026.43(b)(3). 
Furthermore, if the creditor chooses to use the lifetime maximum 
interest rate and the loan agreement provides a range for the maximum 
interest rate, then the creditor complies by using the highest rate in 
that range as the maximum interest rate for purposes of Sec. 
1026.43(b)(3).
    5. Step-rate and fixed-rate mortgages. Where the interest rate 
offered under the terms of the legal obligation is not based on, and 
does not vary with, an index or formula (i.e., there is no fully indexed 
rate), the creditor must use the maximum interest rate that may apply at 
any time during the loan term. To illustrate:
    i. Assume a step-rate mortgage with an interest rate fixed at 6.5 
percent for the first two years of the loan, 7 percent for the next 
three years, and 7.5 percent thereafter for the remainder of loan term. 
For purposes of this section, the creditor must use 7.5 percent, which 
is the maximum rate that may apply during the loan term. ``Step-rate 
mortgage'' is defined in Sec. 1026.18(s)(7)(ii).
    ii. Assume a fixed-rate mortgage with an interest rate at 
consummation of 7 percent that is fixed for the 30-year loan term. For 
purposes of this section, the maximum interest rate that may apply 
during the loan term is 7 percent, which is the interest rate that is 
fixed at consummation. ``Fixed-rate mortgage'' is defined in Sec. 
1026.18(s)(7)(iii).
    43(b)(4) Higher-priced covered transaction.
    1. Average prime offer rate. The average prime offer rate is defined 
in Sec. 1026.35(a)(2). For further explanation of the meaning of 
``average prime offer rate,'' and additional guidance on determining the 
average prime offer rate, see comments 35(a)(2)-1 through -4.
    2. Comparable transaction. A higher-priced covered transaction is a 
consumer credit transaction that is secured by the consumer's dwelling 
with an annual percentage rate that exceeds by the specified amount the 
average prime offer rate for a comparable transaction as of the date the 
interest rate is set. The published tables of average prime offer rates 
indicate how to identify a comparable transaction. See comment 35(a)(2)-
2.
    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.
    43(b)(5) Loan amount.
    1. Disbursement of the loan amount. The definition of ``loan 
amount'' requires the creditor to use the entire loan amount as 
reflected in the loan contract or promissory note, even though the loan 
amount may not be fully disbursed at consummation. For example, assume 
the consumer enters into a loan agreement where the consumer is 
obligated to repay the creditor $200,000 over 15 years, but only 
$100,000 is disbursed at consummation and the remaining $100,000 will be 
disbursed during the year following consummation in a series of advances 
($25,000 each quarter). For purposes of this section, the creditor must 
use the loan amount of $200,000, even though the loan agreement provides 
that only $100,000 will be disbursed to the consumer at consummation. 
Generally, creditors should rely on Sec. 1026.17(c)(6) and associated 
commentary regarding treatment of multiple-advance and construction-to-
permanent loans as single or multiple transactions. See also comment 
43(a)(3)-2.
    43(b)(6) Loan term.
    1. General. The loan term is the period of time it takes to repay 
the loan amount in full. For example, a loan with an initial discounted 
rate that is fixed for the first two years, and that adjusts 
periodically for the next 28 years has a loan term of 30 years, which is 
the amortization period on which the periodic amortizing payments are 
based.
    43(b)(7) Maximum loan amount.
    1. Calculation of maximum loan amount. For purposes of Sec. 
1026.43(c)(2)(iii) and (c)(5)(ii)(C), a creditor must determine the 
maximum loan amount for a negative amortization loan by using the loan 
amount plus any increase in principal balance that can result from 
negative amortization based on the terms of the legal obligation. In 
determining the maximum loan amount, a creditor must assume that the 
consumer makes the minimum periodic payment permitted under the loan 
agreement for as long as possible, until the consumer must begin making 
fully amortizing payments; and that the interest rate rises as quickly 
as possible after consummation under the terms of the legal obligation. 
Thus, creditors must assume that the consumer makes the minimum periodic 
payment until any negative amortization cap is reached or until the 
period permitting minimum periodic payments expires, whichever occurs 
first. ``Loan amount'' is defined in Sec. 1026.43(b)(5); ``negative 
amortization loan'' is defined in Sec. 1026.18(s)(7)(v).
    2. Assumed interest rate. In calculating the maximum loan amount for 
an adjustable-rate mortgage that is a negative amortization loan, the 
creditor must assume that the interest rate will increase as rapidly as 
possible after consummation, taking into account any periodic interest 
rate adjustment

[[Page 703]]

caps provided in the loan agreement. For an adjustable-rate mortgage 
with a lifetime maximum interest rate but no periodic interest rate 
adjustment cap, the creditor must assume that the interest rate 
increases to the maximum lifetime interest rate at the first adjustment.
    3. Examples. The following are examples of how to determine the 
maximum loan amount for a negative amortization loan (all amounts shown 
are rounded, and all amounts are calculated using non-rounded values):
    i. Adjustable-rate mortgage with negative amortization. A. Assume an 
adjustable-rate mortgage in the amount of $200,000 with a 30-year loan 
term. The loan agreement provides that the consumer can make minimum 
monthly payments that cover only part of the interest accrued each month 
until the principal balance reaches 115 percent of its original balance 
(i.e., a negative amortization cap of 115 percent) or for the first five 
years of the loan (60 monthly payments), whichever occurs first. The 
introductory interest rate at consummation is 1.5 percent. One month 
after the first day of the first full calendar month following 
consummation, the interest rate adjusts and will adjust monthly 
thereafter based on the specified index plus a margin of 3.5 percent. 
The maximum lifetime interest rate is 10.5 percent; there are no other 
periodic interest rate adjustment caps that limit how quickly the 
maximum lifetime rate may be reached. The minimum monthly payment for 
the first year is based on the initial interest rate of 1.5 percent. 
After that, the minimum monthly payment adjusts annually, but may 
increase by no more than 7.5 percent over the previous year's payment. 
The minimum monthly payment is $690 in the first year, $742 in the 
second year, and $797 in the first part of the third year.
    B. To determine the maximum loan amount, assume that the initial 
interest rate increases to the maximum lifetime interest rate of 10.5 
percent at the first adjustment (i.e., the due date of the first 
periodic monthly payment) and accrues at that rate until the loan is 
recast. Assume the consumer makes the minimum monthly payments as 
scheduled, which are capped at 7.5 percent from year-to-year. As a 
result, the consumer's minimum monthly payments are less than the 
interest accrued each month, resulting in negative amortization (i.e., 
the accrued but unpaid interest is added to the principal balance). 
Thus, assuming that the consumer makes the minimum monthly payments for 
as long as possible and that the maximum interest rate of 10.5 percent 
is reached at the first rate adjustment (i.e., the due date of the first 
periodic monthly payment), the negative amortization cap of 115 percent 
is reached on the due date of the 27th monthly payment and the loan is 
recast. The maximum loan amount as of the due date of the 27th monthly 
payment is $229,251.
    ii. Fixed-rate, graduated payment mortgage with negative 
amortization. A loan in the amount of $200,000 has a 30-year loan term. 
The loan agreement provides for a fixed interest rate of 7.5 percent, 
and requires the consumer to make minimum monthly payments during the 
first year, with payments increasing 12.5 percent over the previous year 
every year for four years. The payment schedule provides for payments of 
$943 in the first year, $1,061 in the second year, $1,193 in the third 
year, $1,343 in the fourth year, and $1,511 for the remaining term of 
the loan. During the first three years of the loan, the payments are 
less than the interest accrued each month, resulting in negative 
amortization. Assuming that the consumer makes the minimum periodic 
payments for as long as possible, the maximum loan amount is $207,662, 
which is reached at the end of the third year of the loan (on the due 
date of the 36th monthly payment). See comment 43(c)(5)(ii)(C)-3 
providing examples of how to determine the consumer's repayment ability 
for a negative amortization loan.
    43(b)(8) Mortgage-related obligations.
    1. General. Section 1026.43(b)(8) defines mortgage-related 
obligations, which must be considered in determining a consumer's 
ability to repay pursuant to Sec. 1026.43(c). Section 1026.43(b)(8) 
includes, in the evaluation of mortgage-related obligations, fees and 
special assessments owed to a condominium, cooperative, or homeowners 
association. Section 1026.43(b)(8) includes ground rent and leasehold 
payments in the definition of mortgage-related obligations. See 
commentary to Sec. 1026.43(c)(2)(v) regarding the requirement to take 
into account any mortgage-related obligations for purposes of 
determining a consumer's ability to repay.
    2. Property taxes. Section 1026.43(b)(8) includes property taxes in 
the evaluation of mortgage-related obligations. Obligations that are 
related to the ownership or use of real property and paid to a taxing 
authority, whether on a monthly, quarterly, annual, or other basis, are 
property taxes for purposes of Sec. 1026.43(b)(8). Section 
1026.43(b)(8) includes obligations that are equivalent to property 
taxes, even if such obligations are not denominated as ``taxes.'' For 
example, governments may establish or allow independent districts with 
the authority to impose levies on properties within the district to fund 
a special purpose, such as a local development bond district, water 
district, or other public purpose. These levies may be referred to as 
taxes, assessments, surcharges, or by some other name. For purposes of 
Sec. 1026.43(b)(8), these are property taxes and are included in the 
determination of mortgage-related obligations.

[[Page 704]]

    3. Insurance premiums and similar charges. Section 1026.43(b)(8) 
includes in the evaluation of mortgage-related obligations premiums and 
similar charges identified in Sec. 1026.4(b)(5), (7), (8), or (10) that 
are required by the creditor. This includes all premiums or charges 
related to coverage protecting the creditor against a consumer's 
default, credit loss, collateral loss, or similar loss, if the consumer 
is required to pay the premium or charge. For example, if Federal law 
requires flood insurance to be obtained in connection with the mortgage 
loan, the flood insurance premium is a mortgage-related obligation for 
purposes of Sec. 1026.43(b)(8). Section 1026.43(b)(8) does not include 
premiums or similar charges identified in Sec. 1026.4(b)(5), (7), (8), 
or (10) that are not required by the creditor and that the consumer 
purchases voluntarily. For example:
    i. If a creditor does not require earthquake insurance to be 
obtained in connection with the mortgage loan, but the consumer 
voluntarily chooses to purchase such insurance, the earthquake insurance 
premium is not a mortgage-related obligation for purposes of Sec. 
1026.43(b)(8).
    ii. If a creditor requires a minimum amount of coverage for 
homeowners' insurance and the consumer voluntarily chooses to purchase a 
more comprehensive amount of coverage, the portion of the premium 
allocated to the required minimum coverage is a mortgage-related 
obligation for purposes of Sec. 1026.43(b)(8), while the portion of the 
premium allocated to the more comprehensive coverage voluntarily 
purchased by the consumer is not a mortgage-related obligation for 
purposes of Sec. 1026.43(b)(8).
    iii. If the consumer purchases insurance or similar coverage not 
required by the creditor at consummation without having requested the 
specific non-required insurance or similar coverage and without having 
agreed to the premium or charge for the specific non-required insurance 
or similar coverage prior to consummation, the premium or charge is not 
voluntary for purposes of Sec. 1026.43(b)(8) and is a mortgage-related 
obligation.
    4. Mortgage insurance, guarantee, or similar charges. Section 
1026.43(b)(8) includes in the evaluation of mortgage-related obligations 
premiums or charges protecting the creditor against the consumer's 
default or other credit loss. This includes all premiums or similar 
charges, whether denominated as mortgage insurance, guarantee, or 
otherwise, as determined according to applicable State or Federal law. 
For example, monthly ``private mortgage insurance'' payments paid to a 
non-governmental entity, annual ``guarantee fee'' payments required by a 
Federal housing program, and a quarterly ``mortgage insurance'' payment 
paid to a State agency administering a housing program are all mortgage-
related obligations for purposes of Sec. 1026.43(b)(8). Section 
1026.43(b)(8) includes these charges in the definition of mortgage-
related obligations if the creditor requires the consumer to pay them, 
even if the consumer is not legally obligated to pay the charges under 
the terms of the insurance program. For example, if a mortgage insurance 
program obligates the creditor to make recurring mortgage insurance 
payments, and the creditor requires the consumer to reimburse the 
creditor for such recurring payments, the consumer's payments are 
mortgage-related obligations for purposes of Sec. 1026.43(b)(8). 
However, if a mortgage insurance program obligates the creditor to make 
recurring mortgage insurance payments, and the creditor does not require 
the consumer to reimburse the creditor for the cost of the mortgage 
insurance payments, the recurring mortgage insurance payments are not 
mortgage-related obligations for purposes of Sec. 1026.43(b)(8).
    5. Relation to the finance charge. Section 1026.43(b)(8) includes in 
the evaluation of mortgage-related obligations premiums and similar 
charges identified in Sec. 1026.4(b)(5), (7), (8), or (10) that are 
required by the creditor. These premiums and similar charges are 
mortgage-related obligations regardless of whether the premium or 
similar charge is excluded from the finance charge pursuant to Sec. 
1026.4(d). For example, a premium for insurance against loss or damage 
to the property written in connection with the credit transaction is a 
premium identified in Sec. 1026.4(b)(8). If this premium is required by 
the creditor, the premium is a mortgage-related obligation pursuant to 
Sec. 1026.43(b)(8), regardless of whether the premium is excluded from 
the finance charge pursuant to Sec. 1026.4(d)(2).
    43(b)(11) Recast.
    1. Date of the recast. The term ``recast'' means, for an adjustable-
rate mortgage, the expiration of the period during which payments based 
on the introductory fixed rate are permitted; for an interest-only loan, 
the expiration of the period during which the interest-only payments are 
permitted; and, for a negative amortization loan, the expiration of the 
period during which negatively amortizing payments are permitted. For 
adjustable-rate mortgages, interest-only loans, and negative 
amortization loans, the date on which the recast is considered to occur 
is the due date of the last monthly payment based on the introductory 
fixed rate, the interest-only payment, or the negatively amortizing 
payment, respectively. To illustrate: A loan in an amount of $200,000 
has a 30-year loan term. The loan agreement provides for a fixed 
interest rate and permits interest-only payments for the first five 
years of the loan (60 months). The loan is recast on the due date of the 
60th monthly payment. Thus, the term of the loan remaining as of the 
date the loan is recast is 25 years (300 months).
    43(b)(12) Simultaneous loan.

[[Page 705]]

    1. General. Section 1026.43(b)(12) defines a simultaneous loan as 
another covered transaction or a home equity line of credit (HELOC) 
subject to Sec. 1026.40 that will be secured by the same dwelling and 
made to the same consumer at or before consummation of the covered 
transaction, whether it is made by the same creditor or a third-party 
creditor. (As with all of Sec. 1026.43, the term ``dwelling'' includes 
any real property attached to a dwelling.) For example, assume a 
consumer will enter into a legal obligation that is a covered 
transaction with Creditor A. Immediately prior to consummation of the 
covered transaction with Creditor A, the consumer opens a HELOC that is 
secured by the same dwelling with Creditor B. For purposes of this 
section, the loan extended by Creditor B is a simultaneous loan. See 
commentary to Sec. 1026.43(c)(2)(iv) and (c)(6), discussing the 
requirement to consider the consumer's payment obligation on any 
simultaneous loan for purposes of determining the consumer's ability to 
repay the covered transaction subject to this section.
    2. Same consumer. For purposes of the definition of ``simultaneous 
loan,'' the term ``same consumer'' includes any consumer, as that term 
is defined in Sec. 1026.2(a)(11), that enters into a loan that is a 
covered transaction and also enters into another loan (e.g., second-lien 
covered transaction or HELOC) secured by the same dwelling. Where two or 
more consumers enter into a legal obligation that is a covered 
transaction, but only one of them enters into another loan secured by 
the same dwelling, the ``same consumer'' includes the person that has 
entered into both legal obligations. For example, assume Consumer A and 
Consumer B will both enter into a legal obligation that is a covered 
transaction with a creditor. Immediately prior to consummation of the 
covered transaction, Consumer B opens a HELOC that is secured by the 
same dwelling with the same creditor; Consumer A is not a signatory to 
the HELOC. For purposes of this definition, Consumer B is the same 
consumer and the creditor must include the HELOC as a simultaneous loan.
    43(b)(13) Third-party record.
    1. Electronic records. Third-party records include records 
transmitted electronically. For example, to verify a consumer's credit 
history using third-party records as required by Sec. 
1026.43(c)(2)(viii) and 1026.43(c)(3), a creditor may use a credit 
report prepared by a consumer reporting agency that is transmitted 
electronically.
    2. Forms. A record prepared by a third party includes a form a 
creditor gives to a third party to provide information, even if the 
creditor completes parts of the form unrelated to the information 
sought. For example, if a creditor gives a consumer's employer a form 
for verifying the consumer's employment status and income, the creditor 
may fill in the creditor's name and other portions of the form unrelated 
to the consumer's employment status or income.
    Paragraph 43(b)(13)(i).
    1. Reviewed record. Under Sec. 1026.43(b)(13)(i), a third-party 
record includes a document or other record prepared by the consumer, the 
creditor, the mortgage broker, or the creditor's or mortgage broker's 
agent, if the record is reviewed by an appropriate third party. For 
example, a profit-and-loss statement prepared by a self-employed 
consumer and reviewed by a third-party accountant is a third-party 
record under Sec. 1026.43(b)(13)(i). In contrast, a profit-and-loss 
statement prepared by a self-employed consumer and reviewed by the 
consumer's non-accountant spouse is not a third-party record under Sec. 
1026.43(b)(13)(i).
    Paragraph 43(b)(13)(iii).
    1. Creditor's records. Section 1026.43(b)(13)(iii) provides that a 
third-party record includes a record the creditor maintains for an 
account of the consumer held by the creditor. Examples of such accounts 
include checking accounts, savings accounts, and retirement accounts. 
Examples of such accounts also include accounts related to a consumer's 
outstanding obligations to a creditor. For example, a third-party record 
includes the creditor's records for a first-lien mortgage to a consumer 
who applies for a subordinate-lien home equity loan.
    43(c) Repayment ability.
    43(c)(1) General requirement.
    1. Reasonable and good faith determination. i. General. Creditors 
generally are required by Sec. 1026.43(c)(1) to make reasonable and 
good faith determinations of consumers' ability to repay. Section 
1026.43(c) and the accompanying commentary describe certain requirements 
for making this ability-to-repay determination, but do not provide 
comprehensive underwriting standards to which creditors must adhere. For 
example, the rule and commentary do not specify how much income is 
needed to support a particular level of debt or how credit history 
should be weighed against other factors. So long as creditors consider 
the factors set forth in Sec. 1026.43(c)(2) according to the 
requirements of Sec. 1026.43(c), creditors are permitted to develop 
their own underwriting standards and make changes to those standards 
over time in response to empirical information and changing economic and 
other conditions. Whether a particular ability-to-repay determination is 
reasonable and in good faith will depend not only on the underwriting 
standards adopted by the creditor, but on the facts and circumstances of 
an individual extension of credit and how a creditor's underwriting 
standards were applied to those facts and circumstances. A consumer's 
statement or attestation that the consumer has the ability

[[Page 706]]

to repay the loan is not indicative of whether the creditor's 
determination was reasonable and in good faith.
    ii. Considerations. A. The following may be evidence that a 
creditor's ability-to-repay determination was reasonable and in good 
faith:
    1. The consumer demonstrated actual ability to repay the loan by 
making timely payments, without modification or accommodation, for a 
significant period of time after consummation or, for an adjustable-
rate, interest-only, or negative-amortization mortgage, for a 
significant period of time after recast;
    2. The creditor used underwriting standards that have historically 
resulted in comparatively low rates of delinquency and default during 
adverse economic conditions; or
    3. The creditor used underwriting standards based on empirically 
derived, demonstrably and statistically sound models.
    B. In contrast, the following may be evidence that a creditor's 
ability-to-repay determination was not reasonable or in good faith:
    1. The consumer defaulted on the loan a short time after 
consummation or, for an adjustable-rate, interest-only, or negative-
amortization mortgage, a short time after recast;
    2. The creditor used underwriting standards that have historically 
resulted in comparatively high levels of delinquency and default during 
adverse economic conditions;
    3. The creditor applied underwriting standards inconsistently or 
used underwriting standards different from those used for similar loans 
without reasonable justification;
    4. The creditor disregarded evidence that the underwriting standards 
it used are not effective at determining consumers' repayment ability;
    5. The creditor disregarded evidence that the consumer may have 
insufficient residual income to cover other recurring obligations and 
expenses, taking into account the consumer's assets other than the 
property securing the loan, after paying his or her monthly payments for 
the covered transaction, any simultaneous loans, mortgage-related 
obligations, and any current debt obligations; or
    6. The creditor disregarded evidence that the consumer would have 
the ability to repay only if the consumer subsequently refinanced the 
loan or sold the property securing the loan.
    C. All of the considerations listed in paragraphs (A) and (B) above 
may be relevant to whether a creditor's ability-to-repay determination 
was reasonable and in good faith. However, these considerations are not 
requirements or prohibitions with which creditors must comply, nor are 
they elements of a claim that a consumer must prove to establish a 
violation of the ability-to-repay requirements. For example, creditors 
are not required to validate their underwriting criteria using 
mathematical models. These considerations also are not absolute in their 
application; instead they exist on a continuum and may apply to varying 
degrees. For example, the longer a consumer successfully makes timely 
payments after consummation or recast the less likely it is that the 
creditor's determination of ability to repay was unreasonable or not in 
good faith. Finally, each of these considerations must be viewed in the 
context of all facts and circumstances relevant to a particular 
extension of credit. For example, in some cases inconsistent application 
of underwriting standards may indicate that a creditor is manipulating 
those standards to approve a loan despite a consumer's inability to 
repay. The creditor's ability-to-repay determination therefore may be 
unreasonable or in bad faith. However, in other cases inconsistently 
applied underwriting standards may be the result of, for example, 
inadequate training and may nonetheless yield a reasonable and good 
faith ability-to-repay determination in a particular case. Similarly, 
although an early payment default on a mortgage will often be persuasive 
evidence that the creditor did not have a reasonable and good faith 
belief in the consumer's ability to repay (and such evidence may even be 
sufficient to establish a prima facie case of an ability-to-repay 
violation), a particular ability-to-repay determination may be 
reasonable and in good faith even though the consumer defaulted shortly 
after consummation if, for example, the consumer experienced a sudden 
and unexpected loss of income. In contrast, an ability-to-repay 
determination may be unreasonable or not in good faith even though the 
consumer made timely payments for a significant period of time if, for 
example, the consumer was able to make those payments only by foregoing 
necessities such as food and heat.
    2. Repayment ability at consummation. Section 1026.43(c)(1) requires 
the creditor to determine, at or before the time the loan is 
consummated, that a consumer will have a reasonable ability to repay the 
loan. A change in the consumer's circumstances after consummation (for 
example, a significant reduction in income due to a job loss or a 
significant obligation arising from a major medical expense) that cannot 
be reasonably anticipated from the consumer's application or the records 
used to determine repayment ability is not relevant to determining a 
creditor's compliance with the rule. However, if the application or 
records considered at or before consummation indicate there will be a 
change in a consumer's repayment ability after consummation (for 
example, if a consumer's application states that the consumer plans to 
retire within 12 months without obtaining new employment or that the 
consumer will transition from full-time to

[[Page 707]]

part-time employment), the creditor must consider that information under 
the rule.
    3. Interaction with Regulation B. Section 1026.43(c)(1) does not 
require or permit the creditor to make inquiries or verifications 
prohibited by Regulation B, 12 CFR part 1002.
    43(c)(2) Basis for determination.
    1. General. Section 1026.43(c)(2) sets forth factors creditors must 
consider when making the ability-to-repay determination required under 
Sec. 1026.43(c)(1) and the accompanying commentary provides guidance 
regarding these factors. Creditors must conform to these requirements 
and may rely on guidance provided in the commentary. However, Sec. 
1026.43(c) and the accompanying commentary do not provide comprehensive 
guidance on definitions and other technical underwriting criteria 
necessary for evaluating these factors in practice. So long as a 
creditor complies with the provisions of Sec. 1026.43(c), the creditor 
is permitted to use its own definitions and other technical underwriting 
criteria. A creditor may, but is not required to, look to guidance 
issued by entities such as the Federal Housing Administration, the U.S. 
Department of Veterans Affairs, the U.S. Department of Agriculture, or 
Fannie Mae or Freddie Mac while operating under the conservatorship of 
the Federal Housing Finance Agency. For example, a creditor may refer to 
such guidance to classify particular inflows, obligations, or property 
as ``income,'' ``debt,'' or ``assets.'' Similarly, a creditor may refer 
to such guidance to determine what information to use when evaluating 
the income of a self-employed or seasonally employed consumer or what 
information to use when evaluating the credit history of a consumer who 
has obtained few or no extensions of traditional ``credit'' as defined 
in Sec. 1026.2(a)(14). These examples are illustrative, and creditors 
are not required to conform to guidance issued by these or other such 
entities. However, as required by Sec. 1026.43(c)(1), a creditor must 
ensure that its underwriting criteria, as applied to the facts and 
circumstances of a particular extension of credit, result in a 
reasonable, good faith determination of a consumer's ability to repay. 
For example, a definition used in underwriting that is reasonable in 
isolation may lead to ability-to-repay determinations that are 
unreasonable or not in good faith when considered in the context of a 
creditor's underwriting standards or when adopted or applied in bad 
faith. Similarly, an ability-to-repay determination is not unreasonable 
or in bad faith merely because the underwriting criteria used included a 
definition that was by itself unreasonable.
    Paragraph 43(c)(2)(i).
    1. Income or assets generally. A creditor may base its determination 
of repayment ability on current or reasonably expected income from 
employment or other sources, assets other than the dwelling that secures 
the covered transaction, or both. The creditor may consider any type of 
current or reasonably expected income, including, for example, the 
following: salary; wages; self-employment income; military or reserve 
duty income; bonus pay; tips; commissions; interest payments; dividends; 
retirement benefits or entitlements; rental income; royalty payments; 
trust income; public assistance payments; and alimony, child support, 
and separate maintenance payments. The creditor may consider any of the 
consumer's assets, other than the value of the dwelling that secures the 
covered transaction, including, for example, the following: funds in a 
savings or checking account, amounts vested in a retirement account, 
stocks, bonds, certificates of deposit, and amounts available to the 
consumer from a trust fund. (As stated in Sec. 1026.43(a), the value of 
the dwelling includes the value of the real property to which the 
residential structure is attached, if the real property also secures the 
covered transaction.)
    2. Income or assets relied on. A creditor need consider only the 
income or assets necessary to support a determination that the consumer 
can repay the covered transaction. For example, if a consumer's loan 
application states that the consumer earns an annual salary from both a 
full-time job and a part-time job and the creditor reasonably determines 
that the consumer's income from the full-time job is sufficient to repay 
the loan, the creditor need not consider the consumer's income from the 
part-time job. Further, a creditor need verify only the income (or 
assets) relied on to determine the consumer's repayment ability. See 
comment 43(c)(4)-1.
    3. Reasonably expected income. If a creditor relies on expected 
income in excess of the consumer's income, either in addition to or 
instead of current income, the expectation that the income will be 
available for repayment must be reasonable and verified with third-party 
records 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 records that show the consumer's 
past annual bonuses, and the expected bonus must bear a reasonable 
relationship to the past bonuses. Similarly, if the creditor relies on a 
consumer's expected salary from a job the consumer has accepted and will 
begin after receiving 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.
    4. Seasonal or irregular income. A creditor reasonably may determine 
that a consumer can make periodic loan payments even if the

[[Page 708]]

consumer's income, such as self-employment income, is seasonal or 
irregular. For example, assume a consumer receives seasonal income from 
the sale of crops or from agricultural employment. Each year, the 
consumer's income arrives during only a few months. If the creditor 
determines that the consumer's annual income divided equally across 12 
months is sufficient for the consumer to make monthly loan payments, the 
creditor reasonably may determine that the consumer can repay the loan, 
even though the consumer may not receive income during certain months.
    5. Multiple applicants. When two or more consumers apply for an 
extension of credit as joint obligors with primary liability on an 
obligation, Sec. 1026.43(c)(2)(i) does not require the creditor to 
consider income or assets that are not needed to support the creditor's 
repayment ability determination. If the income or assets of one 
applicant are sufficient to support the creditor's repayment ability 
determination, the creditor is not required to consider the income or 
assets of the other applicant. For example, if a husband and wife 
jointly apply for a loan and the creditor reasonably determines that the 
wife's income is sufficient to repay the loan, the creditor is not 
required to consider the husband's income.
    Paragraph 43(c)(2)(ii).
    1. Employment status and income. Employment status need not be full-
time, and employment need not occur at regular intervals. If, in 
determining the consumer's repayment ability, the creditor relies on 
income from the consumer's employment, then that employment may be, for 
example, full-time, part-time, seasonal, irregular, military, or self-
employment, so long as the creditor considers those characteristics of 
the employment. Under Sec. 1026.43(c)(2)(ii), a creditor must verify a 
consumer's current employment status only if the creditor relies on the 
consumer's employment income in determining the consumer's repayment 
ability. For example, if a creditor relies wholly on a consumer's 
investment income to determine repayment ability, the creditor need not 
verify or document employment status. See comments 43(c)(2)(i)-5 and 
43(c)(4)-2 for guidance on which income to consider when multiple 
consumers apply jointly for a loan.
    Paragraph 43(c)(2)(iii).
    1. General. For purposes of the repayment ability determination 
required under Sec. 1026.43(c)(2), a creditor must consider the 
consumer's monthly payment on a covered transaction that is calculated 
as required under Sec. 1026.43(c)(5).
    Paragraph 43(c)(2)(iv).
    1. Home equity lines of credit. For purposes of Sec. 
1026.43(c)(2)(iv), a simultaneous loan includes any covered transaction 
or home equity line of credit (HELOC) subject to Sec. 1026.40 that will 
be made to the same consumer at or before consummation of the covered 
transaction and secured by the same dwelling that secures the covered 
transaction. A HELOC that is a simultaneous loan that the creditor knows 
or has reason to know about must be considered as a mortgage obligation 
in determining a consumer's ability to repay the covered transaction 
even though the HELOC is not a covered transaction subject to Sec. 
1026.43. See Sec. 1026.43(a) discussing the scope of this section. 
``Simultaneous loan'' is defined in Sec. 1026.43(b)(12). For further 
explanation of ``same consumer,'' see comment 43(b)(12)-2.
    2. Knows or has reason to know. In determining a consumer's 
repayment ability for a covered transaction under Sec. 1026.43(c)(2), a 
creditor must consider the consumer's payment obligation on any 
simultaneous loan that the creditor knows or has reason to know will be 
or has been made at or before consummation of the covered transaction. 
For example, where a covered transaction is a home purchase loan, the 
creditor must consider the consumer's periodic payment obligation for 
any ``piggyback'' second-lien loan that the creditor knows or has reason 
to know will be used to finance part of the consumer's down payment. The 
creditor complies with this requirement where, for example, the creditor 
follows policies and procedures that are designed to determine whether 
at or before consummation the same consumer has applied for another 
credit transaction secured by the same dwelling. To illustrate, assume a 
creditor receives an application for a home purchase loan where the 
requested loan amount is less than the home purchase price. The 
creditor's policies and procedures must require the consumer to state 
the source of the down payment and provide verification. If the creditor 
determines the source of the down payment is another extension of credit 
that will be made to the same consumer at or before consummation and 
secured by the same dwelling, the creditor knows or has reason to know 
of the simultaneous loan and must consider the simultaneous loan. 
Alternatively, if the creditor has information that suggests the down 
payment source is the consumer's existing assets, the creditor would be 
under no further obligation to determine whether a simultaneous loan 
will be extended at or before consummation of the covered transaction. 
The creditor is not obligated to investigate beyond reasonable 
underwriting policies and procedures to determine whether a simultaneous 
loan will be extended at or before consummation of the covered 
transaction.
    3. Scope of timing. For purposes of Sec. 1026.43(c)(2)(iv), a 
simultaneous loan includes a loan that comes into existence concurrently 
with the covered transaction subject to Sec. 1026.43(c). A simultaneous 
loan does not include a credit transaction that occurs

[[Page 709]]

after consummation of the covered transaction that is subject to this 
section. However, any simultaneous loan that specifically covers closing 
costs of the covered transaction, but is scheduled to be extended after 
consummation must be considered for the purposes of Sec. 
1026.43(c)(2)(iv).
    Paragraph 43(c)(2)(v).
    1. General. A creditor must include in its repayment ability 
assessment the consumer's monthly payment for mortgage-related 
obligations, such as the expected property taxes and premiums or similar 
charges identified in Sec. 1026.4(b)(5), (7), (8), or (10) that are 
required by the creditor. See Sec. 1026.43(b)(8) defining the term 
``mortgage-related obligations.'' Mortgage-related obligations must be 
included in the creditor's determination of repayment ability regardless 
of whether the amounts are included in the monthly payment or whether 
there is an escrow account established. Section 1026.43(c)(2)(v) 
includes only payments that occur on an ongoing or recurring basis in 
the evaluation of the consumer's monthly payment for mortgage-related 
obligations. One-time charges, or obligations satisfied at or before 
consummation, are not ongoing or recurring, and are therefore not part 
of the consumer's monthly payment for purposes of Sec. 
1026.43(c)(2)(v). For example:
    i. Assume that a consumer will be required to pay property taxes, as 
described in comment 43(b)(8)-2, on a quarterly, annual, or other basis 
after consummation. Section 1026.43(c)(2)(v) includes these recurring 
property taxes in the evaluation of the consumer's monthly payment for 
mortgage-related obligations. However, if the consumer will incur a one-
time charge to satisfy property taxes that are past due, Sec. 
1026.43(c)(2)(v) does not include this one-time charge in the evaluation 
of the consumer's monthly payment for mortgage-related obligations.
    ii. Assume that a consumer will be required to pay mortgage 
insurance premiums, as described in comment 43(b)(8)-2, on a monthly, 
annual, or other basis after consummation. Section 1026.43(c)(2)(v) 
includes these recurring mortgage insurance payments in the evaluation 
of the consumer's monthly payment for mortgage-related obligations. 
However, if the consumer will incur a one-time fee or charge for 
mortgage insurance or similar purposes, such as an up-front mortgage 
insurance premium imposed at consummation, Sec. 1026.43(c)(2)(v) does 
not include this up-front mortgage insurance premium in the evaluation 
of the consumer's monthly payment for mortgage-related obligations.
    2. Obligations to an association, other than special assessments. 
Section 1026.43(b)(8) defines mortgage-related obligations to include 
obligations owed to a condominium, cooperative, or homeowners 
association. However, Sec. 1026.43(c)(2)(v) does not require a creditor 
to include in the evaluation of the consumer's monthly payment for 
mortgage-related obligations payments to such associations imposed in 
connection with the extension of credit, or imposed as an incident to 
the transfer of ownership, if such obligations are fully satisfied at or 
before consummation. For example, if a homeowners association imposes a 
one-time transfer fee on the transaction, and the consumer will pay the 
fee at or before consummation, Sec. 1026.43(c)(2)(v) does not require 
the creditor to include this one-time transfer fee in the evaluation of 
the consumer's monthly payment for mortgage-related obligations. Section 
1026.43(c)(2)(v) also does not require the creditor to include this fee 
in the evaluation of the consumer's monthly payment for mortgage-related 
obligations if the consumer finances the fee in the loan amount. 
However, if the consumer incurs the obligation and will satisfy the 
obligation with recurring payments after consummation, regardless of 
whether the obligation is escrowed, Sec. 1026.43(c)(2)(v) requires the 
creditor to include the transfer fee in the evaluation of the consumer's 
monthly payment for mortgage-related obligations.
    3. Special assessments imposed by an association. Section 
1026.43(b)(8) defines mortgage-related obligations to include special 
assessments imposed by a condominium, cooperative, or homeowners 
association. Section 1026.43(c)(2)(v) does not require a creditor to 
include special assessments in the evaluation of the consumer's monthly 
payment for mortgage-related obligations if the special assessments are 
fully satisfied at or before consummation. For example, if a homeowners 
association imposes a special assessment that the consumer will have to 
pay in full at or before consummation, Sec. 1026.43(c)(2)(v) does not 
include the special assessment in the evaluation of the consumer's 
monthly payment for mortgage-related obligations. Section 
1026.43(c)(2)(v) does not require a creditor to include special 
assessments in the evaluation of the consumer's monthly payment for 
mortgage-related obligations if the special assessments are imposed as a 
one-time charge. For example, if a homeowners association imposes a 
special assessment that the consumer will have to satisfy in one 
payment, Sec. 1026.43(c)(2)(v) does not include this one-time special 
assessment in the evaluation of the consumer's monthly payment for 
mortgage-related obligations. However, if the consumer will pay the 
special assessment on a recurring basis after consummation, regardless 
of whether the consumer's payments for the special assessment are 
escrowed, Sec. 1026.43(c)(2)(v) requires the creditor to include this 
recurring special assessment in the evaluation of the consumer's monthly 
payment for mortgage-related obligations.

[[Page 710]]

    4. Pro rata amount. For purposes of Sec. 1026.43(c)(2)(v), the 
creditor may divide the recurring payments for mortgage-related 
obligations into monthly, pro rata amounts. In considering a mortgage-
related obligation that is not paid monthly, if the mortgage loan is 
originated pursuant to a government program the creditor may determine 
the pro rata monthly amount of the mortgage-related obligation in 
accordance with the specific requirements of that program. If the 
mortgage loan is originated pursuant to a government program that does 
not contain specific standards for determining the pro rata monthly 
amount of the mortgage-related obligation, or if the mortgage loan is 
not originated pursuant to a government program, the creditor complies 
with Sec. 1026.43(c)(2)(v) by dividing the total amount of a particular 
non-monthly mortgage-related obligation by no more than the number of 
months from the month that the non-monthly mortgage-related obligation 
was due prior to consummation until the month that the non-monthly 
mortgage-related obligation will be due after consummation. When 
determining the pro rata monthly payment amount, the creditor may also 
consider comment 43(c)(2)(v)-5, which explains that the creditor need 
not project potential changes. The following examples further illustrate 
how a creditor may determine the pro rata monthly amount of mortgage-
related obligations, pursuant to Sec. 1026.43(c)(2)(v):
    i. Assume that a consumer applies for a mortgage loan on February 
1st. Assume further that the subject property is located in a 
jurisdiction where property taxes are paid in arrears on the first day 
of October. The creditor complies with Sec. 1026.43(c)(2)(v) by 
determining the annual property tax amount owed in the prior October, 
dividing the amount by 12, and using the resulting amount as the pro 
rata monthly property tax payment amount for the determination of the 
consumer's monthly payment for mortgage-related obligations. The 
creditor complies even if the consumer will likely owe more in the next 
year than the amount owed the prior October because the jurisdiction 
normally increases the property tax rate annually, provided that the 
creditor does not have knowledge of an increase in the property tax rate 
at the time of underwriting. See also comment 43(c)(2)(v)-5 regarding 
estimates of mortgage-related obligations.
    ii. Assume that a subject property is located in a special water 
district, the assessments for which are billed separately from local 
property taxes. The creditor complies with Sec. 1026.43(c)(2)(v) by 
dividing the full amount that will be owed by the number of months in 
the assessment period, and including the resulting amount in the 
calculation of monthly mortgage-related obligations. However, Sec. 
1026.43(c)(2)(v) does not require a creditor to adjust the monthly 
amount to account for potential deviations from the average monthly 
amount. For example, assume in this example that the special water 
assessment is billed every eight months, that the consumer will have to 
pay the first water district bill four months after consummation, and 
that the seller will not provide the consumer with any funds to pay for 
the seller's obligation (i.e., the four months prior to consummation). 
Although the consumer will be required to budget twice the average 
monthly amount to pay the first water district bill, Sec. 
1026.43(c)(2)(v) does not require the creditor to use the increased 
amount; the creditor complies with Sec. 1026.43(c)(2)(v) by using the 
average monthly amount.
    iii. Assume that the subject property is located in an area where 
flood insurance is required by Federal law, and assume further that the 
flood insurance policy premium is paid every three years following 
consummation. The creditor complies with Sec. 1026.43(c)(2)(v) by 
dividing the three-year premium by 36 months and including the resulting 
amount in the determination of the consumer's monthly payment for 
mortgage-related obligations. The creditor complies even if the consumer 
will not establish a monthly escrow for flood insurance.
    iv. Assume that the subject property is part of a homeowners 
association that has imposed upon the seller a special assessment of 
$1,200. Assume further that this special assessment will become the 
consumer's obligation upon consummation of the transaction, that the 
consumer is permitted to pay the special assessment in twelve $100 
installments after consummation, and that the mortgage loan will not be 
originated pursuant to a government program that contains specific 
requirements for prorating special assessments. The creditor complies 
with Sec. 1026.43(c)(2)(v) by dividing the $1,200 special assessment by 
12 months and including the resulting $100 monthly amount in the 
determination of the consumer's monthly payment for mortgage-related 
obligations. The creditor complies by using this calculation even if the 
consumer intends to pay the special assessment in a manner other than 
that used by the creditor in determining the monthly pro rata amount, 
such as where the consumer intends to pay six $200 installments.
    5. Estimates. Estimates of mortgage-related obligations should be 
based upon information that is known to the creditor at the time the 
creditor underwrites the mortgage obligation. Information is known if it 
is reasonably available to the creditor at the time of underwriting the 
loan. Creditors may rely on guidance provided under comment 17(c)(2)(i)-
1 in determining if information is reasonably available. For purposes of 
this section, the creditor need not project potential changes, such as 
by estimating possible

[[Page 711]]

increases in taxes and insurance. See comment 43(c)(2)(v)-4 for 
additional examples discussing the projection of potential changes. The 
following examples further illustrate the requirements of Sec. 
1026.43(c)(2)(v):
    i. Assume that the property is subject to a community governance 
association, such as a homeowners association. The creditor complies 
with Sec. 1026.43(c)(2)(v) by relying on an estimate of mortgage-
related obligations prepared by the homeowners association. In 
accordance with the guidance provided under comment 17(c)(2)(i)-1, the 
creditor need only exercise due diligence in determining mortgage-
related obligations, and complies with Sec. 1026.43(c)(2)(v) by relying 
on the representations of other reliable parties in preparing estimates.
    ii. Assume that the homeowners association has imposed a special 
assessment on the seller, but the seller does not inform the creditor of 
the special assessment, the homeowners association does not include the 
special assessment in the estimate of expenses prepared for the 
creditor, and the creditor is unaware of the special assessment. The 
creditor complies with Sec. 1026.43(c)(2)(v) if it does not include the 
special assessment in the determination of mortgage-related obligations. 
The creditor may rely on the representations of other reliable parties, 
in accordance with the guidance provided under comment 17(c)(2)(i)-1.
    iii. Assume that the homeowners association imposes a special 
assessment after the creditor has completed underwriting, but prior to 
consummation. The creditor does not violate Sec. 1026.43(c)(2)(v) if 
the creditor does not include the special assessment in the 
determination of the consumer's monthly payment for mortgage-related 
obligations, provided the homeowners association does not inform the 
creditor about the special assessment during underwriting. Section 
1026.43(c)(2)(v) does not require the creditor to re-underwrite the 
loan. The creditor has complied with Sec. 1026.43(c)(2)(v) by including 
the obligations known to the creditor at the time the loan is 
underwritten, even if the creditor learns of new mortgage-related 
obligations before the transaction is consummated.
    Paragraph 43(c)(2)(vi).
    1. Consideration of current debt obligations. Section 
1026.43(c)(2)(vi) requires creditors to consider a consumer's current 
debt obligations and any alimony or child support the consumer is 
required to pay. Examples of current debt obligations include student 
loans, automobile loans, revolving debt, and existing mortgages that 
will not be paid off at or before consummation. Creditors have 
significant flexibility to consider current debt obligations in light of 
attendant facts and circumstances, including that an obligation is 
likely to be paid off soon after consummation. For example, a creditor 
may take into account that an existing mortgage is likely to be paid off 
soon after consummation because there is an existing contract for sale 
of the property that secures that mortgage. Similarly, creditors should 
consider whether debt obligations in forbearance or deferral at the time 
of underwriting are likely to affect the consumer's ability to repay 
based on the payment for which the consumer will be liable upon 
expiration of the forbearance or deferral period and other relevant 
facts and circumstances, such as when the forbearance or deferral period 
will expire.
    2. Multiple applicants. When two or more consumers apply for an 
extension of credit as joint obligors with primary liability on an 
obligation, Sec. 1026.43(c)(2)(vi) requires a creditor to consider the 
debt obligations of all such joint applicants. For example, if a co-
applicant is repaying a student loan at the time of underwriting, the 
creditor complies with Sec. 1026.43(c)(2)(vi) by considering the co-
applicant's student loan obligation. If one consumer is merely a surety 
or guarantor, Sec. 1026.43(c)(2)(vi) does not require a creditor to 
consider the debt obligations of such surety or guarantor. The 
requirements of Sec. 1026.43(c)(2)(vi) do not affect the disclosure 
requirements of this part, such as, for example, Sec. Sec. 1026.17(d), 
1026.23(b), 1026.31(e), 1026.39(b)(3), and 1026.46(f).
    Paragraph 43(c)(2)(vii).
    1. Monthly debt-to-income ratio and residual income. See Sec. 
1026.43(c)(7) and its associated commentary regarding the definitions 
and calculations for the monthly debt-to-income ratio and residual 
income.
    Paragraph 43(c)(2)(viii).
    1. Consideration of credit history. ``Credit history'' may include 
factors such as the number and age of credit lines, payment history, and 
any judgments, collections, or bankruptcies. Section 1026.43(c)(2)(viii) 
does not require creditors to obtain or consider a consolidated credit 
score or prescribe a minimum credit score that creditors must apply. The 
rule also does not specify which aspects of credit history a creditor 
must consider or how various aspects of credit history should be weighed 
against each other or against other underwriting factors. Some aspects 
of a consumer's credit history, whether positive or negative, may not be 
directly indicative of the consumer's ability to repay. A creditor 
therefore may give various aspects of a consumer's credit history as 
much or as little weight as is appropriate to reach a reasonable, good 
faith determination of ability to repay. Where a consumer has obtained 
few or no extensions of traditional ``credit,'' as defined in Sec. 
1026.2(a)(14), a creditor may, but is not required to, look to 
nontraditional credit references, such as rental payment history or 
utility payments.
    2. Multiple applicants. When two or more consumers apply for an 
extension of credit as

[[Page 712]]

joint obligors with primary liability on an obligation, Sec. 
1026.43(c)(2)(viii) requires a creditor to consider the credit history 
of all such joint applicants. If a consumer is merely a surety or 
guarantor, Sec. 1026.43(c)(2)(viii) does not require a creditor to 
consider the credit history of such surety or guarantor. The 
requirements of Sec. 1026.43(c)(2)(viii) do not affect the disclosure 
requirements of this part, such as, for example, Sec. Sec. 1026.17(d), 
1026.23(b), 1026.31(e), 1026.39(b)(3), and 1026.46(f).
    43(c)(3) Verification using third-party records.
    1. Records specific to the individual consumer. Records a creditor 
uses for verification under Sec. 1026.43(c)(3) and (4) must be specific 
to the individual consumer. Records regarding average incomes in the 
consumer's geographic location or average wages paid by the consumer's 
employer, for example, are not specific to the individual consumer and 
are not sufficient for verification.
    2. Obtaining records. To conduct verification under Sec. 
1026.43(c)(3) and (4), a creditor may obtain records from a third-party 
service provider, such as a party the consumer's employer uses to 
respond to income verification requests, as long as the records are 
reasonably reliable and specific to the individual consumer. A creditor 
also may obtain third-party records directly from the consumer, likewise 
as long as the records are reasonably reliable and specific to the 
individual consumer. For example, a creditor using payroll statements to 
verify the consumer's income, as allowed under Sec. 1026.43(c)(4)(iii), 
may obtain the payroll statements from the consumer.
    3. Credit report as a reasonably reliable third-party record. A 
credit report generally is considered a reasonably reliable third-party 
record under Sec. 1026.43(c)(3) for purposes of verifying items 
customarily found on a credit report, such as the consumer's current 
debt obligations, monthly debts, and credit history. Section 
1026.43(c)(3) generally does not require creditors to obtain additional 
reasonably reliable third-party records to verify information contained 
in a credit report. For example, if a credit report states the existence 
and amount of a consumer's debt obligation, the creditor is not required 
to obtain additional verification of the existence or amount of that 
obligation. In contrast, a credit report does not serve as a reasonably 
reliably third-party record for purposes of verifying items that do not 
appear on the credit report. For example, certain monthly debt 
obligations, such as legal obligations like alimony or child support, 
may not be reflected on a credit report. Thus, a credit report that does 
not list a consumer's monthly alimony obligation does not serve as a 
reasonably reliable third-party record for purposes of verifying that 
obligation. If a credit report reflects a current debt obligation that a 
consumer has not listed on the application, the creditor complies with 
Sec. 1026.43(c)(3) if the creditor considers the existence and amount 
of the debt obligation as it is reflected in the credit report. However, 
in some cases a creditor may know or have reason to know that a credit 
report may be inaccurate in whole or in part. For example, a creditor 
may have information indicating that a credit report is subject to a 
fraud alert, extended alert, active duty alert, or similar alert 
identified in 15 U.S.C. 1681c-1 or that a debt obligation listed on a 
credit report is subject to a statement of dispute pursuant to 15 U.S.C. 
1681i(b). A creditor may also have other reasonably reliable third-party 
records or other information or evidence that the creditor reasonably 
finds to be reliable that contradict the credit report or otherwise 
indicate that the credit report is inaccurate. If a creditor knows or 
has reason to know that a credit report may be inaccurate in whole or in 
part, the creditor complies with Sec. 1026.43(c)(3) by disregarding an 
inaccurate or disputed item, items, or credit report, but does not have 
to obtain additional third-party records. The creditor may also, but is 
not required, to obtain other reasonably reliable third-party records to 
verify information with respect to which the credit report, or item 
therein, may be inaccurate. For example, the creditor might obtain 
statements or bank records regarding a particular debt obligation 
subject to a statement of dispute. See also comment 43(c)(3)-6, which 
describes a situation in which a consumer reports a debt obligation that 
is not listed on a credit report.
    4. Verification of simultaneous loans. Although a credit report may 
be used to verify current obligations, it will not reflect a 
simultaneous loan that has not yet been consummated and may not reflect 
a loan that has just recently been consummated. If the creditor knows or 
has reason to know that there will be a simultaneous loan extended at or 
before consummation, the creditor may verify the simultaneous loan by 
obtaining third-party verification from the third-party creditor of the 
simultaneous loan. For example, the creditor may obtain a copy of the 
promissory note or other written verification from the third-party 
creditor. For further guidance, see comments 43(c)(3)-1 and -2 
discussing verification using third-party records.
    5. Verification of mortgage-related obligations. Creditors must make 
the repayment ability determination required under Sec. 1026.43(c)(2) 
based on information verified from reasonably reliable records. For 
general guidance regarding verification see comments 43(c)(3)-1 and -2, 
which discuss verification using third-party records. With respect to 
the verification of mortgage-related obligations that are property taxes 
required to be considered under Sec. 1026.43(c)(2)(v), a record is 
reasonably reliable if the information in the

[[Page 713]]

record was provided by a governmental organization, such as a taxing 
authority or local government. The creditor complies with Sec. 
1026.43(c)(2)(v) by relying on property taxes referenced in the title 
report if the source of the property tax information was a local taxing 
authority. With respect to other information in a record provided by an 
entity assessing charges, such as a homeowners association, the creditor 
complies with Sec. 1026.43(c)(2)(v) if it relies on homeowners 
association billing statements provided by the seller. Records are also 
reasonably reliable if the information in the record was obtained from a 
valid and legally executed contract. For example, the creditor complies 
with Sec. 1026.43(c)(2)(v) by relying on the amount of monthly ground 
rent referenced in the ground rent agreement currently in effect and 
applicable to the subject property. Records, other than those discussed 
above, may be reasonably reliable for purposes of Sec. 1026.43(c)(2)(v) 
if the source provided the information objectively.
    6. Verification of current debt obligations. Section 1026.43(c)(3) 
does not require creditors to obtain additional records to verify the 
existence or amount of obligations shown on a consumer's credit report 
or listed on the consumer's application, absent circumstances described 
in comment 43(c)(3)-3. Under Sec. 1026.43(c)(3)(iii), if a creditor 
relies on a consumer's credit report to verify a consumer's current debt 
obligations and the consumer's application lists a debt obligation not 
shown on the credit report, the creditor may consider the existence and 
amount of the obligation as it is stated on the consumer's application. 
The creditor is not required to further verify the existence or amount 
of the obligation, absent circumstances described in comment 43(c)(3)-3.
    7. Verification of credit history. To verify credit history, a 
creditor may, for example, look to credit reports from credit bureaus or 
to reasonably reliable third-party records that evidence nontraditional 
credit references, such as evidence of rental payment history or public 
utility payments.
    8. Verification of military employment. A creditor may verify the 
employment status of military personnel by using a military Leave and 
Earnings Statement or by using the electronic database maintained by the 
Department of Defense to facilitate identification of consumers covered 
by credit protections provided pursuant to 10 U.S.C. 987.
    43(c)(4) Verification of income or assets.
    1. Income or assets relied on. A creditor need consider, and 
therefore need verify, only the income or assets the creditor relies on 
to evaluate the consumer's repayment ability. See comment 43(c)(2)(i)-2. 
For example, if a consumer's application states that the consumer earns 
a salary and is paid an annual bonus and the creditor relies on only the 
consumer's salary to evaluate the consumer's repayment ability, the 
creditor need verify only the salary. See also comments 43(c)(3)-1 and -
2.
    2. Multiple applicants. If multiple consumers jointly apply for a 
loan and each lists income or assets on the application, the creditor 
need verify only the income or assets the creditor relies on in 
determining repayment ability. See comment 43(c)(2)(i)-5.
    3. Tax-return transcript. Under Sec. 1026.43(c)(4), a creditor may 
verify a consumer's income using an Internal Revenue Service (IRS) tax-
return transcript, which summarizes the information in a consumer's 
filed tax return, another record that provides reasonably reliable 
evidence of the consumer's income, or both. A creditor may obtain a copy 
of a tax-return transcript or a filed tax return directly from the 
consumer or from a service provider. A creditor need not obtain the copy 
directly from the IRS or other taxing authority. See comment 43(c)(3)-2.
    Paragraph 43(c)(4)(vi).
    1. Government benefits. In verifying a consumer's income, a creditor 
may use a written or electronic record from a government agency of the 
amount of any benefit payments or awards, such as a ``proof of income 
letter'' issued by the Social Security Administration (also known as a 
``budget letter,'' ``benefits letter,'' or ``proof of award letter'').
    43(c)(5) Payment calculation.
    43(c)(5)(i) General rule.
    1. General. For purposes of Sec. 1026.43(c)(2)(iii), a creditor 
must determine the consumer's ability to repay the covered transaction 
using the payment calculation methods set forth in Sec. 1026.43(c)(5). 
The payment calculation methods differ depending on the type of credit 
extended. The payment calculation method set forth in Sec. 
1026.43(c)(5)(i) applies to any covered transaction that does not have a 
balloon payment, or that is not an interest-only or negative 
amortization loan, whether such covered transaction is a fixed-rate, 
adjustable-rate or step-rate mortgage. The terms ``fixed-rate 
mortgage,'' ``adjustable-rate mortgage,'' ``step-rate mortgage,'' 
``interest-only loan'' and ``negative amortization loan'' are defined in 
Sec. 1026.18(s)(7)(iii), (i), (ii), (iv) and (v), respectively. For the 
meaning of the term ``balloon payment,'' see Sec. 1026.18(s)(5)(i). The 
payment calculation methods set forth in Sec. 1026.43(c)(5)(ii) apply 
to any covered transaction that is a loan with a balloon payment, 
interest-only loan, or negative amortization loan. See comment 
43(c)(5)(i)-5 and the commentary to Sec. 1026.43(c)(5)(ii), which 
provide examples for calculating the monthly payment for purposes of the 
repayment ability determination required under Sec. 1026.43(c)(2)(iii).
    2. Greater of the fully indexed rate or introductory rate; premium 
adjustable-rate transactions. A creditor must determine a consumer's 
repayment ability for the covered

[[Page 714]]

transaction using substantially equal, monthly, fully amortizing 
payments that are based on the greater of the fully indexed rate or any 
introductory interest rate. In some adjustable-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. 
Sometimes, this initial rate charged to consumers is lower than the rate 
would be if it were determined by using the index plus margin, or 
formula (i.e., fully indexed rate). However, an initial rate that is a 
premium rate is higher than the rate based on the index or formula. In 
such cases, creditors must calculate the fully amortizing payment based 
on the initial ``premium'' rate. ``Fully indexed rate'' is defined in 
Sec. 1026.43(b)(3).
    3. Monthly, fully amortizing payments. Section 1026.43(c)(5)(i) does 
not prescribe the terms or loan features that a creditor may choose to 
offer or extend to a consumer, but establishes the calculation method a 
creditor must use to determine the consumer's repayment ability for a 
covered transaction. For example, the terms of the loan agreement may 
require that the consumer repay the loan in quarterly or bi-weekly 
scheduled payments, but for purposes of the repayment ability 
determination, the creditor must convert these scheduled payments to 
monthly payments in accordance with Sec. 1026.43(c)(5)(i)(B). 
Similarly, the loan agreement may not require the consumer to make fully 
amortizing payments, but for purposes of the repayment ability 
determination under Sec. 1026.43(c)(5)(i), the creditor must convert 
any non-amortizing payments to fully amortizing payments.
    4. Substantially equal. In determining whether monthly, fully 
amortizing payments are substantially equal, creditors should disregard 
minor variations due to payment-schedule irregularities and odd periods, 
such as a long or short first or last payment period. That is, monthly 
payments of principal and interest that repay the loan amount over the 
loan term need not be equal, but the monthly payments should be 
substantially the same without significant variation in the monthly 
combined payments of both principal and interest. For example, where no 
two monthly payments vary from each other by more than 1 percent 
(excluding odd periods, such as a long or short first or last payment 
period), such monthly payments would be considered substantially equal 
for purposes of this section. In general, creditors should determine 
whether the monthly, fully amortizing payments are substantially equal 
based on guidance provided in Sec. 1026.17(c)(3) (discussing minor 
variations), and Sec. 1026.17(c)(4)(i) through (iii) (discussing 
payment-schedule irregularities and measuring odd periods due to a long 
or short first period) and associated commentary.
    5. Examples. The following are examples of how to determine the 
consumer's repayment ability based on substantially equal, monthly, 
fully amortizing payments as required under Sec. 1026.43(c)(5)(i) (all 
amounts shown are rounded, and all amounts are calculated using non-
rounded values):
    i. Fixed-rate mortgage. A loan in an amount of $200,000 has a 30-
year loan term and a fixed interest rate of 7 percent. For purposes of 
Sec. 1026.43(c)(2)(iii), the creditor must determine the consumer's 
ability to repay the loan based on a payment of $1,331, which is the 
substantially equal, monthly, fully amortizing payment that will repay 
$200,000 over 30 years using the fixed interest rate of 7 percent.
    ii. Adjustable-rate mortgage with discount for five years. A loan in 
an amount of $200,000 has a 30-year loan term. The loan agreement 
provides for a discounted interest rate of 6 percent that is fixed for 
an initial period of five years, after which the interest rate will 
adjust annually based on a specified index plus a margin of 3 percent, 
subject to a 2 percent annual periodic interest rate adjustment cap. The 
index value in effect at consummation is 4.5 percent; the fully indexed 
rate is 7.5 percent (4.5 percent plus 3 percent). Even though the 
scheduled monthly payment required for the first five years is $1199, 
for purposes of Sec. 1026.43(c)(2)(iii) the creditor must determine the 
consumer's ability to repay the loan based on a payment of $1,398, which 
is the substantially equal, monthly, fully amortizing payment that will 
repay $200,000 over 30 years using the fully indexed rate of 7.5 
percent.
    iii. Step-rate mortgage. A loan in an amount of $200,000 has a 30-
year loan term. The loan agreement provides that the interest rate will 
be 6.5 percent for the first two years of the loan, 7 percent for the 
next three years of the loan, and 7.5 percent thereafter. Accordingly, 
the scheduled payment amounts are $1,264 for the first two years, $1,328 
for the next three years, and $1,388 thereafter for the remainder of the 
term. For purposes of Sec. 1026.43(c)(2)(iii), the creditor must 
determine the consumer's ability to repay the loan based on a payment of 
$1,398, which is the substantially equal, monthly, fully amortizing 
payment that would repay $200,000 over 30 years using the fully indexed 
rate of 7.5 percent.
    43(c)(5)(ii) Special rules for loans with a balloon payment, 
interest-only loans, and negative amortization loans.
    Paragraph 43(c)(5)(ii)(A).
    1. General. For loans with a balloon payment, the rules differ 
depending on whether the loan is a higher-priced covered transaction, as 
defined under Sec. 1026.43(b)(4), or is not a higher-priced covered 
transaction because the annual percentage rate does not exceed the 
applicable threshold calculated using the applicable average prime offer 
rate

[[Page 715]]

(APOR) for a comparable transaction. ``Average prime offer rate'' is 
defined in Sec. 1026.35(a)(2); ``higher-priced covered transaction'' is 
defined in Sec. 1026.43(b)(4). For higher-priced covered transactions 
with a balloon payment, the creditor must consider the consumer's 
ability to repay the loan based on the payment schedule under the terms 
of the legal obligation, including any required balloon payment. For 
loans with a balloon payment that are not higher-priced covered 
transactions, the creditor should use the maximum payment scheduled 
during the first five years of the loan following the date on which the 
first regular periodic payment will be due. ``Balloon payment'' is 
defined in Sec. 1026.18(s)(5)(i).
    2. First five years after the date on which the first regular 
periodic payment will be due. Under Sec. 1026.43(c)(5)(ii)(A)(1), the 
creditor must determine a consumer's ability to repay a loan with a 
balloon payment that is not a higher-priced covered transaction using 
the maximum payment scheduled during the first five years (60 months) 
after the date on which the first regular periodic payment will be due. 
To illustrate:
    i. Assume a loan that provides for regular monthly payments and a 
balloon payment due at the end of a six-year loan term. The loan is 
consummated on August 15, 2014, and the first monthly payment is due on 
October 1, 2014. The first five years after the first monthly payment 
end on October 1, 2019. The balloon payment must be made on the due date 
of the 72nd monthly payment, which is September 1, 2020. For purposes of 
determining the consumer's ability to repay the loan under Sec. 
1026.43(c)(2)(iii), the creditor need not consider the balloon payment 
that is due on September 1, 2020.
    ii. Assume a loan that provides for regular monthly payments and a 
balloon payment due at the end of a five-year loan term. The loan is 
consummated on August 15, 2014, and the first monthly payment is due on 
October 1, 2014. The first five years after the first monthly payment 
end on October 1, 2019. The balloon payment must be made on the due date 
of the 60th monthly payment, which is September 1, 2019. For purposes of 
determining the consumer's ability to repay the loan under Sec. 
1026.43(c)(2)(iii), the creditor must consider the balloon payment that 
is due on September 1, 2019.
    3. Renewable balloon-payment mortgage; loan term. A balloon-payment 
mortgage that is not a higher-priced covered transaction could provide 
that a creditor is unconditionally obligated to renew a balloon-payment 
mortgage at the consumer's option (or is obligated to renew subject to 
conditions within the consumer's control). See comment 17(c)(1)-11 
discussing renewable balloon-payment mortgages. For purposes of this 
section, the loan term does not include any period of time that could 
result from a renewal provision. To illustrate, assume a three-year 
balloon-payment mortgage that is not a higher-priced covered transaction 
contains an unconditional obligation to renew for another three years at 
the consumer's option. In this example, the loan term for the balloon-
payment mortgage is three years, and not the potential six years that 
could result if the consumer chooses to renew the loan. Accordingly, the 
creditor must underwrite the loan using the maximum payment scheduled in 
the first five years after consummation, which includes the balloon 
payment due at the end of the three-year loan term. See comment 
43(c)(5)(ii)(A)-4.ii, which provides an example of how to determine the 
consumer's repayment ability for a three-year renewable balloon-payment 
mortgage that is not a higher-priced covered transaction.
    4. Examples of loans with a balloon payment that are not higher-
priced covered transactions. The following are examples of how to 
determine the maximum payment scheduled during the first five years 
after the date on which the first regular periodic payment will be due 
(all amounts shown are rounded, and all amounts are calculated using 
non-rounded values):
    i. Balloon-payment mortgage with a three-year loan term; fixed 
interest rate. A loan agreement provides for a fixed interest rate of 6 
percent, which is below the APOR-calculated threshold for a comparable 
transaction; thus the loan is not a higher-priced covered transaction. 
The loan amount is $200,000, and the loan has a three-year loan term but 
is amortized over 30 years. The monthly payment scheduled for the first 
three years following consummation is $1,199, with a balloon payment of 
$193,367 due at the end of the third year. For purposes of Sec. 
1026.43(c)(2)(iii), the creditor must determine the consumer's ability 
to repay the loan based on the balloon payment of $193,367.
    ii. Renewable balloon-payment mortgage with a three-year loan term. 
Assume the same facts above in comment 43(c)(5)(ii)(A)-4.i, except that 
the loan agreement also provides that the creditor is unconditionally 
obligated to renew the balloon-payment mortgage at the consumer's option 
at the end of the three-year term for another three years. In 
determining the maximum payment scheduled during the first five years 
after the date on which the first regular periodic payment will be due, 
the creditor must use a loan term of three years. Accordingly, for 
purposes of Sec. 1026.43(c)(2)(iii), the creditor must determine the 
consumer's ability to repay the loan based on the balloon payment of 
$193,367.
    iii. Balloon-payment mortgage with a six-year loan term; fixed 
interest rate. A loan provides for a fixed interest rate of 6 percent, 
which is below the APOR threshold for a comparable

[[Page 716]]

transaction, and thus, the loan is not a higher-priced covered 
transaction. The loan amount is $200,000, and the loan has a six-year 
loan term but is amortized over 30 years. The loan is consummated on 
March 15, 2014, and the monthly payment scheduled for the first six 
years following consummation is $1,199, with the first monthly payment 
due on May 1, 2014. The first five years after the date on which the 
first regular periodic payment will be due end on May 1, 2019. The 
balloon payment of $183,995 is required on the due date of the 72nd 
monthly payment, which is April 1, 2020 (more than five years after the 
date on which the first regular periodic payment will be due). For 
purposes of Sec. 1026.43(c)(2)(iii), the creditor may determine the 
consumer's ability to repay the loan based on the monthly payment of 
$1,199, and need not consider the balloon payment of $183,995 due on 
April 1, 2020.
    5. Higher-priced covered transaction with a balloon payment. Where a 
loan with a balloon payment is a higher-priced covered transaction, the 
creditor must determine the consumer's repayment ability based on the 
loan's payment schedule, including any balloon payment. For example (all 
amounts are rounded): Assume a higher-priced covered transaction with a 
fixed interest rate of 7 percent. The loan amount is $200,000 and the 
loan has a ten year loan term, but is amortized over 30 years. The 
monthly payment scheduled for the first ten years is $1,331, with a 
balloon payment of $172,955. For purposes of Sec. 1026.43(c)(2)(iii), 
the creditor must consider the consumer's ability to repay the loan 
based on the payment schedule that fully repays the loan amount, 
including the balloon payment of $172,955.
    Paragraph 43(c)(5)(ii)(B).
    1. General. For loans that permit interest-only payments, the 
creditor must use the fully indexed rate or introductory rate, whichever 
is greater, to calculate the substantially equal, monthly payment of 
principal and interest that will repay the loan amount over the term of 
the loan remaining as of the date the loan is recast. For discussion 
regarding the fully indexed rate, and the meaning of ``substantially 
equal,'' see comments 43(b)(3)-1 through -5 and 43(c)(5)(i)-4, 
respectively. Under Sec. 1026.43(c)(5)(ii)(B), the relevant term of the 
loan is the period of time that remains as of the date the loan is 
recast to require fully amortizing payments. For a loan on which only 
interest and no principal has been paid, the loan amount will be the 
outstanding principal balance at the time of the recast. ``Loan amount'' 
and ``recast'' are defined in Sec. 1026.43(b)(5) and (b)(11), 
respectively. ``Interest-only'' and ``Interest-only loan'' are defined 
in Sec. 1026.18(s)(7)(iv).
    2. Examples. The following are examples of how to determine the 
consumer's repayment ability based on substantially equal, monthly 
payments of principal and interest under Sec. 1026.43(c)(5)(ii)(B) (all 
amounts shown are rounded, and all amounts are calculated using non-
rounded values):
    i. Fixed-rate mortgage with interest-only payments for five years. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a fixed interest rate of 7 percent, and permits 
interest-only payments for the first five years. The monthly payment of 
$1,167 scheduled for the first five years would cover only the interest 
due. The loan is recast on the due date of the 60th monthly payment, 
after which the scheduled monthly payments increase to $1,414, a monthly 
payment that repays the loan amount of $200,000 over the 25 years 
remaining as of the date the loan is recast (300 months). For purposes 
of Sec. 1026.43(c)(2)(iii), the creditor must determine the consumer's 
ability to repay the loan based on a payment of $1,414, which is the 
substantially equal, monthly, fully amortizing payment that would repay 
$200,000 over the 25 years remaining as of the date the loan is recast 
using the fixed interest rate of 7 percent.
    ii. Adjustable-rate mortgage with discount for three years and 
interest-only payments for five years. A loan in an amount of $200,000 
has a 30-year loan term, but provides for interest-only payments for the 
first five years. The loan agreement provides for a discounted interest 
rate of 5 percent that is fixed for an initial period of three years, 
after which the interest rate will adjust each year based on a specified 
index plus a margin of 3 percent, subject to an annual interest rate 
adjustment cap of 2 percent. The index value in effect at consummation 
is 4.5 percent; the fully indexed rate is 7.5 percent (4.5 percent plus 
3 percent). The monthly payments for the first three years are $833. For 
the fourth year, the payments are $1,167, based on an interest rate of 7 
percent, calculated by adding the 2 percent annual adjustment cap to the 
initial rate of 5 percent. For the fifth year, the payments are $1,250, 
applying the fully indexed rate of 7.5 percent. These first five years 
of payments will cover only the interest due. The loan is recast on the 
due date of the 60th monthly payment, after which the scheduled monthly 
payments increase to $1,478, a monthly payment that will repay the loan 
amount of $200,000 over the remaining 25 years of the loan (300 months). 
For purposes of Sec. 1026.43(c)(2)(iii), the creditor must determine 
the consumer's ability to repay the loan based on a monthly payment of 
$1,478, which is the substantially equal, monthly payment of principal 
and interest that would repay $200,000 over the 25 years remaining as of 
the date the loan is recast using the fully indexed rate of 7.5 percent.
    Paragraph 43(c)(5)(ii)(C).
    1. General. For purposes of determining the consumer's ability to 
repay a negative amortization loan, the creditor must use substantially 
equal, monthly payments of principal

[[Page 717]]

and interest based on the fully indexed rate or the introductory rate, 
whichever is greater, that will repay the maximum loan amount over the 
term of the loan that remains as of the date the loan is recast. 
Accordingly, before determining the substantially equal, monthly 
payments the creditor must first determine the maximum loan amount and 
the period of time that remains in the loan term after the loan is 
recast. ``Recast'' is defined in Sec. 1026.43(b)(11). Second, the 
creditor must use the fully indexed rate or introductory rate, whichever 
is greater, to calculate the substantially equal, monthly payment amount 
that will repay the maximum loan amount over the term of the loan 
remaining as of the date the loan is recast. For discussion regarding 
the fully indexed rate and the meaning of ``substantially equal,'' see 
comments 43(b)(3)-1 through -5 and 43(c)(5)(i)-4, respectively. For the 
meaning of the term ``maximum loan amount'' and a discussion of how to 
determine the maximum loan amount for purposes of Sec. 
1026.43(c)(5)(ii)(C), see Sec. 1026.43(b)(7) and associated commentary. 
``Negative amortization loan'' is defined in Sec. 1026.18(s)(7)(v).
    2. Term of loan. Under Sec. 1026.43(c)(5)(ii)(C), the relevant term 
of the loan is the period of time that remains as of the date the terms 
of the legal obligation recast. That is, the creditor must determine 
substantially equal, monthly payments of principal and interest that 
will repay the maximum loan amount based on the period of time that 
remains after any negative amortization cap is triggered or any period 
permitting minimum periodic payments expires, whichever occurs first.
    3. Examples. The following are examples of how to determine the 
consumer's repayment ability based on substantially equal, monthly 
payments of principal and interest as required under Sec. 
1026.43(c)(5)(ii)(C) (all amounts shown are rounded, and all amounts are 
calculated using non-rounded values):
    i. Adjustable-rate mortgage with negative amortization. A. Assume an 
adjustable-rate mortgage in the amount of $200,000 with a 30-year loan 
term. The loan agreement provides that the consumer can make minimum 
monthly payments that cover only part of the interest accrued each month 
until the date on which the principal balance reaches 115 percent of its 
original balance (i.e., a negative amortization cap of 115 percent) or 
for the first five years of the loan (60 monthly payments), whichever 
occurs first. The introductory interest rate at consummation is 1.5 
percent. One month after consummation, the interest rate adjusts and 
will adjust monthly thereafter based on the specified index plus a 
margin of 3.5 percent. The index value in effect at consummation is 4.5 
percent; the fully indexed rate is 8 percent (4.5 percent plus 3.5 
percent). The maximum lifetime interest rate is 10.5 percent; there are 
no other periodic interest rate adjustment caps that limit how quickly 
the maximum lifetime rate may be reached. The minimum monthly payment 
for the first year is based on the initial interest rate of 1.5 percent. 
After that, the minimum monthly payment adjusts annually, but may 
increase by no more than 7.5 percent over the previous year's payment. 
The minimum monthly payment is $690 in the first year, $742 in the 
second year, and $797 in the first part of the third year.
    B. To determine the maximum loan amount, assume that the interest 
rate increases to the maximum lifetime interest rate of 10.5 percent at 
the first adjustment (i.e., the due date of the first periodic monthly 
payment), and interest accrues at that rate until the loan is recast. 
Assume that the consumer makes the minimum monthly payments scheduled, 
which are capped at 7.5 percent from year-to-year, for the maximum 
possible time. Because the consumer's minimum monthly payments are less 
than the interest accrued each month, negative amortization occurs 
(i.e., the accrued but unpaid interest is added to the principal 
balance). Thus, assuming that the consumer makes the minimum monthly 
payments for as long as possible and that the maximum interest rate of 
10.5 percent is reached at the first rate adjustment (i.e., the due date 
of the first periodic monthly payment), the negative amortization cap of 
115 percent is reached on the due date of the 27th monthly payment and 
the loan is recast as of that date. The maximum loan amount as of the 
due date of the 27th monthly payment is $229,251, and the remaining term 
of the loan is 27 years and nine months (333 months).
    C. For purposes of Sec. 1026.43(c)(2)(iii), the creditor must 
determine the consumer's ability to repay the loan based on a monthly 
payment of $1,716, which is the substantially equal, monthly payment of 
principal and interest that will repay the maximum loan amount of 
$229,251 over the remaining loan term of 333 months using the fully 
indexed rate of 8 percent. See comments 43(b)(7)-1 and -2 discussing the 
calculation of the maximum loan amount, and Sec. 1026.43(b)(11) for the 
meaning of the term ``recast.''
    ii. Fixed-rate, graduated payment mortgage. A loan in the amount of 
$200,000 has a 30-year loan term. The loan agreement provides for a 
fixed interest rate of 7.5 percent, and requires the consumer to make 
minimum monthly payments during the first year, with payments increasing 
12.5 percent over the previous year every year for four years (the 
annual payment cap). The payment schedule provides for payments of $943 
in the first year, $1,061 in the second year, $1,193 in the third year, 
$1,343 in the fourth year, and then requires $1,511 for the remaining 
term of the loan. During the first three years of

[[Page 718]]

the loan, the payments are less than the interest accrued each month, 
resulting in negative amortization. Assuming the minimum payments 
increase year-to-year up to the 12.5 percent payment cap, the consumer 
will begin making payments that cover at least all of the interest 
accrued at the end of the third year. Thus, the loan is recast on the 
due date of the 36th monthly payment. The maximum loan amount on that 
date is $207,662, and the remaining loan term is 27 years (324 months). 
For purposes of Sec. 1026.43(c)(2)(iii), the creditor must determine 
the consumer's ability to repay the loan based on a monthly payment of 
$1,497, which is the substantially equal, monthly payment of principal 
and interest that will repay the maximum loan amount of $207,662 over 
the remaining loan term of 27 years using the fixed interest rate of 7.5 
percent.
    43(c)(6) Payment calculation for simultaneous loans.
    1. Scope. In determining the consumer's repayment ability for a 
covered transaction under Sec. 1026.43(c)(2)(iii), a creditor must 
include consideration of any simultaneous loan which it knows, or has 
reason to know, will be made at or before consummation of the covered 
transaction. For a discussion of the standard ``knows or has reason to 
know,'' see comment 43(c)(2)(iv)-2. For the meaning of the term 
``simultaneous loan,'' see Sec. 1026.43(b)(12).
    2. Payment calculation--covered transaction. For a simultaneous loan 
that is a covered transaction, as that term is defined under Sec. 
1026.43(b)(1), a creditor must determine a consumer's ability to repay 
the monthly payment obligation for a simultaneous loan as set forth in 
Sec. 1026.43(c)(5), taking into account any mortgage-related 
obligations required to be considered under Sec. 1026.43(c)(2)(v). For 
the meaning of the term ``mortgage-related obligations,'' see Sec. 
1026.43(b)(8).
    3. Payment calculation--home equity line of credit. For a 
simultaneous loan that is a home equity line of credit subject to Sec. 
1026.40, the creditor must consider the periodic payment required under 
the terms of the plan when assessing the consumer's ability to repay the 
covered transaction secured by the same dwelling as the simultaneous 
loan. Under Sec. 1026.43(c)(6)(ii), a creditor must determine the 
periodic payment required under the terms of the plan by considering the 
actual amount of credit to be drawn by the consumer at consummation of 
the covered transaction. The amount to be drawn is the amount requested 
by the consumer; when the amount requested will be disbursed, or actual 
receipt of funds, is not determinative. Any additional draw against the 
line of credit that the creditor of the covered transaction does not 
know or have reason to know about before or during underwriting need not 
be considered in relation to ability to repay. For example, where the 
creditor's policies and procedures require the source of down payment to 
be verified, and the creditor verifies that a simultaneous loan that is 
a HELOC will provide the source of down payment for the first-lien 
covered transaction, the creditor must consider the periodic payment on 
the HELOC by assuming the amount drawn is at least the down payment 
amount. In general, a creditor should determine the periodic payment 
based on guidance in the commentary to Sec. 1026.40(d)(5) (discussing 
payment terms).
    43(c)(7) Monthly debt-to-income ratio or residual income.
    1. Monthly debt-to-income ratio or monthly residual income. Under 
Sec. 1026.43(c)(2)(vii), the creditor must consider the consumer's 
monthly debt-to-income ratio, or the consumer's monthly residual income, 
in accordance with the requirements in Sec. 1026.43(c)(7). In contrast 
to the qualified mortgage provisions in Sec. 1026.43(e), Sec. 
1026.43(c) does not prescribe a specific monthly debt-to-income ratio 
with which creditors must comply. Instead, an appropriate threshold for 
a consumer's monthly debt-to-income ratio or monthly residual income is 
for the creditor to determine in making a reasonable and good faith 
determination of a consumer's ability to repay.
    2. Use of both monthly debt-to-income ratio and monthly residual 
income. If a creditor considers the consumer's monthly debt-to-income 
ratio, the creditor may also consider the consumer's residual income as 
further validation of the assessment made using the consumer's monthly 
debt-to-income ratio.
    3. Compensating factors. The creditor may consider factors in 
addition to the monthly debt-to-income ratio or residual income in 
assessing a consumer's repayment ability. For example, the creditor may 
reasonably and in good faith determine that a consumer has the ability 
to repay despite a higher debt-to-income ratio or lower residual income 
in light of the consumer's assets other than the dwelling, including any 
real property attached to the dwelling, securing the covered 
transaction, such as a savings account. The creditor may also reasonably 
and in good faith determine that a consumer has the ability to repay 
despite a higher debt-to-income ratio in light of the consumer's 
residual income.
    43(d) Refinancing of non-standard mortgages.
    43(d)(1) Definitions.
    43(d)(1)(i) Non-standard mortgage.
    Paragraph 43(d)(1)(i)(A).
    1. Adjustable-rate mortgage with an introductory fixed rate. Under 
Sec. 1026.43(d)(1)(i)(A), an adjustable-rate mortgage with an 
introductory fixed interest rate for one year or longer is considered a 
``non-standard mortgage.'' For example, a covered transaction that has a 
fixed introductory rate for the

[[Page 719]]

first two, three, or five years and then converts to a variable rate for 
the remaining 28, 27, or 25 years, respectively, is a ``non-standard 
mortgage.'' A covered transaction with an introductory rate for six 
months that then converts to a variable rate for the remaining 29 and 
one-half years is not a ``non-standard mortgage.''
    43(d)(1)(ii) Standard mortgage.
    Paragraph 43(d)(1)(ii)(A).
    1. Regular periodic payments. Under Sec. 1026.43(d)(1)(ii)(A), a 
``standard mortgage'' must provide for regular periodic payments that do 
not result in an increase of the principal balance (negative 
amortization), allow the consumer to defer repayment of principal (see 
comment 43(e)(2)(i)-2), or result in a balloon payment. Thus, the terms 
of the legal obligation must require the consumer to make payments of 
principal and interest on a monthly or other periodic basis that will 
repay the loan amount over the loan term. Except for payments resulting 
from any interest rate changes after consummation in an adjustable-rate 
or step-rate mortgage, the periodic payments must be substantially 
equal. For an explanation of the term ``substantially equal,'' see 
comment 43(c)(5)(i)-4. In addition, a single-payment transaction is not 
a ``standard mortgage'' because it does not require ``regular periodic 
payments.'' See also comment 43(e)(2)(i)-1.
    Paragraph 43(d)(1)(ii)(D).
    1. First five years after consummation. A ``standard mortgage'' must 
have an interest rate that is fixed for at least the first five years 
(60 months) after consummation. For example, assume an adjustable-rate 
mortgage that applies the same fixed interest rate to determine the 
first 60 payments of principal and interest due. The loan is consummated 
on August 15, 2013, and the first monthly payment is due on October 1, 
2013. The date that is five years after consummation is August 15, 2018. 
The first interest rate adjustment occurs on September 1, 2018. This 
loan meets the criterion for a ``standard mortgage'' under Sec. 
1026.43(d)(1)(ii)(D) because the interest rate is fixed until September 
1, 2018, which is more than five years after consummation. For guidance 
regarding step-rate mortgages, see comment 43(e)(2)(iv)-3.iii.
    Paragraph 43(d)(1)(ii)(E).
    1. Permissible use of proceeds. To qualify as a ``standard 
mortgage,'' the loan's proceeds may be used for only two purposes: 
paying off the non-standard mortgage and paying for closing costs, 
including paying escrow amounts required at or before closing. If the 
proceeds of a covered transaction are used for other purposes, such as 
to pay off other liens or to provide additional cash to the consumer for 
discretionary spending, the transaction does not meet the definition of 
a ``standard mortgage.''
    43(d)(2) Scope.
    1. Written application. For an explanation of the requirements for a 
``written application'' in Sec. 1026.43(d)(2)(iii), (d)(2)(iv), and 
(d)(2)(v), see comment 19(a)(1)(i)-3.
    Paragraph 43(d)(2)(ii).
    1. Materially lower. The exemptions afforded under Sec. 
1026.43(d)(3) apply to a refinancing only if the monthly payment for the 
new loan is ``materially lower'' than the monthly payment for an 
existing non-standard mortgage. The payments to be compared must be 
calculated based on the requirements under Sec. 1026.43(d)(5). Whether 
the new loan payment is ``materially lower'' than the non-standard 
mortgage payment depends on the facts and circumstances. In all cases, a 
payment reduction of 10 percent or more meets the ``materially lower'' 
standard.
    Paragraph 43(d)(2)(iv).
    1. Late payment--12 months prior to application. Under Sec. 
1026.43(d)(2)(iv), the exemptions in Sec. 1026.43(d)(3) apply to a 
covered transaction only if, during the 12 months immediately preceding 
the creditor's receipt of the consumer's written application for a 
refinancing, the consumer has made no more than one payment on the non-
standard mortgage more than 30 days late. (For an explanation of 
``written application,'' see comment 43(d)(2)-1.) For example, assume a 
consumer applies for a refinancing on May 1, 2014. Assume also that the 
consumer made a non-standard mortgage payment on August 15, 2013, that 
was 45 days late. The consumer made no other late payments on the non-
standard mortgage between May 1, 2013, and May 1, 2014. In this example, 
the requirement under Sec. 1026.43(d)(2)(iv) is met because the 
consumer made only one payment that was over 30 days late within the 12 
months prior to applying for the refinancing (i.e., eight and one-half 
months prior to application).
    2. Payment due date. Whether a payment is more than 30 days late is 
measured in relation to the contractual due date not accounting for any 
grace period. For example, if the contractual due date for a non-
standard mortgage payment is the first day of every month, but no late 
fee will be charged as long as the payment is received by the 16th of 
the month, the payment due date for purposes of Sec. 1026.43(d)(2)(iv) 
and (v) is the first day of the month, not the 16th day of the month. 
Thus, a payment due under the contract on October 1st that is paid on 
November 1st is made more than 30 days after the payment due date.
    Paragraph 43(d)(2)(v).
    1. Late payment--six months prior to application. Under Sec. 
1026.43(d)(2)(v), the exemptions in Sec. 1026.43(d)(3) apply to a 
covered transaction only if, during the six months immediately preceding 
the creditor's receipt of the consumer's written application for a 
refinancing, the consumer has made no payments on the non-standard 
mortgage more than 30 days late. (For an explanation of

[[Page 720]]

``written application'' and how to determine the payment due date, see 
comments 43(d)(2)-1 and 43(d)(2)(iv)-2.) For example, assume a consumer 
with a non-standard mortgage applies for a refinancing on May 1, 2014. 
If the consumer made a payment on March 15, 2014, that was 45 days late, 
the requirement under Sec. 1026.43(d)(2)(v) is not met because the 
consumer made a payment more than 30 days late one and one-half months 
prior to application. If the number of months between consummation of 
the non-standard mortgage and the consumer's application for the 
standard mortgage is six or fewer, the consumer may not have made any 
payment more than 30 days late on the non-standard mortgage.
    Paragraph 43(d)(2)(vi).
    1. Non-standard mortgage loan made in accordance with ability-to-
repay or qualified mortgage requirements. For non-standard mortgages 
that are consummated on or after January 10, 2014, Sec. 
1026.43(d)(2)(vi) provides that the refinancing provisions set forth in 
Sec. 1026.43(d) apply only if the non-standard mortgage was made in 
accordance with the requirements of Sec. 1026.43(c) or (e), as 
applicable. For example, if a creditor originated a non-standard 
mortgage on or after January 10, 2014 that did not comply with the 
requirements of Sec. 1026.43(c) and was not a qualified mortgage 
pursuant to Sec. 1026.43(e), Sec. 1026.43(d) would not apply to the 
refinancing of the non-standard mortgage loan into a standard mortgage 
loan. However, Sec. 1026.43(d) applies to the refinancing of a non-
standard mortgage loan into a standard mortgage loan, regardless of 
whether the non-standard mortgage loan was made in compliance with Sec. 
1026.43(c) or (e), if the non-standard mortgage loan was consummated 
prior to January 10, 2014.
    43(d)(3) Exemption from repayment ability requirements.
    1. Two-part determination. To qualify for the exemptions in Sec. 
1026.43(d)(3), a creditor must have considered, first, whether the 
consumer is likely to default on the existing mortgage once that loan is 
recast and, second, whether the new mortgage likely would prevent the 
consumer's default.
    43(d)(4) Offer of rate discounts and other favorable terms.
    1. Documented underwriting practices. In connection with a 
refinancing made pursuant to Sec. 1026.43(d), Sec. 1026.43(d)(4) 
requires a creditor offering a consumer rate discounts and terms that 
are the same as, or better than, the rate discounts and terms offered to 
new consumers to make such an offer consistent with the creditor's 
documented underwriting practices. Section 1026.43(d)(4) does not 
require a creditor making a refinancing pursuant to Sec. 1026.43(d) to 
comply with the underwriting requirements of Sec. 1026.43(c). Rather, 
Sec. 1026.43(d)(4) requires creditors providing such discounts to do so 
consistent with documented policies related to loan pricing, loan term 
qualifications, or other similar underwriting practices. For example, 
assume that a creditor is providing a consumer with a refinancing made 
pursuant to Sec. 1026.43(d) and that this creditor has a documented 
practice of offering rate discounts to consumers with credit scores 
above a certain threshold. Assume further that the consumer receiving 
the refinancing has a credit score below this threshold, and therefore 
would not normally qualify for the rate discount available to consumers 
with high credit scores. This creditor complies with Sec. 1026.43(d)(4) 
by offering the consumer the discounted rate in connection with the 
refinancing made pursuant to Sec. 1026.43(d), even if the consumer 
would not normally qualify for that discounted rate, provided that the 
offer of the discounted rate is not prohibited by applicable State or 
Federal law. However, Sec. 1026.43(d)(4) does not require a creditor to 
offer a consumer such a discounted rate.
    43(d)(5) Payment calculations.
    43(d)(5)(i) Non-Standard mortgage.
    1. Payment calculation for a non-standard mortgage. In determining 
whether the monthly periodic payment for a standard mortgage is 
materially lower than the monthly periodic payment for the non-standard 
mortgage under Sec. 1026.43(d)(2)(ii), the creditor must consider the 
monthly payment for the non-standard mortgage that will result after the 
loan is ``recast,'' assuming substantially equal payments of principal 
and interest that amortize the remaining loan amount over the remaining 
term as of the date the mortgage is recast. For guidance regarding the 
meaning of ``substantially equal,'' see comment 43(c)(5)(i)-4. For the 
meaning of ``recast,'' see Sec. 1026.43(b)(11) and associated 
commentary.
    2. Fully indexed rate. The term ``fully indexed rate'' in Sec. 
1026.43(d)(5)(i)(A) for calculating the payment for a non-standard 
mortgage is generally defined in Sec. 1026.43(b)(3) and associated 
commentary. Under Sec. 1026.43(b)(3) the fully indexed rate is 
calculated at the time of consummation. For purposes of Sec. 
1026.43(d)(5)(i), however, the fully indexed rate is calculated within a 
reasonable period of time before or after the date the creditor receives 
the consumer's written application for the standard mortgage. Thirty 
days is generally considered ``a reasonable period of time.''
    3. Written application. For an explanation of the requirements for a 
``written application'' in Sec. 1026.43(d)(5)(i), see comment 
19(a)(1)(i)-3.
    4. Payment calculation for an adjustable-rate mortgage with an 
introductory fixed rate. Under Sec. 1026.43(d)(5)(i), the monthly 
periodic payment for an adjustable-rate mortgage with an introductory 
fixed interest rate for a period of one or more years must be calculated 
based on several assumptions.

[[Page 721]]

    i. First, the payment must be based on the outstanding principal 
balance as of the date on which the mortgage is recast, assuming all 
scheduled payments have been made up to that date and the last payment 
due under those terms is made and credited on that date. For example, 
assume an adjustable-rate mortgage with a 30-year loan term. The loan 
agreement provides that the payments for the first 24 months are based 
on a fixed rate, after which the interest rate will adjust annually 
based on a specified index and margin. The loan is recast on the due 
date of the 24th payment. If the 24th payment is due on September 1, 
2014, the creditor must calculate the outstanding principal balance as 
of September 1, 2014, assuming that all 24 payments under the fixed rate 
terms have been made and credited timely.
    ii. Second, the payment calculation must be based on substantially 
equal monthly payments of principal and interest that will fully repay 
the outstanding principal balance over the term of the loan remaining as 
of the date the loan is recast. Thus, in the example above, the creditor 
must assume a loan term of 28 years (336 monthly payments).
    iii. Third, the payment must be based on the fully indexed rate, as 
described in Sec. 1026.43(d)(5)(i)(A).
    5. Example of payment calculation for an adjustable-rate mortgage 
with an introductory fixed rate. The following example illustrates the 
rule described in comment 43(d)(5)(i)-4:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted introductory interest rate of 5 
percent that is fixed for an initial period of two years, after which 
the interest rate will adjust annually based on a specified index plus a 
margin of 3 percentage points.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. The loan is 
recast on the due date of the 24th monthly payment, which is March 1, 
2016.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing after the consumer has made 12 monthly on-
time payments. On this date, the index value is 4.5 percent.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The outstanding principal balance as of March 1, 2016, assuming 
all scheduled payments have been made up to March 1, 2016, and the last 
payment due under the fixed rate terms is made and credited on March 1, 
2016. In this example, the outstanding principal balance is $193,948.
    B. The fully indexed rate of 7.5 percent, which is the index value 
of 4.5 percent as of March 15, 2015 (the date on which the application 
for a refinancing is received) plus the margin of 3 percent.
    C. The remaining loan term as of March 1, 2016, the date of the 
recast, which is 28 years (336 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,383. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the outstanding principal balance at the fully indexed rate 
over the remaining term.
    6. Payment calculation for an interest-only loan. Under Sec. 
1026.43(d)(5)(i), the monthly periodic payment for an interest-only loan 
must be calculated based on several assumptions:
    i. First, the payment must be based on the outstanding principal 
balance as of the date of the recast, assuming all scheduled payments 
are made under the terms of the legal obligation in effect before the 
mortgage is recast. For a loan on which only interest and no principal 
has been paid, the outstanding principal balance at the time of recast 
will be the loan amount, as defined in Sec. 1026.43(b)(5), assuming all 
scheduled payments are made under the terms of the legal obligation in 
effect before the mortgage is recast. For example, assume that a 
mortgage has a 30-year loan term, and provides that the first 24 months 
of payments are interest-only. If the 24th payment is due on September 
1, 2015, the creditor must calculate the outstanding principal balance 
as of September 1, 2015, assuming that all 24 payments under the 
interest-only payment terms have been made and credited timely and that 
no payments of principal have been made.
    ii. Second, the payment calculation must be based on substantially 
equal monthly payments of principal and interest that will fully repay 
the loan amount over the term of the loan remaining as of the date the 
loan is recast. Thus, in the example above, the creditor must assume a 
loan term of 28 years (336 monthly payments).
    iii. Third, the payment must be based on the fully indexed rate, as 
described in Sec. 1026.43(d)(5)(i)(A).
    7. Example of payment calculation for an interest-only loan. The 
following example illustrates the rule described in comment 43(d)(5)(i)-
6:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a fixed interest rate of 7 percent, and permits 
interest-only payments for the first two years (the first 24 payments), 
after which time amortizing payments of principal and interest are 
required.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. The

[[Page 722]]

loan is recast on the due date of the 24th monthly payment, which is 
March 1, 2016.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing, after the consumer has made 12 monthly 
on-time payments. The consumer has made no additional payments of 
principal.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The loan amount, which is the outstanding principal balance as of 
March 1, 2016, assuming all scheduled interest-only payments have been 
made and credited up to that date. In this example, the loan amount is 
$200,000.
    B. An interest rate of 7 percent, which is the interest rate in 
effect at the time of consummation of this fixed-rate non-standard 
mortgage.
    C. The remaining loan term as of March 1, 2016, the date of the 
recast, which is 28 years (336 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,359. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the loan amount at the fully indexed rate over the remaining 
term.
    8. Payment calculation for a negative amortization loan. Under Sec. 
1026.43(d)(5)(i), the monthly periodic payment for a negative 
amortization loan must be calculated based on several assumptions:
    i. First, the calculation must be based on the maximum loan amount, 
determined after adjusting for the outstanding principal balance. If the 
consumer makes only the minimum periodic payments for the maximum 
possible time, until the consumer must begin making fully amortizing 
payments, the outstanding principal balance will be the maximum loan 
amount, as defined in Sec. 1026.43(b)(7). In this event, the creditor 
complies with Sec. 1026.43(d)(5)(i)(C)(3) by relying on the examples of 
how to calculate the maximum loan amount, see comment 43(b)(7)-3. If the 
consumer makes payments above the minimum periodic payments for the 
maximum possible time, the creditor must calculate the maximum loan 
amount based on the outstanding principal balance. In this event, the 
creditor complies with Sec. 1026.43(d)(5)(i)(C)(3) by relying on the 
examples of how to calculate the maximum loan amount in comment 
43(d)(5)(i)-10.
    ii. Second, the calculation must be based on substantially equal 
monthly payments of principal and interest that will fully repay the 
maximum loan amount over the term of the loan remaining as of the date 
the loan is recast. For example, if the loan term is 30 years and the 
loan is recast on the due date of the 60th monthly payment, the creditor 
must assume a remaining loan term of 25 years (300 monthly payments).
    iii. Third, the payment must be based on the fully indexed rate as 
of the date of the written application for the standard mortgage.
    9. Example of payment calculation for a negative amortization loan 
if only minimum payments made. The following example illustrates the 
rule described in comment 43(d)(5)(i)-8:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides that the consumer can make minimum monthly payments 
that cover only part of the interest accrued each month until the date 
on which the principal balance increases to the negative amortization 
cap of 115 percent of the loan amount, or for the first five years of 
monthly payments (60 payments), whichever occurs first. The loan is an 
adjustable-rate mortgage that adjusts monthly according to a specified 
index plus a margin of 3.5 percent.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. Assume that the 
consumer has made only the minimum periodic payments. Assume further 
that, based on the calculation of the maximum loan amount required under 
Sec. 1026.43(b)(7) and associated commentary, the negative amortization 
cap of 115 percent would be reached on June 1, 2016, the due date of the 
27th monthly payment.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing, after the consumer has made 12 monthly 
on-time payments. On this date, the index value is 4.5 percent.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The maximum loan amount of $229,251 as of June 1, 2016;
    B. The fully indexed rate of 8 percent, which is the index value of 
4.5 percent as of March 15, 2015 (the date on which the creditor 
receives the application for a refinancing) plus the margin of 3.5 
percent; and
    C. The remaining loan term as of June 1, 2016, the date of the 
recast, which is 27 years and nine months (333 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,716. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the maximum loan amount

[[Page 723]]

at the fully indexed rate over the remaining term.
    10. Example of payment calculation for a negative amortization loan 
if payments above minimum amount made. The following example illustrates 
the rule described in comment 43(d)(5)(i)-8:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides that the consumer can make minimum monthly payments 
that cover only part of the interest accrued each month until the date 
on which the principal balance increases to the negative amortization 
cap of 115 percent of the loan amount, or for the first five years of 
monthly payments (60 payments), whichever occurs first. The loan is an 
adjustable-rate mortgage that adjusts monthly according to a specified 
index plus a margin of 3.5 percent. The introductory interest rate at 
consummation is 1.5 percent. One month after consummation, the interest 
rate adjusts and will adjust monthly thereafter based on the specified 
index plus a margin of 3.5 percent. The maximum lifetime interest rate 
is 10.5 percent; there are no other periodic interest rate adjustment 
caps that limit how quickly the maximum lifetime rate may be reached. 
The minimum monthly payment for the first year is based on the initial 
interest rate of 1.5 percent. After that, the minimum monthly payment 
adjusts annually, but may increase by no more than 7.5 percent over the 
previous year's payment. The minimum monthly payment is $690 in the 
first year, $742 in the second year, $798 in the third year, $857 in the 
fourth year, and $922 in the fifth year.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. Assume that the 
consumer has made more than the minimum periodic payments, and that 
after the consumer's 12th monthly on-time payment the outstanding 
principal balance is $195,000. Based on the calculation of the maximum 
loan amount after adjusting for this outstanding principal balance, the 
negative amortization cap of 115 percent would be reached on March 1, 
2019, the due date of the 60th monthly payment.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing, after the consumer has made 12 monthly 
on-time payments. On this date, the index value is 4.5 percent.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The maximum loan amount of $229,219 as of March 1, 2019.
    B. The fully indexed rate of 8 percent, which is the index value of 
4.5 percent as of March 15, 2015 (the date on which the creditor 
receives the application for a refinancing) plus the margin of 3.5 
percent.
    C. The remaining loan term as of March 1, 2019, the date of the 
recast, which is exactly 25 years (300 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,769. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the maximum loan amount at the fully indexed rate over the 
remaining term.
    43(d)(5)(ii) Standard mortgage.
    1. Payment calculation for a standard mortgage. In determining 
whether the monthly periodic payment for a standard mortgage is 
materially lower than the monthly periodic payment for a non-standard 
mortgage, the creditor must consider the monthly payment for the 
standard mortgage that will result in substantially equal, monthly, 
fully amortizing payments (as defined in Sec. 1026.43(b)(2)) using the 
rate as of consummation. For guidance regarding the meaning of 
``substantially equal'' see comment 43(c)(5)(i)-4. For a mortgage with a 
single, fixed rate for the first five years after consummation, the 
maximum rate that will apply during the first five years after 
consummation will be the rate at consummation. For a step-rate mortgage, 
however, the rate that must be used is the highest rate that will apply 
during the first five years after consummation. For example, if the rate 
for the first two years after the date on which the first regular 
periodic payment will be due is 4 percent, the rate for the following 
two years is 5 percent, and the rate for the next two years is 6 
percent, the rate that must be used is 6 percent.
    2. Example of payment calculation for a standard mortgage. The 
following example illustrates the rule described in comment 
43(d)(5)(ii)-1: A loan in an amount of $200,000 has a 30-year loan term. 
The loan agreement provides for an interest rate of 6 percent that is 
fixed for an initial period of five years, after which time the interest 
rate will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap. The 
creditor must determine whether the standard mortgage monthly payment is 
materially lower than the non-standard mortgage monthly payment (see 
Sec. 1026.43(d)(2)(ii)) based on a standard mortgage payment of $1,199. 
This is the substantially equal, monthly payment of principal and 
interest required to repay $200,000 over 30 years at an interest rate of 
6 percent.
    43(e) Qualified mortgages.
    43(e)(1) Safe harbor and presumption of compliance.
    1. General. Section 1026.43(c) requires a creditor to make a 
reasonable and good faith

[[Page 724]]

determination at or before consummation that a consumer will be able to 
repay a covered transaction. Section 1026.43(e)(1)(i) and (ii) provide a 
safe harbor and presumption of compliance, respectively, with the 
repayment ability requirements of Sec. 1026.43(c) for creditors and 
assignees of covered transactions that satisfy the requirements of a 
qualified mortgage under Sec. 1026.43(e)(2), (e)(4), or (f). See Sec. 
1026.43(e)(1)(i) and (ii) and associated commentary.
    43(e)(1)(i) Safe harbor for transactions that are not higher-priced 
covered transactions.
    1. Safe harbor. To qualify for the safe harbor in Sec. 
1026.43(e)(1)(i), a covered transaction must meet the requirements of a 
qualified mortgage under Sec. 1026.43(e)(2), (e)(4), or (f) and must 
not be a higher-priced covered transaction, as defined in Sec. 
1026.43(b)(4). For guidance on determining whether a loan is a higher-
priced covered transaction, see comment 43(b)(4)-1.
    43(e)(1)(ii) Presumption of compliance for higher-priced covered 
transactions.
    1. General. Under Sec. 1026.43(e)(1)(ii), a creditor or assignee of 
a qualified mortgage under Sec. 1026.43(e)(2), (e)(4), or (f) that is a 
higher-priced covered transaction is presumed to comply with the 
repayment ability requirements of Sec. 1026.43(c). To rebut the 
presumption, it must be proven that, despite meeting the standards for a 
qualified mortgage (including either the debt-to-income standard in 
Sec. 1026.43(e)(2)(vi) or the standards of one of the entities 
specified in Sec. 1026.43(e)(4)(ii)), the creditor did not have a 
reasonable and good faith belief in the consumer's repayment ability. 
Specifically, it must be proven that, at the time of consummation, based 
on the information available to the creditor, the consumer's income, 
debt obligations, alimony, child support, and the consumer's monthly 
payment (including mortgage-related obligations) on the covered 
transaction and on any simultaneous loans of which the creditor was 
aware at consummation would leave the consumer with insufficient 
residual income or assets other than the value of the dwelling 
(including any real property attached to the dwelling) that secures the 
loan with which to meet living expenses, including any recurring and 
material non-debt obligations of which the creditor was aware at the 
time of consummation, and that the creditor thereby did not make a 
reasonable and good faith determination of the consumer's repayment 
ability. For example, a consumer may rebut the presumption with evidence 
demonstrating that the consumer's residual income was insufficient to 
meet living expenses, such as food, clothing, gasoline, and health care, 
including the payment of recurring medical expenses of which the 
creditor was aware at the time of consummation, and after taking into 
account the consumer's assets other than the value of the dwelling 
securing the loan, such as a savings account. In addition, the longer 
the period of time that the consumer has demonstrated actual ability to 
repay the loan by making timely payments, without modification or 
accommodation, after consummation or, for an adjustable-rate mortgage, 
after recast, the less likely the consumer will be able to rebut the 
presumption based on insufficient residual income and prove that, at the 
time the loan was made, the creditor failed to make a reasonable and 
good faith determination that the consumer had the reasonable ability to 
repay the loan.
    43(e)(2) Qualified mortgage defined--general.
    Paragraph 43(e)(2)(i).
    1. Regular periodic payments. Under Sec. 1026.43(e)(2)(i), a 
qualified mortgage must provide for regular periodic payments that may 
not result in an increase of the principal balance (negative 
amortization), deferral of principal repayment, or a balloon payment. 
Thus, the terms of the legal obligation must require the consumer to 
make payments of principal and interest, on a monthly or other periodic 
basis, that will fully repay the loan amount over the loan term. The 
periodic payments must be substantially equal except for the effect that 
any interest rate change after consummation has on the payment in the 
case of an adjustable-rate or step-rate mortgage. In addition, because 
Sec. 1026.43(e)(2)(i) requires that a qualified mortgage provide for 
regular periodic payments, a single-payment transaction may not be a 
qualified mortgage.
    2. Deferral of principal repayment. Under Sec. 1026.43(e)(2)(i)(B), 
a qualified mortgage's regular periodic payments may not allow the 
consumer to defer repayment of principal, except as provided in Sec. 
1026.43(f). A loan allows the deferral of principal repayment if one or 
more of the periodic payments may be applied solely to accrued interest 
and not to loan principal. Deferred principal repayment also occurs if 
the payment is applied to both accrued interest and principal but the 
consumer is permitted to make periodic payments that are less than the 
amount that would be required under a payment schedule that has 
substantially equal payments that fully repay the loan amount over the 
loan term. Graduated payment mortgages, for example, allow deferral of 
principal repayment in this manner and therefore may not be qualified 
mortgages.
    Paragraph 43(e)(2)(ii).
    1. General. The 30-year term limitation in Sec. 1026.43(e)(2)(ii) 
is applied without regard to any interim period between consummation and 
the beginning of the first full unit period of the repayment schedule. 
For example, assume a covered transaction is consummated on March 20, 
2014 and the due date of the first regular periodic payment is April 30, 
2014. The beginning of the first full unit period of the repayment 
schedule is April 1, 2014 and the loan term therefore ends on

[[Page 725]]

April 1, 2044. The transaction would comply with the 30-year term 
limitation in Sec. 1026.43(e)(2)(ii).
    Paragraph 43(e)(2)(iv).
    1. Maximum interest rate during the first five years. For a 
qualified mortgage, the creditor must underwrite the loan using a 
periodic payment of principal and interest based on 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. Creditors must use the 
maximum rate that could apply at any time during the first five years 
after the date on which the first regular periodic payment will be due, 
regardless of whether the maximum rate is reached at the first or 
subsequent adjustment during the five year period.
    2. Fixed-rate mortgage. For a fixed-rate mortgage, creditors should 
use the interest rate in effect at consummation. ``Fixed-rate mortgage'' 
is defined in Sec. 1026.18(s)(7)(iii).
    3. Interest rate adjustment caps. For an adjustable-rate mortgage, 
creditors should assume the interest rate increases after consummation 
as rapidly as possible, taking into account the terms of the legal 
obligation. That is, creditors should account for any periodic interest 
rate adjustment cap that may limit how quickly the interest rate can 
increase under the terms of the legal obligation. Where a range for the 
maximum interest rate during the first five years is provided, the 
highest rate in that range is the maximum interest rate for purposes of 
Sec. 1026.43(e)(2)(iv). Where the terms of the legal obligation are not 
based on an index plus margin or formula, the creditor must use the 
maximum interest rate that occurs during the first five years after the 
date on which the first regular periodic payment will be due. To 
illustrate:
    i. Adjustable-rate mortgage with discount for three years. Assume an 
adjustable-rate mortgage has an initial discounted rate of 5 percent 
that is fixed for the first three years, measured from the first day of 
the first full calendar month following consummation, after which the 
rate will adjust annually based on a specified index plus a margin of 3 
percent. The index value in effect at consummation is 4.5 percent. The 
loan agreement provides for an annual interest rate adjustment cap of 2 
percent, and a lifetime maximum interest rate of 12 percent. The first 
rate adjustment occurs on the due date of the 36th monthly payment; the 
rate can adjust to no more than 7 percent (5 percent initial discounted 
rate plus 2 percent annual interest rate adjustment cap). The second 
rate adjustment occurs on the due date of the 48th monthly payment; the 
rate can adjust to no more than 9 percent (7 percent rate plus 2 percent 
annual interest rate adjustment cap). The third rate adjustment occurs 
on the due date of the 60th monthly payment; the rate can adjust to no 
more than 11 percent (9 percent rate plus 2 percent annual interest rate 
cap adjustment). The maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
is 11 percent (the rate on the due date of the 60th monthly payment). 
For further discussion of how to determine whether a rate adjustment 
occurs during the first five years after the date on which the first 
regular periodic payment will be due, see comment 43(e)(2)(iv)-7.
    ii. Adjustable-rate mortgage with discount for three years. Assume 
the same facts as in paragraph 3.i except that the lifetime maximum 
interest rate is 10 percent, which is less than the maximum interest 
rate in the first five years after the date on which the first regular 
periodic payment will be due of 11 percent that would apply but for the 
lifetime maximum interest rate. The maximum interest rate during the 
first five years after the date on which the first regular periodic 
payment will be due is 10 percent.
    iii. Step-rate mortgage. Assume a step-rate mortgage with an 
interest rate fixed at 6.5 percent for the first two years, measured 
from the first day of the first full calendar month following 
consummation, 7 percent for the next three years, and then 7.5 percent 
for the remainder of the loan term. The maximum interest rate during the 
first five years after the date on which the first regular periodic 
payment will be due is 7.5 percent.
    4. First five years after the date on which the first regular 
periodic payment will be due. Under Sec. 1026.43(e)(2)(iv)(A), the 
creditor must underwrite the loan using 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. To illustrate, assume an 
adjustable-rate mortgage with an initial fixed interest rate of 5 
percent for the first five years, measured from the first day of the 
first full calendar month following consummation, after which the 
interest rate will adjust annually to the specified index plus a margin 
of 6 percent, subject to a 2 percent annual interest rate adjustment 
cap. The index value in effect at consummation is 5.5 percent. The loan 
consummates on September 15, 2014, and the first monthly payment is due 
on November 1, 2014. The first rate adjustment to no more than 7 percent 
(5 percent plus 2 percent annual interest rate adjustment cap) occurs on 
the due date of the 60th monthly payment, which is October 1, 2019, and 
therefore, the rate adjustment occurs during the first five years after 
the date on which the first regular periodic payment will be due. To 
meet the definition of qualified mortgage under Sec. 1026.43(e)(2), the 
creditor must underwrite the loan using a monthly payment of principal 
and interest based on an interest rate of 7 percent.

[[Page 726]]

    5. Loan amount. To meet the definition of qualified mortgage under 
Sec. 1026.43(e)(2), a creditor must determine the periodic payment of 
principal and interest using the maximum interest rate permitted during 
the first five years after the date on which the first regular periodic 
payment will be due that repays either:
    i. The outstanding principal balance as of the earliest date the 
maximum interest rate during the first five years after the date on 
which the first regular periodic payment will be due can take effect 
under the terms of the legal obligation, over the remaining term of the 
loan. To illustrate, assume a loan in an amount of $200,000 has a 30-
year loan term. The loan agreement provides for a discounted interest 
rate of 5 percent that is fixed for an initial period of three years, 
measured from the first day of the first full calendar month following 
consummation, after which the interest rate will adjust annually based 
on a specified index plus a margin of 3 percent, subject to a 2 percent 
annual interest rate adjustment cap and a lifetime maximum interest rate 
of 9 percent. The index value in effect at consummation equals 4.5 
percent. Assuming the interest rate increases after consummation as 
quickly as possible, the rate adjustment to the lifetime maximum 
interest rate of 9 percent occurs on the due date of the 48th monthly 
payment. The outstanding principal balance on the loan at the end of the 
fourth year (after the 48th monthly payment is credited) is $188,218. 
The creditor will meet the definition of qualified mortgage if it 
underwrites the covered transaction using the monthly payment of 
principal and interest of $1,564 to repay the outstanding principal 
balance of $188,218 over the remaining 26 years of the loan term (312 
months) using the maximum interest rate during the first five years of 9 
percent; or
    ii. The loan amount, as that term is defined in Sec. 1026.43(b)(5), 
over the entire loan term, as that term is defined in Sec. 
1026.43(b)(6). Using the same example above, the creditor will meet the 
definition of qualified mortgage if it underwrites the covered 
transaction using the monthly payment of principal and interest of 
$1,609 to repay the loan amount of $200,000 over the 30-year loan term 
using the maximum interest rate during the first five years of 9 
percent.
    6. Mortgage-related obligations. Section 1026.43(e)(2)(iv) requires 
creditors to take the consumer's monthly payment for mortgage-related 
obligations into account when underwriting the loan. For the meaning of 
the term ``mortgage-related obligations,'' see Sec. 1026.43(b)(8) and 
associated commentary.
    7. Examples. The following are examples of how to determine the 
periodic payment of principal and interest based on the maximum interest 
rate during the first five years after the date on which the first 
regular periodic payment will be due for purposes of meeting the 
definition of qualified mortgage under Sec. 1026.43(e) (all payment 
amounts shown are rounded, and all amounts are calculated using non-
rounded values; all initial fixed interest rate periods are measured 
from the first day of the first full calendar month following 
consummation):
    i. Fixed-rate mortgage. A loan in an amount of $200,000 has a 30-
year loan term and a fixed interest rate of 7 percent. The maximum 
interest rate during the first five years after the date on which the 
first regular periodic payment will be due for a fixed-rate mortgage is 
the interest rate in effect at consummation, which is 7 percent under 
this example. The monthly fully amortizing payment scheduled over the 30 
years is $1,331. The creditor will meet the definition of qualified 
mortgage if it underwrites the loan using the fully amortizing payment 
of $1,331.
    ii. Adjustable-rate mortgage with discount for three years. A. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted interest rate of 5 percent that is 
fixed for an initial period of three years, after which the interest 
rate will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap and 
a lifetime maximum interest rate of 9 percent. The index value in effect 
at consummation is 4.5 percent. The loan is consummated on March 15, 
2014, and the first regular periodic payment is due May 1, 2014. The 
loan agreement provides that the first rate adjustment occurs on April 
1, 2017 (the due date of the 36th monthly payment); the second rate 
adjustment occurs on April 1, 2018 (the due date of the 48th monthly 
payment); and the third rate adjustment occurs on April 1, 2019 (the due 
date of the 60th monthly payment). Under this example, the maximum 
interest rate during the first five years after the date on which the 
first regular periodic payment due is 9 percent (the lifetime interest 
rate cap), which applies beginning on April 1, 2018 (the due date of the 
48th monthly payment). The outstanding principal balance at the end of 
the fourth year (after the 48th payment is credited) is $188,218.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using the monthly payment of 
principal and interest of $1,564 to repay the outstanding principal 
balance at the end of the fourth year of $188,218 over the remaining 26 
years of the loan term (312 months), using the maximum interest rate 
during the first five years after the date on which the first regular 
periodic payment will be due of 9 percent. Alternatively, the 
transaction will meet the definition of a qualified mortgage if the 
creditor underwrites the loan using the monthly payment of principal and 
interest of $1,609 to repay the loan

[[Page 727]]

amount of $200,000 over the 30-year loan term, using the maximum 
interest rate during the first five years after the date on which the 
first regular periodic payment will be due of 9 percent.
    iii. Adjustable-rate mortgage with discount for five years. A. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted interest rate of 6 percent that is 
fixed for an initial period of five years, after which the interest rate 
will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap. The 
index value in effect at consummation is 4.5 percent. The loan 
consummates on March 15, 2014 and the first regular periodic payment is 
due May 1, 2014. Under the terms of the loan agreement, the first rate 
adjustment to no more than 8 percent (6 percent plus 2 percent annual 
interest rate adjustment cap) is on April 1, 2019 (the due date of the 
60th monthly payment), which occurs less than five years after the date 
on which the first regular periodic payment will be due. Thus, the 
maximum interest rate under the terms of the loan during the first five 
years after the date on which the first regular periodic payment will be 
due is 8 percent.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using the monthly payment of 
principal and interest of $1,436 to repay the outstanding principal 
balance at the end of the fifth year of $186,109 over the remaining 25 
years of the loan term (300 months), using the maximum interest rate 
during the first five years after the date on which the first regular 
periodic payment will be due of 8 percent. Alternatively, the 
transaction will meet the definition of a qualified mortgage if the 
creditor underwrites the loan using the monthly payment of principal and 
interest of $1,468 to repay the loan amount of $200,000 over the 30-year 
loan term, using the maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
of 8 percent.
    iv. Adjustable-rate mortgage with discount for seven years. A. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted interest rate of 6 percent that is 
fixed for an initial period of seven years, after which the interest 
rate will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap. The 
index value in effect at consummation is 4.5 percent. The loan is 
consummated on March 15, 2014, and the first regular periodic payment is 
due May 1, 2014. Under the terms of the loan agreement, the first rate 
adjustment is on April 1, 2021 (the due date of the 84th monthly 
payment), which occurs more than five years after the date on which the 
first regular periodic payment will be due. Thus, the maximum interest 
rate under the terms of the loan during the first five years after the 
date on which the first regular periodic payment will be due is 6 
percent.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using the monthly payment of 
principal and interest of $1,199 to repay the loan amount of $200,000 
over the 30-year loan term using the maximum interest rate during the 
first five years after the date on which the first regular periodic 
payment will be due of 6 percent.
    iv. Step-rate mortgage. A. A loan in an amount of $200,000 has a 30-
year loan term. The loan agreement provides that the interest rate is 
6.5 percent for the first two years of the loan, 7 percent for the next 
three years, and then 7.5 percent for remainder of the loan term. The 
maximum interest rate during the first five years after the date on 
which the first regular periodic payment will be due is 7.5 percent, 
which occurs on the due date of the 60th monthly payment. The 
outstanding principal balance at the end of the fifth year (after the 
60th payment is credited) is $187,868.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using a monthly payment of 
principal and interest of $1,388 to repay the outstanding principal 
balance of $187,868 over the remaining 25 years of the loan term (300 
months), using the maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
of 7.5 percent. Alternatively, the transaction will meet the definition 
of a qualified mortgage if the creditor underwrites the loan using a 
monthly payment of principal and interest of $1,398 to repay $200,000 
over the 30-year loan term using the maximum interest rate during the 
first five years after the date on which the first regular periodic 
payment will be due of 7.5 percent.
    Paragraph 43(e)(2)(v).
    1. General. For guidance on satisfying Sec. 1026.43(e)(2)(v), a 
creditor may rely on commentary to Sec. 1026.43(c)(2)(i) and (vi), 
(c)(3), and (c)(4).
    2. Income or assets. Section 1026.43(e)(2)(v)(A) requires creditors 
to consider and verify the consumer's current or reasonably expected 
income or assets. For purposes of this requirement, the creditor must 
consider and verify, at a minimum, any income specified in appendix Q. A 
creditor may also consider and verify any other income in accordance 
with Sec. 1026.43(c)(2)(i) and (c)(4); however, such income would not 
be included in the total monthly debt-to-income ratio determination 
required by Sec. 1026.43(e)(2)(vi).

[[Page 728]]

    3. Debts. Section 1026.43(e)(2)(v)(B) requires creditors to consider 
and verify the consumer's current debt obligations, alimony, and child 
support. For purposes of this requirement, the creditor must consider 
and verify, at a minimum, any debt or liability specified in appendix Q. 
A creditor may also consider and verify other debt in accordance with 
Sec. 1026.43(c)(2)(vi) and (c)(3); however, such debt would not be 
included in the total monthly debt-to-income ratio determination 
required by Sec. 1026.43(e)(2)(vi).
    Paragraph 43(e)(2)(vi).
    1. Calculation of monthly payment on the covered transaction and 
simultaneous loans. As provided in appendix Q, for purposes of Sec. 
1026.43(e)(2)(vi), creditors must include in the definition of ``debt'' 
a consumer's monthly housing expense. This includes, for example, the 
consumer's monthly payment on the covered transaction (including 
mortgage-related obligations) and on simultaneous loans. Accordingly, 
Sec. 1026.43(e)(2)(vi)(B) provides the method by which a creditor 
calculates the consumer's monthly payment on the covered transaction and 
on any simultaneous loan that the creditor knows or has reason to know 
will be made.
    43(e)(3) Limits on points and fees for qualified mortgages.
    Paragraph 43(e)(3)(i).
    1. Total loan amount. The term ``total loan amount'' is defined in 
Sec. 1026.32(b)(4)(i). For an explanation of how to calculate the 
``total loan amount'' under Sec. 1026.43(e)(3)(i), see comment 
32(b)(4)(i)-1.
    2. Calculation of allowable points and fees. A creditor must 
determine which category the loan falls into based on the face amount of 
the note (the ``loan amount'' as defined in Sec. 1026.43(b)(5)). For 
categories with a percentage limit, the creditor must apply the 
allowable points and fees percentage to the ``total loan amount,'' which 
may be different than the loan amount. A creditor must calculate the 
allowable amount of points and fees for a qualified mortgage as follows:
    i. First, the creditor must determine the ``tier'' into which the 
loan falls based on the loan amount. The loan amount is the principal 
amount the consumer will borrow, as reflected in the promissory note or 
loan contract. See Sec. 1026.43(b)(5). For example, if the loan amount 
is $55,000, the loan falls into the tier for loans greater than or equal 
to $20,000 but less than $60,000, to which a 5 percent cap on points and 
fees applies. For tiers with a prescribed dollar limit on points and 
fees (e.g., for loans from $60,000 up to $100,000, the limit is $3,000), 
the creditor does not need to do any further calculations.
    ii. Second, for tiers with a percentage limit, the creditor must 
determine the total loan amount based on the calculation for the total 
loan amount under comment 32(b)(4)(i)-1. If the loan amount is $55,000, 
for example, the total loan amount may be a different amount, such as 
$52,000.
    iii. Third, the creditor must apply the percentage cap on points and 
fees to the total loan amount. For example, for a loan of $55,000 where 
the total loan amount is $52,000, the allowable points and fees are 5 
percent of $52,000, or $2,600.
    3. Sample determination of allowable points and fees.
    i. A covered transaction with a loan amount of $105,000 falls into 
the first points and fees tier, to which a points and fees cap of 3 
percent of the total loan amount applies. See Sec. 1026.43(e)(3)(i)(A). 
Therefore, if the calculation under comment 32(b)(4)(i)-1 results in a 
total loan amount of $102,000, then the allowable total points and fees 
for this loan are 3 percent of $102,000, or $3,060.
    ii. A covered transaction with a loan amount of $75,000 falls into 
the second points and fees tier, to which a points and fees cap of 
$3,000 applies. See Sec. 1026.43(e)(3)(i)(B). The allowable total 
points and fees for this loan are $3,000, regardless of the total loan 
amount.
    iii. A covered transaction with a loan amount of $50,000 falls into 
the third points and fees tier, to which a points and fees cap of 5 
percent of the total loan amount applies. See Sec. 1026.43(e)(3)(i)(C). 
Therefore, if the calculation under comment 32(b)(4)(i)-1 results in a 
total loan amount of $48,000, then the allowable total points and fees 
for this loan are 5 percent of $48,000, or $2,400.
    iv. A covered transaction with a loan amount of $15,000 falls into 
the fourth points and fees tier, to which a points and fees cap of 
$1,000 applies. See Sec. 1026.43(e)(3)(i)(D). The allowable total 
points and fees for this loan are $1,000, regardless of the total loan 
amount.
    v. A covered transaction with a loan amount of $10,000 falls into 
the fifth points and fees tier, to which a points and fees cap of 8 
percent of the total loan amount applies. See Sec. 1026.43(e)(3)(i)(E). 
Therefore, if the calculation under comment 32(b)(4)(i)-1 results in a 
total loan amount of $7,000, then the allowable total points and fees 
for this loan are 8 percent of $7,000, or $560.
    Paragraph 43(e)(3)(ii).
    1. Annual adjustment for inflation. The dollar amounts, including 
the loan amounts, in Sec. 1026.43(e)(3)(i) will be adjusted annually on 
January 1 by the annual percentage change in the CPI-U that was in 
effect on the preceding June 1. The Bureau will publish adjustments 
after the June figures become available each year.
    43(e)(4) Qualified mortgage defined--special rules.
    1. Alternative definition. Subject to the sunset provided under 
Sec. 1026.43(e)(4)(iii), Sec. 1026.43(e)(4) provides an alternative 
definition of qualified mortgage to the definition provided in Sec. 
1026.43(e)(2). To be a qualified

[[Page 729]]

mortgage under Sec. 1026.43(e)(4), the transaction must satisfy the 
requirements under Sec. 1026.43(e)(2)(i) through (iii), in addition to 
being one of the types of loans specified in Sec. 1026.43(e)(4)(ii)(A) 
through (E).
    2. Termination of conservatorship. Section 1026.43(e)(4)(ii)(A) 
requires that a covered transaction be eligible for purchase or 
guarantee by the Federal National Mortgage Association (``Fannie Mae'') 
or the Federal Home Loan Mortgage Corporation (``Freddie Mac'') (or any 
limited-life regulatory entity succeeding the charter of either) 
operating under the conservatorship or receivership of the Federal 
Housing Finance Agency pursuant to section 1367 of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617). 
The special rule under Sec. 1026.43(e)(4)(ii)(A) does not apply if 
Fannie Mae or Freddie Mac (or any limited-life regulatory entity 
succeeding the charter of either) has ceased operating under the 
conservatorship or receivership of the Federal Housing Finance Agency. 
For example, if either Fannie Mae or Freddie Mac (or succeeding limited-
life regulatory entity) ceases to operate under the conservatorship or 
receivership of the Federal Housing Finance Agency, Sec. 
1026.43(e)(4)(ii)(A) would no longer apply to loans eligible for 
purchase or guarantee by that entity; however, the special rule would be 
available for a loan that is eligible for purchase or guarantee by the 
other entity still operating under conservatorship or receivership.
    3. Timing. Under Sec. 1026.43(e)(4)(iii), the definition of 
qualified mortgage under paragraph (e)(4) applies only to loans 
consummated on or before January 10, 2021, regardless of whether Fannie 
Mae or Freddie Mac (or any limited-life regulatory entity succeeding the 
charter of either) continues to operate under the conservatorship or 
receivership of the Federal Housing Finance Agency. Accordingly, Sec. 
1026.43(e)(4) is available only for covered transactions consummated on 
or before the earlier of either:
    i. The date Fannie Mae or Freddie Mac (or any limited-life 
regulatory entity succeeding the charter of either), respectively, cease 
to operate under the conservatorship or receivership of the Federal 
Housing Finance Agency pursuant to section 1367 of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617); 
or
    ii. January 10, 2021, as provided by Sec. 1026.43(e)(4)(iii).
    4. Eligible for purchase, guarantee, or insurance. To satisfy Sec. 
1026.43(e)(4)(ii), a loan need not be actually purchased or guaranteed 
by Fannie Mae or Freddie Mac or insured or guaranteed by the U.S. 
Department of Housing and Urban Development, U.S. Department of Veterans 
Affairs, U.S. Department of Agriculture, or Rural Housing Service. 
Rather, Sec. 1026.43(e)(4)(ii) requires only that the loan be eligible 
(i.e., meet the criteria) for such purchase, guarantee, or insurance. 
For example, for purposes of Sec. 1026.43(e)(4), a creditor is not 
required to sell a loan to Fannie Mae or Freddie Mac (or any limited-
life regulatory entity succeeding the charter of either) to be a 
qualified mortgage; however, the loan must be eligible for purchase or 
guarantee by Fannie Mae or Freddie Mac (or any limited-life regulatory 
entity succeeding the charter of either), including satisfying any 
requirements regarding consideration and verification of a consumer's 
income or assets, credit history, and debt-to-income ratio or residual 
income. To determine eligibility, a creditor may rely on an underwriting 
recommendation provided by Fannie Mae or Freddie Mac's Automated 
Underwriting Systems (AUSs) or written guide in effect at the time. 
Accordingly, a covered transaction is eligible for purchase or guarantee 
by Fannie Mae or Freddie Mac if:
    i. The loan conforms to the standards set forth in the Fannie Mae 
Single-Family Selling Guide or the Freddie Mac Single-Family Seller/
Servicer Guide; or
    ii. The loan receives one of the following recommendations from the 
corresponding automated underwriting system:
    A. An ``Approve/Eligible'' recommendation from Desktop Underwriter 
(DU); or
    B. An ``Accept and Eligible to Purchase'' recommendation from Loan 
Prospector (LP).
    Paragraph 43(e)(5).
    1. Satisfaction of qualified mortgage requirements. For a covered 
transaction to be a qualified mortgage under Sec. 1026.43(e)(5), the 
mortgage must satisfy the requirements for a qualified mortgage under 
Sec. 1026.43(e)(2), other than the requirements regarding debt-to-
income ratio. For example, a qualified mortgage under Sec. 
1026.43(e)(5) may not have a loan term in excess of 30 years because 
longer terms are prohibited for qualified mortgages under Sec. 
1026.43(e)(2)(ii). Similarly, a qualified mortgage under Sec. 
1026.43(e)(5) may not result in a balloon payment because Sec. 
1026.43(e)(2)(i)(C) provides that qualified mortgages may not have 
balloon payments except as provided under Sec. 1026.43(f). However, a 
covered transaction need not comply with Sec. 1026.43(e)(2)(vi), which 
prohibits consumer monthly debt-to-income ratios in excess of 43 
percent. A covered transaction therefore can be a qualified mortgage 
under Sec. 1026.43(e)(5) even though the consumer's monthly debt-to-
income ratio is greater than 43 percent.
    2. Debt-to-income ratio or residual income. Section 1026.43(e)(5) 
does not prescribe a specific monthly debt-to-income ratio with which 
creditors must comply. Instead, creditors must consider a consumer's 
debt-to-income ratio or residual income calculated generally in 
accordance with Sec. 1026.43(c)(7) and verify the information used to 
calculate the debt-to-income ratio or residual income in accordance with 
Sec. 1026.43(c)(3) and (4).

[[Page 730]]

However, Sec. 1026.43(c)(7) refers creditors to Sec. 1026.43(c)(5) for 
instructions on calculating the payment on the covered transaction. 
Section 1026.43(c)(5) requires creditors to calculate the payment 
differently than Sec. 1026.43(e)(2)(iv). For purposes of the qualified 
mortgage definition in Sec. 1026.43(e)(5), creditors must base their 
calculation of the consumer's debt-to-income ratio or residual income on 
the payment on the covered transaction calculated according to Sec. 
1026.43(e)(2)(iv) instead of according to Sec. 1026.43(c)(5). Creditors 
are not required to calculate the consumer's monthly debt-to-income 
ratio in accordance with appendix Q to this part as is required under 
the general definition of qualified mortgages by Sec. 
1026.43(e)(2)(vi).
    3. Forward commitments. A creditor may make a mortgage loan that 
will be transferred or sold to a purchaser pursuant to an agreement that 
has been entered into at or before the time the transaction is 
consummated. Such an agreement is sometimes known as a ``forward 
commitment.'' A mortgage that will be acquired by a purchaser pursuant 
to a forward commitment does not satisfy the requirements of Sec. 
1026.43(e)(5), whether the forward commitment provides for the purchase 
and sale of the specific transaction or for the purchase and sale of 
transactions with certain prescribed criteria that the transaction 
meets. However, a forward commitment to another person that also meets 
the requirements of Sec. 1026.43(e)(5)(i)(D) is permitted. For example, 
assume a creditor that is eligible to make qualified mortgages under 
Sec. 1026.43(e)(5) makes a mortgage. If that mortgage meets the 
purchase criteria of an investor with which the creditor has an 
agreement to sell loans after consummation, then the loan does not meet 
the definition of a qualified mortgage under Sec. 1026.43(e)(5). 
However, if the investor meets the requirements of Sec. 
1026.43(e)(5)(i)(D), the mortgage will be a qualified mortgage if all 
other applicable criteria also are satisfied.
    4. Creditor qualifications. To be eligible to make qualified 
mortgages under Sec. 1026.43(e)(5), a creditor must satisfy the 
requirements stated in Sec. 1026.35(b)(2)(iii)(B) and (C). Section 
1026.35(b)(2)(iii)(B) requires that, during the preceding calendar year, 
the creditor and its affiliates together originated 500 or fewer first-
lien covered transactions. Section 1026.35(b)(2)(iii)(C) requires that, 
as of the end of the preceding calendar year, the creditor had total 
assets of less than $2 billion, adjusted annually by the Bureau for 
inflation.
    5. Requirement to hold in portfolio. Creditors generally must hold a 
loan in portfolio to maintain the transaction's status as a qualified 
mortgage under Sec. 1026.43(e)(5), subject to four exceptions. Unless 
one of these exceptions applies, a loan is no longer a qualified 
mortgage under Sec. 1026.43(e)(5) once legal title to the debt 
obligation is sold, assigned, or otherwise transferred to another 
person. Accordingly, unless one of the exceptions applies, the 
transferee could not benefit from the presumption of compliance for 
qualified mortgages under Sec. 1026.43(e)(1) unless the loan also met 
the requirements of another qualified mortgage definition.
    6. Application to subsequent transferees. The exceptions contained 
in Sec. 1026.43(e)(5)(ii) apply not only to an initial sale, 
assignment, or other transfer by the originating creditor but to 
subsequent sales, assignments, and other transfers as well. For example, 
assume Creditor A originates a qualified mortgage under Sec. 
1026.43(e)(5). Six months after consummation, Creditor A sells the 
qualified mortgage to Creditor B pursuant to Sec. 1026.43(e)(5)(ii)(B) 
and the loan retains its qualified mortgage status because Creditor B 
complies with the limits on asset size and number of transactions. If 
Creditor B sells the qualified mortgage, it will lose its qualified 
mortgage status under Sec. 1026.43(e)(5) unless the sale qualifies for 
one of the Sec. 1026.43(e)(5)(ii) exceptions for sales three or more 
years after consummation, to another qualifying institution, as required 
by supervisory action, or pursuant to a merger or acquisition.
    7. Transfer three years after consummation. Under Sec. 
1026.43(e)(5)(ii)(A), if a qualified mortgage under Sec. 1026.43(e)(5) 
is sold, assigned, or otherwise transferred three years or more after 
consummation, the loan retains its status as a qualified mortgage under 
Sec. 1026.43(e)(5) following the transfer. The transferee need not be 
eligible to originate qualified mortgages under Sec. 1026.43(e)(5). The 
loan will continue to be a qualified mortgage throughout its life, and 
the transferee, and any subsequent transferees, may invoke the 
presumption of compliance for qualified mortgages under Sec. 
1026.43(e)(1).
    8. Transfer to another qualifying creditor. Under Sec. 
1026.43(e)(5)(ii)(B), a qualified mortgage under Sec. 1026.43(e)(5) may 
be sold, assigned, or otherwise transferred at any time to another 
creditor that meets the requirements of Sec. 1026.43(e)(5)(i)(D). That 
section requires that a creditor, during the preceding calendar year, 
together with all affiliates, originated 500 or fewer first-lien covered 
transactions and had total assets less than $2 billion (as adjusted for 
inflation) at the end of the preceding calendar year. A qualified 
mortgage under Sec. 1026.43(e)(5) transferred to a creditor that meets 
these criteria would retain its qualified mortgage status even if it is 
transferred less than three years after consummation.
    9. Supervisory sales. Section 1026.43(e)(5)(ii)(C) facilitates sales 
that are deemed necessary by supervisory agencies to revive troubled 
creditors and resolve failed creditors. A qualified mortgage under

[[Page 731]]

Sec. 1026.43(e)(5) retains its qualified mortgage status if it is sold, 
assigned, or otherwise transferred to another person pursuant to: A 
capital restoration plan or other action under 12 U.S.C. 1831o; the 
actions or instructions of any person acting as conservator, receiver or 
bankruptcy trustee; an order of a State or Federal government agency 
with jurisdiction to examine the creditor pursuant to State or Federal 
law; or an agreement between the creditor and such an agency. A 
qualified mortgage under Sec. 1026.43(e)(5) that is sold, assigned, or 
otherwise transferred under these circumstances retains its qualified 
mortgage status regardless of how long after consummation it is sold and 
regardless of the size or other characteristics of the transferee. 
Section 1026.43(e)(5)(ii)(C) does not apply to transfers done to comply 
with a generally applicable regulation with future effect designed to 
implement, interpret, or prescribe law or policy in the absence of a 
specific order by or a specific agreement with a governmental agency 
described in Sec. 1026.43(e)(5)(ii)(C) directing the sale of one or 
more qualified mortgages under Sec. 1026.43(e)(5) held by the creditor 
or one of the other circumstances listed in Sec. 1026.43(e)(5)(ii)(C). 
For example, a qualified mortgage under Sec. 1026.43(e)(5) that is sold 
pursuant to a capital restoration plan under 12 U.S.C. 1831o would 
retain its status as a qualified mortgage following the sale. However, 
if the creditor simply chose to sell the same qualified mortgage as one 
way to comply with general regulatory capital requirements in the 
absence of supervisory action or agreement it would lose its status as a 
qualified mortgage following the sale unless it qualifies under another 
definition of qualified mortgage.
    10. Mergers and acquisitions. A qualified mortgage under Sec. 
1026.43(e)(5) retains its qualified mortgage status if a creditor merges 
with, is acquired by, or acquires another person regardless of whether 
the creditor or its successor is eligible to originate new qualified 
mortgages under Sec. 1026.43(e)(5) after the merger or acquisition. 
However, the creditor or its successor can originate new qualified 
mortgages under Sec. 1026.43(e)(5) only if it complies with all of the 
requirements of Sec. 1026.43(e)(5) after the merger or acquisition. For 
example, assume a creditor that originates 250 covered transactions each 
year and originates qualified mortgages under Sec. 1026.43(e)(5) is 
acquired by a larger creditor that originates 10,000 covered 
transactions each year. Following the acquisition, the small creditor 
would no longer be able to originate Sec. 1026.43(e)(5) qualified 
mortgages because, together with its affiliates, it would originate more 
than 500 covered transactions each year. However, the Sec. 
1026.43(e)(5) qualified mortgages originated by the small creditor 
before the acquisition would retain their qualified mortgage status.
    43(f) Balloon-Payment qualified mortgages made by certain creditors.
    43(f)(1) Exemption.
    Paragraph 43(f)(1)(i).
    1. Satisfaction of qualified mortgage requirements. Under Sec. 
1026.43(f)(1)(i), for a mortgage that provides for a balloon payment to 
be a qualified mortgage, the mortgage must satisfy the requirements for 
a qualified mortgage in paragraphs (e)(2)(i)(A), (e)(2)(ii), (iii), and 
(v). Therefore, a covered transaction with balloon payment terms must 
provide for regular periodic payments that do not result in an increase 
of the principal balance, pursuant to Sec. 1026.43(e)(2)(i)(A); must 
have a loan term that does not exceed 30 years, pursuant to Sec. 
1026.43(e)(2)(ii); must have total points and fees that do not exceed 
specified thresholds pursuant to Sec. 1026.43(e)(2)(iii); and must 
satisfy the consideration and verification requirements in Sec. 
1026.43(e)(2)(v).
    Paragraph 43(f)(1)(ii).
    1. Example. Under Sec. 1026.43(f)(1)(ii), if a qualified mortgage 
provides for a balloon payment, the creditor must determine that the 
consumer is able to make all scheduled payments under the legal 
obligation other than the balloon payment. For example, assume a loan in 
an amount of $200,000 that has a five-year loan term, but is amortized 
over 30 years. The loan agreement provides for a fixed interest rate of 
6 percent. The loan consummates on March 3, 2014, and the monthly 
payment of principal and interest scheduled for the first five years is 
$1,199, with the first monthly payment due on April 1, 2014. The balloon 
payment of $187,308 is required on the due date of the 60th monthly 
payment, which is April 1, 2019. The loan can be a qualified mortgage if 
the creditor underwrites the loan using the scheduled principal and 
interest payment of $1,199, plus the consumer's monthly payment for all 
mortgage-related obligations, and satisfies the other criteria set forth 
in Sec. 1026.43(f).
    2. Creditor's determination. A creditor must determine that the 
consumer is able to make all scheduled payments other than the balloon 
payment to satisfy Sec. 1026.43(f)(1)(ii), in accordance with the legal 
obligation, together with the consumer's monthly payments for all 
mortgage-related obligations and excluding the balloon payment, to meet 
the repayment ability requirements of Sec. 1026.43(f)(1)(ii). A 
creditor satisfies Sec. 1026.43(f)(1)(ii) if it uses the maximum 
payment in the payment schedule, excluding any balloon payment, to 
determine if the consumer has the ability to make the scheduled 
payments.
    Paragraph 43(f)(1)(iii).
    1. Debt-to-income or residual income. A creditor must consider and 
verify the consumer's monthly debt-to-income ratio or residual income to 
meet the requirements of Sec. 1026.43(f)(1)(iii). To calculate the 
consumer's monthly debt-to-income or residual income

[[Page 732]]

for purposes of Sec. 1026.43(f)(1)(iii), the creditor may rely on the 
definitions and calculation rules in Sec. 1026.43(c)(7) and its 
accompanying commentary, except for the calculation rules for a 
consumer's total monthly debt obligations (which is a component of debt-
to-income and residual income under Sec. 1026.43(c)(7)). For purposes 
of calculating the consumer's total monthly debt obligations under Sec. 
1026.43(f)(1)(iii), the creditor must calculate the monthly payment on 
the covered transaction using the payment calculation rules in Sec. 
1026.43(f)(1)(iv)(A), together with all mortgage-related obligations and 
excluding the balloon payment.
    Paragraph 43(f)(1)(iv).
    1. Scheduled payments. Under Sec. 1026.43(f)(1)(iv)(A), the legal 
obligation must provide that scheduled payments must be substantially 
equal and determined using an amortization period that does not exceed 
30 years. Balloon payments often result when the periodic payment would 
fully repay the loan amount only if made over some period that is longer 
than the loan term. For example, a loan term of 10 years with periodic 
payments based on an amortization period of 20 years would result in a 
balloon payment being due at the end of the loan term. Whatever the loan 
term, the amortization period used to determine the scheduled periodic 
payments that the consumer must pay under the terms of the legal 
obligation may not exceed 30 years.
    2. Substantially equal. The calculation of payments scheduled by the 
legal obligation under Sec. 1026.43(f)(1)(iv)(A) are required to result 
in substantially equal amounts. This means that the scheduled payments 
need to be similar, but need not be equal. For further guidance on 
substantially equal payments, see comment 43(c)(5)(i)-4.
    3. Interest-only payments. A mortgage that only requires the payment 
of accrued interest each month does not meet the requirements of Sec. 
1026.43(f)(1)(iv)(A).
    Paragraph 43(f)(1)(v).
    1. Forward commitments. A creditor may make a mortgage loan that 
will be transferred or sold to a purchaser pursuant to an agreement that 
has been entered into at or before the time the transaction is 
consummated. Such an agreement is sometimes known as a ``forward 
commitment.'' A balloon-payment mortgage that will be acquired by a 
purchaser pursuant to a forward commitment does not satisfy the 
requirements of Sec. 1026.43(f)(1)(v), whether the forward commitment 
provides for the purchase and sale of the specific transaction or for 
the purchase and sale of transactions with certain prescribed criteria 
that the transaction meets. However, a purchase and sale of a balloon-
payment qualified mortgage to another person that separately meets the 
requirements of Sec. 1026.43(f)(1)(vi) is permitted. For example: 
assume a creditor that meets the requirements of Sec. 1026.43(f)(1)(vi) 
makes a balloon-payment mortgage that meets the requirements of Sec. 
1026.43(f)(1)(i) through (iv); if the balloon-payment mortgage meets the 
purchase criteria of an investor with which the creditor has an 
agreement to sell such loans after consummation, then the balloon-
payment mortgage does not meet the definition of a qualified mortgage in 
accordance with Sec. 1026.43(f)(1)(v). However, if the investor meets 
the requirement of Sec. 1026.43(f)(1)(vi), the balloon-payment 
qualified mortgage retains its qualified mortgage status.
    Paragraph 43(f)(1)(vi).
    1. Creditor qualifications. Under Sec. 1026.43(f)(1)(vi), to make a 
qualified mortgage that provides for a balloon payment, the creditor 
must satisfy three criteria that are also required under Sec. 
1026.35(b)(2)(iii)(A), (B) and (C), which require:
    i. During the preceding calendar year, the creditor extended over 50 
percent of its total first-lien covered transactions, as defined in 
Sec. 1026.43(b)(1), on properties that are located in counties that are 
designated either ``rural'' or ``underserved,'' as defined in Sec. 
1026.35(b)(2)(iv), to satisfy the requirement of Sec. 
1026.35(b)(2)(iii)(A). Pursuant to Sec. 1026.35(b)(2)(iv), a county is 
considered to be rural if it is neither in a metropolitan statistical 
area, nor a micropolitan statistical area adjacent to a metropolitan 
statistical area, as those terms are defined by the U.S. Office of 
Management and Budget. A county is considered to be underserved if no 
more than two creditors extend covered transactions secured by a first 
lien five or more times in that county during a calendar year. The 
Bureau determines annually which counties in the United States are rural 
or underserved and publishes on its public Web site lists of those 
counties to enable creditors to determine whether they meet this 
criterion. Thus, for example, if a creditor originated 90 first-lien 
covered transactions during 2013, the creditor meets this element of the 
exception in 2014 if at least 46 of those transactions are secured by 
first liens on properties located in one or more counties that are on 
the Bureau's lists for 2013.
    ii. During the preceding calendar year, the creditor together with 
its affiliates originated 500 or fewer first-lien covered transactions, 
as defined by Sec. 1026.43(b)(1), to satisfy the requirement of Sec. 
1026.35(b)(2)(iii)(B).
    iii. As of the end of the preceding calendar year, the creditor had 
total assets that do not exceed the current asset threshold established 
by the Bureau, to satisfy the requirement of Sec. 
1026.35(b)(2)(iii)(C). For calendar year 2013, the asset threshold was 
$2,000,000,000.
    43(f)(2) Post-consummation transfer of balloon-payment qualified 
mortgage.
    1. Requirement to hold in portfolio. Creditors generally must hold a 
balloon-payment qualified mortgage in portfolio to maintain

[[Page 733]]

the transaction's status as a qualified mortgage under Sec. 
1026.43(f)(1), subject to four exceptions. Unless one of these 
exceptions applies, a balloon-payment qualified mortgage is no longer a 
qualified mortgage under Sec. 1026.43(f)(1) once legal title to the 
debt obligation is sold, assigned, or otherwise transferred to another 
person. Accordingly, unless one of the exceptions applies, the 
transferee could not benefit from the presumption of compliance for 
qualified mortgages under Sec. 1026.43(f)(1) unless the loan also met 
the requirements of another qualified mortgage definition.
    2. Application to subsequent transferees. The exceptions contained 
in Sec. 1026.43(f)(2) apply not only to an initial sale, assignment, or 
other transfer by the originating creditor but to subsequent sales, 
assignments, and other transfers as well. For example, assume Creditor A 
originates a qualified mortgage under Sec. 1026.43(f)(1). Six months 
after consummation, Creditor A sells the qualified mortgage to Creditor 
B pursuant to Sec. 1026.43(f)(2)(ii) and the loan retains its qualified 
mortgage status because Creditor B complies with the limits on operating 
predominantly in rural or underserved areas, asset size, and number of 
transactions. If Creditor B sells the qualified mortgage, it will lose 
its qualified mortgage status under Sec. 1026.43(f)(1) unless the sale 
qualifies for one of the Sec. 1026.43(f)(2) exceptions for sales three 
or more years after consummation, to another qualifying institution, as 
required by supervisory action, or pursuant to a merger or acquisition.
    Paragraph 43(f)(2)(i).
    1. Transfer three years after consummation. Under Sec. 
1026.43(f)(2)(i), if a balloon-payment qualified mortgage under Sec. 
1026.43(f)(1) is sold, assigned, or otherwise transferred three years or 
more after consummation, the balloon-payment qualified mortgage retains 
its status as a qualified mortgage under Sec. 1026.43(f)(1) following 
the sale. The transferee need not be eligible to originate qualified 
mortgages under Sec. 1026.43(f)(1)(vi). The balloon-payment qualified 
mortgage will continue to be a qualified mortgage throughout its life, 
and the transferee, and any subsequent transferees, may invoke the 
presumption of compliance for qualified mortgages under Sec. 
1026.43(f)(1).
    Paragraph 43(f)(2)(ii).
    1. Transfer to another qualifying creditor. Under Sec. 
1026.43(f)(2)(ii), a balloon-payment qualified mortgage under Sec. 
1026.43(f)(1) may be sold, assigned, or otherwise transferred at any 
time to another creditor that meets the requirements of Sec. 
1026.43(f)(1)(vi). That section requires that a creditor: (1) Operate 
predominantly in a rural or underserved area during the preceding 
calendar year; (2) during the preceding calendar year, together with all 
affiliates, originated 500 or fewer first-lien covered transactions; and 
(3) had total assets less than $2 billion (as adjusted for inflation) at 
the end of the preceding calendar year. A balloon-payment qualified 
mortgage under Sec. 1026.43(f)(1) transferred to a creditor that meets 
these criteria would retain its qualified mortgage status even if it is 
transferred less than three years after consummation.
    Paragraph 43(f)(2)(iii).
    1. Supervisory sales. Section 1026.43(f)(2)(iii) facilitates sales 
that are deemed necessary by supervisory agencies to revive troubled 
creditors and resolve failed creditors. A balloon-payment qualified 
mortgage under Sec. 1026.43(f)(1) retains its qualified mortgage status 
if it is sold, assigned, or otherwise transferred to another person 
pursuant to: (1) A capital restoration plan or other action under 12 
U.S.C. 1831o; (2) the actions or instructions of any person acting as 
conservator, receiver, or bankruptcy trustee; (3) an order of a State or 
Federal government agency with jurisdiction to examine the creditor 
pursuant to State or Federal law; or (4) an agreement between the 
creditor and such an agency. A balloon-payment qualified mortgage under 
Sec. 1026.43(f)(1) that is sold, assigned, or otherwise transferred 
under these circumstances retains its qualified mortgage status 
regardless of how long after consummation it is sold and regardless of 
the size or other characteristics of the transferee. Section 
1026.43(f)(2)(iii) does not apply to transfers done to comply with a 
generally applicable regulation with future effect designed to 
implement, interpret, or prescribe law or policy in the absence of a 
specific order by or a specific agreement with a governmental agency 
described in Sec. 1026.43(f)(2)(iii) directing the sale of one or more 
qualified mortgages under Sec. 1026.43(f)(1) held by the creditor or 
one of the other circumstances listed in Sec. 1026.43(f)(2)(iii). For 
example, a balloon-payment qualified mortgage under Sec. 1026.43(f)(1) 
that is sold pursuant to a capital restoration plan under 12 U.S.C. 
1831o would retain its status as a qualified mortgage following the 
sale. However, if the creditor simply chose to sell the same qualified 
mortgage as one way to comply with general regulatory capital 
requirements in the absence of supervisory action or agreement the 
transaction would lose its status as a qualified mortgage following the 
sale unless it qualifies under another definition of qualified mortgage.
    Paragraph 43(f)(2)(iv).
    1. Mergers and acquisitions. A qualified mortgage under Sec. 
1026.43(f)(1) retains its qualified mortgage status if a creditor merges 
with, is acquired by another person, or acquires another person 
regardless of whether the creditor or its successor is eligible to 
originate new balloon-payment qualified mortgages under Sec. 
1026.43(f)(1) after the merger or acquisition. However, the creditor or 
its successor can originate new balloon-

[[Page 734]]

payment qualified mortgages under Sec. 1026.43(f)(1) only if it 
complies with all of the requirements of Sec. 1026.43(f)(1) after the 
merger or acquisition. For example, assume a small creditor that 
originates 250 first-lien covered transactions each year and originates 
balloon-payment qualified mortgages under Sec. 1026.43(f)(1) is 
acquired by a larger creditor that originates 10,000 first-lien covered 
transactions each year. Following the acquisition, the small creditor 
would no longer be able to originate balloon-payment qualified mortgages 
because, together with its affiliates, it would originate more than 500 
first-lien covered transactions each year. However, the balloon-payment 
qualified mortgages originated by the small creditor before the 
acquisition would retain their qualified mortgage status.
    43(g) Prepayment penalties.
    43(g)(2) Limits on prepayment penalties.
    1. Maximum period and amount. Section 1026.43(g)(2) establishes the 
maximum period during which a prepayment penalty may be imposed and the 
maximum amount of the prepayment penalty. A covered transaction may 
include a prepayment penalty that may be imposed during a shorter period 
or in a lower amount than provided under Sec. 1026.43(g)(2). For 
example, a covered transaction may include a prepayment penalty that may 
be imposed for two years after consummation and that equals 1 percent of 
the amount prepaid in each of those two years.
    43(g)(3) Alternative offer required.
    Paragraph 43(g)(3)(i).
    1. Same type of interest rate. Under Sec. 1026.43(g)(3)(i), if a 
creditor offers a consumer a covered transaction with a prepayment 
penalty, the creditor must offer the consumer an alternative covered 
transaction without a prepayment penalty and with an annual percentage 
rate that cannot increase after consummation. Under Sec. 
1026.43(g)(3)(i), if the covered transaction with a prepayment penalty 
is a fixed-rate mortgage, as defined in Sec. 1026.18(s)(7)(iii), then 
the alternative covered transaction without a prepayment penalty must 
also be a fixed-rate mortgage. Likewise, if the covered transaction with 
a prepayment penalty is a step-rate mortgage, as defined in Sec. 
1026.18(s)(7)(ii), then the alternative covered transaction without a 
prepayment penalty must also be a step-rate mortgage.
    Paragraph 43(g)(3)(iv).
    1. Points and fees. Whether or not an alternative covered 
transaction without a prepayment penalty satisfies the points and fees 
conditions for a qualified mortgage is determined based on the 
information known to the creditor at the time the creditor offers the 
consumer the transaction. At the time a creditor offers a consumer an 
alternative covered transaction without a prepayment penalty under Sec. 
1026.43(g)(3), the creditor may know the amount of some, but not all, of 
the points and fees that will be charged for the transaction. For 
example, a creditor may not know that a consumer intends to buy single-
premium credit unemployment insurance, which would be included in the 
points and fees for the covered transaction. The points and fees 
condition under Sec. 1026.43(g)(3)(iv) is satisfied if a creditor 
reasonably believes, based on information known to the creditor at the 
time the offer is made, that the amount of points and fees to be charged 
for an alternative covered transaction without a prepayment penalty will 
be less than or equal to the amount of points and fees allowed for a 
qualified mortgage under Sec. 1026.43(e)(2)(iii).
    Paragraph 43(g)(3)(v).
    1. Transactions for which the consumer likely qualifies. Under Sec. 
1026.43(g)(3)(v), the alternative covered transaction without a 
prepayment penalty the creditor must offer under Sec. 1026.43(g)(3) 
must be a transaction for which the creditor has a good faith belief the 
consumer likely qualifies. For example, assume the creditor has a good 
faith belief the consumer can afford monthly payments of up to $800. If 
the creditor offers the consumer a fixed-rate mortgage with a prepayment 
penalty for which monthly payments are $700 and an alternative covered 
transaction without a prepayment penalty for which monthly payments are 
$900, the requirements of Sec. 1026.43(g)(3)(v) are not met. The 
creditor's belief that the consumer likely qualifies for the covered 
transaction without a prepayment penalty should be based on the 
information known to the creditor at the time the creditor offers the 
transaction. In making this determination, the creditor may rely on 
information provided by the consumer, even if the information 
subsequently is determined to be inaccurate.
    43(g)(4) Offer through a mortgage broker.
    1. Rate sheet. Under Sec. 1026.43(g)(4), where the creditor offers 
covered transactions with a prepayment penalty to consumers through a 
mortgage broker, as defined in Sec. 1026.36(a)(2), the creditor must 
present the mortgage broker an alternative covered transaction that 
satisfies the requirements of Sec. 1026.43(g)(3). Creditors may comply 
with this requirement by providing a rate sheet to the mortgage broker 
that states the terms of such an alternative covered transaction without 
a prepayment penalty.
    2. Alternative to creditor's offer. Section 1026.43(g)(4)(ii) 
requires that the creditor provide, by agreement, for the mortgage 
broker to present the consumer an alternative covered transaction that 
satisfies the requirements of Sec. 1026.43(g)(3) offered by either the 
creditor or by another creditor, if the other creditor offers a covered 
transaction with a lower interest rate or a lower total dollar amount of 
discount points and origination points or fees. The agreement may 
provide for the mortgage broker to present both the

[[Page 735]]

creditor's covered transaction and an alternative covered transaction 
offered by another creditor with a lower interest rate or a lower total 
dollar amount of origination discount points and points or fees. See 
comment 36(e)(3)-3 for guidance in determining which step-rate mortgage 
has a lower interest rate.
    3. Agreement. The creditor's agreement with a mortgage broker for 
purposes of Sec. 1026.43(g)(4) may be part of another agreement with 
the mortgage broker, for example, a compensation agreement. Thus, the 
creditor need not enter into a separate agreement with the mortgage 
broker with respect to each covered transaction with a prepayment 
penalty.
    43(g)(5) Creditor that is a loan originator.
    1. Loan originator. The definition of ``loan originator'' in Sec. 
1026.36(a)(1) applies for purposes of Sec. 1026.43(g)(5). Thus, a loan 
originator includes any creditor that satisfies the definition of loan 
originator but makes use of ``table-funding'' by a third party. See 
comment 36(a)-1.i and ii.
    2. Lower interest rate. Under Sec. 1026.43(g)(5), a creditor that 
is a loan originator must present an alternative covered transaction 
without a prepayment penalty that satisfies the requirements of Sec. 
1026.43(g)(3) offered by either the assignee for the covered transaction 
or another person, if that other person offers a transaction with a 
lower interest rate or a lower total dollar amount of origination points 
or fees or discount points. See comment 36(e)(3)-3 for guidance in 
determining which step-rate mortgage has a lower interest rate.
    43(h) Evasion; open-end credit.
    1. Subject to closed-end credit rules. Where a creditor documents a 
loan as open-end credit but the features and terms, or other 
circumstances, demonstrate that the loan does not meet the definition of 
open-end credit in Sec. 1026.2(a)(20), the loan is subject to the rules 
for closed-end credit, including Sec. 1026.43.

          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 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

[[Page 736]]

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.
    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.

[[Page 737]]

                        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, 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

[[Page 738]]

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;
    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.

[[Page 739]]

                         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 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

[[Page 740]]

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:
    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

[[Page 741]]

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.

                        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%.

[[Page 742]]

    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, 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

[[Page 743]]

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 
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

[[Page 744]]

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 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

[[Page 745]]

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 ability to make the required 
minimum periodic payments under the terms of an account based on the 
consumer's 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 consideration 
of a consumer's 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. Consideration of income and assets. For purposes of Sec. 
1026.51(a):
    i. A card issuer may consider any current or reasonably expected 
income or assets of the consumer or consumers who are applying for a new 
account or will be liable for debts incurred on that account, including 
a cosigner or guarantor. 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 or assets 
of the consumer or consumers who are accountholders, cosigners, or 
guarantors, and are liable for debts incurred on that account. In both 
of these circumstances, a card issuer may treat any income and assets to 
which an applicant, accountholder, joint applicant, cosigner, or 
guarantor who is or will be liable for debts incurred on the account has 
a reasonable expectation of access as the applicant's current or 
reasonably expected income--but is not required to do so. A card issuer 
may instead limit its consideration of a consumer's current or 
reasonably expected income or assets to the consumer's independent 
income or assets as discussed in comments 51(b)(1)(i)-1 and 51(b)(2)-2. 
Although these comments clarify the independent ability-to-pay 
requirement that governs applications from consumers under 21, they 
provide guidance regarding the use of ``independent income and assets'' 
as an underwriting criterion under Sec. 1026.51(a). For example, 
comment 51(b)(1)(i)-1 explains that card issuers may not consider income 
or assets to which applicants under 21 have only a reasonable 
expectation of access. An issuer who chooses to comply with Sec. 
1026.51(a) by limiting its consideration to applicants' independent 
income and assets likewise would not consider income or assets to which 
applicants 21 or older have only a reasonable expectation of access.
    ii. Current or reasonably expected income includes, for example, 
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 include interest or 
dividends, retirement benefits, public assistance, alimony, child 
support, and separate maintenance payments. Proceeds from student loans 
may be considered as current or reasonably expected income only to the 
extent that those proceeds exceed the amount disbursed or owed to an 
educational institution for tuition and other

[[Page 746]]

expenses. Current or reasonably expected income also includes income 
that is being deposited regularly into an account on which the consumer 
is an accountholder (e.g., an individual deposit account or joint 
account). Assets include, for example, savings accounts and investments.
    iii. Consideration of the income or assets of authorized users, 
household members, or other persons who are not liable for debts 
incurred on the account does not satisfy the requirement to consider the 
consumer's current or reasonably expected income or assets, 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 (e.g., joint ownership granted under State community property 
laws), such income is being deposited regularly into an account on which 
the consumer is an accountholder (e.g., an individual deposit account or 
a joint account), or the consumer has a reasonable expectation of access 
to such income or assets even though the consumer does not have a 
current or expected ownership interest in the income or assets. See 
comment 51(a)(1)-6 for examples of non-applicant income to which a 
consumer has a reasonable expectation of access.
    5. Information regarding income and assets. For purposes of Sec. 
1026.51(a), a card issuer may consider the consumer's current or 
reasonably expected income and assets based on the following 
information:
    i. Information provided by the consumer in connection with the 
account, including information provided by the consumer through the 
application process. For example, card issuers may rely without further 
inquiry on information provided by applicants in response to a request 
for ``salary,'' ``income,'' ``assets,'' ``available income,'' 
``accessible income,'' or other language requesting that the applicant 
provide information regarding current or reasonably expected income or 
assets or any income or assets to which the applicant has a reasonable 
expectation of access. However, card issuers may not rely solely on 
information provided in response to a request for ``household income.'' 
In that case, the card issuer would need to obtain additional 
information about an applicant's current or reasonably expected income, 
including income and assets to which the applicant has a reasonable 
expectation of access (such as by contacting the applicant). See 
comments 51(a)(1)-4, -5, and -6 for additional guidance on determining 
the consumer's current or reasonably expected income under Sec. 
1026.51(a)(1). See comment 51(a)(1)-9 for guidance regarding the use of 
a single, common application form or process for all credit card 
applicants, regardless of age.
    ii. 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).
    iii. Information obtained through third parties (subject to any 
applicable information-sharing rules).
    iv. Information obtained through any empirically derived, 
demonstrably and statistically sound model that reasonably estimates a 
consumer's income or assets, including any income or assets to which the 
consumer has a reasonable expectation of access.
    6. Examples of considering income. Assume that an applicant is not 
employed and that the applicant is age 21 or older so Sec. 1026.51(b) 
does not apply.
    i. If a non-applicant's salary or other income is deposited 
regularly into a joint account shared with the applicant, a card issuer 
is permitted to consider the amount of the non-applicant's income that 
is being deposited regularly into the account to be the applicant's 
current or reasonably expected income for purposes of Sec. 1026.51(a).
    ii. The non-applicant's salary or other income is deposited into an 
account to which the applicant does not have access. However, the non-
applicant regularly transfers a portion of that income into the 
applicant's individual deposit account. A card issuer is permitted to 
consider the amount of the non-applicant's income that is being 
transferred regularly into the applicant's account to be the applicant's 
current or reasonably expected income for purposes of Sec. 1026.51(a).
    iii. The non-applicant's salary or other income is deposited into an 
account to which the applicant does not have access. However, the non-
applicant regularly uses a portion of that income to pay for the 
applicant's expenses. A card issuer is permitted to consider the amount 
of the non-applicant's income that is used regularly to pay for the 
applicant's expenses to be the applicant's current or reasonably 
expected income for purposes of Sec. 1026.51(a) because the applicant 
has a reasonable expectation of access to that income.
    iv. The non-applicant's salary or other income is deposited into an 
account to which the applicant does not have access, the non-applicant 
does not regularly use that income to pay for the applicant's expenses, 
and no Federal or State statute or regulation grants the applicant an 
ownership interest in that income. A card issuer is not permitted to 
consider the non-applicant's income as the applicant's current or 
reasonably expected income for purposes of Sec. 1026.51(a) because the 
applicant does not have a reasonable expectation of access to the non-
applicant's income.
    7. 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

[[Page 747]]

a consumer's current obligations, a card issuer need not assume that 
credit lines for other obligations are fully utilized.
    8. 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.
    9. Single application. A card issuer may use a single, common 
application form or process for all credit card applicants, regardless 
of age. A card issuer may rely without further verification on income 
and asset information provided by applicants through such an 
application, so long as the application questions gather sufficient 
information to allow the card issuer to satisfy the requirements of both 
Sec. 1026.51(a) and (b), depending on whether a particular applicant 
has reached the age of 21. For example, a card issuer might provide two 
separate line items on its application form, one prompting applicants to 
provide their ``personal income,'' and the other prompting applicants 
for ``available income.'' A card issuer might also prompt applicants, 
regardless of age, using only the term ``income'' and satisfy the 
requirements of both Sec. 1026.51(a) and (b).

                   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 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.
    5. Current obligations. A card issuer may consider the consumer's 
current obligations under Sec. 1026.51(b)(1) and (b)(2)(i) 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 or joint accountholders. With respect to the 
opening of a joint account for two or more consumers under Sec. 
1026.51(b)(1) or a credit line increase on such an account under Sec. 
1026.51(b)(2)(i), 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. See commentary to

[[Page 748]]

Sec. 1026.51(b)(1)(i) and (b)(2) for information on income and assets 
that may be considered for joint applicants, joint accountholders, 
cosigners, or guarantors who are under the age of 21, and commentary to 
Sec. 1026.51(b)(1)(ii) for information on income and assets that may be 
considered for joint applicants, joint accountholders, cosigners, or 
guarantors who are at least 21 years old.
    7. 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, card issuers must comply with the applicable rules in 
Regulation B (12 CFR part 1026). A card issuer does not violate 
Regulation B by complying with the requirements in Sec. 1026.51(b).

               51(b)(1) Applications from young consumers

    Paragraph 51(b)(1)(i).
    1. Consideration of income and assets for young consumers. For 
purposes of Sec. 1026.51(b)(1)(i):
    i. A card issuer may consider any current or reasonably expected 
income or assets of the consumer or consumers who are applying for a new 
account or will be liable for debts incurred on that account, including 
a cosigner or guarantor. However, because Sec. 1026.51(b)(1)(i) 
requires that the consumer who has not attained the age of 21 have an 
independent ability to make the required minimum periodic payments, the 
card issuer may only consider the applicant's current or reasonably 
expected income or assets under Sec. 1026.51(b)(1)(i). The card issuer 
may not consider income or assets to which an applicant, joint 
applicant, cosigner, or guarantor, in each case who is under the age of 
21 and is or will be liable for debts incurred on the account, has only 
a reasonable expectation of access.
    ii. Current or reasonably expected income includes, for example, 
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 include interest or 
dividends, retirement benefits, public assistance, alimony, child 
support, and separate maintenance payments. Proceeds from student loans 
may be considered as current or reasonably expected income only to the 
extent that those proceeds exceed the amount disbursed or owed to an 
educational institution for tuition and other expenses. Current or 
reasonably expected income includes income that is being deposited 
regularly into an account on which the consumer is an accountholder 
(e.g., an individual deposit account or a joint account). Assets 
include, for example, savings accounts and investments. Current or 
reasonably expected income and assets does not include income and assets 
to which the consumer only has a reasonable expectation of access.
    iii. Consideration of the income and assets of authorized users, 
household members, or other persons who are not liable for debts 
incurred on the account does not satisfy the requirement to consider the 
consumer's current or reasonably expected income or assets, 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 
or assets (e.g., joint ownership granted under State community property 
laws), or the income is being deposited regularly into an account on 
which the consumer is an accountholder (e.g., an individual deposit 
account or a joint account). See comment 51(b)(1)(i)-3 for examples of 
income that may be relied upon as a consumer's current or reasonably 
expected income.
    2. Information regarding income and assets for young consumers. For 
purposes of Sec. 1026.51(b)(1)(i), a card issuer may consider the 
consumer's current or reasonably expected income and assets based on the 
following information:
    i. Information provided by the consumer in connection with the 
account, including information provided by the consumer through the 
application process. For example, card issuers may rely without further 
inquiry on information provided by applicants in response to a request 
for ``salary,'' ``income,'' ``personal income,'' ``individual income,'' 
``assets,'' or other language requesting that the applicant provide 
information regarding his or her current or reasonably expected income 
or assets. However, card issuers may not rely solely on information 
provided in response to a request for ``household income.'' Nor may they 
rely solely on information provided in response to a request for 
``available income,'' ``accessible income,'' or other language 
requesting that the applicant provide any income or assets to which the 
applicant has a reasonable expectation of access. In such cases, the 
card issuer would need to obtain additional information about an 
applicant's current or reasonably expected income (such as by contacting 
the applicant). See comments 51(b)(1)(i)-1, -2, and -3 for additional 
guidance on determining the consumer's current or reasonably expected 
income under Sec. 1026.51(b)(1)(i). See comment 51(a)(1)-9 for guidance 
regarding the use of a single, common application for all credit card 
applicants, regardless of age.
    ii. 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).
    iii. Information obtained through third parties (subject to any 
applicable information-sharing rules).

[[Page 749]]

    iv. Information obtained through any empirically derived, 
demonstrably and statistically sound model that reasonably estimates a 
consumer's income or assets.
    3. Examples of considering income for young consumers. Assume that 
an applicant is not employed and the applicant is under the age of 21 so 
Sec. 1026.51(b) applies.
    i. If a non-applicant's salary or other income is deposited 
regularly into a joint account shared with the applicant, a card issuer 
is permitted to consider the amount of the non-applicant's income that 
is being deposited regularly into the account to be the applicant's 
current or reasonably expected income for purposes of Sec. 
1026.51(b)(1)(i).
    ii. The non-applicant's salary or other income is deposited into an 
account to which the applicant does not have access. However, the non-
applicant regularly transfers a portion of that income into the 
applicant's individual deposit account. A card issuer is permitted to 
consider the amount of the non-applicant's income that is being 
transferred regularly into the applicant's account to be the applicant's 
current or reasonably expected income for purposes of Sec. 
1026.51(b)(1)(i).
    iii. The non-applicant's salary or other income is deposited into an 
account to which the applicant does not have access. However, the non-
applicant regularly uses that income to pay for the applicant's 
expenses. A card issuer is not permitted to consider the non-applicant's 
income that is used regularly to pay for the applicant's expenses as the 
applicant's current or reasonably expected income for purposes of Sec. 
1026.51(b)(1)(i), unless a Federal or State statute or regulation grants 
the applicant an ownership interest in such income.
    iv. The non-applicant's salary or other income is deposited into an 
account to which the applicant does not have access, the non-applicant 
does not regularly use that income to pay for the applicant's expenses, 
and no Federal or State statute or regulation grants the applicant an 
ownership interest in that income. The card issuer is not permitted to 
consider the non-applicant's income to be the applicant's current or 
reasonably expected income for purposes of Sec. 1026.51(b)(1)(i).
    Paragraph 51(b)(1)(ii).
    1. 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)(ii)(B) and card issuers may rely on 
the guidance in comments 51(a)(1)-4, -5, and -6 for purposes of 
determining whether a cosigner, guarantor, or joint applicant who is at 
least 21 years old has the ability to make the required minimum periodic 
payments in accordance with Sec. 1026.51(b)(1)(ii)(B).

           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.
    2. Independent ability-to-pay standard. Under Sec. 1026.51(b)(2), 
if a credit card account has been opened pursuant to Sec. 
1026.51(b)(1)(i), no increase in the credit limit may be made on such 
account before the consumer attains the age of 21 unless, at the time of 
the contemplated increase, the consumer has an independent ability to 
make the required minimum periodic payments on the increased limit, 
consistent with Sec. 1026.51(b)(1)(i), or a cosigner, guarantor, or 
joint applicant who is at least 21 years old assumes liability for any 
debt incurred on the account, consistent with Sec. 1026.51(b)(1)(ii). 
Thus, when a card issuer is considering whether to increase the credit 
limit on an existing account, Sec. 1026.51(b)(2)(i)(A) requires that 
consumers who have not attained the age of 21 and do not have a 
cosigner, guarantor, or joint applicant who is 21 years or older must 
have an independent ability to make the required minimum periodic 
payments as of the time of the contemplated increase. Thus, the card 
issuer may not consider income or assets to which an accountholder, 
cosigner, or guarantor, in each case who is under the age of 21 and is 
or will be liable for debts incurred on the account, has only a 
reasonable expectation of access under Sec. 1026.51(b)(2)(i)(A). The 
card issuer, however, may consider income or assets to which an 
accountholder, cosigner, or guarantor, in each case who is age 21 or 
older and is or will be liable for debts incurred on the account, has a 
reasonable expectation of access under Sec. 1026.51(b)(2)(i)(B). 
Information regarding income and assets that satisfies the requirements 
of Sec. 1026.51(b)(1)(i) also satisfies the requirements of Sec. 
1026.51(b)(2)(i)(A) and card issuers may rely on the guidance in the 
commentary to Sec. 1026.51(b)(1)(i) for purposes of determining whether 
an accountholder who is less than 21 years old has the independent 
ability to make the required minimum periodic payments in accordance 
with Sec. 1026.51(b)(2)(i)(A). Information regarding income and assets 
that satisfies the requirements of Sec. 1026.51(a) also satisfies the 
requirements of Sec. 1026.51(b)(2)(i)(B) and card issuers may rely on 
the guidance in comments 51(a)(1)-4, -5, and -6 for purposes of 
determining whether a cosigner, guarantor, or joint applicant who is at 
least 21

[[Page 750]]

years old has the ability to make the required minimum periodic payments 
in accordance with Sec. 1026.51(b)(2)(i)(B).

                  Section 1026.52--Limitations on Fees

       52(a) Limitations during first year after account opening.

                          52(a)(1) General rule

    1. Application. The 25 percent limit in Sec. 1026.52(a)(1) applies 
to fees that the card issuer charges to the account as well as to fees 
that the card issuer requires the consumer to pay with respect to the 
account through other means (such as through a payment from the 
consumer's asset account to the card issuer or from another credit 
account provided by the card issuer). For example:
    i. Assume that, under the terms of a credit card account, a consumer 
is required to pay $120 in fees for the issuance or availability of 
credit at account opening. The consumer is also required to pay a cash 
advance fee that is equal to five percent of the cash advance and a late 
payment fee of $15 if the required minimum periodic payment is not 
received by the payment due date (which is the twenty-fifth of the 
month). At account opening on January 1 of year one, the credit limit 
for the account is $500. Section 1026.52(a)(1) permits the card issuer 
to charge to the account the $120 in fees for the issuance or 
availability of credit at account opening. On February 1 of year one, 
the consumer uses the account for a $100 cash advance. Section 
1026.52(a)(1) permits the card issuer to charge a $5 cash-advance fee to 
the account. On March 26 of year one, the card issuer has not received 
the consumer's required minimum periodic payment. Section 1026.52(a)(2) 
permits the card issuer to charge a $15 late payment fee to the account. 
On July 15 of year one, the consumer uses the account for a $50 cash 
advance. Section 1026.52(a)(1) does not permit the card issuer to charge 
a $2.50 cash advance fee to the account. Furthermore, Sec. 
1026.52(a)(1) prohibits the card issuer from collecting the $2.50 cash 
advance fee from the consumer by other means.
    ii. Assume that, under the terms of a credit card account, a 
consumer is required to pay $125 in fees for the issuance or 
availability of credit during the first year after account opening. At 
account opening on January 1 of year one, the credit limit for the 
account is $500. Section 1026.52(a)(1) permits the card issuer to charge 
the $125 in fees to the account. However, Sec. 1026.52(a)(1) prohibits 
the card issuer from requiring the consumer to make payments to the card 
issuer for additional non-exempt fees with respect to the account during 
the first year after account opening. Section 1026.52(a)(1) also 
prohibits the card issuer from requiring the consumer to open a separate 
credit account with the card issuer to fund the payment of additional 
non-exempt fees during the first year after the credit card account is 
opened.
    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, assume 
that, at account opening on January 1, the credit limit for a credit 
card account is $1,000 and the consumer is required to pay $250 in fees 
for the issuance or availability of credit. The billing cycles for the 
account begin on the first day of the month and end on the last day of 
the month. On July 30, the card issuer decreases the credit limit for 
the account to $600. Section 1026.52(a)(1) requires the card issuer to 
waive or remove $100 in fees from the account or to credit the account 
for an amount equal to $100 within a

[[Page 751]]

reasonable amount of time but no later than August 31.
    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 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 
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

[[Page 752]]

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 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

[[Page 753]]

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 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

[[Page 754]]

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 (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

[[Page 755]]

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 $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

[[Page 756]]

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 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),

[[Page 757]]

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 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).
    i. Historical thresholds.
    A. Card issuers were permitted to impose a fee for violating the 
terms of an agreement if the fee did not exceed $25 under Sec. 
1026.52(b)(1)(ii)(A) and $35 under Sec. 1026.52(b)(1)(ii)(B), through 
December 31, 2013.
    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

[[Page 758]]

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. 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

[[Page 759]]

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 
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

[[Page 760]]

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 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

[[Page 761]]

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 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

[[Page 762]]

(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 
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.

[[Page 763]]

    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 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

[[Page 764]]

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 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 765]]

    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 766]]

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 767]]

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 768]]

    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 769]]

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 770]]

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 771]]

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 772]]

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 773]]

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 774]]

    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 775]]

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 776]]

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 777]]

    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 778]]

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 779]]

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 780]]

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 781]]

                  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 782]]

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 783]]

    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 784]]

    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 785]]

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 786]]

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 787]]

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 788]]

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 789]]

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 790]]

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 791]]

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 792]]

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 793]]

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 794]]

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 795]]

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 796]]

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 797]]

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 798]]

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 799]]

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 800]]

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 801]]

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 802]]

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 issuer offers the consumer a 10% rate on purchases

[[Page 803]]

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 804]]

    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 805]]

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 806]]

                       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 807]]

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 808]]

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 809]]

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 810]]

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 811]]

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 812]]

           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 813]]

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 814]]

 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 815]]

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 816]]

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 817]]

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 818]]

    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 and sample and 
model forms illustrate certain notices, statements, and other 
disclosures required as follows:
    i. Model H-4(D)(1) illustrates the interest rate adjustment notice 
required under Sec. 1026.20(c) and Model H-4(D)(2) provides an example 
of a notice of interest rate adjustment with corresponding payment 
change. Model H-4(D)(3) illustrates the interest rate adjustment notice 
required under Sec. 1026.20(d) and Model H-4(D)(4) provides an example 
of a notice of initial interest rate adjustment.
    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.

[[Page 819]]

    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.
    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

[[Page 820]]

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 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.

[[Page 821]]

Creditors making revisions with that effect will lose their protection 
from civil liability.
    ii. The creditor may delete inapplicable disclosures, such as:
    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

[[Page 822]]

and prepaid finance charges totaling $600, for a total amount financed 
of $10,000.

 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.

  Appendix O--Illustrative Written Source Documents for Higher-Priced 
                      Mortgage Loan Appraisal Rules

    1. Title commitment report. The ``title commitment report'' is a 
document from a title insurance company describing the property interest 
and status of its title, parties with interests in the title and the 
nature of their

[[Page 823]]

claims, issues with the title that must be resolved prior to closing of 
the transaction between the parties to the transfer, amount and 
disposition of the premiums, and endorsements on the title policy. This 
document is issued by the title insurance company prior to the company's 
issuance of an actual title insurance policy to the property's 
transferee and/or creditor financing the transaction. In different 
jurisdictions, this instrument may be referred to by different terms, 
such as a title commitment, title binder, title opinion, or title 
report.

[76 FR 79772, Dec. 22, 2011, as amended at 77 FR 69737, 69739, Nov. 21, 
2012; 77 FR 70114, Nov. 23, 2012; 78 FR 4754, Jan. 22, 2013; 78 FR 6596, 
Jan. 30, 2013; 78 FR 6967, Jan. 31, 2013; 78 FR 10444, Feb. 13, 2013; 78 
FR 11016, Feb. 14, 2013; 78 FR 11413, Feb. 15, 2013; 78 FR 18797, Mar. 
28, 2013; 78 FR 25837, May 3, 2013; 78 FR 30745, May 23, 2013; 78 FR 
35504, June 12, 2013; 78 FR 60442, Oct. 1, 2013; 78 FR 60450, Oct. 1, 
2013; 78 FR 70196, Nov. 25, 2013; 78 FR 76035, Dec. 16, 2013; 78 FR 
79287, Dec. 30, 2013]

    Editorial Note: At 78 FR 60442, Oct. 1, 2013, Supp. I, section 
1026.36(a), paragraphs 4 and 5 were revised; these revisions include 
asterisks.

    Effective Date Notes: 1. At 78 FR 6596, Jan. 30, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. In Supplement I to 
Part 1026--Official Interpretations:
    A. Under Section 1026.25--Record Retention:
    i. Under 25(a) General rule, paragraph 2 is revised.
    ii. Section 25(c) Records related to certain requirements for 
mortgage loans, 25(c)(3) Records related to minimum standards for 
transactions secured by a dwelling, and paragraphs 1 and 2 are added.
    B. The heading for Section 1026.32 is revised.
    C. Under revised Section 1026.32:
    i. Under 32(b) Definitions:
    a. Paragraph 32(b)(1) and paragraph 1 are added.
    b. Under Paragraph 32(b)(1)(i), paragraph 1 is revised.
    c. Paragraph 32(b)(1)(i)(B) and paragraph 1 are added.
    d. Paragraph 32(b)(1)(i)(C) and paragraphs 1 and 2 are added.
    e. Paragraph 32(b)(1)(i)(D) and paragraphs 1, 2, 3, and 4 are added.
    f. Paragraph 32(b)(1)(i)(E) and paragraphs 1, 2, and 3 are added.
    g. Paragraph 32(b)(1)(i)(F) and paragraphs 1 and 2 are added.
    h. Under Paragraph 32(b)(1)(ii), paragraphs 1 and 2 are revised and 
paragraphs 3 and 4 are added.
    i. Paragraph 32(b)(1)(iii) and paragraph 1 are added.
    j. Under Paragraph 32(b)(1)(iv), paragraph 1 is revised and 
paragraphs 2 and 3 are added.
    k. 32(b)(3) Bona fide discount point, 32(b)(3)(i) Closed-end credit, 
and paragraph 1 are added.
    l. 32(b)(4) Total loan amount, 32(b)(4)(i) Closed-end credit, and 
paragraph 1 are added.
    m. 32(b)(6) Prepayment penalty and paragraphs 1 and 2 are added.
    D. Section 1026.43--Minimum Standards for Transactions Secured by a 
Dwelling is added. For the convenience of the user, the added and 
revised text is set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

                        Subpart D--Miscellaneous

                                * * * * *

                    Section 1026.25--Record Retention

    25(a) General rule.

                                * * * * *

    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 by any method 
that reproduces records accurately (including computer programs). Unless 
otherwise required, 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.

                                * * * * *

    25(c) Records related to certain requirements for mortgage loans.
    25(c)(3) Records related to minimum standards for transactions 
secured by a dwelling.
    1. Evidence of compliance with repayment ability provisions. A 
creditor must retain evidence of compliance with Sec. 1026.43 for three 
years after the date of consummation of a consumer credit transaction 
covered by that section. (See comment 25(c)-2 for guidance on the 
retention of evidence of compliance with the requirement to offer a 
consumer a loan without a prepayment penalty under Sec. 1026.43(g)(3).) 
If a creditor must verify and document information used in underwriting 
a transaction subject to Sec. 1026.43, the creditor shall retain 
evidence sufficient to demonstrate compliance with the documentation 
requirements of the rule. Although a creditor need not retain actual 
paper copies of the documentation used in underwriting a transaction 
subject to Sec. 1026.43, to comply with Sec. 1026.25(c)(3), the 
creditor must be able

[[Page 824]]

to reproduce such records accurately. For example, if the creditor uses 
a consumer's Internal Revenue Service (IRS) Form W-2 to verify the 
consumer's income, the creditor must be able to reproduce the IRS Form 
W-2 itself, and not merely the income information that was contained in 
the form.
    2. Dwelling-secured transactions and prepayment penalties. If a 
transaction covered by Sec. 1026.43 has a prepayment penalty, the 
creditor must maintain records that document that the creditor complied 
with requirements for offering the consumer an alternative transaction 
that does not include a prepayment penalty under Sec. 1026.43(g)(3), 
(4), or (5). However, the creditor need not maintain records that 
document compliance with those provisions if a transaction is 
consummated without a prepayment penalty or if the creditor and consumer 
do not consummate a covered transaction. If a creditor offers a 
transaction with a prepayment penalty to a consumer through a mortgage 
broker, to evidence compliance with Sec. 1026.43(g)(4) the creditor 
should retain evidence of the alternative covered transaction presented 
to the mortgage broker, such as a rate sheet, and the agreement with the 
mortgage broker required by Sec. 1026.43(g)(4)(ii).

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                                * * * * *

          Section 1026.32--Requirements for High-Cost Mortgages

                                * * * * *

    32(b) Definitions.
    Paragraph 32(b)(1).
    1. Known at or before consummation. Section 1026.32(b)(1) includes 
in points and fees for closed-end credit transactions those items listed 
in Sec. 1026.32(b)(1)(i) through (vi) that are known at or before 
consummation. The following examples clarify how to determine whether a 
charge or fee is known at or before consummation.
    i. General. In general, a charge or fee is ``known at or before 
consummation'' if the creditor knows at or before consummation that the 
charge or fee will be imposed in connection with the transaction, even 
if the charge or fee is scheduled to be paid after consummation. Thus, 
for example, if the creditor charges the consumer $400 for an appraisal 
conducted by an affiliate of the creditor, the $400 is included in 
points and fees, even if the consumer finances it and repays it over the 
loan term, because the creditor knows at or before consummation that the 
charge or fee is imposed in connection with the transaction. By 
contrast, if a creditor does not know whether a charge or fee will be 
imposed, it is not included in points and fees. For example, charges or 
fees that the creditor may impose if the consumer seeks to modify a loan 
after consummation are not included in points and fees, because the 
creditor does not know at or before consummation whether the consumer 
will seek to modify the loan and therefore incur the fees or charges.
    ii. Prepayment penalties. Notwithstanding the guidance in comment 
32(b)(1)-1.i, under Sec. 1026.32(b)(1)(v) the maximum prepayment 
penalty that may be charged or collected under the terms of the mortgage 
loan is included in points and fees because the amount of the maximum 
prepayment penalty that may be charged or collected is known at or 
before consummation.
    iii. Certain mortgage and credit insurance premiums. Notwithstanding 
the guidance in comment 32(b)(1)-1.i, under Sec. 1026.32(b)(1)(i)(C)(1) 
and (iii) premiums and charges for private mortgage insurance and credit 
insurance that are payable after consummation are not included in points 
and fees, even if the amounts of such premiums and charges are known at 
or before consummation.
    Paragraph 32(b)(1)(i).
    1. General. Section 1026.32(b)(1)(i) includes in the total ``points 
and fees'' items included in the finance charge under Sec. 1026.4(a) 
and (b). However, certain items that may be included in the finance 
charge are excluded from points and fees under Sec. 1026.32(b)(1)(i)(A) 
through (F). Items excluded from the finance charge under other 
provisions of Sec. 1026.4 are not included in the total points and fees 
under Sec. 1026.32(b)(1)(i), but may be included in points and fees 
under Sec. 1026.32(b)(1)(ii) through (vi). To illustrate: A fee imposed 
by the creditor for an appraisal performed by an employee of the 
creditor meets the definition of ``finance charge'' under Sec. 
1026.4(a) as ``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.'' However, Sec. 1026.4(c)(7) 
specifies that appraisal fees are not included in the finance charge. A 
fee imposed by the creditor for an appraisal performed by an employee of 
the creditor therefore would not be included in the finance charge and 
would not be counted in points and fees under Sec. 1026.32(b)(1)(i). 
Section 1026.32(b)(1)(iii), however, expressly includes in points and 
fees items listed in Sec. 1026.4(c)(7) (including appraisal fees) if 
the creditor receives compensation in connection with the charge. A 
creditor would receive compensation for an appraisal performed by its 
own employee. Thus, the appraisal fee in this example must be included 
in the calculation of points and fees.
    Paragraph 32(b)(1)(i)(B).

[[Page 825]]

    1. Federal and State mortgage insurance premiums and guaranty fees. 
Under Sec. 1026.32(b)(1)(i)(B), mortgage insurance premiums or guaranty 
fees in connection with a Federal or State agency program are excluded 
from points and fees, even though they are included in the finance 
charge under Sec. 1026.4(a) and (b). For example, if a consumer is 
required to pay a $2,000 mortgage insurance premium for a loan insured 
by the Federal Housing Administration, the $2,000 must be included in 
the finance charge but is not counted in points and fees. Similarly, if 
a consumer pays a 2 percent funding fee for a loan guaranteed by the 
U.S. Department of Veterans Affairs or through the U.S Department of 
Agriculture's Rural Development Single Family Housing Guaranteed Loan 
Program, the fee is included in the finance charge but is not included 
in points and fees.
    Paragraph 32(b)(1)(i)(C).
    1. Private mortgage insurance premiums. i. Payable after 
consummation. Under Sec. 1026.32(b)(1)(i)(C)(1), private mortgage 
insurance premiums payable after consummation are excluded from points 
and fees.
    ii. Payable at or before consummation. A. General. Under Sec. 
1026.32(b)(1)(i)(C)(2), private mortgage insurance premiums payable at 
or before consummation (i.e., single or up-front premiums) may be 
excluded from points and fees, even though they are included in the 
finance charge under Sec. 1026.4(a) and (b). However, the portion of 
the premium that exceeds the amount payable under policies in effect at 
the time of origination under section 203(c)(2)(A) of the National 
Housing Act (12 U.S.C. 1709(c)(2)(A)) is included in points and fees. To 
determine whether any portion of the premium exceeds the amount payable 
under policies in effect at the time of origination under section 
203(c)(2)(A) of the National Housing Act, a creditor references the 
premium amount that would be payable for the transaction under that Act, 
as implemented by applicable regulations and other written authorities 
issued by the Federal Housing Administration (such as Mortgagee 
Letters), even if the transaction would not qualify to be insured under 
that Act (including, for example, because the principal amount exceeds 
the maximum insurable under that Act).
    B. Non-refundable premiums. To qualify for the exclusion from points 
and fees, private mortgage insurance premiums payable at or before 
consummation must be required to be refunded on a pro rata basis and the 
refund must be automatically issued upon notification of the 
satisfaction of the underlying mortgage loan.
    C. Example. Assume that a $3,000 private mortgage insurance premium 
charged on a closed-end mortgage loan is payable at or before closing 
and is required to be refunded on a pro rata basis and that the refund 
is automatically issued upon notification of the satisfaction of the 
underlying mortgage loan. Assume also that the maximum premium allowable 
under the National Housing Act is $2,000. In this case, the creditor 
could exclude $2,000 from points and fees but would have to include the 
$1,000 that exceeds the allowable premium under the National Housing 
Act. However, if the $3,000 private mortgage insurance premium were not 
required to be refunded on a pro rata basis or if the refund were not 
automatically issued upon notification of the satisfaction of the 
underlying mortgage loan, the entire $3,000 premium would be included in 
points and fees.
    2. Method of paying private mortgage insurance premiums. The portion 
of any private mortgage insurance premiums payable at or before 
consummation that does not qualify for an exclusion from points and fees 
under Sec. 1026.32(b)(1)(i)(C)(2) must be included in points and fees 
for purposes of Sec. 1026.32(b)(1)(i) whether paid in cash or financed 
and whether the insurance is optional or required.
    Paragraph 32(b)(1)(i)(D).
    1. Charges not retained by the creditor, loan originator, or an 
affiliate of either. In general, a creditor is not required to count in 
points and fees any bona fide third-party charge not retained by the 
creditor, loan originator, or an affiliate of either. For example, if 
bona fide charges are imposed by a third-party settlement agent and are 
not retained by the creditor, loan originator, or an affiliate of 
either, those charges are not included in points and fees, even if those 
charges are included in the finance charge under Sec. 1026.4(a)(2). The 
term loan originator has the same meaning as in Sec. 1026.36(a)(1).
    2. Private mortgage insurance. The exclusion for bona fide third-
party charges not retained by the creditor, loan originator, or an 
affiliate of either is limited by Sec. 1026.32(b)(1)(i)(C) in the 
general definition of ``points and fees.'' Section 1026.32(b)(1)(i)(C) 
requires inclusion in points and fees of premiums or other charges 
payable at or before consummation for any private guaranty or insurance 
protecting the creditor against the consumer's default or other credit 
loss to the extent that the premium or charge exceeds the amount payable 
under policies in effect at the time of origination under section 
203(c)(2)(A) of the National Housing Act (12 U.S.C. 1709(c)(2)(A)). 
These premiums or charges must also be included if the premiums or 
charges are not required to be refundable on a pro-rated basis, or the 
refund is not required to be automatically issued upon notification of 
the satisfaction of the underlying mortgage loan. Under these 
circumstances, even if the premiums or other charges are not retained by 
the creditor, loan originator, or an affiliate of either, they

[[Page 826]]

must be included in the points and fees calculation for qualified 
mortgages. See comments 32(b)(1)(i)(c)-1 and -2 for further discussion 
of including private mortgage insurance premiums payable at or before 
consummation in the points and fees calculation.
    3. Real estate-related fees. The exclusion for bona fide third-party 
charges not retained by the creditor, loan originator, or an affiliate 
of either is limited by Sec. 1026.32(b)(1)(iii) in the general 
definition of points and fees. Section 1026.32(b)(1)(iii) requires 
inclusion in points and fees of items listed in Sec. 1026.4(c)(7) 
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. If a charge is required to be 
included in points and fees under Sec. 1026.32(b)(1)(iii), it may not 
be excluded under Sec. 1026.32(b)(1)(i)(D), even if the criteria for 
exclusion in Sec. 1026.32(b)(1)(i)(D) are satisfied.
    4. Credit insurance. The exclusion for bona fide third-party charges 
not retained by the creditor, loan originator, or an affiliate of either 
is limited by Sec. 1026.32(b)(1)(iv) in the general definition of 
points and fees. Section 1026.32(b)(1)(iv) requires inclusion in points 
and fees of premiums and other charges for credit insurance and certain 
other types of insurance. If a charge is required to be included in 
points and fees under Sec. 1026.32(b)(1)(iv), it may not be excluded 
under Sec. 1026.32(b)(1)(i)(D), even if the criteria for exclusion in 
Sec. 1026.32(b)(1)(i)(D) are satisfied.
    Paragraph 32(b)(1)(i)(E).
    1. Bona fide discount point. The term bona fide discount point is 
defined in Sec. 1026.32(b)(3).
    2. Average prime offer rate. The average prime offer rate for 
purposes of paragraph (b)(1)(i)(E) of this section is the average prime 
offer rate that applies to a comparable transaction as of the date the 
discounted interest rate for the transaction is set. For the meaning of 
``comparable transaction,'' refer to comment 35(a)(2)-2. The table of 
average prime offer rates published by the Bureau indicates how to 
identify the comparable transaction. See comment 35(a)(2)-2.
    3. Example. Assume a transaction that is a first-lien, purchase-
money home mortgage with a fixed interest rate and a 30-year term. 
Assume also that the consumer locks in an interest rate of 6 percent on 
May 1, 2014 that was discounted from a rate of 6.5 percent because the 
consumer paid two discount points. Finally, assume that the average 
prime offer rate as of May 1, 2014 for home mortgages with a fixed 
interest rate and a 30-year term is 5.5 percent. The creditor may 
exclude two bona fide discount points from the points and fees 
calculation because the rate from which the discounted rate was derived 
(6.5 percent) exceeded the average prime offer rate for a comparable 
transaction as of the date the rate on the transaction was set (5.5 
percent) by only 1 percentage point.
    Paragraph 32(b)(1)(i)(F).
    1. Bona fide discount point and average prime offer rate. Comments 
32(b)(1)(i)(E)-1 and -2 provide guidance concerning the definition of 
bona fide discount point and average prime offer rate, respectively.
    2. Example. Assume a transaction that is a first-lien, purchase-
money home mortgage with a fixed interest rate and a 30-year term. 
Assume also that the consumer locks in an interest rate of 6 percent on 
May 1, 2014, that was discounted from a rate of 7 percent because the 
consumer paid four discount points. Finally, assume that the average 
prime offer rate as of May 1, 2014, for home mortgages with a fixed 
interest rate and a 30-year term is 5 percent. The creditor may exclude 
one discount point from the points and fees calculation because the rate 
from which the discounted rate was derived (7 percent) exceeded the 
average prime offer rate for a comparable transaction as of the date the 
rate on the transaction was set (5 percent) by only 2 percentage points.
    Paragraph 32(b)(1)(ii).
    1. Loan originator compensation--general. Compensation paid by a 
consumer or creditor to a loan originator is included in the calculation 
of points and fees for a transaction, provided that such compensation 
can be attributed to that particular transaction at the time the 
interest rate is set. Loan originator 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.
    2. Loan originator compensation--attributable to a particular 
transaction. i. Loan originator compensation includes the dollar value 
of compensation, such as a bonus, commission, or award of merchandise, 
services, trips, or similar prizes, that is paid by a consumer or 
creditor to a loan originator and can be attributed to that particular 
transaction. The amount of compensation that can be attributed to a 
particular transaction is the dollar value of compensation that the loan 
originator will receive if the transaction is consummated. As explained 
in comment 32(b)(1)(ii)-3, the amount of compensation that a loan 
originator will receive is calculated as of the date the interest rate 
is set and includes compensation that is paid before, at, or after 
consummation.
    ii. Loan originator compensation excludes compensation that cannot 
be attributed to that transaction, including, for example:
    A. Compensation based on the long term performance of the loan 
originator's loans.
    B. Compensation based on the overall quality of a loan originator's 
loan files.
    C. The base salary of a loan originator. However, any compensation 
in addition to the base salary that can be attributed to the

[[Page 827]]

transaction at the time the interest rate is set must be included in 
loan originator compensation for the purpose of calculating points and 
fees.
    3. Loan originator compensation--timing. Compensation paid to a loan 
originator that can be attributed to a transaction must be included in 
the points and fees calculation for that loan regardless of whether the 
compensation is paid before, at, or after consummation. The amount of 
loan originator compensation that can be attributed to a transaction is 
determined as of the date the interest rate is set. Thus, loan 
originator compensation for a transaction includes the portion of a 
bonus, commission, or award of merchandise, services, trips, or similar 
prizes that can be attributed to that transaction at the time the 
creditor sets the interest rate for the transaction, even if that bonus, 
commission, or award of merchandise, services, trips, or similar prizes 
is not paid until after consummation. For example, assume a $100,000 
transaction and that, as of the date the interest rate is set, the loan 
originator is entitled to receive a commission equal to 1 percent of the 
loan amount at consummation, i.e., $1,000, payable at the end of the 
month. In addition, assume that after the date the interest rate is set 
but before consummation of the transaction, the loan originator 
originates other transactions that enable the loan originator to meet a 
loan volume threshold, which increases the loan originator's commission 
to 1.25 percent of the loan amount, i.e., $1,250. In this case, the 
creditor need include only $1,000 as loan originator compensation in 
points and fees because, as of the date the interest rate was set, the 
loan originator would have been entitled to receive $1,000 upon 
consummation of the transaction.
    4. Loan originator compensation--examples. The following examples 
illustrate the rule:
    i. Assume that, according to a creditor's compensation policies, the 
creditor awards its loan officers a bonus every year based on the number 
of loan applications taken by the loan officer that result in 
consummated transactions during that year, and that each consummated 
transaction increases the year-end bonus by $100. In this case, $100 of 
the bonus is loan originator compensation that must be included in 
points and fees for the transaction.
    ii. Assume that, according to a creditor's compensation policies, 
the creditor awards its loan officers a year-end bonus equal to a flat 
dollar amount for each of the consummated transactions originated by the 
loan officer during that year. Assume also that the per-transaction 
dollar amount is finalized at the end of the year, according to a 
predetermined schedule that provides for a specific per-transaction 
dollar amount based on the total dollar value of consummated 
transactions originated by the loan officer. If on the date the interest 
rate for a transaction is set, the loan officer has originated total 
volume that qualifies the loan officer to receive a $300 bonus per 
transaction under the predetermined schedule, then $300 of the year-end 
bonus can be attributed to that particular transaction and therefore is 
loan originator compensation that must be included in points and fees 
for that transaction.
    iii. Assume that, according to a creditor's compensation policies, 
the creditor awards its loan officers a bonus at the end of the year 
based on the number of consummated transactions originated by the loan 
officer during that year. Assume also that, for the first 10 
transactions originated by the loan officer in a given year, no bonus is 
awarded; for the next 10 transactions originated by the loan officer up 
to 20, a bonus of $100 per transaction is awarded; and for each 
transaction originated after the first 20, a bonus of $200 per 
transaction is awarded. In this case, if, on the date the interest rate 
for the transaction is set, the loan officer has originated 10 or fewer 
transactions that year, then none of the year-end bonus is attributable 
to the transaction and therefore none of the bonus is included in points 
and fees for that transaction. If, on the date the interest rate for the 
transaction is set, the loan officer has originated at more than 10 but 
no more than 20 transactions, $100 of the bonus is attributable to the 
transaction and is included in points and fees for that transaction. If, 
on the date the interest rate for the transaction is set, the loan 
officer has originated more than 20 transactions, $200 of the bonus is 
attributable to the transaction and is included in points and fees for 
the transaction.
    iv. Assume that, according to a creditor's compensation policies, 
the creditor pays its loan officers a base salary of $500 per week and 
awards its loan officers a bonus of $250 for each consummated 
transaction. For each transaction, none of the $500 base salary is 
counted in points and fees as loan originator compensation under Sec. 
1026.32(b)(1)(ii) because no precise portion of the base salary can be 
attributed to a particular transaction, but the $250 bonus is counted as 
loan originator compensation that is included in points and fees.
    Paragraph 32(b)(1)(iii).
    1. Other charges. 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, unless certain exclusions apply. 
An item listed in Sec. 1026.4(c)(7) may be excluded from the points and 
fees calculation if the charge is reasonable; the creditor receives no 
direct or indirect compensation from the charge; and the charge is not 
paid to an affiliate of the creditor. For example, a reasonable fee paid 
by the consumer to an independent, third-party

[[Page 828]]

appraiser may be excluded from the points and fees calculation (assuming 
no compensation is paid to the creditor or its affiliate and no charge 
is paid to an affiliate). By contrast, 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. Credit insurance and debt cancellation or suspension coverage. In 
determining points and fees for purposes of Sec. 1026.32(b)(1), 
premiums paid at or before consummation for credit insurance or any debt 
cancellation or suspension agreement or contract are included in points 
and fees whether they are paid in cash or, if permitted by applicable 
law, financed and whether the insurance or coverage is optional or 
required. Such charges are also included whether the amount represents 
the entire premium or payment for the coverage or an initial payment.
    2. Credit property insurance. Credit property insurance includes 
insurance against loss of or damage to personal property, such as a 
houseboat or manufactured home. Credit property insurance covers the 
creditor's security interest in the property. Credit property insurance 
does not include homeowners' insurance, which, unlike credit property 
insurance, typically covers not only the dwelling but its contents and 
protects the consumer's interest in the property.
    3. Life, accident, health, or loss-of-income insurance. Premiums or 
other charges for these types of insurance are included in points and 
fees only if the creditor is a beneficiary. If the consumer or another 
person designated by the consumer is the sole beneficiary, then the 
premiums or other charges are not included in points and fees.
    32(b)(3) Bona fide discount point.
    32(b)(3)(i) Closed-end credit.
    1. Definition of bona fide discount point. Section 1026.32(b)(3) 
provides that, to be bona fide, a discount point must reduce the 
interest rate based on a calculation that is consistent with established 
industry practices for determining the amount of reduction in the 
interest rate or time-price differential appropriate for the amount of 
discount points paid by the consumer. To satisfy this standard, a 
creditor may show that the reduction is reasonably consistent with 
established industry norms and practices for secondary mortgage market 
transactions. For example, a creditor may rely on pricing in the to-be-
announced (TBA) market for mortgage-backed securities (MBS) to establish 
that the interest rate reduction is consistent with the compensation 
that the creditor could reasonably expect to receive in the secondary 
market. The creditor may also establish that its interest rate reduction 
is consistent with established industry practices by showing that its 
calculation complies with requirements prescribed in Fannie Mae or 
Freddie Mac guidelines for interest rate reductions from bona fide 
discount points. For example, assume that the Fannie Mae Single-Family 
Selling Guide or the Freddie Mac Single Family Seller/Servicer Guide 
imposes a cap on points and fees but excludes from the cap discount 
points that result in a bona fide reduction in the interest rate. Assume 
the guidelines require that, for a discount point to be bona fide so 
that it would not count against the cap, a discount point must result in 
at least a 25 basis point reduction in the interest rate. Accordingly, 
if the creditor offers a 25 basis point interest rate reduction for a 
discount point and the requirements of Sec. 1026.32(b)(1)(i)(E) or (F) 
are satisfied, the discount point is bona fide and is excluded from the 
calculation of points and fees.
    32(b)(4) Total loan amount.
    32(b)(4)(i) Closed-end credit.
    1. Total loan amount; examples. Below are several examples showing 
how to calculate the total loan amount for closed-end mortgage loans, 
each using a $10,000 amount borrowed, a $300 appraisal fee, and $400 in 
prepaid finance charges. A $500 single premium for optional credit 
unemployment insurance is used in one example.
    i. If the consumer finances a $300 fee for a creditor-conducted 
appraisal and pays $400 in prepaid finance charges 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). In 
this case, the amount financed is the same as the total loan amount: 
$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 829]]

    iv. If the consumer finances a $300 fee for a creditor-conducted 
appraisal and a $500 single premium for optional credit unemployment 
insurance, and pays $400 in prepaid finance charges 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)(ii), 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.
    32(b)(6) Prepayment penalty.
    1. Examples of prepayment penalties; closed-end credit transactions. 
For purposes of Sec. 1026.32(b)(6)(i), the following are examples of 
prepayment penalties:
    i. A charge determined by treating the loan balance as outstanding 
for a period of time after prepayment in full and applying the interest 
rate to such ``balance,'' even if the charge results from interest 
accrual amortization used for other payments in the transaction under 
the terms of the loan contract. ``Interest accrual amortization'' refers 
to the method by which the amount of interest due for each period (e.g., 
month) in a transaction's term is determined. For example, ``monthly 
interest accrual amortization'' treats each payment as made on the 
scheduled, monthly due date even if it is actually paid early or late 
(until the expiration of any grace period). Thus, under the terms of a 
loan contract providing for monthly interest accrual amortization, if 
the amount of interest due on May 1 for the preceding month of April is 
$3,000, the loan contract will require payment of $3,000 in interest for 
the month of April whether the payment is made on April 20, on May 1, or 
on May 10. In this example, if the consumer prepays the loan in full on 
April 20 and if the accrued interest as of that date is $2,000, then 
assessment of a charge of $3,000 constitutes a prepayment penalty of 
$1,000 because the amount of interest actually earned through April 20 
is only $2,000.
    ii. A fee, such as an origination or other loan closing cost, that 
is waived by the creditor on the condition that the consumer does not 
prepay the loan. However, the term prepayment penalty does not include a 
waived bona fide third-party charge imposed by the creditor if the 
consumer pays all of a covered transaction's principal before the date 
on which the principal is due sooner than 36 months after consummation. 
For example, assume that at consummation, the creditor waives $3,000 in 
closing costs to cover bona fide third-party charges but the terms of 
the loan agreement provide that the creditor may recoup the $3,000 in 
waived charges if the consumer repays the entire loan balance sooner 
than 36 months after consummation. The $3,000 charge is not a prepayment 
penalty. In contrast, for example, assume that at consummation, the 
creditor waives $3,000 in closing costs to cover bona fide third-party 
charges but the terms of the loan agreement provide that the creditor 
may recoup $4,500, in part to recoup waived charges, if the consumer 
repays the entire loan balance sooner than 36 months after consummation. 
The $3,000 that the creditor may impose to cover the waived bona fide 
third-party charges is not a prepayment penalty, but the additional 
$1,500 charge is a prepayment penalty and subject to the restrictions 
under Sec. 1026.43(g).
    iii. A minimum finance charge in a simple interest transaction.
    iv. 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). 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.
    2. Fees that are not prepayment penalties; closed-end credit 
transactions. For purposes of Sec. 1026.32(b)(6)(i), fees that are not 
prepayment penalties include, for example:
    i. Fees imposed for preparing and providing documents when a loan is 
paid in full if such fees are imposed whether or not the loan is 
prepaid. Examples include a loan payoff statement, a reconveyance 
document, or another document releasing the creditor's security interest 
in the dwelling that secures the loan.
    ii. Loan guarantee fees.

                                * * * * *

    Section 1026.43--Minimum Standards for Transactions Secured by a 
                                Dwelling

    1. Record retention. See Sec. 1026.25(c)(3) and comments 25(c)(3)-1 
and -2 for guidance on the required retention of records as evidence of 
compliance with Sec. 1026.43.
    43(a) Scope.
    1. Consumer credit. In general, Sec. 1026.43 applies to consumer 
credit transactions secured by a dwelling, but certain dwelling-secured 
consumer credit transactions are exempt or partially exempt from 
coverage under Sec. 1026.43(a)(1) through (3). (See Sec. 1026.2(a)(12) 
for the definition of ``consumer credit.'') Section 1026.43 does not 
apply to an extension of credit primarily for a business,

[[Page 830]]

commercial, or agricultural purpose, even if it is secured by a 
dwelling. See Sec. 1026.3 and associated commentary for guidance in 
determining the primary purpose of an extension of credit. In addition, 
Sec. 1026.43 does not apply to any change to an existing loan that is 
not treated as a refinancing under Sec. 1026.20(a).
    2. Real property. ``Dwelling'' means a residential structure that 
contains one to four units, whether or not the structure is attached to 
real property. See Sec. 1026.2(a)(19). For purposes of Sec. 1026.43, 
the term ``dwelling'' includes any real property to which the 
residential structure is attached that also secures the covered 
transaction. For example, for purposes of Sec. 1026.43(c)(2)(i), the 
value of the dwelling that secures the covered transaction includes the 
value of any real property to which the residential structure is 
attached that also secures the covered transaction.
    Paragraph 43(a)(3).
    1. Renewable temporary or ``bridge'' loan. Under Sec. 
1026.43(a)(3)(ii), a temporary or ``bridge'' loan with a term of 12 
months or less is exempt from Sec. 1026.43(c) through (f). Examples of 
such a loan are a loan to finance the purchase of a new dwelling where 
the consumer plans to sell a current dwelling within 12 months and a 
loan to finance the initial construction of a dwelling. Where a 
temporary or ``bridge loan'' is renewable, the loan term does not 
include any additional period of time that could result from a renewal 
provision provided that any renewal possible under the loan contract is 
for one year or less. For example, if a construction loan has an initial 
loan term of 12 months but is renewable for another 12-month loan term, 
the loan is exempt from Sec. 1026.43(c) through (f) because the initial 
loan term is 12 months.
    2. Construction phase of a construction-to-permanent loan. Under 
Sec. 1026.43(a)(3)(iii), a construction phase of 12 months or less of a 
construction-to-permanent loan is exempt from Sec. 1026.43(c) through 
(f). A construction-to-permanent loan is a potentially multiple-advance 
loan to finance the construction, rehabilitation, or improvement of a 
dwelling that may be permanently financed by the same creditor. For such 
a loan, the construction phase and the permanent phase may be treated as 
separate transactions for the purpose of compliance with Sec. 
1026.43(c) through (f), and the construction phase of the loan is exempt 
from Sec. 1026.43(c) through (f), provided the initial term is 12 
months or less. See Sec. 1026.17(c)(6)(ii), allowing similar treatment 
for disclosures. Where the construction phase of a construction-to-
permanent loan is renewable for a period of one year or less, the term 
of that construction phase does not include any additional period of 
time that could result from a renewal provision. For example, if the 
construction phase of a construction-to-permanent loan has an initial 
term of 12 months but is renewable for another 12-month term before 
permanent financing begins, the construction phase is exempt from Sec. 
1026.43(c) through (f) because the initial term is 12 months. Any 
renewal of one year or less also qualifies for the exemption. The 
permanent phase of the loan is treated as a separate transaction and is 
not exempt under Sec. 1026.43(a)(3)(iii). It may be a qualified 
mortgage if it satisfies the appropriate requirements.
    43(b) Definitions.
    43(b)(1) Covered transaction.
    1. The definition of covered transaction restates the scope of the 
rule as described at Sec. 1026.43(a).
    43(b)(3) Fully indexed rate.
    1. Discounted and premium adjustable-rate transactions. In some 
adjustable-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. In some cases, the initial rate charged to 
consumers is lower than the rate would be if it were calculated using 
the index or formula that will apply after recast, as determined at 
consummation (i.e., a ``discounted rate''). In other cases, the initial 
rate may be higher (i.e., a ``premium rate''). For purposes of 
determining the fully indexed rate where the initial interest rate is 
not determined using the index or formula for subsequent interest rate 
adjustments, the creditor must use the interest rate that would have 
applied had the creditor used such index or formula plus margin at the 
time of consummation. That is, in determining the fully indexed rate, 
the creditor must not take into account any discounted or premium rate. 
To illustrate, assume an adjustable-rate transaction where the initial 
interest rate is not based on an index or formula, or is based on an 
index or formula that will not apply after recast, and is set at 5 
percent for the first five years. The loan agreement provides that 
future interest rate adjustments will be calculated based on a specific 
index plus a 3 percent margin. If the value of the index at consummation 
is 5 percent, the interest rate that would have been applied at 
consummation had the creditor based the initial rate on this index is 8 
percent (5 percent plus 3 percent margin). For purposes of Sec. 
1026.43(b)(3), the fully indexed rate is 8 percent. For discussion of 
payment calculations based on the greater of the fully indexed rate or 
premium rate for purposes of the repayment ability determination under 
Sec. 1026.43(c), see Sec. 1026.43(c)(5)(i) and comment 43(c)(5)(i)-2.
    2. Index or formula value at consummation. The value at consummation 
of the index or formula need not be used if the contract provides for a 
delay in the implementation of changes in an index value or formula. For 
example, if the contract specifies that rate

[[Page 831]]

changes are based on the index value in effect 45 days before the change 
date, the creditor may use any index value in effect during the 45 days 
before consummation in calculating the fully indexed rate.
    3. Interest rate adjustment caps. If the terms of the legal 
obligation contain a periodic interest rate adjustment cap that would 
prevent the initial rate, at the time of the first adjustment, from 
changing to the rate determined using the index or formula value at 
consummation (i.e., the fully indexed rate), the creditor must not give 
any effect to that rate cap when determining the fully indexed rate. 
That is, a creditor must determine the fully indexed rate without taking 
into account any periodic interest rate adjustment cap that may limit 
how quickly the fully indexed rate may be reached at any time during the 
loan term under the terms of the legal obligation. To illustrate, assume 
an adjustable-rate mortgage has an initial fixed rate of 5 percent for 
the first three years of the loan, after which the rate will adjust 
annually to a specified index plus a margin of 3 percent. The loan 
agreement provides for a 2 percent annual interest rate adjustment cap, 
and a lifetime maximum interest rate of 10 percent. The index value in 
effect at consummation is 4.5 percent; the fully indexed rate is 7.5 
percent (4.5 percent plus 3 percent), regardless of the 2 percent annual 
interest rate adjustment cap that would limit when the fully indexed 
rate would take effect under the terms of the legal obligation.
    4. Lifetime maximum interest rate. A creditor may choose, in its 
sole discretion, to take into account the lifetime maximum interest rate 
provided under the terms of the legal obligation when determining the 
fully indexed rate. To illustrate, assume an adjustable-rate mortgage 
has an initial fixed rate of 5 percent for the first three years of the 
loan, after which the rate will adjust annually to a specified index 
plus a margin of 3 percent. The loan agreement provides for a 2 percent 
annual interest rate adjustment cap and a lifetime maximum interest rate 
of 7 percent. The index value in effect at consummation is 4.5 percent; 
under the generally applicable rule, the fully indexed rate is 7.5 
percent (4.5 percent plus 3 percent). Nevertheless, the creditor may 
choose to use the lifetime maximum interest rate of 7 percent as the 
fully indexed rate, rather than 7.5 percent, for purposes of Sec. 
1026.43(b)(3). Furthermore, if the creditor chooses to use the lifetime 
maximum interest rate and the loan agreement provides a range for the 
maximum interest rate, then the creditor complies by using the highest 
rate in that range as the maximum interest rate for purposes of Sec. 
1026.43(b)(3).
    5. Step-rate and fixed-rate mortgages. Where the interest rate 
offered under the terms of the legal obligation is not based on, and 
does not vary with, an index or formula (i.e., there is no fully indexed 
rate), the creditor must use the maximum interest rate that may apply at 
any time during the loan term. To illustrate:
    i. Assume a step-rate mortgage with an interest rate fixed at 6.5 
percent for the first two years of the loan, 7 percent for the next 
three years, and 7.5 percent thereafter for the remainder of loan term. 
For purposes of this section, the creditor must use 7.5 percent, which 
is the maximum rate that may apply during the loan term. ``Step-rate 
mortgage'' is defined in Sec. 1026.18(s)(7)(ii).
    ii. Assume a fixed-rate mortgage with an interest rate at 
consummation of 7 percent that is fixed for the 30-year loan term. For 
purposes of this section, the maximum interest rate that may apply 
during the loan term is 7 percent, which is the interest rate that is 
fixed at consummation. ``Fixed-rate mortgage'' is defined in Sec. 
1026.18(s)(7)(iii).
    43(b)(4) Higher-priced covered transaction.
    1. Average prime offer rate. The average prime offer rate is defined 
in Sec. 1026.35(a)(2). For further explanation of the meaning of 
``average prime offer rate,'' and additional guidance on determining the 
average prime offer rate, see comments 35(a)(2)-1 through -4.
    2. Comparable transaction. A higher-priced covered transaction is a 
consumer credit transaction that is secured by the consumer's dwelling 
with an annual percentage rate that exceeds by the specified amount the 
average prime offer rate for a comparable transaction as of the date the 
interest rate is set. The published tables of average prime offer rates 
indicate how to identify a comparable transaction. See comment 35(a)(2)-
2.
    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.
    43(b)(5) Loan amount.
    1. Disbursement of the loan amount. The definition of ``loan 
amount'' requires the creditor to use the entire loan amount as 
reflected in the loan contract or promissory note, even though the loan 
amount may not be fully disbursed at consummation. For example, assume 
the consumer enters into a loan agreement where the consumer is 
obligated to repay the creditor $200,000 over 15 years, but only 
$100,000 is disbursed at consummation and the remaining $100,000 will be 
disbursed during the year following consummation in a series of advances 
($25,000 each quarter). For purposes of this section, the creditor must 
use the loan amount of $200,000, even though the loan agreement provides 
that only $100,000 will be disbursed

[[Page 832]]

to the consumer at consummation. Generally, creditors should rely on 
Sec. 1026.17(c)(6) and associated commentary regarding treatment of 
multiple-advance and construction-to-permanent loans as single or 
multiple transactions. See also comment 43(a)(3)-2.
    43(b)(6) Loan term.
    1. General. The loan term is the period of time it takes to repay 
the loan amount in full. For example, a loan with an initial discounted 
rate that is fixed for the first two years, and that adjusts 
periodically for the next 28 years has a loan term of 30 years, which is 
the amortization period on which the periodic amortizing payments are 
based.
    43(b)(7) Maximum loan amount.
    1. Calculation of maximum loan amount. For purposes of Sec. 
1026.43(c)(2)(iii) and (c)(5)(ii)(C), a creditor must determine the 
maximum loan amount for a negative amortization loan by using the loan 
amount plus any increase in principal balance that can result from 
negative amortization based on the terms of the legal obligation. In 
determining the maximum loan amount, a creditor must assume that the 
consumer makes the minimum periodic payment permitted under the loan 
agreement for as long as possible, until the consumer must begin making 
fully amortizing payments; and that the interest rate rises as quickly 
as possible after consummation under the terms of the legal obligation. 
Thus, creditors must assume that the consumer makes the minimum periodic 
payment until any negative amortization cap is reached or until the 
period permitting minimum periodic payments expires, whichever occurs 
first. ``Loan amount'' is defined in Sec. 1026.43(b)(5); ``negative 
amortization loan'' is defined in Sec. 1026.18(s)(7)(v).
    2. Assumed interest rate. In calculating the maximum loan amount for 
an adjustable-rate mortgage that is a negative amortization loan, the 
creditor must assume that the interest rate will increase as rapidly as 
possible after consummation, taking into account any periodic interest 
rate adjustment caps provided in the loan agreement. For an adjustable-
rate mortgage with a lifetime maximum interest rate but no periodic 
interest rate adjustment cap, the creditor must assume that the interest 
rate increases to the maximum lifetime interest rate at the first 
adjustment.
    3. Examples. The following are examples of how to determine the 
maximum loan amount for a negative amortization loan (all amounts shown 
are rounded, and all amounts are calculated using non-rounded values):
    i. Adjustable-rate mortgage with negative amortization. A. Assume an 
adjustable-rate mortgage in the amount of $200,000 with a 30-year loan 
term. The loan agreement provides that the consumer can make minimum 
monthly payments that cover only part of the interest accrued each month 
until the principal balance reaches 115 percent of its original balance 
(i.e., a negative amortization cap of 115 percent) or for the first five 
years of the loan (60 monthly payments), whichever occurs first. The 
introductory interest rate at consummation is 1.5 percent. One month 
after the first day of the first full calendar month following 
consummation, the interest rate adjusts and will adjust monthly 
thereafter based on the specified index plus a margin of 3.5 percent. 
The maximum lifetime interest rate is 10.5 percent; there are no other 
periodic interest rate adjustment caps that limit how quickly the 
maximum lifetime rate may be reached. The minimum monthly payment for 
the first year is based on the initial interest rate of 1.5 percent. 
After that, the minimum monthly payment adjusts annually, but may 
increase by no more than 7.5 percent over the previous year's payment. 
The minimum monthly payment is $690 in the first year, $742 in the 
second year, and $797 in the first part of the third year.
    B. To determine the maximum loan amount, assume that the initial 
interest rate increases to the maximum lifetime interest rate of 10.5 
percent at the first adjustment (i.e., the due date of the first 
periodic monthly payment) and accrues at that rate until the loan is 
recast. Assume the consumer makes the minimum monthly payments as 
scheduled, which are capped at 7.5 percent from year-to-year. As a 
result, the consumer's minimum monthly payments are less than the 
interest accrued each month, resulting in negative amortization (i.e., 
the accrued but unpaid interest is added to the principal balance). 
Thus, assuming that the consumer makes the minimum monthly payments for 
as long as possible and that the maximum interest rate of 10.5 percent 
is reached at the first rate adjustment (i.e., the due date of the first 
periodic monthly payment), the negative amortization cap of 115 percent 
is reached on the due date of the 27th monthly payment and the loan is 
recast. The maximum loan amount as of the due date of the 27th monthly 
payment is $229,251.
    ii. Fixed-rate, graduated payment mortgage with negative 
amortization. A loan in the amount of $200,000 has a 30-year loan term. 
The loan agreement provides for a fixed interest rate of 7.5 percent, 
and requires the consumer to make minimum monthly payments during the 
first year, with payments increasing 12.5 percent over the previous year 
every year for four years. The payment schedule provides for payments of 
$943 in the first year, $1,061 in the second year, $1,193 in the third 
year, $1,343 in the fourth year, and $1,511 for the remaining term of 
the loan. During the first three years of the loan, the payments are 
less than the interest accrued each month, resulting in negative 
amortization. Assuming that the consumer makes the minimum periodic 
payments for as long as possible, the maximum loan amount is

[[Page 833]]

$207,662, which is reached at the end of the third year of the loan (on 
the due date of the 36th monthly payment). See comment 43(c)(5)(ii)(C)-3 
providing examples of how to determine the consumer's repayment ability 
for a negative amortization loan.
    43(b)(8) Mortgage-related obligations.
    1. General. Section 1026.43(b)(8) defines mortgage-related 
obligations, which must be considered in determining a consumer's 
ability to repay pursuant to Sec. 1026.43(c). Section 1026.43(b)(8) 
includes, in the evaluation of mortgage-related obligations, fees and 
special assessments owed to a condominium, cooperative, or homeowners 
association. Section 1026.43(b)(8) includes ground rent and leasehold 
payments in the definition of mortgage-related obligations. See 
commentary to Sec. 1026.43(c)(2)(v) regarding the requirement to take 
into account any mortgage-related obligations for purposes of 
determining a consumer's ability to repay.
    2. Property taxes. Section 1026.43(b)(8) includes property taxes in 
the evaluation of mortgage-related obligations. Obligations that are 
related to the ownership or use of real property and paid to a taxing 
authority, whether on a monthly, quarterly, annual, or other basis, are 
property taxes for purposes of Sec. 1026.43(b)(8). Section 
1026.43(b)(8) includes obligations that are equivalent to property 
taxes, even if such obligations are not denominated as ``taxes.'' For 
example, governments may establish or allow independent districts with 
the authority to impose levies on properties within the district to fund 
a special purpose, such as a local development bond district, water 
district, or other public purpose. These levies may be referred to as 
taxes, assessments, surcharges, or by some other name. For purposes of 
Sec. 1026.43(b)(8), these are property taxes and are included in the 
determination of mortgage-related obligations.
    3. Insurance premiums and similar charges. Section 1026.43(b)(8) 
includes in the evaluation of mortgage-related obligations premiums and 
similar charges identified in Sec. 1026.4(b)(5), (7), (8), or (10) that 
are required by the creditor. This includes all premiums or charges 
related to coverage protecting the creditor against a consumer's 
default, credit loss, collateral loss, or similar loss, if the consumer 
is required to pay the premium or charge. For example, if Federal law 
requires flood insurance to be obtained in connection with the mortgage 
loan, the flood insurance premium is a mortgage-related obligation for 
purposes of Sec. 1026.43(b)(8). Section 1026.43(b)(8) does not include 
premiums or similar charges identified in Sec. 1026.4(b)(5), (7), (8), 
or (10) that are not required by the creditor and that the consumer 
purchases voluntarily. For example:
    i. If a creditor does not require earthquake insurance to be 
obtained in connection with the mortgage loan, but the consumer 
voluntarily chooses to purchase such insurance, the earthquake insurance 
premium is not a mortgage-related obligation for purposes of Sec. 
1026.43(b)(8).
    ii. If a creditor requires a minimum amount of coverage for 
homeowners' insurance and the consumer voluntarily chooses to purchase a 
more comprehensive amount of coverage, the portion of the premium 
allocated to the required minimum coverage is a mortgage-related 
obligation for purposes of Sec. 1026.43(b)(8), while the portion of the 
premium allocated to the more comprehensive coverage voluntarily 
purchased by the consumer is not a mortgage-related obligation for 
purposes of Sec. 1026.43(b)(8).
    iii. If the consumer purchases insurance or similar coverage not 
required by the creditor at consummation without having requested the 
specific non-required insurance or similar coverage and without having 
agreed to the premium or charge for the specific non-required insurance 
or similar coverage prior to consummation, the premium or charge is not 
voluntary for purposes of Sec. 1026.43(b)(8) and is a mortgage-related 
obligation.
    4. Mortgage insurance, guarantee, or similar charges. Section 
1026.43(b)(8) includes in the evaluation of mortgage-related obligations 
premiums or charges protecting the creditor against the consumer's 
default or other credit loss. This includes all premiums or similar 
charges, whether denominated as mortgage insurance, guarantee insurance, 
or otherwise, as determined according to applicable State or Federal 
law. For example, monthly ``private mortgage insurance'' payments paid 
to a non-governmental entity, annual ``guarantee fee'' payments required 
by a Federal housing program, and a quarterly ``mortgage insurance'' 
payment paid to a State agency administering a housing program are all 
mortgage-related obligations for purposes of Sec. 1026.43(b)(8). 
Section 1026.43(b)(8) includes these charges in the definition of 
mortgage-related obligations if the creditor requires the consumer to 
pay them, even if the consumer is not legally obligated to pay the 
charges under the terms of the insurance program. For example, if a 
mortgage insurance program obligates the creditor to make recurring 
mortgage insurance payments, and the creditor requires the consumer to 
reimburse the creditor for such recurring payments, the consumer's 
payments are mortgage-related obligations for purposes of Sec. 
1026.43(b)(8). However, if a mortgage insurance program obligates the 
creditor to make recurring mortgage insurance payments, and the creditor 
does not require the consumer to reimburse the creditor for the cost of 
the mortgage insurance payments, the recurring mortgage insurance 
payments are not mortgage-related obligations for purposes of Sec. 
1026.43(b)(8).
    5. Relation to the finance charge. Section 1026.43(b)(8) includes in 
the evaluation of

[[Page 834]]

mortgage-related obligations premiums and similar charges identified in 
Sec. 1026.4(b)(5), (7), (8), or (10) that are required by the creditor. 
These premiums and similar charges are mortgage-related obligations 
regardless of whether the premium or similar charge is excluded from the 
finance charge pursuant to Sec. 1026.4(d). For example, a premium for 
insurance against loss or damage to the property written in connection 
with the credit transaction is a premium identified in Sec. 
1026.4(b)(8). If this premium is required by the creditor, the premium 
is a mortgage-related obligation pursuant to Sec. 1026.43(b)(8), 
regardless of whether the premium is excluded from the finance charge 
pursuant to Sec. 1026.4(d)(2).
    43(b)(11) Recast.
    1. Date of the recast. The term ``recast'' means, for an adjustable-
rate mortgage, the expiration of the period during which payments based 
on the introductory fixed rate are permitted; for an interest-only loan, 
the expiration of the period during which the interest-only payments are 
permitted; and, for a negative amortization loan, the expiration of the 
period during which negatively amortizing payments are permitted. For 
adjustable-rate mortgages, interest-only loans, and negative 
amortization loans, the date on which the recast is considered to occur 
is the due date of the last monthly payment based on the introductory 
fixed rate, the interest-only payment, or the negatively amortizing 
payment, respectively. To illustrate: A loan in an amount of $200,000 
has a 30-year loan term. The loan agreement provides for a fixed 
interest rate and permits interest-only payments for the first five 
years of the loan (60 months). The loan is recast on the due date of the 
60th monthly payment. Thus, the term of the loan remaining as of the 
date the loan is recast is 25 years (300 months).
    43(b)(12) Simultaneous loan.
    1. General. Section 1026.43(b)(12) defines a simultaneous loan as 
another covered transaction or a home equity line of credit (HELOC) 
subject to Sec. 1026.40 that will be secured by the same dwelling and 
made to the same consumer at or before consummation of the covered 
transaction, whether it is made by the same creditor or a third-party 
creditor. (As with all of Sec. 1026.43, the term ``dwelling'' includes 
any real property attached to a dwelling.) For example, assume a 
consumer will enter into a legal obligation that is a covered 
transaction with Creditor A. Immediately prior to consummation of the 
covered transaction with Creditor A, the consumer opens a HELOC that is 
secured by the same dwelling with Creditor B. For purposes of this 
section, the loan extended by Creditor B is a simultaneous loan. See 
commentary to Sec. 1026.43(c)(2)(iv) and (c)(6), discussing the 
requirement to consider the consumer's payment obligation on any 
simultaneous loan for purposes of determining the consumer's ability to 
repay the covered transaction subject to this section.
    2. Same consumer. For purposes of the definition of ``simultaneous 
loan,'' the term ``same consumer'' includes any consumer, as that term 
is defined in Sec. 1026.2(a)(11), that enters into a loan that is a 
covered transaction and also enters into another loan (e.g., second-lien 
covered transaction or HELOC) secured by the same dwelling. Where two or 
more consumers enter into a legal obligation that is a covered 
transaction, but only one of them enters into another loan secured by 
the same dwelling, the ``same consumer'' includes the person that has 
entered into both legal obligations. For example, assume Consumer A and 
Consumer B will both enter into a legal obligation that is a covered 
transaction with a creditor. Immediately prior to consummation of the 
covered transaction, Consumer B opens a HELOC that is secured by the 
same dwelling with the same creditor; Consumer A is not a signatory to 
the HELOC. For purposes of this definition, Consumer B is the same 
consumer and the creditor must include the HELOC as a simultaneous loan.
    43(b)(13) Third-party record.
    1. Electronic records. Third-party records include records 
transmitted electronically. For example, to verify a consumer's credit 
history using third-party records as required by Sec. 
1026.43(c)(2)(viii) and 1026.43(c)(3), a creditor may use a credit 
report prepared by a consumer reporting agency that is transmitted 
electronically.
    2. Forms. A record prepared by a third party includes a form a 
creditor gives to a third party to provide information, even if the 
creditor completes parts of the form unrelated to the information 
sought. For example, if a creditor gives a consumer's employer a form 
for verifying the consumer's employment status and income, the creditor 
may fill in the creditor's name and other portions of the form unrelated 
to the consumer's employment status or income.
    Paragraph 43(b)(13)(i).
    1. Reviewed record. Under Sec. 1026.43(b)(13)(i), a third-party 
record includes a document or other record prepared by the consumer, the 
creditor, the mortgage broker, or the creditor's or mortgage broker's 
agent, if the record is reviewed by an appropriate third party. For 
example, a profit-and-loss statement prepared by a self-employed 
consumer and reviewed by a third-party accountant is a third-party 
record under Sec. 1026.43(b)(13)(i). In contrast, a profit-and-loss 
statement prepared by a self-employed consumer and reviewed by the 
consumer's non-accountant spouse is not a third-party record under Sec. 
1026.43(b)(13)(i).
    Paragraph 43(b)(13)(iii).
    1. Creditor's records. Section 1026.43(b)(13)(iii) provides that a 
third-party

[[Page 835]]

record includes a record the creditor maintains for an account of the 
consumer held by the creditor. Examples of such accounts include 
checking accounts, savings accounts, and retirement accounts. Examples 
of such accounts also include accounts related to a consumer's 
outstanding obligations to a creditor. For example, a third-party record 
includes the creditor's records for a first-lien mortgage to a consumer 
who applies for a subordinate-lien home equity loan.
    43(c) Repayment ability.
    43(c)(1) General requirement.
    1. Reasonable and good faith determination. i. General. Creditors 
generally are required by Sec. 1026.43(c)(1) to make reasonable and 
good faith determinations of consumers' ability to repay. Section 
1026.43(c) and the accompanying commentary describe certain requirements 
for making this ability-to-repay determination, but do not provide 
comprehensive underwriting standards to which creditors must adhere. For 
example, the rule and commentary do not specify how much income is 
needed to support a particular level of debt or how credit history 
should be weighed against other factors. So long as creditors consider 
the factors set forth in Sec. 1026.43(c)(2) according to the 
requirements of Sec. 1026.43(c), creditors are permitted to develop 
their own underwriting standards and make changes to those standards 
over time in response to empirical information and changing economic and 
other conditions. Whether a particular ability-to-repay determination is 
reasonable and in good faith will depend not only on the underwriting 
standards adopted by the creditor, but on the facts and circumstances of 
an individual extension of credit and how a creditor's underwriting 
standards were applied to those facts and circumstances. A consumer's 
statement or attestation that the consumer has the ability to repay the 
loan is not indicative of whether the creditor's determination was 
reasonable and in good faith.
    ii. Considerations. A. The following may be evidence that a 
creditor's ability-to-repay determination was reasonable and in good 
faith:
    1. The consumer demonstrated actual ability to repay the loan by 
making timely payments, without modification or accommodation, for a 
significant period of time after consummation or, for an adjustable-
rate, interest-only, or negative-amortization mortgage, for a 
significant period of time after recast;
    2. The creditor used underwriting standards that have historically 
resulted in comparatively low rates of delinquency and default during 
adverse economic conditions; or
    3. The creditor used underwriting standards based on empirically 
derived, demonstrably and statistically sound models.
    B. In contrast, the following may be evidence that a creditor's 
ability-to-repay determination was not reasonable or in good faith:
    1. The consumer defaulted on the loan a short time after 
consummation or, for an adjustable-rate, interest-only, or negative-
amortization mortgage, a short time after recast;
    2. The creditor used underwriting standards that have historically 
resulted in comparatively high levels of delinquency and default during 
adverse economic conditions;
    3. The creditor applied underwriting standards inconsistently or 
used underwriting standards different from those used for similar loans 
without reasonable justification;
    4. The creditor disregarded evidence that the underwriting standards 
it used are not effective at determining consumers' repayment ability;
    5. The creditor disregarded evidence that the consumer may have 
insufficient residual income to cover other recurring obligations and 
expenses, taking into account the consumer's assets other than the 
property securing the loan, after paying his or her monthly payments for 
the covered transaction, any simultaneous loans, mortgage-related 
obligations, and any current debt obligations; or
    6. The creditor disregarded evidence that the consumer would have 
the ability to repay only if the consumer subsequently refinanced the 
loan or sold the property securing the loan.
    C. All of the considerations listed in paragraphs (A) and (B) above 
may be relevant to whether a creditor's ability-to-repay determination 
was reasonable and in good faith. However, these considerations are not 
requirements or prohibitions with which creditors must comply, nor are 
they elements of a claim that a consumer must prove to establish a 
violation of the ability-to-repay requirements. For example, creditors 
are not required to validate their underwriting criteria using 
mathematical models. These considerations also are not absolute in their 
application; instead they exist on a continuum and may apply to varying 
degrees. For example, the longer a consumer successfully makes timely 
payments after consummation or recast the less likely it is that the 
creditor's determination of ability to repay was unreasonable or not in 
good faith. Finally, each of these considerations must be viewed in the 
context of all facts and circumstances relevant to a particular 
extension of credit. For example, in some cases inconsistent application 
of underwriting standards may indicate that a creditor is manipulating 
those standards to approve a loan despite a consumer's inability to 
repay. The creditor's ability-to-repay determination therefore may be 
unreasonable or in bad faith. However, in other cases inconsistently 
applied underwriting standards may be the result of, for example, 
inadequate training and may nonetheless yield a reasonable and good 
faith

[[Page 836]]

ability-to-repay determination in a particular case. Similarly, although 
an early payment default on a mortgage will often be persuasive evidence 
that the creditor did not have a reasonable and good faith belief in the 
consumer's ability to repay (and such evidence may even be sufficient to 
establish a prima facie case of an ability-to-repay violation), a 
particular ability-to-repay determination may be reasonable and in good 
faith even though the consumer defaulted shortly after consummation if, 
for example, the consumer experienced a sudden and unexpected loss of 
income. In contrast, an ability-to-repay determination may be 
unreasonable or not in good faith even though the consumer made timely 
payments for a significant period of time if, for example, the consumer 
was able to make those payments only by foregoing necessities such as 
food and heat.
    2. Repayment ability at consummation. Section 1026.43(c)(1) requires 
the creditor to determine, at or before the time the loan is 
consummated, that a consumer will have a reasonable ability to repay the 
loan. A change in the consumer's circumstances after consummation (for 
example, a significant reduction in income due to a job loss or a 
significant obligation arising from a major medical expense) that cannot 
be reasonably anticipated from the consumer's application or the records 
used to determine repayment ability is not relevant to determining a 
creditor's compliance with the rule. However, if the application or 
records considered at or before consummation indicate there will be a 
change in a consumer's repayment ability after consummation (for 
example, if a consumer's application states that the consumer plans to 
retire within 12 months without obtaining new employment or that the 
consumer will transition from full-time to part-time employment), the 
creditor must consider that information under the rule.
    3. Interaction with Regulation B. Section 1026.43(c)(1) does not 
require or permit the creditor to make inquiries or verifications 
prohibited by Regulation B, 12 CFR part 1002.
    43(c)(2) Basis for determination.
    1. General. Section 1026.43(c)(2) sets forth factors creditors must 
consider when making the ability-to-repay determination required under 
Sec. 1026.43(c)(1) and the accompanying commentary provides guidance 
regarding these factors. Creditors must conform to these requirements 
and may rely on guidance provided in the commentary. However, Sec. 
1026.43(c) and the accompanying commentary do not provide comprehensive 
guidance on definitions and other technical underwriting criteria 
necessary for evaluating these factors in practice. So long as a 
creditor complies with the provisions of Sec. 1026.43(c), the creditor 
is permitted to use its own definitions and other technical underwriting 
criteria. A creditor may, but is not required to, look to guidance 
issued by entities such as the Federal Housing Administration, the U.S. 
Department of Veterans Affairs, the U.S. Department of Agriculture, or 
Fannie Mae or Freddie Mac while operating under the conservatorship of 
the Federal Housing Finance Agency. For example, a creditor may refer to 
such guidance to classify particular inflows, obligations, or property 
as ``income,'' ``debt,'' or ``assets.'' Similarly, a creditor may refer 
to such guidance to determine what information to use when evaluating 
the income of a self-employed or seasonally employed consumer or what 
information to use when evaluating the credit history of a consumer who 
has obtained few or no extensions of traditional ``credit'' as defined 
in Sec. 1026.2(a)(14). These examples are illustrative, and creditors 
are not required to conform to guidance issued by these or other such 
entities. However, as required by Sec. 1026.43(c)(1), a creditor must 
ensure that its underwriting criteria, as applied to the facts and 
circumstances of a particular extension of credit, result in a 
reasonable, good faith determination of a consumer's ability to repay. 
For example, a definition used in underwriting that is reasonable in 
isolation may lead to ability-to-repay determinations that are 
unreasonable or not in good faith when considered in the context of a 
creditor's underwriting standards or when adopted or applied in bad 
faith. Similarly, an ability-to-repay determination is not unreasonable 
or in bad faith merely because the underwriting criteria used included a 
definition that was by itself unreasonable.
    Paragraph 43(c)(2)(i).
    1. Income or assets generally. A creditor may base its determination 
of repayment ability on current or reasonably expected income from 
employment or other sources, assets other than the dwelling that secures 
the covered transaction, or both. The creditor may consider any type of 
current or reasonably expected income, including, for example, the 
following: salary; wages; self-employment income; military or reserve 
duty income; bonus pay; tips; commissions; interest payments; dividends; 
retirement benefits or entitlements; rental income; royalty payments; 
trust income; public assistance payments; and alimony, child support, 
and separate maintenance payments. The creditor may consider any of the 
consumer's assets, other than the value of the dwelling that secures the 
covered transaction, including, for example, the following: funds in a 
savings or checking account, amounts vested in a retirement account, 
stocks, bonds, certificates of deposit, and amounts available to the 
consumer from a trust fund. (As stated in Sec. 1026.43(a), the value of 
the dwelling includes the value of the real property to which the 
residential structure is attached, if the real

[[Page 837]]

property also secures the covered transaction.)
    2. Income or assets relied on. A creditor need consider only the 
income or assets necessary to support a determination that the consumer 
can repay the covered transaction. For example, if a consumer's loan 
application states that the consumer earns an annual salary from both a 
full-time job and a part-time job and the creditor reasonably determines 
that the consumer's income from the full-time job is sufficient to repay 
the loan, the creditor need not consider the consumer's income from the 
part-time job. Further, a creditor need verify only the income (or 
assets) relied on to determine the consumer's repayment ability. See 
comment 43(c)(4)-1.
    3. Reasonably expected income. If a creditor relies on expected 
income in excess of the consumer's income, either in addition to or 
instead of current income, the expectation that the income will be 
available for repayment must be reasonable and verified with third-party 
records 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 records that show the consumer's 
past annual bonuses, and the expected bonus must bear a reasonable 
relationship to the past bonuses. Similarly, if the creditor relies on a 
consumer's expected salary from a job the consumer has accepted and will 
begin after receiving 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.
    4. Seasonal or irregular income. A creditor reasonably may determine 
that a consumer can make periodic loan payments even if the consumer's 
income, such as self-employment income, is seasonal or irregular. For 
example, assume a consumer receives seasonal income from the sale of 
crops or from agricultural employment. Each year, the consumer's income 
arrives during only a few months. If the creditor determines that the 
consumer's annual income divided equally across 12 months is sufficient 
for the consumer to make monthly loan payments, the creditor reasonably 
may determine that the consumer can repay the loan, even though the 
consumer may not receive income during certain months.
    5. Multiple applicants. When two or more consumers apply for an 
extension of credit as joint obligors with primary liability on an 
obligation, Sec. 1026.43(c)(2)(i) does not require the creditor to 
consider income or assets that are not needed to support the creditor's 
repayment ability determination. If the income or assets of one 
applicant are sufficient to support the creditor's repayment ability 
determination, the creditor is not required to consider the income or 
assets of the other applicant. For example, if a husband and wife 
jointly apply for a loan and the creditor reasonably determines that the 
wife's income is sufficient to repay the loan, the creditor is not 
required to consider the husband's income.
    Paragraph 43(c)(2)(ii).
    1. Employment status and income. Employment status need not be full-
time, and employment need not occur at regular intervals. If, in 
determining the consumer's repayment ability, the creditor relies on 
income from the consumer's employment, then that employment may be, for 
example, full-time, part-time, seasonal, irregular, military, or self-
employment, so long as the creditor considers those characteristics of 
the employment. Under Sec. 1026.43(c)(2)(ii), a creditor must verify a 
consumer's current employment status only if the creditor relies on the 
consumer's employment income in determining the consumer's repayment 
ability. For example, if a creditor relies wholly on a consumer's 
investment income to determine repayment ability, the creditor need not 
verify or document employment status. See comments 43(c)(2)(i)-5 and 
43(c)(4)-2 for guidance on which income to consider when multiple 
consumers apply jointly for a loan.
    Paragraph 43(c)(2)(iii).
    1. General. For purposes of the repayment ability determination 
required under Sec. 1026.43(c)(2), a creditor must consider the 
consumer's monthly payment on a covered transaction that is calculated 
as required under Sec. 1026.43(c)(5).
    Paragraph 43(c)(2)(iv).
    1. Home equity lines of credit. For purposes of Sec. 
1026.43(c)(2)(iv), a simultaneous loan includes any covered transaction 
or home equity line of credit (HELOC) subject to Sec. 1026.40 that will 
be made to the same consumer at or before consummation of the covered 
transaction and secured by the same dwelling that secures the covered 
transaction. A HELOC that is a simultaneous loan that the creditor knows 
or has reason to know about must be considered as a mortgage obligation 
in determining a consumer's ability to repay the covered transaction 
even though the HELOC is not a covered transaction subject to Sec. 
1026.43. See Sec. 1026.43(a) discussing the scope of this section. 
``Simultaneous loan'' is defined in Sec. 1026.43(b)(12). For further 
explanation of ``same consumer,'' see comment 43(b)(12)-2.
    2. Knows or has reason to know. In determining a consumer's 
repayment ability for a covered transaction under Sec. 1026.43(c)(2), a 
creditor must consider the consumer's payment obligation on any 
simultaneous loan that the creditor knows or has reason to know will be 
or has been made at or before consummation of the covered transaction. 
For example, where a covered transaction is

[[Page 838]]

a home purchase loan, the creditor must consider the consumer's periodic 
payment obligation for any ``piggyback'' second-lien loan that the 
creditor knows or has reason to know will be used to finance part of the 
consumer's down payment. The creditor complies with this requirement 
where, for example, the creditor follows policies and procedures that 
are designed to determine whether at or before consummation the same 
consumer has applied for another credit transaction secured by the same 
dwelling. To illustrate, assume a creditor receives an application for a 
home purchase loan where the requested loan amount is less than the home 
purchase price. The creditor's policies and procedures must require the 
consumer to state the source of the down payment and provide 
verification. If the creditor determines the source of the down payment 
is another extension of credit that will be made to the same consumer at 
or before consummation and secured by the same dwelling, the creditor 
knows or has reason to know of the simultaneous loan and must consider 
the simultaneous loan. Alternatively, if the creditor has information 
that suggests the down payment source is the consumer's existing assets, 
the creditor would be under no further obligation to determine whether a 
simultaneous loan will be extended at or before consummation of the 
covered transaction. The creditor is not obligated to investigate beyond 
reasonable underwriting policies and procedures to determine whether a 
simultaneous loan will be extended at or before consummation of the 
covered transaction.
    3. Scope of timing. For purposes of Sec. 1026.43(c)(2)(iv), a 
simultaneous loan includes a loan that comes into existence concurrently 
with the covered transaction subject to Sec. 1026.43(c). A simultaneous 
loan does not include a credit transaction that occurs after 
consummation of the covered transaction that is subject to this section. 
However, any simultaneous loan that specifically covers closing costs of 
the covered transaction, but is scheduled to be extended after 
consummation must be considered for the purposes of Sec. 
1026.43(c)(2)(iv).
    Paragraph 43(c)(2)(v).
    1. General. A creditor must include in its repayment ability 
assessment the consumer's monthly payment for mortgage-related 
obligations, such as the expected property taxes and premiums or similar 
charges identified in Sec. 1026.4(b)(5), (7), (8), or (10) that are 
required by the creditor. See Sec. 1026.43(b)(8) defining the term 
``mortgage-related obligations.'' Mortgage-related obligations must be 
included in the creditor's determination of repayment ability regardless 
of whether the amounts are included in the monthly payment or whether 
there is an escrow account established. Section 1026.43(c)(2)(v) 
includes only payments that occur on an ongoing or recurring basis in 
the evaluation of the consumer's monthly payment for mortgage-related 
obligations. One-time charges, or obligations satisfied at or before 
consummation, are not ongoing or recurring, and are therefore not part 
of the consumer's monthly payment for purposes of Sec. 
1026.43(c)(2)(v). For example:
    i. Assume that a consumer will be required to pay property taxes, as 
described in comment 43(b)(8)-2, on a quarterly, annual, or other basis 
after consummation. Section 1026.43(c)(2)(v) includes these recurring 
property taxes in the evaluation of the consumer's monthly payment for 
mortgage-related obligations. However, if the consumer will incur a one-
time charge to satisfy property taxes that are past due, Sec. 
1026.43(c)(2)(v) does not include this one-time charge in the evaluation 
of the consumer's monthly payment for mortgage-related obligations.
    ii. Assume that a consumer will be required to pay mortgage 
insurance premiums, as described in comment 43(b)(8)-2, on a monthly, 
annual, or other basis after consummation. Section 1026.43(c)(2)(v) 
includes these recurring mortgage insurance payments in the evaluation 
of the consumer's monthly payment for mortgage-related obligations. 
However, if the consumer will incur a one-time fee or charge for 
mortgage insurance or similar purposes, such as an up-front mortgage 
insurance premium imposed at consummation, Sec. 1026.43(c)(2)(v) does 
not include this up-front mortgage insurance premium in the evaluation 
of the consumer's monthly payment for mortgage-related obligations.
    2. Obligations to an association, other than special assessments. 
Section 1026.43(b)(8) defines mortgage-related obligations to include 
obligations owed to a condominium, cooperative, or homeowners 
association. However, Sec. 1026.43(c)(2)(v) does not require a creditor 
to include in the evaluation of the consumer's monthly payment for 
mortgage-related obligations payments to such associations imposed in 
connection with the extension of credit, or imposed as an incident to 
the transfer of ownership, if such obligations are fully satisfied at or 
before consummation. For example, if a homeowners association imposes a 
one-time transfer fee on the transaction, and the consumer will pay the 
fee at or before consummation, Sec. 1026.43(c)(2)(v) does not require 
the creditor to include this one-time transfer fee in the evaluation of 
the consumer's monthly payment for mortgage-related obligations. Section 
1026.43(c)(2)(v) also does not require the creditor to include this fee 
in the evaluation of the consumer's monthly payment for mortgage-related 
obligations if the consumer finances the fee in the loan amount. 
However, if the consumer

[[Page 839]]

incurs the obligation and will satisfy the obligation with recurring 
payments after consummation, regardless of whether the obligation is 
escrowed, Sec. 1026.43(c)(2)(v) requires the creditor to include the 
transfer fee in the evaluation of the consumer's monthly payment for 
mortgage-related obligations.
    3. Special assessments imposed by an association. Section 
1026.43(b)(8) defines mortgage-related obligations to include special 
assessments imposed by a condominium, cooperative, or homeowners 
association. Section 1026.43(c)(2)(v) does not require a creditor to 
include special assessments in the evaluation of the consumer's monthly 
payment for mortgage-related obligations if the special assessments are 
fully satisfied at or before consummation. For example, if a homeowners 
association imposes a special assessment that the consumer will have to 
pay in full at or before consummation, Sec. 1026.43(c)(2)(v) does not 
include the special assessment in the evaluation of the consumer's 
monthly payment for mortgage-related obligations. Section 
1026.43(c)(2)(v) does not require a creditor to include special 
assessments in the evaluation of the consumer's monthly payment for 
mortgage-related obligations if the special assessments are imposed as a 
one-time charge. For example, if a homeowners association imposes a 
special assessment that the consumer will have to satisfy in one 
payment, Sec. 1026.43(c)(2)(v) does not include this one-time special 
assessment in the evaluation of the consumer's monthly payment for 
mortgage-related obligations. However, if the consumer will pay the 
special assessment on a recurring basis after consummation, regardless 
of whether the consumer's payments for the special assessment are 
escrowed, Sec. 1026.43(c)(2)(v) requires the creditor to include this 
recurring special assessment in the evaluation of the consumer's monthly 
payment for mortgage-related obligations.
    4. Pro rata amount. For purposes of Sec. 1026.43(c)(2)(v), the 
creditor may divide the recurring payments for mortgage-related 
obligations into monthly, pro rata amounts. In considering a mortgage-
related obligation that is not paid monthly, if the mortgage loan is 
originated pursuant to a government program the creditor may determine 
the pro rata monthly amount of the mortgage-related obligation in 
accordance with the specific requirements of that program. If the 
mortgage loan is originated pursuant to a government program that does 
not contain specific standards for determining the pro rata monthly 
amount of the mortgage-related obligation, or if the mortgage loan is 
not originated pursuant to a government program, the creditor complies 
with Sec. 1026.43(c)(2)(v) by dividing the total amount of a particular 
non-monthly mortgage-related obligation by no more than the number of 
months from the month that the non-monthly mortgage-related obligation 
was due prior to consummation until the month that the non-monthly 
mortgage-related obligation will be due after consummation. When 
determining the pro rata monthly payment amount, the creditor may also 
consider comment 43(c)(2)(v)-5, which explains that the creditor need 
not project potential changes. The following examples further illustrate 
how a creditor may determine the pro rata monthly amount of mortgage-
related obligations, pursuant to Sec. 1026.43(c)(2)(v):
    i. Assume that a consumer applies for a mortgage loan on February 
1st. Assume further that the subject property is located in a 
jurisdiction where property taxes are paid in arrears on the first day 
of October. The creditor complies with Sec. 1026.43(c)(2)(v) by 
determining the annual property tax amount owed in the prior October, 
dividing the amount by 12, and using the resulting amount as the pro 
rata monthly property tax payment amount for the determination of the 
consumer's monthly payment for mortgage-related obligations. The 
creditor complies even if the consumer will likely owe more in the next 
year than the amount owed the prior October because the jurisdiction 
normally increases the property tax rate annually, provided that the 
creditor does not have knowledge of an increase in the property tax rate 
at the time of underwriting. See also comment 43(c)(2)(v)-5 regarding 
estimates of mortgage-related obligations.
    ii. Assume that a subject property is located in a special water 
district, the assessments for which are billed separately from local 
property taxes. The creditor complies with Sec. 1026.43(c)(2)(v) by 
dividing the full amount that will be owed by the number of months in 
the assessment period, and including the resulting amount in the 
calculation of monthly mortgage-related obligations. However, Sec. 
1026.43(c)(2)(v) does not require a creditor to adjust the monthly 
amount to account for potential deviations from the average monthly 
amount. For example, assume in this example that the special water 
assessment is billed every eight months, that the consumer will have to 
pay the first water district bill four months after consummation, and 
that the seller will not provide the consumer with any funds to pay for 
the seller's obligation (i.e., the four months prior to consummation). 
Although the consumer will be required to budget twice the average 
monthly amount to pay the first water district bill, Sec. 
1026.43(c)(2)(v) does not require the creditor to use the increased 
amount; the creditor complies with Sec. 1026.43(c)(2)(v) by using the 
average monthly amount.
    iii. Assume that the subject property is located in an area where 
flood insurance is required by Federal law, and assume further that the 
flood insurance policy premium is

[[Page 840]]

paid every three years following consummation. The creditor complies 
with Sec. 1026.43(c)(2)(v) by dividing the three-year premium by 36 
months and including the resulting amount in the determination of the 
consumer's monthly payment for mortgage-related obligations. The 
creditor complies even if the consumer will not establish a monthly 
escrow for flood insurance.
    iv. Assume that the subject property is part of a homeowners 
association that has imposed upon the seller a special assessment of 
$1,200. Assume further that this special assessment will become the 
consumer's obligation upon consummation of the transaction, that the 
consumer is permitted to pay the special assessment in twelve $100 
installments after consummation, and that the mortgage loan will not be 
originated pursuant to a government program that contains specific 
requirements for prorating special assessments. The creditor complies 
with Sec. 1026.43(c)(2)(v) by dividing the $1,200 special assessment by 
12 months and including the resulting $100 monthly amount in the 
determination of the consumer's monthly payment for mortgage-related 
obligations. The creditor complies by using this calculation even if the 
consumer intends to pay the special assessment in a manner other than 
that used by the creditor in determining the monthly pro rata amount, 
such as where the consumer intends to pay six $200 installments.
    5. Estimates. Estimates of mortgage-related obligations should be 
based upon information that is known to the creditor at the time the 
creditor underwrites the mortgage obligation. Information is known if it 
is reasonably available to the creditor at the time of underwriting the 
loan. Creditors may rely on guidance provided under comment 17(c)(2)(i)-
1 in determining if information is reasonably available. For purposes of 
this section, the creditor need not project potential changes, such as 
by estimating possible increases in taxes and insurance. See comment 
43(c)(2)(v)-4 for additional examples discussing the projection of 
potential changes. The following examples further illustrate the 
requirements of Sec. 1026.43(c)(2)(v):
    i. Assume that the property is subject to a community governance 
association, such as a homeowners association. The creditor complies 
with Sec. 1026.43(c)(2)(v) by relying on an estimate of mortgage-
related obligations prepared by the homeowners association. In 
accordance with the guidance provided under comment 17(c)(2)(i)-1, the 
creditor need only exercise due diligence in determining mortgage-
related obligations, and complies with Sec. 1026.43(c)(2)(v) by relying 
on the representations of other reliable parties in preparing estimates.
    ii. Assume that the homeowners association has imposed a special 
assessment on the seller, but the seller does not inform the creditor of 
the special assessment, the homeowners association does not include the 
special assessment in the estimate of expenses prepared for the 
creditor, and the creditor is unaware of the special assessment. The 
creditor complies with Sec. 1026.43(c)(2)(v) if it does not include the 
special assessment in the determination of mortgage-related obligations. 
The creditor may rely on the representations of other reliable parties, 
in accordance with the guidance provided under comment 17(c)(2)(i)-1.
    iii. Assume that the homeowners association imposes a special 
assessment after the creditor has completed underwriting, but prior to 
consummation. The creditor does not violate Sec. 1026.43(c)(2)(v) if 
the creditor does not include the special assessment in the 
determination of the consumer's monthly payment for mortgage-related 
obligations, provided the homeowners association does not inform the 
creditor about the special assessment during underwriting. Section 
1026.43(c)(2)(v) does not require the creditor to re-underwrite the 
loan. The creditor has complied with Sec. 1026.43(c)(2)(v) by including 
the obligations known to the creditor at the time the loan is 
underwritten, even if the creditor learns of new mortgage-related 
obligations before the transaction is consummated.
    Paragraph 43(c)(2)(vi).
    1. Consideration of current debt obligations. Section 
1026.43(c)(2)(vi) requires creditors to consider a consumer's current 
debt obligations and any alimony or child support the consumer is 
required to pay. Examples of current debt obligations include student 
loans, automobile loans, revolving debt, and existing mortgages that 
will not be paid off at or before consummation. Creditors have 
significant flexibility to consider current debt obligations in light of 
attendant facts and circumstances, including that an obligation is 
likely to be paid off soon after consummation. For example, a creditor 
may take into account that an existing mortgage is likely to be paid off 
soon after consummation because there is an existing contract for sale 
of the property that secures that mortgage. Similarly, creditors should 
consider whether debt obligations in forbearance or deferral at the time 
of underwriting are likely to affect the consumer's ability to repay 
based on the payment for which the consumer will be liable upon 
expiration of the forbearance or deferral period and other relevant 
facts and circumstances, such as when the forbearance or deferral period 
will expire.
    2. Multiple applicants. When two or more consumers apply for an 
extension of credit as joint obligors with primary liability on an 
obligation, Sec. 1026.43(c)(2)(vi) requires a creditor to consider the 
debt obligations of all such joint applicants. For example, if a co-
applicant is repaying a student loan at the

[[Page 841]]

time of underwriting, the creditor complies with Sec. 1026.43(c)(2)(vi) 
by considering the co-applicant's student loan obligation. If one 
consumer is merely a surety or guarantor, Sec. 1026.43(c)(2)(vi) does 
not require a creditor to consider the debt obligations of such surety 
or guarantor. The requirements of Sec. 1026.43(c)(2)(vi) do not affect 
the disclosure requirements of this part, such as, for example, 
Sec. Sec. 1026.17(d), 1026.23(b), 1026.31(e), 1026.39(b)(3), and 
1026.46(f).
    Paragraph 43(c)(2)(vii).
    1. Monthly debt-to-income ratio and residual income. See Sec. 
1026.43(c)(7) and its associated commentary regarding the definitions 
and calculations for the monthly debt-to-income ratio and residual 
income.
    Paragraph 43(c)(2)(viii).
    1. Consideration of credit history. ``Credit history'' may include 
factors such as the number and age of credit lines, payment history, and 
any judgments, collections, or bankruptcies. Section 1026.43(c)(2)(viii) 
does not require creditors to obtain or consider a consolidated credit 
score or prescribe a minimum credit score that creditors must apply. The 
rule also does not specify which aspects of credit history a creditor 
must consider or how various aspects of credit history should be weighed 
against each other or against other underwriting factors. Some aspects 
of a consumer's credit history, whether positive or negative, may not be 
directly indicative of the consumer's ability to repay. A creditor 
therefore may give various aspects of a consumer's credit history as 
much or as little weight as is appropriate to reach a reasonable, good 
faith determination of ability to repay. Where a consumer has obtained 
few or no extensions of traditional ``credit,'' as defined in Sec. 
1026.2(a)(14), a creditor may, but is not required to, look to 
nontraditional credit references, such as rental payment history or 
utility payments.
    2. Multiple applicants. When two or more consumers apply for an 
extension of credit as joint obligors with primary liability on an 
obligation, Sec. 1026.43(c)(2)(viii) requires a creditor to consider 
the credit history of all such joint applicants. If a consumer is merely 
a surety or guarantor, Sec. 1026.43(c)(2)(viii) does not require a 
creditor to consider the credit history of such surety or guarantor. The 
requirements of Sec. 1026.43(c)(2)(viii) do not affect the disclosure 
requirements of this part, such as, for example, Sec. Sec. 1026.17(d), 
1026.23(b), 1026.31(e), 1026.39(b)(3), and 1026.46(f).
    43(c)(3) Verification using third-party records.
    1. Records specific to the individual consumer. Records a creditor 
uses for verification under Sec. 1026.43(c)(3) and (4) must be specific 
to the individual consumer. Records regarding average incomes in the 
consumer's geographic location or average wages paid by the consumer's 
employer, for example, are not specific to the individual consumer and 
are not sufficient for verification.
    2. Obtaining records. To conduct verification under Sec. 
1026.43(c)(3) and (4), a creditor may obtain records from a third-party 
service provider, such as a party the consumer's employer uses to 
respond to income verification requests, as long as the records are 
reasonably reliable and specific to the individual consumer. A creditor 
also may obtain third-party records directly from the consumer, likewise 
as long as the records are reasonably reliable and specific to the 
individual consumer. For example, a creditor using payroll statements to 
verify the consumer's income, as allowed under Sec. 1026.43(c)(4)(iii), 
may obtain the payroll statements from the consumer.
    3. Credit report as a reasonably reliable third-party record. A 
credit report generally is considered a reasonably reliable third-party 
record under Sec. 1026.43(c)(3) for purposes of verifying items 
customarily found on a credit report, such as the consumer's current 
debt obligations, monthly debts, and credit history. Section 
1026.43(c)(3) generally does not require creditors to obtain additional 
reasonably reliable third-party records to verify information contained 
in a credit report. For example, if a credit report states the existence 
and amount of a consumer's debt obligation, the creditor is not required 
to obtain additional verification of the existence or amount of that 
obligation. In contrast, a credit report does not serve as a reasonably 
reliably third-party record for purposes of verifying items that do not 
appear on the credit report. For example, certain monthly debt 
obligations, such as legal obligations like alimony or child support, 
may not be reflected on a credit report. Thus, a credit report that does 
not list a consumer's monthly alimony obligation does not serve as a 
reasonably reliable third-party record for purposes of verifying that 
obligation. If a credit report reflects a current debt obligation that a 
consumer has not listed on the application, the creditor complies with 
Sec. 1026.43(c)(3) if the creditor considers the existence and amount 
of the debt obligation as it is reflected in the credit report. However, 
in some cases a creditor may know or have reason to know that a credit 
report may be inaccurate in whole or in part. For example, a creditor 
may have information indicating that a credit report is subject to a 
fraud alert, extended alert, active duty alert, or similar alert 
identified in 15 U.S.C. 1681c-1 or that a debt obligation listed on a 
credit report is subject to a statement of dispute pursuant to 15 U.S.C. 
1681i(b). A creditor may also have other reasonably reliable third-party 
records or other information or evidence that the creditor reasonably 
finds to be reliable that contradict the credit report or otherwise 
indicate that the credit report is inaccurate. If a creditor knows or 
has reason to know that a credit report may be inaccurate in whole or in 
part, the creditor

[[Page 842]]

complies with Sec. 1026.43(c)(3) by disregarding an inaccurate or 
disputed item, items, or credit report, but does not have to obtain 
additional third-party records. The creditor may also, but is not 
required, to obtain other reasonably reliable third-party records to 
verify information with respect to which the credit report, or item 
therein, may be inaccurate. For example, the creditor might obtain 
statements or bank records regarding a particular debt obligation 
subject to a statement of dispute. See also comment 43(c)(3)-6, which 
describes a situation in which a consumer reports a debt obligation that 
is not listed on a credit report.
    4. Verification of simultaneous loans. Although a credit report may 
be used to verify current obligations, it will not reflect a 
simultaneous loan that has not yet been consummated and may not reflect 
a loan that has just recently been consummated. If the creditor knows or 
has reason to know that there will be a simultaneous loan extended at or 
before consummation, the creditor may verify the simultaneous loan by 
obtaining third-party verification from the third-party creditor of the 
simultaneous loan. For example, the creditor may obtain a copy of the 
promissory note or other written verification from the third-party 
creditor. For further guidance, see comments 43(c)(3)-1 and -2 
discussing verification using third-party records.
    5. Verification of mortgage-related obligations. Creditors must make 
the repayment ability determination required under Sec. 1026.43(c)(2) 
based on information verified from reasonably reliable records. For 
general guidance regarding verification see comments 43(c)(3)-1 and -2, 
which discuss verification using third-party records. With respect to 
the verification of mortgage-related obligations that are property taxes 
required to be considered under Sec. 1026.43(c)(2)(v), a record is 
reasonably reliable if the information in the record was provided by a 
governmental organization, such as a taxing authority or local 
government. The creditor complies with Sec. 1026.43(c)(2)(v) by relying 
on property taxes referenced in the title report if the source of the 
property tax information was a local taxing authority. With respect to 
other information in a record provided by an entity assessing charges, 
such as a homeowners association, the creditor complies with Sec. 
1026.43(c)(2)(v) if it relies on homeowners association billing 
statements provided by the seller. Records are also reasonably reliable 
if the information in the record was obtained from a valid and legally 
executed contract. For example, the creditor complies with Sec. 
1026.43(c)(2)(v) by relying on the amount of monthly ground rent 
referenced in the ground rent agreement currently in effect and 
applicable to the subject property. Records, other than those discussed 
above, may be reasonably reliable for purposes of Sec. 1026.43(c)(2)(v) 
if the source provided the information objectively.
    6. Verification of current debt obligations. Section 1026.43(c)(3) 
does not require creditors to obtain additional records to verify the 
existence or amount of obligations shown on a consumer's credit report 
or listed on the consumer's application, absent circumstances described 
in comment 43(c)(3)-3. Under Sec. 1026.43(c)(3)(iii), if a creditor 
relies on a consumer's credit report to verify a consumer's current debt 
obligations and the consumer's application lists a debt obligation not 
shown on the credit report, the creditor may consider the existence and 
amount of the obligation as it is stated on the consumer's application. 
The creditor is not required to further verify of the existence or 
amount of the obligation, absent circumstances described in comment 
43(c)(3)-3.
    7. Verification of credit history. To verify credit history, a 
creditor may, for example, look to credit reports from credit bureaus or 
to reasonably reliable third-party records that evidence nontraditional 
credit references, such as evidence of rental payment history or public 
utility payments.
    8. Verification of military employment. A creditor may verify the 
employment status of military personnel by using a military Leave and 
Earnings Statement or by using the electronic database maintained by the 
Department of Defense to facilitate identification of consumers covered 
by credit protections provided pursuant to 10 U.S.C. 987.
    43(c)(4) Verification of income or assets.
    1. Income or assets relied on. A creditor need consider, and 
therefore need verify, only the income or assets the creditor relies on 
to evaluate the consumer's repayment ability. See comment 43(c)(2)(i)-2. 
For example, if a consumer's application states that the consumer earns 
a salary and is paid an annual bonus and the creditor relies on only the 
consumer's salary to evaluate the consumer's repayment ability, the 
creditor need verify only the salary. See also comments 43(c)(3)-1 and -
2.
    2. Multiple applicants. If multiple consumers jointly apply for a 
loan and each lists income or assets on the application, the creditor 
need verify only the income or assets the creditor relies on in 
determining repayment ability. See comment 43(c)(2)(i)-5.
    3. Tax-return transcript. Under Sec. 1026.43(c)(4), a creditor may 
verify a consumer's income using an Internal Revenue Service (IRS) tax-
return transcript, which summarizes the information in a consumer's 
filed tax return, another record that provides reasonably reliable 
evidence of the consumer's income, or both. A creditor may obtain a copy 
of a tax-return transcript or a filed tax return directly from the 
consumer or from a service provider. A creditor need not obtain the copy 
directly from the IRS or other taxing authority. See comment 43(c)(3)-2.

[[Page 843]]

    Paragraph 43(c)(4)(vi).
    1. Government benefits. In verifying a consumer's income, a creditor 
may use a written or electronic record from a government agency of the 
amount of any benefit payments or awards, such as a ``proof of income 
letter'' issued by the Social Security Administration (also known as a 
``budget letter,'' ``benefits letter,'' or ``proof of award letter'').
    43(c)(5) Payment calculation.
    43(c)(5)(i) General rule.
    1. General. For purposes of Sec. 1026.43(c)(2)(iii), a creditor 
must determine the consumer's ability to repay the covered transaction 
using the payment calculation methods set forth in Sec. 1026.43(c)(5). 
The payment calculation methods differ depending on the type of credit 
extended. The payment calculation method set forth in Sec. 
1026.43(c)(5)(i) applies to any covered transaction that does not have a 
balloon payment, or that is not an interest-only or negative 
amortization loan, whether such covered transaction is a fixed-rate, 
adjustable-rate or step-rate mortgage. The terms ``fixed-rate 
mortgage,'' ``adjustable-rate mortgage,'' ``step-rate mortgage,'' 
``interest-only loan'' and ``negative amortization loan'' are defined in 
Sec. 1026.18(s)(7)(iii), (i), (ii), (iv) and (v), respectively. For the 
meaning of the term ``balloon payment,'' see Sec. 1026.18(s)(5)(i). The 
payment calculation methods set forth in Sec. 1026.43(c)(5)(ii) apply 
to any covered transaction that is a loan with a balloon payment, 
interest-only loan, or negative amortization loan. See comment 
43(c)(5)(i)-5 and the commentary to Sec. 1026.43(c)(5)(ii), which 
provide examples for calculating the monthly payment for purposes of the 
repayment ability determination required under Sec. 1026.43(c)(2)(iii).
    2. Greater of the fully indexed rate or introductory rate; premium 
adjustable-rate transactions. A creditor must determine a consumer's 
repayment ability for the covered transaction using substantially equal, 
monthly, fully amortizing payments that are based on the greater of the 
fully indexed rate or any introductory interest rate. In some 
adjustable-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. Sometimes, this initial rate charged to 
consumers is lower than the rate would be if it were determined by using 
the index plus margin, or formula (i.e., fully indexed rate). However, 
an initial rate that is a premium rate is higher than the rate based on 
the index or formula. In such cases, creditors must calculate the fully 
amortizing payment based on the initial ``premium'' rate. ``Fully 
indexed rate'' is defined in Sec. 1026.43(b)(3).
    3. Monthly, fully amortizing payments. Section 1026.43(c)(5)(i) does 
not prescribe the terms or loan features that a creditor may choose to 
offer or extend to a consumer, but establishes the calculation method a 
creditor must use to determine the consumer's repayment ability for a 
covered transaction. For example, the terms of the loan agreement may 
require that the consumer repay the loan in quarterly or bi-weekly 
scheduled payments, but for purposes of the repayment ability 
determination, the creditor must convert these scheduled payments to 
monthly payments in accordance with Sec. 1026.43(c)(5)(i)(B). 
Similarly, the loan agreement may not require the consumer to make fully 
amortizing payments, but for purposes of the repayment ability 
determination under Sec. 1026.43(c)(5)(i), the creditor must convert 
any non-amortizing payments to fully amortizing payments.
    4. Substantially equal. In determining whether monthly, fully 
amortizing payments are substantially equal, creditors should disregard 
minor variations due to payment-schedule irregularities and odd periods, 
such as a long or short first or last payment period. That is, monthly 
payments of principal and interest that repay the loan amount over the 
loan term need not be equal, but the monthly payments should be 
substantially the same without significant variation in the monthly 
combined payments of both principal and interest. For example, where no 
two monthly payments vary from each other by more than 1 percent 
(excluding odd periods, such as a long or short first or last payment 
period), such monthly payments would be considered substantially equal 
for purposes of this section. In general, creditors should determine 
whether the monthly, fully amortizing payments are substantially equal 
based on guidance provided in Sec. 1026.17(c)(3) (discussing minor 
variations), and Sec. 1026.17(c)(4)(i) through (iii) (discussing 
payment-schedule irregularities and measuring odd periods due to a long 
or short first period) and associated commentary.
    5. Examples. The following are examples of how to determine the 
consumer's repayment ability based on substantially equal, monthly, 
fully amortizing payments as required under Sec. 1026.43(c)(5)(i) (all 
amounts shown are rounded, and all amounts are calculated using non-
rounded values):
    i. Fixed-rate mortgage. A loan in an amount of $200,000 has a 30-
year loan term and a fixed interest rate of 7 percent. For purposes of 
Sec. 1026.43(c)(2)(iii), the creditor must determine the consumer's 
ability to repay the loan based on a payment of $1,331, which is the 
substantially equal, monthly, fully amortizing payment that will repay 
$200,000 over 30 years using the fixed interest rate of 7 percent.
    ii. Adjustable-rate mortgage with discount for five years. A loan in 
an amount of $200,000 has a 30-year loan term. The loan agreement 
provides for a discounted interest rate of 6 percent that is fixed for 
an initial period of five

[[Page 844]]

years, after which the interest rate will adjust annually based on a 
specified index plus a margin of 3 percent, subject to a 2 percent 
annual periodic interest rate adjustment cap. The index value in effect 
at consummation is 4.5 percent; the fully indexed rate is 7.5 percent 
(4.5 percent plus 3 percent). Even though the scheduled monthly payment 
required for the first five years is $1199, for purposes of Sec. 
1026.43(c)(2)(iii) the creditor must determine the consumer's ability to 
repay the loan based on a payment of $1,398, which is the substantially 
equal, monthly, fully amortizing payment that will repay $200,000 over 
30 years using the fully indexed rate of 7.5 percent.
    iii. Step-rate mortgage. A loan in an amount of $200,000 has a 30-
year loan term. The loan agreement provides that the interest rate will 
be 6.5 percent for the first two years of the loan, 7 percent for the 
next three years of the loan, and 7.5 percent thereafter. Accordingly, 
the scheduled payment amounts are $1,264 for the first two years, $1,328 
for the next three years, and $1,388 thereafter for the remainder of the 
term. For purposes of Sec. 1026.43(c)(2)(iii), the creditor must 
determine the consumer's ability to repay the loan based on a payment of 
$1,398, which is the substantially equal, monthly, fully amortizing 
payment that would repay $200,000 over 30 years using the fully indexed 
rate of 7.5 percent.
    43(c)(5)(ii) Special rules for loans with a balloon payment, 
interest-only loans, and negative amortization loans.
    Paragraph 43(c)(5)(ii)(A).
    1. General. For loans with a balloon payment, the rules differ 
depending on whether the loan is a higher-priced covered transaction, as 
defined under Sec. 1026.43(b)(4), or is not a higher-priced covered 
transaction because the annual percentage rate does not exceed the 
applicable threshold calculated using the applicable average prime offer 
rate (APOR) for a comparable transaction. ``Average prime offer rate'' 
is defined in Sec. 1026.35(a)(2); ``higher-priced covered transaction'' 
is defined in Sec. 1026.43(b)(4). For higher-priced covered 
transactions with a balloon payment, the creditor must consider the 
consumer's ability to repay the loan based on the payment schedule under 
the terms of the legal obligation, including any required balloon 
payment. For loans with a balloon payment that are not higher-priced 
covered transactions, the creditor should use the maximum payment 
scheduled during the first five years of the loan following the date on 
which the first regular periodic payment will be due. ``Balloon 
payment'' is defined in Sec. 1026.18(s)(5)(i).
    2. First five years after the date on which the first regular 
periodic payment will be due. Under Sec. 1026.43(c)(5)(ii)(A)(1), the 
creditor must determine a consumer's ability to repay a loan with a 
balloon payment that is not a higher-priced covered transaction using 
the maximum payment scheduled during the first five years (60 months) 
after the date on which the first regular periodic payment will be due. 
To illustrate:
    i. Assume a loan that provides for regular monthly payments and a 
balloon payment due at the end of a six-year loan term. The loan is 
consummated on August 15, 2014, and the first monthly payment is due on 
October 1, 2014. The first five years after the first monthly payment 
end on October 1, 2019. The balloon payment must be made on the due date 
of the 72nd monthly payment, which is September 1, 2020. For purposes of 
determining the consumer's ability to repay the loan under Sec. 
1026.43(c)(2)(iii), the creditor need not consider the balloon payment 
that is due on September 1, 2020.
    ii. Assume a loan that provides for regular monthly payments and a 
balloon payment due at the end of a five-year loan term. The loan is 
consummated on August 15, 2014, and the first monthly payment is due on 
October 1, 2014. The first five years after the first monthly payment 
end on October 1, 2019. The balloon payment must be made on the due date 
of the 60th monthly payment, which is September 1, 2019. For purposes of 
determining the consumer's ability to repay the loan under Sec. 
1026.43(c)(2)(iii), the creditor must consider the balloon payment that 
is due on September 1, 2019.
    3. Renewable balloon-payment mortgage; loan term. A balloon-payment 
mortgage that is not a higher-priced covered transaction could provide 
that a creditor is unconditionally obligated to renew a balloon-payment 
mortgage at the consumer's option (or is obligated to renew subject to 
conditions within the consumer's control). See comment 17(c)(1)-11 
discussing renewable balloon-payment mortgages. For purposes of this 
section, the loan term does not include any period of time that could 
result from a renewal provision. To illustrate, assume a three-year 
balloon-payment mortgage that is not a higher-priced covered transaction 
contains an unconditional obligation to renew for another three years at 
the consumer's option. In this example, the loan term for the balloon-
payment mortgage is three years, and not the potential six years that 
could result if the consumer chooses to renew the loan. Accordingly, the 
creditor must underwrite the loan using the maximum payment scheduled in 
the first five years after consummation, which includes the balloon 
payment due at the end of the three-year loan term. See comment 
43(c)(5)(ii)(A)-4.ii, which provides an example of how to determine the 
consumer's repayment ability for a three-year renewable balloon-payment 
mortgage that is not a higher-priced covered transaction.
    4. Examples of loans with a balloon payment that are not higher-
priced covered transactions.

[[Page 845]]

The following are examples of how to determine the maximum payment 
scheduled during the first five years after the date on which the first 
regular periodic payment will be due (all amounts shown are rounded, and 
all amounts are calculated using non-rounded values):
    i. Balloon-payment mortgage with a three-year loan term; fixed 
interest rate. A loan agreement provides for a fixed interest rate of 6 
percent, which is below the APOR-calculated threshold for a comparable 
transaction; thus the loan is not a higher-priced covered transaction. 
The loan amount is $200,000, and the loan has a three-year loan term but 
is amortized over 30 years. The monthly payment scheduled for the first 
three years following consummation is $1,199, with a balloon payment of 
$193,367 due at the end of the third year. For purposes of Sec. 
1026.43(c)(2)(iii), the creditor must determine the consumer's ability 
to repay the loan based on the balloon payment of $193,367.
    ii. Renewable balloon-payment mortgage with a three-year loan term. 
Assume the same facts above in comment 43(c)(5)(ii)(A)-4.i, except that 
the loan agreement also provides that the creditor is unconditionally 
obligated to renew the balloon-payment mortgage at the consumer's option 
at the end of the three-year term for another three years. In 
determining the maximum payment scheduled during the first five years 
after the date on which the first regular periodic payment will be due, 
the creditor must use a loan term of three years. Accordingly, for 
purposes of Sec. 1026.43(c)(2)(iii), the creditor must determine the 
consumer's ability to repay the loan based on the balloon payment of 
$193,367.
    iii. Balloon-payment mortgage with a six-year loan term; fixed 
interest rate. A loan provides for a fixed interest rate of 6 percent, 
which is below the APOR threshold for a comparable transaction, and 
thus, the loan is not a higher-priced covered transaction. The loan 
amount is $200,000, and the loan has a six-year loan term but is 
amortized over 30 years. The loan is consummated on March 15, 2014, and 
the monthly payment scheduled for the first six years following 
consummation is $1,199, with the first monthly payment due on May 1, 
2014. The first five years after the date on which the first regular 
periodic payment will be due end on May 1, 2019. The balloon payment of 
$183,995 is required on the due date of the 72nd monthly payment, which 
is April 1, 2020 (more than five years after the date on which the first 
regular periodic payment will be due). For purposes of Sec. 
1026.43(c)(2)(iii), the creditor may determine the consumer's ability to 
repay the loan based on the monthly payment of $1,199, and need not 
consider the balloon payment of $183,995 due on April 1, 2020.
    5. Higher-priced covered transaction with a balloon payment. Where a 
loan with a balloon payment is a higher-priced covered transaction, the 
creditor must determine the consumer's repayment ability based on the 
loan's payment schedule, including any balloon payment. For example (all 
amounts are rounded): Assume a higher-priced covered transaction with a 
fixed interest rate of 7 percent. The loan amount is $200,000 and the 
loan has a ten year loan term, but is amortized over 30 years. The 
monthly payment scheduled for the first ten years is $1,331, with a 
balloon payment of $172,955. For purposes of Sec. 1026.43(c)(2)(iii), 
the creditor must consider the consumer's ability to repay the loan 
based on the payment schedule that fully repays the loan amount, 
including the balloon payment of $172,955.
    Paragraph 43(c)(5)(ii)(B).
    1. General. For loans that permit interest-only payments, the 
creditor must use the fully indexed rate or introductory rate, whichever 
is greater, to calculate the substantially equal, monthly payment of 
principal and interest that will repay the loan amount over the term of 
the loan remaining as of the date the loan is recast. For discussion 
regarding the fully indexed rate, and the meaning of ``substantially 
equal,'' see comments 43(b)(3)-1 through -5 and 43(c)(5)(i)-4, 
respectively. Under Sec. 1026.43(c)(5)(ii)(B), the relevant term of the 
loan is the period of time that remains as of the date the loan is 
recast to require fully amortizing payments. For a loan on which only 
interest and no principal has been paid, the loan amount will be the 
outstanding principal balance at the time of the recast. ``Loan amount'' 
and ``recast'' are defined in Sec. 1026.43(b)(5) and (b)(11), 
respectively. ``Interest-only'' and ``Interest-only loan'' are defined 
in Sec. 1026.18(s)(7)(iv).
    2. Examples. The following are examples of how to determine the 
consumer's repayment ability based on substantially equal, monthly 
payments of principal and interest under Sec. 1026.43(c)(5)(ii)(B) (all 
amounts shown are rounded, and all amounts are calculated using non-
rounded values):
    i. Fixed-rate mortgage with interest-only payments for five years. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a fixed interest rate of 7 percent, and permits 
interest-only payments for the first five years. The monthly payment of 
$1,167 scheduled for the first five years would cover only the interest 
due. The loan is recast on the due date of the 60th monthly payment, 
after which the scheduled monthly payments increase to $1,414, a monthly 
payment that repays the loan amount of $200,000 over the 25 years 
remaining as of the date the loan is recast (300 months). For purposes 
of Sec. 1026.43(c)(2)(iii), the creditor must determine the consumer's 
ability to repay the loan based on a payment of $1,414, which is the 
substantially equal,

[[Page 846]]

monthly, fully amortizing payment that would repay $200,000 over the 25 
years remaining as of the date the loan is recast using the fixed 
interest rate of 7 percent.
    ii. Adjustable-rate mortgage with discount for three years and 
interest-only payments for five years. A loan in an amount of $200,000 
has a 30-year loan term, but provides for interest-only payments for the 
first five years. The loan agreement provides for a discounted interest 
rate of 5 percent that is fixed for an initial period of three years, 
after which the interest rate will adjust each year based on a specified 
index plus a margin of 3 percent, subject to an annual interest rate 
adjustment cap of 2 percent. The index value in effect at consummation 
is 4.5 percent; the fully indexed rate is 7.5 percent (4.5 percent plus 
3 percent). The monthly payments for the first three years are $833. For 
the fourth year, the payments are $1,167, based on an interest rate of 7 
percent, calculated by adding the 2 percent annual adjustment cap to the 
initial rate of 5 percent. For the fifth year, the payments are $1,250, 
applying the fully indexed rate of 7.5 percent. These first five years 
of payments will cover only the interest due. The loan is recast on the 
due date of the 60th monthly payment, after which the scheduled monthly 
payments increase to $1,478, a monthly payment that will repay the loan 
amount of $200,000 over the remaining 25 years of the loan (300 months). 
For purposes of Sec. 1026.43(c)(2)(iii), the creditor must determine 
the consumer's ability to repay the loan based on a monthly payment of 
$1,478, which is the substantially equal, monthly payment of principal 
and interest that would repay $200,000 over the 25 years remaining as of 
the date the loan is recast using the fully indexed rate of 7.5 percent.
    Paragraph 43(c)(5)(ii)(C).
    1. General. For purposes of determining the consumer's ability to 
repay a negative amortization loan, the creditor must use substantially 
equal, monthly payments of principal and interest based on the fully 
indexed rate or the introductory rate, whichever is greater, that will 
repay the maximum loan amount over the term of the loan that remains as 
of the date the loan is recast. Accordingly, before determining the 
substantially equal, monthly payments the creditor must first determine 
the maximum loan amount and the period of time that remains in the loan 
term after the loan is recast. ``Recast'' is defined in Sec. 
1026.43(b)(11). Second, the creditor must use the fully indexed rate or 
introductory rate, whichever is greater, to calculate the substantially 
equal, monthly payment amount that will repay the maximum loan amount 
over the term of the loan remaining as of the date the loan is recast. 
For discussion regarding the fully indexed rate and the meaning of 
``substantially equal,'' see comments 43(b)(3)-1 through -5 and 
43(c)(5)(i)-4, respectively. For the meaning of the term ``maximum loan 
amount'' and a discussion of how to determine the maximum loan amount 
for purposes of Sec. 1026.43(c)(5)(ii)(C), see Sec. 1026.43(b)(7) and 
associated commentary. ``Negative amortization loan'' is defined in 
Sec. 1026.18(s)(7)(v).
    2. Term of loan. Under Sec. 1026.43(c)(5)(ii)(C), the relevant term 
of the loan is the period of time that remains as of the date the terms 
of the legal obligation recast. That is, the creditor must determine 
substantially equal, monthly payments of principal and interest that 
will repay the maximum loan amount based on the period of time that 
remains after any negative amortization cap is triggered or any period 
permitting minimum periodic payments expires, whichever occurs first.
    3. Examples. The following are examples of how to determine the 
consumer's repayment ability based on substantially equal, monthly 
payments of principal and interest as required under Sec. 
1026.43(c)(5)(ii)(C) (all amounts shown are rounded, and all amounts are 
calculated using non-rounded values):
    i. Adjustable-rate mortgage with negative amortization. A. Assume an 
adjustable-rate mortgage in the amount of $200,000 with a 30-year loan 
term. The loan agreement provides that the consumer can make minimum 
monthly payments that cover only part of the interest accrued each month 
until the date on which the principal balance reaches 115 percent of its 
original balance (i.e., a negative amortization cap of 115 percent) or 
for the first five years of the loan (60 monthly payments), whichever 
occurs first. The introductory interest rate at consummation is 1.5 
percent. One month after consummation, the interest rate adjusts and 
will adjust monthly thereafter based on the specified index plus a 
margin of 3.5 percent. The index value in effect at consummation is 4.5 
percent; the fully indexed rate is 8 percent (4.5 percent plus 3.5 
percent). The maximum lifetime interest rate is 10.5 percent; there are 
no other periodic interest rate adjustment caps that limit how quickly 
the maximum lifetime rate may be reached. The minimum monthly payment 
for the first year is based on the initial interest rate of 1.5 percent. 
After that, the minimum monthly payment adjusts annually, but may 
increase by no more than 7.5 percent over the previous year's payment. 
The minimum monthly payment is $690 in the first year, $742 in the 
second year, and $797 in the first part of the third year.
    B. To determine the maximum loan amount, assume that the interest 
rate increases to the maximum lifetime interest rate of 10.5 percent at 
the first adjustment (i.e., the due date of the first periodic monthly 
payment), and interest accrues at that rate until the loan is recast. 
Assume that the consumer makes the minimum monthly payments scheduled, 
which are capped at 7.5 percent from year-to-year, for the maximum

[[Page 847]]

possible time. Because the consumer's minimum monthly payments are less 
than the interest accrued each month, negative amortization occurs 
(i.e., the accrued but unpaid interest is added to the principal 
balance). Thus, assuming that the consumer makes the minimum monthly 
payments for as long as possible and that the maximum interest rate of 
10.5 percent is reached at the first rate adjustment (i.e., the due date 
of the first periodic monthly payment), the negative amortization cap of 
115 percent is reached on the due date of the 27th monthly payment and 
the loan is recast as of that date. The maximum loan amount as of the 
due date of the 27th monthly payment is $229,251, and the remaining term 
of the loan is 27 years and nine months (333 months).
    C. For purposes of Sec. 1026.43(c)(2)(iii), the creditor must 
determine the consumer's ability to repay the loan based on a monthly 
payment of $1,716, which is the substantially equal, monthly payment of 
principal and interest that will repay the maximum loan amount of 
$229,251 over the remaining loan term of 333 months using the fully 
indexed rate of 8 percent. See comments 43(b)(7)-1 and -2 discussing the 
calculation of the maximum loan amount, and Sec. 1026.43(b)(11) for the 
meaning of the term ``recast.''
    ii. Fixed-rate, graduated payment mortgage. A loan in the amount of 
$200,000 has a 30-year loan term. The loan agreement provides for a 
fixed interest rate of 7.5 percent, and requires the consumer to make 
minimum monthly payments during the first year, with payments increasing 
12.5 percent over the previous year every year for four years (the 
annual payment cap). The payment schedule provides for payments of $943 
in the first year, $1,061 in the second year, $1,193 in the third year, 
$1,343 in the fourth year, and then requires $1,511 for the remaining 
term of the loan. During the first three years of the loan, the payments 
are less than the interest accrued each month, resulting in negative 
amortization. Assuming the minimum payments increase year-to-year up to 
the 12.5 percent payment cap, the consumer will begin making payments 
that cover at least all of the interest accrued at the end of the third 
year. Thus, the loan is recast on the due date of the 36th monthly 
payment. The maximum loan amount on that date is $207,662, and the 
remaining loan term is 27 years (324 months). For purposes of Sec. 
1026.43(c)(2)(iii), the creditor must determine the consumer's ability 
to repay the loan based on a monthly payment of $1,497, which is the 
substantially equal, monthly payment of principal and interest that will 
repay the maximum loan amount of $207,662 over the remaining loan term 
of 27 years using the fixed interest rate of 7.5 percent.
    43(c)(6) Payment calculation for simultaneous loans.
    1. Scope. In determining the consumer's repayment ability for a 
covered transaction under Sec. 1026.43(c)(2)(iii), a creditor must 
include consideration of any simultaneous loan which it knows, or has 
reason to know, will be made at or before consummation of the covered 
transaction. For a discussion of the standard ``knows or has reason to 
know,'' see comment 43(c)(2)(iv)-2. For the meaning of the term 
``simultaneous loan,'' see Sec. 1026.43(b)(12).
    2. Payment calculation--covered transaction. For a simultaneous loan 
that is a covered transaction, as that term is defined under Sec. 
1026.43(b)(1), a creditor must determine a consumer's ability to repay 
the monthly payment obligation for a simultaneous loan as set forth in 
Sec. 1026.43(c)(5), taking into account any mortgage-related 
obligations required to be considered under Sec. 1026.43(c)(2)(v). For 
the meaning of the term ``mortgage-related obligations,'' see Sec. 
1026.43(b)(8).
    3. Payment calculation--home equity line of credit. For a 
simultaneous loan that is a home equity line of credit subject to Sec. 
1026.40, the creditor must consider the periodic payment required under 
the terms of the plan when assessing the consumer's ability to repay the 
covered transaction secured by the same dwelling as the simultaneous 
loan. Under Sec. 1026.43(c)(6)(ii), a creditor must determine the 
periodic payment required under the terms of the plan by considering the 
actual amount of credit to be drawn by the consumer at consummation of 
the covered transaction. The amount to be drawn is the amount requested 
by the consumer; when the amount requested will be disbursed, or actual 
receipt of funds, is not determinative. Any additional draw against the 
line of credit that the creditor of the covered transaction does not 
know or have reason to know about before or during underwriting need not 
be considered in relation to ability to repay. For example, where the 
creditor's policies and procedures require the source of down payment to 
be verified, and the creditor verifies that a simultaneous loan that is 
a HELOC will provide the source of down payment for the first-lien 
covered transaction, the creditor must consider the periodic payment on 
the HELOC by assuming the amount drawn is at least the down payment 
amount. In general, a creditor should determine the periodic payment 
based on guidance in the commentary to Sec. 1026.40(d)(5) (discussing 
payment terms).
    43(c)(7) Monthly debt-to-income ratio or residual income.
    1. Monthly debt-to-income ratio or monthly residual income. Under 
Sec. 1026.43(c)(2)(vii), the creditor must consider the consumer's 
monthly debt-to-income ratio, or the consumer's monthly residual income, 
in accordance with the requirements in Sec. 1026.43(c)(7).

[[Page 848]]

In contrast to the qualified mortgage provisions in Sec. 1026.43(e), 
Sec. 1026.43(c) does not prescribe a specific monthly debt-to-income 
ratio with which creditors must comply. Instead, an appropriate 
threshold for a consumer's monthly debt-to-income ratio or monthly 
residual income is for the creditor to determine in making a reasonable 
and good faith determination of a consumer's ability to repay.
    2. Use of both monthly debt-to-income ratio and monthly residual 
income. If a creditor considers the consumer's monthly debt-to-income 
ratio, the creditor may also consider the consumer's residual income as 
further validation of the assessment made using the consumer's monthly 
debt-to-income ratio.
    3. Compensating factors. The creditor may consider factors in 
addition to the monthly debt-to-income ratio or residual income in 
assessing a consumer's repayment ability. For example, the creditor may 
reasonably and in good faith determine that a consumer has the ability 
to repay despite a higher debt-to-income ratio or lower residual income 
in light of the consumer's assets other than the dwelling, including any 
real property attached to the dwelling, securing the covered 
transaction, such as a savings account. The creditor may also reasonably 
and in good faith determine that a consumer has the ability to repay 
despite a higher debt-to-income ratio in light of the consumer's 
residual income.
    43(d) Refinancing of non-standard mortgages.
    43(d)(1) Definitions.
    43(d)(1)(i) Non-standard mortgage.
    Paragraph 43(d)(1)(i)(A).
    1. Adjustable-rate mortgage with an introductory fixed rate. Under 
Sec. 1026.43(d)(1)(i)(A), an adjustable-rate mortgage with an 
introductory fixed interest rate for one year or longer is considered a 
``non-standard mortgage.'' For example, a covered transaction that has a 
fixed introductory rate for the first two, three, or five years and then 
converts to a variable rate for the remaining 28, 27, or 25 years, 
respectively, is a ``non-standard mortgage.'' A covered transaction with 
an introductory rate for six months that then converts to a variable 
rate for the remaining 29 and one-half years is not a ``non-standard 
mortgage.''
    43(d)(1)(ii) Standard mortgage.
    Paragraph 43(d)(1)(ii)(A).
    1. Regular periodic payments. Under Sec. 1026.43(d)(1)(ii)(A), a 
``standard mortgage'' must provide for regular periodic payments that do 
not result in an increase of the principal balance (negative 
amortization), allow the consumer to defer repayment of principal (see 
comment 43(e)(2)(i)-2), or result in a balloon payment. Thus, the terms 
of the legal obligation must require the consumer to make payments of 
principal and interest on a monthly or other periodic basis that will 
repay the loan amount over the loan term. Except for payments resulting 
from any interest rate changes after consummation in an adjustable-rate 
or step-rate mortgage, the periodic payments must be substantially 
equal. For an explanation of the term ``substantially equal,'' see 
comment 43(c)(5)(i)-4. In addition, a single-payment transaction is not 
a ``standard mortgage'' because it does not require ``regular periodic 
payments.'' See also comment 43(e)(2)(i)-1.
    Paragraph 43(d)(1)(ii)(D).
    1. First five years after consummation. A ``standard mortgage'' must 
have an interest rate that is fixed for at least the first five years 
(60 months) after consummation. For example, assume an adjustable-rate 
mortgage that applies the same fixed interest rate to determine the 
first 60 payments of principal and interest due. The loan is consummated 
on August 15, 2013, and the first monthly payment is due on October 1, 
2013. The date that is five years after consummation is August 15, 2018. 
The first interest rate adjustment occurs on September 1, 2018. This 
loan meets the criterion for a ``standard mortgage'' under Sec. 
1026.43(d)(1)(ii)(D) because the interest rate is fixed until September 
1, 2018, which is more than five years after consummation. For guidance 
regarding step-rate mortgages, see comment 43(e)(2)(iv)-3.iii.
    Paragraph 43(d)(1)(ii)(E).
    1. Permissible use of proceeds. To qualify as a ``standard 
mortgage,'' the loan's proceeds may be used for only two purposes: 
paying off the non-standard mortgage and paying for closing costs, 
including paying escrow amounts required at or before closing. If the 
proceeds of a covered transaction are used for other purposes, such as 
to pay off other liens or to provide additional cash to the consumer for 
discretionary spending, the transaction does not meet the definition of 
a ``standard mortgage.''
    43(d)(2) Scope.
    1. Written application. For an explanation of the requirements for a 
``written application'' in Sec. 1026.43(d)(2)(iii), (d)(2)(iv), and 
(d)(2)(v), see comment 19(a)(1)(i)-3.
    Paragraph 43(d)(2)(ii).
    1. Materially lower. The exemptions afforded under Sec. 
1026.43(d)(3) apply to a refinancing only if the monthly payment for the 
new loan is ``materially lower'' than the monthly payment for an 
existing non-standard mortgage. The payments to be compared must be 
calculated based on the requirements under Sec. 1026.43(d)(5). Whether 
the new loan payment is ``materially lower'' than the non-standard 
mortgage payment depends on the facts and circumstances. In all cases, a 
payment reduction of 10 percent or more meets the ``materially lower'' 
standard.
    Paragraph 43(d)(2)(iv).
    1. Late payment--12 months prior to application. Under Sec. 
1026.43(d)(2)(iv), the exemptions

[[Page 849]]

in Sec. 1026.43(d)(3) apply to a covered transaction only if, during 
the 12 months immediately preceding the creditor's receipt of the 
consumer's written application for a refinancing, the consumer has made 
no more than one payment on the non-standard mortgage more than 30 days 
late. (For an explanation of ``written application,'' see comment 
43(d)(2)-1.) For example, assume a consumer applies for a refinancing on 
May 1, 2014. Assume also that the consumer made a non-standard mortgage 
payment on August 15, 2013, that was 45 days late. The consumer made no 
other late payments on the non-standard mortgage between May 1, 2013, 
and May 1, 2014. In this example, the requirement under Sec. 
1026.43(d)(2)(iv) is met because the consumer made only one payment that 
was over 30 days late within the 12 months prior to applying for the 
refinancing (i.e., eight and one-half months prior to application).
    2. Payment due date. Whether a payment is more than 30 days late is 
measured in relation to the contractual due date not accounting for any 
grace period. For example, if the contractual due date for a non-
standard mortgage payment is the first day of every month, but no late 
fee will be charged as long as the payment is received by the 16th of 
the month, the payment due date for purposes of Sec. 1026.43(d)(2)(iv) 
and (v) is the first day of the month, not the 16th day of the month. 
Thus, a payment due under the contract on October 1st that is paid on 
November 1st is made more than 30 days after the payment due date.
    Paragraph 43(d)(2)(v).
    1. Late payment--six months prior to application. Under Sec. 
1026.43(d)(2)(v), the exemptions in Sec. 1026.43(d)(3) apply to a 
covered transaction only if, during the six months immediately preceding 
the creditor's receipt of the consumer's written application for a 
refinancing, the consumer has made no payments on the non-standard 
mortgage more than 30 days late. (For an explanation of ``written 
application'' and how to determine the payment due date, see comments 
43(d)(2)-1 and 43(d)(2)(iv)-2.) For example, assume a consumer with a 
non-standard mortgage applies for a refinancing on May 1, 2014. If the 
consumer made a payment on March 15, 2014, that was 45 days late, the 
requirement under Sec. 1026.43(d)(2)(v) is not met because the consumer 
made a payment more than 30 days late one and one-half months prior to 
application. If the number of months between consummation of the non-
standard mortgage and the consumer's application for the standard 
mortgage is six or fewer, the consumer may not have made any payment 
more than 30 days late on the non-standard mortgage.
    Paragraph 43(d)(2)(vi).
    1. Non-standard mortgage loan made in accordance with ability-to-
repay or qualified mortgage requirements. For non-standard mortgages 
that are consummated on or after January 10, 2014, Sec. 
1026.43(d)(2)(vi) provides that the refinancing provisions set forth in 
Sec. 1026.43(d) apply only if the non-standard mortgage was made in 
accordance with the requirements of Sec. 1026.43(c) or (e), as 
applicable. For example, if a creditor originated a non-standard 
mortgage on or after January 10, 2014 that did not comply with the 
requirements of Sec. 1026.43(c) and was not a qualified mortgage 
pursuant to Sec. 1026.43(e), Sec. 1026.43(d) would not apply to the 
refinancing of the non-standard mortgage loan into a standard mortgage 
loan. However, Sec. 1026.43(d) applies to the refinancing of a non-
standard mortgage loan into a standard mortgage loan, regardless of 
whether the non-standard mortgage loan was made in compliance with Sec. 
1026.43(c) or (e), if the non-standard mortgage loan was consummated 
prior to January 10, 2014.
    43(d)(3) Exemption from repayment ability requirements.
    1. Two-part determination. To qualify for the exemptions in Sec. 
1026.43(d)(3), a creditor must have considered, first, whether the 
consumer is likely to default on the existing mortgage once that loan is 
recast and, second, whether the new mortgage likely would prevent the 
consumer's default.
    43(d)(4) Offer of rate discounts and other favorable terms.
    1. Documented underwriting practices. In connection with a 
refinancing made pursuant to Sec. 1026.43(d), Sec. 1026.43(d)(4) 
requires a creditor offering a consumer rate discounts and terms that 
are the same as, or better than, the rate discounts and terms offered to 
new consumers to make such an offer consistent with the creditor's 
documented underwriting practices. Section 1026.43(d)(4) does not 
require a creditor making a refinancing pursuant to Sec. 1026.43(d) to 
comply with the underwriting requirements of Sec. 1026.43(c). Rather, 
Sec. 1026.43(d)(4) requires creditors providing such discounts to do so 
consistent with documented policies related to loan pricing, loan term 
qualifications, or other similar underwriting practices. For example, 
assume that a creditor is providing a consumer with a refinancing made 
pursuant to Sec. 1026.43(d) and that this creditor has a documented 
practice of offering rate discounts to consumers with credit scores 
above a certain threshold. Assume further that the consumer receiving 
the refinancing has a credit score below this threshold, and therefore 
would not normally qualify for the rate discount available to consumers 
with high credit scores. This creditor complies with Sec. 1026.43(d)(4) 
by offering the consumer the discounted rate in connection with the 
refinancing made pursuant to Sec. 1026.43(d), even if the consumer 
would not normally qualify for that discounted rate, provided that the 
offer of the discounted rate is not prohibited by applicable State or 
Federal law. However,

[[Page 850]]

Sec. 1026.43(d)(4) does not require a creditor to offer a consumer such 
a discounted rate.
    43(d)(5) Payment calculations.
    43(d)(5)(i) Non-Standard mortgage.
    1. Payment calculation for a non-standard mortgage. In determining 
whether the monthly periodic payment for a standard mortgage is 
materially lower than the monthly periodic payment for the non-standard 
mortgage under Sec. 1026.43(d)(2)(ii), the creditor must consider the 
monthly payment for the non-standard mortgage that will result after the 
loan is ``recast,'' assuming substantially equal payments of principal 
and interest that amortize the remaining loan amount over the remaining 
term as of the date the mortgage is recast. For guidance regarding the 
meaning of ``substantially equal,'' see comment 43(c)(5)(i)-4. For the 
meaning of ``recast,'' see Sec. 1026.43(b)(11) and associated 
commentary.
    2. Fully indexed rate. The term ``fully indexed rate'' in Sec. 
1026.43(d)(5)(i)(A) for calculating the payment for a non-standard 
mortgage is generally defined in Sec. 1026.43(b)(3) and associated 
commentary. Under Sec. 1026.43(b)(3) the fully indexed rate is 
calculated at the time of consummation. For purposes of Sec. 
1026.43(d)(5)(i), however, the fully indexed rate is calculated within a 
reasonable period of time before or after the date the creditor receives 
the consumer's written application for the standard mortgage. Thirty 
days is generally considered ``a reasonable period of time.''
    3. Written application. For an explanation of the requirements for a 
``written application'' in Sec. 1026.43(d)(5)(i), see comment 
19(a)(1)(i)-3.
    4. Payment calculation for an adjustable-rate mortgage with an 
introductory fixed rate. Under Sec. 1026.43(d)(5)(i), the monthly 
periodic payment for an adjustable-rate mortgage with an introductory 
fixed interest rate for a period of one or more years must be calculated 
based on several assumptions.
    i. First, the payment must be based on the outstanding principal 
balance as of the date on which the mortgage is recast, assuming all 
scheduled payments have been made up to that date and the last payment 
due under those terms is made and credited on that date. For example, 
assume an adjustable-rate mortgage with a 30-year loan term. The loan 
agreement provides that the payments for the first 24 months are based 
on a fixed rate, after which the interest rate will adjust annually 
based on a specified index and margin. The loan is recast on the due 
date of the 24th payment. If the 24th payment is due on September 1, 
2014, the creditor must calculate the outstanding principal balance as 
of September 1, 2014, assuming that all 24 payments under the fixed rate 
terms have been made and credited timely.
    ii. Second, the payment calculation must be based on substantially 
equal monthly payments of principal and interest that will fully repay 
the outstanding principal balance over the term of the loan remaining as 
of the date the loan is recast. Thus, in the example above, the creditor 
must assume a loan term of 28 years (336 monthly payments).
    iii. Third, the payment must be based on the fully indexed rate, as 
described in Sec. 1026.43(d)(5)(i)(A).
    5. Example of payment calculation for an adjustable-rate mortgage 
with an introductory fixed rate. The following example illustrates the 
rule described in comment 43(d)(5)(i)-4:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted introductory interest rate of 5 
percent that is fixed for an initial period of two years, after which 
the interest rate will adjust annually based on a specified index plus a 
margin of 3 percentage points.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. The loan is 
recast on the due date of the 24th monthly payment, which is March 1, 
2016.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing after the consumer has made 12 monthly on-
time payments. On this date, the index value is 4.5 percent.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The outstanding principal balance as of March 1, 2016, assuming 
all scheduled payments have been made up to March 1, 2016, and the last 
payment due under the fixed rate terms is made and credited on March 1, 
2016. In this example, the outstanding principal balance is $193,948.
    B. The fully indexed rate of 7.5 percent, which is the index value 
of 4.5 percent as of March 15, 2015 (the date on which the application 
for a refinancing is received) plus the margin of 3 percent.
    C. The remaining loan term as of March 1, 2016, the date of the 
recast, which is 28 years (336 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,383. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the outstanding principal balance at the fully indexed rate 
over the remaining term.
    6. Payment calculation for an interest-only loan. Under Sec. 
1026.43(d)(5)(i), the monthly periodic payment for an interest-only loan 
must be calculated based on several assumptions:
    i. First, the payment must be based on the outstanding principal 
balance as of the date

[[Page 851]]

of the recast, assuming all scheduled payments are made under the terms 
of the legal obligation in effect before the mortgage is recast. For a 
loan on which only interest and no principal has been paid, the 
outstanding principal balance at the time of recast will be the loan 
amount, as defined in Sec. 1026.43(b)(5), assuming all scheduled 
payments are made under the terms of the legal obligation in effect 
before the mortgage is recast. For example, assume that a mortgage has a 
30-year loan term, and provides that the first 24 months of payments are 
interest-only. If the 24th payment is due on September 1, 2015, the 
creditor must calculate the outstanding principal balance as of 
September 1, 2015, assuming that all 24 payments under the interest-only 
payment terms have been made and credited timely and that no payments of 
principal have been made.
    ii. Second, the payment calculation must be based on substantially 
equal monthly payments of principal and interest that will fully repay 
the loan amount over the term of the loan remaining as of the date the 
loan is recast. Thus, in the example above, the creditor must assume a 
loan term of 28 years (336 monthly payments).
    iii. Third, the payment must be based on the fully indexed rate, as 
described in Sec. 1026.43(d)(5)(i)(A).
    7. Example of payment calculation for an interest-only loan. The 
following example illustrates the rule described in comment 43(d)(5)(i)-
6:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a fixed interest rate of 7 percent, and permits 
interest-only payments for the first two years (the first 24 payments), 
after which time amortizing payments of principal and interest are 
required.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. The loan is 
recast on the due date of the 24th monthly payment, which is March 1, 
2016.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing, after the consumer has made 12 monthly 
on-time payments. The consumer has made no additional payments of 
principal.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The loan amount, which is the outstanding principal balance as of 
March 1, 2016, assuming all scheduled interest-only payments have been 
made and credited up to that date. In this example, the loan amount is 
$200,000.
    B. An interest rate of 7 percent, which is the interest rate in 
effect at the time of consummation of this fixed-rate non-standard 
mortgage.
    C. The remaining loan term as of March 1, 2016, the date of the 
recast, which is 28 years (336 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,359. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the loan amount at the fully indexed rate over the remaining 
term.
    8. Payment calculation for a negative amortization loan. Under Sec. 
1026.43(d)(5)(i), the monthly periodic payment for a negative 
amortization loan must be calculated based on several assumptions:
    i. First, the calculation must be based on the maximum loan amount, 
determined after adjusting for the outstanding principal balance. If the 
consumer makes only the minimum periodic payments for the maximum 
possible time, until the consumer must begin making fully amortizing 
payments, the outstanding principal balance will be the maximum loan 
amount, as defined in Sec. 1026.43(b)(7). In this event, the creditor 
complies with Sec. 1026.43(d)(5)(i)(C)(3) by relying on the examples of 
how to calculate the maximum loan amount, see comment 43(b)(7)-3. If the 
consumer makes payments above the minimum periodic payments for the 
maximum possible time, the creditor must calculate the maximum loan 
amount based on the outstanding principal balance. In this event, the 
creditor complies with Sec. 1026.43(d)(5)(i)(C)(3) by relying on the 
examples of how to calculate the maximum loan amount in comment 
43(d)(5)(i)-10.
    ii. Second, the calculation must be based on substantially equal 
monthly payments of principal and interest that will fully repay the 
maximum loan amount over the term of the loan remaining as of the date 
the loan is recast. For example, if the loan term is 30 years and the 
loan is recast on the due date of the 60th monthly payment, the creditor 
must assume a remaining loan term of 25 years (300 monthly payments).
    iii. Third, the payment must be based on the fully indexed rate as 
of the date of the written application for the standard mortgage.
    9. Example of payment calculation for a negative amortization loan 
if only minimum payments made. The following example illustrates the 
rule described in comment 43(d)(5)(i)-8:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides that the consumer can make minimum monthly payments 
that cover only part of the interest accrued each month until the date 
on which the principal balance increases to the negative amortization 
cap of 115 percent of the loan amount, or for the

[[Page 852]]

first five years of monthly payments (60 payments), whichever occurs 
first. The loan is an adjustable-rate mortgage that adjusts monthly 
according to a specified index plus a margin of 3.5 percent.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. Assume that the 
consumer has made only the minimum periodic payments. Assume further 
that, based on the calculation of the maximum loan amount required under 
Sec. 1026.43(b)(7) and associated commentary, the negative amortization 
cap of 115 percent would be reached on June 1, 2016, the due date of the 
27th monthly payment.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing, after the consumer has made 12 monthly 
on-time payments. On this date, the index value is 4.5 percent.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The maximum loan amount of $229,251 as of June 1, 2016;
    B. The fully indexed rate of 8 percent, which is the index value of 
4.5 percent as of March 15, 2015 (the date on which the creditor 
receives the application for a refinancing) plus the margin of 3.5 
percent; and
    C. The remaining loan term as of June 1, 2016, the date of the 
recast, which is 27 years and nine months (333 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,716. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the maximum loan amount at the fully indexed rate over the 
remaining term.
    10. Example of payment calculation for a negative amortization loan 
if payments above minimum amount made. The following example illustrates 
the rule described in comment 43(d)(5)(i)-8:
    i. A loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides that the consumer can make minimum monthly payments 
that cover only part of the interest accrued each month until the date 
on which the principal balance increases to the negative amortization 
cap of 115 percent of the loan amount, or for the first five years of 
monthly payments (60 payments), whichever occurs first. The loan is an 
adjustable-rate mortgage that adjusts monthly according to a specified 
index plus a margin of 3.5 percent. The introductory interest rate at 
consummation is 1.5 percent. One month after consummation, the interest 
rate adjusts and will adjust monthly thereafter based on the specified 
index plus a margin of 3.5 percent. The maximum lifetime interest rate 
is 10.5 percent; there are no other periodic interest rate adjustment 
caps that limit how quickly the maximum lifetime rate may be reached. 
The minimum monthly payment for the first year is based on the initial 
interest rate of 1.5 percent. After that, the minimum monthly payment 
adjusts annually, but may increase by no more than 7.5 percent over the 
previous year's payment. The minimum monthly payment is $690 in the 
first year, $742 in the second year, $798 in the third year, $857 in the 
fourth year, and $922 in the fifth year.
    ii. The non-standard mortgage is consummated on February 15, 2014, 
and the first monthly payment is due on April 1, 2014. Assume that the 
consumer has made more than the minimum periodic payments, and that 
after the consumer's 12th monthly on-time payment the outstanding 
principal balance is $195,000. Based on the calculation of the maximum 
loan amount after adjusting for this outstanding principal balance, the 
negative amortization cap of 115 percent would be reached on March 1, 
2019, the due date of the 60th monthly payment.
    iii. On March 15, 2015, the creditor receives the consumer's written 
application for a refinancing, after the consumer has made 12 monthly 
on-time payments. On this date, the index value is 4.5 percent.
    iv. To calculate the non-standard mortgage payment that must be 
compared to the standard mortgage payment under Sec. 1026.43(d)(2)(ii), 
the creditor must use:
    A. The maximum loan amount of $229,219 as of March 1, 2019.
    B. The fully indexed rate of 8 percent, which is the index value of 
4.5 percent as of March 15, 2015 (the date on which the creditor 
receives the application for a refinancing) plus the margin of 3.5 
percent.
    C. The remaining loan term as of March 1, 2019, the date of the 
recast, which is exactly 25 years (300 monthly payments).
    v. Based on these assumptions, the monthly payment for the non-
standard mortgage for purposes of determining whether the standard 
mortgage monthly payment is lower than the non-standard mortgage monthly 
payment (see Sec. 1026.43(d)(2)(ii)) is $1,769. This is the 
substantially equal, monthly payment of principal and interest required 
to repay the maximum loan amount at the fully indexed rate over the 
remaining term.
    43(d)(5)(ii) Standard mortgage.
    1. Payment calculation for a standard mortgage. In determining 
whether the monthly periodic payment for a standard mortgage is 
materially lower than the monthly periodic payment for a non-standard 
mortgage, the creditor must consider the monthly payment for the 
standard mortgage that will result in

[[Page 853]]

substantially equal, monthly, fully amortizing payments (as defined in 
Sec. 1026.43(b)(2)) using the rate as of consummation. For guidance 
regarding the meaning of ``substantially equal'' see comment 
43(c)(5)(i)-4. For a mortgage with a single, fixed rate for the first 
five years after consummation, the maximum rate that will apply during 
the first five years after consummation will be the rate at 
consummation. For a step-rate mortgage, however, the rate that must be 
used is the highest rate that will apply during the first five years 
after consummation. For example, if the rate for the first two years 
after the date on which the first regular periodic payment will be due 
is 4 percent, the rate for the following two years is 5 percent, and the 
rate for the next two years is 6 percent, the rate that must be used is 
6 percent.
    2. Example of payment calculation for a standard mortgage. The 
following example illustrates the rule described in comment 
43(d)(5)(ii)-1: A loan in an amount of $200,000 has a 30-year loan term. 
The loan agreement provides for an interest rate of 6 percent that is 
fixed for an initial period of five years, after which time the interest 
rate will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap. The 
creditor must determine whether the standard mortgage monthly payment is 
materially lower than the non-standard mortgage monthly payment (see 
Sec. 1026.43(d)(2)(ii)) based on a standard mortgage payment of $1,199. 
This is the substantially equal, monthly payment of principal and 
interest required to repay $200,000 over 30 years at an interest rate of 
6 percent.
    43(e) Qualified mortgages.
    43(e)(1) Safe harbor and presumption of compliance.
    1. General. Section 1026.43(c) requires a creditor to make a 
reasonable and good faith determination at or before consummation that a 
consumer will be able to repay a covered transaction. Section 
1026.43(e)(1)(i) and (ii) provide a safe harbor and presumption of 
compliance, respectively, with the repayment ability requirements of 
Sec. 1026.43(c) for creditors and assignees of covered transactions 
that satisfy the requirements of a qualified mortgage under Sec. 
1026.43(e)(2), (e)(4), or (f). See Sec. 1026.43(e)(1)(i) and (ii) and 
associated commentary.
    43(e)(1)(i) Safe harbor for transactions that are not higher-priced 
covered transactions.
    1. Safe harbor. To qualify for the safe harbor in Sec. 
1026.43(e)(1)(i), a covered transaction must meet the requirements of a 
qualified mortgage under Sec. 1026.43(e)(2), (e)(4), or (f) and must 
not be a higher-priced covered transaction, as defined in Sec. 
1026.43(b)(4). For guidance on determining whether a loan is a higher-
priced covered transaction, see comment 43(b)(4)-1.
    43(e)(1)(ii) Presumption of compliance for higher-priced covered 
transactions.
    1. General. Under Sec. 1026.43(e)(1)(ii), a creditor or assignee of 
a qualified mortgage under Sec. 1026.43(e)(2), (e)(4), or (f) that is a 
higher-priced covered transaction is presumed to comply with the 
repayment ability requirements of Sec. 1026.43(c). To rebut the 
presumption, it must be proven that, despite meeting the standards for a 
qualified mortgage (including either the debt-to-income standard in 
Sec. 1026.43(e)(2)(vi) or the standards of one of the entities 
specified in Sec. 1026.43(e)(4)(ii)), the creditor did not have a 
reasonable and good faith belief in the consumer's repayment ability. 
Specifically, it must be proven that, at the time of consummation, based 
on the information available to the creditor, the consumer's income, 
debt obligations, alimony, child support, and the consumer's monthly 
payment (including mortgage-related obligations) on the covered 
transaction and on any simultaneous loans of which the creditor was 
aware at consummation would leave the consumer with insufficient 
residual income or assets other than the value of the dwelling 
(including any real property attached to the dwelling) that secures the 
loan with which to meet living expenses, including any recurring and 
material non-debt obligations of which the creditor was aware at the 
time of consummation, and that the creditor thereby did not make a 
reasonable and good faith determination of the consumer's repayment 
ability. For example, a consumer may rebut the presumption with evidence 
demonstrating that the consumer's residual income was insufficient to 
meet living expenses, such as food, clothing, gasoline, and health care, 
including the payment of recurring medical expenses of which the 
creditor was aware at the time of consummation, and after taking into 
account the consumer's assets other than the value of the dwelling 
securing the loan, such as a savings account. In addition, the longer 
the period of time that the consumer has demonstrated actual ability to 
repay the loan by making timely payments, without modification or 
accommodation, after consummation or, for an adjustable-rate mortgage, 
after recast, the less likely the consumer will be able to rebut the 
presumption based on insufficient residual income and prove that, at the 
time the loan was made, the creditor failed to make a reasonable and 
good faith determination that the consumer had the reasonable ability to 
repay the loan.
    43(e)(2) Qualified mortgage defined--general.
    Paragraph 43(e)(2)(i).
    1. Regular periodic payments. Under Sec. 1026.43(e)(2)(i), a 
qualified mortgage must provide for regular periodic payments that may 
not result in an increase of the principal balance (negative 
amortization), deferral of principal repayment, or a balloon payment. 
Thus, the terms of the legal obligation

[[Page 854]]

must require the consumer to make payments of principal and interest, on 
a monthly or other periodic basis, that will fully repay the loan amount 
over the loan term. The periodic payments must be substantially equal 
except for the effect that any interest rate change after consummation 
has on the payment in the case of an adjustable-rate or step-rate 
mortgage. In addition, because Sec. 1026.43(e)(2)(i) requires that a 
qualified mortgage provide for regular periodic payments, a single-
payment transaction may not be a qualified mortgage.
    2. Deferral of principal repayment. Under Sec. 1026.43(e)(2)(i)(B), 
a qualified mortgage's regular periodic payments may not allow the 
consumer to defer repayment of principal, except as provided in Sec. 
1026.43(f). A loan allows the deferral of principal repayment if one or 
more of the periodic payments may be applied solely to accrued interest 
and not to loan principal. Deferred principal repayment also occurs if 
the payment is applied to both accrued interest and principal but the 
consumer is permitted to make periodic payments that are less than the 
amount that would be required under a payment schedule that has 
substantially equal payments that fully repay the loan amount over the 
loan term. Graduated payment mortgages, for example, allow deferral of 
principal repayment in this manner and therefore may not be qualified 
mortgages.
    Paragraph 43(e)(2)(ii).
    1. General. The 30-year term limitation in Sec. 1026.43(e)(2)(ii) 
is applied without regard to any interim period between consummation and 
the beginning of the first full unit period of the repayment schedule. 
For example, assume a covered transaction is consummated on March 20, 
2014 and the due date of the first regular periodic payment is April 30, 
2014. The beginning of the first full unit period of the repayment 
schedule is April 1, 2014 and the loan term therefore ends on April 1, 
2044. The transaction would comply with the 30-year term limitation in 
Sec. 1026.43(e)(2)(ii).
    Paragraph 43(e)(2)(iv).
    1. Maximum interest rate during the first five years. For a 
qualified mortgage, the creditor must underwrite the loan using a 
periodic payment of principal and interest based on 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. Creditors must use the 
maximum rate that could apply at any time during the first five years 
after the date on which the first regular periodic payment will be due, 
regardless of whether the maximum rate is reached at the first or 
subsequent adjustment during the five year period.
    2. Fixed-rate mortgage. For a fixed-rate mortgage, creditors should 
use the interest rate in effect at consummation. ``Fixed-rate mortgage'' 
is defined in Sec. 1026.18(s)(7)(iii).
    3. Interest rate adjustment caps. For an adjustable-rate mortgage, 
creditors should assume the interest rate increases after consummation 
as rapidly as possible, taking into account the terms of the legal 
obligation. That is, creditors should account for any periodic interest 
rate adjustment cap that may limit how quickly the interest rate can 
increase under the terms of the legal obligation. Where a range for the 
maximum interest rate during the first five years is provided, the 
highest rate in that range is the maximum interest rate for purposes of 
Sec. 1026.43(e)(2)(iv). Where the terms of the legal obligation are not 
based on an index plus margin or formula, the creditor must use the 
maximum interest rate that occurs during the first five years after the 
date on which the first regular periodic payment will be due. To 
illustrate:
    i. Adjustable-rate mortgage with discount for three years. Assume an 
adjustable-rate mortgage has an initial discounted rate of 5 percent 
that is fixed for the first three years, measured from the first day of 
the first full calendar month following consummation, after which the 
rate will adjust annually based on a specified index plus a margin of 3 
percent. The index value in effect at consummation is 4.5 percent. The 
loan agreement provides for an annual interest rate adjustment cap of 2 
percent, and a lifetime maximum interest rate of 12 percent. The first 
rate adjustment occurs on the due date of the 36th monthly payment; the 
rate can adjust to no more than 7 percent (5 percent initial discounted 
rate plus 2 percent annual interest rate adjustment cap). The second 
rate adjustment occurs on the due date of the 48th monthly payment; the 
rate can adjust to no more than 9 percent (7 percent rate plus 2 percent 
annual interest rate adjustment cap). The third rate adjustment occurs 
on the due date of the 60th monthly payment; the rate can adjust to no 
more than 11 percent (9 percent rate plus 2 percent annual interest rate 
cap adjustment). The maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
is 11 percent (the rate on the due date of the 60th monthly payment). 
For further discussion of how to determine whether a rate adjustment 
occurs during the first five years after the date on which the first 
regular periodic payment will be due, see comment 43(e)(2)(iv)-7.
    ii. Adjustable-rate mortgage with discount for three years. Assume 
the same facts as in paragraph 3.i except that the lifetime maximum 
interest rate is 10 percent, which is less than the maximum interest 
rate in the first five years after the date on which the first regular 
periodic payment will be due of 11 percent that would apply but for the 
lifetime maximum interest rate. The maximum interest rate during the 
first five years after

[[Page 855]]

the date on which the first regular periodic payment will be due is 10 
percent.
    iii. Step-rate mortgage. Assume a step-rate mortgage with an 
interest rate fixed at 6.5 percent for the first two years, measured 
from the first day of the first full calendar month following 
consummation, 7 percent for the next three years, and then 7.5 percent 
for the remainder of the loan term. The maximum interest rate during the 
first five years after the date on which the first regular periodic 
payment will be due is 7.5 percent.
    4. First five years after the date on which the first regular 
periodic payment will be due. Under Sec. 1026.43(e)(2)(iv)(A), the 
creditor must underwrite the loan using 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. To illustrate, assume an 
adjustable-rate mortgage with an initial fixed interest rate of 5 
percent for the first five years, measured from the first day of the 
first full calendar month following consummation, after which the 
interest rate will adjust annually to the specified index plus a margin 
of 6 percent, subject to a 2 percent annual interest rate adjustment 
cap. The index value in effect at consummation is 5.5 percent. The loan 
consummates on September 15, 2014, and the first monthly payment is due 
on November 1, 2014. The first rate adjustment to no more than 7 percent 
(5 percent plus 2 percent annual interest rate adjustment cap) occurs on 
the due date of the 60th monthly payment, which is October 1, 2019, and 
therefore, the rate adjustment occurs during the first five years after 
the date on which the first regular periodic payment will be due. To 
meet the definition of qualified mortgage under Sec. 1026.43(e)(2), the 
creditor must underwrite the loan using a monthly payment of principal 
and interest based on an interest rate of 7 percent.
    5. Loan amount. To meet the definition of qualified mortgage under 
Sec. 1026.43(e)(2), a creditor must determine the periodic payment of 
principal and interest using the maximum interest rate permitted during 
the first five years after the date on which the first regular periodic 
payment will be due that repays either:
    i. The outstanding principal balance as of the earliest date the 
maximum interest rate during the first five years after the date on 
which the first regular periodic payment will be due can take effect 
under the terms of the legal obligation, over the remaining term of the 
loan. To illustrate, assume a loan in an amount of $200,000 has a 30-
year loan term. The loan agreement provides for a discounted interest 
rate of 5 percent that is fixed for an initial period of three years, 
measured from the first day of the first full calendar month following 
consummation, after which the interest rate will adjust annually based 
on a specified index plus a margin of 3 percent, subject to a 2 percent 
annual interest rate adjustment cap and a lifetime maximum interest rate 
of 9 percent. The index value in effect at consummation equals 4.5 
percent. Assuming the interest rate increases after consummation as 
quickly as possible, the rate adjustment to the lifetime maximum 
interest rate of 9 percent occurs on the due date of the 48th monthly 
payment. The outstanding principal balance on the loan at the end of the 
fourth year (after the 48th monthly payment is credited) is $188,218. 
The creditor will meet the definition of qualified mortgage if it 
underwrites the covered transaction using the monthly payment of 
principal and interest of $1,564 to repay the outstanding principal 
balance of $188,218 over the remaining 26 years of the loan term (312 
months) using the maximum interest rate during the first five years of 9 
percent; or
    ii. The loan amount, as that term is defined in Sec. 1026.43(b)(5), 
over the entire loan term, as that term is defined in Sec. 
1026.43(b)(6). Using the same example above, the creditor will meet the 
definition of qualified mortgage if it underwrites the covered 
transaction using the monthly payment of principal and interest of 
$1,609 to repay the loan amount of $200,000 over the 30-year loan term 
using the maximum interest rate during the first five years of 9 
percent.
    6. Mortgage-related obligations. Section 1026.43(e)(2)(iv) requires 
creditors to take the consumer's monthly payment for mortgage-related 
obligations into account when underwriting the loan. For the meaning of 
the term ``mortgage-related obligations,'' see Sec. 1026.43(b)(8) and 
associated commentary.
    7. Examples. The following are examples of how to determine the 
periodic payment of principal and interest based on the maximum interest 
rate during the first five years after the date on which the first 
regular periodic payment will be due for purposes of meeting the 
definition of qualified mortgage under Sec. 1026.43(e) (all payment 
amounts shown are rounded, and all amounts are calculated using non-
rounded values; all initial fixed interest rate periods are measured 
from the first day of the first full calendar month following 
consummation):
    i. Fixed-rate mortgage. A loan in an amount of $200,000 has a 30-
year loan term and a fixed interest rate of 7 percent. The maximum 
interest rate during the first five years after the date on which the 
first regular periodic payment will be due for a fixed-rate mortgage is 
the interest rate in effect at consummation, which is 7 percent under 
this example. The monthly fully amortizing payment scheduled over the 30 
years is $1,331. The creditor will meet the definition of qualified 
mortgage if it underwrites the loan using the fully amortizing payment 
of $1,331.

[[Page 856]]

    ii. Adjustable-rate mortgage with discount for three years. A. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted interest rate of 5 percent that is 
fixed for an initial period of three years, after which the interest 
rate will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap and 
a lifetime maximum interest rate of 9 percent. The index value in effect 
at consummation is 4.5 percent. The loan is consummated on March 15, 
2014, and the first regular periodic payment is due May 1, 2014. The 
loan agreement provides that the first rate adjustment occurs on April 
1, 2017 (the due date of the 36th monthly payment); the second rate 
adjustment occurs on April 1, 2018 (the due date of the 48th monthly 
payment); and the third rate adjustment occurs on April 1, 2019 (the due 
date of the 60th monthly payment). Under this example, the maximum 
interest rate during the first five years after the date on which the 
first regular periodic payment due is 9 percent (the lifetime interest 
rate cap), which applies beginning on April 1, 2018 (the due date of the 
48th monthly payment). The outstanding principal balance at the end of 
the fourth year (after the 48th payment is credited) is $188,218.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using the monthly payment of 
principal and interest of $1,564 to repay the outstanding principal 
balance at the end of the fourth year of $188,218 over the remaining 26 
years of the loan term (312 months), using the maximum interest rate 
during the first five years after the date on which the first regular 
periodic payment will be due of 9 percent. Alternatively, the 
transaction will meet the definition of a qualified mortgage if the 
creditor underwrites the loan using the monthly payment of principal and 
interest of $1,609 to repay the loan amount of $200,000 over the 30-year 
loan term, using the maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
of 9 percent.
    iii. Adjustable-rate mortgage with discount for five years. A. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted interest rate of 6 percent that is 
fixed for an initial period of five years, after which the interest rate 
will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap. The 
index value in effect at consummation is 4.5 percent. The loan 
consummates on March 15, 2014 and the first regular periodic payment is 
due May 1, 2014. Under the terms of the loan agreement, the first rate 
adjustment to no more than 8 percent (6 percent plus 2 percent annual 
interest rate adjustment cap) is on April 1, 2019 (the due date of the 
60th monthly payment), which occurs less than five years after the date 
on which the first regular periodic payment will be due. Thus, the 
maximum interest rate under the terms of the loan during the first five 
years after the date on which the first regular periodic payment will be 
due is 8 percent.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using the monthly payment of 
principal and interest of $1,436 to repay the outstanding principal 
balance at the end of the fifth year of $186,109 over the remaining 25 
years of the loan term (300 months), using the maximum interest rate 
during the first five years after the date on which the first regular 
periodic payment will be due of 8 percent. Alternatively, the 
transaction will meet the definition of a qualified mortgage if the 
creditor underwrites the loan using the monthly payment of principal and 
interest of $1,468 to repay the loan amount of $200,000 over the 30-year 
loan term, using the maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
of 8 percent.
    iv. Adjustable-rate mortgage with discount for seven years. A. A 
loan in an amount of $200,000 has a 30-year loan term. The loan 
agreement provides for a discounted interest rate of 6 percent that is 
fixed for an initial period of seven years, after which the interest 
rate will adjust annually based on a specified index plus a margin of 3 
percent, subject to a 2 percent annual interest rate adjustment cap. The 
index value in effect at consummation is 4.5 percent. The loan is 
consummated on March 15, 2014, and the first regular periodic payment is 
due May 1, 2014. Under the terms of the loan agreement, the first rate 
adjustment is on April 1, 2021 (the due date of the 84th monthly 
payment), which occurs more than five years after the date on which the 
first regular periodic payment will be due. Thus, the maximum interest 
rate under the terms of the loan during the first five years after the 
date on which the first regular periodic payment will be due is 6 
percent.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using the monthly payment of 
principal and interest of $1,199 to repay the loan amount of $200,000 
over the 30-year loan term using the maximum interest rate during the 
first five years after the date on which the first regular periodic 
payment will be due of 6 percent.
    iv. Step-rate mortgage. A. A loan in an amount of $200,000 has a 30-
year loan term. The loan agreement provides that the interest rate is 
6.5 percent for the first two years of the loan, 7 percent for the next 
three years, and then 7.5 percent for remainder of

[[Page 857]]

the loan term. The maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
is 7.5 percent, which occurs on the due date of the 60th monthly 
payment. The outstanding principal balance at the end of the fifth year 
(after the 60th payment is credited) is $187,868.
    B. The transaction will meet the definition of a qualified mortgage 
if the creditor underwrites the loan using a monthly payment of 
principal and interest of $1,388 to repay the outstanding principal 
balance of $187,868 over the remaining 25 years of the loan term (300 
months), using the maximum interest rate during the first five years 
after the date on which the first regular periodic payment will be due 
of 7.5 percent. Alternatively, the transaction will meet the definition 
of a qualified mortgage if the creditor underwrites the loan using a 
monthly payment of principal and interest of $1,398 to repay $200,000 
over the 30-year loan term using the maximum interest rate during the 
first five years after the date on which the first regular periodic 
payment will be due of 7.5 percent.
    Paragraph 43(e)(2)(v).
    1. General. For guidance on satisfying Sec. 1026.43(e)(2)(v), a 
creditor may rely on commentary to Sec. 1026.43(c)(2)(i) and (vi), 
(c)(3), and (c)(4).
    2. Income or assets. Section 1026.43(e)(2)(v)(A) requires creditors 
to consider and verify the consumer's current or reasonably expected 
income or assets. For purposes of this requirement, the creditor must 
consider and verify, at a minimum, any income specified in appendix Q. A 
creditor may also consider and verify any other income in accordance 
with Sec. 1026.43(c)(2)(i) and (c)(4); however, such income would not 
be included in the total monthly debt-to-income ratio determination 
required by Sec. 1026.43(e)(2)(vi).
    3. Debts. Section 1026.43(e)(2)(v)(B) requires creditors to consider 
and verify the consumer's current debt obligations, alimony, and child 
support. For purposes of this requirement, the creditor must consider 
and verify, at a minimum, any debt or liability specified in appendix Q. 
A creditor may also consider and verify other debt in accordance with 
Sec. 1026.43(c)(2)(vi) and (c)(3); however, such debt would not be 
included in the total monthly debt-to-income ratio determination 
required by Sec. 1026.43(e)(2)(vi).
    Paragraph 43(e)(2)(vi).
    1. Calculation of monthly payment on the covered transaction and 
simultaneous loans. As provided in appendix Q, for purposes of Sec. 
1026.43(e)(2)(vi), creditors must include in the definition of ``debt'' 
a consumer's monthly housing expense. This includes, for example, the 
consumer's monthly payment on the covered transaction (including 
mortgage-related obligations) and on simultaneous loans. Accordingly, 
Sec. 1026.43(e)(2)(vi)(B) provides the method by which a creditor 
calculates the consumer's monthly payment on the covered transaction and 
on any simultaneous loan that the creditor knows or has reason to know 
will be made.
    43(e)(3) Limits on points and fees for qualified mortgages.
    Paragraph 43(e)(3)(i).
    1. Total loan amount. The term ``total loan amount'' is defined in 
Sec. 1026.32(b)(4)(i). For an explanation of how to calculate the 
``total loan amount'' under Sec. 1026.43(e)(3)(i), see comment 
32(b)(4)(i)-1.
    2. Calculation of allowable points and fees. A creditor must 
determine which category the loan falls into based on the face amount of 
the note (the ``loan amount'' as defined in Sec. 1026.43(b)(5)). For 
categories with a percentage limit, the creditor must apply the 
allowable points and fees percentage to the ``total loan amount,'' which 
may be different than the loan amount. A creditor must calculate the 
allowable amount of points and fees for a qualified mortgage as follows:
    i. First, the creditor must determine the ``tier'' into which the 
loan falls based on the loan amount. The loan amount is the principal 
amount the consumer will borrow, as reflected in the promissory note or 
loan contract. See Sec. 1026.43(b)(5). For example, if the loan amount 
is $55,000, the loan falls into the tier for loans greater than or equal 
to $20,000 but less than $60,000, to which a 5 percent cap on points and 
fees applies. For tiers with a prescribed dollar limit on points and 
fees (e.g., for loans from $60,000 up to $100,000, the limit is $3,000), 
the creditor does not need to do any further calculations.
    ii. Second, for tiers with a percentage limit, the creditor must 
determine the total loan amount based on the calculation for the total 
loan amount under comment 32(b)(4)(i)-1. If the loan amount is $55,000, 
for example, the total loan amount may be a different amount, such as 
$52,000.
    iii. Third, the creditor must apply the percentage cap on points and 
fees to the total loan amount. For example, for a loan of $55,000 where 
the total loan amount is $52,000, the allowable points and fees are 5 
percent of $52,000, or $2,600.
    3. Sample determination of allowable points and fees.
    i. A covered transaction with a loan amount of $105,000 falls into 
the first points and fees tier, to which a points and fees cap of 3 
percent of the total loan amount applies. See Sec. 1026.43(e)(3)(i)(A). 
Therefore, if the calculation under comment 32(b)(4)(i)-1 results in a 
total loan amount of $102,000, then the allowable total points and fees 
for this loan are 3 percent of $102,000, or $3,060.
    ii. A covered transaction with a loan amount of $75,000 falls into 
the second points and fees tier, to which a points and fees cap of 
$3,000 applies. See Sec. 1026.43(e)(3)(i)(B). The

[[Page 858]]

allowable total points and fees for this loan are $3,000, regardless of 
the total loan amount.
    iii. A covered transaction with a loan amount of $50,000 falls into 
the third points and fees tier, to which a points and fees cap of 5 
percent of the total loan amount applies. See Sec. 1026.43(e)(3)(i)(C). 
Therefore, if the calculation under comment 32(b)(4)(i)-1 results in a 
total loan amount of $48,000, then the allowable total points and fees 
for this loan are 5 percent of $48,000, or $2,400.
    iv. A covered transaction with a loan amount of $15,000 falls into 
the fourth points and fees tier, to which a points and fees cap of 
$1,000 applies. See Sec. 1026.43(e)(3)(i)(D). The allowable total 
points and fees for this loan are $1,000, regardless of the total loan 
amount.
    v. A covered transaction with a loan amount of $10,000 falls into 
the fifth points and fees tier, to which a points and fees cap of 8 
percent of the total loan amount applies. See Sec. 1026.43(e)(3)(i)(E). 
Therefore, if the calculation under comment 32(b)(4)(i)-1 results in a 
total loan amount of $7,000, then the allowable total points and fees 
for this loan are 8 percent of $7,000, or $560.
    Paragraph 43(e)(3)(ii).
    1. Annual adjustment for inflation. The dollar amounts, including 
the loan amounts, in Sec. 1026.43(e)(3)(i) will be adjusted annually on 
January 1 by the annual percentage change in the CPI-U that was in 
effect on the preceding June 1. The Bureau will publish adjustments 
after the June figures become available each year.
    43(e)(4) Qualified mortgage defined--special rules.
    1. Alternative definition. Subject to the sunset provided under 
Sec. 1026.43(e)(4)(iii), Sec. 1026.43(e)(4) provides an alternative 
definition of qualified mortgage to the definition provided in Sec. 
1026.43(e)(2). To be a qualified mortgage under Sec. 1026.43(e)(4), the 
creditor must satisfy the requirements under Sec. 1026.43(e)(2)(i) 
through (iii), in addition to being one of the types of loans specified 
in Sec. 1026.43(e)(4)(ii)(A) through (E).
    2. Termination of conservatorship. Section 1026.43(e)(4)(ii)(A) 
requires that a covered transaction be eligible for purchase or 
guarantee by the Federal National Mortgage Association (``Fannie Mae'') 
or the Federal Home Loan Mortgage Corporation (``Freddie Mac'') (or any 
limited-life regulatory entity succeeding the charter of either) 
operating under the conservatorship or receivership of the Federal 
Housing Finance Agency pursuant to section 1367 of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617). 
The special rule under Sec. 1026.43(e)(4)(ii)(A) does not apply if 
Fannie Mae or Freddie Mac (or any limited-life regulatory entity 
succeeding the charter of either) has ceased operating under the 
conservatorship or receivership of the Federal Housing Finance Agency. 
For example, if either Fannie Mae or Freddie Mac (or succeeding limited-
life regulatory entity) ceases to operate under the conservatorship or 
receivership of the Federal Housing Finance Agency, Sec. 
1026.43(e)(4)(ii)(A) would no longer apply to loans eligible for 
purchase or guarantee by that entity; however, the special rule would be 
available for a loan that is eligible for purchase or guarantee by the 
other entity still operating under conservatorship or receivership.
    3. Timing. Under Sec. 1026.43(e)(4)(iii), the definition of 
qualified mortgage under paragraph (e)(4) applies only to loans 
consummated on or before January 10, 2021, regardless of whether Fannie 
Mae or Freddie Mac (or any limited-life regulatory entity succeeding the 
charter of either) continues to operate under the conservatorship or 
receivership of the Federal Housing Finance Agency. Accordingly, Sec. 
1026.43(e)(4) is available only for covered transactions consummated on 
or before the earlier of either:
    i. The date Fannie Mae or Freddie Mac (or any limited-life 
regulatory entity succeeding the charter of either), respectively, cease 
to operate under the conservatorship or receivership of the Federal 
Housing Finance Agency pursuant to section 1367 of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617); 
or
    ii. January 10, 2021, as provided by Sec. 1026.43(e)(4)(iii).
    4. Eligible for purchase, guarantee, or insurance. To satisfy Sec. 
1026.43(e)(4)(ii), a loan need not be actually purchased or guaranteed 
by Fannie Mae or Freddie Mac or insured or guaranteed by the U.S. 
Department of Housing and Urban Development, U.S. Department of Veterans 
Affairs, U.S. Department of Agriculture, or Rural Housing Service. 
Rather, Sec. 1026.43(e)(4)(ii) requires only that the loan be eligible 
(i.e., meet the criteria) for such purchase, guarantee, or insurance. 
For example, for purposes of Sec. 1026.43(e)(4), a creditor is not 
required to sell a loan to Fannie Mae or Freddie Mac (or any limited-
life regulatory entity succeeding the charter of either) to be a 
qualified mortgage; however, the loan must be eligible for purchase or 
guarantee by Fannie Mae or Freddie Mac (or any limited-life regulatory 
entity succeeding the charter of either), including satisfying any 
requirements regarding consideration and verification of a consumer's 
income or assets, credit history, and debt-to-income ratio or residual 
income. To determine eligibility, a creditor may rely on an underwriting 
recommendation provided by Fannie Mae or Freddie Mac's Automated 
Underwriting Systems (AUSs) or written guide in effect at the time. 
Accordingly, a covered transaction is eligible for purchase or guarantee 
by Fannie Mae or Freddie Mac if:

[[Page 859]]

    i. The loan conforms to the standards set forth in the Fannie Mae 
Single-Family Selling Guide or the Freddie Mac Single-Family Seller/
Servicer Guide; or
    ii. The loan receives one of the following recommendations from the 
corresponding automated underwriting system:
    A. An ``Approve/Eligible'' recommendation from Desktop Underwriter 
(DU); or
    B. An ``Accept and Eligible to Purchase'' recommendation from Loan 
Prospector (LP).
    43(f) Balloon-Payment qualified mortgages made by certain creditors.
    43(f)(1) Exemption.
    Paragraph 43(f)(1)(i).
    1. Satisfaction of qualified mortgage requirements. Under Sec. 
1026.43(f)(1)(i), for a mortgage that provides for a balloon payment to 
be a qualified mortgage, the mortgage must satisfy the requirements for 
a qualified mortgage in paragraphs (e)(2)(i)(A), (e)(2)(ii), (iii), and 
(v). Therefore, a covered transaction with balloon payment terms must 
provide for regular periodic payments that do not result in an increase 
of the principal balance, pursuant to Sec. 1026.43(e)(2)(i)(A); must 
have a loan term that does not exceed 30 years, pursuant to Sec. 
1026.43(e)(2)(ii); must have total points and fees that do not exceed 
specified thresholds pursuant to Sec. 1026.43(e)(2)(iii); and must 
satisfy the consideration and verification requirements in Sec. 
1026.43(e)(2)(v).
    Paragraph 43(f)(1)(ii).
    1. Example. Under Sec. 1026.43(f)(1)(ii), if a qualified mortgage 
provides for a balloon payment, the creditor must determine that the 
consumer is able to make all scheduled payments under the legal 
obligation other than the balloon payment. For example, assume a loan in 
an amount of $200,000 that has a five-year loan term, but is amortized 
over 30 years. The loan agreement provides for a fixed interest rate of 
6 percent. The loan consummates on March 3, 2014, and the monthly 
payment of principal and interest scheduled for the first five years is 
$1,199, with the first monthly payment due on April 1, 2014. The balloon 
payment of $187,308 is required on the due date of the 60th monthly 
payment, which is April 1, 2019. The loan can be a qualified mortgage if 
the creditor underwrites the loan using the scheduled principal and 
interest payment of $1,199, plus the consumer's monthly payment for all 
mortgage-related obligations, and satisfies the other criteria set forth 
in Sec. 1026.43(f).
    2. Creditor's determination. A creditor must determine that the 
consumer is able to make all scheduled payments other than the balloon 
payment to satisfy Sec. 1026.43(f)(1)(ii), in accordance with the legal 
obligation, together with the consumer's monthly payments for all 
mortgage-related obligations and excluding the balloon payment, to meet 
the repayment ability requirements of Sec. 1026.43(f)(1)(ii). A 
creditor satisfies Sec. 1026.43(f)(1)(ii) if it uses the maximum 
payment in the payment schedule, excluding any balloon payment, to 
determine if the consumer has the ability to make the scheduled 
payments.
    Paragraph 43(f)(1)(iii).
    1. Debt-to-income or residual income. A creditor must consider and 
verify the consumer's monthly debt-to-income ratio or residual income to 
meet the requirements of Sec. 1026.43(f)(1)(iii). To calculate the 
consumer's monthly debt-to-income or residual income for purposes of 
Sec. 1026.43(f)(1)(iii), the creditor may rely on the definitions and 
calculation rules in Sec. 1026.43(c)(7) and its accompanying 
commentary, except for the calculation rules for a consumer's total 
monthly debt obligations (which is a component of debt-to-income and 
residual income under Sec. 1026.43(c)(7)). For purposes of calculating 
the consumer's total monthly debt obligations under Sec. 
1026.43(f)(1)(iii), the creditor must calculate the monthly payment on 
the covered transaction using the payment calculation rules in Sec. 
1026.43(f)(1)(iv)(A), together with all mortgage-related obligations and 
excluding the balloon payment.
    Paragraph 43(f)(1)(iv).
    1. Scheduled payments. Under Sec. 1026.43(f)(1)(iv)(A), the legal 
obligation must provide that scheduled payments must be substantially 
equal and determined using an amortization period that does not exceed 
30 years. Balloon payments often result when the periodic payment would 
fully repay the loan amount only if made over some period that is longer 
than the loan term. For example, a loan term of 10 years with periodic 
payments based on an amortization period of 20 years would result in a 
balloon payment being due at the end of the loan term. Whatever the loan 
term, the amortization period used to determine the scheduled periodic 
payments that the consumer must pay under the terms of the legal 
obligation may not exceed 30 years.
    2. Substantially equal. The calculation of payments scheduled by the 
legal obligation under Sec. 1026.43(f)(1)(iv)(A) are required to result 
in substantially equal amounts. This means that the scheduled payments 
need to be similar, but need not be equal. For further guidance on 
substantially equal payments, see comment 43(c)(5)(i)-4.
    3. Interest-only payments. A mortgage that only requires the payment 
of accrued interest each month does not meet the requirements of Sec. 
1026.43(f)(1)(iv)(A).
    Paragraph 43(f)(1)(v).
    1. Forward commitments. A creditor may make a mortgage loan that 
will be transferred or sold to a purchaser pursuant to an agreement that 
has been entered into at or before the time the transaction is 
consummated. Such an agreement is sometimes known as a ``forward 
commitment.'' A balloon-payment mortgage that will be acquired by a 
purchaser pursuant to a forward

[[Page 860]]

commitment does not satisfy the requirements of Sec. 1026.43(f)(1)(v), 
whether the forward commitment provides for the purchase and sale of the 
specific transaction or for the purchase and sale of transactions with 
certain prescribed criteria that the transaction meets. However, a 
purchase and sale of a balloon-payment qualified mortgage to another 
person that separately meets the requirements of Sec. 1026.43(f)(1)(vi) 
is permitted. For example: assume a creditor that meets the requirements 
of Sec. 1026.43(f)(1)(vi) makes a balloon-payment mortgage that meets 
the requirements of Sec. 1026.43(f)(1)(i) through (iv); if the balloon-
payment mortgage meets the purchase criteria of an investor with which 
the creditor has an agreement to sell such loans after consummation, 
then the balloon-payment mortgage does not meet the definition of a 
qualified mortgage in accordance with Sec. 1026.43(f)(1)(v). However, 
if the investor meets the requirement of Sec. 1026.43(f)(1)(vi), the 
balloon-payment qualified mortgage retains its qualified mortgage 
status.
    Paragraph 43(f)(1)(vi).
    1. Creditor qualifications. Under Sec. 1026.43(f)(1)(vi), to make a 
qualified mortgage that provides for a balloon payment, the creditor 
must satisfy three criteria that are also required under Sec. 
1026.35(b)(2)(iii)(A), (B) and (C), which require:
    i. During the preceding calendar year, the creditor extended over 50 
percent of its total first-lien covered transactions, as defined in 
Sec. 1026.43(b)(1), on properties that are located in counties that are 
designated either ``rural'' or ``underserved,'' as defined in Sec. 
1026.35(b)(2)(iv), to satisfy the requirement of Sec. 
1026.35(b)(2)(iii)(A). Pursuant to Sec. 1026.35(b)(2)(iv), a county is 
considered to be rural if it is neither in a metropolitan statistical 
area, nor a micropolitan statistical area adjacent to a metropolitan 
statistical area, as those terms are defined by the U.S. Office of 
Management and Budget. A county is considered to be underserved if no 
more than two creditors extend covered transactions secured by a first 
lien five or more times in that county during a calendar year. The 
Bureau determines annually which counties in the United States are rural 
or underserved and publishes on its public Web site lists of those 
counties to enable creditors to determine whether they meet this 
criterion. Thus, for example, if a creditor originated 90 first-lien 
covered transactions during 2013, the creditor meets this element of the 
exception in 2014 if at least 46 of those transactions are secured by 
first liens on properties located in one or more counties that are on 
the Bureau's lists for 2013.
    ii. During the preceding calendar year, the creditor together with 
its affiliates originated 500 or fewer first-lien covered transactions, 
as defined by Sec. 1026.43(b)(1), to satisfy the requirement of Sec. 
1026.35(b)(2)(iii)(B).
    iii. As of the end of the preceding calendar year, the creditor had 
total assets that do not exceed the current asset threshold established 
by the Bureau, to satisfy the requirement of Sec. 
1026.35(b)(2)(iii)(C). For calendar year 2013, the asset threshold was 
$2,000,000,000.
    43(f)(2) Post-consummation transfer of balloon-payment qualified 
mortgage.
    1. Requirement to hold in portfolio. Creditors generally must hold a 
balloon-payment qualified mortgage in portfolio to maintain the 
transaction's status as a qualified mortgage under Sec. 1026.43(f)(1), 
subject to four exceptions. Unless one of these exceptions applies, a 
balloon-payment qualified mortgage is no longer a qualified mortgage 
under Sec. 1026.43(f)(1) once legal title to the debt obligation is 
sold, assigned, or otherwise transferred to another person. Accordingly, 
unless one of the exceptions applies, the transferee could not benefit 
from the presumption of compliance for qualified mortgages under Sec. 
1026.43(f)(1) unless the loan also met the requirements of another 
qualified mortgage definition.
    2. Application to subsequent transferees. The exceptions contained 
in Sec. 1026.43(f)(2) apply not only to an initial sale, assignment, or 
other transfer by the originating creditor but to subsequent sales, 
assignments, and other transfers as well. For example, assume Creditor A 
originates a qualified mortgage under Sec. 1026.43(f)(1). Six months 
after consummation, Creditor A sells the qualified mortgage to Creditor 
B pursuant to Sec. 1026.43(f)(2)(ii) and the loan retains its qualified 
mortgage status because Creditor B complies with the limits on operating 
predominantly in rural or underserved areas, asset size, and number of 
transactions. If Creditor B sells the qualified mortgage, it will lose 
its qualified mortgage status under Sec. 1026.43(f)(1) unless the sale 
qualifies for one of the Sec. 1026.43(f)(2) exceptions for sales three 
or more years after consummation, to another qualifying institution, as 
required by supervisory action, or pursuant to a merger or acquisition.
    Paragraph 43(f)(2)(i).
    1. Transfer three years after consummation. Under Sec. 
1026.43(f)(2)(i), if a balloon-payment qualified mortgage under Sec. 
1026.43(f)(1) is sold, assigned, or otherwise transferred three years or 
more after consummation, the balloon-payment qualified mortgage retains 
its status as a qualified mortgage under Sec. 1026.43(f)(1) following 
the sale. The transferee need not be eligible to originate qualified 
mortgages under Sec. 1026.43(f)(1)(vi). The balloon-payment qualified 
mortgage will continue to be a qualified mortgage throughout its life, 
and the transferee, and any subsequent transferees, may invoke the 
presumption of compliance for qualified mortgages under Sec. 
1026.43(f)(1).
    Paragraph 43(f)(2)(ii).

[[Page 861]]

    1. Transfer to another qualifying creditor. Under Sec. 
1026.43(f)(2)(ii), a balloon-payment qualified mortgage under Sec. 
1026.43(f)(1) may be sold, assigned, or otherwise transferred at any 
time to another creditor that meets the requirements of Sec. 
1026.43(f)(1)(vi). That section requires that a creditor: (1) Operate 
predominantly in a rural or underserved area during the preceding 
calendar year; (2) during the preceding calendar year, together with all 
affiliates, originated 500 or fewer first-lien covered transactions; and 
(3) had total assets less than $2 billion (as adjusted for inflation) at 
the end of the preceding calendar year. A balloon-payment qualified 
mortgage under Sec. 1026.43(f)(1) transferred to a creditor that meets 
these criteria would retain its qualified mortgage status even if it is 
transferred less than three years after consummation.
    Paragraph 43(f)(2)(iii).
    1. Supervisory sales. Section 1026.43(f)(2)(iii) facilitates sales 
that are deemed necessary by supervisory agencies to revive troubled 
creditors and resolve failed creditors. A balloon-payment qualified 
mortgage under Sec. 1026.43(f)(1) retains its qualified mortgage status 
if it is sold, assigned, or otherwise transferred to another person 
pursuant to: (1) A capital restoration plan or other action under 12 
U.S.C. 1831o; (2) the actions or instructions of any person acting as 
conservator, receiver, or bankruptcy trustee; (3) an order of a State or 
Federal government agency with jurisdiction to examine the creditor 
pursuant to State or Federal law; or (4) an agreement between the 
creditor and such an agency. A balloon-payment qualified mortgage under 
Sec. 1026.43(f)(1) that is sold, assigned, or otherwise transferred 
under these circumstances retains its qualified mortgage status 
regardless of how long after consummation it is sold and regardless of 
the size or other characteristics of the transferee. Section 
1026.43(f)(2)(iii) does not apply to transfers done to comply with a 
generally applicable regulation with future effect designed to 
implement, interpret, or prescribe law or policy in the absence of a 
specific order by or a specific agreement with a governmental agency 
described in Sec. 1026.43(f)(2)(iii) directing the sale of one or more 
qualified mortgages under Sec. 1026.43(f)(1) held by the creditor or 
one of the other circumstances listed in Sec. 1026.43(f)(2)(iii). For 
example, a balloon-payment qualified mortgage under Sec. 1026.43(f)(1) 
that is sold pursuant to a capital restoration plan under 12 U.S.C. 
1831o would retain its status as a qualified mortgage following the 
sale. However, if the creditor simply chose to sell the same qualified 
mortgage as one way to comply with general regulatory capital 
requirements in the absence of supervisory action or agreement it would 
lose its status as a qualified mortgage following the sale unless it 
qualifies under another definition of qualified mortgage.
    Paragraph 43(f)(2)(iv).
    1. Mergers and acquisitions. A qualified mortgage under Sec. 
1026.43(f)(1) retains its qualified mortgage status if a creditor merges 
with, is acquired by another person, or acquires another person 
regardless of whether the creditor or its successor is eligible to 
originate new balloon-payment qualified mortgages under Sec. 
1026.43(f)(1) after the merger or acquisition. However, the creditor or 
its successor can originate new balloon-payment qualified mortgages 
under Sec. 1026.43(f)(1) only if it complies with all of the 
requirements of Sec. 1026.43(f)(1) after the merger or acquisition. For 
example, assume a small creditor that originates 250 first-lien covered 
transactions each year and originates balloon-payment qualified 
mortgages under Sec. 1026.43(f)(1) is acquired by a larger creditor 
that originates 10,000 first-lien covered transactions each year. 
Following the acquisition, the small creditor would no longer be able to 
originate balloon-payment qualified mortgages because, together with its 
affiliates, it would originate more than 500 first-lien covered 
transactions each year. However, the balloon-payment qualified mortgages 
originated by the small creditor before the acquisition would retain 
their qualified mortgage status.
    43(g) Prepayment penalties.
    43(g)(2) Limits on prepayment penalties.
    1. Maximum period and amount. Section 1026.43(g)(2) establishes the 
maximum period during which a prepayment penalty may be imposed and the 
maximum amount of the prepayment penalty. A covered transaction may 
include a prepayment penalty that may be imposed during a shorter period 
or in a lower amount than provided under Sec. 1026.43(g)(2). For 
example, a covered transaction may include a prepayment penalty that may 
be imposed for two years after consummation and that equals 1 percent of 
the amount prepaid in each of those two years.
    43(g)(3) Alternative offer required.
    Paragraph 43(g)(3)(i).
    1. Same type of interest rate. Under Sec. 1026.43(g)(3)(i), if a 
creditor offers a consumer a covered transaction with a prepayment 
penalty, the creditor must offer the consumer an alternative covered 
transaction without a prepayment penalty and with an annual percentage 
rate that cannot increase after consummation. Under Sec. 
1026.43(g)(3)(i), if the covered transaction with a prepayment penalty 
is a fixed-rate mortgage, as defined in Sec. 1026.18(s)(7)(iii), then 
the alternative covered transaction without a prepayment penalty must 
also be a fixed-rate mortgage. Likewise, if the covered transaction with 
a prepayment penalty is a step-rate mortgage,

[[Page 862]]

as defined in Sec. 1026.18(s)(7)(ii), then the alternative covered 
transaction without a prepayment penalty must also be a step-rate 
mortgage.
    Paragraph 43(g)(3)(iv).
    1. Points and fees. Whether or not an alternative covered 
transaction without a prepayment penalty satisfies the points and fees 
conditions for a qualified mortgage is determined based on the 
information known to the creditor at the time the creditor offers the 
consumer the transaction. At the time a creditor offers a consumer an 
alternative covered transaction without a prepayment penalty under Sec. 
1026.43(g)(3), the creditor may know the amount of some, but not all, of 
the points and fees that will be charged for the transaction. For 
example, a creditor may not know that a consumer intends to buy single-
premium credit unemployment insurance, which would be included in the 
points and fees for the covered transaction. The points and fees 
condition under Sec. 1026.43(g)(3)(iv) is satisfied if a creditor 
reasonably believes, based on information known to the creditor at the 
time the offer is made, that the amount of points and fees to be charged 
for an alternative covered transaction without a prepayment penalty will 
be less than or equal to the amount of points and fees allowed for a 
qualified mortgage under Sec. 1026.43(e)(2)(iii).
    Paragraph 43(g)(3)(v).
    1. Transactions for which the consumer likely qualifies. Under Sec. 
1026.43(g)(3)(v), the alternative covered transaction without a 
prepayment penalty the creditor must offer under Sec. 1026.43(g)(3) 
must be a transaction for which the creditor has a good faith belief the 
consumer likely qualifies. For example, assume the creditor has a good 
faith belief the consumer can afford monthly payments of up to $800. If 
the creditor offers the consumer a fixed-rate mortgage with a prepayment 
penalty for which monthly payments are $700 and an alternative covered 
transaction without a prepayment penalty for which monthly payments are 
$900, the requirements of Sec. 1026.43(g)(3)(v) are not met. The 
creditor's belief that the consumer likely qualifies for the covered 
transaction without a prepayment penalty should be based on the 
information known to the creditor at the time the creditor offers the 
transaction. In making this determination, the creditor may rely on 
information provided by the consumer, even if the information 
subsequently is determined to be inaccurate.
    43(g)(4) Offer through a mortgage broker.
    1. Rate sheet. Under Sec. 1026.43(g)(4), where the creditor offers 
covered transactions with a prepayment penalty to consumers through a 
mortgage broker, as defined in Sec. 1026.36(a)(2), the creditor must 
present the mortgage broker an alternative covered transaction that 
satisfies the requirements of Sec. 1026.43(g)(3). Creditors may comply 
with this requirement by providing a rate sheet to the mortgage broker 
that states the terms of such an alternative covered transaction without 
a prepayment penalty.
    2. Alternative to creditor's offer. Section 1026.43(g)(4)(ii) 
requires that the creditor provide, by agreement, for the mortgage 
broker to present the consumer an alternative covered transaction that 
satisfies the requirements of Sec. 1026.43(g)(3) offered by either the 
creditor or by another creditor, if the other creditor offers a covered 
transaction with a lower interest rate or a lower total dollar amount of 
discount points and origination points or fees. The agreement may 
provide for the mortgage broker to present both the creditor's covered 
transaction and an alternative covered transaction offered by another 
creditor with a lower interest rate or a lower total dollar amount of 
origination discount points and points or fees. See comment 36(e)(3)-3 
for guidance in determining which step-rate mortgage has a lower 
interest rate.
    3. Agreement. The creditor's agreement with a mortgage broker for 
purposes of Sec. 1026.43(g)(4) may be part of another agreement with 
the mortgage broker, for example, a compensation agreement. Thus, the 
creditor need not enter into a separate agreement with the mortgage 
broker with respect to each covered transaction with a prepayment 
penalty.
    43(g)(5) Creditor that is a loan originator.
    1. Loan originator. The definition of ``loan originator'' in Sec. 
1026.36(a)(1) applies for purposes of Sec. 1026.43(g)(5). Thus, a loan 
originator includes any creditor that satisfies the definition of loan 
originator but makes use of ``table-funding'' by a third party. See 
comment 36(a)-1.i and ii.
    2. Lower interest rate. Under Sec. 1026.43(g)(5), a creditor that 
is a loan originator must present an alternative covered transaction 
without a prepayment penalty that satisfies the requirements of Sec. 
1026.43(g)(3) offered by either the assignee for the covered transaction 
or another person, if that other person offers a transaction with a 
lower interest rate or a lower total dollar amount of origination points 
or fees or discount points. See comment 36(e)(3)-3 for guidance in 
determining which step-rate mortgage has a lower interest rate.
    43(h) Evasion; open-end credit.
    1. Subject to closed-end credit rules. Where a creditor documents a 
loan as open-end credit but the features and terms, or other 
circumstances, demonstrate that the loan does not meet the definition of 
open-end credit in Sec. 1026.2(a)(20), the loan is subject to the rules 
for closed-end credit, including Sec. 1026.43.

    Effective Date Notes: 2. At 78 FR 6967, Jan. 31, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. In Supplement I to 
Part 1026--Official Interpretations:

[[Page 863]]

    A. Under Section 1026.31--General Rules:
    i. Under 31(c) Timing of disclosure:
    a. Under 31(c)(1), the heading is revised.
    b. Under newly designated 31(c)(1), paragraph 1 is revised.
    c. Under 31(c)(1)(i) Change in terms, paragraph 2 is revised.
    d. Under 31(c)(1)(ii) Telephone disclosures, paragraph 1 is revised.
    e. Under 31(c)(1)(iii), the heading is revised.
    ii. 31(h) Corrections and unintentional violations and paragraphs 1 
and 2 are added.
    B. Under Section 1026.32--Requirements for High-Cost Mortgages:
    i. Under 32(a) Coverage:
    a. Paragraph 32(a)(1) and paragraph 1 are added.
    b. Under Paragraph 32(a)(1)(i), paragraphs 1, 2, and 3 are revised, 
and paragraph 4 is removed.
    c. Paragraph 32(a)(1)(i)(B) and paragraph 1 are added.
    d. Under Paragraph 32(a)(1)(ii), paragraph 1 and the introductory 
text of paragraph 2 are revised, and paragraph 3 is added.
    e. Paragraph 32(a)(1)(iii) and paragraphs 1 and 2 are added.
    f. Under Paragraph 32(a)(2), the heading is revised.
    g. Paragraph 32(a)(2)(ii) and paragraph 1 are added.
    h. Paragraph 32(a)(2)(iii) and paragraph 1 are added.
    i. 32(a)(3) Determination of annual percentage rate and paragraphs 
1, 2, 3, 4, and 5 are added.
    ii. Under 32(b) Definitions:
    a. Paragraph 32(b)(2), Paragraph 32(b)(2)(i), and paragraph 1 are 
added.
    b. Paragraph 32(b)(2)(i)(B) and paragraph 1 are added.
    c. Paragraph 32(b)(2)(i)(C) and paragraph 1 are added.
    d. Paragraph 32(b)(2)(i)(D) and paragraph 1 are added.
    e. Paragraph 32(b)(2)(i)(E) and paragraph 1 are added.
    f. Paragraph 32(b)(2)(i)(F) and paragraph 1 are added.
    g. Paragraph 32(b)(2)(ii) and paragraph 1 are added.
    h. Paragraph 32(b)(2)(iii) and paragraph 1 are added.
    i. Paragraph 32(b)(2)(iv) and paragraph 1 are added.
    j. Paragraph 32(b)(2)(vii) and paragraph 1 are added.
    k. Paragraph 32(b)(2)(viii) and paragraphs 1 and 2 are added.
    l. Under Paragraph 32(b)(6), as added elsewhere in this issue of the 
Federal Register, paragraphs 3 and 4 are added.
    iii. Under 32(c) Disclosures:
    a. 32(c)(2) Annual percentage rate and paragraph 1 are added.
    b. Under 32(c)(3), the heading is revised.
    c. Under newly designated 32(c)(3), paragraph 1 is revised.
    d. Paragraph 32(c)(3)(i) and paragraph 1 are added.
    e. Under 32(c)(4) Variable rate, paragraph 1 is revised.
    iv. Under 32(d) Limitations:
    a. Paragraph 1 is revised.
    b. Under 32(d)(1)(i) Balloon payment, paragraph 1 is revised and 
paragraphs 2 and 3 are added.
    c. Under 32(d)(2) Negative Amortization, paragraph 1 is revised.
    d. 32(d)(6) Prepayment Penalties and paragraph 1 are removed.
    e. 32(d)(7) Prepayment Penalty Exception, Paragraph 32(d)(7)(iii) 
and paragraphs 1, 2, and 3, and Paragraph 32(d)(7)(iv) and paragraphs 1 
and 2 are removed.
    f. Under 32(d)(8), the heading is revised.
    g. Under newly designated 32(d)(8), Paragraph 32(d)(8)(i) and 
paragraph 1 are added.
    h. Under Paragraph 32(d)(8)(ii), paragraph 1 is revised.
    i. Under Paragraph 32(d)(8)(iii), paragraphs 1 and 2.ii are revised.
    C. Under Section 1026.34--Prohibited Acts or Practices for High-Cost 
Mortgages:
    i. Under 34(a) Prohibited Acts or Practices for High-Cost Mortgages:
    a. Under 34(a)(4) Repayment ability, paragraphs 1 through 5 are 
revised.
    b. Under Paragraph 34(a)(4)(ii)(B), paragraph 1 is revised and 
paragraph 2 is removed.
    c. Paragraph 34(a)(4)(ii)(C) and paragraph 1 are removed.
    d. Under 34(a)(4)(iii) Presumption of compliance, paragraph 1 is 
revised.
    e. Under Paragraph 34(a)(4)(iii)(B), paragraph 1 is revised.
    f. 34(a)(5) Pre-loan counseling, 34(a)(5)(i) Certification of 
counseling required, and paragraphs 1 through 5 are added.
    g. 34(a)(5)(ii) Timing of counseling and paragraphs 1 and 2 are 
added.
    h. 34(a)(5)(iv) Content of certification and paragraphs 1 and 2 are 
added.
    i. 34(a)(5)(v) Counseling fees and paragraph 1 are added.
    j. 34(a)(5)(vi) Steering prohibited and paragraphs 1 and 2 are 
added.
    k. 34(a)(6) Recommended default and paragraphs 1 and 2 are added.
    l. 34(a)(8) Late Fees, 34(a)(8)(i) General, and paragraph 1 are 
added.
    m. 34(a)(8)(iii) Multiple late charges assessed on payment 
subsequently paid and paragraph 1 are added.
    n. 34(a)(8)(iv) Failure to make required payment and paragraph 1 are 
added.
    o. 34(a)(10) Financing of points and fees and paragraphs 1 and 2 are 
added.
    ii. Under 34(b) Prohibited Acts or Practices for Dwelling-Secured 
Loans; Open-End Credit, the heading is revised.
    iii. Under revised 34(b) Prohibited acts or practices for dwelling-
secured loans; structuring loans to evade high-cost mortgage 
requirements,

[[Page 864]]

paragraph 1 is revised and paragraph 2 is added.
    D. Under Section 1026.36--Prohibited Acts or Practices in Connection 
with Credit Secured by a Dwelling:
    i. 36(k) Negative amortization counseling is added.
    a. 36(k)(1)Counseling required and paragraphs 1 through 4 are added.
    b. 36(k)(3) Steering prohibited and paragraph 1 are added. For the 
convenience of the user, the added and revised text is set forth as 
follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

Sec. 1026.31  General Rules

                                * * * * *

    31(c)(1) Disclosures for high-cost mortgages.
    1. Pre-consummation or account opening waiting period. A creditor 
must furnish Sec. 1026.32 disclosures at least three business days 
prior to consummation for a closed-end, high-cost mortgage and at least 
three business days prior to account opening for an open-end, high-cost 
mortgage. 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 or account opening 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 or account opening could not occur until after midnight on 
Tuesday.
    31(c)(1)(i) Change in terms.

                                * * * * *

    2. Premiums or other charges financed at consummation or account 
opening. If the consumer finances the payment of premiums or other 
charges as permitted under Sec. 1026.34(a)(10), 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.
    31(c)(1)(ii) Telephone disclosures.
    1. Telephone disclosures. Disclosures by telephone must be furnished 
at least three business days prior to consummation or account opening, 
as applicable, calculated in accordance with the timing rules under 
Sec. 1026.31(c)(1).
    31(c)(1)(iii) Consumer's waiver of waiting period before 
consummation or account opening.

                                * * * * *

    31(h) Corrections and unintentional violations.
    1. Notice requirements. Notice of a violation pursuant to Sec. 
1026.31(h)(1) or (2) should be in writing. The notice should make the 
consumer aware of the choices available under Sec. 1026.31(h)(1)(iii) 
and (2)(iii). For notice to be adequate, the consumer should have at 
least 60 days in which to consider the available options and communicate 
a choice to the creditor or assignee.
    2. Reasonable time. To claim the benefit of Sec. 1026.31(h), a 
creditor or assignee must implement appropriate restitution and the 
consumer's elected adjustment within a reasonable time after the 
consumer provides notice of that election to the creditor or assignee. 
What length of time is reasonable will depend on what changes to a loan 
or credit plan's documentation, disclosure, or terms are necessary to 
effectuate the adjustment. In general, implementing appropriate 
restitution and completing an adjustment within 30 days of the 
consumer's providing notice of the election can be considered 
reasonable.

Sec. 1026.32  Requirements for High-Cost Mortgages

    32(a) Coverage.
    Paragraph 32(a)(1).
    1. The term high-cost mortgage includes both a closed-end credit 
transaction and an open-end credit plan secured by the consumer's 
principal dwelling. For purposes of determining coverage under Sec. 
1026.32, an open-end

[[Page 865]]

consumer credit transaction is the account opening of an open-end credit 
plan. An advance of funds or a draw on the credit line under an open-end 
credit plan subsequent to account opening does not constitute an open-
end ``transaction.''
    Paragraph 32(a)(1)(i).
    1. Average prime offer rate. High-cost mortgages include closed- and 
open-end consumer credit transactions 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 amount. The term ``average prime 
offer rate'' is defined in Sec. 1026.35(a)(2).
    2. Comparable transaction. Guidance for determining a comparable 
transaction is set forth in comments 35(a)(1)-1 and 35(a)(2)-2 and -3, 
which direct creditors to published tables of average prime offer rates 
for fixed- and variable-rate closed-end credit transactions. Creditors 
opening open-end credit plans must compare the annual percentage rate 
for the plan to the average prime offer rate for the most closely 
comparable closed-end transaction. To identify the most closely 
comparable closed-end transaction, the creditor should identify whether 
the credit plan is fixed- or variable-rate; if the plan is fixed-rate, 
the term of the plan to maturity; if the plan is variable-rate, the 
duration of any initial, fixed-rate period; and the date the interest 
rate for the plan is set. If a fixed-rate plan has no definite plan 
length, a creditor must use the average prime offer rate for a 30-year 
fixed-rate loan. If a variable-rate plan has an optional, fixed-rate 
feature, a creditor must use the rate table for variable-rate 
transactions. If a variable-rate plan has an initial, fixed-rate period 
that is not in whole years, a creditor must identify the most closely-
comparable transaction by using the number of whole years closest to the 
actual fixed-rate period. For example, if a variable-rate plan has an 
initial fixed-rate period of 20 months, a creditor must use the average 
prime offer rate for a two-year adjustable-rate loan. If a variable-rate 
plan has no initial fixed-rate period, or if it has an initial fixed-
rate period of less than one year, a creditor must use the average prime 
offer rate for a one-year adjustable-rate loan. Thus, for example, if 
the initial fixed-rate period is six months, a creditor must use the 
average prime offer rate for a one-year adjustable-rate loan.
    3. Rate set. Comment 35(a)(1)-2 provides guidance for determining 
the average prime offer rate in effect on the date that the interest 
rate for the transaction is set.
    Paragraph 32(a)(1)(i)(B).
    1. Loan amount less than $50,000. The creditor must determine 
whether to apply the APR threshold in Sec. 1026.32(a)(1)(i)(B) based on 
the loan amount, which is the face amount of the note.
    Paragraph 32(a)(1)(ii).
    1. Annual adjustment of $1,000 amount. The $1,000 figure in Sec. 
1026.32(a)(1)(ii)(B) 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.
    2. Historical adjustment of $400 amount. Prior to January 10, 2014, 
a mortgage loan was covered by Sec. 1026.32 if the total points and 
fees payable by the consumer at or before loan consummation exceeded the 
greater of $400 or 8 percent of the total loan amount. The $400 figure 
was adjusted annually on January 1 by the annual percentage change in 
the CPI that was in effect on the preceding June 1, as follows:

                                * * * * *

    3. Applicable threshold. For purposes of Sec. 1026.32(a)(1)(ii), a 
creditor must determine the applicable points and fees threshold based 
on the face amount of the note (or, in the case of an open-end credit 
plan, the credit limit for the plan when the account is opened). 
However, the creditor must apply the allowable points and fees 
percentage to the ``total loan amount,'' as defined in Sec. 
1026.32(b)(4). For closed-end credit transactions, the total loan amount 
may be different than the face amount of the note. The $20,000 amount in 
Sec. 1026.32(a)(1)(ii)(A) and (B) is adjusted annually on January 1 by 
the annual

[[Page 866]]

percentage change in the CPI that was in effect on the preceding June 1.
    Paragraph 32(a)(1)(iii).
    1. Maximum period and amount. Section 1026.32(a)(1)(iii) provides 
that a closed-end credit transaction or an open-end credit plan is a 
high-cost mortgage if, under the terms of the loan contract or open-end 
credit agreement, a creditor can charge either a prepayment penalty more 
than 36 months after consummation or account opening, or total 
prepayment penalties that exceed 2 percent of any amount prepaid. 
Section 1026.32(a)(1)(iii) applies only for purposes of determining 
whether a transaction is subject to the high-cost mortgage requirements 
and restrictions in Sec. 1026.32(c) and (d) and Sec. 1026.34. However, 
if a transaction is subject to those requirements and restrictions by 
operation of any provision of Sec. 1026.32(a)(1), including by 
operation of Sec. 1026.32(a)(1)(iii), then the transaction may not 
include a prepayment penalty. See Sec. 1026.32(d)(6). As a result, 
Sec. 1026.32(a)(1)(iii) effectively establishes a maximum period during 
which a prepayment penalty may be imposed, and a maximum prepayment 
penalty amount that may be imposed, on a closed-end credit transaction 
or open-end credit plan (other than such a mortgage as described in 
Sec. 1026.32(a)(2)) secured by a consumer's principal dwelling. Closed-
end credit transactions covered by Sec. 1026.43 are subject to the 
additional prepayment penalty restrictions set forth in Sec. 
1026.43(g).
    2. Examples; open-end credit. If the terms of an open-end credit 
agreement allow for a prepayment penalty that exceeds 2 percent of the 
initial credit limit for the plan, the agreement will be deemed to be a 
transaction with a prepayment penalty that exceeds 2 percent of the 
``amount prepaid'' within the meaning of Sec. 1026.32(a)(1)(iii). The 
following examples illustrate how to calculate whether the terms of an 
open-end credit agreement comply with the maximum prepayment penalty 
period and amounts described in Sec. 1026.32(a)(1)(iii).
    i. Assume that the terms of a home-equity line of credit with an 
initial credit limit of $10,000 require the consumer to pay a $500 flat 
fee if the consumer terminates the plan less than 36 months after 
account opening. The $500 fee constitutes a prepayment penalty under 
Sec. 1026.32(b)(6)(ii), and the penalty is greater than 2 percent of 
the $10,000 initial credit limit, which is $200. Under Sec. 
1026.32(a)(1)(iii), the plan is a high-cost mortgage subject to the 
requirements and restrictions set forth in Sec. Sec. 1026.32 and 
1026.34.
    ii. Assume that the terms of a home-equity line of credit with an 
initial credit limit of $10,000 and a ten-year term require the consumer 
to pay a $200 flat fee if the consumer terminates the plan prior to its 
normal expiration. The $200 prepayment penalty does not exceed 2 percent 
of the initial credit limit, but the terms of the agreement permit the 
creditor to charge the fee more than 36 months after account opening. 
Thus, under Sec. 1026.32(a)(1)(iii), the plan is a high-cost mortgage 
subject to the requirements and restrictions set forth in Sec. Sec. 
1026.32 and 1026.34.
    iii. Assume that, under the terms of a home-equity line of credit 
with an initial credit limit of $150,000, the creditor may charge the 
consumer any closing costs waived by the creditor if the consumer 
terminates the plan less than 36 months after account opening. Assume 
also that the creditor waived closing costs of $1,000. Bona fide third-
party charges comprised $800 of the $1,000 in waived closing costs, and 
origination charges retained by the creditor or its affiliate comprised 
the remaining $200. Under Sec. 1026.32(b)(6)(ii), the $800 in bona fide 
third-party charges is not a prepayment penalty, while the $200 for the 
creditor's own originations costs is a prepayment penalty. The total 
prepayment penalty of $200 is less than 2 percent of the initial 
$150,000 credit limit, and the penalty does not apply if the consumer 
terminates the plan more than 36 months after account opening. Thus, the 
plan is not a high-cost mortgage under Sec. 1026.32(a)(1)(iii).
    32(a)(2) Exemptions.

                                * * * * *

    Paragraph 32(a)(2)(ii).
    1. Construction-permanent loans. Section 1026.32 does not apply to a 
transaction to finance the initial construction of a dwelling. This 
exemption applies to a construction-only loan as

[[Page 867]]

well as to the construction phase of a construction-to-permanent loan. 
Section 1026.32 may apply, however, to permanent financing that replaces 
a construction loan, whether the permanent financing is extended by the 
same or a different creditor. When a construction loan may be 
permanently financed by the same creditor, Sec. 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 each of the two phases as though they were two separate 
transactions. See also comment 17(c)(6)-2. Section 1026.17(c)(6)(ii) 
addresses only how a creditor may elect to disclose a construction to 
permanent transaction. Which disclosure option a creditor elects under 
Sec. 1026.17(c)(6)(ii) does not affect the determination of whether the 
permanent phase of the transaction is subject to Sec. 1026.32. When the 
creditor discloses the two phases as separate transactions, the annual 
percentage rate for the permanent phase must be compared to the average 
prime offer rate for a transaction that is comparable to the permanent 
financing to determine coverage under Sec. 1026.32. Likewise, a single 
amount of points and fees, also reflecting the appropriate charges from 
the permanent phase, must be calculated and compared with the total loan 
amount to determine coverage under Sec. 1026.32. When the creditor 
discloses the two phases as a single transaction, a single annual 
percentage rate, reflecting the appropriate charges from both phases, 
must be calculated for the transaction in accordance with Sec. 
1026.32(a)(3) and appendix D to part 1026. This annual percentage rate 
must be compared to the average prime offer rate for a transaction that 
is comparable to the permanent financing to determine coverage under 
Sec. 1026.32. Likewise, a single amount of points and fees, also 
reflecting the appropriate charges from both phases of the transaction, 
must be calculated and compared with the total loan amount to determine 
coverage under Sec. 1026.32. If the transaction is determined to be a 
high-cost mortgage, only the permanent phase is subject to the 
requirements of Sec. Sec. 1026.32 and 1026.34.
    Paragraph 32(a)(2)(iii).
    1. Housing Finance Agency. For purposes of Sec. 1026.32(a)(2)(iii), 
a Housing Finance Agency means a housing finance agency as defined in 24 
CFR 266.5.
    32(a)(3) Determination of annual percentage rate.
    1. In general. The guidance set forth in the commentary to Sec. 
1026.17(c)(1) and in Sec. 1026.40 addresses calculation of the annual 
percentage rate disclosures for closed-end credit transactions and open-
end credit plans, respectively. Section 1026.32(a)(3) requires a 
different calculation of the annual percentage rate solely to determine 
coverage under Sec. 1026.32(a)(1)(i).
    2. Open-end credit. The annual percentage rate for an open-end 
credit plan must be determined in accordance with Sec. 1026.32(a)(3), 
regardless of whether there is an advance of funds at account opening. 
Section 1026.32(a)(3) does not require the calculation of the annual 
percentage rate for any extensions of credit subsequent to account 
opening. Any draw on the credit line subsequent to account opening is 
not treated as a separate transaction for purposes of determining annual 
percentage rate threshold coverage.
    3. Rates that vary; index rate plus maximum margin. i. Section 
1026.32(a)(3)(ii) applies in the case of a closed- or open-end credit 
transaction when the interest rate for the transaction varies solely in 
accordance with an index. For purposes of Sec. 1026.32(a)(3)(ii), a 
transaction's interest rate varies in accordance with an index even if 
the transaction has an initial rate that is not determined by the index 
used to make later interest rate adjustments provided that, following 
the first rate adjustment, the interest rate for the transaction varies 
solely in accordance with an index.
    ii. In general, for transactions subject to Sec. 1026.32(a)(3)(ii), 
the annual percentage rate is determined by adding the index rate in 
effect on the date that the interest rate for the transaction is set to 
the maximum margin for the transaction, as set forth in the agreement 
for the loan or plan. In some cases, a transaction subject to Sec. 
1026.32(a)(3)(ii) may have an initial rate that is a premium rate and is 
higher than the index rate plus the

[[Page 868]]

maximum margin as of the date the interest rate for the transaction is 
set. In such cases, the annual percentage rate is determined based on 
the initial ``premium'' rate.
    iii. The following examples illustrate the rule:
    A. Assume that the terms of a closed-end, adjustable-rate mortgage 
loan provide for a fixed, initial interest rate of 2 percent for two 
years following consummation, after which the interest rate will adjust 
annually in accordance with an index plus a 2 percent margin. Also 
assume that the applicable index is 3 percent as of the date the 
interest rate for the transaction is set, and a lifetime interest rate 
cap of 15 percent applies to the transaction. Pursuant to Sec. 
1026.32(a)(3)(ii), for purposes of determining the annual percentage 
rate for Sec. 1026.32(a)(1)(i), the interest rate for the transaction 
is 5 percent (3 percent index rate plus 2 percent margin).
    B. Assume the same transaction terms set forth in paragraph 3.iii.A, 
except that an initial interest rate of 6 percent applies to the 
transaction. Pursuant to Sec. 1026.32(a)(3)(ii), for purposes of 
determining the annual percentage rate for Sec. 1026.32(a)(1)(i), the 
interest rate for the transaction is 6 percent.
    C. Assume that the terms of an open-end credit agreement with a 
five-year draw period and a five-year repayment period provide for a 
fixed, initial interest rate of 2 percent for the first year of the 
repayment period, after which the interest rate will adjust annually 
pursuant to a publicly-available index outside the creditor's control, 
in accordance with the limitations applicable to open-end credit plans 
in Sec. 1026.40(f). Also assume that, pursuant to the terms of the 
open-end credit agreement, a margin of 2 percent applies because the 
consumer is employed by the creditor, but that the margin will increase 
to 4 percent if the consumer's employment with the creditor ends. 
Finally, assume that the applicable index rate is 3.5 percent as of the 
date the interest rate for the transaction is set, and a lifetime 
interest rate cap of 15 percent applies to the transaction. Pursuant to 
Sec. 1026.32(a)(3)(ii), for purposes of determining the annual 
percentage rate for Sec. 1026.32(a)(1)(i), the interest rate for the 
transaction is 7.5 percent (3.5 percent index rate plus 4 percent 
maximum margin).
    D. Assume the same transaction terms set forth in paragraph 3.iii.C, 
except that an initial interest rate of 8 percent applies to the 
transaction. Pursuant to Sec. 1026.32(a)(3)(ii), for purposes of 
determining the annual percentage rate for Sec. 1026.32(a)(1)(i), the 
interest rate for the transaction is 8 percent.
    4. Rates that vary other than in accordance with an index. Section 
1026.32(a)(3)(iii) applies when the interest rate applicable to a 
closed- or open-end transaction may or will vary, except as described in 
Sec. 1026.32(a)(3)(ii). Section 1026.32(a)(3)(iii) thus applies where 
multiple fixed rates apply to a transaction, such as in a step-rate 
mortgage. For example, assume the following interest rates will apply to 
a transaction: 3 percent for the first six months, 4 percent for the 
next 10 years, and 5 percent for the remaining loan term. In this 
example, Sec. 1026.32(a)(3)(iii) would be used to determine the 
interest rate, and 5 percent would be the maximum interest rate 
applicable to the transaction used to determine the annual percentage 
rate for purposes of Sec. 1026.32(a)(1)(i). Section 1026.32(a)(3)(iii) 
also applies to any other adjustable-rate loan where the interest rate 
may vary but according to a formula other than the sum of an index and a 
margin.
    5. Fixed-rate and -term payment options. If an open-end credit plan 
has only a fixed rate during the draw period, a creditor must use the 
interest rate applicable to that feature to determine the annual 
percentage rate, as required by Sec. 1026.32(a)(3)(i). However, if an 
open-end credit plan has a variable rate, but also offers a fixed-rate 
and -term payment option during the draw period, Sec. 1026.32(a)(3) 
requires a creditor to use the terms applicable to the variable-rate 
feature for determining the annual percentage rate, as described in 
Sec. 1026.32(a)(3)(ii).
    32(b) Definitions.

                                * * * * *

    Paragraph 32(b)(2)(i).
    1. Finance charge. The points and fees calculation under Sec. 
1026.32(b)(2) generally does not include items that are

[[Page 869]]

included in the finance charge but that are not known until after 
account opening, such as minimum monthly finance charges or charges 
based on account activity or inactivity. Transaction fees also generally 
are not included in the points and fees calculation, except as provided 
in Sec. 1026.32(b)(2)(vi). See comments 32(b)(1)-1 and 32(b)(1)(i)-1 
and -2 for additional guidance concerning the calculation of points and 
fees.
    Paragraph 32(b)(2)(i)(B).
    1. See comment 32(b)(1)(i)(B)-1 for further guidance concerning the 
exclusion of mortgage insurance premiums payable in connection with any 
Federal or State agency program.
    Paragraph 32(b)(2)(i)(C).
    1. See comment 32(b)(1)(i)(C)-1 and -2 for further guidance 
concerning the exclusion of mortgage insurance premiums payable for any 
guaranty or insurance that protects the creditor against the consumer's 
default or other credit loss and that is not in connection with any 
Federal or State agency program.
    Paragraph 32(b)(2)(i)(D).
    1. For purposes of Sec. 1026.32(b)(2)(i)(D), the term loan 
originator means a loan originator as that term is defined in Sec. 
1026.36(a)(1), without regard to Sec. 1026.36(a)(2). See comments 
32(b)(1)(i)(D)-1, -3, and -4 for further guidance concerning the 
exclusion of bona fide third-party charges from points and fees.
    Paragraph 32(b)(2)(i)(E).
    1. See comments 32(b)(1)(i)(E)-1 through -3 for further guidance 
concerning the exclusion of up to two bona fide discount points from 
points and fees.
    Paragraph 32(b)(2)(i)(F).
    1. See comments 32(b)(1)(i)(F)-1 and -2 for further guidance 
concerning the exclusion of up to one bona fide discount point from 
points and fees.
    Paragraph 32(b)(2)(ii).
    1. For purposes of Sec. 1026.32(b)(2)(ii), the term loan originator 
means a loan originator as that term is defined in Sec. 1026.36(a)(1), 
without regard to Sec. 1026.36(a)(2). See the commentary to Sec. 
1026.32(b)(1)(ii) for additional guidance concerning the inclusion of 
loan originator compensation in points and fees.
    Paragraph 32(b)(2)(iii).
    1. Other charges. See comment 32(b)(1)(iii)-1 for further guidance 
concerning the inclusion of items listed in Sec. 1026.4(c)(7) in points 
and fees.
    Paragraph 32(b)(2)(iv).
    1. Credit insurance and debt cancellation or suspension coverage. 
See comments 32(b)(1)(iv)-1 through -3 for further guidance concerning 
the inclusion of premiums for credit insurance and debt cancellation or 
suspension coverage in points and fees.
    Paragraph 32(b)(2)(vii).
    1. Participation fees. Fees charged for participation in a credit 
plan must be included in the points and fees calculation for purposes of 
Sec. 1026.32 if payable at or before account opening. These fees 
include annual fees or other periodic fees that must be paid as a 
condition of access to the plan itself. See commentary to Sec. 
1026.4(c)(4) for a description of these fees.
    Paragraph 32(b)(2)(viii).
    1. Transaction fees to draw down the credit line. Section 
1026.32(b)(2)(viii) requires creditors in open-end credit plans to 
include in points and fees any transaction fee, including any per-
transaction fee, that will be charged for a draw on the credit line. 
Section 1026.32(b)(2)(viii) requires the creditor to assume that the 
consumer will make at least one draw during the term of the credit plan. 
Thus, if the terms of the open-end credit plan permit the creditor to 
charge a $10 transaction fee each time the consumer draws on the credit 
line, Sec. 1026.32(b)(2)(viii) requires the creditor to include one $10 
charge in the points and fees calculation.
    2. Fixed-rate loan option. If the terms of an open-end credit plan 
permit a consumer to draw on the credit line using either a variable-
rate feature or a fixed-rate feature, Sec. 1026.32(b)(2)(viii) requires 
the creditor to use the terms applicable to the variable-rate feature 
for determining the transaction fee that must be included in the points 
and fees calculation.

                                * * * * *

    32(b)(6) Prepayment penalty.

                                * * * * *

    3. Examples of prepayment penalties; open-end credit. For purposes 
of

[[Page 870]]

Sec. 1026.32(b)(6)(ii), the term prepayment penalty includes a charge, 
including a waived closing cost, imposed by the creditor if the consumer 
terminates the open-end credit plan prior to the end of its term. This 
includes a charge imposed if the consumer terminates the plan outright 
or, for example, if the consumer terminates the plan in connection with 
obtaining a new loan or plan with the current holder of the existing 
plan, a servicer acting on behalf of the current holder, or an affiliate 
of either. However, the term prepayment penalty does not include a 
waived bona fide third-party charge imposed by the creditor if the 
consumer terminates the open-end credit plan during the first 36 months 
after account opening.
    4. Fees that are not prepayment penalties; open-end credit. For 
purposes of Sec. 1026.32(b)(6)(ii), fees that are not prepayment 
penalties include, for example:
    i. Fees imposed for preparing and providing documents when an open-
end credit plan is terminated, if such fees are imposed whether or not 
the consumer terminates the plan prior to the end of its term. Examples 
include a payoff statement, a reconveyance document, or another document 
releasing the creditor's security interest in the dwelling that secures 
the line of credit.
    ii. Loan guarantee fees.
    iii. Any fee that the creditor may impose in lieu of termination and 
acceleration under comment 40(f)(2)-2.
    32(c) Disclosures.

                                * * * * *

    32(c)(2) Annual percentage rate.
    1. Disclosing annual percentage rate for open-end high-cost 
mortgages. In disclosing the annual percentage rate for an open-end, 
high-cost mortgage under Sec. 1026.32(c)(2), creditors must comply with 
Sec. 1026.6(a)(1). If a fixed-rate, discounted introductory or initial 
interest rate is offered on the transaction, Sec. 1026.32(c)(2) 
requires a creditor to disclose the annual percentage rate of the fixed-
rate, discounted introductory or initial interest rate feature, and the 
rate that would apply when the feature expires.
    32(c)(3) Regular payment; minimum periodic payment example; balloon 
payment.
    1. Balloon payment. Except as provided in Sec. 1026.32(d)(1)(ii) 
and (iii), a mortgage transaction subject to this section may not 
include a payment schedule that results in a balloon payment.
    Paragraph 32(c)(3)(i).
    1. General. The regular payment is the amount due from the consumer 
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,

[[Page 871]]

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. For a closed-end 
credit transaction, 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. For 
an open-end credit plan, the maximum monthly payment must be based on 
the following assumptions:
    i. The consumer borrows the full credit line at account opening with 
no additional extensions of credit.
    ii. The consumer makes only minimum periodic payments during the 
draw period and any repayment period.
    iii. If the annual percentage rate may increase during the plan, the 
maximum annual percentage rate that is included in the contract, as 
required by Sec. 1026.30, applies to the plan at account opening.

                                * * * * *

    32(d) Limitations.
    1. Additional prohibitions applicable under other sections. Section 
1026.34 sets forth certain prohibitions in connection with high-cost 
mortgages, in addition to the limitations in Sec. 1026.32(d). Further, 
Sec. 1026.35(b) prohibits certain practices in connection with closed-
end 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 closed-end high-cost 
mortgages 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 high-cost 
mortgage must fully amortize the outstanding principal balance through 
``regular periodic payments.'' A payment is a ``regular periodic 
payment'' if it is not more than two times the amount of other payments. 
For purposes of open-end credit plans, the term ``regular periodic 
payment'' or ``periodic payment'' means the required minimum periodic 
payment.
    2. Repayment period. If the terms of an open-end credit plan provide 
for a repayment period during which no further draws may be taken, the 
limitations in Sec. 1026.32(d)(1)(i) apply to regular periodic payments 
required by the credit plan during the draw period, but do not apply to 
any adjustment in the regular periodic payment that results from the 
transition from the credit plan's draw period to its repayment period. 
Further, the limitation on balloon payments in Sec. 1026.32(d)(1)(i) 
does not preclude increases in regular periodic payments that result 
solely from the initial draw or additional draws on the credit line 
during the draw period.
    3. No repayment period. If the terms of an open-end credit plan do 
not provide for a repayment period, the repayment schedule must fully 
amortize any outstanding principal balance in the draw period through 
regular periodic payments. However, the limitation on balloon payments 
in Sec. 1026.32(d)(1)(i) does not preclude increases in regular 
periodic payments that result solely from the initial draw or additional 
draws on the credit line during the draw period.
    32(d)(2) Negative amortization.
    1. Negative amortization. The prohibition against negative 
amortization in a high-cost mortgage 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 applicable law 
and the consumer's legal obligation.

                                * * * * *

    32(d)(8) Acceleration of debt.
    Paragraph 32(d)(8)(i).
    1. Fraud or material misrepresentation. A creditor may terminate a 
loan or

[[Page 872]]

open-end credit agreement and accelerate the balance if there has been 
fraud or material misrepresentation by the consumer in connection with 
the loan or open-end credit agreement. 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 32(d)(8)(ii).
    1. Failure to meet repayment terms. A creditor may terminate a loan 
or open-end credit agreement and accelerate the balance when the 
consumer fails to meet the repayment terms resulting in a default in 
payment under the agreement; a creditor may do so, however, only if the 
consumer actually fails to make payments resulting in a default in the 
agreement. 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 Sec. 1026.32(d)(8)(i) if the consumer fails to meet 
the repayment terms resulting in a default of the agreement. Section 
1026.32(d)(8)(i) does not override any State or other law that requires 
a creditor to notify a consumer of a right to cure, or otherwise places 
a duty on the creditor before it can terminate a loan or open-end credit 
agreement and accelerate the balance.
    Paragraph 32(d)(8)(iii).
    1. Impairment of security. A creditor may terminate a loan or open-
end credit agreement 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. * * *
    ii. By contrast, the filing of a judgment against the consumer would 
be cause for 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 and materially affected in violation of 
the loan or open-end credit agreement. If the consumer commits waste or 
otherwise destructively uses or fails to maintain the property, 
including demolishing or removing structures from the property, such 
that the action adversely affects the security in a material way, the 
loan or open-end credit agreement 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 in a 
material way, the creditor may terminate a loan or open-end credit 
agreement and accelerate the balance.

                                * * * * *

Sec. 1026.34  Prohibited Acts or Practices in Connection with High-Cost 
          Mortgages

                                * * * * *

    34(a)(4) Repayment ability for high-cost mortgages.
    1. Application of repayment ability rule. The Sec. 1026.34(a)(4) 
prohibition against making loans without regard to consumers' repayment 
ability applies to open-end, high-cost mortgages. The Sec. 1026.43 
repayment ability provisions apply to closed-end, high-cost mortgages. 
Accordingly, in connection with a closed-end, high-cost mortgage, Sec. 
1026.34(a)(4) requires a creditor to comply with the repayment ability 
requirements set forth in Sec. 1026.43.
    2. General prohibition. Section 1026.34(a)(4) prohibits a creditor 
from extending credit under a high-cost, open-end credit plan based on 
the value of the consumer's collateral without regard to the consumer's 
repayment ability as of account opening, 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

[[Page 873]]

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 account 
opening and secured by the same dwelling that secures the high-cost 
mortgage transaction.
    4. Discounted introductory rates and non-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. 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 account opening. Section 1026.34(a)(4) 
prohibits a creditor from disregarding repayment ability based on the 
facts and circumstances known to the creditor as of account opening. 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 account opening. 
However, if a creditor has knowledge as of account opening 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.

                                * * * * *

    34(a)(4)(ii) Verification of Repayment Ability.

                                * * * * *

    Paragraph 34(a)(4)(ii)(B).
    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 account opening 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 Sec. 1026.34(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 
Sec. 1026.34(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 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. 1026.32(c)(3).

                                * * * * *

    34(a)(5) Pre-loan counseling.
    34(a)(5)(i) Certification of counseling required.

[[Page 874]]

    1. HUD-approved counselor. For purposes of Sec. 1026.34(a)(5), 
counselors approved by the Secretary of the U.S. Department of Housing 
and Urban Development are homeownership counselors certified pursuant to 
section 106(e) of the Housing and Urban Development Act of 1968 (12 
U.S.C. 1701x(e)), or as otherwise determined by the Secretary.
    2. State housing finance authority. For purposes of Sec. 
1026.34(a)(5), a ``State housing finance authority'' has the same 
meaning as ``State housing finance agency'' provided in 24 CFR 214.3.
    3. Processing applications. Prior to receiving certification of 
counseling, a creditor may not extend a high-cost mortgage, but may 
engage in other activities, such as processing an application that will 
result in the extension of a high-cost mortgage (by, for example, 
ordering an appraisal or title search).
    4. Form of certification. The written certification of counseling 
required by Sec. 1026.34(a)(5)(i) may be received by mail, email, 
facsimile, or any other method, so long as the certification is in a 
retainable form.
    5. Purpose of certification. Certification of counseling indicates 
that a consumer has received counseling as required by Sec. 
1026.34(a)(5), but it does not indicate that a counselor has made a 
judgment or determination as to the appropriateness of the transaction 
for the consumer.
    34(a)(5)(ii) Timing of counseling.
    1. Disclosures for open-end credit plans. Section 1026.34(a)(5)(ii) 
permits receipt of either the good faith estimate required by section 
5(c) of RESPA or the disclosures required under Sec. 1026.40 to allow 
counseling to occur. Pursuant to 12 CFR 1024.7(h), the disclosures 
required by Sec. 1026.40 can be provided in lieu of a good faith 
estimate for open-end credit plans.
    2. Initial disclosure. Counseling may occur after receipt of either 
an initial good faith estimate required by section 5(c) of RESPA or a 
disclosure form pursuant to Sec. 1026.40, regardless of whether a 
revised good faith estimate or revised disclosure form pursuant to Sec. 
1026.40 is subsequently provided to the consumer.
    34(a)(5)(iv) Content of certification.
    1. Statement of counseling on advisability. A statement that a 
consumer has received counseling on the advisability of the high-cost 
mortgage means that the consumer has received counseling about key terms 
of the mortgage transaction, as set out in either the good faith 
estimate required by section 5(c) of RESPA or the disclosures provided 
to the consumer pursuant to Sec. 1026.40; the consumer's budget, 
including the consumer's income, assets, financial obligations, and 
expenses; and the affordability of the mortgage transaction for the 
consumer. Examples of such terms of the mortgage transaction include the 
initial interest rate, the initial monthly payment, whether the payment 
may increase, how the minimum periodic payment will be determined, and 
fees imposed by the creditor, as may be reflected in the applicable 
disclosure. A statement that a consumer has received counseling on the 
advisability of the high-cost mortgage does not require the counselor to 
have made a judgment or determination as to the appropriateness of the 
mortgage transaction for the consumer.
    2. Statement of verification. A statement that a counselor has 
verified that the consumer has received the disclosures required by 
either Sec. 1026.32(c) or by RESPA for the high-cost mortgage means 
that a counselor has confirmed, orally, in writing, or by some other 
means, receipt of such disclosures with the consumer.
    34(a)(5)(v) Counseling fees.
    1. Financing. Section 1026.34(a)(5)(v) does not prohibit a creditor 
from financing the counseling fee as part of the transaction for a high-
cost mortgage, if the fee is a bona fide third- party charge as provided 
by Sec. 1026.32(b)(5)(i).
    34(a)(5)(vi) Steering prohibited.
    1. An example of an action that constitutes steering would be when a 
creditor repeatedly highlights or otherwise distinguishes the same 
counselor in the notices the creditor provides to consumers pursuant to 
Sec. 1026.34(a)(5)(vii).
    2. Section 1026.34(a)(5)(vi) does not prohibit a creditor from 
providing a consumer with objective information related to counselors or 
counseling organizations in response to a consumer's

[[Page 875]]

inquiry. An example of an action that would not constitute steering 
would be when a consumer asks the creditor for information about the 
fees charged by a counselor, and the creditor responds by providing the 
consumer information about fees charged by the counselor to other 
consumers that previously obtained counseling pursuant to Sec. 
1026.34(a)(5).
    34(a)(6) Recommended default.
    1. Facts and circumstances. Whether a creditor or mortgage broker 
``recommends or encourages'' default for purposes of Sec. 1026.34(a)(6) 
depends on all of the relevant facts and circumstances.
    2. Examples. i. A creditor or mortgage broker ``recommends or 
encourages'' default when the creditor or mortgage broker advises the 
consumer to stop making payments on an existing loan in a manner that is 
likely to cause the consumer to default on the existing loan.
    ii. When delay of consummation of a high-cost mortgage occurs for 
reasons outside the control of a creditor or mortgage broker, that 
creditor or mortgage broker does not ``recommend or encourage'' default 
because the creditor or mortgage broker informed a consumer that:
    A. The consumer's high-cost mortgage is scheduled to be consummated 
prior to the due date for the next payment due on the consumer's 
existing loan, which is intended to be paid by the proceeds of the new 
high-cost mortgage; and
    B. Any delay of consummation of the new high-cost mortgage beyond 
the payment due date of the existing loan will not relieve the consumer 
of the obligation to make timely payment on that loan.
    34(a)(8) Late fees.
    34(a)(8)(i) General.
    1. For purposes of Sec. 1026.34(a)(8), in connection with an open-
end credit plan, the amount of the payment past due is the required 
minimum periodic payment as provided under the terms of the open-end 
credit agreement.
    34(a)(8)(iii) Multiple late charges assessed on payment subsequently 
paid.
    1. Section 1026.34(a)(8)(iii) prohibits the pyramiding of late fees 
or charges in connection with a high-cost mortgage payment. For example, 
assume that a consumer's regular periodic payment of $500 is due on the 
1st of each month. On August 25, the consumer makes a $500 payment which 
was due on August 1, and as a result, a $10 late charge is assessed. On 
September 1, the consumer makes another $500 payment for the regular 
periodic payment due on September 1, but does not pay the $10 late 
charge assessed on the August payment. Under Sec. 1026.34(h)(2), it is 
impermissible to allocate $10 of the consumer's September 1 payment to 
cover the late charge, such that the September payment becomes 
delinquent. In short, because the $500 payment made on September 1 is a 
full payment for the applicable period and is paid by its due date or 
within any applicable grace period, no late charge may be imposed on the 
account in connection with the September payment.
    34(a)(8)(iv) Failure to make required payment.
    1. Under Sec. 1026.34(a)(8)(iv), if a consumer fails to make one or 
more required payments and then resumes making payments but fails to 
bring the account current, it is permissible, if permitted by the terms 
of the loan contract or open-end credit agreement, to apply the 
consumer's payments first to the past due payment(s) and to impose a 
late charge on each subsequent required payment until the account is 
brought current. To illustrate: Assume that a consumer's regular 
periodic payment of $500 is due on the 1st of each month, or before the 
expiration of a 15-day grace period. Also assume that the consumer fails 
to make a timely installment payment by August 1 (or within the 
applicable grace period), and a $10 late charge therefore is imposed. 
The consumer resumes making monthly payments on September 1. Under Sec. 
1026.34(a)(8)(iv), if permitted by the terms of the loan contract, the 
creditor may apply the $500 payment made on September 1 to satisfy the 
missed $500 payment that was due on August 1. If the consumer makes no 
other payment prior to the end of the grace period for the payment that 
was due on September 1, the creditor may also impose a $10 late fee for 
the payment that was due on September 1.
    34(a)(10) Financing of points and fees.

[[Page 876]]

    1. Points and fees. For purposes of Sec. 1026.34(a)(10), ``points 
and fees'' means those items that are required to be included in the 
calculation of points and fees under Sec. 1026.32(b)(1) and (2). Thus, 
for example, in connection with the extension of credit under a high-
cost mortgage, a creditor may finance a fee charged by a third-party 
counselor in connection with the consumer's receipt of pre-loan 
counseling under Sec. 1026.34(a)(5), because, pursuant to Sec. 
1026.32(b)(1)(i)(D) and (b)(2)(i)(D), such a fee is excluded from the 
calculation of points and fees as a bona fide third-party charge.
    2. Examples of financing points and fees. For purposes of Sec. 
1026.34(a)(10), points and fees are financed if, for example, they are 
added to the loan balance or financed through a separate note, if the 
note is payable to the creditor or to an affiliate of the creditor. In 
the case of an open-end credit plan, a creditor also finances points and 
fees if the creditor advances funds from the credit line to cover the 
fees.
    34(b) Prohibited acts or practices for dwelling-secured loans; 
structuring loans to evade high-cost mortgage requirements.
    1. Examples. i. A creditor structures a transaction in violation of 
Sec. 1026.34(b) if, for example, the creditor structures a loan that 
would otherwise be a high-cost mortgage as two or more loans, whether 
made consecutively or at the same time, for example, to divide the loan 
fees to avoid the points and fees threshold for high-cost mortgages in 
Sec. 1026.32(a)(1)(ii).
    ii. A creditor does not structure a transaction in violation of 
Sec. 1026.34(b) when a loan to finance the initial construction of a 
dwelling may be permanently financed by the same creditor, such as a 
``construction-to-permanent'' loan, and the construction phase and the 
permanent phase are treated as separate transactions. 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 each of the two phases 
as though they were two separate transactions. See also comment 
17(c)(6)-2.
    2. 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. Thus, in determining the 
``total loan amount'' for purposes of applying the triggers under Sec. 
1026.32, 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.

                                * * * * *

Sec. 1026.36  Prohibited Acts or Practices in Connection with Credit 
          Secured by a Dwelling

                                * * * * *

    36(k) Negative amortization counseling.
    36(k)(1) Counseling required.
    1. HUD-certified or -approved counselor or counseling organization. 
For purposes of Sec. 1026.36(k), organizations or counselors certified 
or approved by the U.S. Department of Housing and Urban Development 
(HUD) to provide the homeownership counseling required by Sec. 
1026.36(k) include counselors and counseling organizations that are 
certified or approved pursuant to section 106(e) of the Housing and 
Urban Development Act of 1968 (12 U.S.C. 1701x(e)) or 24 CFR part 214, 
unless HUD determines otherwise.
    2. Homeownership counseling. The counseling required under Sec. 
1026.36(k) must include information regarding the risks and consequences 
of negative amortization.
    3. Documentation. Examples of documentation that demonstrate a 
consumer has received the counseling required under Sec. 1026.36(k) 
include a certificate of counseling, letter, or email from a HUD-
certified or -approved counselor or counseling organization indicating 
that the consumer has received homeownership counseling.

[[Page 877]]

    4. Processing applications. Prior to receiving documentation that a 
consumer has received the counseling required under Sec. 1026.36(k), a 
creditor may not extend credit to a first-time borrower in connection 
with a closed-end transaction secured by a dwelling that may result in 
negative amortization, but may engage in other activities, such as 
processing an application for such a transaction (by, for example, 
ordering an appraisal or title search).
    36(k)(3) Steering prohibited.
    1. See comments 34(a)(5)(vi)-1 and -2 for guidance concerning 
steering.

                                * * * * *

    Effective Date Note: 3. At 78 FR 10444, Feb. 13, 2013, Supplement I 
to part 1026 was amended, effective Jan. 18, 2014. In Supplement I to 
part 1026, under Section 1026.35--Prohibited Acts or Practices in 
Connection with Higher-Priced Mortgage Loans, as amended January 22, 
2013 (78 FR 4754): i. Under 35(a) Definitions, the heading of Paragraph 
35(a)(1) and paragraphs 1, 2, and 3 are republished. ii. New 35(c) 
Appraisals is added. and new Appendix O--Illustrative Written Source 
Documents for Higher-Priced Mortgage Loan Appraisal Rules is added. For 
the convenience of the user, the added text is set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

     Section 1026.35--Requirements for Higher-Priced Mortgage Loans

                            35(a) Definitions

                           Paragraph 35(a)(1)

    1. 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.
    2. 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.
    3. Threshold for ``jumbo'' loans. Section 1026.35(a)(1)(ii) provides 
a separate threshold for determining whether a transaction is a higher-
priced mortgage loan subject to Sec. 1026.35 when the principal balance 
exceeds the limit in effect as of the date the transaction's rate is set 
for the maximum principal obligation eligible for purchase by Freddie 
Mac (a ``jumbo'' loan). The Federal Housing Finance Agency (FHFA) 
establishes and adjusts the maximum principal obligation pursuant to 
rules under 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(a)(1)(ii) applies.

                                * * * * *

                            35(c)--Appraisals

                          35(c)(1) Definitions

               35(c)(1)(i) Certified or Licensed Appraiser

    1. USPAP. The Uniform Standards of Professional Appraisal Practice 
(USPAP) are established by the Appraisal Standards Board of the 
Appraisal Foundation (as defined in 12 U.S.C. 3350(9)). Under Sec. 
1026.35(c)(1)(i), the relevant USPAP standards are those found in the 
edition of USPAP and that are in effect at the time the appraiser signs 
the appraiser's certification.
    2. Appraiser's certification. The appraiser's certification refers 
to the certification that must be signed by the appraiser for each 
appraisal assignment. This requirement is specified in USPAP Standards 
Rule 2-3.
    3. FIRREA title XI and implementing regulations. The relevant 
regulations are those prescribed under section 1110 of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), as 
amended (12 U.S.C. 3339), that relate to an appraiser's development and 
reporting of the appraisal in effect at the time the appraiser signs the 
appraiser's certification. Paragraph (3) of FIRREA section 1110 (12 
U.S.C. 3339(3)), which relates to the review of appraisals, is not 
relevant for determining whether an appraiser is a certified or licensed 
appraiser under Sec. 1026.35(c)(1)(i).

                           35(c)(2) Exemptions

                         Paragraph 35(c)(2)(ii)

    1. Secured by new manufactured home. A transaction secured by a new 
manufactured home, regardless of whether the transaction is also secured 
by the land on which it is sited, is not a ``higher-priced mortgage 
loan'' subject to the appraisal requirements of Sec. 1026.35(c).

[[Page 878]]

                         Paragraph 35(c)(2)(iii)

    1. Secured by a mobile home. For purposes of the exemption in Sec. 
1026.35(c)(2)(iii), a mobile home does not include a manufactured home, 
as defined in Sec. 1026.35(c)(1)(ii).

                         Paragraph 35(c)(2)(iv)

    1. Construction-to-permanent loans. Section 1026.35(c) does not 
apply to a transaction to finance the initial construction of a 
dwelling. This exclusion applies to a construction-only loan as well as 
to the construction phase of a construction-to-permanent loan. Section 
1026.35(c) does apply, however, to permanent financing that replaces a 
construction loan, whether the permanent financing is extended by the 
same or a different creditor, unless the permanent financing is 
otherwise exempt from the requirements of Sec. 1026.35(c). See Sec. 
1026.35(c)(2). When a construction loan may be permanently financed by 
the same creditor, the general disclosure requirements for closed-end 
credit (Sec. 1026.17) provide that the creditor may give either one 
combined disclosure for both the construction financing and the 
permanent financing, or a separate set of disclosures for each of the 
two phases as though they were two separate transactions. See Sec. 
1026.17(c)(6)(ii) and comment 17(c)(6)-2. Section 1026.17(c)(6)(ii) 
addresses only how a creditor may elect to disclose a construction-to-
permanent transaction. Which disclosure option a creditor elects under 
Sec. 1026.17(c)(6)(ii) does not affect the determination of whether the 
permanent phase of the transaction is subject to Sec. 1026.35(c). When 
the creditor discloses the two phases as separate transactions, the 
annual percentage rate for the permanent phase must be compared to the 
average prime offer rate for a transaction that is comparable to the 
permanent financing to determine coverage under Sec. 1026.35(c). When 
the creditor discloses the two phases as a single transaction, a single 
annual percentage rate, reflecting the appropriate charges from both 
phases, must be calculated for the transaction in accordance with Sec. 
1026.35 and appendix D to part 1026. The annual percentage rate must be 
compared to the average prime offer rate for a transaction that is 
comparable to the permanent financing to determine coverage under Sec. 
1026.35(c). If the transaction is determined to be a higher-priced 
mortgage loan not otherwise exempt under Sec. 1026.35(c)(2), only the 
permanent phase is subject to the requirements of Sec. 1026.35(c).

                      35(c)(3) Appraisals Required

                         35(c)(3)(i) In General

    1. Written appraisal--electronic transmission. To satisfy the 
requirement that the appraisal be ``written,'' a creditor may obtain the 
appraisal in paper form or via electronic transmission.
    35(c)(3)(ii) Safe Harbor.
    1. Safe harbor. A creditor that satisfies the safe harbor conditions 
in Sec. 1026.35(c)(3)(ii)(A) through (D) complies with the appraisal 
requirements of Sec. 1026.35(c)(3)(i). A creditor that does not satisfy 
the safe harbor conditions in Sec. 1026.35(c)(3)(ii)(A) through (D) 
does not necessarily violate the appraisal requirements of Sec. 
1026.35(c)(3)(i).
    2. Appraiser's certification. For purposes of Sec. 
1026.35(c)(3)(ii), the appraiser's certification refers to the 
certification specified in item 9 of appendix N. See also comment 
35(c)(1)(i)-2.

                        Paragraph 35(c)(3)(ii)(C)

    1. Confirming elements in the appraisal. To confirm that the 
elements in appendix N to this part are included in the written 
appraisal, a creditor need not look beyond the face of the written 
appraisal and the appraiser's certification.

 35(c)(4) Additional Appraisal for Certain Higher-Priced Mortgage Loans

    1. Acquisition. For purposes of Sec. 1026.35(c)(4), the terms 
``acquisition'' and ``acquire'' refer to the acquisition of legal title 
to the property pursuant to applicable State law, including by purchase.

                         35(c)(4)(i) In General

    1. Appraisal from a previous transaction. An appraisal that was 
previously obtained in connection with the seller's acquisition or the 
financing of the seller's acquisition of the property does not satisfy 
the requirements to obtain two written appraisals under Sec. 
1026.35(c)(4)(i).
    2. 90-day, 180-day calculation. The time periods described in Sec. 
1026.35(c)(4)(i)(A) and (B) are calculated by counting the day after the 
date on which the seller acquired the property, up to and including the 
date of the consumer's agreement to acquire the property that secures 
the transaction. For example, assume that the creditor determines that 
date of the consumer's acquisition agreement is October 15, 2012, and 
that the seller acquired the property on April 17, 2012. The first day 
to be counted in the 180-day calculation would be April 18, 2012, and 
the last day would be October 15, 2012. In this case, the number of days 
from April 17 would be 181, so an additional appraisal is not required.
    3. Date seller acquired the property. For purposes of Sec. 
1026.35(c)(4)(i)(A) and (B), the date on which the seller acquired the 
property is the date on which the seller became the legal owner of the 
property pursuant to applicable State law.
    4. Date of the consumer's agreement to acquire the property. For the 
date of the consumer's agreement to acquire the property

[[Page 879]]

under Sec. 1026.35(c)(4)(i)(A) and (B), the creditor should use the 
date on which the consumer and the seller signed the agreement provided 
to the creditor by the consumer. The date on which the consumer and the 
seller signed the agreement might not be the date on which the consumer 
became contractually obligated under State law to acquire the property. 
For purposes of Sec. 1026.35(c)(4)(i)(A) and (B), a creditor is not 
obligated to determine whether and to what extent the agreement is 
legally binding on both parties. If the dates on which the consumer and 
the seller signed the agreement differ, the creditor should use the 
later of the two dates.
    5. Price at which the seller acquired the property. The price at 
which the seller acquired the property refers to the amount paid by the 
seller to acquire the property. The price at which the seller acquired 
the property does not include the cost of financing the property.
    6. Price the consumer is obligated to pay to acquire the property. 
The price the consumer is obligated to pay to acquire the property is 
the price indicated on the consumer's agreement with the seller to 
acquire the property. The price the consumer is obligated to pay to 
acquire the property from the seller does not include the cost of 
financing the property. For purposes of Sec. 1026.35(c)(4)(i)(A) and 
(B), a creditor is not obligated to determine whether and to what extent 
the agreement is legally binding on both parties. See also comment 
35(c)(4)(i)-4.

         35(c)(4)(ii) Different Certified or Licensed Appraisers

    1. Independent appraisers. The requirements that a creditor obtain 
two separate appraisals under Sec. 1026.35(c)(4)(i), and that each 
appraisal be conducted by a different licensed or certified appraiser 
under Sec. 1026.35(c)(4)(ii), indicate that the two appraisals must be 
conducted independently of each other. If the two certified or licensed 
appraisers are affiliated, such as by being employed by the same 
appraisal firm, then whether they have conducted the appraisal 
independently of each other must be determined based on the facts and 
circumstances of the particular case known to the creditor.

      35(c)(4)(iii) Relationship to General Appraisal Requirements

    1. Safe harbor. When a creditor is required to obtain an additional 
appraisal under Sec. 1026(c)(4)(i), the creditor must comply with the 
requirements of both Sec. 1026.35(c)(3)(i) and Sec. 1026.35(c)(4)(ii) 
through (v) for that appraisal. The creditor complies with the 
requirements of Sec. 1026.35(c)(3)(i) for the additional appraisal if 
the creditor meets the safe harbor conditions in Sec. 1026.35(c)(3)(ii) 
for that appraisal.

       35(c)(4)(iv) Required Analysis in the Additional Appraisal

    1. Determining acquisition dates and prices used in the analysis of 
the additional appraisal. For guidance on identifying the date on which 
the seller acquired the property, see comment 35(c)(4)(i)-3. For 
guidance on identifying the date of the consumer's agreement to acquire 
the property, see comment 35(c)(4)(i)-4. For guidance on identifying the 
price at which the seller acquired the property, see comment 
35(c)(4)(i)-5. For guidance on identifying the price the consumer is 
obligated to pay to acquire the property, see comment 35(c)(4)(i)-6.

             35(c)(4)(v) No Charge for Additional Appraisal

    1. Fees and mark-ups. The creditor is prohibited from charging the 
consumer for the performance of one of the two appraisals required under 
Sec. 1026.35(c)(4)(i), including by imposing a fee specifically for 
that appraisal or by marking up the interest rate or any other fees 
payable by the consumer in connection with the higher-priced mortgage 
loan.

   35(c)(4)(vi) Creditor's Determination of Prior Sale Date and Price

                       35(c)(4)(vi)(A) In General

    1. Estimated sales price. If a written source document describes the 
seller's acquisition price in a manner that indicates that the price 
described is an estimated or assumed amount and not the actual price, 
the creditor should look at an alternative document to satisfy the 
reasonable diligence standard in determining the price at which the 
seller acquired the property.
    2. Reasonable diligence--oral statements insufficient. Reliance on 
oral statements of interested parties, such as the consumer, seller, or 
mortgage broker, does not constitute reasonable diligence under Sec. 
1026.35(c)(4)(vi)(A).
    3. Lack of information and conflicting information--two appraisals 
required. If a creditor is unable to demonstrate that the requirement to 
obtain two appraisals under Sec. 1026.35(c)(4)(i) does not apply, the 
creditor must obtain two written appraisals before extending a higher-
priced mortgage loan subject to the requirements of Sec. 1026.35(c). 
See also comment 35(c)(4)(vi)(B)-1. For example:
    i. Assume a creditor orders and reviews the results of a title 
search, which shows that a prior sale occurred between 91 and 180 days 
ago, but not the price paid in that sale. Thus, based on the title 
search, the creditor would not be able to determine whether the price 
the consumer is obligated to pay under the consumer's acquisition 
agreement is more than 20 percent higher than the seller's acquisition 
price, pursuant to

[[Page 880]]

Sec. 1026.35(c)(4)(i)(B). Before extending a higher-priced mortgage 
loan subject to the appraisal requirements of Sec. 1026.35(c), the 
creditor must either: (1) Perform additional diligence to ascertain the 
seller's acquisition price and, based on this information, determine 
whether two written appraisals are required; or (2) obtain two written 
appraisals in compliance with Sec. 1026.35(c)(4). See also comment 
35(c)(4)(vi)(B)-1.
    ii. Assume a creditor reviews the results of a title search 
indicating that the last recorded purchase was more than 180 days before 
the consumer's agreement to acquire the property. Assume also that the 
creditor subsequently receives a written appraisal indicating that the 
seller acquired the property between 91 and 180 days before the 
consumer's agreement to acquire the property. In this case, unless one 
of these sources is clearly wrong on its face, the creditor would not be 
able to determine whether the seller acquired the property within 180 
days of the date of the consumer's agreement to acquire the property 
from the seller, pursuant to Sec. 1026.35(c)(4)(i)(B). Before extending 
a higher-priced mortgage loan subject to the appraisal requirements of 
Sec. 1026.35(c), the creditor must either: perform additional diligence 
to ascertain the seller's acquisition date and, based on this 
information, determine whether two written appraisals are required; or 
obtain two written appraisals in compliance with Sec. 1026.35(c)(4). 
See also comment 35(c)(4)(vi)(B)-1.

   35(c)(4)(vi)(B) Inability To Determine Prior Sales Date or Price--
             Modified Requirements for Additional Appraisal

    1. Required analysis. In general, the additional appraisal required 
under Sec. 1026.35(c)(4)(i) should include an analysis of the factors 
listed in Sec. 1026.35(c)(4)(iv)(A) through (C). However, if, following 
reasonable diligence, a creditor cannot determine whether the conditions 
in Sec. 1026.35(c)(4)(i)(A) or (B) are present due to a lack of 
information or conflicting information, the required additional 
appraisal must include the analyses required under Sec. 
1026.35(c)(4)(iv)(A) through (C) only to the extent that the information 
necessary to perform the analyses is known. For example, assume that a 
creditor is able, following reasonable diligence, to determine that the 
date on which the seller acquired the property occurred between 91 and 
180 days prior to the date of the consumer's agreement to acquire the 
property. However, the creditor is unable, following reasonable 
diligence, to determine the price at which the seller acquired the 
property. In this case, the creditor is required to obtain an additional 
written appraisal that includes an analysis under Sec. 
1026.35(c)(4)(iv)(B) and (c)(4)(iv)(C) of the changes in market 
conditions and any improvements made to the property between the date 
the seller acquired the property and the date of the consumer's 
agreement to acquire the property. However, the creditor is not required 
to obtain an additional written appraisal that includes analysis under 
Sec. 1026.35(c)(4)(iv)(A) of the difference between the price at which 
the seller acquired the property and the price that the consumer is 
obligated to pay to acquire the property.

   35(c)(4)(vii) Exemptions From the Additional Appraisal Requirement

                       Paragraph 35(c)(4)(vii)(C)

    1. Non-profit entity. For purposes of Sec. 1026.35(c)(4)(vii)(C), a 
``non-profit entity'' is a person with a tax exemption ruling or 
determination letter from the Internal Revenue Service under section 
501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)).

                       Paragraph 35(c)(4)(vii)(H)

    1. Bureau table of rural counties. The Bureau publishes on its Web 
site a table of rural counties under Sec. 1026.35(c)(4)(vii)(H) for 
each calendar year by the end of that calendar year. See comment 
35(b)(2)(iv)-1. A property securing an HPML subject to Sec. 1026.35(c) 
is in a rural county under Sec. 1026.35(c)(4)(vii)(H) if the county in 
which the property is located is on the table of rural counties most 
recently published by the Bureau. For example, for a transaction 
occurring in 2015, assume that the Bureau most recently published a 
table of rural counties at the end of 2014. The property securing the 
transaction would be located in a rural county for purposes of Sec. 
1026.35(c)(4)(vii)(H) if the county is on the table of rural counties 
published by the Bureau at the end of 2014.

                      35(c)(5) Required Disclosure

                         35(c)(5)(i) In General

    1. Multiple applicants. When two or more consumers apply for a loan 
subject to this section, the creditor is required to give the disclosure 
to only one of the consumers.
    2. Appraisal independence requirements not affected. Nothing in the 
text of the consumer notice required by Sec. 1026.35(c)(5)(i) should be 
construed to affect, modify, limit, or supersede the operation of any 
legal, regulatory, or other requirements or standards relating to 
independence in the conduct of appraisers or restrictions on the use of 
borrower-ordered appraisals by creditors.

                       35(c)(6) Copy of Appraisals

                         35(c)(6)(i) In General

    1. Multiple applicants. When two or more consumers apply for a loan 
subject to this section, the creditor is required to give the

[[Page 881]]

copy of each required appraisal to only one of the consumers.

                           35(c)(6)(ii) Timing

    1. ``Provide.'' For purposes of the requirement to provide a copy of 
the appraisal within a specified time under Sec. 1026.35(c)(6)(ii), 
``provide'' means ``deliver.'' Delivery occurs three business days after 
mailing or delivering the copies to the last-known address of the 
applicant, or when evidence indicates actual receipt by the applicant 
(which, in the case of electronic receipt, must be based upon consent 
that complies with the E-Sign Act), whichever is earlier.
    2. ``Receipt'' of the appraisal. For appraisals prepared by the 
creditor's internal appraisal staff, the date of ``receipt'' is the date 
on which the appraisal is completed.
    3. No waiver. Regulation B, 12 CFR 1002.14(a)(1), allowing the 
consumer to waive the requirement that the appraisal copy be provided 
three business days before consummation, does not apply to higher-priced 
mortgage loans subject to Sec. 1026.35(c). A consumer of a higher-
priced mortgage loan subject to Sec. 1026.35(c) may not waive the 
timing requirement to receive a copy of the appraisal under Sec. 
1026.35(c)(6)(i).

              35(c)(6)(iv) No Charge for Copy Of Appraisal

    1. Fees and mark-ups. The creditor is prohibited from charging the 
consumer for any copy of an appraisal required to be provided under 
Sec. 1026.35(c)(6)(i), including by imposing a fee specifically for a 
required copy of an appraisal or by marking up the interest rate or any 
other fees payable by the consumer in connection with the higher-priced 
mortgage loan.

                                * * * * *

  Appendix O--Illustrative Written Source Documents for Higher-Priced 
                      Mortgage Loan Appraisal Rules

    1. Title commitment report. The ``title commitment report'' is a 
document from a title insurance company describing the property interest 
and status of its title, parties with interests in the title and the 
nature of their claims, issues with the title that must be resolved 
prior to closing of the transaction between the parties to the transfer, 
amount and disposition of the premiums, and endorsements on the title 
policy. This document is issued by the title insurance company prior to 
the company's issuance of an actual title insurance policy to the 
property's transferee and/or creditor financing the transaction. In 
different jurisdictions, this instrument may be referred to by different 
terms, such as a title commitment, title binder, title opinion, or title 
report.

    Effective Date Note: 4. At 78 FR 11016, Feb. 14, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. In Supplement I to 
Part 1026--Official Interpretations:
    A. Under Section 1026.17--General Disclosure Requirements:
    i. Under Paragraph 17(a)(1), paragraph 2.ii is revised.
    ii. Under Paragraph 17(c)(1), paragraph 1 is revised.
    B. Under Section 1026.19--Certain Mortgage and Variable-Rate 
Transactions:
    i. Under 19(b) Certain variable-rate transactions, paragraphs 4 and 
5.i.C are revised.
    ii. Under Paragraph 19(b)(2)(xi), paragraph 1 is revised.
    C. The heading for Section 1026.20 is revised.
    D. Under newly designated Section 1026.20:
    i. Paragraph 20(c) Variable-rate adjustments is revised.
    ii. Paragraph 20(d) Initial rate adjustment is added.
    E. Under Section 1026.36--Prohibited Acts or Practices in Connection 
With Credit Secured by a Dwelling, under 36(c) Servicing practices:
    i. Paragraph 36(c)(1)(i), paragraph 2, and Paragraph 36(c)(1)(ii), 
Paragraph 36(c)(1)(iii), and Paragraph 36(c)(2) are revised.
    ii. Paragraph 36(c)(3) is added.
    F. Section 1026.41--Periodic Statements for Residential Mortgage 
Loans is added.
    G. Under Appendix H--Closed-End Model Forms and Clauses, paragraphs 
7 introductory text and 7.i are revised. For the convenience of the 
user, the added and revised text is set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

                      Subpart C--Closed-End Credit

                                * * * * *

            Section 1026.17-General Disclosures Requirements

    17(a) Form of disclosures.
    Paragraph 17(a)(1).

                                * * * * *

    2. * * *
    ii. The general segregation requirement described in this 
subparagraph does not apply to the disclosures required under Sec. 
1026.19(b) although the disclosures must be clear and conspicuous.

                                * * * * *

    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

[[Page 882]]

are legally bound as of the outset of the transaction. In the case of 
disclosures required under Sec. 1026.20(c) and (d), 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, mean that disclosures based on that term or contract did 
not reflect the legal obligation.

                                * * * * *

    Section 1026.19--Certain Mortgage and Variable-Rate Transactions

                                * * * * *

    19(b) Certain variable-rate transactions.

                                * * * * *

    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). 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 * * *
    i. * * *
    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: Sec. 1026.19(b)(2)(i), (iii), (iv), (v), (vi), (vii), 
(viii), and (ix). (See comments 20(c)(1)(ii)-3.ii, 20(d)(1)(ii)-2.ii, 
and 30-1 regarding the inapplicability of variable-rate adjustment 
notices and interest rate limitations to price-level-adjusted or similar 
mortgages.)

                                * * * * *

    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) and (d) regarding notices of adjustments.) For 
example, the disclosure provided pursuant to Sec. 1026.20(d) might 
state, ``You will be notified at least 210, but no more than 240, days 
before the first payment at the adjusted level is due after the initial 
interest rate adjustment of the loan. This notice will contain 
information about the adjustment, including the interest rate, payment 
amount, and loan balance.'' The disclosure provided pursuant to Sec. 
1026.20(c) might state, ``You will be notified at least 60, but no more 
than 120, days before the first payment at the adjusted level is due 
after any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, payment amount, and loan balance.''

                                * * * * *

  Section 1026.20--Disclosure Requirements Regarding Post-Consummation 
                                 Events

                                * * * * *

    20(c) Rate adjustments with a corresponding change in payment.
    1. Creditors, assignees, and servicers. Creditors, assignees, and 
servicers that own either the applicable adjustable-rate mortgage or the 
applicable mortgage servicing rights or both are subject to the 
requirements of Sec. 1026.20(c). Creditors, assignees, and servicers 
are also subject to the requirements of any provision of subpart C that 
governs Sec. 1026.20(c). For example, the form requirements of Sec. 
1026.17(a) apply to Sec. 1026.20(c) disclosures and thus, assignees and 
servicers, as well as creditors, are subject to those requirements. 
While creditors, assignees, and servicers are all subject to the 
requirements of Sec. 1026.20(c), they may decide among themselves which 
of them will provide the required disclosures.
    2. Loan modifications. Under Sec. 1026.20(c), the interest rate 
adjustment disclosures are required only for interest rate adjustments 
occurring pursuant to the loan contract. Accordingly, creditors, 
assignees, and servicers need not provide the disclosures for interest 
rate adjustments occurring in loan modifications made for loss 
mitigation purposes. Subsequent interest rate adjustments resulting in a 
corresponding payment change occurring pursuant to the modified loan 
contract, however, are subject to the requirements of Sec. 1026.20(c).
    3. Conversions. In addition to the disclosures required for interest 
rate adjustments

[[Page 883]]

under an adjustable-rate mortgage, Sec. 1026.20(c) also requires the 
disclosures for an ARM converting to a fixed-rate transaction when the 
conversion changes the interest rate and results in a corresponding 
payment change. When an open-end account converts to a closed-end 
adjustable-rate mortgage, the Sec. 1026.20(c) disclosure is not 
required until the implementation of an interest rate adjustment post-
conversion that results in a corresponding payment change. For example, 
for an open-end account that converts to a closed-end 3/1 hybrid ARM, 
i.e., an ARM with a fixed rate of interest for the first three years 
after which the interest rate adjusts annually, the first Sec. 
1026.20(c) disclosure would not be required until three years after the 
conversion, and only if that first adjustment resulted in a payment 
change.
    Paragraph 20(c)(1)(i).
    1. In general. An adjustable-rate mortgage, as defined in Sec. 
1026.20(c)(1)(i), is a variable-rate transaction as that term is used in 
subpart C, except as distinguished by comment Sec. 1026.20(c)(1)(ii)-3. 
The requirements of this section are not limited to transactions 
financing the initial acquisition of the consumer's principal dwelling.
    Paragraph 20(c)(1)(ii).
    1. Short-term ARMs. Under Sec. 1026.20(c)(1)(ii), construction, 
home improvement, bridge, and other loans with terms of one year or less 
are not subject to the requirements in Sec. 1026.20(c). In determining 
the term of a construction loan that may be permanently financed by the 
same creditor or assignee, the creditor or assignee may treat the 
construction and the permanent phases as separate transactions with 
distinct terms to maturity or as a single combined transaction.
    2. First new payment due within 210 days after consummation. Section 
1026.20(c) disclosures are not required if the first payment at the 
adjusted level is due within 210 days after consummation, when the new 
interest rate disclosed at consummation pursuant to Sec. 1026.20(d) is 
not an estimate. For example, the creditor, assignee, or servicer would 
not be required to provide the disclosures required by Sec. 1026.20(c) 
for the first time an ARM interest rate adjusts if the first payment at 
the adjusted level was due 120 days after consummation and the adjusted 
interest rate disclosed at consummation pursuant to Sec. 1026.20(d) was 
not an estimate.
    3. Non-adjustable-rate mortgages. The following transactions, if 
structured as fixed-rate and not as adjustable-rate mortgages based on 
an index or formula, are not subject to Sec. 1026.20(c):
    i. Shared-equity or shared-appreciation mortgages;
    ii. Price-level adjusted 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. Graduated-payment mortgages or step-rate transactions;
    iv. Renewable balloon-payment instruments; and
    v. Preferred-rate loans.
    Paragraph 20(c)(2).
    1. Timing. The requirement that Sec. 1026.20(c) disclosures be 
provided to consumers within a certain timeframe means that the 
creditor, assignee, or servicer must deliver the notice or place it in 
the mail within that timeframe, excluding any grace or courtesy periods. 
The requirement that the Sec. 1026.20(c) disclosures must be provided 
between 25 and 120 days before the first payment at the adjusted level 
is due for frequently-adjusting ARMs, applies to ARMs that adjust 
regularly at a maximum of every 60 days.
    Paragraph 20(c)(2)(ii)(A).
    1. Current and new interest rates. The current interest rate is the 
interest rate that applies on the date the disclosure is provided to the 
consumer. The new interest rate is the actual interest rate that will 
apply on the date of the adjustment. The new interest rate is used to 
determine the new payment. The ``new interest rate'' has the same 
meaning as the ``adjusted interest rate.'' The requirements of Sec. 
1026.20(c)(2)(ii)(A) do not preclude creditors, assignees, and servicers 
from rounding the interest rate, pursuant to the requirements of the ARM 
contract.
    Paragraph 20(c)(2)(iv).
    1. Rate limits and foregone interest rate increases. Interest rate 
carryover, or foregone interest rate increases, is the amount of 
interest rate increase foregone at any ARM interest rate adjustment 
that, subject to rate caps, can be added to future interest rate 
adjustments to increase, or to offset decreases in, the rate determined 
by using the index or formula. The disclosures required by Sec. 
1026.20(c)(2)(iv) regarding foregone interest rate increases apply only 
to transactions permitting interest rate carryover.
    Paragraph 20(c)(2)(v)(B).
    1. Application of previously foregone interest rate increases. The 
disclosures regarding the application of previously foregone interest 
rate increases apply only to transactions permitting interest rate 
carryover.
    Paragraph 20(c)(2)(vi).
    1. Amortization statement. For ARMs requiring the payment of 
interest only, such as interest-only loans, Sec. 1026.20(c)(2)(vi) 
requires a statement that the new payment covers all of the interest but 
none of the principal, and therefore will not reduce the loan balance. 
For negatively-amortizing ARMs, Sec. 1026.20(c)(2)(vi) requires a 
statement that the new payment covers only part of the interest and none 
of the principal, and therefore the unpaid interest will be added to the 
principal balance.

[[Page 884]]

    2. Amortization payment. Disclosure of the payment needed to 
amortize fully the outstanding balance at the new interest rate over the 
remainder of the loan term is required only when negative amortization 
occurs as a result of the interest rate adjustment. The disclosure is 
not required simply because a loan has interest-only or partially-
amortizing payments. For example, an ARM with a five-year term and 
payments based on a longer amortization schedule, in which the final 
payment will equal the periodic payment plus the remaining unpaid 
balance, does not require disclosure of the payment necessary to 
amortize fully the loan in the remainder of the five-year term. A 
disclosure is also not required when the new payment is sufficient to 
prevent negative amortization but the final loan payment will be a 
different amount due to rounding.
    Paragraph 20(c)(2)(vii).
    1. Prepayment penalty. The creditor, assignee, or servicer of an ARM 
with no prepayment penalty, as that term is used in Sec. 
1026.20(c)(2)(vii), may decide to exclude the prepayment section from 
the Sec. 1026.20(c) disclosure, retain the prepayment section and 
insert after the heading ``None'' or other indication that there is no 
prepayment penalty, or indicate there is no prepayment penalty in some 
other manner. See also comment 1.vi to Appendices G and H--Open-End and 
Closed-End Model Forms and Clauses.
    Paragraph 20(c)(3)(i).
    1. Format of disclosures. The requirements of Sec. 1026.20(c)(3)(i) 
and (ii) to provide the Sec. 1026.20(c) disclosures in the same order 
as, and with headings and format substantially similar to, the model and 
sample forms do not preclude creditors, assignees, and servicers from 
modifying the disclosures to accommodate particular consumer 
circumstances or transactions not addressed by the forms. For example, 
in the case of a consumer bankruptcy or under certain State laws, the 
creditor, assignee, or servicer may modify the forms to remove language 
regarding personal liability. Creditors, assignees, and servicers 
providing the required notice to a consumer whose ARM is converting to a 
fixed-rate mortgage, may modify the model language to explain that the 
interest rate will no longer adjust. Creditors, assignees, and servicers 
electing to provide consumers with interest rate notices in cases where 
the interest rate adjusts without a corresponding change in payment may 
modify the forms to fit that circumstance. A payment-option ARM, which 
is an ARM permitting consumers to choose among several different payment 
options for each billing period, is an example of a loan that may 
require modification of the Sec. 1026.20(c) model and sample forms. See 
appendix H-30(C) for an example of an allocation table for a payment-
option loan.
    20(d) Initial rate adjustment.
    1. Creditors, assignees, and servicers. Creditors, assignees, and 
servicers that own either the applicable adjustable-rate mortgage or the 
applicable mortgage servicing rights or both are subject to the 
requirements of Sec. 1026.20(d). Creditors, assignees, and servicers 
are also subject to the requirements of any provision of subpart C that 
governs Sec. 1026.20(d). For example, the form requirements of Sec. 
1026.17(a) apply to Sec. 1026.20(d) disclosures and thus, assignees and 
servicers, as well as creditors, are subject to those requirements. 
While creditors, assignees, and servicers are all subject to the 
requirements of Sec. 1026.20(d), they may decide among themselves which 
of them will provide the required disclosures.
    2. Loan modifications. Under Sec. 1026.20(d), the interest rate 
adjustment disclosures are required only for the initial interest rate 
adjustment occurring pursuant to the loan contract. Accordingly, 
creditors, assignees, and servicers need not provide the disclosures for 
interest rate adjustments occurring in loan modifications made for loss 
mitigation purposes. The initial interest rate adjustment occurring 
pursuant to the modified loan contract, however, is subject to the 
requirements of Sec. 1026.20(d).
    3. Timing and form of initial rate adjustment. The requirement that 
Sec. 1026.20(d) disclosures be provided in writing, separate and 
distinct from all other correspondence, means that the initial ARM 
interest rate adjustment notice must be provided to consumers as a 
separate document but may, in the case of mailing the disclosure, be in 
the same envelope with other material and, in the case of emailing the 
disclosure, be a separate attachment from other attachments in the same 
email. The requirement that the disclosures be provided to consumers 
between 210 and 240 days ``before the first payment at the adjusted 
level is due'' means the creditor, assignee, or servicer must deliver 
the notice or place it in the mail between 210 and 240 days prior to the 
due date, excluding any grace or courtesy periods, of the first payment 
calculated using the adjusted interest rate.
    4. Conversions. When an open-end account converts to a closed-end 
adjustable-rate mortgage, the Sec. 1026.20(d) disclosure is not 
required until the implementation of the initial interest rate 
adjustment post-conversion. For example, for an open-end account that 
converts to a closed-end 3/1 hybrid ARM, i.e., an ARM with a fixed rate 
of interest for the first three years after which the interest rate 
adjusts annually, the Sec. 1026.20(d) disclosure would not be required 
until three years after the conversion when the interest rate adjusts 
for the first time.
    Paragraph 20(d)(1)(i).
    1. In general. An adjustable-rate mortgage, as defined in Sec. 
1026.20(d)(1)(i), is a variable-

[[Page 885]]

rate transaction as that term is used in subpart C, except as 
distinguished by comment Sec. 1026.20(d)(1)(ii)-2. The requirements of 
this section are not limited to transactions financing the initial 
acquisition of the consumer's principal dwelling.
    Paragraph 20(d)(1)(ii).
    1. Short-term ARMs. Under Sec. 1026.20(d)(1)(ii), construction, 
home improvement, bridge, and other loans with terms of one year or less 
are not subject to the requirements in Sec. 1026.20(d). In determining 
the term of a construction loan that may be permanently financed by the 
same creditor or assignee, the creditor or assignee may treat the 
construction and the permanent phases as separate transactions with 
distinct terms to maturity or as a single combined transaction.
    2. Non-adjustable-rate mortgages. The following transactions, if 
structured as fixed-rate and not as adjustable-rate mortgages based on 
an index or formula, are not subject to Sec. 1026.20(d):
    i. Shared-equity or shared-appreciation mortgages;
    ii. Price-level adjusted 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. Graduated-payment mortgages or step-rate transactions;
    iv. Renewable balloon-payment instruments; and
    v. Preferred-rate loans.
    Paragraph 20(d)(2)(i).
    1. Date of the disclosure. The date that must appear on the 
disclosure is the date the creditor, assignee, or servicer generates the 
notice to be provided to the consumer.
    Paragraph 20(d)(2)(iii)(A).
    1. Current and new interest rates. The current interest rate is the 
interest rate that applies on the date of the disclosure. The new 
interest rate is the interest rate used to calculate the new payment and 
may be an estimate pursuant to Sec. 1026.20(d)(2). The new payment, if 
calculated from an estimated new interest rate, will also be an 
estimate. The ``new interest rate'' has the same meaning as the 
``adjusted interest rate.'' The requirements of Sec. 
1026.20(d)(2)(iii)(A) do not preclude creditors, assignees, and 
servicers from rounding the interest rate, pursuant to the requirements 
of the ARM contract.
    Paragraph 20(d)(2)(v).
    1. Rate limits and foregone interest rate increases. Interest rate 
carryover, or foregone interest rate increases, is the amount of 
interest rate increase foregone at the first ARM interest rate 
adjustment that, subject to rate caps, can be added to future interest 
rate adjustments to increase, or to offset decreases in, the rate 
determined by using the index or formula. The disclosures required by 
Sec. 1026.20(d)(2)(v) regarding foregone interest rate increases apply 
only to transactions permitting interest rate carryover.
    Paragraph 20(d)(2)(vii).
    1. Amortization statement. For ARMs requiring the payment of 
interest only, such as interest-only loans, Sec. 1026.20(d)(2)(vii) 
requires a statement that the new payment covers all of the interest but 
none of the principal, and therefore will not reduce the loan balance. 
For negatively-amortizing ARMs, Sec. 1026.20(d)(2)(vii) requires a 
statement that the new payment covers only part of the interest and none 
of the principal, and therefore the unpaid interest will be added to the 
principal balance.
    2. Amortization payment. Disclosure of the payment needed to 
amortize fully the outstanding balance at the new interest rate over the 
remainder of the loan term is required only when negative amortization 
occurs as a result of the interest rate adjustment. The disclosure is 
not required simply because a loan has interest-only or partially-
amortizing payments. For example, an ARM with a five-year term and 
payments based on a longer amortization schedule, in which the final 
payment will equal the periodic payment plus the remaining unpaid 
balance, does not require disclosure of the payment necessary to 
amortize fully the loan in the remainder of the five-year term. A 
disclosure is also not required when the new payment is sufficient to 
prevent negative amortization but the final loan payment will be a 
different amount due to rounding.
    Paragraph 20(d)(2)(viii).
    1. Prepayment penalty. The creditor, assignee, or servicer of an ARM 
with no prepayment penalty, as that term is used in Sec. 
1026.20(d)(2)(viii), may decide to exclude the prepayment section from 
the Sec. 1026.20(d) disclosure, retain the prepayment section and 
insert after the heading ``None'' or other indication that there is no 
prepayment penalty, or indicate there is no prepayment penalty in some 
other manner. See also comment to Appendices G and H--Open-End and 
Closed-End Model Forms and Clauses--1.vi.
    Paragraph 20(d)(3)(i).
    1. Format of disclosures. The requirements of Sec. 1026.20(d)(3)(i) 
and (iii) to provide the Sec. 1026.20(d) disclosures in the same order 
as, and with headings and format substantially similar to, the model and 
sample forms do not preclude creditors, assignees, and servicers from 
modifying the disclosures to accommodate particular consumer 
circumstances or transactions not addressed by the forms. For example, 
in the case of a consumer bankruptcy or under certain State laws, the 
creditor, assignee, or servicer may modify the forms to remove language 
regarding personal liability. A payment-option ARM, which is an ARM 
permitting consumers to choose among several different payment options 
for each billing period, is

[[Page 886]]

an example of a loan that may require modification of the Sec. 
1026.20(d) model and sample forms. See appendix H-30(C) for an example 
of an allocation table for a payment-option loan.

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                                * * * * *

Section 1026.36--Prohibited Acts or Practices in Connection With Credit 
                          Secured by a Dwelling

                                * * * * *

    Paragraph 36(c)(1)(i).

                                * * * * *

    2. Method of crediting periodic payments. The method by which 
periodic payments shall be credited is based on the legal obligation 
between the creditor and consumer, subject to applicable law.

                                * * * * *

    Paragraph 36(c)(1)(ii).
    1. Handling of partial payments. If a servicer receives a partial 
payment from a consumer, to the extent not prohibited by applicable law 
or the legal obligation between the parties, the servicer may take any 
of the following actions:
    i. Credit the partial payment upon receipt.
    ii. Return the partial payment to the consumer.
    iii. Hold the payment in a suspense or unapplied funds account. If 
the payment is held in a suspense or unapplied funds account, this fact 
must be reflected on future periodic statements, in accordance with 
Sec. 1026.41(d)(3). When sufficient funds accumulate to cover a 
periodic payment, as defined in Sec. 1026.36(c)(1)(i), they must be 
treated as a periodic payment received in accordance with Sec. 
1026.36(c)(1)(i).
    Paragraph 36(c)(1)(iii).
    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.
    Paragraph 36(c)(2).
    1. Pyramiding of late fees. The prohibition on pyramiding of late 
fees in Sec. 1026.36(c)(2) should be construed consistently with the 
``credit practices rule'' of the Federal Trade Commission, 16 CFR 444.4.
    Paragraph 36(c)(3).
    1. Person acting on behalf of the consumer. For purposes of Sec. 
1026.36(c)(3), 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 creditor, assignee or 
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.
    2. Payment requirements. The creditor, assignee or servicer may 
specify reasonable requirements for making payoff requests, such as 
requiring requests to be directed to a mailing address, email address, 
or fax number specified by the creditor, assignee or servicer or any 
other reasonable requirement or method. If the consumer does not follow 
these requirements, a longer timeframe for responding to the request 
would be reasonable.
    3. Accuracy of payoff statements. Payoff statements must be accurate 
when issued.

                                * * * * *

   Section 1026.41--Periodic Statements for Residential Mortgage Loans

    41(a) In general.
    1. Recipient of periodic statement. When two consumers are joint 
obligors with primary liability on a closed-end consumer credit 
transaction secured by a dwelling, subject to

[[Page 887]]

Sec. 1026.41, the periodic statement may be sent to either one of them. 
For example, if a husband and wife jointly own a home, the servicer need 
not send statements to both the husband and the wife; a single statement 
may be sent.
    2. Billing cycles shorter than a 31-day period. If a loan has a 
billing cycle shorter than a period of 31 days (for example, a bi-weekly 
billing cycle), a periodic statement covering an entire month may be 
used. Such statement would separately list the upcoming payment due 
dates and amounts due, as required by Sec. 1026.20(d)(1), and list all 
transaction activity that occurred during the related time period, as 
required by paragraph (d)(4). Such statement may aggregate the 
information for the explanation of amount due, as required by paragraph 
(d)(2), and past payment breakdown, as required by paragraph (d)(3).
    3. One statement per billing cycle. The periodic statement 
requirement in Sec. 1026.41 applies to the ``creditor, assignee, or 
servicer as applicable.'' The creditor, assignee, and servicer are all 
subject to this requirement (but see comment 41(a)-4), but only one 
statement must be sent to the consumer each billing cycle. When two or 
more parties are subject to this requirement, they may decide among 
themselves which of them will send the statement.
    4. Opting out. A consumer may not opt out of receiving periodic 
statements altogether. However, consumers who have demonstrated the 
ability to access statements online may opt out of receiving 
notifications that statements are available. Such an ability may be 
demonstrated, for example, by the consumer receiving notification that 
the statements is available, going to the Web site where the information 
is available, viewing the information about their account and selecting 
a link or option there to indicate they no longer would like to receive 
notifications when new statements are available.
    41(b) Timing of the periodic statement.
    1. Reasonably prompt time. Section 1026.41(b) requires that the 
periodic statement be delivered or placed in the mail no later than a 
reasonably prompt time after the payment due date or the end of any 
courtesy period. Delivering, emailing or placing the periodic statement 
in the mail within four days of close of the courtesy period of the 
previous billing cycle generally would be considered reasonably prompt.
    2. Courtesy period. The meaning of ``courtesy period'' is explained 
in comment 7(b)(11)-1.
    41(c) Form of the periodic statement.
    1. Clear and conspicuous standard. The ``clear and conspicuous'' 
standard generally requires that disclosures be in a reasonably 
understandable form. Except where otherwise provided, the standard does 
not prohibit adding to the required disclosures, as long as the 
additional information does not overwhelm or obscure the required 
disclosures. For example, while certain information about the escrow 
account (such as the account balance) is not required on the periodic 
statement, this information may be included.
    2. Additional information; disclosures required by other laws. 
Nothing in Sec. 1026.41 prohibits a servicer from including additional 
information or combining disclosures required by other laws with the 
disclosures required by this subpart, unless such prohibition is 
expressly set forth in this subpart, or other applicable law.
    3. Electronic distribution. The periodic statement may be provided 
electronically if the consumer agrees. The consumer must give 
affirmative consent to receive statements electronically. If statements 
are provided electronically, the creditor, assignee, or servicer may 
send a notification that a consumer's statement is available, with a 
link to where the statement can be accessed, in place of the statement 
itself.
    4. Presumed consent. Any consumer who is currently receiving 
disclosures for any account (for example, a mortgage or checking 
account) electronically from their servicer shall be deemed to have 
consented to receiving e-statements in place of paper statements.
    41(d) Content and layout of the periodic statement.
    1. Close proximity. Paragraph (d) requires several disclosures to be 
provided in close proximity to one another. To meet this requirement, 
the items to be provided in close proximity must be grouped together, 
and set off from the other groupings of items. This could be 
accomplished in a variety of ways, for example, by presenting the 
information in boxes, or by arranging the items on the document and 
including spacing between the groupings. Items in close proximity may 
not have any intervening text between them.'
    2. Not applicable. If an item required by paragraph (d) or (e) of 
this section is not applicable to the loan, it may be omitted from the 
periodic statement or coupon book. For example, if there is no 
prepayment penalty associated with a loan, the prepayment penalty 
disclosures need not be provided on the periodic statement.
    3. Terminology. A servicer may use terminology other than that found 
on the sample periodic statement in appendix H-30, so long as the new 
terminology is commonly understood. For example, servicers may take into 
consideration regional differences in terminology and refer to the 
account for the collection of taxes and insurance, referred to in Sec. 
1026.41(d) as the ``escrow account,'' as an ``impound account.''
    41(d)(3) Past payment breakdown.
    1. Partial payments. The disclosure of any partial payments received 
since the previous

[[Page 888]]

statement that were sent to a suspense or unapplied funds account as 
required by Sec. 1026.41(d)(3)(i) should reflect any funds that were 
received in the time period covered by the current statement and that 
were placed in such account. The disclosure of any portion of payments 
since the beginning of the calendar year that was sent to a partial 
payment or suspense account as required by Sec. 1026.41(d)(3)(ii) 
should reflect all funds that are currently held in a suspense or 
unapplied funds account. For example:
    i. Suppose a payment of $1,000 is due, but the consumer sends in 
only $600 on January 1, which is held in a suspense account. Further 
assume there are no fees charged on this account. Assuming there are no 
other funds in the suspense account, the January statement should 
reflect: Unapplied funds since last statement--$600. Unapplied funds 
YTD--$600.
    ii. Assume the same facts as in the preceding paragraph, except that 
during February the consumer sends in $300 and this too is held in the 
suspense account. The statement should reflect: Unapplied funds since 
last statement--$300. Unapplied funds YTD--$900.
    iii. Assume the same facts as in the preceding paragraph, except 
that during March the consumer sends in $400. Of this payment, $100 
completes a full periodic payment when added to the $900 in funds 
already held in the suspense account. This $1,000 is applied to the 
January payment, and the remaining $300 remains in the suspense account. 
The statement should reflect: Unapplied funds since last statement--
$300. Unapplied Funds YTD--$300.
    41(d)(4) Transaction Activity.
    1. Meaning. Transaction activity includes any transaction that 
credits or debits the amount currently due. This is the same amount that 
is required to be disclosure under Sec. 1026.41(d)(1)(iii). Examples of 
such transactions include, without limitation:
    i. Payments received and applied;
    ii. Payments received and held in a suspense account;
    iii. The imposition of any fees (for example late fees); and
    iv. The imposition of any charges (for example, private mortgage 
insurance).
    2. Description of late fees. The description of any late fee charges 
includes the date of the late fee, the amount of the late fee, and the 
fact that a late fee was imposed.
    3. Partial payments. If a partial payment is sent to a suspense or 
unapplied funds account, this fact must be in the transaction 
description along with the date and amount of the payment.
    41(e)(3) Coupon book exemption.
    1. Fixed rate. For guidance on the meaning of `fixed rate' for 
purpose of Sec. 1026.41(e)(3), see Sec. 1026.18(s)(7)(iii) and its 
commentary.
    2. Coupon book. A coupon book is a booklet provided to the consumer 
with a page for each billing cycle during a set period of time (often 
covering one year). These pages are designed to be torn off and returned 
to the servicer with a payment for each billing cycle. Additional 
information about the loan is often included on or inside the front or 
back cover, or on filler pages in the coupon book.
    3. Information location. The information required by paragraph 
(e)(3)(ii) need not be provided on each coupon, but should be provided 
somewhere in the coupon book. Such information could be located, e.g., 
on or inside the front or back cover, or on filler pages in the coupon 
book.
    4. Outstanding principal balance. Paragraph (e)(3)(ii)(A) requires 
the information listed in paragraph (d)(7) to be included in the coupon 
book. Paragraph (d)(7)(i) requires the disclosure of the outstanding 
principal balance. If the servicer makes use of a coupon book and the 
exemption in Sec. 1026.41(e)(3), the servicer need only disclose the 
principal balance at the beginning of the time period covered by the 
coupon book.
    41(e)(4) Small servicers.
    41(e)(4)(ii) Small servicer defined.
    1. Small servicers that do not qualify for the exemption. A servicer 
that services any mortgage loans for which a servicer or an affiliate is 
not the creditor or assignee is not a small servicer. For example, a 
servicer that owns mortgage servicing rights for mortgage loans that are 
not owned by the servicer or an affiliate, or for which the servicer or 
an affiliate was not the entity to whom the obligation was initially 
payable, is not a small servicer.
    2. Master servicing and subservicing. Both a master servicer and a 
subservicer, as those terms are defined in 12 CFR 1024.31, must meet the 
requirements of a small servicer. For example, if a master servicer 
meets the definition of a small servicer, but retains a subservicer that 
does not meet the definition of a small servicer, the subservicer is not 
a small servicer for the purposes of determining any exemption, and must 
comply with the requirements of a servicer.
    41(e)(4)(iii) Small servicer determination.
    1. Loans obtained by merger or acquisition. Any mortgage loans 
obtained by a servicer or an affiliate as part of a merger or 
acquisition, or as part of the acquisition of all of the assets or 
liabilities of a branch office of a lender, should be considered 
mortgage loans for which the servicer or an affiliate is the creditor to 
which the mortgage loan is initially payable. A branch office means 
either an office of a depository institution that is approved as a 
branch by a Federal or State supervisory agency or an office of a for-
profit mortgage lending institution (other than a depository 
institution) that

[[Page 889]]

takes applications from the public for mortgage loans.
    2. Application of evaluation threshold. The following examples 
demonstrate when a servicer either is considered or is no longer 
considered a small servicer:
    i. A servicer that begins servicing more than 5,000 mortgage loans 
on October 1, and services more than 5,000 mortgage loans as of January 
1 of the following year, would no longer be considered a small servicer 
on April 1 of that following year.
    ii. A servicer that begins servicing more than 5,000 mortgage loans 
on February 1, and services more than 5,000 mortgage loans as of January 
1 of the following year, would no longer be considered a small servicer 
on January 1 of that following year.
    iii. A servicer that begins servicing more than 5,000 mortgage loans 
on February 1, but services less than 5,000 mortgage loans as of January 
1 of the following year, is considered a small servicer for that 
following year.

                                * * * * *

             Appendix H--Closed-End Model Forms and Clauses

                                * * * * *

    7. Models H-4(D) through H-4(J). These model clauses and sample and 
model forms illustrate certain notices, statements, and other 
disclosures required as follows:
    i. Model H-4(D)(1) illustrates the interest rate adjustment notice 
required under Sec. 1026.20(c) and Model H-4(D)(2) provides an example 
of a notice of interest rate adjustment with corresponding payment 
change. Model H-4(D)(3) illustrates the interest rate adjustment notice 
required under Sec. 1026.20(d) and Model H-4(D)(4) provides an example 
of a notice of initial interest rate adjustment.

                                * * * * *

    Effective Date Note: 5. At 78 FR 11413, Feb. 15, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. Amendments to 
sections 1026.25(c)(2), 1026.36(a), (b), (d), (e), and (f) subsequently 
became effective on January 1, 2014 at 78 FR 60382, Oct. 1, 2013. 
Amendments to Section 1026.36(g) became effective on January 10, 2014. 
In Supplement I to Part 1026--Official Interpretations:
    A. Under Section 1026.25--Record Retention:
    i. Under 25(a) General rule, paragraph 5 is removed.
    ii. 25(c)(2) Records related to requirements for loan originator 
compensation and paragraphs 1 and 2 are added.
    B. The heading for Section 1026.36 is revised.
    C. Under newly designated Section 1026.36:
    i. Paragraphs 1 and 2 are removed.
    ii. The heading for 36(a) is revised.
    iii. Under newly designated 36(a):
    a. Paragraphs 1 and 4 are revised, and paragraph 5 is added.
    b. 36(a)(4) Seller financers; three properties and paragraphs 1 and 
2 are added.
    c. 36(a)(5) Seller financers; one property and paragraph 1 are 
added.
    iv. 36(b) Scope and paragraph 1 are added.
    v. Under 36(d) Prohibited payments to loan originators:
    a. Paragraph 1 is revised.
    b. The heading for 36(d)(1) is revised.
    c. Under newly designated 36(d)(1), paragraphs 1 through 8 are 
revised and paragraph 10 is added.
    d. Under 36(d)(2) Payments by persons other than consumer, 
paragraphs 1 and 2 are removed, and 36(d)(2)(i) Dual compensation and 
paragraphs 1 and 2 are added.
    vi. Under 36(e)(3) Loan options presented, paragraph 3 is revised.
    vii. 36(f) Loan originator qualification requirements and 36(g) Name 
and NMLSR ID on loan documents are added. For the convenience of the 
user, the added text to Section 1026.36(g) is set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

                        Subpart D--Miscellaneous

                36(g) Name and NMLSR ID on Loan Documents

                           Paragraph 36(g)(1)

    1. NMLSR ID. Section 1026.36(g) requires a loan originator 
organization to include its name and NMLSR ID and the name and NMLSR ID 
of the individual loan originator on certain loan documents. As provided 
in Sec. 1026.36(a)(1), the term ``loan originator'' includes creditors 
that engage in loan originator activities for purposes of this 
requirement. Thus, for example, if an individual loan originator 
employed by a bank originates a loan, the names and NMLSR IDs of the 
individual and the bank must be included on covered loan documents. The 
NMLSR ID is a number generally assigned by the NMLSR to individuals 
registered or licensed through NMLSR to provide loan origination 
services. For more information, see the SAFE Act sections 1503(3) and 
(12) and 1504 (12 U.S.C. 5102(3) and (12) and 5103), and its 
implementing regulations (12 CFR 1007.103(a) and 1008.103(a)(2)). A loan 
originator organization may also have an NMLSR unique identifier.
    2. Loan originators without NMLSR IDs. An NMLSR ID is not required 
by Sec. 1026.36(g) to be included on loan documents if the loan 
originator is not required to obtain and has not been issued an NMLSR 
ID. For example,

[[Page 890]]

certain loan originator organizations and individual loan originators 
who are employees of bona fide nonprofit organizations may not be 
required to obtain a unique identifier under State law. However, some 
loan originators may have obtained NMLSR IDs, even if they are not 
required to have one for their current jobs. If a loan originator 
organization or an individual loan originator has been provided a unique 
identifier by the NMLSR, it must be included on the covered loan 
documents, regardless of whether the loan originator organization or 
individual loan originator is required to obtain an NMLSR unique 
identifier. In any event, the name of the loan originator is required by 
Sec. 1026.36(g) to be included on the covered loan documents.
    3. Inclusion of name and NMLSR ID. Section 1026.36(g)(1) requires 
the inclusion of loan originator names and NMLSR IDs on each loan 
document. Those items need not be included more than once on each loan 
document on which loan originator names and NMLSR IDs are required, such 
as by including them on every page of a document.

                         Paragraph 36(g)(1)(ii)

    1. Multiple individual loan originators. If more than one individual 
meets the definition of a loan originator for a transaction, the name 
and NMLSR ID of the individual loan originator with primary 
responsibility for the transaction at the time the loan document is 
issued must be included. A loan originator organization that establishes 
and follows a reasonable, written policy for determining which 
individual loan originator has primary responsibility for the 
transaction at the time the document is issued complies with the 
requirement. If the individual loan originator with primary 
responsibility for a transaction at the time a document is issued is not 
the same individual loan originator who had primary responsibility for 
the transaction at the time that a previously issued document was 
issued, the previously issued document is not required to be reissued 
merely to change a loan originator name and NMLSR ID.

                                * * * * *

    Effective Date Note: 6. At 78 FR 30745 May 23, 2013, Sec. 
1026.35(e) was added, effective June 1, 2013 through Jan. 9, 2014.

    Effective Date Note: 7. At 78 FR 35504, June 12, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. In Supplement I to 
Part 1026--Official Interpretations:
    A. Under Section 1026.32--Requirements for High-Cost Mortgages:
    i. Under 32(b) Definitions:
    a. Under Paragraph 32(b)(1)(ii), paragraphs 1, 2, 3, and 4 are 
revised.
    B. Under Section 1026.43--Minimum Standards for Transactions Secured 
by a Dwelling:
    i. Under 43(a) Scope:
    a. Paragraph 43(a)(3)(iv) and paragraph 1 are added.
    b. Paragraph 43(a)(3)(v)(D) and paragraph 1 are added.
    c. Paragraph 43(a)(3)(vi) and paragraph 1 are added.
    ii. Under 43(e) Qualified Mortgages:
    a. Paragraph 43(e)(5) and paragraphs 1 through 10 are added, eff. 
Jan. 10, 2014. For the convenience of the user, the added and revised 
text is set forth as follows:
    The revisions and additions read as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                                * * * * *

          Section 1026.32--Requirements for High-Cost Mortgages

                                * * * * *

    32(b) Definitions.

                                * * * * *

    Paragraph 32(b)(1)(ii).
    1. Loan originator compensation--general. Compensation paid by a 
consumer or creditor to a loan originator, other than an employee of the 
creditor, is included in the calculation of points and fees for a 
transaction, provided that such compensation can be attributed to that 
particular transaction at the time the interest rate is set. 
Compensation paid to an employee of a creditor is not included in points 
and fees. Loan originator 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.
    2. Loan originator compensation--attributable to a particular 
transaction. Loan originator compensation is compensation that is paid 
by a consumer or creditor to a loan originator that can be attributed to 
that particular transaction. The amount of compensation that can be 
attributed to a particular transaction is the dollar value of 
compensation that the loan originator will receive if the transaction is 
consummated. As explained in comment 32(b)(1)(ii)-3, the amount of 
compensation that a loan originator will receive is calculated as of the 
date

[[Page 891]]

the interest rate is set and includes compensation that is paid before, 
at, or after consummation.
    3. Loan originator compensation--timing. Compensation paid to a loan 
originator that can be attributed to a transaction must be included in 
the points and fees calculation for that loan regardless of whether the 
compensation is paid before, at, or after consummation. The amount of 
loan originator compensation that can be attributed to a transaction is 
determined as of the date the interest rate is set. Thus, loan 
originator compensation for a transaction includes compensation that can 
be attributed to that transaction at the time the creditor sets the 
interest rate for the transaction, even if that compensation is not paid 
until after consummation.
    4. Loan originator compensation--calculating loan originator 
compensation in connection with other charges or payments included in 
the finance charge or made to loan originators. i. Consumer payments to 
mortgage brokers. As provided in Sec. 1026.32(b)(1)(ii)(A), consumer 
payments to a mortgage broker already included in the points and fees 
calculation under Sec. 1026.32(b)(1)(i) need not be counted again under 
Sec. 1026.32(b)(1)(ii). For example, assume a consumer pays a mortgage 
broker a $3,000 fee for a transaction. The $3,000 mortgage broker fee is 
included in the finance charge under Sec. 1026.4(a)(3). Because the 
$3,000 mortgage broker fee is already included in points and fees under 
Sec. 1026.32(b)(1)(i), it is not counted again under Sec. 
1026.32(b)(1)(ii).
    ii. Payments by a mortgage broker to its individual loan originator 
employee. As provided in Sec. 1026.32(b)(1)(ii)(B), compensation paid 
by a mortgage broker to its individual loan originator employee is not 
included in points and fees under Sec. 1026.32(b)(1)(ii). For example, 
assume a consumer pays a $3,000 fee to a mortgage broker, and the 
mortgage broker pays a $1,500 commission to its individual loan 
originator employee for that transaction. The $3,000 mortgage broker fee 
is included in points and fees, but the $1,500 commission is not 
included in points and fees because it has already been included in 
points and fees as part of the $3,000 mortgage broker fee.
    iii. Creditor's origination fees--loan originator not employed by 
creditor. Compensation paid by a consumer or creditor to a loan 
originator who is not employed by the creditor is included in the 
calculation of points and fees under Sec. 1026.32(b)(1)(ii). Such 
compensation is included in points and fees in addition to any 
origination fees or charges paid by the consumer to the creditor that 
are included in points and fees under Sec. 1026.32(b)(1)(i). For 
example, assume that a consumer pays to the creditor a $3,000 
origination fee and that the creditor pays a mortgage broker $1,500 in 
compensation attributed to the transaction. Assume further that the 
consumer pays no other charges to the creditor that are included in 
points and fees under Sec. 1026.32(b)(1)(i) and that the mortgage 
broker receives no other compensation that is included in points and 
fees under Sec. 1026.32(b)(1)(ii). For purposes of calculating points 
and fees, the $3,000 origination fee is included in points and fees 
under Sec. 1026.32(b)(1)(i) and the $1,500 in loan originator 
compensation is included in points and fees under Sec. 
1026.32(b)(1)(ii), equaling $4,500 in total points and fees, provided 
that no other points and fees are paid or compensation received.

                                * * * * *

    Section 1026.43--Minimum Standards for Transactions Secured by a 
                                Dwelling

    43(a) Scope.

                                * * * * *

    Paragraph 43(a)(3)(iv).
    1. General. The requirements of Sec. 1026.43(c) through (f) do not 
apply to an extension of credit made pursuant to a program administered 
by a Housing Finance Agency, as defined under 24 CFR 266.5. Under the 
exemption, the requirements of Sec. 1026.43(c) through (f) do not apply 
to extensions of credit made by housing finance agencies and extensions 
of credit made by intermediaries (e.g., private creditors) pursuant to a 
program administered by a housing finance agency. For example, if a 
creditor is extending credit, including a subordinate-lien covered 
transaction, that will be made pursuant to a program administered by a 
housing finance agency, the creditor is exempt from the requirements of 
Sec. 1026.43(c) through (f). Similarly, the creditor is exempt from the 
requirements of Sec. 1026.43(c) through (f) regardless of whether the 
program administered by a housing finance agency is funded by Federal, 
State, or other sources.
    Paragraph 43(a)(3)(v)(D).
    1. General. An extension of credit is exempt from the requirements 
of Sec. 1026.43(c) through (f) if the credit is extended by a creditor 
described in Sec. 1026.43(a)(3)(v)(D), provided the conditions 
specified in that section are satisfied. The conditions specified in 
Sec. 1026.43(a)(3)(v)(D)(1) and (2) are determined according to 
activity that occurred in the calendar year preceding the calendar year 
in which the consumer's application was received. Section 
1026.43(a)(3)(v)(D)(2) provides that, during the preceding calendar 
year, the creditor must have extended credit only to consumers with 
income that did not exceed the limit then in effect for low- and 
moderate-income households, as specified in regulations prescribed by 
the U.S. Department of Housing and Urban Development pursuant to 24 CFR 
570.3. For example, a creditor has

[[Page 892]]

satisfied the requirement in Sec. 1026.43(a)(3)(v)(D)(2) if the 
creditor extended credit only to consumers with incomes that did not 
exceed the limit in effect on the dates the creditor received each 
consumer's individual application. The condition specified in Sec. 
1026.43(a)(3)(v)(D)(3), which relates to the current extension of 
credit, provides that the extension of credit must be to a consumer with 
income that does not exceed the limit specified in Sec. 
1026.43(a)(3)(v)(D)(2) in effect on the date the creditor received the 
consumer's application. For example, assume that a creditor with a tax 
exemption ruling under section 501(c)(3) of the Internal Revenue Code of 
1986 has satisfied the conditions identified in Sec. 
1026.43(a)(3)(v)(D)(1) and (2). If, on May 21, 2014, the creditor in 
this example extends credit secured by a dwelling to a consumer whose 
application reflected income in excess of the limit identified in Sec. 
1026.43(a)(3)(v)(D)(2) in effect on the date the creditor received that 
consumer's application, the creditor has not satisfied the condition in 
Sec. 1026.43(a)(3)(v)(D)(3) and this extension of credit is not exempt 
from the requirements of Sec. 1026.43(c) through (f).
    Paragraph 43(a)(3)(vi).
    1. General. The requirements of Sec. 1026.43(c) through (f) do not 
apply to a mortgage loan modification made in connection with a program 
authorized by sections 101 and 109 of the Emergency Economic 
Stabilization Act of 2008. If a creditor is underwriting an extension of 
credit that is a refinancing, as defined by Sec. 1026.20(a), that will 
be made pursuant to a program authorized by sections 101 and 109 of the 
Emergency Economic Stabilization Act of 2008, the creditor also need not 
comply with Sec. 1026.43(c) through (f). A creditor need not determine 
whether the mortgage loan modification is considered a refinancing under 
Sec. 1026.20(a) for purposes of determining applicability of Sec. 
1026.43; if the transaction is made in connection with these programs, 
the requirements of Sec. 1026.43(c) through (f) do not apply. In 
addition, if a creditor underwrites a new extension of credit, such as a 
subordinate-lien mortgage loan, that will be made pursuant to a program 
authorized by sections 101 and 109 of the Emergency Economic 
Stabilization Act of 2008, the creditor need not comply with the 
requirements of Sec. 1026.43(c) through (f).

                                * * * * *

    43(e) Qualified mortgages.

                                * * * * *

    Paragraph 43(e)(5).
    1. Satisfaction of qualified mortgage requirements. For a covered 
transaction to be a qualified mortgage under Sec. 1026.43(e)(5), the 
mortgage must satisfy the requirements for a qualified mortgage under 
Sec. 1026.43(e)(2), other than the requirements regarding debt-to-
income ratio. For example, a qualified mortgage under Sec. 
1026.43(e)(5) may not have a loan term in excess of 30 years because 
longer terms are prohibited for qualified mortgages under Sec. 
1026.43(e)(2)(ii). Similarly, a qualified mortgage under Sec. 
1026.43(e)(5) may not result in a balloon payment because Sec. 
1026.43(e)(2)(i)(C) provides that qualified mortgages may not have 
balloon payments except as provided under Sec. 1026.43(f). However, a 
covered transaction need not comply with Sec. 1026.43(e)(2)(vi), which 
prohibits consumer monthly debt-to-income ratios in excess of 43 
percent. A covered transaction therefore can be a qualified mortgage 
under Sec. 1026.43(e)(5) even though the consumer's monthly debt-to-
income ratio is greater than 43 percent.
    2. Debt-to-income ratio or residual income. Section 1026.43(e)(5) 
does not prescribe a specific monthly debt-to-income ratio with which 
creditors must comply. Instead, creditors must consider a consumer's 
debt-to-income ratio or residual income calculated generally in 
accordance with Sec. 1026.43(c)(7) and verify the information used to 
calculate the debt-to-income ratio or residual income in accordance with 
Sec. 1026.43(c)(3) and (4). However, Sec. 1026.43(c)(7) refers 
creditors to Sec. 1026.43(c)(5) for instructions on calculating the 
payment on the covered transaction. Section 1026.43(c)(5) requires 
creditors to calculate the payment differently than Sec. 
1026.43(e)(2)(iv). For purposes of the qualified mortgage definition in 
Sec. 1026.43(e)(5), creditors must base their calculation of the 
consumer's debt-to-income ratio or residual income on the payment on the 
covered transaction calculated according to Sec. 1026.43(e)(2)(iv) 
instead of according to Sec. 1026.43(c)(5). Creditors are not required 
to calculate the consumer's monthly debt-to-income ratio in accordance 
with appendix Q to this part as is required under the general definition 
of qualified mortgages by Sec. 1026.43(e)(2)(vi).
    3. Forward commitments. A creditor may make a mortgage loan that 
will be transferred or sold to a purchaser pursuant to an agreement that 
has been entered into at or before the time the transaction is 
consummated. Such an agreement is sometimes known as a ``forward 
commitment.'' A mortgage that will be acquired by a purchaser pursuant 
to a forward commitment does not satisfy the requirements of Sec. 
1026.43(e)(5), whether the forward commitment provides for the purchase 
and sale of the specific transaction or for the purchase and sale of 
transactions with certain prescribed criteria that the transaction 
meets. However, a forward commitment to another person that also meets 
the requirements of Sec. 1026.43(e)(5)(i)(D) is permitted. For example, 
assume a creditor that is eligible to make qualified mortgages under 
Sec. 1026.43(e)(5)

[[Page 893]]

makes a mortgage. If that mortgage meets the purchase criteria of an 
investor with which the creditor has an agreement to sell loans after 
consummation, then the loan does not meet the definition of a qualified 
mortgage under Sec. 1026.43(e)(5). However, if the investor meets the 
requirements of Sec. 1026.43(e)(5)(i)(D), the mortgage will be a 
qualified mortgage if all other applicable criteria also are satisfied.
    4. Creditor qualifications. To be eligible to make qualified 
mortgages under Sec. 1026.43(e)(5), a creditor must satisfy the 
requirements stated in Sec. 1026.35(b)(2)(iii)(B) and (C). Section 
1026.35(b)(2)(iii)(B) requires that, during the preceding calendar year, 
the creditor and its affiliates together originated 500 or fewer first-
lien covered transactions. Section 1026.35(b)(2)(iii)(C) requires that, 
as of the end of the preceding calendar year, the creditor had total 
assets of less than $2 billion, adjusted annually by the Bureau for 
inflation.
    5. Requirement to hold in portfolio. Creditors generally must hold a 
loan in portfolio to maintain the transaction's status as a qualified 
mortgage under Sec. 1026.43(e)(5), subject to four exceptions. Unless 
one of these exceptions applies, a loan is no longer a qualified 
mortgage under Sec. 1026.43(e)(5) once legal title to the debt 
obligation is sold, assigned, or otherwise transferred to another 
person. Accordingly, unless one of the exceptions applies, the 
transferee could not benefit from the presumption of compliance for 
qualified mortgages under Sec. 1026.43(e)(1) unless the loan also met 
the requirements of another qualified mortgage definition.
    6. Application to subsequent transferees. The exceptions contained 
in Sec. 1026.43(e)(5)(ii) apply not only to an initial sale, 
assignment, or other transfer by the originating creditor but to 
subsequent sales, assignments, and other transfers as well. For example, 
assume Creditor A originates a qualified mortgage under Sec. 
1026.43(e)(5). Six months after consummation, Creditor A sells the 
qualified mortgage to Creditor B pursuant to Sec. 1026.43(e)(5)(ii)(B) 
and the loan retains its qualified mortgage status because Creditor B 
complies with the limits on asset size and number of transactions. If 
Creditor B sells the qualified mortgage, it will lose its qualified 
mortgage status under Sec. 1026.43(e)(5) unless the sale qualifies for 
one of the Sec. 1026.43(e)(5)(ii) exceptions for sales three or more 
years after consummation, to another qualifying institution, as required 
by supervisory action, or pursuant to a merger or acquisition.
    7. Transfer three years after consummation. Under Sec. 
1026.43(e)(5)(ii)(A), if a qualified mortgage under Sec. 1026.43(e)(5) 
is sold, assigned, or otherwise transferred three years or more after 
consummation, the loan retains its status as a qualified mortgage under 
Sec. 1026.43(e)(5) following the transfer. The transferee need not be 
eligible to originate qualified mortgages under Sec. 1026.43(e)(5). The 
loan will continue to be a qualified mortgage throughout its life, and 
the transferee, and any subsequent transferees, may invoke the 
presumption of compliance for qualified mortgages under Sec. 
1026.43(e)(1).
    8. Transfer to another qualifying creditor. Under Sec. 
1026.43(e)(5)(ii)(B), a qualified mortgage under Sec. 1026.43(e)(5) may 
be sold, assigned, or otherwise transferred at any time to another 
creditor that meets the requirements of Sec. 1026.43(e)(5)(v). That 
section requires that a creditor, during the preceding calendar year, 
together with all affiliates, 500 or fewer first-lien covered 
transactions and had total assets less than $2 billion (as adjusted for 
inflation) at the end of the preceding calendar year. A qualified 
mortgage under Sec. 1026.43(e)(5) transferred to a creditor that meets 
these criteria would retain its qualified mortgage status even if it is 
transferred less than three years after consummation.
    9. Supervisory sales. Section 1026.43(e)(5)(ii)(C) facilitates sales 
that are deemed necessary by supervisory agencies to revive troubled 
creditors and resolve failed creditors. A qualified mortgage under Sec. 
1026.43(e)(5) retains its qualified mortgage status if it is sold, 
assigned, or otherwise transferred to another person pursuant to: A 
capital restoration plan or other action under 12 U.S.C. 1831o; the 
actions or instructions of any person acting as conservator, receiver or 
bankruptcy trustee; an order of a State or Federal government agency 
with jurisdiction to examine the creditor pursuant to State or Federal 
law; or an agreement between the creditor and such an agency. A 
qualified mortgage under Sec. 1026.43(e)(5) that is sold, assigned, or 
otherwise transferred under these circumstances retains its qualified 
mortgage status regardless of how long after consummation it is sold and 
regardless of the size or other characteristics of the transferee. 
Section 1026.43(e)(5)(ii)(C) does not apply to transfers done to comply 
with a generally applicable regulation with future effect designed to 
implement, interpret, or prescribe law or policy in the absence of a 
specific order by or a specific agreement with a governmental agency 
described in Sec. 1026.43(e)(5)(ii)(C) directing the sale of one or 
more qualified mortgages under Sec. 1026.43(e)(5) held by the creditor 
or one of the other circumstances listed in Sec. 1026.43(e)(5)(ii)(C). 
For example, a qualified mortgage under Sec. 1026.43(e)(5) that is sold 
pursuant to a capital restoration plan under 12 U.S.C. 1831o would 
retain its status as a qualified mortgage following the sale. However, 
if the creditor simply chose to sell the same qualified mortgage as one 
way to comply with general regulatory capital requirements in the 
absence of supervisory action or agreement it would lose its status as a

[[Page 894]]

qualified mortgage following the sale unless it qualifies under another 
definition of qualified mortgage.
    10. Mergers and acquisitions. A qualified mortgage under Sec. 
1026.43(e)(5) retains its qualified mortgage status if a creditor merges 
with, is acquired by, or acquires another person regardless of whether 
the creditor or its successor is eligible to originate new qualified 
mortgages under Sec. 1026.43(e)(5) after the merger or acquisition. 
However, the creditor or its successor can originate new qualified 
mortgages under Sec. 1026.43(e)(5) only if it complies with all of the 
requirements of Sec. 1026.43(e)(5) after the merger or acquisition. For 
example, assume a creditor that originates 250 covered transactions each 
year and originates qualified mortgages under Sec. 1026.43(e)(5) is 
acquired by a larger creditor that originates 10,000 covered 
transactions each year. Following the acquisition, the small creditor 
would no longer be able to originate Sec. 1026.43(e)(5) qualified 
mortgages because, together with its affiliates, it would originate more 
than 500 covered transactions each year. However, the Sec. 
1026.43(e)(5) qualified mortgages originated by the small creditor 
before the acquisition would retain their qualified mortgage status.

                                * * * * *

    Effective Date Note: 8. At 78 FR 44725, July 24, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. In Supplement I to 
Part 1026--Official Interpretations:
    A. Under Section 1026.41--Periodic Statements for Residential 
Mortgage Loans:
    i. Under 41(e)(4) Small servicers:
    a. Under 41(e)(4)(ii) Small servicer defined, paragraphs 1 and 2 are 
revised and paragraph 3 is added.
    b. Under Paragraph 41(e)(4)(iii) Small servicer determination, 
paragraph 3 is added.
    B. Under Section 1026.43--Minimum Standards for Transactions Secured 
by a Dwelling:
    i. Under 43(e)(4) Qualified mortgage defined-special rules, 
paragraph 4 is revised and paragraph 5 is added. At 78 FR 45842, July 
30, 2013, a correction to the July 24 amendments to Supplement I to part 
1026 was published, effective Jan. 10, 2014. On page 44727, in the third 
column, on the eleventh line from the bottom, ``eligibility requirements 
for Fannie Mae products and loan terms'' should read ``The loan still 
meets eligibility requirements for Fannie Mae products and loan 
terms.''For the convenience of the user, the added and revised text is 
set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                                * * * * *

    Sec. 1026.41 Periodic Statements for Residential Mortgage Loans

                                * * * * *

    41(e)(4)(ii) Small servicer defined.
    1. Mortgage loans considered. Pursuant to Sec. 1026.41(a)(1), the 
mortgage loans considered in determining status as a small servicer are 
closed-end consumer credit transactions secured by a dwelling, subject 
to the exclusions in Sec. 1026.41(e)(4)(iii).
    2. Requirements to be a small servicer. Pursuant to Sec. 
1026.41(e)(4)(ii)(A), to qualify as a small servicer, a servicer must 
service, together with any affiliates, 5,000 or fewer mortgage loans, 
for all of which the servicer (or an affiliate) is the creditor or 
assignee. There are two elements to this requirement. First, a servicer, 
together with any affiliates, must service 5,000 or fewer mortgage 
loans. Second, a servicer must service only mortgage loans for which the 
servicer (or an affiliate) is the creditor or assignee. To be the 
creditor or assignee of a mortgage loan, the servicer (or an affiliate) 
must either currently own the mortgage loan or must have been the entity 
to which the mortgage loan obligation was initially payable (that is, 
the originator of the mortgage loan). A servicer is not a small servicer 
if it services any mortgage loans for which the servicer or an affiliate 
is not the creditor or assignee (that is, for which the servicer or an 
affiliate is not the owner or was not the originator). The following two 
examples demonstrate circumstances in which a servicer would not qualify 
as a small servicer because it did not meet both requirements for 
determining a servicer's status as a small servicer:
    i. A servicer services 3,000 mortgage loans, all of which it or an 
affiliate owns or originated. An affiliate of the servicer services 
4,000 other mortgage loans, all of which it or an affiliate owns or 
originated. Because the number of mortgage loans serviced by a servicer 
is determined by counting the mortgage loans serviced by a servicer 
together with any affiliates, both of these servicers are considered to 
be servicing 7,000 mortgage loans and neither servicer is a small 
servicer.
    ii. A service services 3,100 mortgage loans--3,000 mortgage loans it 
owns or originated and 100 mortgage loans it neither owns nor 
originated, but for which it owns the mortgage servicing rights. The 
servicer is not a small servicer because it services mortgage loans for 
which the servicer (or an affiliate) is not the creditor or assignee, 
notwithstanding that the servicer services fewer than 5,000 mortgage 
loans.

[[Page 895]]

    3. Master servicing and subservicing. A servicer that qualifies as a 
small servicer does not lose its small servicer status if it retains a 
subservicer, as that term is defined in 12 CFR 1024.31, to service any 
of its mortgage loans. A subservicer can gain the benefit of the small 
servicer exemption only if (1) the master servicer, as that term is 
defined in 12 CFR 1024.31, is a small servicer and (2) the subservicer 
is a small servicer. A subservicer generally will not qualify as a small 
servicer because it does not own or did not originate the mortgage loans 
it subservices--unless it is an affiliate of a master servicer that 
qualifies as a small servicer. The following examples demonstrate the 
application of the small servicer exemption for different forms of 
servicing relationships:
    i. A credit union services 4,000 mortgage loans, all of which it 
originated or owns. The credit union retains a credit union service 
organization, that is not an affiliate, to subservice 1,000 of the 
mortgage loans. The credit union is a small servicer and, thus, can gain 
the benefit of the small servicer exemption for the 3,000 mortgage loans 
the credit union services itself. The credit union service organization 
is not a small servicer because it services mortgage loans it does not 
own or did not originate. Accordingly, the credit union service 
organization does not gain the benefit of the small servicer exemption 
and, thus, must comply with any applicable mortgage servicing 
requirements for the 1,000 mortgage loans it subservices.
    ii. A bank holding company, through a lender subsidiary, owns or 
originated 4,000 mortgage loans. All mortgage servicing rights for the 
4,000 mortgage loans are owned by a wholly owned master servicer 
subsidiary. Servicing for the 4,000 mortgage loans is conducted by a 
wholly owned subservicer subsidiary. The bank holding company controls 
all of these subsidiaries and, thus, they are affiliates of the bank 
holding company pursuant 12 CFR 1026.32(b)(2). Because the master 
servicer and subservicer service 5,000 or fewer mortgage loans, and 
because all the mortgage loans are owned or originated by an affiliate, 
the master servicer and the subservicer both qualify for the small 
servicer exemption for all 4,000 mortgage loans.
    iii. A nonbank servicer services 4,000 mortgage loans, all of which 
it originated or owns. The servicer retains a ``component servicer'' to 
assist it with servicing functions. The component servicer is not 
engaged in ``servicing'' as defined in 12 CFR 1024.2; that is, the 
component servicer does not receive any scheduled periodic payments from 
a borrower pursuant to the terms of any mortgage loan, including amounts 
for escrow accounts, and does not make 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. The component servicer is not a 
subservicer pursuant to 12 CFR 1024.31 because it is not engaged in 
servicing, as that term is defined in 12 CFR 1024.2. The nonbank 
servicer is a small servicer and, thus, can gain the benefit of the 
small servicer exemption with regard to all 4,000 mortgage loans it 
services.
    41(e)(4)(iii) Small servicer determination.

                                * * * * *

    2. Timing for small servicer exemption. The following examples 
demonstrate when a servicer either is considered or is no longer 
considered a small servicer:
    i. A servicer that begins servicing more than 5,000 mortgage loans 
(or begins servicing one or more mortgage loans it does not own or did 
not originate) on October 1, and services more than 5,000 mortgage loans 
(or services one or more mortgage loans it does not own or did not 
originate) as of January 1 of the following year, would no longer be 
considered a small servicer on January 1 of that following year and 
would have to comply with any requirements from which it is no longer 
exempt as a small servicer on April 1 of that following year.
    ii. A servicer that begins servicing more than 5,000 mortgage loans 
(or begins servicing one or more mortgage loans it does not own or did 
not originate) on February 1, and services more than 5,000 mortgage 
loans (or services one or more mortgage loans it does not own or did not 
originate) as of January 1 of the following year, would no longer be 
considered a small servicer on January 1 of that following year and 
would have to comply with any requirements from which it is no longer 
exempt as a small servicer on that same January 1.
    iii. A servicer that begins servicing more than 5,000 mortgage loans 
(or begins servicing one or more mortgage loans it does not own or did 
not originate) on February 1, but services less than 5,000 mortgage 
loans (or no longer services mortgage loans it does not own or did not 
originate) as of January 1 of the following year, is considered a small 
servicer for that following year.

                                * * * * *

    3. Mortgage loans not considered in determining whether a servicer 
is a small servicer. Mortgage loans that are not considered for purposes 
of determining whether a servicer is a small servicer pursuant to Sec. 
1026.41(e)(4)(iii) are not considered either for determining whether a 
servicer, together with any affiliates, services 5,000 or fewer mortgage 
loans or whether a servicer is servicing only mortgage loans that it 
owns or originated. For example, assume a servicer

[[Page 896]]

services 5,400 mortgage loans. Of these mortgage loans, the servicer 
owns or originated 4,800 mortgage loans, voluntarily services 300 
mortgage loans that it does not own or did not originate for an 
unaffiliated nonprofit organization for which the servicer does not 
receive any compensation or fees, and services 300 reverse mortgage 
transactions that it does not own and did not originate. Because the 
only mortgage loans considered are the 4,800 mortgage loans owned or 
originated by the servicer, the servicer is considered a small servicer 
and qualifies for the small servicer exemption with regard to all 5,400 
mortgage loans it services. Note that reverse mortgages and mortgage 
loans secured by consumers' interests in timeshare plans, in addition to 
not being considered in determining small servicer qualification, are 
also exempt from the requirements of Sec. 1026.41. In contrast, 
although charitably serviced mortgage loans, as defined by Sec. 
1026.41(e)(4)(iii), are likewise not considered in determining small 
servicer qualification, they are not exempt from the requirements of 
Sec. 1026.41. Thus, a servicer that does not qualify as a small 
servicer would not have to provide periodic statements for reverse 
mortgages and timeshare plans because they are exempt from the rule, but 
would have to provide periodic statements for mortgage loans it 
charitably services.

                                * * * * *

    Section 1026.43--Minimum Standards for Transactions Secured by a 
                                Dwelling

                                * * * * *

    43(e)(4) Qualified mortgage defined--special rules.

                                * * * * *

    4. Eligible for purchase, guarantee, or insurance except with regard 
to matters wholly unrelated to ability to repay. To satisfy Sec. 
1026.43(e)(4)(ii), a loan need not be actually purchased or guaranteed 
by Fannie Mae or Freddie Mac or insured or guaranteed by one of the 
Agencies (the U.S. Department of Housing and Urban Development (HUD), 
U.S. Department of Veterans Affairs (VA), U.S. Department of Agriculture 
(USDA), or Rural Housing Service (RHS)). Rather, Sec. 1026.43(e)(4)(ii) 
requires only that the creditor determine that the loan is eligible 
(i.e., meets the criteria) for such purchase, guarantee, or insurance at 
consummation. For example, for purposes of Sec. 1026.43(e)(4), a 
creditor is not required to sell a loan to Fannie Mae or Freddie Mac (or 
any limited-life regulatory entity succeeding the charter of either) for 
that loan to be a qualified mortgage; however, the loan must be eligible 
for purchase or guarantee by Fannie Mae or Freddie Mac (or any limited-
life regulatory entity succeeding the charter of either), including 
satisfying any requirements regarding consideration and verification of 
a consumer's income or assets, credit history, debt-to-income ratio or 
residual income, and other credit risk factors, but not any requirements 
regarding matters wholly unrelated to ability to repay. To determine 
eligibility for purchase, guarantee or insurance, a creditor may rely on 
a valid underwriting recommendation provided by a GSE automated 
underwriting system (AUS) or an AUS that relies on an Agency 
underwriting tool; compliance with the standards in the GSE or Agency 
written guide in effect at the time; a written agreement between the 
creditor or a direct sponsor or aggregator of the creditor and a GSE or 
Agency that permits variation from the standards of the written guides 
and/or variation from the AUSs, in effect at the time of consummation; 
or an individual loan waiver granted by the GSE or Agency to the 
creditor. For creditors relying on the variances of a sponsor or 
aggregator, a loan that is transferred directly to or through the 
sponsor or aggregator at or after consummation complies with Sec. 
1026.43(e)(4). In using any of the four methods listed above, the 
creditor need not satisfy standards that are wholly unrelated to 
assessing a consumer's ability to repay that the creditor is required to 
perform. Matters wholly unrelated to ability to repay are those matters 
that are wholly unrelated to credit risk or the underwriting of the 
loan. Such matters include requirements related to the status of the 
creditor rather than the loan, requirements related to selling, 
securitizing, or delivering the loan, and any requirement that the 
creditor must perform after the consummated loan is sold, guaranteed, or 
endorsed for insurance such as document custody, quality control, or 
servicing.
    Accordingly, a covered transaction is eligible for purchase or 
guarantee by Fannie Mae or Freddie Mac, for example, if:
    i. The loan conforms to the relevant standards set forth in the 
Fannie Mae Single-Family Selling Guide or the Freddie Mac Single-Family 
Seller/Servicer Guide in effect at the time, or to standards set forth 
in a written agreement between the creditor or a sponsor or aggregator 
of the creditor and Fannie Mae or Freddie Mac in effect at that time 
that permits variation from the standards of those guides;
    ii. The loan has been granted an individual waiver by a GSE, which 
will allow purchase or guarantee in spite of variations from the 
applicable standards; or
    iii. The creditor inputs accurate information into the Fannie Mae or 
Freddie Mac AUS or another AUS pursuant to a written agreement between 
the creditor and Fannie Mae or Freddie Mac that permits variation

[[Page 897]]

from the GSE AUS; the loan receives one of the recommendations specified 
below in paragraphs A or B from the corresponding GSE AUS or an 
equivalent recommendation pursuant to another AUS as authorized in the 
written agreement; and the creditor satisfies any requirements and 
conditions specified by the relevant AUS that are not wholly unrelated 
to ability to repay, the non-satisfaction of which would invalidate that 
recommendation:
    A. An ``Approve/Eligible'' recommendation from Desktop Underwriter 
(DU); or
    B. A risk class of ``Accept'' and purchase eligibility of ``Freddie 
Mac Eligible'' from Loan Prospector (LP).
    5. Repurchase and indemnification demands. A repurchase or 
indemnification demand by Fannie Mae, Freddie Mac, HUD, VA, USDA, or RHS 
is not dispositive of qualified mortgage status. Qualified mortgage 
status under Sec. 1026.43(e)(4) depends on whether a loan is eligible 
to be purchased, guaranteed, or insured at the time of consummation, 
provided that other requirements under Sec. 1026.43(e)(4) are 
satisfied. Some repurchase or indemnification demands are not related to 
eligibility criteria at consummation. See comment 43(e)(4)-4. Further, 
even where a repurchase or indemnification demand relates to whether the 
loan satisfied relevant eligibility requirements as of the time of 
consummation, the mere fact that a demand has been made, or even 
resolved, between a creditor and GSE or agency is not dispositive for 
purposes of Sec. 1026.43(e)(4). However, evidence of whether a 
particular loan satisfied the Sec. 1026.43(e)(4) eligibility criteria 
at consummation may be brought to light in the course of dealing over a 
particular demand, depending on the facts and circumstances. 
Accordingly, each loan should be evaluated by the creditor based on the 
facts and circumstances relating to the eligibility of that loan at the 
time of consummation. For example:
    i. Assume eligibility to purchase a loan was based in part on the 
consumer's employment income of $50,000 per year. The creditor uses the 
income figure in obtaining an approve/eligible recommendation from DU. A 
quality control review, however, later determines that the documentation 
provided and verified by the creditor to comply with Fannie Mae 
requirements did not support the reported income of $50,000 per year. As 
a result, Fannie Mae demands that the creditor repurchase the loan. 
Assume that the quality control review is accurate, and that DU would 
not have issued an approve/eligible recommendation if it had been 
provided the accurate income figure. The DU determination at the time of 
consummation was invalid because it was based on inaccurate information 
provided by the creditor; therefore, the loan was never a qualified 
mortgage under Sec. 1026.43(e)(4).
    ii. Assume that a creditor delivered a loan, which the creditor 
determined was a qualified mortgage at the time of consummation under 
Sec. 1026.43(e)(4), to Fannie Mae for inclusion in a particular To-Be-
Announced Mortgage Backed Security (MBS) pool of loans. The data 
submitted by the creditor at the time of loan delivery indicated that 
the various loan terms met the product type, weighted-average coupon, 
weighted-average maturity, and other MBS pooling criteria, and MBS 
issuance disclosures to investors reflected this loan data. However, 
after delivery and MBS issuance, a quality control review determines 
that the loan violates the pooling criteria.The loan still meets 
eligibility requirements for Fannie Mae products and loan terms. Fannie 
Mae, however, requires the creditor to repurchase the loan due to the 
violation of MBS pooling requirements. Assume that the quality control 
review determination is accurate. Because the loan still meets Fannie 
Mae's eligibility requirements, it remains a qualified mortgage based on 
these facts and circumstances.

                                * * * * *

    Effective Date Note: 9. At 78 FR 60442, Oct. 1, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014, except for the 
commentary to sections 1026.25(c)(2), 1026.35, and 1026.36(a), (b), (d) 
and (f) in Supplement 1, which are effective Jan. 1, 2014. In addition, 
this Oct. 1, 2013, rule changes the effective date from Jan. 10, 2014 to 
Jan. 1, 2014, for the commentary to sections 1026.25(c)(2) and 
1026.36(a), (b), (d), (e)and (f) in Supplement I to Part 1026, published 
February 15, 2013, at 78 FR 11280. In Supplement I to Part 1026:
    a. Under Section 1026.25--Record Retention
    i. Under Paragraph 25(c)(2) Records related to requirements for loan 
originator compensation, as amended February 15, 2013, at 78 FR 11280, 
paragraph 1 is revised.
    ii. Under Paragraph 25(c)(3) Records related to minimum standards 
for transactions secured by a dwelling, as added January 30, 2013, at 78 
FR 6408, paragraph 1 is revised.
    b. Under Section 1026.32--Requirements for High-Cost Mortgages:
    i. Under Paragraph 32(b)(1), as amended January 30, 2013, at 78 FR 
6408, paragraph 2 is added.
    ii. Under Paragraph 32(b)(1)(ii), as amended June 12, 2013, at 78 FR 
35430, paragraph 5 is added.
    iii. Paragraph 32(b)(2) and paragraph 1 are added.
    iv. Under Paragraph 32(b)(2)(i), as amended January 30, 2013, at 78 
FR 6408, paragraph 1 is revised.
    v. Under Paragraph 32(b)(2)(i)(D), as amended January 30, 2013, at 
78 FR 6408, paragraph 1 is revised.

[[Page 898]]

    vi. Under Paragraph 32(d)(8)(ii), as amended January 30, 2013, at 78 
FR 6408, paragraph 1 is revised.
    c. Under Section 1026.34--Prohibited Acts or Practices in Connection 
with High-Cost Mortgages, under Paragraph 34(a)(5)(v), as amended 
January 30, 2013, at 78 FR 6408, paragraph 1 is revised.
    d. Under Section 1026.35--Requirements for Higher-Priced Mortgage 
Loans
    i. Under Paragraph 35(b)(2)(iii), paragraph 1 is revised.
    ii. Under Paragraph 35(b)(2)(iii)(D(1), paragraph 1 is revised.
    e. Under Section 1026.36--Prohibited Acts or Practices in Connection 
With Credit Secured by a Dwelling
    i. Under Paragraph 36(a), as amended February 15, 2013, at 78 FR 
11280, paragraphs 1, 4, and 5 are revised.
    ii. Paragraph 36(a)(1)(i)(B) and paragraph 1 are added.
    iii. Under Paragraph 36(b), as amended February 15, 2013, at 78 FR 
11280, paragraph 1 is revised.
    iv. Under Paragraph 36(d)(1), as amended February 15, 2013, at 78 FR 
11280, paragraphs 1, 3, and 6 are revised.
    v. Under Paragraph 36(f)(3)(i), as amended February 15, 2013, at 78 
FR 11280, paragraphs 1 and 2 are revised.
    vi. Under Paragraph 36(f)(3)(ii), as amended February 15, 2013, at 
78 FR 11280, paragraphs 1 and 2 are revised.
    f. Under Section 1026.41--Periodic Statements for Residential 
Mortgage Loans
    i. Under Paragraph 41(b), as amended February 14, 2013, at 78 FR 
10901, paragraph 1 is revised.
    ii. Under Paragraph 41(d), as amended February 14, 2013, at 78 FR 
10901, paragraph 3 is revised.
    iii. Under Paragraph 41(d)(4), as amended February 14, 2013, at 78 
FR 10901, paragraph 1 is revised.
    iv. Under Paragraph 41(e)(3), as amended February 14, 2013, at 78 FR 
10901, paragraph 1 is revised.
    v. Under Paragraph 41(e)(4)(iii), as amended February 14, 2013, at 
78 FR 10901, paragraph 1 is revised.
    g. Under Section 1026.43--Minimum Standards for Transactions Secured 
by a Dwelling:
    i. Under Paragraph 43(b)(8), as added January 30, 2013, at 78 FR 
6408, paragraph 4 is revised.
    ii. Under Paragraph 43(c)(3), as added January 30, 2013, at 78 FR 
6408, paragraph 6 is revised.
    iii. Under Paragraph 43(e)(4), as added January 30, 2013, at 78 FR 
6408, paragraph 1 is revised.
    iv. Under Paragraph 43(e)(5), as amended June 12, 2013, at 78 FR 
35430, paragraph 8 is revised.
    v. Under Paragraph 43(f)(2)(iii), as added January 30, 2013, at 78 
FR 6408, paragraph 1 is revised. For the convenience of the user, the 
added and revised text is set forth as follows:
    The revisions read as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

                        Subpart D--Miscellaneous

                    Section 1026.25--Record Retention

                                * * * * *

    25(c) Records related to certain requirements for mortgage loans.
    25(c)(3) Records related to minimum standards for transactions 
secured by a dwelling.
    1. Evidence of compliance with repayment ability provisions. A 
creditor must retain evidence of compliance with Sec. 1026.43 for three 
years after the date of consummation of a consumer credit transaction 
covered by that section. (See comment 25(c)(3)-2 for guidance on the 
retention of evidence of compliance with the requirement to offer a 
consumer a loan without a prepayment penalty under Sec. 1026.43(g)(3).) 
If a creditor must verify and document information used in underwriting 
a transaction subject to Sec. 1026.43, the creditor shall retain 
evidence sufficient to demonstrate compliance with the documentation 
requirements of the rule. Although a creditor need not retain actual 
paper copies of the documentation used in underwriting a transaction 
subject to Sec. 1026.43, to comply with Sec. 1026.25(c)(3), the 
creditor must be able to reproduce such records accurately. For example, 
if the creditor uses a consumer's Internal Revenue Service (IRS) Form W-
2 to verify the consumer's income, the creditor must be able to 
reproduce the IRS Form W-2 itself, and not merely the income information 
that was contained in the form.

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                                * * * * *

          Section 1026.32--Requirements for High-Cost Mortgages

                                * * * * *

    32(b) Definitions.

                                * * * * *

    Paragraph 32(b)(1).

                                * * * * *

[[Page 899]]

    2. Charges paid by parties other than the consumer. Under Sec. 
1026.32(b)(1), points and fees may include charges paid by third parties 
in addition to charges paid by the consumer. Specifically, charges paid 
by third parties that fall within the definition of points and fees set 
forth in Sec. 1026.32(b)(1)(i) through (vi) are included in points and 
fees. In calculating points and fees in connection with a transaction, 
creditors may rely on written statements from the consumer or third 
party paying for a charge, including the seller, to determine the source 
and purpose of any third-party payment for a charge.
    i. Examples--included in points and fees. A creditor's origination 
charge paid by a consumer's employer on the consumer's behalf that is 
included in the finance charge as defined in Sec. 1026.4(a) or (b), 
must be included in points and fees under Sec. 1026.32(b)(1)(i), unless 
other exclusions under Sec. 1026.4 or Sec. 1026.32(b)(1)(i)(A) through 
(F) apply. In addition, consistent with comment 32(b)(1)(i)-1, a third-
party payment of an item excluded from the finance charge under a 
provision of Sec. 1026.4, while not included in the total points and 
fees under Sec. 1026.32(b)(1)(i), may be included under Sec. 
1026.32(b)(1)(ii) through (vi). For example, a payment by a third party 
of a creditor-imposed fee for an appraisal performed by an employee of 
the creditor is included in points and fees under Sec. 
1026.32(b)(1)(iii). See comment 32(b)(1)(i)-1.
    ii. Examples--not included in points and fees. A charge paid by a 
third party is not included in points and fees under Sec. 
1026.32(b)(1)(i) if the exclusions to points and fees in Sec. 
1026.32(b)(1)(i)(A) through (F) apply. For example, certain bona fide 
third-party charges not retained by the creditor, loan originator, or an 
affiliate of either are excluded from points and fees under Sec. 
1026.32(b)(1)(i)(D), regardless of whether those charges are paid by a 
third party or the consumer.
    iii. Seller's points. Seller's points, as described in Sec. 
1026.4(c)(5) and commentary, are excluded from the finance charge and 
thus are not included in points and fees under Sec. 1026.32(b)(1)(i). 
However, charges paid by the seller for items listed in Sec. 
1026.32(b)(1)(ii) through (vi) are included in points and fees.
    iv. Creditor-paid charges. Charges that are paid by the creditor, 
other than loan originator compensation paid by the creditor that is 
required to be included in points and fees under Sec. 
1026.32(b)(1)(ii), are excluded from points and fees. See Sec. Sec. 
1026.32(b)(1)(i)(A), 1026.4(a), and comment 4(a)-(2).

                                * * * * *

    Paragraph 32(b)(1)(ii).

                                * * * * *

    4. Loan originator compensation--calculating loan originator 
compensation in connection with other charges or payments included in 
the finance charge or made to loan originators.

                                * * * * *

    iii. Creditor's origination fees--loan originator not employed by 
creditor. Compensation paid by a creditor to a loan originator who is 
not employed by the creditor is included in the calculation of points 
and fees under Sec. 1026.32(b)(1)(ii). Such compensation is included in 
points and fees in addition to any origination fees or charges paid by 
the consumer to the creditor that are included in points and fees under 
Sec. 1026.32(b)(1)(i). For example, assume that a consumer pays to the 
creditor a $3,000 origination fee and that the creditor pays a mortgage 
broker $1,500 in compensation attributed to the transaction. Assume 
further that the consumer pays no other charges to the creditor that are 
included in points and fees under Sec. 1026.32(b)(1)(i) and that the 
mortgage broker receives no other compensation that is included in 
points and fees under Sec. 1026.32(b)(1)(ii). For purposes of 
calculating points and fees, the $3,000 origination fee is included in 
points and fees under Sec. 1026.32(b)(1)(i) and the $1,500 in loan 
originator compensation is included in points and fees under Sec. 
1026.32(b)(1)(ii), equaling $4,500 in total points and fees, provided 
that no other points and fees are paid or compensation received.

                                * * * * *

    5. Loan originator compensation--calculating loan originator 
compensation in manufactured home transactions. i. If a manufactured 
home retailer qualifies as a loan originator under Sec. 1026.36(a)(1), 
then compensation that is paid by a consumer or creditor to the retailer 
for loan origination activities and that can be attributed to the 
transaction at the time the interest rate is set must be included in 
points and fees. For example, assume a manufactured home retailer takes 
a residential mortgage loan application and is entitled to receive at 
consummation a $1,000 commission from the creditor for taking the 
mortgage loan application. The $1,000 commission is loan originator 
compensation that must be included in points and fees.
    ii. If the creditor has knowledge that the sales price of a 
manufactured home includes loan originator compensation, then such 
compensation can be attributed to the transaction at the time the 
interest rate is set and therefore is included in points and fees under 
Sec. 1026.32(b)(1)(ii). However, the creditor is not required to 
investigate the sales price of a manufactured home to determine if the 
sales price includes loan originator compensation.

[[Page 900]]

    iii. As provided in Sec. 1026.32(b)(1)(ii)(D), compensation paid by 
a manufactured home retailer to its employees is not included in points 
and fees under Sec. 1026.32(b)(1)(ii).

                                * * * * *

    Paragraph 32(b)(2).
    1. See comment 32(b)(1)-2 for guidance concerning the inclusion in 
points and fees of charges paid by parties other than the consumer.

                                * * * * *

    Paragraph 32(b)(2)(i).
    1. Finance charge. The points and fees calculation under Sec. 
1026.32(b)(2) generally does not include items that are included in the 
finance charge but that are not known until after account opening, such 
as minimum monthly finance charges or charges based on account activity 
or inactivity. Transaction fees also generally are not included in the 
points and fees calculation, except as provided in Sec. 
1026.32(b)(2)(vi). See comments 32(b)(1)-1 and 32(b)(1)(i)-1 for 
additional guidance concerning the calculation of points and fees.

                                * * * * *

    Paragraph 32(b)(2)(i)(D).
    1. For purposes of Sec. 1026.32(b)(2)(i)(D), the term loan 
originator means a loan originator as that term is defined in Sec. 
1026.36(a)(1), without regard to Sec. 1026.36(a)(2). See comments 
32(b)(1)(i)(D)-1 through -4 for further guidance concerning the 
exclusion of bona fide third-party charges from points and fees.

                                * * * * *

    Paragraph 32(d)(8)(ii).
    1. Failure to meet repayment terms. A creditor may terminate a loan 
or open-end credit agreement and accelerate the balance when the 
consumer fails to meet the repayment terms resulting in a default in 
payment under the agreement; a creditor may do so, however, only if the 
consumer actually fails to make payments resulting in a default in the 
agreement. 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 Sec. 1026.32(d)(8)(ii) if the consumer fails to meet 
the repayment terms resulting in a default of the agreement. Section 
1026.32(d)(8)(ii) does not override any State or other law that requires 
a creditor to notify a consumer of a right to cure, or otherwise places 
a duty on the creditor before it can terminate a loan or open-end credit 
agreement and accelerate the balance.

                                * * * * *

 Section 1026.34--Prohibited Acts or Practices in Connection With High-
                             Cost Mortgages

                                * * * * *

    34(a)(5) Pre-loan counseling.

                                * * * * *

    Paragraph 34(a)(5)(v) Counseling fees.
    1. Financing. Section 1026.34(a)(5)(v) does not prohibit a creditor 
from financing the counseling fee as part of the transaction for a high-
cost mortgage, if the fee is a bona fide third-party charge as provided 
by Sec. 1026.32(b)(1)(i)(D) and (b)(2)(i)(D).

                                * * * * *

     Section 1026.35--Requirements for Higher-Priced Mortgage Loans

                                * * * * *

    35(b) Escrow accounts.

                                * * * * *

    35(b)(2) Exemptions.

                                * * * * *

    Paragraph 35(b)(2)(iii).
    1. Requirements for exemption. Under Sec. 1026.35(b)(2)(iii), 
except as provided in Sec. 1026.35(b)(2)(v), a creditor need not 
establish an escrow account for taxes and insurance for a higher-priced 
mortgage loan, provided the following four conditions are satisfied when 
the higher-priced mortgage loan is consummated:
    i. During any of the three preceding calendar years, more than 50 
percent of the creditor's total first-lien covered transactions, as 
defined in Sec. 1026.43(b)(1), are secured by properties located in 
counties that are either ``rural'' or ``underserved,'' as set forth in 
Sec. 1026.35(b)(2)(iv). Pursuant to that section, a creditor may rely 
as a safe harbor on a list of counties published by the Bureau to 
determine whether counties in the United States are rural or underserved 
for a particular calendar year. Thus, for example, if a creditor 
originated 90 covered transactions, as defined by Sec. 1026.43(b)(1), 
secured by a first lien, during 2011, 2012, or 2013, the creditor meets 
this condition for an exemption in 2014 if at least 46 of those 
transactions in one of those three calendar years are secured by

[[Page 901]]

first liens on properties that are located in such counties.

                                * * * * *

    Paragraph 35(b)(2)(iii)(D)(1).
    1. Exception for certain accounts. Escrow accounts established for 
first-lien higher-priced mortgage loans for which applications were 
received on or after April 1, 2010, and before January 1, 2014, are not 
counted for purposes of Sec. 1026.35(b)(2)(iii)(D). For applications 
received on and after January 1, 2014, creditors, together with their 
affiliates, that establish new escrow accounts, other than those 
described in Sec. 1026.35(b)(2)(iii)(D)(2), do not qualify for the 
exemption provided under Sec. 1026.35(b)(2)(iii). Creditors, together 
with their affiliates, that continue to maintain escrow accounts 
established for first-lien higher-priced mortgage loans for which 
applications were received on or after April 1, 2010, and before January 
1, 2014, still qualify for the exemption provided under Sec. 
1026.35(b)(2)(iii) so long as they do not establish new escrow accounts 
for transactions for which they received applications on or after 
January 1, 2014, other than those described in Sec. 
1026.35(b)(2)(iii)(D)(2), and they otherwise qualify under Sec. 
1026.35(b)(2)(iii).

                                * * * * *

   Section 1026.41--Periodic Statements for Residential Mortgage Loans

                                * * * * *

    41(b) Timing of the periodic statement.
    1. Reasonably prompt time. Section 1026.41(b) requires that the 
periodic statement be delivered or placed in the mail no later than a 
reasonably prompt time after the payment due date or the end of any 
courtesy period. Delivering, emailing or placing the periodic statement 
in the mail within four days of the close of the courtesy period of the 
previous billing cycle generally would be considered reasonably prompt.

                                * * * * *

    41(d) Content and layout of the periodic statement.

                                * * * * *

    3. Terminology. A servicer may use terminology other than that found 
on the sample periodic statements in appendix H-30, so long as the new 
terminology is commonly understood. For example, servicers may take into 
consideration regional differences in terminology and refer to the 
account for the collection of taxes and insurance, referred to in Sec. 
1026.41(d) as the ``escrow account,'' as an ``impound account.''

                                * * * * *

    41(d)(4) Transaction Activity.
    1. Meaning. Transaction activity includes any transaction that 
credits or debits the amount currently due. This is the same amount that 
is required to be disclosed under Sec. 1026.41(d)(1)(iii). Examples of 
such transactions include, without limitation:

                                * * * * *

    41(e)(3) Coupon book exemption.
    1. Fixed rate. For guidance on the meaning of ``fixed rate'' for 
purposes of Sec. 1026.41(e)(3), see Sec. 1026.18(s)(7)(iii) and its 
commentary.

                                * * * * *

    41(e)(4) Small servicers.

                                * * * * *

    41(e)(4)(iii) Small servicer determination.
    1. Loans obtained by merger or acquisition. Any mortgage loans 
obtained by a servicer or an affiliate as part of a merger or 
acquisition, or as part of the acquisition of all of the assets or 
liabilities of a branch office of a creditor, should be considered 
mortgage loans for which the servicer or an affiliate is the creditor to 
which the mortgage loan is initially payable. A branch office means 
either an office of a depository institution that is approved as a 
branch by a Federal or State supervisory agency or an office of a for-
profit mortgage lending institution (other than a depository 
institution) that takes applications from the public for mortgage loans.

                                * * * * *

    Effective Date Note: 10. At 78 FR 60450, Oct. 1, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. In FR Doc. 2013-16962 
appearing on page 44685 in the Federal Register on Wednesday July 24, 
2013, the following correction is made:
    1. On page 44725, in the second column, amendatory instruction 
11.A.i.b is corrected to read ``Under Paragraph 41(e)(4)(iii) Small 
servicer determination, paragraph 2 is amended and paragraph 3 is 
added.'' For the convenience of the user, the added and revised text is 
set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

[[Page 902]]

    Section 1026.43--Minimum Standards for Transactions Secured by a 
                                Dwelling

                                * * * * *

    43(b) Definitions.

                                * * * * *

    43(b)(8) Mortgage-related obligations.

                                * * * * *

    4. Mortgage insurance, guarantee, or similar charges. Section 
1026.43(b)(8) includes in the evaluation of mortgage-related obligations 
premiums or charges protecting the creditor against the consumer's 
default or other credit loss. This includes all premiums or similar 
charges, whether denominated as mortgage insurance, guarantee, or 
otherwise, as determined according to applicable State or Federal law. 
For example, monthly ``private mortgage insurance'' payments paid to a 
non-governmental entity, annual ``guarantee fee'' payments required by a 
Federal housing program, and a quarterly ``mortgage insurance'' payment 
paid to a State agency administering a housing program are all mortgage-
related obligations for purposes of Sec. 1026.43(b)(8). Section 
1026.43(b)(8) includes these charges in the definition of mortgage-
related obligations if the creditor requires the consumer to pay them, 
even if the consumer is not legally obligated to pay the charges under 
the terms of the insurance program. For example, if a mortgage insurance 
program obligates the creditor to make recurring mortgage insurance 
payments, and the creditor requires the consumer to reimburse the 
creditor for such recurring payments, the consumer's payments are 
mortgage-related obligations for purposes of Sec. 1026.43(b)(8). 
However, if a mortgage insurance program obligates the creditor to make 
recurring mortgage insurance payments, and the creditor does not require 
the consumer to reimburse the creditor for the cost of the mortgage 
insurance payments, the recurring mortgage insurance payments are not 
mortgage-related obligations for purposes of Sec. 1026.43(b)(8).

                                * * * * *

    43(c) Repayment ability.

                                * * * * *

    43(c)(3) Verification using third-party records.

                                * * * * *

    6. Verification of current debt obligations. Section 1026.43(c)(3) 
does not require creditors to obtain additional records to verify the 
existence or amount of obligations shown on a consumer's credit report 
or listed on the consumer's application, absent circumstances described 
in comment 43(c)(3)-3. Under Sec. 1026.43(c)(3)(iii), if a creditor 
relies on a consumer's credit report to verify a consumer's current debt 
obligations and the consumer's application lists a debt obligation not 
shown on the credit report, the creditor may consider the existence and 
amount of the obligation as it is stated on the consumer's application. 
The creditor is not required to further verify the existence or amount 
of the obligation, absent circumstances described in comment 43(c)(3)-3.

                                * * * * *

    43(e) Qualified mortgages.

                                * * * * *

    43(e)(4) Qualified mortgage defined--special rules.
    1. Alternative definition. Subject to the sunset provided under 
Sec. 1026.43(e)(4)(iii), Sec. 1026.43(e)(4) provides an alternative 
definition of qualified mortgage to the definition provided in Sec. 
1026.43(e)(2). To be a qualified mortgage under Sec. 1026.43(e)(4), the 
transaction must satisfy the requirements under Sec. 1026.43(e)(2)(i) 
through (iii), in addition to being one of the types of loans specified 
in Sec. 1026.43(e)(4)(ii)(A) through (E).

                                * * * * *

    Paragraph 43(e)(5).

                                * * * * *

    8. Transfer to another qualifying creditor. Under Sec. 
1026.43(e)(5)(ii)(B), a qualified mortgage under Sec. 1026.43(e)(5) may 
be sold, assigned, or otherwise transferred at any time to another 
creditor that meets the requirements of Sec. 1026.43(e)(5)(i)(D). That 
section requires that a creditor, during the preceding calendar year, 
together with all affiliates, originated 500 or fewer first-lien covered 
transactions and had total assets less than $2 billion (as adjusted for 
inflation) at the end of the preceding calendar year. A qualified 
mortgage under Sec. 1026.43(e)(5) transferred to a creditor that meets 
these criteria would retain its qualified mortgage status even if it is 
transferred less than three years after consummation.

                                * * * * *

    43(f) Balloon-Payment qualified mortgages made by certain creditors.

                                * * * * *

    Paragraph 43(f)(2)(iii).

[[Page 903]]

    1. Supervisory sales. Section 1026.43(f)(2)(iii) facilitates sales 
that are deemed necessary by supervisory agencies to revive troubled 
creditors and resolve failed creditors. A balloon-payment qualified 
mortgage under Sec. 1026.43(f)(1) retains its qualified mortgage status 
if it is sold, assigned, or otherwise transferred to another person 
pursuant to: (1) A capital restoration plan or other action under 12 
U.S.C. 1831o; (2) the actions or instructions of any person acting as 
conservator, receiver, or bankruptcy trustee; (3) an order of a State or 
Federal government agency with jurisdiction to examine the creditor 
pursuant to State or Federal law; or (4) an agreement between the 
creditor and such an agency. A balloon-payment qualified mortgage under 
Sec. 1026.43(f)(1) that is sold, assigned, or otherwise transferred 
under these circumstances retains its qualified mortgage status 
regardless of how long after consummation it is sold and regardless of 
the size or other characteristics of the transferee. Section 
1026.43(f)(2)(iii) does not apply to transfers done to comply with a 
generally applicable regulation with future effect designed to 
implement, interpret, or prescribe law or policy in the absence of a 
specific order by or a specific agreement with a governmental agency 
described in Sec. 1026.43(f)(2)(iii) directing the sale of one or more 
qualified mortgages under Sec. 1026.43(f)(1) held by the creditor or 
one of the other circumstances listed in Sec. 1026.43(f)(2)(iii). For 
example, a balloon-payment qualified mortgage under Sec. 1026.43(f)(1) 
that is sold pursuant to a capital restoration plan under 12 U.S.C. 
1831o would retain its status as a qualified mortgage following the 
sale. However, if the creditor simply chose to sell the same qualified 
mortgage as one way to comply with general regulatory capital 
requirements in the absence of supervisory action or agreement the 
transaction would lose its status as a qualified mortgage following the 
sale unless it qualifies under another definition of qualified mortgage.

                                * * * * *

    Effective Date Note: 11. At 78 FR 63006, Oct. 23, 2013, Supplement I 
to part 1026 was amended, effective Jan. 10, 2014. In Supplement I to 
Part 1026, as amended at 78 FR 6589, Jan. 30, 2013; 78 FR 6967, Jan. 31, 
2013; 78 FR 11019, Feb. 14, 2013; and 78 FR 35504, June 12, 2013, the 
following amendments are made:
    A. Under Section 1026.32--Requirements for High-Cost Mortgages:
    i. Under 32(b) Definitions:
    a. Under Paragraph 32(b)(1)(ii), paragraph 4.iii is revised.
    B. Under Section 1026.34--Prohibited Acts or Practices for High-Cost 
Mortgages:
    i. Under 34(a)(5) Pre-loan counseling:
    a. Under Paragraph 34(a)(5)(ii), paragraph 1 is revised, paragraph 2 
is redesignated as paragraph 3 and revised, and new paragraph 2 is 
added.
    b. Under paragraph 34(a)(5)(iv), paragraph 1 is revised.
    c. Under paragraph 34(a)(5)(v), paragraph 1 is revised.
    C. Under Section 1026.41--Periodic Statements for Residential 
Mortgage Loans:
    i. The heading 41(e)(5) Consumers in bankruptcy and paragraphs 1, 2, 
and 3 are added. For the convenience of the user, the added and revised 
text is set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                                * * * * *

          Section 1026.32--Requirements for High-Cost Mortgages

                                * * * * *

    32(b) Definitions

                                * * * * *

    Paragraph 32(b)(1)(ii).

                                * * * * *

    4. Loan originator compensation--calculating loan originator 
compensation in connection with other charges or payments included in 
the finance charge or made to loan originators.

                                * * * * *

    iii. Creditor's origination fees--loan originator not employed by 
creditor. Compensation paid by a creditor to a loan originator who is 
not employed by the creditor is included in the calculation of points 
and fees under Sec. 1026.32(b)(1)(ii). Such compensation is included in 
points and fees in addition to any origination fees or charges paid by 
the consumer to the creditor that are included in points and fees under 
Sec. 1026.32(b)(1)(i). For example, assume that a consumer pays to the 
creditor a $3,000 origination fee and that the creditor pays a mortgage 
broker $1,500 in compensation attributed to the transaction. Assume 
further that the consumer pays no other charges to the creditor that are 
included in points and fees under Sec. 1026.32(b)(1)(i) and that the 
mortgage broker receives no other compensation that is included in 
points and fees under Sec. 1026.32(b)(1)(ii). For purposes of 
calculating

[[Page 904]]

points and fees, the $3,000 origination fee is included in points and 
fees under Sec. 1026.32(b)(1)(i) and the $1,500 in loan originator 
compensation is included in points and fees under Sec. 
1026.32(b)(1)(ii), equaling $4,500 in total points and fees, provided 
that no other points and fees are paid or compensation received.

                                * * * * *

  Section 1026.34--Prohibited Acts or Practices for High-Cost Mortgages

                                * * * * *

    34(a)(5) Pre-loan counseling.

                                * * * * *

    34(a)(5)(ii) Timing of counseling.
    1. Disclosures for open-end credit plans. Section 1026.34(a)(5)(ii) 
permits receipt of either the disclosure required by section 5(c) of 
RESPA or the disclosures required under Sec. 1026.40 to allow 
counseling to occur. Pursuant to 12 CFR 1024.7(h), the disclosures 
required by Sec. 1026.40 can be provided for open-end plans in lieu of 
the usual disclosure required by section 5(c) of RESPA.
    2. Transactions not subject to RESPA or Sec. 1026.40. For closed-
end mortgage transactions that are not subject to RESPA, the counseling 
certification must include a statement that the consumer(s) received 
counseling on the advisability of the high-cost mortgage based on the 
terms provided in the disclosures required by Sec. 1026.32(c). 
(Reference to counseling on advisability using the disclosures required 
by Sec. 1026.32(c) is not required for transactions subject to RESPA or 
Sec. 1026.40.) The disclosures required by Sec. 1026.32(c) must be 
furnished to the consumer at least three business days prior to 
consummation of the mortgage. The creditor may wish to furnish the 
disclosures sooner, to provide sufficient time for counseling and 
certification.
    3. Initial disclosure. Counseling may occur after receipt of either 
an initial disclosure required by section 5(c) of RESPA, the disclosures 
required by Sec. 1026.40, or the disclosures required by Sec. 
1026.32(c), regardless of whether revised versions of such disclosures 
are subsequently provided to the consumer.
    34(a)(5)(iv) Content of certification.
    1. Statement of counseling on advisability. A statement that a 
consumer has received counseling on the advisability of the high-cost 
mortgage means that the consumer has received counseling about key terms 
of the mortgage transaction, as set out in either the disclosure 
required by section 5(c) of RESPA or the disclosures provided to the 
consumer pursuant to Sec. 1026.40, or, for closed-end transactions not 
subject to RESPA, the disclosures required by Sec. 1026.32(c); the 
consumer's budget, including the consumer's income, assets, financial 
obligations, and expenses; and the affordability of the mortgage 
transaction for the consumer. Examples of such terms of the mortgage 
transaction include the initial interest rate, the initial monthly 
payment, whether the payment may increase, how the minimum periodic 
payment will be determined, and fees imposed by the creditor, as may be 
reflected in the applicable disclosure. A statement that a consumer has 
received counseling on the advisability of the high-cost mortgage does 
not require the counselor to have made a judgment or determination as to 
the appropriateness of the mortgage transaction for the consumer.

                                * * * * *

    34(a)(5)(v) Counseling fees.
    1. Financing. Section 1026.34(a)(5)(v) does not prohibit a creditor 
from financing the counseling fee as part of the transaction for a high-
cost mortgage, if the fee is a bona fide third-party charge as provided 
by Sec. 1026.32(b)(5)(i).

                                * * * * *

   Section 1026.41--Periodic Statements for Residential Mortgage Loans

                                * * * * *

    41(e)(5) Consumers in bankruptcy.
    1. Commencing a case. The requirements of Sec. 1026.41 do not apply 
once a petition is filed under Title 11 of the United States Code, 
commencing a case in which the consumer is a debtor.
    2. Obligation to resume sending periodic statements. i. With respect 
to any portion of the mortgage debt that is not discharged, a servicer 
must resume sending periodic statements in compliance with Sec. 1026.41 
within a reasonably prompt time after the next payment due date that 
follows the earliest of any of three potential outcomes in the 
consumer's bankruptcy case: the case is dismissed, the case is closed, 
or the consumer receives a discharge under 11 U.S.C. 727, 1141, 1228, or 
1328. However, this requirement to resume sending periodic statements 
does not require a servicer to communicate with a consumer in a manner 
that would be inconsistent with applicable bankruptcy law or a court 
order in a bankruptcy case. To the extent permitted by such law or court 
order, a servicer may adapt the requirements of Sec. 1026.41 in any 
manner believed necessary.
    ii. The periodic statement is not required for any portion of the 
mortgage debt that is discharged under applicable provisions of the U.S. 
Bankruptcy Code. If the consumer's bankruptcy case is revived--for 
example if the court reinstates a previously dismissed

[[Page 905]]

case, reopens the case, or revokes a discharge--the servicer is again 
exempt from the requirement in Sec. 1026.41.
    3. Joint obligors. When two or more consumers are joint obligors 
with primary liability on a closed-end consumer credit transaction 
secured by a dwelling subject to Sec. 1026.41, the exemption in Sec. 
1026.41(e)(5) applies if any of the consumers is in bankruptcy. For 
example, if a husband and wife jointly own a home, and the husband files 
for bankruptcy, the servicer is exempt from providing periodic 
statements to both the husband and the wife.

                                * * * * *

    Effective Date Note: 12. At 78 FR 78586, Dec. 26, 2013, Supplement I 
was amended, effective Jan. 18, 2014, with the exception of section 
1026.35(c)(2)(viii), which is effective July 18, 2015. In Supplement I 
to part 1026, under Section 1026.35--Requirements for Higher Priced 
Mortgages Loans: the amendments are as follows:
    a. The 35(c)(2) entry is amended by adding paragraph 1.
    b. A 35(c)(2)(i) entry is added.
    c. The 35(c)(2)(ii) entry is revised.
    d. The 35(c)(2)(iv) entry is amended by adding paragraph 2.
    e. A 35(c)(2)(vii)(A)(1) entry is added.
    f. Entries for 35(c)(2)(vii)(B) and (C) are added.
    g. Effective July 18, 2015, entries for 35(c)(2)(viii)(A) and (B) 
are added.
    h. Effective July 18, 2015, a 35(c)(2)(viii)(B)(2) entry is added.
    i. Effective July 18, 2015, a 35(c)(2)(viii)(C)(3) entry is added.
    j. Under the 35(c)(6)(ii) entry, paragraph 2 is removed and 
paragraph 3 is redesignated as paragraph 2. For the convenience of the 
user, the added and revised text is set forth as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

     Section 1026.35--Requirements for Higher-Priced Mortgage Loans

                                * * * * *

                      Paragraph 35(c)(2) Exemptions

    1. Compliance with title XI of the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (FIRREA). Section 1026.35(c)(2) 
provides exemptions solely from the requirements of section 
1026.35(c)(3) through (6). Institutions subject to the requirements of 
FIRREA and its implementing regulations that make a loan qualifying for 
an exemption under section 1026.35(c)(2) must still comply with 
appraisal and evaluation requirements under FIRREA and its implementing 
regulations.

                          Paragraph 35(c)(2)(i)

    1. Qualified mortgage criteria. Under Sec. 1026.35(c)(2)(i), a loan 
is exempt from the appraisal requirements of Sec. 1026.35(c) if either:
    i. The loan is--(1) subject to the Bureau's ability-to-repay 
requirements in Sec. 1026.43 as a ``covered transaction'' (defined in 
Sec. 1026.43(b)(1)) and (2) a qualified mortgage pursuant to the 
Bureau's rules or, for loans insured, guaranteed, or administered by the 
U.S. Department of Housing and Urban Development (HUD), U.S. Department 
of Veterans Affairs (VA), U.S. Department of Agriculture (USDA), or 
Rural Housing Service (RHS), a qualified mortgage pursuant to applicable 
rules prescribed by those agencies (but only once such rules are in 
effect; otherwise, the Bureau's definition of a qualified mortgage 
applies to those loans); or
    ii. The loan is--(1) not subject to the Bureau's ability-to-repay 
requirements in Sec. 1026.43 as a ``covered transaction'' (defined in 
Sec. 1026.43(b)(1)), but (2) meets the criteria for a qualified 
mortgage in the Bureau's rules or, for loans insured, guaranteed, or 
administered by HUD, VA, USDA, or RHS, meets the criteria for a 
qualified mortgage in the applicable rules prescribed by those agencies 
(but only once such rules are in effect; otherwise, the Bureau's 
criteria for a qualified mortgage applies to those loans). To explain 
further, loans enumerated in Sec. 1026.43(a) are not ``covered 
transactions'' under the Bureau's ability-to-repay requirements in Sec. 
1026.43, and thus cannot be qualified mortgages (entitled to a 
rebuttable presumption or safe harbor of compliance with the ability-to-
repay requirements of Sec. 1026.43, see, e.g., Sec. 1026.43(e)(1)). 
These include an extension of credit made pursuant to a program 
administered by a Housing Finance Agency, as defined under 24 CFR 266.5, 
or pursuant to a program authorized by sections 101 and 109 of the 
Emergency Economic Stabilization Act of 2008. See Sec. 
1026.43(a)(3)(iv) and (vi). They also include extensions of credit made 
by a creditor identified in Sec. 1026.43(a)(3)(v). However, these loans 
are eligible for the exemption in Sec. 1026.35(c)(2)(i) if they meet 
the Bureau's qualified mortgage criteria in Sec. 1026.43(e)(2), (4), 
(5), or (6) or Sec. 1026.43(f) (including limits on when loans must be 
consummated) or, for loans that are insured, guaranteed, or administered 
by HUD, VA, USDA, or RHS, in applicable rules prescribed by those 
agencies (but only once

[[Page 906]]

such rules are in effect; otherwise, the Bureau's criteria for a 
qualified mortgage applies to those loans). For example, assume that HUD 
has prescribed rules to define loans insured under its programs that are 
qualified mortgages and those rules are in effect. Assume further that a 
creditor designated as a Community Development Financial Institution, as 
defined under 12 CFR 1805.104(h), originates a loan insured by the 
Federal Housing Administration, which is a part of HUD. The loan is not 
a ``covered transaction'' and thus is not a qualified mortgage. See 
Sec. 1026.43(a)(3)(v)(A) and (b)(1). Nonetheless, the transaction is 
eligible for an exemption from the appraisal requirements of Sec. 
1026.35(c) if it meets the qualified mortgage criteria in HUD's rules. 
Nothing in Sec. 1026.35(c)(2)(i) alters the definition of a qualified 
mortgage under regulations of the Bureau, HUD, VA, USDA, or RHS.

                                * * * * *

                         Paragraph 35(c)(2)(ii)

    1. Threshold amount. For purposes of Sec. 1026.35(c)(2)(ii), the 
threshold amount in effect during a particular one-year period is the 
amount stated below for that period. The threshold amount is adjusted 
effective January 1 of every year by the 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. Every year, this comment 
will be amended to provide the threshold amount for the upcoming one-
year period 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 
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 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. From January 18, 2014, through December 31, 2014, the threshold 
amount is $25,000.
    2. Qualifying for exemption--in general. A transaction is exempt 
under Sec. 1026.35(c)(2)(ii) if the creditor makes an extension of 
credit at consummation that is equal to or below the threshold amount in 
effect at the time of consummation.
    3. Qualifying for exemption--subsequent changes. A transaction does 
not meet the condition for an exemption under Sec. 1026.35(c)(2)(ii) 
merely because it is used to satisfy and replace an existing exempt 
loan, unless the amount of the new extension of credit is equal to or 
less than the applicable threshold amount. For example, assume a closed-
end loan that qualified for a Sec. 1026.35(c)(2)(ii) exemption at 
consummation in year one is refinanced in year ten and that the new loan 
amount is greater than the threshold amount in effect in year ten. In 
these circumstances, the creditor must comply with all of the applicable 
requirements of Sec. 1026.35(c) with respect to the year ten 
transaction if the original loan is satisfied and replaced by the new 
loan, unless another exemption from the requirements of Sec. 1026.35(c) 
applies. See Sec. 1026.35(c)(2) and Sec. 1026.35(c)(4)(vii).

                                * * * * *

                         Paragraph 35(c)(2)(iv)

                                * * * * *

    2. Financing initial construction. The exemption for construction 
loans in Sec. 1026.35(c)(2)(iv) applies to temporary financing of the 
construction of a dwelling that will be replaced by permanent financing 
once construction is complete. The exemption does not apply, for 
example, to loans to finance the purchase of manufactured homes that 
have not been or are in the process of being built when the financing 
obtained by the consumer at that time is permanent. See Sec. 
1026.35(c)(2)(viii).

                      Paragraph 35(c)(2)(vii)(A)(1)

    1. Same credit risk holder. The requirement that the holder of the 
credit risk on the existing obligation and the refinancing be the same 
applies to situations in which an entity bears the financial 
responsibility for the default of a loan by either holding the loan in 
its portfolio or guaranteeing payments of principal and any interest to 
investors in a mortgage-backed security in which the loan is pooled. See 
Sec. 1026.35(c)(1)(ii) (defining ``credit risk''). For example, a 
credit risk holder could be a bank that bears the credit risk on the 
existing obligation by holding the loan in the bank's portfolio. Another 
example of a credit risk holder would be a government-sponsored 
enterprise that bears the risk of default on a loan by guaranteeing the 
payment of principal and any interest on a loan to investors in a 
mortgage-backed security. The holder of credit risk under Sec. 
1026.35(c)(2)(vii)(A)(1) does not mean individual investors in a 
mortgage-backed security or providers of private mortgage insurance.
    2. Same credit risk holder--illustrations.
    Illustrations of the credit risk holder of the existing obligation 
continuing to be the credit risk holder of the refinancing include, but 
are not limited to, the following:
    i. The existing obligation is held in the portfolio of a bank, thus 
the bank holds the credit risk. The bank arranges to refinance the loan 
and also will hold the refinancing in

[[Page 907]]

its portfolio. If the refinancing otherwise meets the requirements for 
an exemption under Sec. 1026.35(c)(2)(vii), the transaction will 
qualify for the exemption because the credit risk holder is the same for 
the existing obligation and the refinance transaction. In this case, the 
exemption would apply regardless of whether the bank arranged to 
refinance the loan directly or indirectly, such as through the servicer 
or subservicer on the existing obligation.
    ii. The existing obligation is held in the portfolio of a 
government-sponsored enterprise (GSE), thus the GSE holds the credit 
risk. The existing obligation is then refinanced by the servicer of the 
loan and immediately transferred to the GSE. The GSE pools the 
refinancing in a mortgage-backed security guaranteed by the GSE, thus 
the GSE holds the credit risk on the refinance loan. If the refinance 
transaction otherwise meets the requirements for an exemption under 
Sec. 1026.35(c)(2)(vii), the transaction will qualify for the exemption 
because the credit risk holder is the same for the existing obligation 
and the refinance transaction. In this case, the exemption would apply 
regardless of whether the existing obligation was refinanced by the 
servicer or subservicer on the existing obligation (acting as a 
``creditor'' under Sec. 1026.2(a)(17)) or by a different creditor.
    3. Forward commitments. A creditor may make a mortgage loan that 
will be sold or otherwise transferred pursuant to an agreement that has 
been entered into at or before the time the transaction is consummated. 
Such an agreement is sometimes known as a ``forward commitment.'' A 
refinance loan does not satisfy the requirement of Sec. 
1026.35(c)(2)(vii)(A)(1) if the loan will be acquired pursuant to a 
forward commitment, such that the credit risk on the refinance loan will 
transfer to a person who did not hold the credit risk on the existing 
obligation.

                       Paragraph 35(c)(2)(vii)(B)

    1. Regular periodic payments. Under Sec. 1026.35(c)(2)(vii)(B), the 
regular periodic payments on the refinance loan must not: result in an 
increase of the principal balance (negative amortization); allow the 
consumer to defer repayment of principal (see comment 43(e)(2)(i)-2); or 
result in a balloon payment. Thus, the terms of the legal obligation 
must require the consumer to make payments of principal and interest on 
a monthly or other periodic basis that will repay the loan amount over 
the loan term. Except for payments resulting from any interest rate 
changes after consummation in an adjustable-rate or step-rate mortgage, 
the periodic payments must be substantially equal. For an explanation of 
the term ``substantially equal,'' see comment 43(c)(5)(i)-4. In 
addition, a single-payment transaction is not a refinancing meeting the 
requirements of Sec. 1026.35(c)(2)(vii) because it does not require 
``regular periodic payments.''

                       Paragraph 35(c)(2)(vii)(C)

    1. Permissible use of proceeds. The exemption for a refinancing 
under Sec. 1026.35(c)(2)(vii) is available only if the proceeds from 
the refinancing are used exclusively for the existing obligation and 
amounts attributed solely to the costs of the refinancing. The existing 
obligation includes the unpaid principal balance of the existing first 
lien loan, any earned unpaid finance charges, and any other lawful 
charges related to the existing loan. For guidance on the meaning of 
refinancing costs, see comment 23(f)-4. If the proceeds of a refinancing 
are used for other purposes, such as to pay off other liens or to 
provide additional cash to the consumer for discretionary spending, the 
transaction does not qualify for the exemption for a refinancing under 
Sec. 1026.35(c)(2)(vii) from the appraisal requirements in Sec. 
1026.35(c).

           For applications received on or after July 18, 2015

                       Paragraph 35(c)(2)(viii)(A)

    1. Secured by new manufactured home and land--physical visit of the 
interior. A transaction secured by a new manufactured home and land is 
subject to the requirements of Sec. 1026.35(c)(3) through (6) except 
for the requirement in Sec. 1026.35(c)(3)(i) that the appraiser conduct 
a physical inspection of the interior of the property. Thus, for 
example, a creditor of a loan secured by a new manufactured home and 
land could comply with Sec. 1026.35(c)(3)(i) by obtaining an appraisal 
conducted by a state-certified or -licensed appraiser based on plans and 
specifications for the new manufactured home and an inspection of the 
land on which the property will be sited, as well as any other 
information necessary for the appraiser to complete the appraisal 
assignment in conformity with the Uniform Standards of Professional 
Appraisal Practice and the requirements of FIRREA and any implementing 
regulations.

                       Paragraph 35(c)(2)(viii)(B)

    1. Secured by a manufactured home and not land. Section 
1026.35(c)(2)(viii)(B) applies to a higher-priced mortgage loan secured 
by a manufactured home and not land, regardless of whether the home is 
titled as realty by operation of state law.

                     Paragraph 35(c)(2)(viii)(B)(2)

    1. Independent. A cost service provider from which the creditor 
obtains a manufactured home unit cost estimate under Sec. 
1026.35(c)(2)(viii)(B)(2) is ``independent'' if that person is not 
affiliated with the creditor

[[Page 908]]

in the transaction, such as by common corporate ownership, and receives 
no direct or indirect financial benefits based on whether the 
transaction is consummated.
    2. Adjustments. The requirement that the cost estimate be from an 
independent cost service provider does not prohibit a creditor from 
providing a cost estimate that reflects adjustments to account for 
factors such as special features, condition or location. However, the 
requirement that the estimate be obtained from an independent cost 
service provider means that any adjustments to the estimate must be 
based on adjustment factors available as part of the independent cost 
service used, with associated values that are determined by the 
independent cost service.

                     Paragraph 35(c)(2)(viii)(C)(3)

    1. Interest in the property. A person has a direct or indirect in 
the property if, for example, the person has any ownership or reasonably 
foreseeable ownership interest in the manufactured home. To illustrate, 
a person who seeks a loan to purchase the manufactured home to be valued 
has a reasonably foreseeable ownership interest in the property.
    2. Interest in the transaction. A person has a direct or indirect 
interest in the transaction if, for example, the person or an affiliate 
of that person also serves as a loan officer of the creditor or 
otherwise arranges the credit transaction, or is the retail dealer of 
the manufactured home. 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.
    3. Training in valuing manufactured homes. Training in valuing 
manufactured homes includes, for example, successfully completing a 
course in valuing manufactured homes offered by a state or national 
appraiser association or receiving job training from an employer in the 
business of valuing manufactured homes.
    4. Manufactured home valuation--example. A valuation in compliance 
with Sec. 1026.35(c)(2)(viii)(B)(3) would include, for example, an 
appraisal of the manufactured home in accordance with the appraisal 
requirements for a manufactured home classified as personal property 
under the Title I Manufactured Home Loan Insurance Program of the U.S. 
Department of Housing and Urban Development, pursuant to section 
2(b)(10) of the National Housing Act, 12 U.S.C. 1703(b)(10).

                                * * * * *

    Effective Date Note: 13. At 78 FR 80302, Dec. 31, 2013, Supplement I 
was amended, eff. Aug. 1, 2015. For the convenience of the user, the 
added and revised text is set forth as follows:
    A. Under Section 1026.1--Authority, Purpose, Coverage, Organization, 
Enforcement and Liability:
    1. Under the subheading 1(c) Coverage, paragraph 1(c)(5)-1 is 
removed and the subheading Paragraph 1(c)(5) and paragraph 1 under that 
subheading are added.
    2. The subheading 1(d) Organization, the subheading Paragraph 
1(d)(5) and paragraph 1 under that subheading are added.
    B. Under Section 1026.2--Definitions and Rules of Construction:
    i. The subheading 2(a)(3) Application and paragraphs 1, 2, and 3 
under that subheading are added.
    ii. Under subheading 2(a)(6) Business day, paragraph 2 is revised.
    iii. Under subheading 2(a)(25) Security interest, paragraph 2 is 
revised.
    C. Under Section 1026.3--Exempt Transactions:
    i. Under subheading 3(a) Business, commercial, agricultural, or 
organizational credit, paragraphs 9 and 10 are revised.
    ii. The subheading 3(h) Partial exemption for certain mortgage loans 
and paragraphs 1. and 2. under that subheading are added.
    D. Under Section 1026.17--General Disclosure Requirements:
    i. Paragraph 1 is added.
    ii. Under subheading 17(a) Form of disclosures, subheading Paragraph 
17(a)(1), paragraph 7 is revised.
    iii. Under subheading 17(c) Basis of disclosures and use of 
estimates:
    a. Under subheading Paragraph 17(c)(1), paragraphs 1, 2, 3, 4, 5, 8, 
10, 11, and 12 are revised and paragraph 19 is added.
    b. Under subheading Paragraph 17(c)(2)(i), paragraphs 1, 2, and 3 
are revised.
    c. Under subheading Paragraph 17(c)(2)(ii), paragraph 1 is revised.
    d. Under subheading Paragraph 17(c)(4), paragraph 1 is revised.
    e. Under subheading Paragraph 17(c)(5), paragraphs 2, 3, and 4 are 
revised.
    iv. Under subheading 17(d) Multiple creditors; multiple consumers, 
paragraph 2 is revised.
    v. Under subheading 17(e) Effect of subsequent events, paragraph 1 
is revised.
    vi. Under subheading 17(f) Early disclosures, paragraphs 1, 2, 3, 
and 4 are revised.
    vii. Under subheading 17(g) Mail or telephone orders--delay in 
disclosures, paragraph 1 is revised.
    viii. Under subheading 17(h) Series of sales--delay in disclosures, 
paragraph 1 is revised.
    E. Under Section 1026.18--Content of Disclosures:
    i. Paragraph 3 is added.
    ii. Under subheading 18(b) Amount financed:
    a. Paragraph 2 is removed.
    ii. Under subheading 18(c) Itemization of amount financed:

[[Page 909]]

    a. Paragraph 4 is revised.
    b. Under subheading Paragraph 18(c)(1)(iv), paragraph 2 is revised.
    iii. Under subheading 18(g) Payment schedule:
    a. Paragraphs 4 and 6 are revised.
    b. Paragraph 5 is removed and reserved.
    c. Under subheading Paragraph 18(g)(2), paragraphs 1 and 2 are 
revised.
    iv. Under subheading 18(k) Prepayment:
    a. Paragraphs 1, 2, and 3 are revised.
    b. Under subheading Paragraph 18(k)(1), paragraph 1 is revised and 
paragraph 2 is added.
    c. Under subheading Paragraph 18(k)(2), paragraph 1 is revised.
    v. Under subheading 18(r) Required deposit, paragraph 6.vi is 
removed and reserved.
    vi. Under subheading 18(s) Interest rate and payment summary for 
mortgage transactions:
    a. Paragraph 1. is revised and paragraph 4 is added.
    b. Under subheading 18(s)(3) Payments for amortizing loans, 
subheading Paragraph 18(s)(3)(i)(C), paragraphs 1 and 2 are revised.
    c. Under subheading 18(s)(6) Special disclosures for loans with 
negative amortization, paragraph 1 is revised.
    F. Under Section 1026.19--Certain Mortgage and Variable-Rate 
Transactions:
    i. Under subheading 19(a)(1)(i) Time of disclosures, paragraph 1 is 
revised.
    ii. Under subheading 19(a)(5) Timeshare plans:
    a. The subheading 19(a)(5) Timeshare plans is removed.
    b. The subheading Paragraph 19(a)(5)(ii) and paragraphs 1, 2, 3, 4, 
and 5 under that subheading are removed.
    c. The subheading Paragraph 19(a)(5)(iii) and paragraphs 1 and 2 
under that subheading are removed.
    iii. New subheadings 19(e) Mortgage loans secured by real property--
Early disclosures, 19(f) Mortgage loans secured by real property--Final 
disclosures, and 19(g) Special information booklet at time of 
application are added.
    G. Under Section 1026.20--Disclosure Requirements Regarding Post-
Consummation Events:
    i. New subheading 20(e) Escrow account cancellation notice for 
certain mortgage transactions is added.
    H. Under Section 1026.22--Determination of Annual Percentage Rate, 
subheading 22(a) Accuracy of annual percentage rate, subheading 22(a)(4) 
Mortgage loans, paragraph 1 is revised.
    I. Under Section 1026.24--Advertising, subheading 24(d) 
Advertisement of terms that require additional disclosures, subheading 
24(d)(2) Additional terms, paragraph 2 is revised.
    J. Under Section 1026.25--Record Retention, subheading 25(c) Records 
related to certain requirements for mortgage loans, the subheading 
25(c)(1) Records related to requirements for loans secured by real 
property and paragraphs 1 and 2 under that subheading are added.
    K. Under Section 1026.28--Effect on State Laws, subheading 28(a) 
Inconsistent disclosure requirements, paragraph 1 is revised.
    L. Under Section 1026.29--State Exemptions, subheading 29(a) General 
rule, paragraphs 2 and 4 are revised.
    M. New Section 1026.37--Content of Disclosures for Certain Mortgage 
Transactions (Loan Estimate) is added.
    N. New Section 1026.38--Content of Disclosures for Certain Mortgage 
Transactions (Closing Disclosure) is added.
    O. Under Section 1026.39--Mortgage transfer disclosures, subheading 
39(d) Content of required disclosures:
    i. Paragraph 2 is added.
    ii. The subheading Paragraph 39(d)(5) and paragraph 1 under that 
subheading are added.
    P. Under Appendix D--Multiple-Advance Construction Loans, paragraphs 
6 and 7 are revised.
    Q. Under Appendices G and H--Open-End and Closed-End Model Forms and 
Clauses, paragraph 1 is revised.
    R. The subheading Appendix H--Closed-End Model Forms and Clauses is 
revised.
    i. Paragraphs 16 and 19 are revised.
    ii. Paragraphs 29 and 30 are added.
    The revisions and additions read as follows:

           Supplement I to Part 1026--Official Interpretations

                                * * * * *

                           Subpart A--General

Section 1026.1--Authority, Purpose, Coverage, Organization, Enforcement 
                      and Liability 1(c) Coverage.

                                * * * * *

    Paragraph 1(c)(5).
    1. Exemption for certain mortgage transactions. Section 1026.1(c)(5) 
implements sections 128(a)(16) through (19), 128(b)(4), 129C(f)(1), 
129C(g)(2) and (3), 129C(h), 129D(h), 129D(j)(1)(A), and 129D(j)(1)(B) 
of the Truth in Lending Act and section 4(c) of the Real Estate 
Settlement Procedures Act, by exempting persons from the disclosure 
requirements of those sections, except in certain transactions. The 
exemptions do not apply to certain transactions for which the disclosure 
requirements are implemented in other parts of Regulation Z. Sections 
1026.37 and 1026.38 implement sections 128(a)(16) through (19), 
128(b)(4), 129C(f)(1), 129C(g)(2) and (3), 129D(h), and 129D(j)(1)(A) of 
the Truth in Lending Act and section 4(c) of the Real Estate Settlement 
Procedures Act for transactions subject to Sec. 1026.19(e) and (f). 
Section 1026.38(l)(5)

[[Page 910]]

implements the disclosure requirements of section 129C(h) of the Truth 
in Lending Act for transactions subject to Sec. 1026.19(f). Section 
1026.39(d)(5) implements the disclosure requirements of section 129C(h) 
of the Truth in Lending Act for transactions subject to Sec. 
1026.39(d)(5). Section 1026.20(e) implements the disclosure requirements 
of section 129D(j)(1)(B) of the Truth in Lending Act for transactions 
subject to Sec. 1026.20(e). Section 1026.1(c)(5) does not exempt any 
person from any other requirement of this part, Regulation X (12 CFR 
part 1024), the Truth in Lending Act, or the Real Estate Settlement 
Procedures Act.
    1(d) Organization.
    Paragraph 1(d)(5).
    1. Effective date. The Bureau's revisions to Regulation X and 
Regulation Z published on December 31, 2013 (the TILA-RESPA Final Rule), 
apply to covered loans (closed-end credit transactions secured by real 
property) for which the creditor or mortgage broker receives an 
application on or after August 1, 2015 (the ``effective date''), except 
that new Sec. 1026.19(e)(2), the amendments to Sec. 1026.28(a)(1), and 
the amendments to the commentary to Sec. 1026.29, become effective on 
August 1, 2015 without respect to whether an application has been 
received. The provisions of Sec. 1026.19(e)(2) apply prior to a 
consumer's receipt of the disclosures required by Sec. 
1026.19(e)(1)(i), and therefore, restrict activity that may occur prior 
to receipt of an application by a creditor or mortgage broker under 
Sec. 1026.19(e). These provisions include Sec. 1026.19(e)(2)(i), which 
restricts the fees that may be imposed on a consumer, Sec. 
1026.19(e)(2)(ii), which requires a statement to be included on written 
estimates of terms or costs specific to a consumer, and Sec. 
1026.19(e)(2)(iii), which prohibits creditors from requiring the 
submission of documents verifying information related to the consumer's 
application. Accordingly, the provisions under Sec. 1026.19(e)(2) are 
effective on August 1, 2015, without respect to whether an application 
has been received on that date. In addition, the amendments to Sec. 
1026.28 and the commentary to Sec. 1026.29 govern the preemption of 
State laws and thus, the amendments to those provisions and associated 
commentary made by the TILA-RESPA Final Rule are effective on August 1, 
2015, without respect to whether an application has been received on 
that date. The following examples illustrate the application of the 
effective date for the TILA-RESPA Final Rule.
    i. General. Assume a creditor receives an application, as defined 
under Sec. 1026.2(a)(3) of the TILA-RESPA Final Rule, for a transaction 
subject to Sec. 1026.19(e) and (f) on August 1, 2015, and that 
consummation of the transaction occurs on August 31, 2015. The 
amendments of the TILA-RESPA Final Rule, including the requirements to 
provide the Loan Estimate and Closing Disclosure under Sec. 1026.19(e) 
and (f), apply to the transaction. The creditor would also be required 
to provide the special information booklet under Sec. 1026.19(g) of the 
TILA-RESPA Final Rule, as applicable. Assume a creditor receives an 
application, as defined under Sec. 1026.2(a)(3) of the TILA-RESPA Final 
Rule, for a transaction subject to Sec. 1026.19(e) and (f) on July 31, 
2015, and that consummation of the transaction occurs on August 30, 
2015. The amendments of the TILA-RESPA Final Rule, including the 
requirements to provide the Loan Estimate and Closing Disclosure under 
Sec. 1026.19(e) and (f), do not apply to the transaction, except that 
the provisions of Sec. 1026.19(e)(2), specifically Sec. 
1026.19(e)(2)(i), (e)(2)(ii), and (e)(2)(iii), do apply to the 
transaction beginning on August 1, 2015 because they become effective on 
August 1, 2015, without respect to whether an application, as defined 
under Sec. 1026.2(a)(3) of the TILA-RESPA Final Rule, has been received 
by the creditor or mortgage broker on that date. The creditor does not 
provide the Closing Disclosure so that it is received by the consumer at 
least three business days before consummation; instead, the creditor and 
the settlement agent provide the disclosures under Sec. 
1026.19(a)(2)(ii) and Sec. 1024.8, as applicable, under the Truth in 
Lending Act and the Real Estate Settlement Procedures Act, respectively. 
The requirement to provide the special information booklet under Sec. 
1026.19(g) of the TILA-RESPA Final Rule would also not apply to the 
transaction. But the creditor would provide the special information 
booklet under Sec. 1024.6, as applicable.
    ii. Predisclosure written estimates. Assume a creditor receives a 
request from a consumer for a written estimate of terms or costs 
specific to the consumer on August 1, 2015, before the consumer submits 
an application to the creditor, and thus, before the consumer has 
received the disclosures required under Sec. 1026.19(e)(1)(i). The 
creditor, if it provides such written estimate to the consumer, must 
comply with the requirements of Sec. 1026.19(e)(2)(ii) and provide the 
required statement on the written estimate, even though the creditor has 
not received an application for a transaction subject to Sec. 
1026.19(e) and (f) on that date.
    iii. Request for preemption determination. Assume a creditor submits 
a request to the Bureau under Sec. 1026.28(a)(1) for a determination of 
whether a State law is inconsistent with the disclosure requirements of 
the TILA-RESPA Final Rule on August 1, 2015. Because the amendments to 
Sec. 1026.28(a)(1) are effective on that date and do not depend on 
whether the creditor has received an application as defined under Sec. 
1026.2(a)(3) of the TILA-RESPA Final Rule, Sec. 1026.28(a)(1), as 
amended by the TILA-RESPA Final Rule, is applicable to the request on 
that date and the Bureau would make a determination

[[Page 911]]

based on the amendments of the TILA-RESPA Final Rule, including, for 
example, the requirements of Sec. 1026.37.

          Section 1026.2--Definitions and Rules of Construction

                                * * * * *

    2(a)(3) Application.
    1. In general. An application means the submission of a consumer's 
financial information for purposes of obtaining an extension of credit. 
For transactions subject to Sec. 1026.19(e), (f), or (g) of this part, 
the term consists of the consumer's name, the consumer's income, the 
consumer's social security number to obtain a credit report, the 
property address, an estimate of the value of the property, and the 
mortgage loan amount sought. This definition does not prevent a creditor 
from collecting whatever additional information it deems necessary in 
connection with the request for the extension of credit. However, once a 
creditor has received these six pieces of information, it has an 
application for purposes of the requirements of Regulation Z. A 
submission may be in written or electronic format and includes a written 
record of an oral application. The following examples for a transaction 
subject to Sec. 1026.19(e), (f), or (g) are illustrative of this 
provision:
    i. Assume a creditor provides a consumer with an application form 
containing 20 questions about the consumer's credit history and the 
collateral value. The consumer submits answers to nine of the questions 
and informs the creditor that the consumer will contact the creditor the 
next day with answers to the other 11 questions. Although the consumer 
provided nine pieces of information, the consumer did not provide a 
social security number. The creditor has not yet received an application 
for purposes of Sec. 1026.2(a)(3).
    ii. Assume a creditor requires all applicants to submit 20 pieces of 
information. The consumer submits only six pieces of information and 
informs the creditor that the consumer will contact the creditor the 
next day with answers to the other 14 questions. The six pieces of 
information provided by the consumer were the consumer's name, income, 
social security number, property address, estimate of the value of the 
property, and the mortgage loan amount sought. Even though the creditor 
requires 14 additional pieces of information to process the consumer's 
request for a mortgage loan, the creditor has received an application 
for the purposes of Sec. 1026.2(a)(3) and therefore must comply with 
the relevant requirements under Sec. 1026.19.
    2. Social security number to obtain a credit report. If a consumer 
does not have a social security number, the creditor may substitute 
whatever unique identifier the creditor uses to obtain a credit report 
on the consumer. For example, a creditor has obtained a social security 
number to obtain a credit report for purposes of Sec. 1026.2(a)(3)(ii) 
if the creditor collects a Tax Identification Number from a consumer who 
does not have a social security number, such as a foreign national.
    3. Receipt of credit report fees. Section 1026.19(a)(1)(iii) permits 
the imposition of a fee to obtain the consumer's credit history prior to 
the delivery of the disclosures required under Sec. 1026.19(a)(1)(i). 
Section 1026.19(e)(2)(i)(B) permits the imposition of a fee to obtain 
the consumer's credit report prior to the delivery of the disclosures 
required under Sec. 1026.19(e)(1)(i). Whether, or when, such fees are 
received does not affect whether an application has been received for 
the purposes of the definition in Sec. 1026.2(a)(3) and the timing 
requirements in Sec. 1026.19(a)(1)(i) and (e)(1)(iii). For example, if, 
in a transaction subject to Sec. 1026.19(e)(1)(i), a creditor receives 
the six pieces of information identified under Sec. 1026.2(a)(3)(ii) on 
Monday, June 1, but does not receive a credit report fee from the 
consumer until Tuesday, June 2, the creditor does not comply with Sec. 
1026.19(e)(1)(iii) if it provides the disclosures required under Sec. 
1026.19(e)(1)(i) after Thursday, June 4. The three-business-day period 
beings on Monday, June 1, the date the creditor received the six pieces 
of information. The waiting period does not begin on Tuesday, June 2, 
the date the creditor received the credit report fee.

                                * * * * *

    2(a)(6) Business day.

                                * * * * *

    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- or real 
estate-secured mortgage transactions under Sec. Sec. 1026.19(a)(1)(ii), 
1026.19(a)(2), 1026.19(e)(1)(iii)(B), 1026.19(e)(1)(iv), 
1026.19(e)(2)(i)(A), 1026.19(e)(4)(ii), 1026.19(f)(1)(ii), 
1026.19(f)(1)(iii), 1026.20(e)(5), 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

[[Page 912]]

applies, the observed holiday (in the example, July 3) is a business 
day.

                                * * * * *

    2(a)(25) Security interest.

                                * * * * *

    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. Sec. 1026.18, 1026.19(e) and (f), and 1026.38(l)(6), 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 
purposes of the Truth in Lending Act (15 U.S.C. 1601 et seq.) and 
Regulation Z.

                                * * * * *

                   Section 1026.3--Exempt Transactions

                                * * * * *

    3(a) Business, commercial, agricultural, or organizational credit.

                                * * * * *

    9. Organizational credit. The exemption for transactions in which 
the borrower is not a natural person applies, for example, to loans to 
corporations, partnerships, associations, churches, unions, and 
fraternal organizations. The exemption applies regardless of the purpose 
of the credit extension and regardless of the fact that a natural person 
may guarantee or provide security for the credit. But see comment 3(a)-
10 concerning credit extended to trusts.
    10. Trusts. Credit extended for consumer purposes to certain trusts 
is considered to be credit extended to a natural person rather than 
credit extended to an organization. Specifically:
    i. Trusts for tax or estate planning purposes. In some instances, a 
creditor may extend credit for consumer purposes to a trust that a 
consumer has created for tax or estate planning purposes (or both). 
Consumers sometimes place their assets in trust, with themselves or 
themselves and their families or other prospective heirs as 
beneficiaries, to obtain certain tax benefits and to facilitate the 
future administration of their estates. During their lifetimes, however, 
such consumers may continue to use the assets and/or income of such 
trusts as their property. A creditor extending credit to finance the 
acquisition of, for example, a consumer's dwelling that is held in such 
a trust, or to refinance existing debt secured by such a dwelling, may 
prepare the note, security instrument, and similar loan documents for 
execution by a trustee, rather than the beneficiaries of the trust. 
Regardless of the capacity or capacities in which the loan documents are 
executed, assuming the transaction is primarily for personal, family, or 
household purposes, the transaction is subject to the regulation because 
in substance (if not form) consumer credit is being extended.
    ii. Land trusts. 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 
primarily for personal, family, or household purposes, these 
transactions are subject to the regulation because in substance (if not 
form) consumer credit is being extended.

                                * * * * *

    3(h) Partial exemption for certain mortgage loans.
    1. Partial exemption. Section 1026.3(h) exempts certain transactions 
from only the disclosures required by Sec. 1026.19(e), (f), and (g), 
and not from any of the other applicable requirements of this part. As 
provided by Sec. 1026.3(h)(6), creditors must comply with all other 
applicable requirements of this part. In addition, the creditor must 
provide the disclosures required by Sec. 1026.18, even if the creditor 
would not otherwise be subject to the disclosure requirements of Sec. 
1026.18. The consumer also has the right to rescind the transaction 
under Sec. 1026.23, to the extent that provision is applicable.
    2. Requirements of exemption. The conditions that the transaction 
not require the payment of interest under Sec. 1026.3(h)(3) and that 
repayment of the amount of credit extended be forgiven or deferred in 
accordance with Sec. 1026.3(h)(4) is determined by the terms of the 
credit contract. The other requirements of Sec. 1026.3(h) need not be 
reflected in the credit contract, but the creditor must retain evidence 
of compliance with those provisions,

[[Page 913]]

as required by Sec. 1026.25(a). In particular, because the exemption 
from Sec. 1026.19(e), (f), and (g) means the consumer will not receive 
the disclosures of closing costs under Sec. 1026.37 or Sec. 1026.38, 
the creditor must have information reflecting that the total of closing 
costs imposed in connection with the transaction is less than one 
percent of the amount of credit extended and include no charges other 
than recordation, application, and housing counseling fees, in 
accordance with Sec. 1026.3(h)(5). Unless an itemization of the amount 
financed sufficiently details this requirement, the creditor must 
establish compliance with Sec. 1026.3(h)(5) by some other written 
document and retain it in accordance with Sec. 1026.25(a).

                                * * * * *

                      Subpart C--Closed End Credit

            Section 1026.17--General Disclosure Requirements

    1. Rules for certain mortgage disclosures. Section 1026.17(a) and 
(b) does not apply to the disclosures required by Sec. 1026.19(e), (f), 
and (g), and Sec. 1026.20(e). For the disclosures required by Sec. 
1026.19(e), (f), and (g), rules regarding the disclosures' form are 
found in Sec. Sec. 1026.19(g), 1026.37(o), and 1026.38(t) and rules 
regarding timing are found in Sec. 1026.19(e), (f), and (g). For the 
disclosures required by Sec. 1026.20(e), rules regarding the 
disclosures' form are found in Sec. 1026.20(e)(4) and rules regarding 
timing are found in Sec. 1026.20(e)(5).
    17(a) Form of disclosures.
    Paragraph 17(a)(1).

                                * * * * *

    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 or interest 
rate and payment summary table under Sec. 1026.18(g) or (s), as 
applicable, and should not, for example, reflect the other options 
available to the consumer at maturity.

                                * * * * *

    17(c) Basis of disclosures and use of estimates.
    Paragraph 17(c)(1).
    1. Legal obligation. The disclosures shall reflect the terms to 
which the consumer and creditor are legally bound as of the outset of 
the transaction. In the case of disclosures required under Sec. 
1026.20(c), (d), and (e), the disclosures shall reflect the credit terms 
to which the consumer and creditor are legally bound when the 
disclosures are provided. The legal obligation is determined by 
applicable State law or other law. Disclosures based on the assumption 
that the consumer will abide by the terms of the legal obligation 
throughout the term of the transaction comply with Sec. 1026.17(c)(1). 
(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, 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 between the consumer and the creditor. But this presumption is 
rebutted if another agreement between the consumer and creditor legally 
modifies that note or contract. If the consumer and creditor 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:

                                * * * * *

    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 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 two years of the 
mortgage, giving the consumer an effective rate of 12% for that period.
    i. If the third-party buydown is reflected in the credit contract 
between the consumer and the bank, the finance charge and all other 
disclosures affected by it must take

[[Page 914]]

the buydown into account as an amendment to the contract's interest rate 
provision. 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 disclosures required under Sec. Sec. 
1026.18(g), 1026.18(s), 1026.37(c), and 1026.38(c), as applicable, must 
reflect the two payment levels, except as otherwise provided in those 
paragraphs. However, the amount paid by the seller would not be 
specifically reflected in the disclosure of the finance charge and other 
disclosures affected by it given by the bank, since that amount 
constitutes seller's points and thus is not part of the finance charge. 
The seller-paid amount is disclosed, however, as a credit from the 
seller in the summaries of transactions disclosed pursuant to Sec. 
1026.38(j) and (k).
    ii. If the third-party buydown 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 disclosure of the finance 
charge and other disclosures affected by it given by the bank must not 
reflect the seller buydown in any way. For example, the annual 
percentage rate and disclosures required under Sec. Sec. 1026.18(g), 
1026.18(s), 1026.37(c), and 1026.38(c), as applicable, would not take 
into account the reduction in the interest rate and payment level for 
the first two years resulting from the buydown. The seller-paid amount 
is, however, disclosed as a credit from the seller in the summaries of 
transactions disclosed pursuant to Sec. 1026.38(j) and (k).
    4. Consumer buydowns. In certain transactions, the consumer may pay 
an amount to the creditor to reduce the payments on the transaction. 
Consumer buydowns must be reflected as an amendment to the contract's 
interest rate provision in the disclosure of the finance charge and 
other disclosures affected by it 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 lower payments 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 disclosure of the finance charge and other disclosures affected 
by it given for the mortgage, the creditor must reflect the terms of the 
buydown agreement.
    i. For example:

                                * * * * *

    C. The disclosures under Sec. Sec. 1026.18(g) and (s), 1026.37(c), 
and 1026.38(c), as applicable, must reflect the multiple rate and 
payment levels resulting from the buydown, except as otherwise provided 
in those sections. Further, for example, the disclosures must reflect 
that the transaction is a step rate product under Sec. Sec. 
1026.37(a)(10)(B) and 1026.38(a)(5)(iii).
    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 disclosure of the finance charge and other 
disclosures affected by it 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, except as otherwise provided in Sec. Sec. 1026.18(s), 
1026.37(c), and 1026.38(c), 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 disclosure of the 
finance charge and other disclosures affected by it unless the lower 
rate is reflected in the credit contract. See the discussion on third-
party and consumer buydown transactions elsewhere in the commentary to 
Sec. 1026.17(c).

                                * * * * *

    8. Basis of disclosures in variable-rate transactions. Except as 
otherwise provided in Sec. Sec. 1026.18(s), 1026.37 and 1026.38, as 
applicable, 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, except as otherwise provided in Sec. Sec. 
1026.18(s), 1026.37 and 1026.38. 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

[[Page 915]]

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), (e), and (f) for a discussion of the redisclosure 
in certain mortgage transactions with a variable-rate feature. See 
Sec. Sec. 1026.37(c) and 1026.38(c) for rules regarding disclosure of 
variable-rate transactions in the projected payments table for 
transactions subject to Sec. 1026.19(e) and (f).

                                * * * * *

    10. Discounted and premium variable-rate transactions. * * *
    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 
the disclosures required under Sec. Sec. 1026.18(g) and (s), 
1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5), as 
applicable.

                                * * * * *

    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 two 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 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 disclosed pursuant to Sec. 1026.18(g) should show 12 payments 
of $804.62 and 348 payments of $1,025.31. Similarly, the disclosures 
required by Sec. Sec. 1026.18(s), 1026.37(c), 1026.37(l)(1) and (3), 
1026.38(c), and 1026.38(o)(5) should reflect the effect of this 
calculation. The finance charge should be $266,463.32 and, for 
transactions subject to Sec. 1026.18, the total of payments should be 
$366,463.32.
    B. Same loan as above, except with a two-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 
disclosed pursuant to Sec. 1026.18(g) should show 12 payments of 
$804.62, 12 payments of $950.09, and 336 payments of $1,024.34. 
Similarly, the disclosures required by Sec. Sec. 1026.18(s), 
1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 1026.38(o)(5) should 
reflect the effect of this calculation. The finance charge should be 
$265,234.76 and, for transactions subject to Sec. 1026.18, the total of 
payments should be $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 disclosed pursuant to 
Sec. 1026.18(g) 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. Similarly, the disclosures required by Sec. Sec. 
1026.18(s), 1026.37(c), 1026.37(l)(1) and (3), 1026.38(c), and 
1026.38(o)(5) should reflect the effect of this calculation. The finance 
charge should be $277,040.60, and, for transactions subject to Sec. 
1026.18, the total of payments should be $377,040.60.

                                * * * * *

    11. Examples of variable-rate transactions. Variable-rate 
transactions include:

                                * * * * *

    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, except as otherwise provided in Sec. Sec. 1026.18(s), 
1026.37, and 1026.38, as applicable.
    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,

[[Page 916]]

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, except as otherwise provided in 
Sec. Sec. 1026.18(s), 1026.37(c), and 1026.38(c), the disclosures 
should treat these features as follows:

                                * * * * *

    iv. The disclosures required by Sec. 1026.18(g) and (s) reflect 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 
disclosures required by Sec. 1026.18(g) and (s) may require several 
different levels of payments, even with the assumption that the original 
interest rate does not increase. For transactions subject to Sec. 
1026.19(e) and (f), see Sec. 1026.37(c) and its commentary for a 
discussion of different rules for graduated payment adjustable rate 
mortgages.

                                * * * * *

    19. 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. Such premiums and rebates must be 
reflected in accordance with the terms of the legal obligation between 
the consumer and the creditor. Thus, if the creditor is legally 
obligated to provide the premium or rebate to the consumer as part of 
the credit transaction, the disclosures should reflect its value in the 
manner and at the time the creditor is obligated to provide it.
    Paragraph 17(c)(2)(i).
    1. Basis for estimates. Except as otherwise provided in Sec. Sec. 
1026.19, 1026.37, and 1026.38, 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. For purposes of 
Sec. 1026.17(c)(2)(i), creditors must provide the actual amounts of the 
information required to be disclosed under Sec. Sec. 1026.37 and 
1026.38, pursuant to Sec. 1026.19(e) and (f), subject to the estimation 
and redisclosure rules in those provisions.
    2. Labeling estimates. Estimates must be designated as such in the 
segregated disclosures. For the disclosures required by Sec. 1026.19(e) 
and (f), use of the Loan Estimate form H-24 of appendix H to this part 
pursuant to Sec. 1026.37(o) or the Closing Disclosure form H-25 of 
appendix H to this part pursuant to Sec. 1026.38(t), respectively, 
satisfies the requirement that the disclosure state clearly that the 
disclosure is an estimate. For all other disclosures, even though they 
are based on the same assumption on which a specific estimated 
disclosure was based, the creditor has 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 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, 
except as otherwise provided by Sec. 1026.19. 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. In all cases, creditors comply 
with Sec. 1026.17(c)(2)(i) by basing disclosures on the assumption that 
payments will be made on time and in the amounts required by the terms 
of the legal obligation, disregarding any possible differences resulting 
from consumers' payment patterns.

[[Page 917]]

    Paragraph 17(c)(2)(ii).
    1. Per-diem interest. Section 1026.17(c)(2)(ii) 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). For purposes of transactions subject to Sec. 1026.19(e) 
and (f), the creditor shall disclose the actual amount of per diem 
interest that will be collected at consummation, subject only to the 
disclosure rules in those sections.

                                * * * * *

    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 
pursuant to Sec. 1026.18(g), the disclosures required pursuant to 
Sec. Sec. 1026.18(s), 1026.37(c), or 1026.38(c), or the finance charge, 
annual percentage rate, and other terms. For example:

                                * * * * *

    Paragraph 17(c)(5).

                                * * * * *

    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 and demand disclosures under Sec. 
1026.38(l)(2) are answered in the negative. The disclosures should be 
based on the creditor's estimate of the time at which the specified 
event will occur and, except as otherwise provided in Sec. 1026.19(e) 
and (f), 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. 
The disclosures for a transaction that converts to demand status after a 
fixed period should be based upon the legally agreed-upon maturity date. 
Thus, for example, if a mortgage containing a call option that the 
creditor may exercise during the first 30 days of the eighth year after 
loan origination 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) or Sec. 1026.38(l)(2), as applicable.
    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 five 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 five-year term. See Sec. Sec. 1026.37(c) and 
1026.38(c) and their commentary for projected payment disclosures for 
balloon payment mortgages.

                                * * * * *

    17(d) Multiple creditors; multiple consumers.

                                * * * * *

    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. When 
two consumers are joint obligors with primary liability on an 
obligation, the early disclosures required by Sec. 1026.19(a), (e), or 
(g), as applicable, may be provided to any one of them. In rescindable 
transactions, the disclosures required by Sec. 1026.19(f) must be given 
separately to each consumer who has the right to rescind under Sec. 
1026.23. In transactions that are not rescindable, the disclosures 
required by Sec. 1026.19(f) may be provided to any consumer with 
primary liability on the obligation. See

[[Page 918]]

Sec. Sec. 1026.2(a)(11), 1026.17(b), 1026.19(a), 1026.19(f), and 
1026.23(b).
    17(e) Effect of subsequent events.
    1. Events causing inaccuracies. Subject to Sec. 1026.19(e) and (f), 
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, in some cases after consummation under Sec. 
1026.19(f), or under Sec. 1026.20 if the events occurred after 
consummation. For rules regarding permissible changes to the information 
required to be disclosed by Sec. 1026.19(e) and (f), see Sec. 
1026.19(e)(3) and (f)(2) and their commentary.
    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 Sec. 1026.17(f) even if 
the prior disclosures would be considered accurate under the tolerances 
in Sec. 1026.18(d) or 1026.22(a). To illustrate:
    i. Transactions not secured by real property. A. For transactions 
not secured by real property, 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 not secured by real property, 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).
    C. If disclosures for transactions not secured by real property 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 
the changed terms that were not marked as estimates. See Sec. 
1026.18(d)(2).
    ii. Reverse mortgages. In a transaction subject to Sec. 1026.19(a) 
and not Sec. 1026.19(e) and (f), assume that, at the time the 
disclosures required by Sec. 1026.19(a) 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. Assume further that 
consummation actually occurs on August 5, and per-diem interest for the 
remainder of August is collected as a prepaid finance charge. 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.
    iii. Mortgages other than reverse mortgages and mortgage loans not 
secured by real property. For transactions secured by real property 
other than reverse mortgages, assume that, at the time the disclosures 
required by Sec. 1026.19(e) 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. Assume further that consummation actually 
occurs on August 5, and per-diem interest for the remainder of August is 
collected as a prepaid finance charge. The creditor must make the 
disclosures required by Sec. 1026.19(f) three days before consummation, 
and the disclosures required by Sec. 1026.19(f) must take into account 
the amount of per-diem interest that will be collected at consummation.
    2. Variable rate. The addition of a variable rate feature to the 
credit terms, after early disclosures are given, requires new 
disclosures. See Sec. 1026.19(e) and (f) to determine when new 
disclosures are required for transactions secured by real property, 
other than reverse mortgages.
    3. Content of new disclosures. Except as provided by Sec. 
1026.19(e) and (f), 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(a), 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.

                                * * * * *

    17(g) Mail or telephone orders--delay in disclosures.
    1. Conditions for use. Except for extensions of credit subject to 
Sec. 1026.19(a) or (e) and (f), when the creditor receives a mail or 
telephone request for credit, the creditor may delay making the 
disclosures until the first

[[Page 919]]

payment is due if the following conditions are met:

                                * * * * *

    17(h) Series of sales--delay in disclosures.
    1. Applicability. Except for extensions of credit covered by Sec. 
1026.19(a) or (e) and (f), 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 Sec. 
1026.17(h) are met. If those conditions are not met, the general timing 
rules in Sec. 1026.17(b) apply.

                                * * * * *

                 Section 1026.18--Content of Disclosures

                                * * * * *

    3. Scope of coverage. i. Section 1026.18 applies to closed-end 
consumer credit transactions, other than transactions that are subject 
to Sec. 1026.19(e) and (f). Section 1026.19(e) and (f) applies to 
closed-end consumer credit transactions that are secured by real 
property, other than reverse mortgages subject to Sec. 1026.33. 
Accordingly, the disclosures required by Sec. 1026.18 apply only to 
closed-end consumer credit transactions that are:
    A. Unsecured;
    B. Secured by personal property that is not a dwelling;
    C. Secured by personal property that is a dwelling and is not also 
secured by real property; or
    D. Reverse mortgages subject to Sec. 1026.33.
    ii. Of the foregoing transactions that are subject to Sec. 1026.18, 
the creditor discloses a payment schedule pursuant to Sec. 1026.18(g) 
for those described in paragraphs i.A and i.B of this comment. For 
transactions described in paragraphs i.C and i.D of this comment, the 
creditor discloses an interest rate and payment summary table pursuant 
to Sec. 1026.18(s). See also comments 18(g)-6 and 18(s)-4 for 
additional guidance on the applicability to different transaction types 
of Sec. Sec. 1026.18(g) or (s) and 1026.19(e) and (f).
    iii. Because Sec. 1026.18 does not apply to transactions secured by 
real property, other than reverse mortgages, references in the section 
and its commentary to ``mortgages'' refer only to transactions described 
in paragraphs i.C and i.D of this comment, as applicable.

                                * * * * *

    18(c) Itemization of amount financed.

                                * * * * *

    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. Reverse mortgages subject to RESPA and Sec. 1026.18 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)(iv).

                                * * * * *

    2. Prepaid mortgage insurance premiums. Regulation X under RESPA, 12 
CFR 1024.8, requires creditors to give consumers a settlement statement 
disclosing the costs associated with reverse 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 1003 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(g) Payment schedule.

                                * * * * *

    4. Timing of payments. i. General rule. * * *
    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

[[Page 920]]

contract that contemplates the delayed disbursement of funds based on a 
contingent event, such as the completion of 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. [Reserved]
    6. Mortgage transactions. Section 1026.18(g) applies to closed-end 
transactions, other than transactions that are subject to Sec. 
1026.18(s) or Sec. 1026.19(e) and (f). Section 1026.18(s) applies to 
closed-end transactions secured by real property or a dwelling, unless 
they are subject to Sec. 1026.19(e) and (f). Section 1026.19(e) and (f) 
applies to closed-end transactions secured by real property, other than 
reverse mortgages. Thus, if a closed-end consumer credit transaction is 
secured by real property or a dwelling and the transaction is a reverse 
mortgage or the dwelling is personal property, the creditor discloses an 
interest rate and payment summary table in accordance with Sec. 
1026.18(s). See comment 18(s)-4. If a closed-end consumer credit 
transaction is secured by real property and is not a reverse mortgage, 
the creditor discloses a projected payments table in accordance with 
Sec. Sec. 1026.37(c) and 1026.38(c), as required by Sec. 1026.19(e) 
and (f). In all such cases, the creditor is not subject to 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 (for example, if it is unsecured or secured by an automobile), 
the creditor discloses a payment schedule in accordance with Sec. 
1026.18(g) and is not subject to the requirements of Sec. 1026.18(s) or 
Sec. Sec. 1026.37(c) and 1026.38(c).

                                * * * * *

    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. 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 Sec. 1026.18(g)(2) 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 
transaction where payments rise sharply for five years and then decline 
over the next 25 years, the first five 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).

                                * * * * *

    18(k) Prepayment.
    1. Disclosure required. The creditor must give a definitive 
statement of whether or not a prepayment penalty will be imposed or a 
prepayment rebate will be given.
    i. The fact that no prepayment penalty will be imposed may not 
simply be inferred from the absence of a prepayment penalty disclosure; 
the creditor must indicate that prepayment will not result in a 
prepayment penalty.
    ii. If a prepayment penalty or prepayment rebate 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 prepayment rebate or prepayment 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 921]]

and prepayment penalties are required. Sample form H-15 in appendix H to 
this part 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 prepayment 
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. Examples of prepayment penalties. For purposes of Sec. 
1026.18(k)(1), the following are examples of prepayment penalties:
    i. A charge determined by treating the loan balance as outstanding 
for a period of time after prepayment in full and applying the interest 
rate to such ``balance,'' even if the charge results from interest 
accrual amortization used for other payments in the transaction under 
the terms of the loan contract. ``Interest accrual amortization'' refers 
to the method by which the amount of interest due for each period (e.g., 
month) in a transaction's term is determined. For example, ``monthly 
interest accrual amortization'' treats each payment as made on the 
scheduled, monthly due date even if it is actually paid early or late 
(until the expiration of any grace period). Thus, under the terms of a 
loan contract providing for monthly interest accrual amortization, if 
the amount of interest due on May 1 for the preceding month of April is 
$3,000, the loan contract will require payment of $3,000 in interest for 
the month of April whether the payment is made on April 20, on May 1, or 
on May 10. In this example, if the consumer prepays the loan in full on 
April 20 and if the accrued interest as of that date is $2,000, then 
assessment of a charge of $3,000 constitutes a prepayment penalty of 
$1,000 because the amount of interest actually earned through April 20 
is only $2,000.
    ii. A fee, such as an origination or other loan closing cost, that 
is waived by the creditor on the condition that the consumer does not 
prepay the loan. However, the term prepayment penalty does not include a 
waived bona fide third-party charge imposed by the creditor if the 
consumer pays all of a covered transaction's principal before the date 
on which the principal is due sooner than 36 months after consummation. 
For example, assume that at consummation, the creditor waives $3,000 in 
closing costs to cover bona fide third-party charges but the terms of 
the loan agreement provide that the creditor may recoup the $3,000 in 
waived charges if the consumer repays the entire loan balance sooner 
than 36 months after consummation. The $3,000 charge is not a prepayment 
penalty. In contrast, for example, assume that at consummation, the 
creditor waives $3,000 in closing costs to cover bona fide third-party 
charges but the terms of the loan agreement provide that the creditor 
may recoup $4,500 in part to recoup waived charges, if the consumer 
repays the entire loan balance sooner than 36 months after consummation. 
The $3,000 that the creditor may impose to cover the waived bona fide 
third-party charges is not a prepayment penalty, but the additional 
$1,500 charge is a prepayment penalty and must be disclosed pursuant to 
Sec. 1026.37(k)(1).
    iii. A minimum finance charge in a simple interest transaction.
    2. Fees that are not prepayment penalties. For purposes of Sec. 
1026.18(k)(1), fees which are not prepayment penalties include, for 
example:
    i. Fees imposed for preparing and providing documents when a loan is 
paid in full, if such fees are imposed whether or not the loan is 
prepaid. Examples include a loan payoff statement, a reconveyance 
document, or another document releasing the creditor's security interest 
in the dwelling that secures the loan.
    ii. 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. This includes 
computing a refund of an unearned finance charge, such as precomputed 
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). 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.
    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

[[Page 922]]

required or permitted as part of the segregated disclosures under Sec. 
1026.18(k)(2).

                                * * * * *

    18(r) 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. [Reserved]
    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 reverse mortgages and certain transactions secured by dwellings that 
are personal property. The information in Sec. 1026.18(s)(2) through 
(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) 
through (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).

                                * * * * *

    4. Scope of coverage in relation to Sec. 1026.19(e) and (f). 
Section 1026.18(s) applies to transactions secured by real property or a 
dwelling, other than transactions that are subject to Sec. 1026.19(e) 
and (f). Those provisions apply to closed-end transactions secured by 
real property, other than reverse mortgages. Accordingly, Sec. 
1026.18(s) governs only closed-end reverse mortgages and closed-end 
transactions secured by a dwelling that is personal property (such as a 
mobile home that is not deemed real property under State or other 
applicable law).

                                * * * * *

    18(s)(3) Payments for amortizing loans.

                                * * * * *

    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 insurance premiums or any functionally equivalent fee that are 
known to the creditor at the time the disclosure is made. The estimated 
amounts of mortgage insurance premiums or any functionally equivalent 
fee 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 or any 
functionally equivalent fee 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 or any functional equivalent. For purposes of 
Sec. 1026.18(s), ``mortgage insurance or any functional equivalent'' 
means the amounts identified in Sec. 1026.4(b)(5). ``Mortgage 
guarantees'' (such as

[[Page 923]]

a United States Department of Veterans Affairs or United States 
Department of Agriculture guarantee) provide coverage similar to 
mortgage insurance, even if not technically considered insurance under 
State or other applicable law. For purposes of Sec. 1026.18(s), 
``mortgage insurance or any functional equivalent'' includes any 
mortgage guarantee. Payment amounts under Sec. 1026.18(s)(3)(i) should 
reflect the consumer's mortgage insurance payments or any functionally 
equivalent fee 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.

                                * * * * *

    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 and functionally 
equivalent fees decline over a loan's term, the payment amounts shown in 
the table should reflect the mortgage insurance payment and functionally 
equivalent fees that will be applicable at the time each disclosed 
periodic payment will be in effect. Accordingly, the disclosed mortgage 
insurance payment or functionally equivalent fee will be zero if it 
corresponds to a periodic payment that will occur after the creditor 
will be legally required to terminate mortgage insurance or any 
functional equivalent. On the other hand, because only one escrow amount 
is disclosed under Sec. 1026.18(s)(6) for negative amortization loans 
and escrows that are not itemized in the payment amounts, the single 
escrow amount disclosed should reflect the mortgage insurance amount or 
any functionally equivalent fee 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.

                                * * * * *

    Section 1026.19--Certain Mortgage and Variable-Rate Transactions

    19(a)(1)(i) Time of disclosures.
    1. Coverage. Section 1026.19(a) requires early disclosure of credit 
terms in reverse mortgage transactions subject to Sec. 1026.33 that are 
secured by a consumer's dwelling 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), 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(b)), and is subject to any interpretations by the Bureau.

                                * * * * *

    19(e) Mortgage loans secured by real property--Early disclosures.
    1. Affiliate. The term ``affiliate,'' as used in Sec. 1026.19(e), 
has the same meaning as in Sec. 1026.32(b)(5).
    19(e)(1) Provision of disclosures.
    19(e)(1)(i) Creditor.
    1. Requirements. Section 1026.19(e)(1)(i) requires early disclosure 
of credit terms in closed-end credit transactions that are secured by 
real property, other than reverse mortgages. These disclosures must be 
provided in good faith. Except as otherwise provided in Sec. 
1026.19(e), a disclosure is in good faith if it is consistent with Sec. 
1026.17(c)(2)(i). Section 1026.17(c)(2)(i) provides that 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 to the creditor at the time the 
disclosure is provided to the consumer. The ``reasonably available'' 
standard requires that the creditor, acting in good faith, exercise due 
diligence in obtaining information. See comment 17(c)(2)(i)-1 for an 
explanation of the standard set forth in Sec. 1026.17(c)(2)(i). See 
comment 17(c)(2)(i)-2 for labeling disclosures required under Sec. 
1026.19(e) that are estimates.
    19(e)(1)(ii) Mortgage broker.
    1. Mortgage broker responsibilities. Section 1026.19(e)(1)(ii)(A) 
provides that if a mortgage broker receives a consumer's application, 
either the creditor or the mortgage broker must provide the consumer 
with the disclosures required under Sec. 1026.19(e)(1)(i) in accordance 
with Sec. 1026.19(e)(1)(iii). Section 1026.19(e)(1)(ii)(A) also 
provides that if the

[[Page 924]]

mortgage broker provides the required disclosures, it must comply with 
all relevant requirements of Sec. 1026.19(e). This means that 
``mortgage broker'' should be read in the place of ``creditor'' for all 
provisions of Sec. 1026.19(e), except to the extent that such a reading 
would create responsibility for mortgage brokers under Sec. 1026.19(f). 
To illustrate, comment 19(e)(4)(ii)-1 states that creditors comply with 
the requirements of Sec. 1026.19(e)(4) if the revised disclosures are 
reflected in the disclosures required by Sec. 1026.19(f)(1)(i). 
``Mortgage broker'' could not be read in place of ``creditor'' in 
comment 19(e)(4)(ii)-1 because mortgage brokers are not responsible for 
the disclosures required under Sec. 1026.19(f)(1)(i). In addition, 
Sec. 1026.19(e)(1)(ii)(A) provides that the creditor must ensure that 
disclosures provided by mortgage brokers comply with all requirements of 
Sec. 1026.19(e), and that disclosures provided by mortgage brokers that 
do comply with all such requirements satisfy the creditor's obligation 
under Sec. 1026.19(e). The term ``mortgage broker,'' as used in Sec. 
1026.19(e)(1)(ii), has the same meaning as in Sec. 1026.36(a)(2). See 
also comment 36(a)-2. Section 1026.19(e)(1)(ii)(B) provides that if a 
mortgage broker provides any disclosure required under Sec. 1026.19(e), 
the mortgage broker must also comply with the requirements of Sec. 
1026.25(c). For example, if a mortgage broker provides the disclosures 
required under Sec. 1026.19(e)(1)(i), it must maintain records for 
three years, in compliance with Sec. 1026.25(c)(1)(i).
    2. Creditor responsibilities. If a mortgage broker issues any 
disclosure required under Sec. 1026.19(e) in the creditor's place, the 
creditor remains responsible under Sec. 1026.19(e) for ensuring that 
the requirements of Sec. 1026.19(e) have been satisfied. For example, 
if a mortgage broker receives a consumer's application and provides the 
consumer with the disclosures required under Sec. 1026.19(e)(1)(i), the 
creditor does not satisfy the requirements of Sec. 1026.19(e)(1)(i) if 
it provides duplicative disclosures to the consumer. In the same 
example, even if the broker provides an erroneous disclosure, the 
creditor is responsible and may not issue a revised disclosure 
correcting the error. The creditor is expected to maintain communication 
with the broker to ensure that the broker is acting in place of the 
creditor.
    19(e)(1)(iii) Timing.
    1. Timing and use of estimates. The disclosures required by Sec. 
1026.19(e)(1)(i) must be delivered not later than three business days 
after the creditor receives the consumer's application. For example, if 
an application is received on Monday, the creditor satisfies this 
requirement by either hand delivering the disclosures on or before 
Thursday, or placing them in the mail on or before Thursday, assuming 
each weekday is a business day. For purposes of Sec. 
1026.19(e)(1)(iii)(A), the term ``business day'' means a day on which 
the creditor's offices are open to the public for carrying out 
substantially all of its business functions. See Sec. 1026.2(a)(6).
    2. Waiting period. The seven-business-day waiting period begins when 
the creditor delivers the disclosures or places them in the mail, not 
when the consumer receives or is considered to have received the 
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, because, for 
the purposes of Sec. 1026.19(e)(1)(iii)(B), Saturday is a business day, 
pursuant to Sec. 1026.2(a)(6).
    3. 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, such as when a consumer's 
credit score is lower than the minimum score required for the terms the 
consumer applied for, or the consumer applies for a type or amount of 
credit that the creditor does not offer. In that case, or if the 
consumer withdraws the application within the three-business-day period 
by, for instance, informing the creditor that he intends to take out a 
loan from another creditor within the three-business-day period, the 
creditor need not make the disclosures required under Sec. 
1026.19(e)(1)(i). If the creditor fails to provide early disclosures and 
the transaction is later consummated on the terms originally applied 
for, then the creditor does not comply with Sec. 1026.19(e)(1)(i). If, 
however, the consumer amends the application because of the creditor's 
unwillingness to approve it on the terms originally applied for, no 
violation occurs for not providing disclosures based on those original 
terms. But the amended application is a new application subject to Sec. 
1026.19(e)(1)(i).
    4. Timeshares. If consummation occurs within three business days 
after a creditor's receipt of an application for a transaction that is 
secured by a consumer's interest in a timeshare plan described in 11 
U.S.C. 101(53D), a creditor complies with Sec. 1026.19(e)(1)(iii) by 
providing the disclosures required under Sec. 1026.19(f)(1)(i) instead 
of the disclosures required under Sec. 1026.19(e)(1)(i).
    19(e)(1)(iv) Receipt of early disclosures.
    1. Mail delivery. Section 1026.19(e)(1)(iv) provides that, if any 
disclosures required under Sec. 1026.19(e)(1)(i) are not provided to 
the consumer in person, the consumer is considered to have received the 
disclosures three business days after they are delivered or placed in 
the mail. The creditor may, alternatively, rely on evidence that the 
consumer received the disclosures earlier than three business days. For 
example, if the creditor sends the disclosures via overnight mail on 
Monday,

[[Page 925]]

and the consumer signs for receipt of the overnight delivery on Tuesday, 
the creditor could demonstrate that the disclosures were received on 
Tuesday.
    2. Electronic delivery. The three-business-day period provided in 
Sec. 1026.19(e)(1)(iv) applies to methods of electronic delivery, such 
as email. For example, if a creditor sends the disclosures required 
under Sec. 1026.19(e) via email on Monday, pursuant to Sec. 
1026.19(e)(1)(iv) the consumer is considered to have received the 
disclosures on Thursday, three business days later. The creditor may, 
alternatively, rely on evidence that the consumer received the emailed 
disclosures earlier. For example, if the creditor emails the disclosures 
at 1 p.m. on Tuesday, the consumer emails the creditor with an 
acknowledgement of receipt of the disclosures at 5 p.m. on the same day, 
the creditor could demonstrate that the disclosures were received on the 
same day. Creditors using electronic delivery methods, such as email, 
must also comply with Sec. 1026.37(o)(3)(iii), which provides that the 
disclosures in Sec. 1026.37 may be provided to the consumer in 
electronic form, subject to compliance with the consumer consent and 
other applicable provisions of the E-Sign Act. For example, if a 
creditor delivers the disclosures required under Sec. 1026.19(e)(1)(i) 
to a consumer via email, but the creditor did not obtain the consumer's 
consent to receive disclosures via email prior to delivering the 
disclosures, then the creditor does not comply with Sec. 
1026.37(o)(3)(iii), and the creditor does not comply with Sec. 
1026.19(e)(1)(i), assuming the disclosures were not provided in a 
different manner in accordance with the timing requirements of Sec. 
1026.19(e)(1)(iii).
    19(e)(1)(v) Consumer's waiver of waiting period before consummation.
    1. Modification or waiver. A consumer may modify or waive the right 
to the seven-business-day waiting period required by Sec. 
1026.19(e)(1)(iii) only after the creditor makes the disclosures 
required by Sec. 1026.19(e)(1)(i). 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 circumstances of the individual 
situation. 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. 
If the early disclosures are delivered to the consumer in person on 
Monday, June 1, the seven-business-day waiting period ends on Tuesday, 
June 9. If on Monday, June 1, the consumer executes a waiver of the 
seven-business-day waiting period, the final disclosures required by 
Sec. 1026.19(f)(1)(i) could then be delivered three business days 
before consummation, as required by Sec. 1026.19(f)(1)(ii), on Tuesday, 
June 2, and the loan could be consummated on Friday, June 5. See Sec. 
1026.19(f)(1)(iv) for waiver of the three-business-day waiting period 
under Sec. 1026.19(f).
    19(e)(1)(vi) Shopping for settlement service providers.
    1. Permission to shop. Section 1026.19(e)(1)(vi)(A) permits 
creditors to impose reasonable requirements regarding the qualifications 
of the provider. For example, the creditor may require that a settlement 
agent chosen by the consumer must be appropriately licensed in the 
relevant jurisdiction. In contrast, a creditor does not permit a 
consumer to shop for purposes of Sec. 1026.19(e)(1)(vi) if the creditor 
requires the consumer to choose a provider from a list provided by 
creditor. The requirements of Sec. 1026.19(e)(1)(vi)(B) and (C) do not 
apply if the creditor does not permit the consumer to shop consistent 
with Sec. 1026.19(e)(1)(vi)(A).
    2. Disclosure of services for which the consumer may shop. Section 
1026.19(e)(1)(vi)(B) requires the creditor to identify the services for 
which the consumer is permitted to shop in the disclosures provided 
pursuant to Sec. 1026.19(e)(1)(i). See Sec. 1026.37(f)(3) regarding 
the content and format for disclosure of services for which the consumer 
may shop.
    3. Written list of providers. If the creditor permits the consumer 
to shop for a settlement service, Sec. 1026.19(e)(1)(vi)(C) requires 
the creditor to provide the consumer with a written list identifying at 
least one available provider of that service and stating that the 
consumer may choose a different provider for that service. The 
settlement service providers identified on the written list required by 
Sec. 1026.19(e)(vi)(C) must correspond to the settlement services for 
which the consumer may shop, disclosed pursuant to Sec. 1026.37(f)(3). 
See form H-27 of appendix H to this part for a model list.
    4. Identification of available providers. Section 
1026.19(e)(1)(vi)(C) provides that the creditor must identify settlement 
service providers that are available to the consumer. A creditor does 
not comply with the identification requirement in Sec. 
1026.19(e)(1)(vi)(C) unless it provides sufficient information to allow 
the consumer to contact the provider, such as the name under which the 
provider does business and the provider's address and telephone number. 
Similarly, a creditor does not comply with the availability requirement 
in Sec. 1026.19(e)(1)(vi)(C) if it provides a written list consisting 
of only settlement service providers that are no longer in business or 
that do not provide services where the consumer or property is located.

[[Page 926]]

    5. Statement that consumer may choose different provider. Section 
1026.19(e)(1)(vi)(C) requires the creditor to include on the written 
list a statement that the consumer may choose a provider that is not 
included on that list. See form H-27 of appendix H to this part for a 
model of such a statement.
    6. Additional information on written list. The creditor may include 
a statement on the written list that the listing of a settlement service 
provider does not constitute an endorsement of that service provider. 
The creditor may also identify on the written list providers of services 
for which the consumer is not permitted to shop, provided that the 
creditor clearly and conspicuously distinguishes those services from the 
services for which the consumer is permitted to shop. This may be 
accomplished by placing the services under different headings. For 
example, if the list provided pursuant to Sec. 1026.19(e)(1)(vi)(C) 
identifies providers of pest inspections and surveys, but the consumer 
may select a provider, other than those identified on the list, for only 
the survey, then the list must specifically inform the consumer that the 
consumer is permitted to select a provider, other than a provider 
identified on the list, for only the survey.
    7. Relation to RESPA and Regulation X. Section 1026.19 does not 
prohibit creditors from including affiliates on the written list 
required under Sec. 1026.19(e)(1)(vi)(C). However, a creditor that 
includes affiliates on the written list must also comply with 12 CFR 
1024.15. Furthermore, the written list is a ``referral'' under 12 CFR 
1024.14(f).
    19(e)(2) Predisclosure activity.
    19(e)(2)(i) Imposition of fees on consumer.
    19(e)(2)(i)(A) Fee restriction.
    1. Fees restricted. A creditor or other person may not impose any 
fee, such as for an application, appraisal, or underwriting, until the 
consumer has received the disclosures required by Sec. 1026.19(e)(1)(i) 
and indicated an intent to proceed with the transaction. 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 
report, pursuant to Sec. 1026.19(e)(2)(i)(B).
    2. Intent to proceed. Section 1026.19(e)(2)(i)(A) provides that a 
consumer may indicate an intent to proceed with a transaction in any 
manner the consumer chooses, unless a particular manner of communication 
is required by the creditor. The creditor must document this 
communication to satisfy the requirements of Sec. 1026.25. For example, 
oral communication in person immediately upon delivery of the 
disclosures required by Sec. 1026.19(e)(1)(i) is sufficiently 
indicative of intent. Oral communication over the phone, written 
communication via email, or signing a pre-printed form are also 
sufficiently indicative of intent if such actions occur after receipt of 
the disclosures required by Sec. 1026.19(e)(1)(i). However, a 
consumer's silence is not indicative of intent because it cannot be 
documented to satisfy the requirements of Sec. 1026.25. For example, a 
creditor or third party may not deliver the disclosures, wait for some 
period of time for the consumer to respond, and then charge the consumer 
a fee for an appraisal if the consumer does not respond, even if the 
creditor or third party disclosed that it would do so.
    3. Timing of fees. At any time prior to delivery of the disclosures 
required under Sec. 1026.19(e)(1)(i), a creditor or other person may 
impose a credit report fee in connection with the consumer's application 
for a mortgage loan that is subject to Sec. 1026.19(e)(1)(i) as 
provided in Sec. 1026.19(e)(2)(i)(B). The consumer must have received 
the disclosures required under Sec. 1026.19(e)(1)(i) and indicated an 
intent to proceed with the transaction described by those disclosures 
before paying or incurring any other fee imposed by a creditor or other 
person in connection with the consumer's application for a mortgage loan 
that is subject to Sec. 1026.19(e)(1)(i).
    4. Collection of fees. A creditor or other person complies with 
Sec. 1026.19(e)(2)(i)(A) if:
    i. A creditor receives a consumer's application directly from the 
consumer and does not impose any fee, other than a bona fide and 
reasonable fee for obtaining a consumer's credit report, until the 
consumer receives the disclosures required under Sec. 1026.19(e)(1)(i) 
and indicates an intent to proceed with the transaction described by 
those disclosures.
    ii. A third party submits a consumer's application to a creditor and 
neither the creditor nor the third party imposes any fee, other than a 
bona fide and reasonable fee for obtaining a consumer's credit report, 
until the consumer receives the disclosures required under Sec. 
1026.19(e)(1)(i) and indicates an intent to proceed with the transaction 
described by those disclosures.
    iii. A third party submits a consumer's application to a creditor 
following a different creditor's denial of the consumer's application 
(or following the consumer's withdrawal of that application), and if a 
fee already has been assessed for obtaining the credit report, the new 
creditor or third party does not impose any additional fee until the 
consumer receives disclosures required under Sec. 1026.19(e)(1)(i) from 
the new creditor and indicates an intent to proceed with the transaction 
described by those disclosures.
    5. Fees ``imposed by'' a person. For purposes of Sec. 1026.19(e), a 
fee is ``imposed by'' a person if the person requires a consumer to 
provide a method for payment, even if the payment is not made at that 
time. For example, if a creditor or other person requires the consumer 
to provide a $500 check to pay for a

[[Page 927]]

``processing fee'' before the consumer receives the disclosures required 
by Sec. 1026.19(e)(1)(i), the creditor or other person does not comply 
with Sec. 1026.19(e)(2)(i), even if the creditor or other person had 
stated that the check will not be cashed until after the disclosures 
required by Sec. 1026.19(e)(1)(i) are received by the consumer and 
waited until after the consumer subsequently indicated an intent to 
proceed to cash the check. Similarly, a creditor or other person does 
not comply with the requirements of Sec. 1026.19(e)(2)(i) if the 
creditor or other person requires the consumer to provide a credit card 
number before the consumer receives the disclosures required by Sec. 
1026.19(e)(1)(i), even if the creditor or other person had promised not 
to charge the consumer's credit card for the $500 processing fee until 
after the disclosures required by Sec. 1026.19(e)(1)(i) are received by 
the consumer and waited until after the consumer subsequently indicated 
an intent to proceed. In contrast, a creditor or other person complies 
with Sec. 1026.19(e)(2)(i) if the creditor or other person requires the 
consumer to provide a credit card number before the consumer receives 
the disclosures required by Sec. 1026.19(e)(1)(i) and subsequently 
indicates an intent to proceed, provided that the consumer's 
authorization is only to pay for the cost of a credit report and the 
creditor or other person only charges a reasonable and bona fide fee for 
obtaining the consumer's credit report. This is so even if the creditor 
or other person maintains the consumer's credit card number on file and 
charges the consumer a $500 processing fee after the disclosures 
required by Sec. 1026.19(e)(1)(i) are received and the consumer 
subsequently indicates an intent to proceed with the transaction 
described by those disclosures, provided that the creditor or other 
person requested and received a separate authorization from the consumer 
for the processing fee after the consumer received the disclosures 
required by Sec. 1026.19(e)(1)(i) and indicated an intent to proceed 
with the transaction described by those disclosures.
    19(e)(2)(i)(B) Exception to fee restriction.
    1. Requirements. A creditor or other person may impose a fee before 
the consumer receives the required disclosures if the fee is for 
purchasing a credit report on the consumer. The fee also must be bona 
fide and reasonable in amount. For example, a creditor or other person 
may collect a fee for obtaining a credit report if it is in the 
creditor's or other person's ordinary course of business to obtain a 
credit report. If the criteria in Sec. 1026.19(e)(2)(i)(B) are met, the 
creditor or other person must accurately describe or refer to this fee, 
for example, as a ``credit report fee.''
    19(e)(2)(ii) Written information provided to consumer.
    1. Requirements. Section 1026.19(e)(2)(ii) requires the creditor or 
other person to include a clear and conspicuous statement on the top of 
the front of the first page of a written estimate of terms or costs 
specific to the consumer if it is provided to the consumer before the 
consumer receives the disclosures required by Sec. 1026.19(e)(1)(i). 
For example, if the creditor provides a document showing the estimated 
monthly payment for a mortgage loan, and the estimate was based on the 
estimated loan amount and the consumer's estimated credit score, then 
the creditor must include the statement on the document. In contrast, if 
the creditor provides the consumer with a preprinted list of closing 
costs common in the consumer's area, the creditor need not include the 
statement. Similarly, the statement would not be required on a 
preprinted list of available rates for different loan products. This 
requirement does not apply to an advertisement, as defined in Sec. 
1026.2(a)(2). Section 1026.19(e)(2)(ii) requires that the notice must be 
in a font size that is no smaller than 12-point font, and must state: 
``Your actual rate, payment, and costs could be higher. Get an official 
Loan Estimate before choosing a loan.'' See form H-26 of appendix H to 
this part for a model statement. Section 1026.19(e)(2)(ii) also 
prohibits the creditor or other person from making these written 
estimates with headings, content, and format substantially similar to 
form H-24 or H-25 of appendix H to this part.
    19(e)(2)(iii) Verification of information.
    1. Requirements. The creditor or other person may collect from the 
consumer any information that it requires prior to providing the early 
disclosures before or at the same time as collecting the information 
listed in Sec. 1026.2(a)(3)(ii). However, the creditor or other person 
is not permitted to require, before providing the disclosures required 
by Sec. 1026.19(e)(1)(i), that the consumer submit documentation to 
verify the information collected from the consumer. See also Sec. 
1026.2(a)(3) and the related commentary regarding the definition of 
application. To illustrate:
    i. A creditor may ask for the sale price and address of the 
property, but the creditor may not require the consumer to provide a 
purchase and sale agreement to support the information the consumer 
provides orally before the creditor provides the disclosures required by 
Sec. 1026.19(e)(1)(i).
    ii. A mortgage broker may ask for the names, account numbers, and 
balances of the consumer's checking and savings accounts, but the 
mortgage broker may not require the consumer to provide bank statements, 
or similar documentation, to support the information the consumer 
provides orally before the mortgage broker provides the disclosures 
required by Sec. 1026.19(e)(1)(i).

[[Page 928]]

    19(e)(3) Good faith determination for estimates of closing costs.
    19(e)(3)(i) General rule.
    1. Requirement. Section 1026.19(e)(3)(i) provides the general rule 
that an estimated closing cost disclosed pursuant to Sec. 1026.19(e) is 
not in good faith if the charge paid by or imposed on the consumer 
exceeds the amount originally disclosed under Sec. 1026.19(e)(1)(i). 
Although Sec. 1026.19(e)(3)(ii) and (iii) provide exceptions to the 
general rule, the charges that remain subject to Sec. 1026.19(e)(3)(i) 
include, but are not limited to, the following:
    i. Fees paid to the creditor.
    ii. Fees paid to a mortgage broker.
    iii. Fees paid to an affiliate of the creditor or a mortgage broker.
    iv. Fees paid to an unaffiliated third party if the creditor did not 
permit the consumer to shop for a third party service provider for a 
settlement service.
    v. Transfer taxes.
    2. Charges ``paid by or imposed on the consumer.'' For purposes of 
Sec. 1026.19(e), a charge ``paid by or imposed on the consumer'' refers 
to the final amount for the charge paid by or imposed on the consumer at 
consummation or settlement, whichever is later. ``Consummation'' is 
defined in Sec. 1026.2(a)(13). ``Settlement'' is defined in Regulation 
X, 12 CFR 1024.2(b). For example, at consummation, the consumer pays the 
creditor $100 for recording fees. Settlement of the transaction 
concludes five days after consummation, and the actual recording fees 
are $70. The creditor refunds the consumer $30 immediately after 
recording. The recording fee paid by the consumer is $70.
    3. Fees ``paid to'' a person. For purposes of Sec. 1026.19(e), a 
fee is not considered ``paid to'' a person if the person does not retain 
the fee. For example, if a consumer pays the creditor transfer taxes and 
recording fees at the real estate closing and the creditor subsequently 
uses those funds to pay the county that imposed these charges, then the 
transfer taxes and recording fees are not ``paid to'' the creditor for 
purposes of Sec. 1026.19(e). Similarly, if a consumer pays the creditor 
an appraisal fee in advance of the real estate closing and the creditor 
subsequently uses those funds to pay another party for an appraisal, 
then the appraisal fee is not ``paid to'' the creditor for the purposes 
of Sec. 1026.19(e). A fee is also not considered ``paid to'' a person, 
for purposes of Sec. 1026.19(e), if the person retains the fee as 
reimbursement for an amount it has already paid to another party. If a 
creditor pays for an appraisal in advance of the real estate closing and 
the consumer pays the creditor an appraisal fee at the real estate 
closing, then the fee is not ``paid to'' the creditor for the purposes 
of Sec. 1026.19(e), even though the creditor retains the fee, because 
the payment is a reimbursement for an amount already paid.
    4. Transfer taxes and recording fees. See comments 37(g)(1)-1, -2, 
and -3 for a discussion of the difference between transfer taxes and 
recording fees.
    5. Lender credits. The disclosure of ``lender credits,'' as 
identified in Sec. 1026.37(g)(6)(ii), is required by Sec. 
1026.19(e)(1)(i). ``Lender credits,'' as identified in Sec. 
1026.37(g)(6)(ii), represents the sum of non-specific lender credits and 
specific lender credits. Non-specific lender credits are generalized 
payments from the creditor to the consumer that do not pay for a 
particular fee on the disclosures provided pursuant to Sec. 
1026.19(e)(1). Specific lender credits are specific payments, such as a 
credit, rebate, or reimbursement, from a creditor to the consumer to pay 
for a specific fee. Non-specific lender credits and specific lender 
credits are negative charges to the consumer. The actual total amount of 
lender credits, whether specific or non-specific, provided by the 
creditor that is less than the estimated ``lender credits'' identified 
in Sec. 1026.37(g)(6)(ii) and disclosed pursuant to Sec. 1026.19(e) is 
an increased charge to the consumer for purposes of determining good 
faith under Sec. 1026.19(e)(3)(i). For example, if the creditor 
discloses a $750 estimate for ``lender credits'' pursuant to Sec. 
1026.19(e), but only $500 of lender credits is actually provided to the 
consumer, the creditor has not complied with Sec. 1026.19(e)(3)(i) 
because the actual amount of lender credits provided is less than the 
estimated ``lender credits'' disclosed pursuant to Sec. 1026.19(e), and 
is therefore, an increased charge to the consumer for purposes of 
determining good faith under Sec. 1026.19(e)(3)(i). However, if the 
creditor discloses a $750 estimate for ``lender credits'' identified in 
Sec. 1026.37(g)(6)(ii) to cover the cost of a $750 appraisal fee, and 
the appraisal fee subsequently increases by $150, and the creditor 
increases the amount of the lender credit by $150 to pay for the 
increase, the credit is not being revised in a way that violates the 
requirements of Sec. 1026.19(e)(3)(i) because, although the credit 
increased from the amount disclosed, the amount paid by the consumer did 
not. However, if the creditor discloses a $750 estimate for ``lender 
credits'' to cover the cost of a $750 appraisal fee, but subsequently 
reduces the credit by $50 because the appraisal fee decreased by $50, 
then the requirements of Sec. 1026.19(e)(3)(i) have been violated 
because, although the amount of the appraisal fee decreased, the amount 
of the lender credit decreased. See also Sec. 1026.19(e)(3)(iv)(D) and 
comment 19(e)(3)(iv)(D)-1 for a discussion of lender credits in the 
context of interest rate dependent charges.
    6. Good faith analysis for lender credits. For purposes of 
conducting the good faith analysis required under Sec. 1026.19(e)(3)(i) 
for lender credits, the total amount of lender credits, whether specific 
or non-specific, actually provided to the consumer is compared to the

[[Page 929]]

amount of the ``lender credits'' identified in Sec. 1026.37(g)(6)(ii). 
The total amount of lender credits actually provided to the consumer is 
determined by aggregating the amount of the ``lender credits'' 
identified in Sec. 1026.38(h)(3) with the amounts paid by the creditor 
that are attributable to a specific loan cost or other cost, disclosed 
pursuant to Sec. 1026.38(f) and (g).
    7. Use of unrounded numbers. Sections 1026.37(o)(4) and 
1026.38(t)(4) require that the dollar amounts of certain charges 
disclosed on the Loan Estimate and Closing Disclosure, respectively, to 
be rounded to the nearest whole dollar. However, to conduct the good 
faith analysis required under Sec. 1026.19(e)(3)(i) and (ii), the 
creditor should use unrounded numbers to compare the actual charge paid 
by or imposed on the consumer for a settlement service with the 
estimated cost of the service.
    19(e)(3)(ii) Limited increases permitted for certain charges.
    1. Requirements. Section 1026.19(e)(3)(ii) provides that certain 
estimated charges are in good faith if the sum of all such charges paid 
by or imposed on the consumer does not exceed the sum of all such 
charges disclosed pursuant to Sec. 1026.19(e) by more than 10 percent. 
Section 1026.19(e)(3)(ii) permits this limited increase for only the 
following items:
    i. Fees paid to an unaffiliated third party if the creditor 
permitted the consumer to select a settlement service provider that is 
not on the list provided pursuant to Sec. 1026.19(e)(1)(vi) and 
discloses that the consumer may do so on that list.
    ii. Recording fees.
    2. Aggregate increase limited to ten percent. Pursuant to Sec. 
1026.19(e)(3)(ii), whether an individual estimated charge subject to 
Sec. 1026.19(e)(3)(ii) is in good faith depends on whether the sum of 
all charges subject to Sec. 1026.19(e)(3)(ii) increases by more than 10 
percent, even if a particular charge does not increase by more than 10 
percent. For example, if, in the disclosures provided pursuant to Sec. 
1026.19(e)(1)(i), the creditor includes a $300 estimated fee for a 
settlement agent, the settlement agent fee is included in the category 
of charges subject to Sec. 1026.19(e)(3)(ii), and the sum of all 
charges subject to Sec. 1026.19(e)(3)(ii) (including the settlement 
agent fee) equals $1,000 then the creditor does not violate Sec. 
1026.19(e)(3)(ii) if the actual settlement agent fee exceeds 10 percent 
(i.e., exceeds $330), provided that the sum of all such charges does not 
exceed 10 percent (i.e., $1,100). Section 1026.19(e)(3)(ii) also 
provides flexibility in disclosing individual fees by focusing on 
aggregate amounts. For example, assume that, in the disclosures provided 
pursuant to Sec. 1026.19(e)(1)(i), the sum of all estimated charges 
subject to Sec. 1026.19(e)(3)(ii) equals $1,000. If the creditor does 
not include an estimated charge for a notary fee but a $10 notary fee is 
charged to the consumer, and the notary fee is subject to Sec. 
1026.19(e)(3)(ii), then the creditor does not violate Sec. 
1026.19(e)(1)(i) if the sum of all amounts charged to the consumer 
subject to Sec. 1026.19(e)(3)(ii) does not exceed $1,100, even though 
an individual notary fee was not included in the estimated disclosures 
provided pursuant to Sec. 1026.19(e)(1)(i).
    3. Services for which the consumer may, but does not, select a 
settlement service provider. Good faith is determined pursuant to Sec. 
1026.19(e)(3)(ii), instead of Sec. 1026.19(e)(3)(i), if the creditor 
permits the consumer to shop for a settlement service provider, 
consistent with Sec. 1026.19(e)(1)(vi)(A). Section 1026.19(e)(3)(ii) 
provides that if the creditor requires a service in connection with the 
mortgage loan transaction, and permits the consumer to shop for that 
service consistent with Sec. 1026.19(e)(1)(vi), but the consumer either 
does not select a settlement service provider or chooses a settlement 
service provider identified by the creditor on the list, then good faith 
is determined pursuant to Sec. 1026.19(e)(3)(ii), instead of Sec. 
1026.19(e)(3)(i). For example, if, in the disclosures provided pursuant 
to Sec. Sec. 1026.19(e)(1)(i) and 1026.37(f)(3), a creditor discloses 
an estimated fee for an unaffiliated settlement agent and permits the 
consumer to shop for that service, but the consumer either does not 
choose a provider, or chooses a provider identified by the creditor on 
the written list provided pursuant to Sec. 1026.19(e)(1)(vi)(C), then 
the estimated settlement agent fee is included with the fees that may, 
in aggregate, increase by no more than 10 percent for the purposes of 
Sec. 1026.19(e)(3)(ii). If, however, the consumer chooses a provider 
that is not on the written list, then good faith is determined according 
to Sec. 1026.19(e)(3)(iii).
    4. Recording fees. Section 1026.19(e)(3)(ii) provides that an 
estimate of a charge for a third-party service or recording fees is in 
good faith if the conditions specified in Sec. 1026.19(e)(3)(ii)(A), 
(B), and (C) are satisfied. Recording fees are not charges for third-
party services because recording fees are paid to the applicable 
government entity where the documents related to the mortgage 
transaction are recorded, and thus, the condition specified in Sec. 
1026.19(e)(3)(ii)(B) that the charge for third-party service not be paid 
to an affiliate of the creditor is inapplicable for recording fees. The 
condition specified in Sec. 1026.19(e)(3)(ii)(C), that the creditor 
permits the consumer to shop for the third-party service, is similarly 
inapplicable. Therefore, estimates of recording fees need only satisfy 
the condition specified in Sec. 1026.19(e)(3)(ii)(A) to meet the 
requirements of Sec. 1026.19(e)(3)(ii).
    5. Calculating the aggregate amount of estimated charges. In 
calculating the aggregate amount of estimated charges for purposes of 
conducting the good faith analysis pursuant

[[Page 930]]

to Sec. 1026.19(e)(3)(ii), the aggregate amount of estimated charges 
must reflect charges for services that are actually performed. For 
example, assume that the creditor included a $100 estimated fee for a 
pest inspection in the disclosures provided pursuant to Sec. 
1026.19(e)(1)(i), and the fee is included in the category of charges 
subject to Sec. 1026.19(e)(3)(ii), but a pest inspection was not 
obtained in connection with the transaction, then for purposes of the 
good faith analysis required under Sec. 1026.19(e)(3)(ii), the sum of 
all charges subject to Sec. 1026.19(e)(3)(ii) paid by or imposed on the 
consumer is compared to the sum of all such charges disclosed pursuant 
to Sec. 1026.19(e), minus the $100 estimated pest inspection fee.
    19(e)(3)(iii) Variations permitted for certain charges.
    1. Good faith requirement for prepaid interest, property insurance 
premiums, and escrowed amounts. Estimates of prepaid interest, property 
insurance premiums, and amounts placed into an escrow, impound, reserve 
or similar account must be consistent with the best information 
reasonably available to the creditor at the time the disclosures are 
provided. Differences between the amounts of such charges disclosed 
under Sec. 1026.19(e)(1)(i) and the amounts of such charges paid by or 
imposed on the consumer do not constitute a lack of good faith, so long 
as the original estimated charge, or lack of an estimated charge for a 
particular service, was based on the best information reasonably 
available to the creditor at the time the disclosure was provided. This 
means that the estimate disclosed under Sec. 1026.19(e)(1)(i) was 
obtained by the creditor through due diligence, acting in good faith. 
See comments 17(c)(2)(i)-1 and 19(e)(1)(i)-1. For example, if the 
creditor requires homeowner's insurance but fails to include a 
homeowner's insurance premium on the estimates provided pursuant to 
Sec. 1026.19(e)(1)(i), then the creditor's failure to disclose does not 
comply with Sec. 1026.19(e)(3)(iii). However, if the creditor does not 
require flood insurance and the subject property is located in an area 
where floods frequently occur, but not specifically located in a zone 
where flood insurance is required, failure to include flood insurance on 
the original estimates provided pursuant to Sec. 1026.19(e)(1)(i) does 
not constitute a lack of good faith under Sec. 1026.19(e)(3)(iii). Or, 
if the creditor knows that the loan must close on the 15th of the month 
but estimates prepaid interest to be paid from the 30th of that month, 
then the under-disclosure does not comply with Sec. 1026.19(e)(3)(iii). 
If, however, the creditor estimates consistent with the best information 
reasonably available that the loan will close on the 30th of the month 
and bases the estimate of prepaid interest accordingly, but the loan 
actually closed on the 1st of the next month instead, the creditor 
complies with Sec. 1026.19(e)(3)(iii).
    2. Good faith requirement for required services chosen by the 
consumer. If a service is required by the creditor, the creditor permits 
the consumer to shop for that service consistent with Sec. 
1026.19(e)(1)(vi)(A), the creditor provides the list required by Sec. 
1026.19(e)(1)(vi)(C), and the consumer chooses a service provider that 
is not on that list to perform that service, then the actual amounts of 
such fees need not be compared to the original estimates for such fees 
to perform the good faith analysis required by Sec. 1026.19(e)(3)(i) or 
(ii). Differences between the amounts of such charges disclosed pursuant 
to Sec. 1026.19(e)(1)(i) and the amounts of such charges paid by or 
imposed on the consumer do not constitute a lack of good faith, so long 
as the original estimated charge, or lack of an estimated charge for a 
particular service, was based on the best information reasonably 
available to the creditor at the time the disclosure was provided. For 
example, if the consumer informs the creditor that the consumer will 
choose a settlement agent not identified by the creditor on the written 
list provided pursuant to Sec. 1026.19(e)(1)(vi)(C), and the creditor 
subsequently discloses an unreasonably low estimated settlement agent 
fee, then the under-disclosure does not comply with Sec. 
1026.19(e)(3)(iii). If the creditor permits the consumer to shop 
consistent with Sec. 1026.19(e)(1)(vi)(A) but fails to provide the list 
required by Sec. 1026.19(e)(1)(vi)(C), good faith is determined 
pursuant to Sec. 1026.19(e)(3)(ii) instead of Sec. 1026.19(e)(3)(iii) 
regardless of the provider selected by the consumer, unless the provider 
is an affiliate of the creditor in which case good faith is determined 
pursuant to Sec. 1026.19(e)(3)(i).
    3. Good faith requirement for non-required services chosen by the 
consumer. Differences between the amounts of estimated charges for 
services not required by the creditor disclosed pursuant to Sec. 
1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on 
the consumer do not constitute a lack of good faith, so long as the 
original estimated charge, or lack of an estimated charge for a 
particular service, was based on the best information reasonably 
available to the creditor at the time the disclosure was provided. For 
example, if the consumer informs the creditor that the consumer will 
obtain a type of inspection not required by the creditor, the creditor 
must include the charge for that item in the disclosures provided 
pursuant to Sec. 1026.19(e)(1)(i), but the actual amount of the 
inspection fee need not be compared to the original estimate for the 
inspection fee to perform the good faith analysis required by Sec. 
1026.19(e)(3)(iii). The original estimated charge, or lack of an 
estimated charge for a particular service, complies with Sec. 
1026.19(e)(3)(iii) if it is made based on the best information 
reasonably available to the creditor at the time that the estimate was

[[Page 931]]

provided. But, for example, if the subject property is located in a 
jurisdiction where consumers are customarily represented at closing by 
their own attorney, even though it is not a requirement, and the 
creditor fails to include a fee for the consumer's attorney, or includes 
an unreasonably low estimate for such fee, on the original estimates 
provided pursuant to Sec. 1026.19(e)(1)(i), then the creditor's failure 
to disclose, or under-estimation, does not comply with Sec. 
1026.19(e)(3)(iii).
    19(e)(3)(iv) Revised estimates.
    1. Requirement. Pursuant to Sec. 1026.19(e)(3)(i) and (ii), good 
faith is determined by calculating the difference between the estimated 
charges originally provided pursuant to Sec. 1026.19(e)(1)(i) and the 
actual charges paid by or imposed on the consumer. Section 
1026.19(e)(3)(iv) provides the exception to this rule. Pursuant to Sec. 
1026.19(e)(3)(iv), for purposes of determining good faith under Sec. 
1026.19(e)(3)(i) and (ii), the creditor may use a revised estimate of a 
charge instead of the amount originally disclosed under Sec. 
1026.19(e)(1)(i) if the revision is due to one of the reasons set forth 
in Sec. 1026.19(e)(3)(iv)(A) through (F).
    2. Actual increase. The revised disclosures may reflect increased 
charges only to the extent that the reason for revision, as identified 
in Sec. 1026.19(e)(3)(iv)(A) through (F), actually increased the 
particular charge. For example, if a consumer requests a rate lock 
extension, then the revised disclosures may reflect a new rate lock 
extension fee, but the fee may be no more than the rate lock extension 
fee charged by the creditor in its usual course of business, and other 
charges unrelated to the rate lock extension may not change.
    3. Documentation requirement. In order to comply with Sec. 1026.25, 
creditors must retain records demonstrating compliance with the 
requirements of Sec. 1026.19(e). For example, if revised disclosures 
are provided because of a changed circumstance under Sec. 
1026.19(e)(3)(iv)(A) affecting settlement costs, the creditor must be 
able to show compliance with Sec. 1026.19(e) by documenting the 
original estimate of the cost at issue, explaining the reason for 
revision and how it affected settlement costs, showing that the 
corrected disclosure increased the estimate only to the extent that the 
reason for revision actually increased the cost, and showing that the 
timing requirements of Sec. 1026.19(e)(4) were satisfied. However, the 
documentation requirement does not require separate corrected 
disclosures for each change. A creditor may provide corrected 
disclosures reflecting multiple changed circumstances, provided that the 
creditor's documentation demonstrates that each correction complies with 
the requirements of Sec. 1026.19(e).
    19(e)(3)(iv)(A) Changed circumstance affecting settlement charges.
    1. Requirement. For the purpose of determining good faith under 
Sec. 1026.19(e)(3)(i) and (ii), revised charges are compared to actual 
charges if the revision was caused by a changed circumstance. See also 
comment 19(e)(3)(iv)(A)-2 regarding the definition of a changed 
circumstance. The following examples illustrate the application of this 
provision:
    i. Charges subject to the zero percent tolerance category. Assume a 
creditor provides a $200 estimated appraisal fee pursuant to Sec. 
1026.19(e)(1)(i), which will be paid to an affiliated appraiser and 
therefore may not increase for purposes of determining good faith under 
Sec. 1026.19(e)(3)(i), except as provided in Sec. 1026.19(e)(3)(iv). 
The estimate was based on information provided by the consumer at 
application, which included information indicating that the subject 
property was a single-family dwelling. Upon arrival at the subject 
property, the appraiser discovers that the property is actually a 
single-family dwelling located on a farm. A different schedule of 
appraisal fees applies to residences located on farms. A changed 
circumstance has occurred (i.e., information provided by the consumer is 
found to be inaccurate after the disclosures required under Sec. 
1026.19(e)(1)(i) were provided), which caused an increase in the cost of 
the appraisal. Therefore, if the creditor issues revised disclosures 
with the corrected appraisal fee, the actual appraisal fee of $400 paid 
at the real estate closing by the consumer will be compared to the 
revised appraisal fee of $400 to determine if the actual fee has 
increased above the estimated fee. However, if the creditor failed to 
provide revised disclosures, then the actual appraisal fee of $400 must 
be compared to the originally disclosed estimated appraisal fee of $200.
    ii. Charges subject to the ten percent tolerance category. Assume a 
creditor provides a $400 estimate of title fees, which are included in 
the category of fees which may not increase by more than 10 percent for 
the purposes of determining good faith under Sec. 1026.19(e)(3)(ii), 
except as provided in Sec. 1026.19(e)(3)(iv). An unreleased lien is 
discovered and the title company must perform additional work to release 
the lien. However, the additional costs amount to only a five percent 
increase over the sum of all fees included in the category of fees which 
may not increase by more than 10 percent. A changed circumstance has 
occurred (i.e., new information), but the sum of all costs subject to 
the 10 percent tolerance category has not increased by more than 10 
percent. Section 1026.19(e)(3)(iv) does not prohibit the creditor from 
issuing revised disclosures, but if the creditor issues revised 
disclosures in this scenario, when the disclosures required by Sec. 
1026.19(f)(1)(i) are delivered, the actual title

[[Page 932]]

fees of $500 may not be compared to the revised title fees of $500; they 
must be compared to the originally estimated title fees of $400 because 
the changed circumstance did not cause the sum of all costs subject to 
the 10 percent tolerance category to increase by more than 10 percent.
    2. Changed circumstance. A changed circumstance may be an 
extraordinary event beyond the control of any interested party. For 
example, a war or a natural disaster would be an extraordinary event 
beyond the control of an interested party. A changed circumstance may 
also be an unexpected event specific to the consumer or the transaction. 
For example, if the creditor provided an estimate of title insurance on 
the disclosures required under Sec. 1026.19(e)(1)(i), but the title 
insurer goes out of business during underwriting, then this unexpected 
event specific to the transaction is a changed circumstance. A changed 
circumstance may also be information specific to the consumer or 
transaction that the creditor relied upon when providing the disclosures 
required under Sec. 1026.19(e)(1)(i) and that was inaccurate or changed 
after the disclosures were provided. For example, if the creditor relied 
on the consumer's income when providing the disclosures required under 
Sec. 1026.19(e)(1)(i), and the consumer represented to the creditor 
that the consumer had an annual income of $90,000, but underwriting 
determines that the consumer's annual income is only $80,000, then this 
inaccuracy in information relied upon is a changed circumstance. Or, 
assume two co-applicants applied for a mortgage loan. One applicant's 
income was $30,000, while the other applicant's income was $50,000. If 
the creditor relied on the combined income of $80,000 when providing the 
disclosures required under Sec. 1026.19(e)(1)(i), but the applicant 
earning $30,000 becomes unemployed during underwriting, thereby reducing 
the combined income to $50,000, then this change in information relied 
upon is a changed circumstance. A changed circumstance may also be the 
discovery of new information specific to the consumer or transaction 
that the creditor did not rely on when providing the original 
disclosures required under Sec. 1026.19(e)(1)(i). For example, if the 
creditor relied upon the value of the property in providing the 
disclosures required under Sec. 1026.19(e)(1)(i), but during 
underwriting a neighbor of the seller, upon learning of the impending 
sale of the property, files a claim contesting the boundary of the 
property to be sold, then this new information specific to the 
transaction is a changed circumstance.
    3. Six pieces of information presumed collected, but not required. 
Section 1026.19(e)(1)(iii) requires creditors to deliver the disclosures 
not later than the third business day after the creditor receives the 
consumer's application, which consists of the six pieces of information 
identified in Sec. 1026.2(a)(3)(ii). A creditor is not required to 
collect the consumer's name, monthly income, social security number to 
obtain a credit report, the property address, an estimate of the value 
of the property, or the mortgage loan amount sought. However, for 
purposes of determining whether an estimate is provided in good faith 
under Sec. 1026.19(e)(1)(i), a creditor is presumed to have collected 
these six pieces of information. For example, if a creditor provides the 
disclosures required by Sec. 1026.19(e)(1)(i) prior to receiving the 
property address from the consumer, the creditor cannot subsequently 
claim that the receipt of the property address is a changed circumstance 
pursuant to Sec. 1026.19(e)(3)(iv)(A) or (B).
    19(e)(3)(iv)(B) Changed circumstance affecting eligibility.
    1. Requirement. If changed circumstances cause a change in the 
consumer's eligibility for specific loan terms disclosed pursuant to 
Sec. 1026.19(e)(1)(i) and revised disclosures are provided because the 
change in eligibility resulted in increased cost for a settlement 
service beyond the applicable tolerance threshold, the charge paid by or 
imposed on the consumer for the settlement service for which cost 
increased due to the change in eligibility is compared to the revised 
estimated cost for the settlement service to determine if the actual fee 
has increased above the estimated fee. For example, assume that, prior 
to providing the disclosures required by Sec. 1026.19(e)(1)(i), the 
creditor believed that the consumer was eligible for a loan program that 
did not require an appraisal. The creditor then provides the estimated 
disclosures required by Sec. 1026.19(e)(1)(i), which do not include an 
estimated charge for an appraisal. During underwriting it is discovered 
that the consumer was delinquent on mortgage loan payments in the past, 
making the consumer ineligible for the loan program originally 
identified on the estimated disclosures, but the consumer remains 
eligible for a different program that requires an appraisal. If the 
creditor provides revised disclosures reflecting the new program and 
including the appraisal fee, then the actual appraisal fee will be 
compared to the appraisal fee included in the revised disclosures to 
determine if the actual fee has increased above the estimated fee. 
However, if the revised disclosures also include increased estimates for 
title fees, the actual title fees must be compared to the original 
estimates assuming that the increased title fees do not stem from the 
change in eligibility or any other change warranting a revised 
disclosure. See also Sec. 1026.19(e)(3)(iv)(A) and comment 
19(e)(3)(iv)(A)-2 regarding the definition of changed circumstances.
    19(e)(3)(iv)(C) Revisions requested by the consumer.

[[Page 933]]

    1. Requirement. If the consumer requests revisions to the 
transaction that affect items disclosed pursuant to Sec. 
1026.19(e)(1)(i), and the creditor provides revised disclosures 
reflecting the consumer's requested changes, the final disclosures are 
compared to the revised disclosures to determine whether the actual fee 
has increased above the estimated fee. For example, assume that the 
consumer decides to grant a power of attorney authorizing a family 
member to consummate the transaction on the consumer's behalf after the 
disclosures required under Sec. 1026.19(e)(1)(i) are provided. If the 
creditor provides revised disclosures reflecting the fee to record the 
power of attorney, then the actual charges will be compared to the 
revised charges to determine if the fees have increased.
    19(e)(3)(iv)(D) Interest rate dependent charges.
    1. Requirements. If the interest rate is not locked when the 
disclosures required by Sec. 1026.19(e)(1)(i) are provided, a valid 
reason for revision exists when the interest rate is subsequently 
locked. On the date the interest rate is locked, Sec. 
1026.19(e)(3)(iv)(D) requires the creditor to provide a revised version 
of the disclosures required under Sec. 1026.19(e)(1)(i) reflecting the 
revised interest rate, the points disclosed pursuant to Sec. 
1026.37(f)(1), lender credits, and any other interest rate dependent 
charges and terms. The following examples illustrate this requirement:
    i. Assume a creditor sets the interest rate by executing a rate lock 
agreement with the consumer. If such an agreement exists when the 
original disclosures required under Sec. 1026.19(e)(1)(i) are provided, 
then the actual points and lender credits are compared to the estimated 
points disclosed pursuant to Sec. 1026.37(f)(1) and lender credits 
included in the original disclosures provided under Sec. 
1026.19(e)(1)(i) for the purpose of determining good faith pursuant to 
Sec. 1026.19(e)(3)(i). If the consumer enters into a rate lock 
agreement with the creditor after the disclosures required under Sec. 
1026.19(e)(1)(i) were provided, then Sec. 1026.19(e)(3)(iv)(D) requires 
the creditor to provide, on the date that the consumer and the creditor 
enters into a rate lock agreement, a revised version of the disclosures 
required under Sec. 1026.19(e)(1)(i) reflecting the revised interest 
rate, the points disclosed pursuant to Sec. 1026.37(f)(1), lender 
credits, and any other interest rate dependent charges and terms. 
Provided that the revised version of the disclosures required under 
Sec. 1026.19(e)(1)(i) reflect any revised points disclosed pursuant to 
Sec. 1026.37(f)(1) and lender credits, the actual points and lender 
credits are compared to the revised points and lender credits for the 
purpose of determining good faith pursuant to Sec. 1026.19(e)(3)(i).
    19(e)(3)(iv)(E) Expiration.
    1. Requirements. If the consumer indicates an intent to proceed with 
the transaction more than ten business days after the disclosures were 
originally provided pursuant to Sec. 1026.19(e)(1)(iii), for the 
purpose of determining good faith under Sec. 1026.19(e)(3)(i) and (ii), 
a creditor may use a revised estimate of a charge instead of the amount 
originally disclosed under Sec. 1026.19(e)(1)(i). Section 
1026.19(e)(3)(iv)(E) requires no justification for the change to the 
original estimate other than the lapse of ten business days. For 
example, assume a creditor includes a $500 underwriting fee on the 
disclosures provided pursuant to Sec. 1026.19(e)(1)(i) and the creditor 
delivers those disclosures on a Monday. If the consumer indicates intent 
to proceed 11 business days later, the creditor may provide new 
disclosures with a $700 underwriting fee. In this example, Sec. 
1026.19(e) and Sec. 1026.25 require the creditor to document that a new 
disclosure was provided pursuant to Sec. 1026.19(e)(3)(iv)(E), but do 
not require the creditor to document a reason for the increase in the 
underwriting fee.
    19(e)(3)(iv)(F) Delayed settlement date on a construction loan.
    1. Requirements. A loan for the purchase of a home that has yet to 
be constructed, or a loan to purchase a home under construction (i.e., 
construction is currently underway), is a construction loan to build a 
home for the purposes of Sec. 1026.19(e)(3)(iv)(F). However, if a use 
and occupancy permit has been issued for the home prior to the issuance 
of the disclosures required under Sec. 1026.19(e)(1)(i), then the home 
is not considered to be under construction and the transaction would not 
be a construction loan to build a home for the purposes of Sec. 
1026.19(e)(3)(iv)(F).
    19(e)(4) Provision and receipt of revised disclosures.
    19(e)(4)(i) General rule.
    1. Three-business-day requirement. Section 1026.19(e)(4)(i) provides 
that subject to the requirements of Sec. 1026.19(e)(4)(ii), if a 
creditor uses a revised estimate pursuant to Sec. 1026.19(e)(3)(iv) for 
the purpose of determining good faith under Sec. 1026.19(e)(3)(i) and 
(ii), the creditor shall provide a revised version of the disclosures 
required under Sec. 1026.19(e)(1)(i) reflecting the revised estimate 
within three business days of receiving information sufficient to 
establish that one of the reasons for revision provided under Sec. 
1026.19(e)(3)(iv)(A) through (C), (E) and (F) has occurred. The 
following examples illustrate these requirements:
    i. Assume a creditor requires a pest inspection. The unaffiliated 
pest inspection company informs the creditor on Monday that the subject 
property contains evidence of termite damage, requiring a further 
inspection, the cost of which will cause an increase in estimated 
settlement charges subject to Sec. 1026.19(e)(3)(ii) by more than 10 
percent. The

[[Page 934]]

creditor must provide revised disclosures by Thursday to comply with 
Sec. 1026.19(e)(4)(i).
    ii. Assume a creditor receives information on Monday that, because 
of a changed circumstance under Sec. 1026.19(e)(3)(iv)(A), the title 
fees will increase by an amount totaling six percent of the originally 
estimated settlement charges subject to Sec. 1026.19(e)(3)(ii). The 
creditor had received information three weeks before that, because of a 
changed circumstance under Sec. 1026.19(e)(3)(iv)(A), the pest 
inspection fees increased by an amount totaling five percent of the 
originally estimated settlement charges subject to Sec. 
1026.19(e)(3)(ii). Thus, on Monday, the creditor has received sufficient 
information to establish a valid reason for revision and must provide 
revised disclosures reflecting the 11 percent increase by Thursday to 
comply with Sec. 1026.19(e)(4)(i).
    iii. Assume a creditor requires an appraisal. The creditor receives 
the appraisal report, which indicates that the value of the home is 
significantly lower than expected. However, the creditor has reason to 
doubt the validity of the appraisal report. A reason for revision has 
not been established because the creditor reasonably believes that the 
appraisal report is incorrect. The creditor then chooses to send a 
different appraiser for a second opinion, but the second appraiser 
returns a similar report. At this point, the creditor has received 
information sufficient to establish that a reason for revision has, in 
fact, occurred, and must provide corrected disclosures within three 
business days of receiving the second appraisal report. In this example, 
in order to comply with Sec. 1026.19(e)(3)(iv) and Sec. 1026.25, the 
creditor must maintain records documenting the creditor's doubts 
regarding the validity of the appraisal to demonstrate that the reason 
for revision did not occur upon receipt of the first appraisal report.
    2. Relationship to Sec. 1026.19(e)(3)(iv)(D). If the reason for the 
revision is provided under Sec. 1026.19(e)(3)(iv)(D), notwithstanding 
the three-business-day rule set forth in Sec. 1026.19(e)(4)(i), Sec. 
1026.19(e)(3)(iv)(D) requires the creditor to provide a revised version 
of the disclosures required under Sec. 1026.19(e)(1)(i) on the date the 
interest rate is locked. See comment 19(e)(3)(iv)(D)-1.
    19(e)(4)(ii) Relationship to disclosures required under Sec. 
1026.19(f)(1)(i).
    1. Revised disclosures may not be delivered at the same time as the 
Closing Disclosure. Section 1026.19(e)(4)(ii) prohibits a creditor from 
providing a revised version of the disclosures required under Sec. 
1026.19(e)(1)(i) on or after the date on which the creditor provides the 
disclosures required under Sec. 1026.19(f)(1)(i). Section 
1026.19(e)(4)(ii) also requires that the consumer must receive a revised 
version of the disclosures required under Sec. 1026.19(e)(1)(i) no 
later than four business days prior to consummation, and provides that 
if the revised version of the disclosures are not provided to the 
consumer in person, the consumer is considered to have received the 
revised version of the disclosures three business days after the 
creditor delivers or places in the mail the revised version of the 
disclosures. See also comments 19(e)(1)(iv)-1 and -2. If, however, there 
are less than four business days between the time the revised version of 
the disclosures is required to be provided pursuant to Sec. 
1026.19(e)(4)(i) and consummation, creditors comply with the 
requirements of Sec. 1026.19(e)(4) if the revised disclosures are 
reflected in the disclosures required by Sec. 1026.19(f)(1)(i). See 
below for illustrative examples:
    i. If the creditor is scheduled to meet with the consumer and 
provide the disclosures required by Sec. 1026.19(f)(1)(i) on Wednesday, 
and the APR becomes inaccurate on Tuesday, the creditor complies with 
the requirements of Sec. 1026.19(e)(4) by providing the disclosures 
required under Sec. 1026.19(f)(1)(i) reflecting the revised APR on 
Wednesday. However, the creditor does not comply with the requirements 
of Sec. 1026.19(e)(4) if it provided both a revised version of the 
disclosures required under Sec. 1026.19(e)(1)(i) reflecting the revised 
APR on Wednesday, and also provides the disclosures required under Sec. 
1026.19(f)(1)(i) on Wednesday.
    ii. If the creditor is scheduled to email the disclosures required 
under Sec. 1026.19(f)(1)(i) to the consumer on Wednesday, and the 
consumer requests a change to the loan that would result in revised 
disclosures pursuant to Sec. 1026.19(e)(3)(iv)(C) on Tuesday, the 
creditor complies with the requirements of Sec. 1026.19(e)(4) by 
providing the disclosures required under Sec. 1026.19(f)(1)(i) 
reflecting the consumer-requested changes on Wednesday. However, the 
creditor does not comply if it provides both the revised version of the 
disclosures required under Sec. 1026.19(e)(1)(i) reflecting consumer 
requested changes, and also the disclosures required under Sec. 
1026.19(f)(1)(i) on Wednesday.
    19(f) Mortgage loans secured by real property--Final disclosures.
    19(f)(1) Provision of disclosures.
    19(f)(1)(i) Scope.
    1. Requirements. Section 1026.19(f)(1)(i) requires disclosure of the 
actual terms of the credit transaction, and the actual costs associated 
with the settlement of that transaction, for closed-end credit 
transactions that are secured by real property, other than reverse 
mortgages subject to Sec. 1026.33. For example, if the creditor 
requires the consumer to pay money into a reserve account for the future 
payment of taxes, the creditor must disclose to the consumer the exact 
amount that the consumer is required to pay into the reserve account. If 
the disclosures provided pursuant to Sec. 1026.19(f)(1)(i) do not 
contain the actual terms of the transaction, the creditor does not 
violate Sec. 1026.19(f)(1)(i) if the creditor provides corrected 
disclosures

[[Page 935]]

that contain the actual terms of the transaction and complies with the 
other requirements of Sec. 1026.19(f), including the timing 
requirements in Sec. 1026.19(f)(1)(ii) and (f)(2). For example, if the 
creditor provides the disclosures required by Sec. 1026.19(f)(1)(i) on 
Monday, June 1, but the consumer adds a mobile notary service to the 
terms of the transaction on Tuesday, June 2, the creditor complies with 
Sec. 1026.19(f)(1)(i) if it provides disclosures reflecting the revised 
terms of the transaction on or after Tuesday, June 2, assuming that the 
corrected disclosures are also provided at or before consummation, 
pursuant to Sec. 1026.19(f)(2)(i).
    2. Best information reasonably available. Creditors may estimate 
disclosures provided under Sec. 1026.19(f)(1)(ii)(A) and (f)(2)(ii) 
using the best information reasonably available when the actual term is 
unknown to the creditor at the time disclosures are made, consistent 
with Sec. 1026.17(c)(2)(i).
    i. Actual term unknown. An actual term 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 the 
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, to realtors for taxes and escrow fees, or to a 
settlement agent for homeowner's association dues or other information 
in connection with a real estate settlement. The following examples 
illustrate the reasonably available standard for purposes of Sec. 
1026.19(f)(1)(i).
    A. Assume a creditor provides the disclosure under Sec. 
1026.19(f)(1)(ii)(A) for a transaction in which the title insurance 
company that is providing the title insurance policies is acting as the 
settlement agent in connection with the transaction, but the creditor 
does not request the actual cost of the lender's title insurance policy 
that the consumer is purchasing from the title insurance company and 
instead discloses an estimate based on information from a different 
transaction. The creditor has not exercised due diligence in obtaining 
the information about the cost of the lender's title insurance policy 
required under the ``reasonably available'' standard in connection with 
the estimate disclosed for the lender's title insurance policy.
    B. Assume that in the prior example the creditor obtained 
information about the terms of the consumer's transaction from the 
settlement agent regarding the amounts disclosed under Sec. 1026.38(j) 
and (k). The creditor has exercised due diligence in obtaining the 
information about the costs under Sec. 1026.38(j) and (k) for purposes 
of the ``reasonably available'' standard in connection with such 
disclosures under Sec. 1026.38(j) and (k).
    ii. Estimates. If an actual term is unknown, the creditor may 
utilize estimates using the best information reasonably available in 
making disclosures even though the creditor knows that more precise 
information will be available at or before consummation. However, the 
creditor may not utilize an estimate without exercising due diligence to 
obtain the actual term for the consumer's transaction. See comment 
19(f)(1)(i)-2.i. The creditor is required to provide corrected 
disclosures containing the actual terms of the transaction at or before 
consummation under Sec. 1026.19(f)(2), subject to the exceptions 
provided for in that paragraph. Disclosures under Sec. 1026.19(f) are 
subject to the labeling rules set forth in Sec. 1026.38. See comment 
17(c)(2)(i)-2 for guidance on labeling estimates.
    iii. Settlement agent. If a settlement agent provides disclosures 
required by Sec. 1026.19(f)(1)(i) three business days before 
consummation pursuant to Sec. 1026.19(f)(1)(v), the ``best information 
reasonably available'' standard applies to terms for which the actual 
term is unknown to the settlement agent at the time the disclosures are 
provided. The settlement agent normally may rely on the representations 
of other parties in obtaining information, but if information about 
actual terms is not reasonably available, the settlement agent also must 
satisfy the ``best information reasonably available'' standard. 
Accordingly, the settlement agent is required to exercise due diligence 
to obtain information if it is providing the Closing Disclosure pursuant 
to Sec. 1026.19(f)(1)(v). For example, for the loan terms table 
required to be disclosed under Sec. 1026.38(b), the settlement agent 
would be considered to have exercised due diligence if it obtained such 
information from the creditor. Because the creditor remains responsible 
under Sec. 1026.19(f)(1)(v) for ensuring that the Closing Disclosure is 
provided in accordance with Sec. 1026.19(f), the creditor is expected 
to maintain communication with the settlement agent to ensure that the 
settlement agent is acting in place of the creditor. See comment 
19(f)(1)(v)-3 for guidance on a creditor's responsibilities where a 
settlement agent provides disclosures.
    3. Denied or withdrawn applications. The creditor is not required to 
provide the disclosures required under Sec. 1026.19(f)(1)(i) if, before 
the time the creditor is required to provide the disclosures under Sec. 
1026.19(f), the creditor determines the consumer's application will not 
or cannot be approved on the terms requested, or the consumer has 
withdrawn the

[[Page 936]]

application, and, as such, the transaction will not be consummated. For 
transactions covered by Sec. 1026.19(f)(1)(i), the creditor may rely on 
comment 19(e)(1)(iii)-3 in determining that disclosures are not required 
by Sec. 1026.19(f)(1)(i) because the consumer's application will not or 
cannot be approved on the terms requested or the consumer has withdrawn 
the application.
    19(f)(1)(ii) Timing.
    1. Timing. Except as provided in Sec. 1026.19(f)(1)(ii)(B), 
(f)(2)(i), (f)(2)(iii), (f)(2)(iv), and (f)(2)(v), the disclosures 
required by Sec. 1026.19(f)(1)(i) must be received by the consumer no 
later than three business days before consummation. For example, if 
consummation is scheduled for Thursday, the creditor satisfies this 
requirement by hand delivering the disclosures on Monday, assuming each 
weekday is a business day. For purposes of Sec. 1026.19(f)(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.
    2. Receipt of disclosures three business days before consummation. 
Section 1026.19(f)(1)(ii)(A) provides that the consumer must receive the 
disclosures no later than three business days before consummation. To 
comply with this requirement, the creditor must arrange for delivery 
accordingly. Section 1026.19(f)(1)(iii) provides that, if any 
disclosures required under Sec. 1026.19(f)(1)(i) are not provided to 
the consumer in person, the consumer is considered to have received the 
disclosures three business days after they are delivered or placed in 
the mail. Thus, for example, if consummation is scheduled for Thursday, 
a creditor would satisfy the requirements of Sec. 1026.19(f)(1)(ii)(A) 
if the creditor places the disclosures in the mail on Thursday of the 
previous week, because, for the purposes of Sec. 1026.19(f)(1)(ii), 
Saturday is a business day, pursuant to Sec. 1026.2(a)(6), and, 
pursuant to Sec. 1026.19(f)(1)(iii), the consumer would be considered 
to have received the disclosures on the Monday before consummation is 
scheduled. See comment 19(f)(1)(iii)-1. A creditor would not satisfy the 
requirements of Sec. 1026.19(f)(1)(ii)(A) in this example if the 
creditor places the disclosures in the mail on the Monday before 
consummation. However, the creditor in this example could satisfy the 
requirements of Sec. 1026.19(f)(1)(ii)(A) by delivering the disclosures 
on Monday, for instance, by way of electronic mail, provided the 
requirements of Sec. 1026.38(t)(3)(iii) relating to disclosures in 
electronic form are satisfied and assuming that each weekday is a 
business day, and provided that the creditor obtains evidence that the 
consumer received the emailed disclosures on Monday. See comment 
19(f)(1)(iii)-2.
    3. Timeshares. For transactions secured by a consumer's interest in 
a timeshare plan described in 11 U.S.C. 101(53D), Sec. 
1026.19(f)(1)(ii)(B) requires a creditor to ensure that the consumer 
receives the disclosures required under Sec. 1026.19(f)(1)(i) no later 
than consummation. Timeshare transactions covered by Sec. 
1026.19(f)(1)(ii)(B) may be consummated at the time or any time after 
the disclosures required by Sec. 1026.19(f)(1)(i) are received by the 
consumer. For example, if a consumer provides the creditor with an 
application, as defined by Sec. 1026.2(a)(3), for a mortgage loan 
secured by a timeshare on Monday, June 1, and consummation of the 
timeshare transaction is scheduled for Friday, June 5, the creditor 
complies with Sec. 1026.19(f)(1)(ii)(B) by ensuring that the consumer 
receives the disclosures required by Sec. 1026.19(f)(1)(i) no later 
than consummation on Friday, June 5. If a consumer provides the creditor 
with an application for a mortgage loan secured by a timeshare on 
Monday, June 1 and consummation of the timeshare transaction is 
scheduled for Tuesday, June 2, then the creditor complies with Sec. 
1026.19(f)(1)(ii)(B) by ensuring that the consumer receives the 
disclosures required by Sec. 1026.19(f)(1)(i) no later than 
consummation on Tuesday, June 2. In some cases, a Loan Estimate must be 
provided under Sec. 1026.19(e) before provision of the Closing 
Disclosure. See comment 19(e)(1)(iii)-4 for guidance on providing the 
Loan Estimate for transactions secured by a consumer's interest in a 
timeshare plan.
    19(f)(1)(iii) Receipt of disclosures.
    1. Mail delivery. Section 1026.19(f)(1)(iii) provides that, if any 
disclosures required under Sec. 1026.19(f)(1)(i) are not provided to 
the consumer in person, the consumer is considered to have received the 
disclosures three business days after they are delivered or placed in 
the mail. If the creditor delivers the disclosures required under Sec. 
1026.19(f)(1)(i) in person, consummation may occur any time on the third 
business day following delivery. If the creditor provides the 
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(f)(1)(ii)(A) begins. The creditor may, alternatively, rely 
on evidence that the consumer received the disclosures earlier than 
three business days after mailing. See comment 19(e)(1)(iv)-1 for an 
example in which the creditor sends disclosures via overnight mail.
    2. Other forms of delivery. Creditors that use electronic mail or a 
courier other than the United States Postal Service also may follow the 
approach for disclosures provided by mail described in comment 
19(f)(1)(iii)-1. For example, if a creditor sends a disclosure required 
under Sec. 1026.19(f) via email on Monday, pursuant to Sec. 
1026.19(f)(1)(iii) the consumer is considered to have received the 
disclosure on Thursday, three business days later. The

[[Page 937]]

creditor may, alternatively, rely on evidence that the consumer received 
the emailed disclosures earlier after delivery. See comment 
19(e)(1)(iv)-2 for an example in which the creditor emails disclosures 
and receives an acknowledgment from the consumer on the same day. 
Creditors using electronic delivery methods, such as email, must also 
comply with Sec. 1026.38(t)(3)(iii). For example, if a creditor 
delivers the disclosures required by Sec. 1026.19(f)(1)(i) to a 
consumer via email, but the creditor did not obtain the consumer's 
consent to receive disclosures via email prior to delivering the 
disclosures, then the creditor does not comply with Sec. 
1026.38(t)(3)(iii), and the creditor does not comply with Sec. 
1026.19(f)(1)(i), assuming the disclosures were not provided in a 
different manner in accordance with the timing requirements of Sec. 
1026.19(f)(1)(ii).
    19(f)(1)(iv) Consumer's waiver of waiting period before 
consummation.
    1. Modification or waiver. A consumer may modify or waive the right 
to the three-business-day waiting periods required by Sec. 
1026.19(f)(1)(ii)(A) or (f)(2)(ii) only after the creditor makes the 
disclosures required by Sec. 1026.19(f)(1)(i). 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.
    19(f)(1)(v) Settlement agent.
    1. Requirements. For purposes of Sec. 1026.19(f), a settlement 
agent is the person conducting the settlement. A settlement agent may 
provide the disclosures required under Sec. 1026.19(f)(1)(i) instead of 
the creditor. By assuming this responsibility, the settlement agent 
becomes responsible for complying with all of the relevant requirements 
of Sec. 1026.19(f), meaning that ``settlement agent'' should be read in 
the place of ``creditor'' for all the relevant provisions of Sec. 
1026.19(f), except where such a reading would create responsibility for 
settlement agents under Sec. 1026.19(e). For example, comment 
19(f)(1)(ii)-3 explains that, in some cases involving transactions 
secured by a consumer's interest in a timeshare plan, a Loan Estimate 
must be provided under Sec. 1026.19(e). ``Settlement agent'' could not 
be read in place of ``creditor'' in comment 19(f)(1)(ii)-3 because 
settlement agents are not responsible for the disclosures required by 
Sec. 1026.19(e)(1)(i). To ensure timely and accurate compliance with 
the requirements of Sec. 1026.19(f)(1)(v), the creditor and settlement 
agent need to communicate effectively.
    2. Settlement agent responsibilities. If a settlement agent provides 
any disclosure under Sec. 1026.19(f), the settlement agent must comply 
with the relevant requirements of Sec. 1026.19(f). For example, if the 
creditor and settlement agent agree that the creditor will deliver the 
disclosures required under Sec. 1026.19(f)(1)(i) to be received by the 
consumer three business days before consummation, pursuant to Sec. 
1026.19(f)(1)(ii)(A), and that the settlement agent will deliver any 
corrected disclosures at or before consummation, including disclosures 
provided so that they are received by the consumer three business days 
before consummation under Sec. 1026.19(f)(2)(ii), and will permit the 
consumer to inspect the disclosures during the business day before 
consummation, the settlement agent must ensure that the consumer 
receives the disclosures required under Sec. 1026.19(f)(1)(i) at or 
before consummation and is able to inspect the disclosures during the 
business day before consummation, if the consumer so requests, in 
accordance with Sec. 1026.19(f)(2)(i). See comment 19(f)(1)(v)-3 below 
for additional guidance regarding the creditor's responsibilities where 
the settlement agent provides disclosures. The settlement agent may 
assume the responsibility to provide some or all of the disclosures 
required by Sec. 1026.19(f). See comment 19(f)(1)(v)-4 for guidance on 
how creditors and settlement agents may divide responsibilities for 
completing the disclosures.
    3. Creditor responsibilities. If a settlement agent provides 
disclosures required under Sec. 1026.19(f) in the creditor's place, the 
creditor remains responsible under Sec. 1026.19(f) for ensuring that 
the requirements of Sec. 1026.19(f) have been satisfied. For example, 
if the settlement agent assumes the responsibility for providing all of 
the disclosures required under Sec. 1026.19(f)(1)(i), the creditor does 
not comply with Sec. 1026.19(f) if the settlement agent does not 
provide these disclosures at all, or if the consumer receives the 
disclosures later than three business days before consummation, as 
required by Sec. 1026.19(f)(1)(ii)(A) and, as applicable, (f)(2)(ii). 
The creditor does not satisfy the requirements of Sec. 1026.19(f) if it 
provides duplicative disclosures. For example, a creditor does not 
satisfy its obligation by issuing disclosures required under Sec. 
1026.19(f) that mirror ones already issued by the settlement agent for 
the purpose of demonstrating that the consumer received timely 
disclosures. The creditor is expected to maintain communication with the 
settlement agent to ensure that the settlement agent is acting in place 
of the creditor. Disclosures provided by a settlement agent in 
accordance with Sec. 1026.19(f)(1)(v) satisfy the creditor's obligation 
under Sec. 1026.19(f)(1)(i).

[[Page 938]]

    4. Shared responsibilities permitted--completing the disclosures. 
Creditors and settlement agents may agree to divide responsibility with 
respect to completing any of the disclosures under Sec. 1026.38 for the 
disclosures provided under Sec. 1026.19(f)(1)(i). The settlement agent 
may assume the responsibility to complete some or all of the disclosures 
required by Sec. 1026.19(f). For example, the creditor complies with 
the requirements of Sec. 1026.19(f)(1)(i) and the settlement agent 
complies with the requirements of Sec. 1026.19(f)(1)(v) if the 
settlement agent agrees to complete only the portion of the disclosures 
required by Sec. 1026.19(f)(1)(i) related to closing costs for taxes, 
title fees, and insurance premiums, and the creditor agrees to complete 
the remainder of the disclosures required by Sec. 1026.19(f)(1)(i), and 
either the settlement agent or the creditor provides the consumer with 
one single disclosure form containing all of the information required to 
be disclosed pursuant to Sec. 1026.19(f)(1)(i), in accordance with the 
other requirements in Sec. 1026.19(f), such as requirements related to 
timing and delivery.
    19(f)(2) Subsequent changes.
    19(f)(2)(i) Changes before consummation not requiring a new waiting 
period.
    1. Requirements. Under Sec. 1026.19(f)(2)(i), if the disclosures 
provided under Sec. 1026.19(f)(1)(i) become inaccurate before 
consummation, other than as provided under Sec. 1026.19(f)(2)(ii), the 
creditor shall provide corrected disclosures reflecting any changed 
terms to the consumer so that the consumer receives the corrected 
disclosures at or before consummation. The creditor need not comply with 
the timing requirements in Sec. 1026.19(f)(1)(ii) if an event other 
than one identified in Sec. 1026.19(f)(2)(ii) occurs, and such changes 
occur after the creditor provides the consumer with the disclosures 
required by Sec. 1026.19(f)(1)(i). For example:
    i. Assume consummation is scheduled for Thursday, the consumer 
received the disclosures required under Sec. 1026.19(f)(1)(i) on 
Monday, and a walk-through inspection occurs on Wednesday morning. 
During the walk-through the consumer discovers damage to the dishwasher. 
The seller agrees to credit the consumer $500 towards a new dishwasher. 
The creditor complies with the requirements of Sec. 1026.19(f) if the 
creditor provides corrected disclosures so that the consumer receives 
them at or before consummation on Thursday.
    ii. Assume consummation is scheduled for Friday and on Monday 
morning the creditor sends the disclosures via overnight delivery to the 
consumer, ensuring that the consumer receives the disclosures on 
Tuesday. On Monday night, the seller agrees to sell certain household 
furnishings to the consumer for an additional $1,000, to be paid at the 
real estate closing, and the consumer immediately informs the creditor 
of the change. The creditor must provide corrected disclosures so that 
the consumer receives them at or before consummation. The creditor does 
not violate Sec. 1026.19(f) because the change to the transaction 
resulting from negotiations between the seller and consumer occurred 
after the creditor provided the final disclosures, regardless of the 
fact that the change occurred before the consumer had received the final 
disclosures.
    iii. Assume consummation is scheduled for Thursday, the consumer 
received the disclosures required under Sec. 1026.19(f)(1)(i) on 
Monday, and a walk-through inspection occurs on Wednesday morning. As a 
result of consumer and seller negotiations, the total amount due from 
the buyer increases by $500. Also on Wednesday, the creditor discovers 
that the homeowner's insurance premium that was disclosed as $800 is 
actually $850. The new $500 amount due and the $50 insurance premium 
understatements are not violations of Sec. 1026.19(f)(1)(i), and the 
creditor complies with Sec. 1026.19(f)(1)(i) by providing corrected 
disclosures reflecting the $550 increase so that the consumer receives 
them at or before consummation, pursuant to Sec. 1026.19(f)(2)(ii).
    2. Inspection. A settlement agent may satisfy the requirement to 
permit the consumer to inspect the disclosures under Sec. 
1026.19(f)(2)(i), subject to Sec. 1026.19(f)(1)(v).
    19(f)(2)(ii) Changes before consummation requiring a new waiting 
period.
    1. Conditions for corrected disclosures. Pursuant to Sec. 
1026.19(f)(2)(ii), if, at the time of consummation, the annual 
percentage rate becomes inaccurate, the loan product changes, or a 
prepayment penalty is added to the transaction, the creditor must 
provide corrected disclosures with all changed terms so that the 
consumer receives them not later than the third business day before 
consummation. Requirements for annual percentage rate disclosures are 
set forth in Sec. 1026.38(o)(4), and requirements determining whether 
an annual percentage rate is accurate are set forth in Sec. 1026.22. 
Requirements for loan product disclosures are set forth in Sec. 
1026.38(a)(5)(iii) and Sec. 1026.37(a)(10). Requirements for prepayment 
penalty disclosures are set forth in Sec. 1026.38(b) and Sec. 
1026.37(b)(4).
    i. Example--APR becomes inaccurate. Assume consummation is scheduled 
for Thursday, June 11 and the disclosure for a regular mortgage 
transaction received by the consumer on Monday, June 8 under Sec. 
1026.19(f)(1)(i) discloses an annual percentage rate of 7.00 percent:
    A. On Thursday, June 11, the annual percentage rate will be 7.10 
percent. The creditor is not required to delay consummation to provide 
corrected disclosures under Sec. 1026.19(f)(2)(ii) because the annual 
percentage rate is accurate pursuant to Sec. 1026.22, but the creditor 
is required under Sec. 1026.19(f)(2)(i) to provide corrected 
disclosures, including

[[Page 939]]

any other changed terms, so that the consumer receives them on or before 
Thursday, June 11.
    B. On Thursday, June 11, the annual percentage rate will be 7.15 
percent and corrected disclosures were not received by the consumer on 
or before Monday, June 8 because the annual percentage rate is 
inaccurate pursuant to Sec. 1026.22. The creditor is required to delay 
consummation and provide corrected disclosures, including any other 
changed terms, so that the consumer receives them at least three 
business days before consummation under Sec. 1026.19(f)(2)(ii).
    ii. Example--loan product changes. Assume consummation is scheduled 
for Thursday, June 11 and the disclosures provided under Sec. 
1026.19(f)(1)(i) disclose a product required to be disclosed as a 
``Fixed Rate'' that contains no features that may change the periodic 
payment.
    A. On Thursday, June 11, the loan product required to be disclosed 
changes to a ``5/1 Adjustable Rate.'' The creditor is required to 
provide corrected disclosures and delay consummation until the consumer 
has received the corrected disclosures provided under Sec. 
1026.19(f)(1)(i) reflecting the change in the product disclosure, and 
any other changed terms, at least three business days before 
consummation. If, after the corrected disclosures in this example are 
provided, the loan product subsequently changes before consummation to a 
``3/1 Adjustable Rate,'' the creditor is required to provide additional 
corrected disclosures and again delay consummation until the consumer 
has received the corrected disclosures provided under Sec. 
1026.19(f)(1)(i) reflecting the change in the product disclosure, and 
any other changed terms, at least three business days before 
consummation.
    B. On Thursday, June 11, the loan product required to be disclosed 
has changed to a ``Fixed Rate'' with a ``Negative Amortization'' 
feature. The creditor is required to provide corrected disclosures and 
delay consummation until the consumer has received the corrected 
disclosures provided under Sec. 1026.19(f)(1)(i) reflecting the change 
in the product disclosure, and any other changed terms, at least three 
business days before consummation.
    iii. Example--prepayment penalty is added. Assume consummation is 
scheduled for Thursday, June 11 and the disclosure provided under Sec. 
1026.19(f)(1)(i) did not disclose a prepayment penalty. On Wednesday, 
June 10, a prepayment penalty is added to the transaction such that the 
disclosure required by Sec. 1026.38(b) becomes inaccurate. The creditor 
is required to provide corrected disclosures and delay consummation 
until the consumer has received the corrected disclosures provided under 
Sec. 1026.19(f)(1)(i) reflecting the change in the disclosure of the 
loan terms, and any other changed terms, at least three business days 
before consummation. If, after the revised disclosures in this example 
are provided but before consummation, the prepayment penalty is removed 
such that the description of the prepayment penalty again becomes 
inaccurate, and no other changes to the transaction occur, the creditor 
is required to provide corrected disclosures so that the consumer 
receives them at or before consummation under Sec. 1026.19(f)(2)(i), 
but the creditor is not required to delay consummation because Sec. 
1026.19(f)(2)(ii)(C) applies only when a prepayment penalty is added.
    19(f)(2)(iii) Changes due to events occurring after consummation.
    1. Requirements. Under Sec. 1026.19(f)(2)(iii), if during the 30-
day period following consummation, an event in connection with the 
settlement of the transaction occurs that causes the disclosures to 
become inaccurate, and such inaccuracy results in a change to an amount 
actually paid by the consumer from that amount disclosed under Sec. 
1026.19(f)(1)(i), the creditor shall deliver or place in the mail 
corrected disclosures not later than 30 days after receiving information 
sufficient to establish that such event has occurred. The following 
examples illustrate this requirement. (See also comment 19(e)(4)(i)-1 
for further guidance on when sufficient information has been received to 
establish an event has occurred.)
    i. Assume consummation occurs on a Monday and the security 
instrument is recorded on Tuesday, the day after consummation. If the 
creditor learns on Tuesday that the fee charged by the recorder's office 
differs from that previously disclosed pursuant to Sec. 
1026.19(f)(1)(i), and the changed fee results in a change in the amount 
actually paid by the consumer, the creditor complies with Sec. 
1026.19(f)(1)(i) and (f)(2)(iii) by revising the disclosures accordingly 
and delivering or placing them in the mail no later than 30 days after 
Tuesday.
    ii. Assume consummation occurs on a Tuesday, October 1 and the 
security instrument is not recorded until 15 days after October 1 on 
Thursday, October 16. The creditor learns on Monday, November 4 that the 
transfer taxes owed to the State differ from those previously disclosed 
pursuant to Sec. 1026.19(f)(1)(i), resulting in an increase in the 
amount actually paid by the consumer. The creditor complies with Sec. 
1026.19(f)(1)(i) and Sec. 1026.19(f)(2)(iii) by revising the 
disclosures accordingly and delivering or placing them in the mail no 
later than 30 days after Monday, November 4. Assume further that the 
increase in transfer taxes paid by the consumer also exceeds the amount 
originally disclosed under Sec. 1026.19(e)(1)(i) above the limitations 
prescribed by Sec. 1026.19(e)(3)(i). Pursuant to Sec. 
1026.19(f)(2)(v), the creditor does not violate Sec. 1026.19(e)(1)(i) 
if the creditor refunds the excess to the consumer no later than 60 days 
after consummation, and

[[Page 940]]

the creditor does not violate Sec. 1026.19(f)(1)(i) if the creditor 
delivers disclosures corrected to reflect the refund of such excess no 
later than 60 days after consummation. The creditor satisfies these 
requirements under Sec. 1026.19(f)(2)(v) if it revises the disclosures 
accordingly and delivers or places them in the mail by November 30.
    iii. Assume consummation occurs on a Monday and the security 
instrument is recorded on Tuesday, the day after consummation. During 
the recording process on Tuesday the settlement agent and the creditor 
discover that the property is subject to an unpaid $500 nuisance 
abatement assessment, which was not disclosed pursuant to Sec. 
1026.19(f)(1)(i), and learns that pursuant to an agreement with the 
seller, the $500 assessment will be paid by the seller rather than the 
consumer. Because the $500 assessment does not result in a change to an 
amount actually paid by the consumer, the creditor is not required to 
provide a corrected disclosure pursuant to Sec. 1026.19(f)(2)(iii). 
However, the assessment will result in a change to an amount actually 
paid by the seller from the amount disclosed under Sec. 
1026.19(f)(4)(i). Pursuant to Sec. 1026.19(f)(4)(ii), the settlement 
agent must deliver or place in the mail corrected disclosures to the 
seller no later than 30 days after Tuesday and provide a copy to the 
creditor pursuant to Sec. 1026.19(f)(4)(iv).
    iv. Assume consummation occurs on a Monday and the security 
instrument is recorded on Tuesday, the day after consummation. Assume 
further that ten days after consummation the municipality in which the 
property is located raises property tax rates effective after the date 
on which settlement concludes. Section 1026.19(f)(2)(iii) does not 
require the creditor to provide the consumer with corrected disclosures 
because the increase in property tax rates is not in connection with the 
settlement of the transaction.
    19(f)(2)(iv) Changes due to clerical errors.
    1. Requirements. Section 1026.19(f)(2)(iv) requires the creditor to 
deliver or place in the mail corrected disclosures if the disclosures 
provided pursuant to Sec. 1026.19(f)(1)(i) contain non-numeric clerical 
errors. An error is considered clerical if it does not affect a 
numerical disclosure and does not affect requirements imposed by Sec. 
1026.19(e) or (f). For example, if the disclosure identifies the 
incorrect settlement service provider as the recipient of a payment, 
then Sec. 1026.19(f)(2)(iv) requires the creditor to deliver or place 
in the mail corrected disclosures reflecting the corrected non-numeric 
disclosure no later than 60 days after consummation. However, if, for 
example, the disclosure lists the wrong property address, which affects 
the delivery requirement imposed by Sec. 1026.19(e) or (f), the error 
would not be considered clerical.
    19(f)(2)(v) Refunds related to the good faith analysis.
    1. Requirements. Section 1026.19(f)(2)(v) provides that, if amounts 
paid at closing exceed the amounts specified under Sec. 
1026.19(e)(3)(i) or (ii), the creditor does not violate Sec. 
1026.19(e)(1)(i) if the creditor refunds the excess to the consumer no 
later than 60 days after consummation, and the creditor does not violate 
Sec. 1026.19(f)(1)(i) if the creditor delivers or places in the mail 
disclosures corrected to reflect the refund of such excess no later than 
60 days after consummation. For example, assume that at consummation the 
consumer must pay four itemized charges that are subject to the good 
faith determination under Sec. 1026.19(e)(3)(i). If the actual amounts 
paid by the consumer for the four itemized charges subject to Sec. 
1026.19(e)(3)(i) exceeded their respective estimates on the disclosures 
required under Sec. 1026.19(e)(1)(i) by $30, $25, $25, and $10, then 
there would be a $90 excess amount above the limitations prescribed by 
Sec. 1026.19(e)(3)(i). If, further, the amounts paid by the consumer 
for services that are subject to the good faith determination under 
Sec. 1026.19(e)(3)(ii) totaled $1,190, but the respective estimates on 
the disclosures required under Sec. 1026.19(e)(1)(i) totaled only 
$1,000, then there would be a $90 excess amount above the limitations 
prescribed by Sec. 1026.19(e)(3)(ii). The creditor does not violate 
Sec. 1026.19(e)(1)(i) if the creditor refunds the excess to the 
consumer no later than 60 days after consummation. The creditor does not 
violate Sec. 1026.19(f)(1)(i) if the creditor delivers or places in the 
mail corrected disclosures reflecting the $180 refund of the excess 
amount collected no later than 60 days after consummation. See comment 
38(h)(3)-2 for additional guidance on disclosing refunds such as these.
    19(f)(3) Charges disclosed.
    19(f)(3)(i) Actual charge.
    1. Requirements. Section 1026.19(f)(3)(i) provides the general rule 
that the amount imposed on the consumer for any settlement service shall 
not exceed the amount actually received by the settlement service 
provider for that service. Except as otherwise provided in Sec. 
1026.19(f)(3)(ii), a creditor violates Sec. 1026.19(f)(3)(i) if the 
amount imposed upon the consumer exceeds the amount actually received by 
the service provider for that service.
    19(f)(3)(ii) Average charge.
    1. Requirements. Average-charge pricing is the exception to the rule 
in Sec. 1026.19(f)(3)(i) that consumers shall not pay more than the 
exact amount charged by a settlement service provider for the 
performance of that service. See comment 19(f)(3)(i)-1. If the creditor 
develops representative samples of specific settlement costs for a 
particular class of transactions, the creditor may charge the average 
cost for that settlement service instead of the actual cost for such 
transactions. An average-charge program may not

[[Page 941]]

be used in a way that inflates the cost for settlement services overall.
    2. Defining the class of transactions. Section 1026.19(f)(3)(ii)(B) 
requires a creditor to use an appropriate period of time, appropriate 
geographic area, and appropriate type of loan to define a particular 
class of transactions. For purposes of Sec. 1026.19(f)(3)(ii)(B), a 
period of time is appropriate if the sample size is sufficient to 
calculate average costs with reasonable precision, provided that the 
period of time is not less than 30 days and not more than six months. 
For purposes of Sec. 1026.19(f)(3)(ii)(B), a geographic area and loan 
type are appropriate if the sample size is sufficient to calculate 
average costs with reasonable precision, provided that the area and loan 
type are not defined in a way that pools costs between dissimilar 
populations. For example:
    i. Assume a creditor defines a geographic area that contains two 
subdivisions, one with a median appraisal cost of $200, and the other 
with a median appraisal cost of $1,000. This geographic area would not 
satisfy the requirements of Sec. 1026.19(f)(3)(ii) because the cost 
characteristics of the two populations are dissimilar. However, a 
geographic area would be appropriately defined if both subdivisions had 
a relatively normal distribution of appraisal costs, even if the 
distribution for each subdivision ranges from below $200 to above 
$1,000.
    ii. Assume a creditor defines a type of loan that includes two 
distinct rate products. The median recording fee for one product is $80, 
while the median recording fee for the other product is $130. This 
definition of loan type would not satisfy the requirements of Sec. 
1026.19(f)(3)(ii) because the cost characteristics of the two products 
are dissimilar. However, a type of loan would be appropriately defined 
if both products had a relatively normal distribution of recording fees, 
even if the distribution for each product ranges from below $80 to above 
$130.
    3. Uniform use. If a creditor chooses to use an average charge for a 
settlement service for a particular loan within a class, Sec. 
1026.19(f)(3)(ii)(C) requires the creditor to use that average charge 
for that service on all loans within the class. For example:
    i. Assume a creditor elects to use an average charge for appraisal 
fees. The creditor defines a class of transactions as all fixed rate 
loans originated between January 1 and April 30 secured by real property 
located within a particular metropolitan statistical area. The creditor 
must then charge the average appraisal charge to all consumers obtaining 
fixed rate loans originated between May 1 and August 30 secured by real 
property located within the same metropolitan statistical area.
    ii. The example in paragraph i of this comment assumes that a 
consumer would not be required to pay the average appraisal charge 
unless an appraisal was required on that particular loan. Using the 
example above, if a consumer applies for a loan within the defined 
class, but already has an appraisal report acceptable to the creditor 
from a prior loan application, the creditor may not charge the consumer 
the average appraisal fee because an acceptable appraisal report has 
already been obtained for the consumer's application. Similarly, 
although the creditor defined the class broadly to include all fixed 
rate loans, the creditor may not require the consumer to pay the average 
appraisal charge if the particular fixed rate loan program the consumer 
applied for does not require an appraisal.
    4. Average amount paid. The average charge must correspond to the 
average amount paid by or imposed on consumers and sellers during the 
prior defined time period. For example, assume a creditor calculates an 
average tax certification fee based on four-month periods starting 
January 1 of each year. The tax certification fees charged to a consumer 
on May 20 may not exceed the average tax certification fee paid from 
January 1 through April 30. A creditor may delay the period by a 
reasonable amount of time if such delay is needed to perform the 
necessary analysis and update the affected systems, provided that each 
subsequent period is scheduled accordingly. For example, a creditor may 
define a four-month period from January 1 to April 30 and begin using 
the average charge from that period on May 15, provided the average 
charge is used until September 15, at which time the average charge for 
the period from May 1 to August 31 becomes effective.
    5. Adjustments based on retrospective analysis required. Creditors 
using average charges must ensure that the total amount paid by or 
imposed on consumers for a service does not exceed the total amount paid 
to the providers of that service for the particular class of 
transactions. A creditor may find that, even though it developed an 
average-cost pricing program in accordance with the requirements of 
Sec. 1026.19(f)(3)(ii), over time it has collected more from consumers 
than it has paid to settlement service providers. For example, assume a 
creditor defines a class of transactions and uses that class to develop 
an average charge of $135 for pest inspections. The creditor then 
charges $135 per transaction for 100 transactions from January 1 through 
April 30, but the actual average cost to the creditor of pest 
inspections during this period is $115. The creditor then decreases the 
average charge for the May to August period to account for the lower 
average cost during the January to April period. At this point, the 
creditor has collected $2,000 more than it has paid to settlement 
service providers for pest inspections. The creditor then charges $115 
per transaction for 70 transactions from May 1 to August 30, but

[[Page 942]]

the actual average cost to the creditor of pest inspections during this 
period is $125. Based on the average cost to the creditor from the May 
to August period, the average charge to the consumer for the September 
to December period should be $125. However, while the creditor spent 
$700 more than it collected during the May to August period, it 
collected $1,300 more than it spent from January to August. In cases 
such as these, the creditor remains responsible for ensuring that the 
amount collected from consumers does not exceed the total amounts paid 
for the corresponding settlement services over time. The creditor may 
develop a variety of methods that achieve this outcome. For example, the 
creditor may choose to refund the proportional overage paid to the 
affected consumers. Or the creditor may choose to factor in the excess 
amount collected to decrease the average charge for an upcoming period. 
Although any method may comply with this requirement, a creditor is 
deemed to have complied if it defines a six-month time period and 
establishes a rolling monthly period of reevaluation. For example, 
assume a creditor defines a six-month time period from January 1 to June 
30 and the creditor uses the average charge starting July 1. If, at the 
end of July, the creditor recalculates the average cost from February 1 
to July 31, and then uses the recalculated average cost for transactions 
starting August 1, the creditor complies with the requirements of Sec. 
1026.19(f)(3)(ii), even if the creditor actually collected more from 
consumers than was paid to providers over time.
    6. Adjustments based on prospective analysis permitted, but not 
required. A creditor may prospectively adjust average charges if it 
develops a statistically reliable and accurate method for doing so. For 
example, assume a creditor calculates average charges based on two time 
periods: winter (October 1 to March 31), and summer (April 1 to 
September 30). If the creditor can demonstrate that the average cost of 
a particular settlement service is always at least 15 percent more 
expensive during the winter period than the summer period, the creditor 
may increase the average charge for the next winter period by 15 percent 
over the average cost for the current summer period, provided, however, 
that the creditor performs retrospective periodic adjustments, as 
explained in comment 19(f)(3)(ii)-5.
    7. Charges that vary with loan amount or property value. An average 
charge may not be used for any charge that varies according to the loan 
amount or property value. For example, an average charge may not be used 
for a transfer tax if the transfer tax is calculated as a percentage of 
the loan amount or property value. Average charges also may not be used 
for any insurance premium. For example, average charges may not be used 
for title insurance or for either the upfront premium or initial escrow 
deposit for hazard insurance.
    8. Prohibited by law. An average charge may not be used where 
prohibited by any applicable State or local law. For example, a creditor 
may not impose an average charge for an appraisal if applicable law 
prohibits creditors from collecting any amount in excess of the actual 
cost of the appraisal.
    9. Documentation required. To comply with Sec. 1026.25, a creditor 
must retain all documentation used to calculate the average charge for a 
particular class of transactions for at least three years after any 
settlement for which that average charge was used. The documentation 
must support the components and methods of calculation. For example, if 
a creditor calculates an average charge for a particular county 
recording fee by simply averaging all of the relevant fees paid in the 
prior month, the creditor need only retain the receipts for the 
individual recording fees, a ledger demonstrating that the total amount 
received did not exceed the total amount paid over time, and a document 
detailing the calculation. However, if a creditor develops complex 
algorithms for determining averages, not only must the creditor maintain 
the underlying receipts and ledgers, but the creditor must maintain 
documentation sufficiently detailed to allow an examiner to verify the 
accuracy of the calculations.
    19(f)(4) Transactions involving a seller.
    19(f)(4)(i) Provision to seller.
    1. Requirement. Section 1026.19(f)(4)(i) provides that, in a closed-
end consumer credit transaction secured by real property that involves a 
seller, other than a reverse mortgage subject to Sec. 1026.33, the 
settlement agent shall provide the seller with the disclosures in Sec. 
1026.38 that relate to the seller's transaction reflecting the actual 
terms of the seller's transaction. The settlement agent complies with 
this provision by providing a copy of the Closing Disclosure provided to 
the consumer, if it also contains the information under Sec. 1026.38 
relating to the seller's transaction, or alternatively providing the 
disclosures under Sec. 1026.38(t)(5)(v) or (vi), as applicable.
    19(f)(4)(ii) Timing.
    1. Requirement. Section 1026.19(f)(4)(ii) provides that the 
settlement agent shall provide the disclosures required under Sec. 
1026.19(f)(4)(i) no later than the day of consummation. If during the 
30-day period following consummation, an event in connection with the 
settlement of the transaction occurs that causes such disclosures to 
become inaccurate and such inaccuracy results in a change to the amount 
actually paid by the seller from that amount disclosed under Sec. 
1026.19(f)(4)(i), the settlement agent shall deliver or place in the 
mail corrected disclosures not later than 30 days after receiving 
information sufficient to establish that such event has occurred.

[[Page 943]]

Section 1026.19(f)(4)(i) requires disclosure of the items that relate to 
the seller's transaction. Thus, the settlement agent need only 
redisclose if an item related to the seller's transaction becomes 
inaccurate and such inaccuracy results in a change to the amount 
actually paid by the seller. For example, assume a transaction where the 
seller pays the transfer tax, the consummation occurs on Monday, and the 
security instrument is recorded on Tuesday, the day after consummation. 
If the settlement agent receives information on Tuesday sufficient to 
establish that transfer taxes owed to the State differ from those 
disclosed pursuant to Sec. 1026.19(f)(4)(i), the settlement agent 
complies with Sec. 1026.19(f)(4)(ii) by revising the disclosures 
accordingly and delivering or placing them in the mail not later than 30 
days after Tuesday. See comment 19(e)(4)(i)-1 for guidance on when 
sufficient information has been received to establish an event has 
occurred. See also comment 19(f)(2)(iii)-1.iii for another example in 
which corrected disclosures must be provided to the seller.
    19(g) Special information booklet at time of application.
    19(g)(1) Creditor to provide special information booklet.
    1. Revision of booklet. The Bureau may, from time to time, issue 
revised or alternative versions of the special information booklet that 
addresses transactions subject to Sec. 1026.19(g) by publishing a 
notice in the Federal Register. The Bureau also may choose to permit the 
forms or booklets of other Federal agencies to be used by creditors. In 
such an event, the availability of the booklet or alternate materials 
for these transactions will be set forth in a notice in the Federal 
Register. The current version of the booklet can be accessed on the 
Bureau's Web site, www.consumerfinance.gov/learnmore.
    2. Multiple applicants. When two or more persons apply together for 
a loan, the creditor complies with Sec. 1026.19(g) if the creditor 
provides a copy of the booklet to one of the persons applying.
    3. Consumer's application. Section 1026.19(g)(1)(i) requires that 
the creditor deliver or place in the mail the special information 
booklet not later than three business days after the consumer's 
application is received. ``Application'' is defined in Sec. 
1026.2(a)(3)(ii). The creditor need not provide the booklet under Sec. 
1026.19(g)(1)(i) when it denies an application or if the consumer 
withdraws the application before the end of the three-business-day 
period under Sec. 1026.19(e)(1)(iii)(A). See comment 19(e)(1)(iii)-3 
for additional guidance on denied or withdrawn applications.
    19(g)(2) Permissible changes.
    1. Reproduction. The special information booklet may be reproduced 
in any form, provided that no changes are made, except as otherwise 
provided under Sec. 1026.19(g)(2). See also comment 19(g)(2)-3. 
Provision of the special information booklet as a part of a larger 
document does not satisfy the requirements of Sec. 1026.19(g). 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.
    2. Other permissible changes. The special information booklet may be 
translated into languages other than English. Changes to the booklet 
other than those specified in Sec. 1026.19(g)(2)(i) through (iv) and 
comment 19(g)(2)-3 do not comply with Sec. 1026.19(g).
    3. Permissible changes to title of booklets in use before August 1, 
2015. Section 1026.19(g)(2)(iv) provides that the title appearing on the 
cover of the booklet shall not be changed. Comment 19(g)(1)-1 states 
that the Bureau may, from time to time, issue revised or alternative 
versions of the special information booklet that address transactions 
subject to Sec. 1026.19(g) by publishing a notice in the Federal 
Register. Until the Bureau issues a version of the special information 
booklet relating to the Loan Estimate and Closing Disclosure under 
Sec. Sec. 1026.37 and 1026.38, for applications that are received on or 
after August 1, 2015, a creditor may change the title appearing on the 
cover of the version of the special information booklet in use before 
August 1, 2015, provided the words ``settlement costs'' are used in the 
title. See comment 1(d)(5)-1 for guidance regarding compliance with 
Sec. 1026.19(g) for applications received on or after August 1, 2015.

  Section 1026.20--Disclosure Requirements Regarding Post-Consummation 
                                 Events

                                * * * * *

    20(e) Escrow account cancellation notice for certain mortgage 
transactions.
    20(e)(1) Scope.
    1. Real property or dwelling. For purposes of Sec. 1026.20(e)(1), 
the term ``real property'' includes vacant and unimproved land. The term 
``dwelling'' includes vacation and second homes and mobile homes, boats, 
and trailers used as residences. See Sec. 1026.2(a)(19) and related 
commentary for additional guidance regarding the term ``dwelling.''
    2. Escrow account established in connection with the consumer's 
delinquency or default. Neither creditors nor servicers are required to 
provide the disclosures required by Sec. 1026.20(e)(2) when an escrow 
account that was established solely in connection with the consumer's 
delinquency or default on the underlying debt obligation will be 
cancelled.
    3. Termination of the underlying debt obligation. Neither creditors 
nor servicers are required to provide disclosures required by

[[Page 944]]

Sec. 1026.20(e)(2) when the underlying debt obligation for which an 
escrow account was established is terminated, including by repayment, 
refinancing, rescission, and foreclosure.
    20(e)(2) Content requirements.
    1. Clear and conspicuous standard. The clear and conspicuous 
standard generally requires that disclosures be in a reasonably 
understandable form and readily noticeable to the consumer.
    Paragraph 20(e)(2)(i).
    1. Escrow closing fee. Section 1026.20(e)(2)(i) requires the 
creditor to itemize the amount of any fee the creditor or servicer 
imposes on the consumer in connection with the closure of the consumer's 
escrow account, labeled ``Escrow Closing Fee.'' If the creditor or 
servicer independently decides to cancel the escrow account, rather than 
agreeing to close it at the request of the consumer, and does not charge 
a fee in connection with the cancellation, the creditor or service 
complies with Sec. 1026.20(e)(2) by leaving the disclosure blank on the 
front-side of the one-page document described in Sec. 1026.20(e)(4).
    20(e)(3) Optional information.
    1. Optional information permitted. Section 1026.20(e)(3) lists 
information that the creditor or servicer may, at its option, include on 
the notice required by Sec. 1026.20(e). To comply with Sec. 
1026.20(e)(3), the creditor or servicer may place the information 
required by Sec. 1026.20(e)(3), other than the name and logo of the 
creditor or servicer, between the heading required by Sec. 
1026.20(e)(2) and the disclosures required by Sec. 1026.20(e)(2)(i) and 
(ii). The name and logo may be placed above the heading required Sec. 
1026.20(e)(2).
    20(e)(4) Form of disclosures.
    1. Grouped and separate. The disclosures required by Sec. 
1026.20(e)(2) must be grouped together on the front side of a separate 
one-page document that contains no other material.
    2. Notice must be in writing in a form that the consumer may keep. 
The notice containing the disclosures required by Sec. 1026.20(e)(2) 
must be in writing in a form that the consumer may keep. See also Sec. 
1026.17(a) and related commentary for additional guidance on the form 
requirements applicable to the disclosures required by Sec. 
1026.20(e)(2).
    20(e)(5) Timing.
    20(e)(5)(i) Cancellation upon consumer's request.
    1. Timing requirements Section 1026.20(e)(5)(i) provides that if the 
creditor or servicer cancels the escrow account at the consumer's 
request, the creditor or servicer shall ensure that the consumer 
receives the disclosures required by Sec. 1026.20(e)(2) no later than 
three business days before closure of the consumer's escrow account. For 
example, for closure to occur on Thursday, the consumer must receive the 
disclosures on or before Monday, assuming each weekday is a business 
day. For purposes of Sec. 1026.20(e)(5), 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.
    20(e)(5)(iii) Receipt of disclosure.
    1. Timing of receipt. Section 1026.20(e)(5)(iii) provides that if 
the disclosures required under Sec. 1026.20(e)(2) are not provided to 
the consumer in person, the consumer is considered to have received the 
disclosures three business days after they are delivered or placed in 
the mail. If the creditor or servicer provides the disclosures required 
by Sec. 1026.20(e)(2) 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 waiting periods required by Sec. 
1026.20(e)(5)(i) and (ii) begins. Creditors and servicers that use 
electronic mail or a courier to provide disclosures may also follow this 
approach. If, however, the creditor or servicer delivers the disclosures 
required by Sec. 1026.20(e)(2) to the consumer in person, the escrow 
account may be closed any time on the third or 30th business day 
following the date of delivery, as applicable. Whatever method is used 
to provide disclosures, creditors and servicers may rely on 
documentation of receipt in determining when the waiting periods 
required by Sec. 1026.20(e)(5)(i) and (ii) begin.

                                * * * * *

        Section 1026.22--Determination of Annual Percentage Rate

    22(a) Accuracy of annual percentage rate.

                                * * * * *

    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) or Sec. 1026.38(o)(2), 
as applicable, 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.

                                * * * * *

                      Section 1026.24--Advertising

                                * * * * *

[[Page 945]]

    24(d) Advertisement of terms that require additional disclosures.

                                * * * * *

    24(d)(2) Additional terms.

                                * * * * *

    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), the interest rate and payment 
summary table required to be disclosed pursuant to Sec. 1026.18(s), or 
the projected payments table required to be disclosed pursuant to 
Sec. Sec. 1026.37(c) and 1026.38(c), as applicable. 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.

                                * * * * *

                        Subpart D--Miscellaneous

                    Section 1026.25--Record Retention

                                * * * * *

    25(c) Records related to certain requirements for mortgage loans.
    25(c)(1) Records related to requirements for loans secured by real 
property.
    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 differentiated between affiliated and independent third party 
settlement service providers for determining good faith under Sec. 
1026.19(e)(3); evidence that the creditor properly documented the reason 
for revisions under Sec. 1026.19(e)(3)(iv); or evidence that the 
creditor properly calculated average cost under Sec. 1026.19(f)(3)(ii).
    2. Mortgage brokers. See Sec. 1026.19(e)(1)(ii)(B) for the 
responsibilities of mortgage brokers to comply with the requirements of 
Sec. 1026.25(c).

                                * * * * *

                  Section 1026.28--Effect on State Laws

    28(a) Inconsistent disclosure requirements.
    1. General. There are three sets of preemption criteria: One applies 
to the general disclosure and advertising rules of the regulation, and 
two apply to the credit billing provisions. Section 1026.28 also 
provides for Bureau determinations of preemption. For purposes of 
determining whether a State law is inconsistent with the requirements of 
sections 4 and 5 of RESPA (other than the RESPA section 5(c) 
requirements regarding provision of a list of certified homeownership 
counselors) and Sec. Sec. 1026.19(e) and (f), 1026.37, and 1026.38 
under Sec. 1026.28, any reference to ``creditor'' in Sec. 1026.28 or 
this commentary includes a creditor, a mortgage broker, or a settlement 
agent, as applicable.

                                * * * * *

                    Section 1026.29--State Exemptions

    29(a) General rule.

                                * * * * *

    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. For transactions subject to

[[Page 946]]

Sec. 1026.19(e) and (f), Sec. 1026.29(a)(1) requires that the State 
statutory or regulatory provisions and State interpretations of those 
provisions require disclosures that are generally the same as the 
disclosures required by Sec. 1026.19(e) and (f), with form and content 
as prescribed by Sec. Sec. 1026.37 and 1026.38.

                                * * * * *

    4. Exemptions granted. i. 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 granted 
the following exemptions from portions of the revised Truth in Lending 
Act:
    A. 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.)
    B. 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.)
    C. 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.)
    D. 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.)
    E. 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.)
    ii. Although RESPA and its implementing Regulation X do not provide 
procedures for granting State exemptions, for transactions subject to 
Sec. 1026.19(e) and (f), compliance with the requirements of Sec. Sec. 
1026.19(e) and (f), 1026.37, and 1026.38 satisfies the requirements of 
sections 4 and 5 of RESPA (other than the RESPA section 5(c) 
requirements regarding provision of a list of certified homeownership 
counselors). If such a transaction is subject to one of the State 
exemptions previously granted by the Board of Governors and noted in 
comment 29(a)-4.i above, however, then compliance with the requirements 
of any State laws and regulations incorporating the requirements of 
Sec. Sec. 1026.19(e) and (f), 1026.37, and 1026.38 likewise satisfies 
the requirements of sections 4 and 5 of RESPA (other than the RESPA 
section 5(c) requirements regarding provision of a list of certified 
homeownership counselors) and the provisions of Regulation X (12 CFR 
part 1024) implementing those sections of RESPA.

                                * * * * *

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                                * * * * *

      Section 1026.37--Content of Disclosures for Certain Mortgage 
                      Transactions (Loan Estimate)

    1. Disclosures not applicable. The disclosures required by Sec. 
1026.37 are required to reflect the terms of the legal obligation 
between the parties, and if any information necessary for an accurate 
disclosure is unknown to the creditor, the creditor shall make the 
disclosure in good faith, based on the best information reasonably 
available to the creditor pursuant to Sec. Sec. 1026.17(c) and 
1026.19(e). See comments 17(c)(1)-1, 17(c)(2)(i)-1 and -2, and 
19(e)(1)(i)-1. Where a disclosure is not applicable to a particular 
transaction, unless otherwise provided by Sec. 1026.37, form H-24 of 
appendix H to this part may not be modified to delete the disclosure 
from form H-24, or to state ``not applicable'' or ``N/A'' in place of 
such disclosure. The portion of the form pertaining to the inapplicable 
disclosure may be left blank, unless otherwise provided by Sec. 
1026.37. For example, in a transaction for which the consumer does not 
pay points to the creditor to reduce the interest rate, the amounts 
required to be disclosed by Sec. 1026.37(f)(1)(i) may be left blank on 
form H-24. As provided in Sec. 1026.37(i) and (j), however, the 
adjustable payment and adjustable interest rate tables required by those 
paragraphs may be included only if those disclosures are applicable to 
the transaction and otherwise must be excluded.
    2. Format. See Sec. 1026.37(o) and its commentary for guidance on 
the proper format to be used in making the disclosures, as well as 
permissible modifications.
    37(a) General information.
    37(a)(3) Creditor.
    1. Multiple creditors. For transactions with multiple creditors, see 
Sec. 1026.17(d) and comment 17(d)-1 for further guidance. The creditor 
making the disclosures, however, must be identified as the creditor for 
purposes of Sec. 1026.37(a)(3).
    2. Mortgage broker as loan originator. In transactions involving a 
mortgage broker, the name and address of the creditor must be disclosed, 
if known, even if the mortgage broker provides the disclosures to the 
consumer under Sec. 1026.19(e)(1)(ii). As required by

[[Page 947]]

Sec. 1026.19(e)(1)(i), the mortgage broker must make a good faith 
effort to disclose the name and address of the creditor, but if the name 
of the creditor is not yet known, the disclosure required by Sec. 
1026.37(a)(3) may be left blank. See comment 37-1.
    37(a)(4) Date issued.
    1. Applicable date. Section 1026.37(a)(4) requires disclosure of the 
date the creditor mails or delivers the Loan Estimate to the consumer. 
The creditor's method of delivery does not affect the date issued. For 
example, if the creditor hand delivers the Loan Estimate to the consumer 
on August 14, or if the creditor places the Loan Estimate in the mail on 
August 14, the date disclosed under Sec. 1026.37(a)(4) is August 14.
    2. Mortgage broker as loan originator. In transactions involving a 
mortgage broker, the date disclosed is the date the mortgage broker 
mails or delivers the Loan Estimate to the consumer, because pursuant to 
Sec. 1026.19(e)(1)(ii), the mortgage broker is required to comply with 
all relevant requirements of Sec. 1026.19(e).
    37(a)(5) Applicants.
    1. Multiple consumers. If there is more than one consumer applying 
for the credit, Sec. 1026.37(a)(5) requires disclosure of the name and 
the mailing address of each consumer to whom the Loan Estimate will be 
delivered. If the names and mailing addresses of all consumers applying 
for the credit do not fit in the space allocated on the Loan Estimate, 
an additional page with that information may be appended to the end of 
the form. For additional information on permissible changes, see Sec. 
1026.37(o)(5) and its commentary.
    37(a)(6) Property.
    1. Alternate property address. Section 1026.37(a)(6) requires 
disclosure of the address including the zip code of the property that 
secures or will secure the transaction. A creditor complies with Sec. 
1026.37(a)(6) by disclosing a complete address for purposes of the U.S. 
Postal Service. If the address is unavailable, a creditor complies with 
Sec. 1026.37(a)(6) by disclosing the location of such property 
including a zip code, which is required in all instances. Location of 
the property under Sec. 1026.37(a)(6) includes location information, 
such as a lot number. The disclosure of multiple zip codes is permitted 
if the consumer is investigating home purchase opportunities in multiple 
zip codes.
    2. Personal property. Where personal property also secures the 
credit transaction, a description of that property may be disclosed, at 
the creditor's option pursuant to Sec. 1026.37(a)(6), if a description 
fits in the space provided on form H-24 for the disclosure required by 
Sec. 1026.37(a)(6). An additional page may not be appended to the form 
to disclose a description of personal property.
    3. Multiple properties. Where more than one property secures the 
credit transaction, Sec. 1026.37(a)(6) requires disclosure of all 
properties. If the addresses of all properties securing the transaction 
do not fit in the space allocated on the Loan Estimate, an additional 
page with that information with respect to real properties may be 
appended to the end of the form.
    37(a)(7) Sale price.
    1. Estimated property value. In transactions where there is no 
seller, such as in a refinancing, Sec. 1026.37(a)(7)(ii) requires the 
creditor to disclose the estimated value of the property identified in 
Sec. 1026.37(a)(6) at the time the disclosure is issued to the 
consumer. The creditor may use the estimate provided by the consumer at 
application, or if it has performed its own estimate of the property 
value by the time the disclosure is provided to the consumer, use that 
estimate. If the creditor has obtained any appraisals or valuations of 
the property for the application at the time the disclosure is issued to 
the consumer, the value determined by the appraisal or valuation to be 
used during underwriting for the application is disclosed as the 
estimated property value. If the creditor has obtained multiple 
appraisals or valuations and has not yet determined which one will be 
used during underwriting, it may disclose the value from any appraisal 
or valuation it reasonably believes it may use in underwriting the 
transaction. In a transaction that involves a seller, if the sale price 
is not yet known, the creditor complies with Sec. 1026.37(a)(7) if it 
discloses the estimated value of the property that it used as the basis 
for the disclosures in the Loan Estimate.
    2. Personal property. In transactions involving personal property 
that is separately valued from real property, only the value of the real 
property is disclosed pursuant to Sec. 1026.37(a)(7). Where personal 
property is included in the sale price of the real property (for 
example, if the consumer is purchasing the furniture inside the 
dwelling), however, Sec. 1026.37(a)(7) permits disclosure of the 
aggregate price without any reduction for the appraised or estimated 
value of the personal property.
    37(a)(8) Loan term.
    1. Partial years.
    i. Terms to maturity of 24 months or more. Section 1026.37(a)(8) 
requires disclosure of the term to maturity in years, or months, or 
both, as applicable. Where the term exceeds 24 months and equals a whole 
number of years, a creditor complies with Sec. 1026.37(a)(8) by 
disclosing the number of years, followed by the designation ``years.'' 
Where the term exceeds 24 months but does not equal a whole number of 
years, a creditor complies with Sec. 1026.37(a)(8) by disclosing the 
term to maturity as the number of years followed by the designation 
``yr.'' and the remaining number of months, followed by the designation 
``mo.'' For example, if the term to maturity

[[Page 948]]

of the transaction is 185 months, the correct disclosure would be ``15 
yr. 5 mo.''
    ii. Terms to maturity of less than 24 months. If the term to 
maturity is less than 24 months and does not equal a whole number of 
years, a creditor complies with Sec. 1026.37(a)(8) by disclosing the 
number of months only, followed by the designation ``mo.'' For example, 
if the term to maturity of a transaction is six months or 16 months, it 
would be disclosed as ``6 mo.'' or ``16 mo.,'' respectively. If the term 
to maturity is 12 months, however it would be disclosed simply as ``1 
year.''
    2. Adjustable loan term. Section 1026.37(a)(8) requires disclosure 
of the term to maturity of the credit transaction. If the term to 
maturity is adjustable, i.e., it is not known with certainty at 
consummation, the creditor complies with Sec. 1026.37(a)(8), if it 
discloses the possible range of the loan term, including the maximum 
number of years possible under the terms of the legal obligation. For 
example, if the loan term depends on the value of interest rate 
adjustments during the term of the loan, to calculate the maximum loan 
term, the creditor assumes that the interest rate rises as rapidly as 
possible after consummation, taking into account the terms of the legal 
obligation, including any applicable caps on interest rate adjustments 
and lifetime interest rate cap.
    37(a)(9) Purpose.
    1. General. Section 1026.37(a)(9) requires disclosure of the 
consumer's intended use of the credit. In ascertaining the consumer's 
intended use, Sec. 1026.37(a)(9) requires the creditor to consider all 
relevant information known to the creditor at the time of the 
disclosure. If the purpose is not known, the creditor may rely on the 
consumer's stated purpose. The following examples illustrate when each 
of the permissible purposes should be disclosed:
    i. Purchase. The consumer intends to use the proceeds from the 
transaction to purchase the property that will secure the extension of 
credit.
    ii. Refinance. The consumer refinances an existing obligation 
already secured by the consumer's dwelling to change the rate, term, or 
other loan features and may or may not receive cash from the 
transaction. For example, in a refinance with no cash provided, the new 
amount financed does not exceed the unpaid principal balance, any earned 
unpaid finance charge on the existing debt, and amounts attributed 
solely to the costs of the refinancing. Conversely, in a refinance with 
cash provided, the consumer refinances an existing mortgage obligation 
and receives money from the transaction that is in addition to the funds 
used to pay the unpaid principal balance, any earned unpaid finance 
charge on the existing debt, and amounts attributed solely to the costs 
of the refinancing. In such a transaction, the consumer may, for 
example, use the newly-extended credit to pay off the balance of the 
existing mortgage and other consumer debt, such as a credit card 
balance.
    iii. Construction. Section 1026.37(a)(9)(iii) requires the creditor 
to disclose that the loan is for construction in transactions where the 
creditor extends credit to finance only the cost of initial construction 
(construction-only loan), not renovations to existing dwellings, and in 
transactions where a multiple advance loan may be permanently financed 
by the same creditor (construction-to-permanent loan). In a 
construction-only loan, the borrower may be required to make interest 
only payments during the loan term with the balance commonly due at the 
end of the construction project. For additional guidance on disclosing 
construction-to-permanent loans, see Sec. 1026.17(c)(6)(ii), comments 
17(c)(6)-2 and -3, and appendix D to this part.
    iv. Home equity loan. The creditor is required to disclose that the 
credit is for a ``home equity loan'' if the creditor intends to extend 
credit for any purpose other than a purchase, refinancing, or 
construction. This disclosure applies whether the loan is secured by a 
first or subordinate lien.
    2. Refinance coverage. The disclosure requirements under Sec. 
1026.37(a)(9)(ii) apply to credit transactions that meet the definition 
of a refinancing under Sec. 1026.20(a) but without regard to whether 
they are made by a creditor, holder, or servicer of the existing 
obligation. Section 1026.20(a) applies only to refinancings undertaken 
by the original creditor or a holder or servicer of the original debt. 
See comment 20(a)-5.
    37(a)(10) Product.
    1. No features. If the loan product disclosed pursuant to Sec. 
1026.37(a)(10) does not include any of the features described in Sec. 
1026.37(a)(10)(ii), only the product type and introductory and first 
adjustment periods, if applicable, are disclosed. For example:
    i. Adjustable rate. When disclosing an adjustable rate product, the 
disclosure of the loan product must be preceded by the length of the 
introductory period and the frequency of the first adjustment period 
thereafter. Thus, for example, if the loan product is an adjustable rate 
with an introductory rate that is fixed for the first five years of the 
loan term and then adjusts every three years starting in year six, the 
disclosure required by Sec. 1026.37(a)(10) is ``5/3 Adjustable Rate.'' 
If the first adjustment period is not the period for all adjustments 
under the terms of the legal obligation, the creditor should still 
disclose the initial adjustment period and should not disclose other 
adjustment periods. For example, if the loan product is an adjustable 
rate with an introductory rate that is fixed for the first five years of 
the loan term and then adjusts every three years

[[Page 949]]

starting in year six, and then annually starting in year fifteen, the 
disclosure required by Sec. 1026.37(a)(10) would still be ``5/3 
Adjustable Rate.''
    A. No introductory period. If the loan product is an adjustable rate 
with no introductory rate, the creditor should disclose ``0'' where the 
introductory rate period would ordinarily be disclosed. For example, if 
the loan product is an adjustable rate that adjusts every three years 
with no introductory period, the disclosure required by Sec. 
1026.37(a)(10) is ``0/3 Adjustable Rate.''
    B. Introductory period not yet known. If the loan product is an 
adjustable rate with an introductory period that is not yet known at the 
time of delivery of the Loan Estimate, the creditor should disclose the 
shortest potential introductory period for the particular loan product 
offered. For example, if the loan product is an adjustable rate with an 
introductory period that may be between 36 and 48 months and the rate 
would then adjust every year, the disclosure required by Sec. 
1026.37(a)(10) is ``3/1 Adjustable Rate.''
    ii. Step rate. If the loan product is a step rate with an 
introductory interest rate that lasts for ten years and adjusts every 
year thereafter for the next five years, and then adjusts every three 
years for the next 15 years, the disclosure required by Sec. 
1026.37(a)(10) is ``10/1 Step Rate.'' If the loan product is a step rate 
with no introductory rate, the creditor should disclose ``0'' where the 
introductory rate period would ordinarily be disclosed.
    iii. Fixed rate. If the loan product is not an adjustable rate or a 
step rate, as described in Sec. 1026.37(a)(10)(i)(A) and (B), even if 
an additional feature described in Sec. 1026.37(a)(10)(ii) may change 
the consumer's periodic payment, the disclosure required by Sec. 
1026.37(a)(10)(i) is ``Fixed Rate.''
    2. Additional features. When disclosing a loan product with at least 
one of the features described in Sec. 1026.37(a)(10)(ii), Sec. 
1026.37(a)(10)(iii) and (iv) require the disclosure of only the first 
applicable feature in the order of Sec. 1026.37(a)(10)(ii) and that it 
be preceded by the time period or the length of the introductory period 
and the frequency of the first adjustment period, as applicable, 
followed by a description of the loan product and its time period as 
provided for in Sec. 1026.37(a)(10)(i). For example:
    i. Negative amortization. Some loan products, such as ``payment 
option'' loans, permit the borrower to make payments that are 
insufficient to cover all of the interest accrued, and the unpaid 
interest is added to the principal balance. Where the loan product 
includes a loan feature that may cause the loan balance to increase, the 
disclosure required by Sec. 1026.37(a)(10)(ii)(A) is preceded by the 
time period that the borrower is permitted to make payments that result 
in negative amortization (e.g., ``2 Year Negative Amortization''), 
followed by the loan product type. Thus, a fixed rate product with a 
step-payment feature for the first two years of the legal obligation 
that may negatively amortize is disclosed as ``2 Year Negative 
Amortization, Fixed Rate.''
    ii. Interest only. When disclosing an ``Interest Only'' feature, as 
that term is defined in Sec. 1026.18(s)(7)(iv), the applicable time 
period must precede the label ``Interest Only.'' Thus, a fixed rate loan 
with only interest due for the first five years of the loan term is 
disclosed as ``5 Year Interest Only, Fixed Rate.'' If the interest only 
feature fails to cover the total interest due then, as required by Sec. 
1026.37(a)(10)(iii), the disclosure must reference the negative 
amortization feature and not the interest only feature (i.e., ``5 Year 
Negative Amortization, Fixed Rate'').
    iii. Step payment. When disclosing a step payment feature (which is 
sometimes referred to instead as a graduated payment), the period of 
time at the end of which the scheduled payments will change must precede 
the label ``Step Payment'' (e.g., ``5 Year Step Payment'') followed by 
the name of the loan product. Thus, a fixed rate mortgage subject to a 
5-year step payment plan is disclosed as a ``5 Year Step Payment, Fixed 
Rate.''
    iv. Balloon payment. If a loan product includes a ``balloon 
payment,'' as that term is defined in Sec. 1026.37(b)(5), the 
disclosure of the balloon payment feature, including the year the 
payment is due, precedes the disclosure of the loan product. Thus, if 
the loan product is a step rate with an introductory rate that lasts for 
three years and adjusts each year thereafter until the balloon payment 
is due in the seventh year of the loan term, the disclosure required is 
``Year 7 Balloon Payment, 3/1 Step Rate.'' If the loan product includes 
more than one balloon payment, only the earliest year that a balloon 
payment is due shall be disclosed.
    v. Seasonal payment. If a loan product includes a seasonal payment 
feature, Sec. 1026.37(a)(10)(ii)(E) requires that the creditor disclose 
the feature. The feature is not, however, required to be disclosed with 
any preceding time period. Disclosure of the label ``Seasonal Payment'' 
without any preceding number of years satisfies this requirement.
    3. Periods not in whole years.
    i. Terms of 24 months or more. For product types and features that 
have introductory periods or adjustment periods that do not equate to a 
number of whole years, if the period is a number of months that is 24 or 
greater and does not equate to a whole number of years, Sec. 
1026.37(a)(10) requires disclosure of the whole number of years followed 
by a decimal point with the remaining months rounded to two places. For 
example, if the loan product is an adjustable rate with

[[Page 950]]

an introductory period of 30 months that adjusts every year thereafter, 
the creditor would be required to disclose ``2.5/1 Adjustable Rate.'' If 
the introductory period were 31 months, the required disclosure would be 
2.58/1 Adjustable Rate.''
    ii. Terms of less than 24 months. For product types and features 
that have introductory periods or adjustment periods that do not equate 
to a number of whole years, if the period is less than 24 months, Sec. 
1026.37(a)(10) requires disclosure of the number of months, followed by 
the designation ``mo.'' For example, if the product type is an 
adjustable rate with an 18-month introductory period that adjusts every 
18 months starting in the 19th month, the required disclosure would be 
``18 mo./18mo. Adjustable Rate.''
    iii. Adjustments more frequent than monthly. For adjustment periods 
that change more frequently than monthly, Sec. 1026.37(a)(10) requires 
disclosure of the applicable unit-period, such as daily, weekly, or bi-
weekly. For example, for an adjustable rate construction loan with no 
introductory fixed rate period where the interest rate adjusts every 
seven days, the disclosure required by Sec. 1026.37(a)(10) is ``0/
Weekly Adjustable Rate.''
    37(a)(11) Loan type.
    1. Other. If the transaction is a type other than a conventional, 
FHA, or VA loan, Sec. 1026.37(a)(11)(iv) requires the creditor to 
disclose the loan type as ``Other'' and provide a name or brief 
description of the loan type. For example, a loan that is guaranteed or 
funded by the Federal government under the Rural Housing Service (RHS) 
of the U.S. Department of Agriculture is required to be disclosed under 
the subcategory ``Other.'' Section 1026.37(a)(11)(iv) requires a brief 
description of the loan type (e.g., ``RHS''). A loan that is insured or 
guaranteed by a State agency must also be disclosed as ``Other.''
    37(a)(12) Loan identification number (Loan ID # ).
    1. Unique identifier. Section 1026.37(a)(12) requires that the 
creditor disclose a loan identification number that may be used by the 
creditor, consumer, and other parties to identify the transaction, 
labeled as ``Loan ID  .'' The loan identification number is 
determined by the creditor, which number may contain any alpha-numeric 
characters. Because the number must allow for the identification of the 
particular credit transaction under Sec. 1026.37(a)(12), a creditor 
must use a unique loan identification number, i.e., the creditor may not 
use the same loan identification number for different, but related, loan 
transactions (such as different loans to the same borrower). Where a 
creditor issues a revised Loan Estimate for a transaction, the loan 
identification number must be sufficient to enable identification of the 
transaction pursuant to Sec. 1026.37(a)(12).
    37(a)(13) Rate lock.
    1. Interest rate. For purposes of Sec. 1026.37(a)(13), the interest 
rate is locked for a specific period of time if the creditor has agreed 
to extend credit to the consumer at a given rate, subject to 
contingencies that are described in any rate lock agreement between the 
creditor and consumer.
    2. Expiration date. The disclosure required by Sec. 
1026.37(a)(13)(ii) related to estimated closing costs is required 
regardless of whether the interest rate is locked for a specific period 
of time or whether the terms and costs are otherwise accepted or 
extended.
    3. Time zone. The disclosure required by Sec. 1026.37(a)(13) 
requires the applicable time zone for all times provided, as determined 
by the creditor. For example, if the creditor is located in New York and 
determines that the Loan Estimate will expire at 5:00 p.m. in the time 
zone applicable to its location, while standard time is in effect, the 
disclosure must include a reference to the Eastern time zone (i.e., 5:00 
p.m. EST).
    37(b) Loan terms.
    1. Legal obligation. The disclosures required by Sec. 1026.37 must 
reflect good faith estimates of the credit terms to which the parties 
will be legally bound for the transaction. Accordingly, if certain terms 
of the transaction are known or reasonably available to the creditor, 
based on information such as the consumer's selection of a product type 
or other information in the consumer's application, Sec. 1026.37 
requires the creditor to disclose those credit terms. For example, if 
the consumer selects a product type with a prepayment penalty, Sec. 
1026.37(b)(4) requires disclosure of the maximum amount of the 
prepayment penalty and period in which the prepayment penalty may be 
charged as known to the creditor at the time the disclosures are 
provided.
    37(b)(2) Interest rate.
    1. Interest rate at consummation not known. Where the interest rate 
that will apply at consummation is not known at the time the creditor 
must deliver the disclosures required by Sec. 1026.19(e), Sec. 
1026.37(b)(2) requires disclosure of the fully-indexed rate, defined as 
the index plus the margin at consummation. Although Sec. 1026.37(b)(2) 
refers to the index plus margin ``at consummation,'' if the index value 
that will be in effect at consummation is unknown at the time the 
disclosures are provided pursuant to Sec. 1026.19(e)(1)(iii), i.e., 
within three business days after receipt of a consumer's application, 
the fully-indexed rate disclosed under Sec. 1026.37(b)(2) may be based 
on the index in effect at the time the disclosure is delivered. The 
index in effect at consummation (or the time the disclosure is delivered 
pursuant to Sec. 1026.19(e)) need not be used if the contract provides 
for a delay in the implementation of changes in an index value. For 
example, if the contract specifies that rate changes are

[[Page 951]]

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.
    37(b)(3) Principal and interest payment.
    1. Frequency of principal and interest payment. Pursuant to Sec. 
1026.37(o)(5)(i), if the contract provides for a unit-period, as defined 
in appendix J to this part, of a month, such as a monthly payment 
schedule, the payment disclosed under Sec. 1026.37(b)(3) should be 
labeled ``Monthly Principal & Interest.'' If the contract requires bi-
weekly payments of principal or interest, the payment should be labeled 
``Bi-Weekly Principal & Interest.'' If a creditor voluntarily permits a 
payment schedule not provided for in the contract, such as an informal 
principal-reduction arrangement, the disclosure should reflect only the 
payment frequency provided for in the contract. See Sec. 1026.17(c)(1).
    2. Initial periodic payment if not known. Pursuant to Sec. 
1026.37(b)(3), the initial periodic payment amount that will be due 
under the terms of the legal obligation must be disclosed. If the 
initial periodic payment is not known because it will be based on an 
interest rate at consummation that is not known at the time the 
disclosures required by Sec. 1026.19(e) must be provided, for example 
if it is based on an external index that may fluctuate before 
consummation, Sec. 1026.37(b)(3) requires that the disclosure be based 
on the fully-indexed rate disclosed under Sec. 1026.37(b)(2). See 
comment 37(b)(2)-1 for guidance regarding calculating the fully-indexed 
rate.
    37(b)(4) Prepayment penalty.
    1. Transaction includes a prepayment penalty. Section 1026.37(b)(4) 
requires disclosure of a statement of whether the transaction includes a 
prepayment penalty. If the transaction includes a prepayment penalty, 
Sec. 1026.37(b)(7) sets forth the information that must be disclosed 
under Sec. 1026.37(b)(4) (i.e., the maximum amount of the prepayment 
penalty that may be imposed under the terms of the loan contract and the 
date on which the penalty will no longer be imposed). For an example of 
such disclosure, see form H-24 of appendix H to this part. The 
disclosure under Sec. 1026.37(b)(4) applies to transactions where the 
terms of the loan contract provide for a prepayment penalty, even though 
the creditor does not know at the time of the disclosure whether the 
consumer will, in fact, make a payment to the creditor that would cause 
imposition of the penalty. For example, if the monthly interest accrual 
amortization method described in comment 37(b)(4)-2.i is used such that 
interest is assessed on the balance for a full month even if the 
consumer makes a full prepayment before the end of the month, the 
transaction includes a prepayment penalty that must be disclosed 
pursuant to Sec. 1026.37(b)(4).
    2. Examples of prepayment penalties. For purposes of Sec. 
1026.37(b)(4), the following are examples of prepayment penalties:
    i. A charge determined by treating the loan balance as outstanding 
for a period of time after prepayment in full and applying the interest 
rate to such ``balance,'' even if the charge results from interest 
accrual amortization used for other payments in the transaction under 
the terms of the loan contract. ``Interest accrual amortization'' refers 
to the method by which the amount of interest due for each period (e.g., 
month) in a transaction's term is determined. For example, ``monthly 
interest accrual amortization'' treats each payment as made on the 
scheduled, monthly due date even if it is actually paid early or late 
(until the expiration of any grace period). Thus, under the terms of a 
loan contract providing for monthly interest accrual amortization, if 
the amount of interest due on May 1 for the preceding month of April is 
$3,000, the loan contract will require payment of $3,000 in interest for 
the month of April whether the payment is made on April 20, on May 1, or 
on May 10. In this example, if the consumer prepays the loan in full on 
April 20 and if the accrued interest as of that date is $2,000, then 
assessment of a charge of $3,000 constitutes a prepayment penalty of 
$1,000 because the amount of interest actually earned through April 20 
is only $2,000.
    ii. A fee, such as an origination or other loan closing cost, that 
is waived by the creditor on the condition that the consumer does not 
prepay the loan. See comment 37(b)(4)-3.iii below for additional 
guidance regarding waived bona fide third-party charges imposed by the 
creditor if the consumer pays all of a covered transaction's principal 
before the date on which the principal is due sooner than 36 months 
after consummation.
    iii. A minimum finance charge in a simple interest transaction.
    iv. 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). 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.
    3. Fees that are not prepayment penalties. For purposes of Sec. 
1026.37(b)(4), fees that are not prepayment penalties include, for 
example:

[[Page 952]]

    i. Fees imposed for preparing and providing documents when a loan is 
paid in full, if such fees are imposed whether or not the loan is 
prepaid. Examples include a loan payoff statement, a reconveyance 
document, or another document releasing the creditor's security interest 
in the dwelling that secures the loan.
    ii. Loan guarantee fees.
    iii. A waived bona fide third-party charge imposed by the creditor 
if the consumer pays all of a covered transaction's principal before the 
date on which the principal is due sooner than 36 months after 
consummation. For example, assume that at consummation, the creditor 
waives $3,000 in closing costs to cover bona fide third-party charges 
but the terms of the loan agreement provide that the creditor may recoup 
the $3,000 in waived charges if the consumer repays the entire loan 
balance sooner than 36 months after consummation. The $3,000 charge is 
not a prepayment penalty. In contrast, for example, assume that at 
consummation, the creditor waives $3,000 in closing costs to cover bona 
fide third-party charges but the terms of the loan agreement provide 
that the creditor may recoup $4,500 in part to recoup waived charges, if 
the consumer repays the entire loan balance sooner than 36 months after 
consummation. The $3,000 that the creditor may impose to cover the 
waived bona fide third-party charges is not a prepayment penalty, but 
the additional $1,500 charge is a prepayment penalty and must be 
disclosed pursuant to Sec. 1026.37(b)(4).
    4. Rebate of finance charge. For an obligation that includes a 
finance charge that does not take into account each reduction in the 
principal balance of the obligation, the disclosure under Sec. 
1026.37(b)(4) reflects whether or not the consumer is entitled to a 
rebate of any finance charge if the obligation is prepaid in full or 
part. Finance charges that do not take into account each reduction in 
the principal balance of an obligation may include precomputed finance 
charges. If any portion of an unearned precomputed finance charge will 
not be provided as a rebate upon full prepayment, the disclosure 
required by Sec. 1026.37(b)(4) will be an affirmative answer, indicate 
the maximum amount of such precomputed finance charge that may not be 
provided as a rebate to the consumer upon any prepayment, and state when 
the period during which a full rebate would not be provided terminates, 
as required by Sec. 1026.37(b)(7). If, instead, there will be a full 
rebate of the precomputed finance charge and no other prepayment penalty 
imposed on the consumer, to comply with the requirements of Sec. 
1026.37(b)(4) and (7), the creditor states a negative answer only. If 
the transaction involves both a precomputed finance charge and a finance 
charge computed by application of a rate to an unpaid balance, 
disclosure about both the entitlement to any rebate of the finance 
charge upon prepayment and any other prepayment penalty are made as one 
disclosure under Sec. 1026.37(b)(4), stating one affirmative or 
negative answer and an aggregated amount and time period for the 
information required by Sec. 1026.37(b)(7). For example, if in such a 
transaction, a portion of the precomputed finance charge will not be 
provided as a rebate and the loan contract also provides for a 
prepayment penalty based on the amount prepaid, both disclosures are 
made under Sec. 1026.37(b)(4) as one aggregate amount, stating the 
maximum amount and time period under Sec. 1026.37(b)(7). If the 
transaction instead provides a rebate of the precomputed finance charge 
upon prepayment, but imposes a prepayment penalty based on the amount 
prepaid, to comply with Sec. 1026.37(b)(4), the creditor states an 
affirmative answer and the information about the prepayment penalty, as 
required by Sec. 1026.37(b)(7). For further guidance and examples of 
these types of charges, see comment 18(k)(2)-1. For analogous guidance, 
see comment 18(k)-2. For further guidance on prepaid finance charges 
generally, see comment 18(k)-3.
    5. Additional guidance. For additional guidance generally on 
disclosure of prepayment penalties, see comment 18(k)-1.
    37(b)(5) Balloon payment.
    1. Regular periodic payment. If a payment is not itself a regular 
periodic payment and is more than two times any one regular periodic 
payment during the loan term, then it is disclosed as a balloon payment 
under Sec. 1026.37(b)(5). The regular periodic payments used to 
determine whether a payment is a balloon payment under Sec. 
1026.37(b)(5) are the payments of principal and interest (or interest 
only, depending on the loan features) specified under the terms of the 
loan contract that are due from the consumer for two or more unit-
periods in succession. All regular periodic payments during the loan 
term are used to determine whether a particular payment is a balloon 
payment, regardless of whether the regular periodic payments have 
changed during the loan term due to rate adjustments or other payment 
changes permitted or required under the loan contract.
    i. For example, assume that, under a 15-year step rate mortgage, the 
loan contract provides for scheduled monthly payments of $300 each 
during the years one through three and scheduled monthly payments of 
$700 each during years four through 15. If an irregular payment of 
$1,000 is scheduled during the final month of year 15, that payment is 
disclosed as a balloon payment under Sec. 1026.37(b)(5), because it is 
more than two times the regular periodic payment amount of $300 during 
years one through three. This is the case even though the irregular 
payment is not more than two times the regular periodic payment of $700 
per month during years four through fifteen. The $700 monthly

[[Page 953]]

payments during years four through fifteen are not balloon payments even 
though they are more than two times the regular periodic payments during 
years one through three, because they are regular periodic payments.
    ii. If the loan has an adjustable rate under which the regular 
periodic payments may increase after consummation, but the amounts of 
such payment increases (if any) are unknown at the time of consummation, 
then the regular periodic payments are based on the fully-indexed rate, 
except as otherwise determined by any premium or discounted rates, the 
application of any interest rate adjustment caps, or any other known, 
scheduled rates under the terms specified in the loan contract. For 
analogous guidance, see comments 17(c)(1)-8 and -10. Similarly, if a 
loan has an adjustable interest rate which does not adjust the regular 
periodic payment but would, if the rate increased, increase only the 
final payment, the amount of the final payment for purposes of the 
balloon payment determination is based on the fully-indexed rate, except 
as otherwise determined by any premium or discounted rate caps, or any 
other known, scheduled rates under the terms specified in the loan 
contract. For example, assume that, under a 30-year adjustable rate 
mortgage, (1) the loan contract requires monthly payments of $300 during 
years one through five, (2) the loan contract permits interest rate 
increases every three years starting in the sixth year up to the fully-
indexed rate, subject to caps on interest rate adjustments specified in 
the loan contract, (3) based on the application of the interest rate 
adjustment caps, the interest rate may increase to the fully-indexed 
rate starting in year nine, and (4) the monthly payment based on the 
fully-indexed rate is $700. The regular periodic payments during years 
one through five are $300 per month, because they are known and 
scheduled. The regular periodic payments during years six through eight 
are up to $700 per month, based on the fully-indexed rate but subject to 
the application of interest rate adjustment caps specified under the 
loan contract. The regular periodic payments during years nine through 
thirty are $700, based on the fully-indexed rate. Therefore, if an 
irregular payment of $1,000 is scheduled during the final month of year 
30, that payment is disclosed as a balloon payment under Sec. 
1026.37(b)(5), because it is more than two times the regular periodic 
payment amount of $300 during years one through five. This is the case 
even though the irregular payment is not more than two times the regular 
periodic payment during years nine through thirty (i.e., based on the 
fully-indexed rate). However, the regular periodic payments during years 
six through thirty themselves are not balloon payments, even though they 
may be more than two times the regular periodic payments during years 
one through five.
    iii. For a loan with a negative amortization feature, the regular 
periodic payment does not take into account the possibility that the 
consumer may exercise an option to make a payment greater than the 
scheduled periodic payment specified under the terms of the loan 
contract, if any.
    iv. A final payment that differs from other regular periodic 
payments because of rounding to account for payment amounts including 
fractions of cents is still a regular periodic payment and need not be 
disclosed as a balloon payment under Sec. 1026.37(b)(5).
    v. The disclosure of balloon payments in the ``Projected Payments'' 
table under Sec. 1026.37(c) is governed by that section and its 
commentary, rather than Sec. 1026.37(b)(5), except that the 
determination, as a threshold matter, of whether a payment disclosed 
under Sec. 1026.37(c) is a balloon payment is made in accordance with 
Sec. 1026.37(b)(5) and its commentary.
    2. Single and double payment transactions. The definition of a 
``balloon payment'' under Sec. 1026.37(b)(5) includes the payments 
under transactions that require only one or two payments during the loan 
term, even though a single payment transaction does not require regular 
periodic payments, and a transaction with only two scheduled payments 
during the loan term may not require regular periodic payments.
    37(b)(6) Adjustments after consummation.
    1. Periods not in whole years. For guidance on how to disclose 
increases after consummation that occur after a period that does not 
equate to a number of whole years in compliance with Sec. 
1026.37(b)(6), see comment 37(a)(10)-3.
    37(b)(6)(i) Adjustment in loan amount.
    1. Additional information regarding adjustment in loan amount. A 
creditor complies with the requirement under Sec. 1026.37(b)(6)(i) to 
disclose additional information indicating whether the maximum principal 
balance is potential or is scheduled to occur under the terms of the 
legal obligation by using the phrase ``Can go as high as'' or ``Goes as 
high as,'' respectively. A creditor complies with the requirement under 
Sec. 1026.37(b)(6)(i) to disclose additional information indicating the 
due date of the last payment that may cause the principal balance to 
increase by using the phrase ``Increases until.'' See form H-24 of 
appendix H to this part for the required format of such phrases, which 
is required for federally related mortgage loans under Sec. 
1026.37(o)(3).
    37(b)(6)(ii) Adjustment in interest rate.
    1. Additional information regarding adjustment in interest rate. A 
creditor complies with the requirement under Sec. 1026.37(b)(6)(ii) to 
disclose additional information indicating the frequency of adjustments 
to the interest rate and date when the interest rate may first adjust by 
using the phrases ``Adjusts

[[Page 954]]

every'' and ``starting in.'' A creditor complies with the requirement 
under Sec. 1026.37(b)(6)(ii) to disclose additional information 
indicating the maximum interest rate, and the first date when the 
interest rate can reach the maximum interest rate using the phrase ``Can 
go as high as'' and then indicating the date at the end of that phrase 
or for a scheduled maximum interest rate under a step rate loan, ``Goes 
as high as.'' If the loan term may increase based on an interest rate 
adjustment, the disclosure shall indicate the maximum possible loan term 
using the phrase ``Can increase loan term to.'' See form H-24 of 
appendix H to this part for the required format of such phrases, which 
is required for federally related mortgage loans under Sec. 
1026.37(o)(3).
    2. Interest rates that adjust at multiple intervals. If the terms of 
the legal obligation provide for more than one adjustment period, Sec. 
1026.37(b)(6)(ii) requires disclosure of only the frequency of the first 
interest rate adjustment. For example, if the interest rate is fixed for 
five years, then adjusts every two years starting in year six, then 
adjusts every year starting in year 10, the disclosure required is 
``Adjusts every 2 years starting in year 6.''
    37(b)(6)(iii) Increase in periodic payment.
    1. Additional information regarding increase in periodic payment. A 
creditor complies with the requirement under Sec. 1026.37(b)(6)(iii) to 
disclose additional information indicating the scheduled frequency of 
adjustments to the periodic principal and interest payment by using the 
phrases ``Adjusts every'' and ``starting in.'' A creditor complies with 
the requirement under Sec. 1026.37(b)(6)(iii) to disclose additional 
information indicating the maximum possible periodic principal and 
interest payment, and the date when the periodic principal and interest 
payment may first equal the maximum principal and interest payment by 
using the phrase ``Can go as high as'' and then indicating the date at 
the end of that phrase or for a scheduled maximum amount, such as under 
a step payment loan, ``Goes as high as.'' A creditor complies with the 
requirement under Sec. 1026.37(b)(6)(iii) to indicate that there is a 
period during which only interest is required to be paid and the due 
date of the last periodic payment of such period using the phrase 
``Includes only interest and no principal until.'' See form H-24 of 
appendix H to this part for the required format of such phrases, which 
is required for federally related mortgage loans under Sec. 
1026.37(o)(3).
    2. Periodic principal and interest payments that adjust at multiple 
intervals. If there are multiple periods of adjustment under the terms 
of the legal obligation, Sec. 1026.37(b)(6)(iii) requires disclosure of 
the frequency of only the first adjustment to the periodic principal and 
interest payment, regardless of the basis for the adjustment. 
Accordingly, where the periodic principal and interest payment may 
change because of more than one factor and such adjustments are on 
different schedules, the frequency disclosed is the adjustment of 
whichever factor adjusts first. For example, where the interest rate for 
a transaction is fixed until year six and then adjusts every three years 
but the transaction also has a negative amortization feature that ends 
in year seven, Sec. 1026.37(b)(6)(iii) requires disclosure that the 
interest rate will adjust every three years starting in year six because 
the periodic principal and interest payment adjusts based on the 
interest rate before it adjusts based on the end of the negative 
amortization period.
    37(b)(7) Details about prepayment penalty and balloon payment.
    Paragraph 37(b)(7)(i).
    1. Maximum prepayment penalty. Section 1026.37(b)(7)(i) requires 
disclosure of the maximum amount of the prepayment penalty that may be 
imposed under the terms of the legal obligation. The creditor complies 
with Sec. 1026.37(b)(7)(i) when it assumes that the consumer prepays at 
a time when the prepayment penalty may be charged and that the consumer 
makes all payments prior to the prepayment on a timely basis and in the 
amount required by the terms of the legal obligation. The creditor must 
determine the maximum of each amount used in calculating the prepayment 
penalty. For example, if a transaction is fully amortizing and the 
prepayment penalty is two percent of the loan balance at the time of 
prepayment, the prepayment penalty amount should be determined by using 
the highest loan balance possible during the period in which the penalty 
may be imposed. If more than one type of prepayment penalty applies, the 
creditor must aggregate the maximum amount of each type of prepayment 
penalty in the maximum penalty disclosed.
    2. Additional information regarding prepayment penalty. A creditor 
complies with the requirement under Sec. 1026.37(b)(7)(i) to disclose 
additional information indicating the maximum amount of the prepayment 
penalty that may be imposed and the date when the period during which 
the penalty may be imposed terminates using the phrases ``As high as'' 
and ``if you pay off the loan during.'' See form H-24 of appendix H to 
this part for the required format of such phrases, which is required for 
federally related mortgage loans under Sec. 1026.37(o)(3).
    Paragraph 37(b)(7)(ii).
    1. Additional information regarding balloon payment. A creditor 
complies with the requirement under Sec. 1026.37(b)(7)(ii) to disclose 
additional information indicating the maximum amount of the balloon 
payment and the due date of such payment using the phrases ``You will 
have to pay'' and ``at the end of.'' See form H-24 of appendix H to this

[[Page 955]]

part for the required format of such phrases, which is required for 
federally related mortgage loans under Sec. 1026.37(o)(3). If the 
transaction includes more than one balloon payment, a creditor complies 
with Sec. 1026.37(b)(7)(ii) by disclosing the highest of the balloon 
payments and the due date of that payment.
    37(b)(8) Timing.
    1. Whole years. For adjustments that occur after a period of whole 
years, the timing of information required by Sec. 1026.37(b)(8) starts 
with year number ``1,'' counting from the date that interest for the 
first scheduled periodic payment begins to accrue for Sec. 
1026.37(b)(8)(i), or from the due date of the first periodic payment for 
Sec. 1026.37(b)(8)(ii), or from the date of consummation for Sec. 
1026.37(b)(8)(iii). For example, an interest rate that is fixed for five 
years and can first adjust at the beginning of the 61st month from the 
date that interest for the regularly scheduled periodic payment began to 
accrue would be disclosed as beginning to adjust in ``year 6.'' A 
monthly periodic payment that adjusts starting with the 61st scheduled 
payment likewise would be disclosed as adjusting in ``year 6.''
    2. Periods not in whole years. For adjustments that occur after a 
number of months less than 24 that do not equate to a number of whole 
years or within a number of days less than a week, see the guidance 
provided in comment 37(a)(10)-3.
    37(c) Projected payments.
    1. Definitions. For purposes of Sec. 1026.37(c), the terms 
``adjustable rate,'' ``fixed rate,'' ``negative amortization,'' and 
``interest only'' have the meanings in Sec. 1026.37(a)(10).
    37(c)(1) Periodic payment or range of payments.
    Paragraph 37(c)(1)(i).
    1. Periodic payments. For purposes of Sec. 1026.37(c)(1)(i), the 
periodic payment is the regularly scheduled payment of principal and 
interest, mortgage insurance premiums, and escrow payments described in 
Sec. 1026.37(c)(2) without regard to any final payment that differs 
from other payments because of rounding to account for payment amounts 
including fractions of cents.
    2. Initial periodic payment or range of payments. Section 
1026.37(c)(1)(i) requires the creditor to disclose the initial periodic 
payment or range of payments. The disclosure required is of the actual 
periodic payment or range of payments that corresponds to the interest 
rate that will apply at consummation, including any initial discounted 
or premium interest rate. For examples of discounted and premium rate 
transactions, see comment 17(c)(1)-10.v. For guidance regarding whether 
the disclosure should reflect a buydown, see comments 17(c)(1)-3 through 
-5. If the initial periodic payment or range of payments may vary based 
on an adjustment to an index value that applies at consummation, Sec. 
1026.37(c)(1)(i) requires that the disclosure of the initial periodic 
payment or range of payments be based on the fully-indexed rate 
disclosed under Sec. 1026.37(b)(2). See comment 37(b)(2)-1 for guidance 
regarding calculating the fully-indexed rate.
    Paragraph 37(c)(1)(i)(A).
    1. Periodic principal and interest payments. For purposes of Sec. 
1026.37(c)(1)(i)(A), periodic principal and interest payments may change 
when the interest rate, applicable interest rate caps, required periodic 
principal and interest payments, or ranges of such payments may change. 
Minor payment variations resulting solely from the fact that months have 
different numbers of days are not changes to periodic principal and 
interest payments.
    2. Negative amortization. In a loan that contains a negative 
amortization feature, periodic principal and interest payments or the 
range of such payments may change for purposes of Sec. 
1026.37(c)(1)(i)(A) at the time the negative amortization period ends 
under the terms of the legal obligation, meaning the consumer must begin 
making payments that do not result in an increase of the principal 
balance. The occurrence of an event requiring disclosure of additional 
separate periodic payments or ranges of payments should be based on the 
assumption that the consumer will make payments as scheduled or, if 
applicable, elect to make the periodic payments that would extend the 
negative amortization period to the latest time permitted under the 
terms of the legal obligation. The occurrence of all subsequent events 
requiring disclosure of additional separate periodic payments or ranges 
of payments should be based on this assumption. The table required by 
Sec. 1026.37(c) should also reflect any balloon payment that would 
result from such scheduled payments or election. See Sec. 
1026.37(c)(1)(ii)(A) for special rules regarding disclosure of balloon 
payments.
    3. Interest only. In a loan that contains an interest only feature, 
periodic principal and interest payments may change for purposes of 
Sec. 1026.37(c)(1)(i)(A) when the interest only period ends, meaning 
the consumer must begin making payments that do not defer repayment of 
principal.
    Paragraph 37(c)(1)(i)(B).
    1. Balloon payment. For purposes of Sec. 1026.37(c)(1)(i)(B), 
whether a balloon payment occurs is determined pursuant to Sec. 
1026.37(b)(5) and its commentary. For guidance on the amount of a 
balloon payment disclosed on the table required by Sec. 1026.37(c), see 
comment 37(c)(2)(i)-3.
    Paragraph 37(c)(1)(i)(C).
    1. General. ``Mortgage insurance or any functional equivalent'' 
means the amounts identified in Sec. 1026.4(b)(5). For purposes of 
Sec. 1026.37(c), ``mortgage insurance or any functional equivalent'' 
includes any mortgage guarantee that provides coverage similar to

[[Page 956]]

mortgage insurance (such as a United States Department of Veterans 
Affairs or United States Department of Agriculture guarantee), even if 
not technically considered insurance under State or other applicable 
law. The fees for such a guarantee are included in ``mortgage insurance 
premiums.''
    2. Calculation of mortgage insurance termination. For purposes of 
Sec. 1026.37(c)(1)(i)(C), mortgage insurance premiums should be 
calculated based on the declining principal balance that will occur as a 
result of changes to the interest rate and payment amounts, applying the 
interest rates applicable to the transaction. Such calculation should 
take into account any initial discounted or premium interest rate. For 
example, for an adjustable rate transaction that has a discounted 
interest rate during an initial five-year period, the creditor makes the 
calculation using a composite rate based on the rate in effect during 
the initial five-year period and, thereafter, the fully-indexed rate, 
unless otherwise required by applicable law. For guidance on calculation 
of the amount of mortgage insurance premiums to disclose on the table 
required by Sec. 1026.37(c), see Sec. 1026.37(c)(2)(ii) and its 
commentary. See comment 37(b)(2)-1 for guidance regarding calculating 
the fully-indexed rate.
    3. Disclosure of mortgage insurance termination. The table required 
by Sec. 1026.37(c) should reflect the consumer's mortgage insurance 
premiums 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. Unlike 
termination of mortgage insurance, a subsequent decline in the 
consumer's mortgage insurance premiums is not, by itself, an event that 
requires the disclosure of additional separate periodic payments or 
ranges of payments in the table required by Sec. 1026.37(c). For 
example, some mortgage insurance programs annually adjust premiums based 
on the declining loan balance. Such annual adjustment to the amount of 
premiums would not require a separate disclosure of a periodic payment 
or range payments.
    Paragraph 37(c)(1)(i)(D).
    1. Anniversary of the due date of initial periodic payment. Section 
1026.37(c)(1)(i)(D) provides that the anniversary of the due date of the 
initial periodic payment or range of payments that immediately follows 
the occurrence of multiple events described in Sec. 1026.37(c)(1)(i)(A) 
during a single year is an event that requires disclosure of additional 
periodic payments or ranges of payments. Section 1026.37(c)(1)(i)(A) 
provides that a potential change in the periodic principal and interest 
payment is an event requiring disclosure of additional separate periodic 
payments. See comment 37(c)(1)(iii)(B)-1 for an example of the 
application of Sec. 1026.37(c)(1)(i)(D).
    Paragraph 37(c)(1)(ii).
    Paragraph 37(c)(1)(ii)(A).
    1. Special rule regarding balloon payments that are final payments. 
Section 1026.37(c)(1)(ii)(A) is an exception to the general rule in 
Sec. 1026.37(c)(1)(ii), and requires that a balloon payment that is 
scheduled as a final payment under the terms of the legal obligation is 
always disclosed as a separate periodic payment or range of payments, in 
which case the creditor discloses as a single range of payments all 
events requiring disclosure of additional separate periodic payments or 
ranges of payments described in Sec. 1026.37(c)(1)(i)(A) through (D), 
other than the final balloon payment, occurring after the second 
separate periodic payment or range of payments disclosed. Balloon 
payments that are not scheduled as final payments under the terms of the 
legal obligation, such as a balloon payment due at the scheduled recast 
of a loan that permits negative amortization, are disclosed pursuant to 
the general rule in Sec. 1026.37(c)(1)(ii). A balloon payment that is a 
final payment is disclosed as a single payment, and not combined with 
other changes to periodic principal and interest payments and disclosed 
as a range.
    2. Example. Assume a loan with a term of seven years, where the 
interest rate adjusts each year for the first three years and is fixed 
thereafter, that provides for a balloon payment as the final payment, 
where no mortgage insurance is required, and no escrow account will be 
established for the payment of charges described in Sec. 
1026.37(c)(4)(ii). The creditor discloses on the table required by Sec. 
1026.37(c) in the first column the initial periodic payment or range of 
payments, in the second column the periodic payment or range of payments 
that would apply after the first interest rate adjustment, in the third 
column the periodic payments or ranges of payments that would apply 
after the second interest rate adjustment until the final balloon 
payment (disclosed as a single range of payments), and in the fourth 
column the final balloon payment. Although the balloon payment that is 
scheduled as the final payment under the terms of the legal obligation 
occurs after the third separate periodic payment or range of payments, 
the creditor discloses the final balloon payment as a separate event 
requiring disclosure of additional periodic payments or range of 
payments due to the special rule in Sec. 1026.37(c)(1)(ii)(A).
    Paragraph 37(c)(1)(ii)(B).
    1. Special rule regarding disclosure of the automatic termination of 
mortgage insurance. Section 1026.37(c)(1)(ii)(B) is an exception to the 
general rule in Sec. 1026.37(c)(1)(ii), and requires that the automatic 
termination of

[[Page 957]]

mortgage insurance or any functional equivalent under applicable law is 
disclosed as a separate periodic payment or range of payments only if 
the total number of separate periodic payments or ranges of payments 
otherwise disclosed does not exceed three. This means that the automatic 
termination of mortgage insurance or any functional equivalent under 
applicable law is disclosed as its own event only if there is a column 
in which to disclose it, i.e., there are only three other separate 
periodic payments or ranges of payments that are required to be 
disclosed. Where the automatic termination of mortgage insurance or any 
functional equivalent under applicable law is not disclosed as a 
separate periodic payment or range of payments, the absence of a 
required mortgage insurance payment is disclosed with the next disclosed 
event requiring disclosure of additional separate periodic payments or 
ranges of payments, as applicable.
    2. Examples of special rule regarding disclosure of the automatic 
termination of mortgage insurance. i. Assume a step-rate loan with a 30-
year term with an introductory interest rate that lasts for five years, 
a different interest rate that applies for the next five-year period, a 
final interest rate adjustment after 10 years, where mortgage insurance 
would terminate for purposes of Sec. 1026.37(c)(1)(i)(C) in the third 
year, and where no escrow account would be established for the payment 
of charges described in Sec. 1026.37(c)(4)(ii). The creditor would 
disclose on the table required by Sec. 1026.37(c) the initial periodic 
payment for years one through three (reflecting the principal and 
interest payment corresponding to the introductory interest rate and 
payments for mortgage insurance premiums), an additional separate 
periodic payment for years four and five (reflecting the principal and 
interest payment corresponding to the introductory rate and no payments 
for mortgage insurance premiums), an additional separate periodic 
payment or range of payments for years six through 10 (reflecting the 
principal and interest payment corresponding to the interest rate that 
would apply after the introductory rate), and an additional separate 
periodic payment or range of payments for years 11 through 30 
(reflecting the principal and interest payment corresponding to the 
interest rate that would apply after the second interest rate adjustment 
until the end of the loan term). In this example, the automatic 
termination of mortgage insurance would be separately disclosed on the 
table required by Sec. 1026.37(c) because the total number of separate 
periodic payments or ranges of payments otherwise disclosed pursuant to 
Sec. 1026.37(c)(1) does not exceed three.
    ii. Assume the same loan as above, except that the terms of the 
legal obligation also provide for a third interest rate adjustment that 
would occur after 15 years. The creditor would disclose on the table 
required by Sec. 1026.37(c) the initial periodic payment for years one 
through five (reflecting the principal and interest payment 
corresponding to the introductory interest rate and payments for 
mortgage insurance premiums), an additional separate periodic payment or 
range of payments for years six through 10 (reflecting the principal and 
interest payment corresponding to the interest rate that would apply 
after the first interest rate adjustment and no payments for mortgage 
insurance premiums), an additional separate periodic payment or range of 
payments for years 11 through 15 (reflecting the principal and interest 
payment corresponding to the interest rate that would apply after the 
second interest rate adjustment), and an additional separate periodic 
payment or range of payments for years 16 through 30 (reflecting the 
principal and interest payment corresponding to the interest rate that 
would apply after the third interest rate adjustment until the end of 
the loan term). In this example, the automatic termination of mortgage 
insurance would not be separately disclosed on the table required by 
Sec. 1026.37(c) because the total number of separate periodic payments 
or ranges of payments otherwise disclosed pursuant to Sec. 
1026.37(c)(1) exceeds three. However, the creditor would disclose the 
termination of mortgage insurance beginning with the periodic payment or 
range of payments for years six through 10, which is the next disclosed 
event requiring disclosure of additional separate periodic payments or 
ranges of payments.
    Paragraph 37(c)(1)(iii).
    1. Ranges of payments. When a range of payments is required to be 
disclosed under Sec. 1026.37(c)(1), Sec. 1026.37(c)(1)(iii) requires 
the creditor to disclose the minimum and maximum amount for both the 
principal and interest payment under Sec. 1026.37(c)(2)(i) and the 
total periodic payment under Sec. 1026.37(c)(2)(iv). The amount 
required to be disclosed for mortgage insurance premiums pursuant to 
Sec. 1026.37(c)(2)(ii) and the amount payable into an escrow account 
pursuant to Sec. 1026.37(c)(2)(iii) shall not be disclosed as a range.
    Paragraph 37(c)(1)(iii)(B).
    1. Multiple events occurring in a single year. If changes to 
periodic principal and interest payments would result in more than one 
separate periodic payment or range of payments in a single year, Sec. 
1026.37(c)(1)(iii)(B) requires the creditor to disclose the range of 
payments that would apply during the year in which the events occur. For 
example, assume a loan with a 30-year term with a payment that adjusts 
every month for the first 12 months and is fixed thereafter, where 
mortgage insurance is not required, and where no escrow account would be 
established for the payment of charges described in Sec. 
1026.37(c)(4)(ii). The creditor discloses as a

[[Page 958]]

single range of payments the initial periodic payment and the periodic 
payment that would apply after each payment adjustment during the first 
12 months and would also disclose, as an additional separate periodic 
payment or range of payments, the periodic principal and interest 
payment or range of payments that would apply after the payment becomes 
fixed. Assume instead a loan with a 30-year term with a payment that 
adjusts upward at three months and at six months and is fixed 
thereafter, where mortgage insurance is not required, and where no 
escrow account would be established for the payment of charges described 
in Sec. 1026.37(c)(4)(ii). The creditor discloses as a single range of 
payments the initial periodic payment, the periodic payment that would 
apply after the payment adjustment that occurs at three months, and the 
periodic payment that would apply after the payment adjustment that 
occurs at six months, which single range represents the minimum payment 
and maximum payment, respectively, which would apply during the first 
year of the loan. Pursuant to Sec. 1026.37(c)(1)(i)(D), the creditor 
also discloses as an additional separate periodic payment or range of 
payments, the principal and interest payment that would apply on the 
one-year anniversary of the due date of the initial periodic payment or 
range of payments, because that is the anniversary that immediately 
follows the occurrence of the multiple payments or ranges of payments 
that occurred during the first year of the loan. Assume that the same 
loan has a payment that, instead of becoming fixed after the adjustment 
at six months, adjusts once more at 18 months and becomes fixed 
thereafter. The creditor would disclose the same single range of 
payments for year one. Pursuant to Sec. 1026.37(c)(1)(iii)(B), the 
creditor also discloses the principal and interest payment that would 
apply on the one-year anniversary of the due date of the initial 
periodic payment (as required by Sec. 1026.37(c)(1)(i)(D)) and the 
periodic payment that would apply after the payment adjustment that 
occurs at 18 months as a single range of payments in year two. Pursuant 
to Sec. 1026.37(c)(1)(i)(D), the creditor also discloses as an 
additional separate periodic payment or range of payments, the principal 
and interest payment that would apply on the two-year anniversary of the 
due date of the initial periodic payment or range of payments, because 
that is the anniversary that immediately follows the occurrence of the 
multiple payments or ranges of payments that occurred during the second 
year of the loan.
    Paragraph 37(c)(1)(iii)(C).
    1. Adjustable rate mortgages. For an adjustable rate loan, the 
periodic principal and interest payment at each time the interest rate 
may change will depend on the rate that applies at the time of the 
adjustment, which is not known at the time the disclosure is provided. 
As a result, the creditor discloses the minimum and maximum periodic 
principal and interest payment that could apply during each period 
disclosed pursuant to Sec. 1026.37(c)(1) after the first period.
    37(c)(2) Itemization.
    Paragraph 37(c)(2)(i).
    1. General rule for adjustable rate loans. For an adjustable rate 
loan, in disclosing the maximum possible payment for principal and 
interest under Sec. 1026.37(c), the creditor assumes that the interest 
rate will rise as rapidly as possible after consummation, taking into 
account the terms of the legal obligation, including any applicable caps 
on interest rate adjustments and lifetime interest rate cap. For a loan 
with no lifetime interest rate cap, the maximum rate is determined by 
reference to other applicable laws, such as State usury law. In 
disclosing the minimum payment for purposes of Sec. 1026.37(c), the 
creditor assumes that the interest rate will decrease as rapidly as 
possible after consummation, taking into account any introductory rates, 
caps on interest rate adjustments, and lifetime interest rate floor. For 
an adjustable rate loan based on an index that has no lifetime interest 
rate floor, the minimum interest rate is equal to the margin.
    2. Special rule for adjustable rate loans with negative amortization 
features. Section 1026.37(c)(2)(i)(B) provides a special rule for 
calculation of the maximum principal and interest payment in an 
adjustable rate loan that contains a negative amortization feature. That 
section provides that the maximum amounts payable for principal and 
interest after the negative amortization period ends are calculated 
using the maximum principal amount permitted under the terms of the 
legal obligation at the end of the negative amortization period. See 
section Sec. 1026.37(c)(1)(i)(A) and associated commentary for guidance 
regarding when the negative amortization period ends for purposes of 
Sec. 1026.37(c)(2). For example, if the maximum principal balance for 
the last payment in the negative amortization period is achieved at an 
interest rate that is not the maximum interest rate permitted under the 
terms of the legal obligation before the negative amortization period 
ends, future events requiring disclosure of additional, separate 
periodic payments or ranges of payments assume that the interest rate in 
effect at the end of the negative amortization period was such interest 
rate, and not the maximum possible interest rate. After the end of the 
negative amortization period, the general rule under Sec. 
1026.37(c)(2)(i)(A) regarding assumptions of interest rate changes for 
the maximum principal and interest payment to be disclosed applies from 
such interest rate. The minimum payment in an adjustable rate loan that 
contains a negative amortization

[[Page 959]]

feature is determined pursuant to the general rule under Sec. 
1026.37(c)(2)(i)(A).
    3. Disclosure of balloon payment amounts. Although the existence of 
a balloon payment is determined pursuant to Sec. 1026.37(b)(5) and its 
commentary (see comment 37(c)(1)(i)(B)-1), balloon payment amounts to be 
disclosed under Sec. 1026.37(c) are calculated in the same manner as 
periodic principal and interest payments under Sec. 1026.37(c)(2)(i). 
For example, for a balloon payment amount that can change depending on 
previous interest rate adjustments that are based on the value of an 
index at the time of the adjustment, the balloon payment amounts are 
calculated using the assumptions for minimum and maximum interest rates 
described in Sec. 1026.37(c)(2)(i) and its commentary, and should be 
disclosed as a range of payments.
    Paragraph 37(c)(2)(ii).
    1. Mortgage insurance disclosure. Mortgage insurance premiums should 
be reflected on the disclosure required by Sec. 1026.37(c) even if no 
escrow account is established for the payment of mortgage insurance 
premiums. If the consumer is not required to purchase mortgage insurance 
or any functional equivalent, the creditor discloses the mortgage 
insurance premium amount as ``0.'' If the creditor is disclosing the 
automatic termination or the absence of mortgage insurance or any 
functional equivalent under applicable law or the absence of mortgage 
insurance or any functional equivalent after coverage has terminated, 
the creditor discloses the mortgage insurance premium as ``-.''
    2. Relationship to principal and interest disclosure. The creditor 
discloses mortgage insurance premiums pursuant to Sec. 
1026.37(c)(2)(ii) on the same periodic basis that payments for principal 
and interest are disclosed pursuant to Sec. 1026.37(c)(2)(i), even if 
mortgage insurance premiums are actually paid on some other periodic 
basis. If no escrow account for the payment of some or all such charges 
will be established, the creditor discloses the mortgage insurance 
premium as ``0.''
    Paragraph 37(c)(2)(iii).
    1. Escrow disclosure. The disclosure described in Sec. 
1026.37(c)(2)(iii) is required only if the creditor will establish an 
escrow account for the payment of some or all of the charges described 
in Sec. 1026.37(c)(4)(ii).
    37(c)(3) Subheadings.
    Paragraph 37(c)(3)(ii).
    1. Years. Section 1026.37(c)(3)(ii) requires that each separate 
periodic payment or range of payments be disclosed under a subheading 
that states the years during which that payment or range of payments 
will apply and that such subheadings be stated in a sequence of whole 
years from the due date of the initial periodic payment. Therefore, for 
purposes of Sec. 1026.37(c), ``year'' is defined as the twelve-month 
interval beginning on the due date of the initial periodic payment, and 
the next whole year begins each anniversary thereafter. If an event 
requiring the disclosure of an additional separate periodic payment or 
range of payments occurs on a date other than the anniversary of the due 
date of the initial periodic payment, and no other events occur during 
that single year requiring disclosure of multiple events under Sec. 
1026.37(c)(1)(iii)(B), such event is disclosed beginning in the next 
year in the sequence, because the separate periodic payment or range of 
payments that applied during the previous year will also apply during a 
portion of that year. For example:
    i. Assume a fixed rate loan with a term of 124 months (10 years, 
four months). The creditor would label the disclosure of periodic 
payments as ``Years 1-11.''
    ii. Assume a loan with a 30-year term that does not require mortgage 
insurance and requires interest only payments for the first 60 months 
from the due date of the initial periodic payment, then requires fixed, 
fully amortizing payments of principal and interest beginning at the 
61st month for the duration of the loan, the creditor would label the 
first disclosure of periodic payments as ``Years 1-5'' (including the 
term ``only interest'' pursuant to Sec. 1026.37(c)(2)(i)) and the 
second disclosure of periodic payments or range of payments as ``Years 
6-30.'' If that loan requires interest only payments for the first 54 
months from the due date of the initial periodic payment, then requires 
fixed, fully amortizing payments of principal and interest for the 
duration of the loan, because the change in the periodic payment occurs 
on a date other than the anniversary of the due date of the initial 
periodic payment and the previous payment applies during that year, the 
creditor would likewise label the first disclosure of periodic payments 
as ``Years 1-5'' (including the term ``only interest'' pursuant to Sec. 
1026.37(c)(2)(i)) and the second disclosure of periodic payments or 
range of payments as ``Years 6-30.'' If the loan that requires interest 
only payments for the first 54 months also requires mortgage insurance 
that would automatically terminate under applicable law after the 100th 
month from the due date of the initial periodic payment, the creditor 
would label the first disclosure of periodic payments as ``Years 1-5'' 
(including the term ``only interest'' pursuant to Sec. 
1026.37(c)(2)(i)), the second disclosure of periodic payments or range 
of payments as ``Years 6-9,'' and the third disclosure of periodic 
payments or range of payments as ``Years 10-30.''
    2. Loans with variable terms. If the loan term may increase based on 
an adjustment of the interest rate, the creditor must disclose the 
maximum loan term possible under the legal obligation. To calculate the 
maximum loan term, the creditor assumes that the interest rate rises as 
rapidly as possible, taking into account the terms of the legal

[[Page 960]]

obligation, including any applicable caps on interest rate adjustments 
and lifetime interest rate cap. See comment 37(a)(8)-2.
    37(c)(4) Taxes, insurance, and assessments.
    Paragraph 37(c)(4)(ii).
    1. Definition of taxes, insurance, and assessments. See the 
commentary under Sec. 1026.43(b)(8) for guidance on the charges that 
are included in taxes, insurance, and assessments for purposes of Sec. 
1026.37(c)(4)(ii), except that the portion of that commentary related to 
amounts identified in Sec. 1026.4(b)(5) is inapplicable to the 
disclosure required by Sec. 1026.37(c)(4)(ii).
    Paragraph 37(c)(4)(iv).
    1. Description of other amounts. Section 1026.37(c)(4)(iv) requires 
the creditor to disclose a statement of whether the amount disclosed 
pursuant to Sec. 1026.37(c)(4)(ii) includes payments for property 
taxes, amounts identified in Sec. 1026.4(b)(8) (homeowner's insurance 
premiums), and other amounts described in Sec. 1026.37(c)(4)(ii), along 
with a description of any such other amounts. If the amount disclosed 
pursuant to Sec. 1026.37(c)(4)(ii) requires the creditor to disclose a 
description of more than one amount other than amounts for payment of 
property taxes or homeowner's insurance premiums, the creditor may 
disclose a descriptive statement of one such amount along with an 
indication that additional amounts are also included, such as by using 
the phrase ``and additional costs.''
    2. Amounts paid by the creditor using escrow account funds. Section 
1026.37(c)(4)(iv) requires the creditor to disclose an indication of 
whether the amounts disclosed pursuant to Sec. 1026.37(c)(4)(ii) will 
be paid by the creditor using escrow account funds. If the amount 
disclosed pursuant to Sec. 1026.37(c)(4)(ii) requires the creditor to 
disclose a description of more than one amount other than amounts for 
payments of property taxes or homeowner's insurance and only some of 
those amounts will be paid by the creditor using escrow account funds, 
the creditor may indicate that only some of those amounts will be paid 
using escrow account funds, such as by using the word ``some.''
    37(d) Costs at closing.
    37(d)(2) Optional alternative table for transactions without a 
seller.
    1. Optional use. The optional disclosure of the estimated cash to 
close provided for in Sec. 1026.37(d)(2) only may be used by a creditor 
in a transaction without a seller. The use of this alternative estimated 
cash to close disclosure for transactions without a seller is optional, 
but only may be used in conjunction with the alternative disclosure 
under Sec. 1026.37(h)(2).
    2. Method of indication. The indication of whether the estimated 
cash is either due from or payable to the consumer can be made by the 
use of check boxes as shown in form H-24(D) of appendix H to this part.
    37(f) Closing cost details; loan costs.
    1. General description. The items disclosed under Sec. 1026.37(f) 
include services that the creditor or mortgage broker require for 
consummation, such as underwriting, appraisal, and title services.
    2. Mortgage broker. Commentary under Sec. 1026.19(e)(1)(ii) 
discusses the requirements and responsibilities of mortgage brokers that 
provide the disclosures required by Sec. 1026.19(e), which include the 
disclosures set forth in Sec. 1026.37(f).
    37(f)(1) Origination charges.
    1. Origination charges. Charges included under the subheading 
``Origination Charges'' pursuant to Sec. 1026.37(f)(1) are those 
charges paid by the consumer to each creditor and loan originator for 
originating and extending the credit, regardless of how such fees are 
denominated. In accordance with Sec. 1026.37(o)(4), the dollar amounts 
disclosed under Sec. 1026.37(f)(1) must be rounded to the nearest whole 
dollar and the percentage amounts must be disclosed as an exact number 
up to two or three decimal places, except that decimal places shall not 
be disclosed if the percentage is a whole number. See comment 
19(e)(3)(i)-3 for a discussion of when a fee is considered to be ``paid 
to'' a person. See Sec. 1026.36(a) and associated commentary for a 
discussion of the meaning of ``loan originator'' in connection with 
limits on compensation in a consumer credit transaction secured by a 
dwelling.
    2. Indirect loan originator compensation. Only charges paid directly 
by the consumer to compensate a loan originator are included in the 
amounts listed under Sec. 1026.37(f)(1). Compensation of a loan 
originator paid indirectly by the creditor through the interest rate is 
not itemized on the Loan Estimate required by Sec. 1026.19(e). However, 
pursuant to Sec. 1026.38(f)(1), such compensation is itemized on the 
Closing Disclosure required by Sec. 1026.19(f).
    3. Description of charges. Other than for points charged in 
connection with the transaction to reduce the interest rate, for which 
specific language must be used, the creditor may use a general label 
that uses terminology that, under Sec. 1026.37(f)(5), is consistent 
with Sec. 1026.17(a)(1), clearly and conspicuously describes the 
service that is disclosed as an origination charge pursuant to Sec. 
1026.37(f)(1). Items that are listed under the subheading ``Origination 
Charges'' may include, for example, application fee, origination fee, 
underwriting fee, processing fee, verification fee, and rate-lock fee.
    4. Points. If there are no points charged in connection with the 
transaction to reduce the interest rate, the creditor leaves blank the 
percentage of points used in the label and the dollar amount disclosed 
under Sec. 1026.37(f)(1)(i).
    5. Itemization. Creditors determine the level of itemization of 
``Origination Charges'' that

[[Page 961]]

is appropriate under Sec. 1026.37(f)(1) in relation to charges paid by 
the consumer to the creditor, subject to the limitations in Sec. 
1026.37(f)(1)(ii). For example, the following charges should be itemized 
separately: compensation paid directly by a consumer to a loan 
originator that is not also the creditor; or a charge imposed to pay for 
a loan level pricing adjustment assessed on the creditor, which the 
creditor passes onto the consumer as a charge at consummation and not as 
an adjustment to the interest rate.
    37(f)(2) Services you cannot shop for.
    1. Services disclosed. Items included under the subheading 
``Services You Cannot Shop For'' pursuant to Sec. 1026.37(f)(2) are for 
those services that the creditor requires in connection with the 
transaction that would be provided by persons other than the creditor or 
mortgage broker and for which the creditor does not permit the consumer 
to shop in accordance with Sec. 1026.19(e)(1)(vi). Comment 
19(e)(1)(vi)-1 clarifies that a consumer is not permitted to shop if the 
consumer must choose a provider from a list provided by the creditor. 
Comment 19(e)(3)(i)-1 addresses determining good faith in providing 
estimates under Sec. 1026.19(e), including estimates for services for 
which the consumer cannot shop. Comments 19(e)(3)(iv)-1 through -3 
discuss limits and requirements applicable to providing revised 
estimates for services for which the consumer cannot shop.
    2. Examples of charges. Examples of the services and amounts to be 
disclosed pursuant to Sec. 1026.37(f)(2) might include an appraisal 
fee, appraisal management company fee, credit report fee, flood 
determination fee, government funding fee, homeowner's association 
certification fee, lender's attorney fee, tax status research fee, 
third-party subordination fee, title--closing protection letter fee, 
title--lender's title insurance policy, and an upfront mortgage 
insurance fee, provided that the fee is charged at consummation and is 
not a prepayment of future premiums over a specific future time period 
or a payment into an escrow account. Government funding fees include a 
United States Department of Veterans Affairs or United States Department 
of Agriculture guarantee fee, or any other fee paid to a government 
entity as part of a governmental loan program, that is paid at 
consummation.
    3. Title insurance services. The services required to be labeled 
beginning with ``Title -'' pursuant to Sec. 1026.37(f)(2) or (3) are 
those required for the issuance of title insurance policies to the 
creditor in connection with the consummation of the transaction or for 
conducting the closing. These services may include, for example:
    i. Examination and evaluation, based on relevant law and title 
insurance underwriting principles and guidelines, of the title evidence 
to determine the insurability of the title being examined and what items 
to include or exclude in any title commitment and policy to be issued;
    ii. Preparation and issuance of the title commitment or other 
document that discloses the status of the title as it is proposed to be 
insured, identifies the conditions that must be met before the policy 
will be issued, and obligates the insurer to issue a policy of title 
insurance if such conditions are met;
    iii. Resolution of underwriting issues and taking the steps needed 
to satisfy any conditions for the issuance of the policies;
    iv. Preparation and issuance of the policy or policies of title 
insurance; and
    v. Premiums for any title insurance coverage for the benefit of the 
creditor.
    4. Lender's title insurance policy. Section 1026.37(f)(2) and (3) 
requires disclosure of the amount the consumer will pay for the lender's 
title insurance policy. However, an owner's title insurance policy that 
covers the consumer and is not required to be purchased by the creditor 
is only disclosed pursuant to Sec. 1026.37(g). Accordingly, the 
creditor must quote the amount of the lender's title insurance coverage 
pursuant to Sec. 1026.37(f)(2) or (3) as applicable based on the type 
of lender's title insurance policy required by its underwriting 
standards for that loan. The amount disclosed for the lender's title 
insurance policy pursuant to Sec. 1026.37(f)(2) or (3) is the amount of 
the premium without any adjustment that might be made for the 
simultaneous purchase of an owner's title insurance policy. This amount 
may be disclosed as ``Title --Premium for Lender's Coverage,'' or in any 
similar manner that clearly indicates the amount of the premium 
disclosed pursuant to Sec. 1026.37(f)(2) is for the lender's title 
insurance coverage. See comment 37(g)(4)-1 for a discussion of the 
disclosure of the premium for an owner's title insurance policy that 
covers the consumer.
    37(f)(3) Services you can shop for.
    1. Services disclosed. Items included under the subheading 
``Services You Can Shop For'' pursuant to Sec. 1026.37(f)(3) are for 
those services: That the creditor requires in connection with its 
decision to make the loan; that would be provided by persons other than 
the creditor or mortgage broker; and for which the creditor allows the 
consumer to shop in accordance with Sec. 1026.19(e)(1)(vi). Comments 
19(e)(3)(ii)-1 through -3, and -5 address the determination of good 
faith in providing estimates of charges for services for which the 
consumer can shop. Comment 19(e)(3)(iii)-2 discusses the determination 
of good faith when the consumer chooses a provider that is not on the 
list the creditor provides to the consumer when the consumer is 
permitted to shop consistent with Sec. 1026.19(e)(1)(vi). Comments 
19(e)(3)(iv)-1 through -3 discuss limits and requirements applicable to 
providing revised estimates for services for which the consumer can 
shop.

[[Page 962]]

    2. Example of charges. Examples of the services to be listed under 
this subheading pursuant to Sec. 1026.37(f)(3) might include a pest 
inspection fee, survey fee, title--closing agent fee, and title--closing 
protection letter fee.
    3. Title insurance. See comments 37(f)(2)-3 and -4 for guidance on 
services that are to be labeled beginning with ``Title --'' and on 
calculating and labeling the amount disclosed for lender's title 
insurance pursuant to Sec. 1026.37(f)(3). See comment 37(g)(4)-1 for a 
discussion of the disclosure of the premium for owner's title insurance 
coverage.
    37(f)(5) Item descriptions and ordering.
    1. Clear and conspicuous standard. Section 1026.37(f)(5) requires 
creditors to label the loan costs disclosed pursuant Sec. 1026.37(f) 
using terminology that describes each item. A creditor complies with 
this requirement if it uses terminology that is clear and conspicuous, 
consistent with Sec. 1026.17(a)(1), and describes the service or 
administrative function that the charge pays for in a manner that is 
reasonably understood by consumers within the space provided in form H-
24 of appendix H to this part. For example, if a creditor imposes a fee 
on a consumer to cover the costs associated with underwriting the 
transaction, the creditor would comply with Sec. 1026.37(f)(5) if it 
labeled the cost ``Underwriting Fee.'' A label that uses abbreviations 
or acronyms that are not reasonably understood by consumers would not 
comply with Sec. 1026.37(f)(5).
    37(f)(6) Use of addenda.
    1. State law disclosures. If a creditor is required by State law to 
make additional disclosures that, pursuant to Sec. 1026.37(f)(6)(i), 
cannot be included in the disclosures required under Sec. 1026.37(f), 
the creditor may make those additional State law disclosures on a 
document whose pages are separate from, and are not presented as part 
of, the disclosures prescribed in Sec. 1026.37, for example, as an 
addendum to the Loan Estimate. See comment 37(o)(1)-1.
    2. Reference to addendum. If an addendum is used as permitted under 
Sec. 1026.37(f)(6)(ii), an example of a label that complies with the 
requirement for an appropriate reference on the last line is: ``See 
attached page for additional items you can shop for.''
    37(g) Closing cost details; other costs.
    1. General description. The items listed under the heading of 
``Other Costs'' pursuant to Sec. 1026.37(g) include services that are 
ancillary to the creditor's decision to evaluate the collateral and the 
consumer for the loan. The amounts disclosed for these items are: 
Established by government action; determined by standard calculations 
applied to ongoing fixed costs; or based on an obligation incurred by 
the consumer independently of any requirement imposed by the creditor. 
Except for prepaid interest under Sec. 1026.37(g)(2)(iii), or charges 
for optional credit insurance provided by the creditor, the creditor 
does not retain any of the amounts or portions of the amounts disclosed 
as other costs.
    2. Charges pursuant to property contract. The creditor is required 
to disclose charges that are described in Sec. 1026.37(g)(1) through 
(3). Other charges that are required to be paid at or before closing 
pursuant to the property contract for sale between the consumer and 
seller are disclosed on the Loan Estimate to the extent the creditor has 
knowledge of those charges when it issues the Loan Estimate, consistent 
with the good faith standard under Sec. 1026.19(e). A creditor has 
knowledge of those charges where, for example, it has the real estate 
purchase and sale contract. See also Sec. 1026.37(g)(4) and comment 
37(g)(4)-3.
    37(g)(1) Taxes and other government fees.
    1. Recording fees. Recording fees listed under Sec. 1026.37(g)(1) 
are fees assessed by a government authority to record and index the loan 
and title documents as required under State or local law. Recording fees 
are assessed based on the type of document to be recorded or its 
physical characteristics, such as the number of pages. Unlike transfer 
taxes, recording fees are not based on the sale price of the property or 
loan amount. For example, a fee for recording a subordination agreement 
that is $20, plus $3 for each page over three pages, is a recording fee, 
but a fee of $1,250 based on 0.5 percent of the loan amount is a 
transfer tax, and not a recording fee.
    2. Other government charges. Any charges or fees imposed by a State 
or local government that are not transfer taxes are aggregated with 
recording fees and disclosed under Sec. 1026.37(g)(1)(i).
    3. Transfer taxes--terminology. In general, transfer taxes listed 
under Sec. 1026.37(g)(1) are State and local government fees on 
mortgages and home sales that are based on the loan amount or sales 
price, while recording fees are State and local government fees for 
recording the loan and title documents. The name that is used under 
State or local law to refer to these amounts is not determinative of 
whether they are disclosed as transfer taxes or as recording fees and 
other taxes under Sec. 1026.37(g)(1).
    4. Transfer taxes--consumer. Only transfer taxes paid by the 
consumer are disclosed on the Loan Estimate pursuant to Sec. 
1026.37(g)(1). State and local government transfer taxes are governed by 
State or local law, which determines if the seller or consumer is 
ultimately responsible for paying the transfer taxes. For example, if 
State law indicates a lien can attach to the consumer's acquired 
property if the transfer tax is not paid, the transfer tax is disclosed. 
If State or local law is unclear or does not specifically attribute 
transfer taxes to the seller or the consumer, the creditor is in 
compliance with requirements of Sec. 1026.37(g)(1) if the amount of the

[[Page 963]]

transfer tax disclosed is not less than the amount apportioned to the 
consumer using common practice in the locality of the property.
    5. Transfer taxes--seller. Transfer taxes paid by the seller in a 
purchase transaction are not disclosed on the Loan Estimate under Sec. 
1026.37(g)(1), but are disclosed on the Closing Disclosure pursuant to 
Sec. 1026.38(g)(1)(ii).
    6. Deletion and addition of items. The lines and labels required by 
Sec. 1026.37(g)(1) may not be deleted, even if recording fees or 
transfer taxes are not charged to the consumer. No additional items may 
be listed under the subheading in Sec. 1026.37(g)(1).
    37(g)(2) Prepaids.
    1. Examples. Prepaid items required to be disclosed pursuant to 
Sec. 1026.37(g)(2) include the interest due at consummation for the 
period of time before interest begins to accrue for the first scheduled 
periodic payment and certain periodic charges that are required by the 
creditor to be paid at consummation. Each periodic charge listed as a 
prepaid item indicates, as applicable, the time period that the charge 
will cover, the daily amount, the percentage rate of interest used to 
calculate the charge, and the total dollar amount of the charge. 
Examples of periodic charges that are disclosed pursuant to Sec. 
1026.37(g)(2) include:
    i. Real estate property taxes due within 60 days after consummation 
of the transaction;
    ii. Past-due real estate property taxes;
    iii. Mortgage insurance premiums;
    iv. Flood insurance premiums; and
    v. Homeowner's insurance premiums.
    2. Interest rate. The interest rate disclosed pursuant to Sec. 
1026.37(g)(2)(iii) is the same interest rate disclosed pursuant to Sec. 
1026.37(b)(2).
    3. Terminology. For purposes of Sec. 1026.37(g)(2), the term 
``property taxes'' has the same meaning as in Sec. 1026.43(b)(8) and 
further described in comment 43(b)(8)-2; the term ``homeowner's 
insurance'' means the amounts identified in Sec. 1026.4(b)(8); and the 
term ``mortgage insurance'' has the same meaning as ``mortgage insurance 
or any functional equivalent'' in Sec. 1026.37(c), which means the 
amounts identified in Sec. 1026.4(b)(5).
    4. Deletion of items. The lines and labels required by Sec. 
1026.37(g)(2) may not be deleted, even if amounts for those labeled 
items are not charged to the consumer. If an amount for a labeled item 
is not charged to the consumer, the time period, daily amount, and 
percentage used in the labels are left blank.
    37(g)(3) Initial escrow payment at closing.
    1. Listed item not charged. Pursuant to Sec. 1026.37(g)(3), each 
periodic charge to be included in the escrow or reserve account must be 
itemized under the ``Initial Escrow Payment at Closing'' subheading, 
with a relevant label, monthly payment amount, and number of months 
expected to be collected at consummation. If an item described in Sec. 
1026.37(g)(3)(i) through (iii) is not charged to the consumer, the 
monthly payment amount and time period used in the labels are left 
blank.
    2. Aggregate escrow account calculation. The aggregate escrow 
account adjustment required under Sec. 1026.38(g)(3) and 12 CFR 
1024.17(d)(2) is not included on the Loan Estimate under Sec. 
1026.37(g)(3).
    3. Terminology. As used in Sec. 1026.37(g)(3), the term ``property 
taxes'' has the same meaning as in Sec. 1026.43(b)(8) and further 
described in comment 43(b)(8)-2; the term ``homeowner's insurance'' 
means the amounts identified in Sec. 1026.4(b)(8); and the term 
``mortgage insurance'' has the same meaning as ``mortgage insurance or 
any functional equivalent'' in Sec. 1026.37(c).
    4. Deletion of items. The lines and labels required by Sec. 
1026.37(g)(3) may not be deleted, even if amounts for those labeled 
items are not charged to the consumer.
    5. Escrowed tax payments for different time frames. Payments for 
property taxes that are paid at different time periods can be itemized 
separately when done in accordance with 12 CFR 1024.17, as applicable. 
For example, a general property tax covering a fiscal year from January 
1 to December 31 can be listed as a property tax under Sec. 
1026.37(g)(3)(i); and a separate property tax to fund schools that cover 
a fiscal year from November 1 to October 31 can be added as a separate 
item under Sec. 1026.37(g)(3)(v).
    37(g)(4) Other.
    1. Owner's title insurance policy rate. The amount disclosed for an 
owner's title insurance premium pursuant to Sec. 1026.37(g)(4) is based 
on a basic owner's policy rate, and not on an ``enhanced'' title 
insurance policy premium, except that the creditor may instead disclose 
the premium for an ``enhanced'' policy when the ``enhanced'' title 
insurance policy is required by the real estate sales contract, if such 
requirement is known to the creditor when issuing the Loan Estimate. 
This amount should be disclosed as ``Title--Owner's Title Policy 
(optional),'' or in any similar manner that includes the introductory 
description ``Title -'' at the beginning of the label for the item, the 
parenthetical description ``(optional)'' at the end of the label, and 
clearly indicates the amount of the premium disclosed pursuant to Sec. 
1026.37(g)(4) is for the owner's title insurance coverage. See comment 
37(f)(2)-4 for a discussion of the disclosure of the premium for 
lender's title insurance coverage.
    2. Simultaneous title insurance premium rate in purchase 
transactions. The premium for an owner's title insurance policy for 
which a special rate may be available based on the simultaneous issuance 
of a lender's and an owner's policy is calculated and disclosed pursuant 
to Sec. 1026.37(g)(4) as follows:

[[Page 964]]

    i. The title insurance premium for a lender's title policy is based 
on the full premium rate, consistent with Sec. 1026.37(f)(2) or (f)(3).
    ii. The owner's title insurance premium is calculated by taking the 
full owner's title insurance premium, adding the simultaneous issuance 
premium for the lender's coverage, and then deducting the full premium 
for lender's coverage.
    3. Designation of optional items. Products disclosed under Sec. 
1026.37(g)(4) for which the parenthetical description ``(optional)'' is 
included at the end of the label for the item include only items that 
are separate from any item disclosed on the Loan Estimate under 
paragraphs other than Sec. 1026.37(g)(4). For example, such items may 
include optional owner's title insurance, credit life insurance, debt 
suspension coverage, debt cancellation coverage, warranties of home 
appliances and systems, and similar products, when coverage is written 
in connection with a credit transaction that is subject to Sec. 
1026.19(e). However, because the requirement in Sec. 1026.37(g)(4)(ii) 
applies to separate products only, additional coverage and endorsements 
on insurance otherwise required by the lender are not disclosed under 
Sec. 1026.37(g)(4). See comments 4(b)(7) and (b)(8)-1 through -3 and 
comments 4(b)(10)-1 and -2 for guidance on determining when credit life 
insurance, debt suspension coverage, debt cancellation coverage, and 
similar coverage is written in connection with a transaction subject to 
Sec. 1026.19(e).
    4. Examples. Examples of other items that are disclosed under Sec. 
1026.37(g)(4) if the creditor is aware of those items when it issues the 
Loan Estimate include commissions of real estate brokers or agents, 
additional payments to the seller to purchase personal property pursuant 
to the property contract, homeowner's association and condominium 
charges associated with the transfer of ownership, and fees for 
inspections not required by the creditor but paid by the consumer 
pursuant to the property contract. Although the consumer is obligated 
for these costs, they are not imposed upon the consumer by the creditor 
or loan originator. Therefore, they are not disclosed with the 
parenthetical description ``(optional)'' at the end of the label for the 
item, and they are disclosed pursuant to Sec. 1026.37(g) rather than 
Sec. 1026.37(f). Even if such items are not required to be disclosed on 
the Loan Estimate under Sec. 1026.37(g)(4), however, they may be 
required to be disclosed on the Closing Disclosure pursuant to Sec. 
1026.38. Comment 19(e)(3)(iii)-3 discusses application of the good faith 
requirement for services chosen by the consumer that are not required by 
the creditor.
    37(g)(6) Total closing costs.
    Paragraph 37(g)(6)(ii).
    1. Lender credits. Section 1026.19(e)(1)(i) requires disclosure of 
lender credits as provided in Sec. 1026.37(g)(6)(ii). Comment 
19(e)(3)(i)-5 describes such lender credits as payments from the 
creditor to the consumer that do not pay for a particular fee on the 
disclosures provided under Sec. 1026.37.
    2. Credits or rebates from the creditor to offset a portion or all 
of the closing costs. For loans where a portion or all of the closing 
costs are offset by a credit or rebate provided by the creditor 
(sometimes referred to as ``no-cost'' loans), whether all or a defined 
portion of the closing costs disclosed under Sec. 1026.37(f) or (g) 
will be paid by a credit or rebate from the creditor, the creditor 
discloses such credit or rebate as a lender credit under Sec. 
1026.37(g)(6)(ii). The creditor should ensure that the lender credit 
disclosed under Sec. 1026.37(g)(6)(ii) is sufficient to cover the 
estimated costs the creditor represented to the consumer as not being 
required to be paid by the consumer at consummation, regardless of 
whether such representations pertained to specific items.
    37(g)(7) Item descriptions and ordering.
    1. Clear and conspicuous standard. See comment 37(f)(5)-1 for 
guidance regarding the requirement to label items using terminology that 
describes each item.
    37(g)(8) Use of addenda.
    1. State law disclosures. If a creditor is required by State law to 
make additional disclosures that, pursuant to Sec. 1026.37(g)(8), 
cannot be included in the disclosures required under Sec. 1026.37(g), 
the creditor may make those additional State law disclosures on a 
separate document whose pages are physically separate from, and are not 
presented as part of, the disclosures prescribed in Sec. 1026.37. See 
comment 37(o)(1)-1.
    37(h) Calculating cash to close.
    37(h)(1) For all transactions.
    1. Labels for amounts disclosed. Section 1026.37(h)(1) describes the 
amounts that are used to calculate the estimated amount of cash or other 
funds that the consumer must provide at consummation. The labels that 
are to be used under Sec. 1026.37(h)(1) are illustrated by form H-24(A) 
of appendix H to this part.
    37(h)(1)(ii) Closing costs financed.
    1. Calculating amount. The amount of closing costs financed 
disclosed under Sec. 1026.37(h)(1)(ii) is determined by subtracting the 
estimated total amount of payments to third parties not otherwise 
disclosed pursuant to Sec. 1026.37(f) and Sec. 1026.37(g) from the 
total loan amount disclosed pursuant to Sec. 1026.37(b)(1). If the 
result of the calculation is a positive number, that amount is disclosed 
as a negative number under Sec. 1026.37(h)(1)(ii), but only to the 
extent that it does not exceed the total amount of lender credits 
disclosed under Sec. 1026.37(g)(6)(ii). If the result of the 
calculation is zero or negative, the amount of $0 is disclosed under 
Sec. 1026.37(h)(1)(ii).

[[Page 965]]

    37(h)(1)(iii) Downpayment and other funds from borrower.
    1. No downpayment or funds from borrower. When the loan amount 
exceeds the purchase price of the property (other than a construction 
loan), the amount of $0 is disclosed under Sec. 1026.37(h)(1)(iii).
    37(h)(1)(iv) Deposit.
    1. Section 1026.37(h)(1)(iv)(A) requires disclosure of a deposit in 
a purchase transaction. The deposit to be disclosed under Sec. 
1026.37(h)(1)(iv)(A) is any amount that the consumer has agreed to pay 
to a party identified in the real estate purchase and sale agreement to 
be held until consummation of the transaction, which is often referred 
to as an earnest money deposit. In a purchase transaction in which no 
such deposit is paid in connection with the transaction, Sec. 
1026.37(h)(1)(iv)(A) requires the creditor to disclose $0. In any other 
type of transaction, Sec. 1026.37(h)(1)(iv)(B) requires disclosure of 
the deposit amount as $0.
    37(h)(1)(v) Funds for borrower.
    1. Use of calculation--non-purchase transactions. The calculation 
described in Sec. 1026.37(h)(1)(v) is only used to determine the 
amounts disclosed under Sec. 1026.37(h)(1)(iii) and (h)(1)(v) in a 
transaction that is not described as a purchase transaction under Sec. 
1026.37(a)(9)(i), in accordance with the provisions of Sec. 
1026.37(h)(1)(iii)(A). In a purchase transaction (other than a 
construction loan), the amount disclosed under Sec. 1026.37(h)(1)(v) 
will be $0, in accordance with Sec. 1026.37(h)(1)(v)(A).
    37(h)(1)(vi) Seller credits.
    1. Credits to be disclosed. The seller credits known to the creditor 
at the time of delivery of the Loan Estimate are disclosed under Sec. 
1026.37(h)(1)(vi). For example, a creditor may know the amount of seller 
credits that will be paid in the transaction from information obtained 
verbally from the consumer, from a review of the purchase and sale 
contract, or from information obtained from a real estate agent in the 
transaction.
    2. Seller credits for specific charges. To the extent known by the 
creditor at the time of delivery of the Loan Estimate, seller credits 
for specific items disclosed under Sec. 1026.37(f) and (g) are 
represented by the total amount disclosed for those items.
    37(h)(1)(vii) Adjustments and other credits.
    1. Other credits known at the time the Loan Estimate is issued. 
Amounts expected to be paid by third parties not involved in the 
transaction, such as gifts from family members and not otherwise 
identified under Sec. 1026.37(h)(1), are included in the amount 
disclosed pursuant to Sec. 1026.37(h)(1)(vii).
    2. Persons that may make payments causing adjustment and other 
credits. Persons, as defined under Sec. 1026.2(a)(22), means natural 
persons or organizations. Accordingly, persons that may pay amounts 
disclosed under Sec. 1026.37(h)(1)(vii) include, for example, any 
individual family members providing gifts or a developer or home builder 
organization providing a credit in the transaction.
    3. Credits. Only credits from persons other than the creditor or 
seller can be disclosed pursuant to Sec. 1026.37(h)(1)(vii). Seller 
credits and credits from the creditor are disclosed pursuant to Sec. 
1026.37(h)(1)(vi) and Sec. 1026.37(g)(6)(ii), respectively.
    4. Other credits to be disclosed. Credits other than those from the 
creditor or seller are disclosed under Sec. 1026.37(h)(1)(vii). 
Disclosure of other credits is, like other disclosures under Sec. 
1026.37, subject to the good faith requirement under Sec. 
1026.19(e)(1)(i). See Sec. 1026.19(e)(1)(i) and comments 17(c)(2)(i)-1 
and 19(e)(1)(i)-1. The creditor may obtain information regarding items 
to be disclosed under Sec. 1026.37(h)(1)(vii), for example, verbally 
from the consumer, from a review of the purchase and sale contract, or 
from information obtained from a real estate agent in the transaction.
    5. Proceeds from subordinate financing or other source. Funds that 
are provided to the consumer from the proceeds of subordinate financing, 
local or State housing assistance grants, or other similar sources are 
included in the amount disclosed under Sec. 1026.37(h)(1)(vii).
    6. Reduction in amounts for adjustments. Adjustments that require 
additional funds from the consumer pursuant to the real estate purchase 
and sale contract, such as for additional personal property that will be 
disclosed on the Closing Disclosure under Sec. 1026.38(j)(1)(iii) or 
adjustments that will be disclosed on the Closing Disclosure under Sec. 
1026.38(j)(1)(v) can be included in the amount disclosed under Sec. 
1026.37(h)(1)(vii), and because the amount disclosed is a sum of 
adjustments and other credits, such amount would reduce the total amount 
disclosed. Additional examples of such adjustments for additional funds 
from the consumer include prorations for property taxes and homeowner's 
association dues.
    37(h)(1)(viii) Estimated cash to close.
    1. Result of cash to close calculation. The sum of the amounts 
disclosed pursuant to Sec. 1026.37(h)(1)(i) through (vii) is disclosed 
under Sec. 1026.37(h)(1)(viii) as either a positive number, a negative 
number, or zero. A positive number indicates the amount that the 
consumer will pay at consummation. A negative number indicates the 
amount that the consumer will receive at consummation. A result of zero 
indicates that the consumer will neither pay nor receive any amount at 
consummation.
    37(h)(2) Optional alternative calculating cash to close table for 
transactions without a seller.
    1. Optional use. The optional disclosure of the calculating cash to 
close table in Sec. 1026.37(h)(2) may only be provided by a creditor in 
a transaction without a seller. The use of this alternative table for 
transactions

[[Page 966]]

without a seller is optional, but must be used in conjunction with the 
disclosure under Sec. 1026.37(d)(2).
    37(h)(2)(iii) Payoffs and payments.
    1. Examples. Examples of the amounts incorporated in the total 
amount disclosed under Sec. 1026.37(h)(2)(iii) include, but are not 
limited to: payoffs of existing liens secured by the property identified 
under Sec. 1026.37(a)(6) such as existing mortgages, deeds of trust, 
judgments that have attached to the real property, mechanics' and 
materialmans' liens, and local, State and Federal tax liens; payments of 
unsecured outstanding debts of the consumer; and payments to other third 
parties for outstanding debts of the consumer (but not for settlement 
services) as required to be paid as a condition for the extension of 
credit.
    37(h)(2)(iv) Cash to or from consumer.
    1. Method of indication. The indication of whether the estimated 
cash to close is either due from or payable to the consumer is made by 
the use of check boxes, which is illustrated by form H-24(D) of appendix 
H to this part.
    37(h)(2)(v) Closing costs financed.
    1. Limitation on amount disclosed. The amount disclosed under Sec. 
1026.37(h)(2)(v) is limited to the total amount of closing costs 
disclosed under Sec. 1026.37(g)(6), even if the difference between 
Sec. 1026.37(h)(2)(i) and Sec. 1026.37(h)(2)(iii) is greater than the 
amount disclosed under Sec. 1026.37(g)(6).
    37(i) Adjustable payment table.
    1. When table is not permitted to be disclosed. The disclosure 
described in Sec. 1026.37(i) is required only if the periodic principal 
and interest payment may change after consummation based on a loan term 
other than a change to the interest rate, or the transaction contains a 
seasonal payment product feature as described in Sec. 
1026.37(a)(10)(ii)(E). If the transaction does not contain such loan 
terms, this table shall not appear on the Loan Estimate.
    2. Periods to be disclosed. Section 1026.37(i)(1) through (4) 
requires disclosure of the periods during which interest only, optional 
payment, step payment, and seasonal payment product features will be in 
effect. The periods required to be disclosed should be disclosed by 
describing the number of payments counting from the first periodic 
payment due after consummation. The period of seasonal payments required 
to be disclosed by Sec. 1026.37(i)(4), to be clear and conspicuous, 
should be disclosed with a noun that identifies the unit-period, because 
such feature may apply on a regular basis during the loan term that does 
not depend on when regular periodic payments begin. The disclosures 
required by Sec. 1026.37(i)(1) through (4) may include abbreviations to 
fit in the space provided for the information on form H-24, provided the 
information is disclosed in a clear and conspicuous manner. For example:
    i. Period from date of consummation. If a loan has an interest only 
period for the first 60 regular periodic payments due after 
consummation, the disclosure states ``for your first 60 payments.''
    ii. Period during middle of loan term. If the loan has an interest 
only period between the 61st and 85th payments, the disclosure states 
``from your 61st to 85th payment.''
    iii. Multiple successive periods. If there are multiple periods 
during which a certain adjustable payment term applies, such as a period 
of step payments that occurs from the first through 12th payments, does 
not occur from the 13th through 24th payments, and occurs again from the 
25th through 36th payments, the period disclosed is the entire span of 
all such periods. Accordingly, such period is disclosed as ``for your 
first 36 payments.''
    iv. Seasonal payments. For a seasonal payment product with a unit-
period of a month that does not require periodic payments for the months 
of June, July, and August each year during the loan term, because such 
feature depends on calendar months and not on when regular periodic 
payments begin, the period is disclosed as ``from June to August.'' For 
a transaction with a quarterly unit-period that does not require a 
periodic payment every third quarter during the loan term and does not 
depend on calendar months, the period is disclosed as ``every third 
payment.'' In the same transaction, if the seasonal payment feature ends 
after the 20th quarter, the period is disclosed as ``every quarter until 
the 20th quarter.'' As described above in this comment 37(i)-2, the 
creditor may abbreviate ``quarter'' to ``quart.'' or ``Q.''
    37(i)(5) Principal and interest payments.
    1. Statement of periodic payment frequency. The subheading required 
by Sec. 1026.37(i)(5) must include the unit-period of the transaction, 
such as ``quarterly,'' ``bi-weekly,'' or ``annual.'' This unit-period 
should be the same as disclosed under Sec. 1026.37(b)(3). See Sec. 
1026.37(o)(5)(i).
    2. Initial payment adjustment unknown. The disclosure required by 
Sec. 1026.37(i)(5) must state the number of the first payment for which 
the regular periodic principal and interest payment may change. This 
payment is typically set forth in the legal obligation. However, if the 
exact payment number of the first adjustment is not known at the time 
the creditor provides the Loan Estimate, the creditor must disclose the 
earliest possible payment that may change under the terms of the legal 
obligation, based on the information available to the creditor at the 
time, as the initial payment number and amount.
    3. Subsequent changes. The disclosure required by Sec. 
1026.37(i)(5) must state the frequency of adjustments to the regular 
periodic principal and interest payment after the initial adjustment, if 
any, expressed in

[[Page 967]]

years, except if adjustments are more frequent than once every year, in 
which case the disclosure should be expressed as payments. If there is 
only one adjustment of the periodic payment under the terms of the legal 
obligation (for example, if the loan has an interest only period for the 
first 60 payments and there are no adjustments to the payment after the 
end of the interest only period), the disclosure should state: ``No 
subsequent changes.'' If the loan has graduated increases in the regular 
periodic payment every 12th payment, the disclosure should state: 
``Every year.'' If the frequency of adjustments to the periodic payment 
may change under the terms of the legal obligation, the disclosure 
should state the smallest period of adjustments that may occur. For 
example, if an increase in the periodic payment is scheduled every sixth 
payment for 36 payments, and then every 12th payment for the next 24 
payments, the disclosure should state: ``Every 6th payment.''
    4. Maximum payment. The disclosure required by Sec. 1026.37(i)(5) 
must state the larger of the maximum scheduled or maximum potential 
amount of a regular periodic principal and interest payment under the 
terms of the legal obligation, as well as the payment number of the 
first periodic principal and interest payment that can reach such 
amount. If the disclosed payment is scheduled, Sec. 1026.37(i)(5) 
requires that the disclosure state the payment number when such payment 
is reached with the preceding text, ``starting at.'' If the disclosed 
payment is only potential, as may be the case for a loan that permits 
optional payments, the disclosure states the earliest payment number 
when such payment can be reached with the preceding text, ``as early 
as.'' Section 1026.37(i)(5) requires that the first possible periodic 
principal and interest payment that can reach the maximum be disclosed. 
For example, for a fixed interest rate optional-payment loan with 
scheduled payments that result in negative amortization under the terms 
of the legal obligation, the maximum periodic payment disclosed should 
be based on the consumer having elected to make the periodic payments 
that would increase the principal balance to the maximum amount at the 
latest time possible before the loan begins to fully amortize, which 
would cause the periodic principal and interest payment to be the 
maximum possible. For example, if the earliest payment that could reach 
the maximum principal balance was the 41st payment at which time the 
loan would begin to amortize and the periodic principal and interest 
payment would be recalculated, but the last payment that permitted the 
principal balance to increase was the 60th payment, the disclosure 
required by Sec. 1026.37(i)(5) must assume the consumer only reaches 
the maximum principal balance at the 60th payment because this would 
result in the maximum possible principal and interest payment under the 
terms of the legal obligation. The disclosure must state the maximum 
periodic principal and interest payment based on this assumption and 
state ``as early as the 61st payment.''
    5. Payments that do not pay principal. Although the label of the 
disclosure required by Sec. 1026.37(i)(5) is ``Principal and Interest 
Payments,'' and the section refers to periodic principal and interest 
payments, it includes a scheduled periodic payment that only covers some 
or all of the interest that is due and not any principal (i.e., an 
interest only or negatively amortizing payment).
    37(j) Adjustable interest rate table.
    1. When table is not permitted to be disclosed. The disclosure 
described in Sec. 1026.37(j) is required only if the interest rate may 
increase after consummation, either based on changes to an index or 
scheduled changes to the interest rate. If the legal obligation does not 
permit the interest rate to adjust after consummation, such as for a 
``Fixed Rate'' product under Sec. 1026.37(a)(10), this table is not 
permitted to appear on the Loan Estimate. The creditor may not disclose 
a blank table or a table with ``N/A'' inserted within each row.
    37(j)(1) Index and margin.
    1. Index and margin. The index disclosed pursuant to Sec. 
1026.37(j)(1) must be stated such that a consumer reasonably can 
identify it. A common abbreviation or acronym of the name of the index 
may be disclosed in place of the proper name of the index, if it is a 
commonly used public method of identifying the index. For example, 
``LIBOR'' may be disclosed instead of London Interbank Offered Rate. The 
margin should be disclosed as a percentage. For example, if the contract 
determines the interest rate by adding 4.25 percentage points to the 
index, the margin should be disclosed as ``4.25%.''
    37(j)(2) Increases in interest rate.
    1. Adjustments not based on an index. If the legal obligation 
includes both adjustments to the interest rate based on an external 
index and scheduled and pre-determined adjustments to the interest rate, 
such as for a ``Step Rate'' product under Sec. 1026.37(a)(10), the 
disclosure required by Sec. 1026.37(j)(1), and not Sec. 1026.37(j)(2), 
must be provided pursuant to Sec. 1026.37(j)(2). The disclosure 
described in Sec. 1026.37(j)(2) is stated only if the product type does 
not permit the interest rate to adjust based on an external index.
    37(j)(3) Initial interest rate.
    1. Interest rate at consummation. In all cases, the interest rate in 
effect at consummation must be disclosed as the initial interest rate, 
even if it will apply only for a short period, such as one month.
    37(j)(4) Minimum and maximum interest rate.
    1. Minimum interest rate. The minimum interest rate required to be 
disclosed by Sec. 1026.37(j)(4) is the minimum interest rate

[[Page 968]]

that may occur at any time during the term of the transaction, after any 
introductory or ``teaser'' interest rate expires, under the terms of the 
legal obligation, such as an interest rate ``floor.'' If the terms of 
the legal obligation do not state a minimum interest rate, the minimum 
interest rate that applies to the transaction under applicable law must 
be disclosed. If the terms of the legal obligation do not state a 
minimum interest rate, and no other minimum interest rate applies to the 
transaction under applicable law, the amount of the margin is disclosed.
    2. Maximum interest rate. The maximum interest rate required to be 
disclosed pursuant to Sec. 1026.37(j)(4) is the maximum interest rate 
permitted under the terms of the legal obligation, such as an interest 
rate ``cap.'' If the terms of the legal obligation do not specify a 
maximum interest rate, the maximum interest rate permitted by applicable 
law, such as State usury law, must be disclosed.
    37(j)(5) Frequency of adjustments.
    1. Exact month unknown. The disclosure required by Sec. 
1026.37(j)(5) must state the first month for which the interest rate may 
change. This month is typically scheduled in the terms of the legal 
obligation. However, if the exact month is not known at the time the 
creditor provides the Loan Estimate, the creditor must disclose the 
earliest possible month under the terms of the legal obligation, based 
on the best information available to the creditor at the time.
    37(j)(6) Limits on interest rate changes.
    1. Different limits on subsequent interest rate adjustments. If more 
than one limit applies to the amount of adjustments to the interest rate 
after the initial adjustment, the greatest limit on subsequent 
adjustments must be disclosed. For example, if the initial interest rate 
adjustment is capped at two percent, the second adjustment is capped at 
two and a half percent, and all subsequent adjustments are capped at 
three percent, the disclosure required by Sec. 1026.37(j)(6)(ii) states 
``3%.''
    37(k) Contact information.
    1. NMLSR ID. Section 1026.37(k) requires the disclosure of an 
Nationwide Mortgage Licensing System and Registry (NMLSR ID) number for 
each creditor, mortgage broker, and loan officer identified on the Loan 
Estimate. The NMLSR ID is a unique number or other identifier generally 
assigned to individuals registered or licensed through NMLSR to provide 
loan originating services. For more information, see the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) sections 
1503(3) and (12) and 1504 (12 U.S.C. 5102(3) and (12) and 5103), and its 
implementing regulations (i.e., 12 CFR 1007.103(a) and 1008.103(a)(2)). 
An entity may also have an NMLSR ID. Thus, if the creditor, mortgage 
broker, or loan officer has obtained an NMLSR ID, the NMLSR IDs must be 
provided in the disclosures required by Sec. 1026.37(k)(1) and (2).
    2. License number or unique identifier. Section 1026.37(k)(1) and 
(2) requires the disclosure of a license number or unique identifier for 
the creditor, mortgage broker, and loan officer if such entity or 
individual has not obtained an NMLSR ID. In such event, if the 
applicable State, locality, or other regulatory body with responsibility 
for licensing and/or registering such entity's or individual's business 
activities has issued a license number or other unique identifier to 
such entity or individual, that number is disclosed. In addition, Sec. 
1026.37(k)(1) and (2) require the abbreviation of the State of the 
jurisdiction or regulatory body that issued such license or registration 
is required to be included before the word ``License'' in the label 
required by Sec. 1026.37(k)(1) and (2). If no such license or 
registration is required to be disclosed, such as if an NMLSR number is 
disclosed, the space provided for such an abbreviation in form H-24 of 
appendix H to this part may be left blank. A U.S. Postal Service State 
abbreviation complies with Sec. 1026.37(k)(1) and (2), if applicable.
    3. Contact. Section 1026.37(k)(2) requires the disclosure of the 
name and NMLSR ID of the person who is the primary contact for the 
consumer, labeled ``Loan Officer.'' The loan officer is generally the 
natural person employed by the creditor or mortgage broker disclosed 
under Sec. 1026.37(k)(1) who interacts most frequently with the 
consumer and who has an NMLSR ID or, if none, a license number or other 
unique identifier to be disclosed under Sec. 1026.38(k)(2), as 
applicable.
    4. Email address and phone number. Section 1026.37(k)(3) requires 
disclosure of the loan officer's email address and phone number. 
Disclosure of a general number or email address for the loan officer's 
lender or mortgage broker, as applicable, satisfies this requirement if 
no such information is generally available for such person.
    37(l) Comparisons.
    37(l)(1) In five years.
    1. Loans with terms of less than five years. In transactions with a 
scheduled loan term of less than 60 months, to comply with Sec. 
1026.37(l)(1), the creditor discloses the amounts paid through the end 
of the loan term.
    Paragraph 37(l)(1)(i).
    1. Calculation of total payments in five years. The amount disclosed 
pursuant to Sec. 1026.37(l)(1)(i) is the sum of principal, interest, 
mortgage insurance, and loan costs scheduled to be paid through the end 
of the 60th month after the due date of the first periodic payment. For 
guidance on how to calculate interest for mortgage loans that are 
Adjustable Rate products under Sec. 1026.37(a)(10)(i)(A) for purposes 
of Sec. 1026.37(l)(1)(i), see comment 17(c)(1)-10. In addition, for 
purposes of Sec. 1026.37(l)(1)(i), the

[[Page 969]]

creditor should assume that the consumer makes payments as scheduled and 
on time. For purposes of Sec. 1026.37(l)(1)(i), mortgage insurance 
means ``mortgage insurance or any fractional equivalent'' as defined 
pursuant to comment 37(c)(1)(i)(C)-1 and includes prepaid or escrowed 
mortgage insurance. Loan costs are those costs disclosed pursuant to 
Sec. 1026.37(f).
    2. Negative amortization loans. For loans that have a negative 
amortization feature under Sec. 1026.37(a)(10)(ii)(A), the creditor 
calculates the total payments in five years using the scheduled 
payments, even if it is a negatively amortizing payment amount, until 
the consumer must begin making fully amortizing payments under the terms 
of the legal obligation.
    Paragraph 37(l)(1)(ii).
    1. Calculation of principal paid in five years. The disclosure 
required by Sec. 1026.37(l)(1)(ii) is calculated in the same manner as 
the disclosure required by Sec. 1026.37(l)(1)(i), except that the 
disclosed amount reflects only the total payments to principal through 
the end of the 60th month after the due date of the first periodic 
payment.
    37(l)(3) Total interest percentage.
    1. General. When calculating the total interest percentage, the 
creditor assumes that the consumer will make each payment in full and on 
time, and will not make any additional payments.
    2. Adjustable rate and step rate mortgages. For Adjustable Rate 
products under Sec. 1026.37(a)(10)(i)(A), Sec. 1026.37(l)(3) requires 
that the creditor compute the total interest percentage in accordance 
with comment 17(c)(1)-10. For Step Rate products under Sec. 
1026.37(a)(10)(i)(B), Sec. 1026.37(l)(3) requires that the creditor 
compute the total interest percentage in accordance with Sec. 
1026.17(c)(1) and its associated commentary.
    3. Negative amortization loans. For loans that have a negative 
amortization feature under Sec. 1026.37(a)(10)(ii)(A), Sec. 
1026.37(l)(3) requires that the creditor compute the total interest 
percentage using the scheduled payment, even if it is a negatively 
amortizing payment amount, until the consumer must begin making fully 
amortizing payments under the terms of the legal obligation.
    37(m) Other considerations.
    37(m)(1) Appraisal.
    1. Applicability. The disclosure required by Sec. 1026.37(m)(1) is 
only applicable to transactions subject to Sec. 1026.19(e) that are 
also subject either to 15 U.S.C. 1639h or 1691(e) or both, as 
implemented by this part or Regulation B, 12 CFR part 1002, 
respectively. Accordingly, if a transaction is not also subject to 
either or both of these provisions, as implemented by this part or 
Regulation B, respectively, the disclosure required by Sec. 
1026.37(m)(1) may be omitted from the Loan Estimate as described by 
comment 37-1 as illustrated by form H-24 of appendix H to this part. For 
transactions subject to section 1639h but not section 1691(e), the 
creditor may delete the word ``promptly'' from the disclosure required 
by Sec. 1026.37(m)(1)(ii).
    2. Consummation. Section 1026.37(m)(1) requires the creditor to 
disclose that it will provide a copy of any appraisal, even if the 
transaction is not consummated. On form H-24, the disclosure required by 
Sec. 1026.37(m)(1) states that the creditor will provide an appraisal, 
even if the ``loan does not close.'' Pursuant to Sec. 1026.37(o)(3), 
the disclosure required by Sec. 1026.37(m)(1) is that illustrated by 
form H-24.
    37(m)(2) Assumption.
    1. Disclosure. Section 1026.37(m)(2) requires the creditor to 
disclose whether or not a third party may be allowed to assume the loan 
on its original terms if the property is sold or transferred by the 
consumer. In many cases, the creditor cannot determine, at the time the 
disclosure is 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 creditor's security, and 
the execution of an assumption agreement by the subsequent borrower. If 
the creditor can determine that such assumption is not permitted, the 
creditor complies with Sec. 1026.37(m)(2) by disclosing that the loan 
is not assumable. In all other situations, including where assumption of 
a loan is permitted or is dependent on certain conditions or factors, or 
uncertainty exists as to the future assumability of a mortgage loan, the 
creditor complies with Sec. 1026.37(m)(2) by disclosing that, under 
certain conditions, the creditor may allow a third party to assume the 
loan on its original terms.
    2. Original terms. For purposes of Sec. 1026.37(m)(2), the 
imposition of an assumption fee is not a departure from the original 
terms of the obligation but a modification of the legal obligation, such 
as a change in the contract interest rate, represents a departure from 
the original terms.
    37(m)(3) Homeowner's insurance.
    1. Optional disclosure. Section 1026.37(m)(3) provides that 
creditors may, but are not required to, disclose a statement of whether 
homeowner's insurance is required on the property and whether the 
consumer may choose the insurance provider, labeled ``Homeowner's 
Insurance.''
    2. Relation to the finance charge. Section 1026.4(d)(2) describes 
the conditions under which a creditor may exclude premiums for 
homeowner's insurance from the finance charge. For transactions subject 
to Sec. 1026.19(e), a creditor satisfies Sec. 1026.4(d)(2)(i)

[[Page 970]]

by disclosing the statement described in Sec. 1026.37(m)(3).
    37(m)(4) Late payment.
    1. Definition. Section 1026.37(m)(4) requires a disclosure if 
charges are added to an individual delinquent installment by a creditor 
that 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) referral and extension charges; or (iv) the 
continued accrual of simple interest at the contract rate after the 
payment due date. However, an increase in the interest rate on account 
of a late payment by the consumer is a late payment charge to the extent 
of the increase.
    2. Applicability of State law. Many State laws authorize the 
calculation of late charges as either a percentage of the delinquent 
payment amount or a specified dollar amount, and permit the imposition 
of the lesser or greater of the two calculations. The language provided 
in the disclosure may reflect the requirements and alternatives allowed 
under State law.
    37(m)(6) Servicing.
    1. Creditor's intent. Section 1026.37(m)(6) requires the creditor to 
disclose whether it intends to service the loan directly or transfer 
servicing to another servicer after consummation. A creditor complies 
with Sec. 1026.37(m)(6) if the disclosure reflects the creditor's 
intent at the time the Loan Estimate is issued.
    37(m)(7) Liability after foreclosure.
    1. When statement is not permitted to be disclosed. The disclosure 
described by Sec. 1026.37(m)(7) is required under the condition 
specified by Sec. 1026.37(m)(7), specifically, if the purpose of the 
credit transaction is a refinance under Sec. 1026.37(a)(9)(ii). Under 
any other conditions, this statement is not permitted to appear in the 
Loan Estimate.
    37(n) Signature statement.
    1. Signature line optional. Whether a signature line is provided 
under Sec. 1026.37(n) is determined solely by the creditor. If a 
signature line is provided, however, the disclosure must include the 
statement required by Sec. 1026.37(n)(1).
    2. Multiple consumers. If there is more than one consumer who will 
be obligated in the transaction, the first consumer signs as the 
applicant and each additional consumer signs as a co-applicant. If there 
is not enough space under the heading ``Confirm Receipt'' to provide 
signature lines for every consumer in the transaction, the creditor may 
add additional signature pages, as needed, at the end of the form for 
the remaining consumers' signatures. However, the creditor is required 
to disclose the heading and statement required by Sec. 1026.37(m)(7) on 
such additional pages.
    3. Consumer's name. The creditor may insert the consumer's name 
under the signature line, rather than using the designation 
``Applicant'' or ``Co-Applicant'' as illustrated in form H-24 of 
appendix H to this part, but is not required to do so pursuant to Sec. 
1026.37(n)(1).
    37(o) Form of disclosures.
    37(o)(1) General requirements.
    1. Clear and conspicuous; segregation. The clear and conspicuous 
standard requires that the disclosures required by Sec. 1026.37 be 
legible and in a readily understandable form. Section 1026.37(o)(1)(i) 
requires that the disclosures be grouped together and segregated from 
everything else. For example, creditors may not add additional pages in 
between the pages of the Loan Estimate, or attach to the Loan Estimate 
additional pages that are not provided for under Sec. 1026.37 after the 
last page of the Loan Estimate. As required by Sec. 1026.37(o)(3)(i), 
the disclosures for any transaction that is a federally related mortgage 
loan under Regulation X, 12 CFR 1024.2, must be made using the standard 
form H-24 of appendix H to this part. Accordingly, use of that form 
constitutes compliance with the clear and conspicuous and segregation 
requirements of Sec. 1026.37(o). In addition, Sec. 1026.37(o)(1)(ii) 
requires creditors to disclose on the Loan Estimate only the information 
required by Sec. 1026.37(a) through (n), except as otherwise provided 
by Sec. 1026.37(o), and in the same order, and positioned relative to 
the master headings, headings, subheadings, labels, and similar 
designations in the same manner, as shown in form H-24, set forth in 
appendix H to this part. For example, creditors may not use form H-24, 
but include in the Loan Terms table under the subheading ``Can this 
amount increase after closing?'' information that is not required by 
Sec. 1026.37(b)(6).
    2. 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 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. Under Sec. 1026.37(o)(1)(ii), creditors may not include

[[Page 971]]

any additional information with the disclosures required by Sec. 
1026.37, except as provided in Sec. 1026.37(o)(5). Thus, the 
disclosures must show the large final payment as a balloon payment in 
the projected payments table required by Sec. 1026.37(c) and should 
not, for example, reflect the other options available to the consumer at 
maturity.
    37(o)(2) Headings and labels.
    1. Estimated amounts. Section 1026.37(o)(2) incorporates the 
``estimated'' designations reflected on form H-24 of appendix H to this 
part into the disclosure requirements of Sec. 1026.37, even if the 
relevant provision of Sec. 1026.37 does not expressly require or permit 
disclosure of the word ``estimate.'' Where form H-24 uses the 
abbreviation ``est.'' in place of the word ``estimated,'' Sec. 
1026.37(o)(2) also incorporates that designation into its requirement. 
For example, Sec. 1026.37(c)(2)(iv) requires disclosure of the total 
periodic payment labeled ``Total Monthly Payment,'' but the label on 
form H-24 contains the designation ``Estimated'' and thus, the label 
required by Sec. 1026.37(c)(2)(iv) must contain the designation 
``Estimated.'' Although many of the disclosures required by Sec. 
1026.38 cross-reference their counterparts in Sec. 1026.37, Sec. 
1026.38(t) incorporates the ``estimated'' designations reflected on form 
H-25, not form H-24.
    37(o)(3) Form.
    1. Non-federally related mortgage loans. For a non-federally related 
mortgage loan, the creditor is not required to use form H-24 of appendix 
H to this part, although its use as a model form for such transactions, 
if properly completed with accurate content, constitutes compliance with 
the clear and conspicuous and segregation requirements of Sec. 
1026.37(o)(1)(i). Even when the creditor elects not to use the model 
form, Sec. 1026.37(o)(1) requires that the disclosures be grouped 
together and segregated from everything else; contain only the 
information required by Sec. 1026.37(a) through (n); and be provided in 
the same order as they occur in form H-24, using the same relative 
positions of the headings, labels, and similar designations as shown in 
the form. In addition, Sec. 1026.37(o)(2) requires that the creditor 
include the designation of ``estimated'' for all headings, subheading, 
labels, and similar designations required by Sec. 1026.37 for which 
form H-24 contains the ``estimated'' designation in such heading, 
subheading, label, or similar designation. The disclosures required by 
Sec. 1026.37 comply with the requirement to be in a format 
substantially similar to form H-24 when provided on letter size 
(8.5[sec] x 11[sec]) paper.
    37(o)(4) Rounding.
    1. Rounding. Consistent with Sec. 1026.2(b)(4), except as otherwise 
provided in Sec. 1026.37(o)(4), any amount required to be disclosed by 
Sec. 1026.37 is not permitted to be rounded and is disclosed using 
decimal places where applicable, unless otherwise provided.
    2. Calculations. If a dollar amount that is required to be rounded 
by Sec. 1026.37(o)(4)(i) on the Loan Estimate is a total of one or more 
dollar amounts that are not required or permitted to be rounded, the 
total amount must be rounded consistent with Sec. 1026.37(o)(4)(i), but 
such component amounts used in the calculation must use such unrounded 
numbers. In addition, if any such unrounded component amount is required 
to be disclosed under Sec. 1026.37, consistent with Sec. 1026.2(b)(4), 
it should be disclosed as an unrounded number. If an amount that is 
required to be rounded by Sec. 1026.37(o)(4)(i) on the Loan Estimate is 
a total of one or more components that are also required to be rounded 
by Sec. 1026.37(o)(4)(i), the total amount must be calculated using 
such rounded amounts. For example, the subtotals required to be 
disclosed by Sec. 1026.37(f)(1), (2), and (3) are calculated using the 
rounded amounts disclosed under those subsections. See also comment 
37(o)(4)(i)(C)-1. However, the amounts required to be disclosed by Sec. 
1026.37(l) reference actual amounts for their components, rather than 
other amounts disclosed under Sec. 1026.37 and rounded pursuant to 
Sec. 1026.37(o)(4)(i), and thus, they are calculated using unrounded 
numbers.
    37(o)(4)(i) Nearest dollar.
    Paragraph 37(o)(4)(i)(A).
    1. Rounding of dollar amounts. Section 1026.37(o)(4)(i)(A) requires 
that certain dollar amounts be rounded to the nearest whole dollar. For 
example, pursuant to Sec. 1026.37(o)(4)(i)(A), periodic mortgage 
insurance payments of $164.50 are required to be disclosed under Sec. 
1026.37(c)(2)(ii) as $165. However, if the periodic mortgage insurance 
payment equaled $164.49, the creditor would disclose $164.
    Paragraph 37(o)(4)(i)(B).
    1. Rounding of loan amount. Section 1026.37(o)(4)(i)(B) requires the 
loan amount to be disclosed truncated at the decimal place if the loan 
amount is a whole number. For example, if Sec. 1026.37(b)(1) requires 
disclosure of a loan amount of $481,516.23, the creditor discloses the 
amount as $481,516.23. However, if the loan amount required to be 
disclosed were $481,516.00, the creditor would disclose $481,516.
    Paragraph 37(o)(4)(i)(C).
    1. Rounding of the total monthly payment. Section 
1026.37(o)(4)(i)(C) requires the total monthly payment amount disclosed 
under Sec. 1026.37(c)(2)(iv) to be rounded if any of its components are 
rounded. For example, if the total monthly payment disclosed under Sec. 
1026.37(c)(2)(iv) is composed of a $2,000.49 periodic principal and 
interest payment required to be disclosed by Sec. 1026.37(c)(2)(i) and 
a $164.49 periodic mortgage insurance payment required to be disclosed 
by Sec. 1026.37(c)(2)(ii), the creditor would calculate

[[Page 972]]

the total monthly payment by adding the exact periodic principal and 
interest payment of $2,000.49 and the rounded periodic mortgage 
insurance payment of $164, round the total, and disclose $2,164.
    37(o)(4)(ii) Percentages.
    1. Decimal places. Section 1026.37(o)(4)(ii) requires the percentage 
amounts disclosed to be truncated at the decimal point, if the amount is 
a whole number. For example, a 7.005 percent annual percentage rate is 
disclosed in compliance with Sec. 1026.37(o)(4)(ii) as ``7.005%,'' but 
a 7.000 percent annual percentage rate would be disclosed as ``7%.'' If 
any percentage amounts required to be disclosed contain more than three 
decimal places, they shall be rounded to three decimal places.
    37(o)(5) Exceptions.
    1. Permissible changes. The changes required or permitted by Sec. 
1026.37(o)(5) are permitted for federally related mortgage loans for 
which the use of form H-24 is required under Sec. 1026.37(o)(3). For 
non-federally related mortgage loans, the changes required or permitted 
by Sec. 1026.37(o)(5) do not affect the substance, clarity, or 
meaningful sequence of the disclosure and therefore, are permissible. 
Any changes to the disclosure not specified in Sec. 1026.37(o)(5) or 
not permitted by other provisions of Sec. 1026.37 are not permissible 
for federally related mortgage loans. Creditors in non-federally related 
mortgage loans making any changes that affect the substance, clarity, or 
meaningful sequence of the disclosure will lose their protection from 
civil liability under TILA section 130.
    2. Manual completion. Section 1026.37(o) does not require the 
creditor to use a computer, typewriter, or other word processor to 
complete the disclosure form. The information and amounts required to be 
disclosed by Sec. 1026.37 on form H-24 of appendix H to this part may 
be filled in by hand printing or using any other method, provided the 
information is clear and legible and complies with the formatting 
required by form H-24, including replicating bold font where required.
    3. Contact information. If a transaction involves more than one 
creditor or mortgage broker, the space provided on form H-24 of appendix 
H to this part for the contact information required by Sec. 1026.37(m) 
may be altered to add additional labels to accommodate the additional 
information of such parties, provided that the information required by 
Sec. 1026.37(l), (m), and (n) are disclosed on the same page as 
illustrated by form H-24. If the space provided on form H-24 of appendix 
H to this part does not allow for the disclosure of such contact and 
other information on the same page, an additional page may be added to 
provide the required contact information with an appropriate reference 
to the additional page.
    4. Unit-period. Section 1026.37(o)(5)(i) provides that wherever form 
H-24 or Sec. 1026.37 uses ``monthly'' to describe the frequency of any 
payments or uses ``month'' to describe the applicable unit-period, the 
creditor is required to substitute the appropriate term to reflect the 
fact that the transaction's terms provide for other than monthly 
periodic payments, such as bi-weekly or quarterly payments. For purposes 
of Sec. 1026.37, the term ``unit-period'' has the same meaning as in 
appendix J to Regulation Z.
    5. Additional page. Information required or permitted to be 
disclosed by Sec. 1026.37 on a separate page should be formatted 
similarly to form H-24 of appendix H to this part, so as not to affect 
the substance, clarity, or meaningful sequence of the disclosure. In 
addition, information provided on additional pages should be 
consolidated on as few pages as necessary to not affect the substance, 
clarity, or meaningful sequence of the disclosure.
    6. Translation. Section 1026.37(o)(5)(ii) permits the translation of 
form H-24 into languages other than English, consistent with Sec. 
1026.27. Pursuant to Sec. 1026.37(o)(5)(ii) creditors may modify form 
H-24 to the extent that translation prevents the headings, labels, 
designations, and required disclosure items under Sec. 1026.37 from 
fitting in the space provided on form H-24. For example, if the 
translation of a required label does not fit within the line provided 
for such label in form H-24, the label may be disclosed over two lines. 
See form H-28 of appendix H to this part for Spanish translations of 
form H-24.

      Section 1026.38--Content of Disclosures for Certain Mortgage 
                    Transactions (Closing Disclosure)

    1. Disclosures not applicable. Where a disclosure is not applicable 
to a particular transaction, form H-25 of appendix H to this part may 
not be modified to state ``not applicable'' or ``N/A.'' The portion of 
the form pertaining to the inapplicable disclosure may be left blank 
unless otherwise provided by Sec. 1026.38. For example, the disclosure 
required by Sec. 1026.38(r) of the consumer's or seller's real estate 
broker may be left blank for a transaction that does not involve real 
estate brokers, such as a refinance or home equity loan. As provided in 
Sec. 1026.38(m) and (n), however, the adjustable payment and adjustable 
interest rate tables required by those paragraphs may be included only 
if those disclosures are applicable to the transaction and otherwise 
must be excluded.
    2. Format. See Sec. 1026.38(t) and its commentary for guidance on 
the proper format to be used in making the disclosures, as well as 
required and permissible modifications.
    3. Good faith requirement. The disclosures required by Sec. 1026.38 
are required to reflect

[[Page 973]]

the actual terms of the legal obligation between the parties, and the 
actual costs associated with the settlement of the transaction. 
Creditors and settlement agents may estimate disclosures as provided 
pursuant to Sec. 1026.19(f)(1)(i) when the actual term or cost is 
unknown at the time the disclosures are made. See Sec. Sec. 
1026.17(c)(2) and 1026.19(f)(1)(i) and comments 17(c)(2)(i)-1 and -2, 
and 19(f)(1)(i)-2.
    38(a) General information.
    38(a)(3) Closing information.
    38(a)(3)(i) Date issued.
    1. Applicable date. For general guidance on identifying the date 
issued for the Closing Disclosure, see the commentary to Sec. 
1026.37(a)(4).
    38(a)(3)(iv) Settlement agent.
    1. Entity name. Section 1026.38(a)(3)(iv) requires the name of the 
entity that employs the settlement agent. The name of the individual 
conducting the closing is not required.
    38(a)(3)(v) File number.
    1. Alpha-numeric characters. The file number required by Sec. 
1026.38(a)(3)(v) may contain any alpha-numeric characters and need not 
be limited to numbers.
    38(a)(3)(vi) Property.
    1. Alternative property. For guidance on disclosing the location of 
a property for which an address is unavailable, see the commentary to 
Sec. 1026.37(a)(6). Where personal property also secures the credit 
transaction, a description of that property may be disclosed, at the 
creditor's option, pursuant to Sec. 1026.38(a)(3)(vi). If the form does 
not provide enough space to disclose a description of personal property 
under Sec. 1026.38(a)(3)(vi), at the creditor's option an additional 
page may be used and appended to the end of the form provided that the 
creditor complies with the requirements of Sec. 1026.38(t)(3).
    38(a)(3)(vii) Sale price.
    1. No seller. In transactions where there is no seller, such as in a 
refinancing, Sec. 1026.38(a)(3)(vii)(B) requires the creditor to 
disclose the appraised value of the property. To comply with this 
requirement, the creditor discloses the value determined by the 
appraisal or valuation used to determine approval of the credit 
transaction. If the creditor has not obtained an appraisal, the creditor 
may disclose the estimated value of the property. Where an estimate is 
disclosed, rather than an appraisal, the label for the disclosure is 
changed to ``Estimated Prop. Value.'' The creditor may use the estimate 
provided by the consumer at application, or if it has performed its own 
estimate of the property value by the time the disclosure is provided to 
the consumer, disclose that estimate provided that it was the estimate 
the creditor used to determine approval of the credit transaction.
    2. Personal property. For guidance on how to disclose the sale price 
of a transaction that includes personal property under Sec. 
1026.38(a)(3)(vii), see comment 37(a)(7)-2.
    38(a)(4) Transaction information.
    1. Multiple borrowers and sellers. The name and address of each 
consumer and seller in the transaction must be provided under the 
heading ``Transaction Information.'' If the form does not provide enough 
space to include the required information for each consumer and seller, 
an additional page may be used and appended to the end of the form 
provided that the creditor complies with the requirements of Sec. 
1026.38(t)(3). For additional guidance on disclosing multiple borrowers, 
see comment 37(a)(5)-1.
    2. No seller. In transactions where there is no seller, such as in a 
refinancing or home equity loan, the disclosure under Sec. 
1026.38(a)(4)(ii) may be left blank. See also Sec. 
1026.38(t)(5)(vii)(A).
    3. Multiple creditors. See comment 37(a)(3)-1 regarding 
identification requirements for multiple creditors.
    38(a)(5) Loan information.
    1. General. See commentary to Sec. 1026.37(a)(8) through (12) for 
guidance on the general requirements and definitions applicable to Sec. 
1026.38(a)(5)(i) through (v).
    38(a)(5)(v) Loan identification number.
    1. Same identification number as Loan Estimate. The loan 
identification number disclosed pursuant to Sec. 1026.38(a)(5)(v) must 
be one that enables the creditor, consumer, and other parties to 
identify the transaction as the same transaction disclosed on the Loan 
Estimate. The loan identification number may contain any alpha-numeric 
characters. If a creditor uses the same loan identification number on 
several revised Loan Estimates to the consumer, but adds after such 
number a hyphen and a number to denote the number of revised Loan 
Estimates in sequence, the creditor must disclose the loan 
identification number before such hyphen on the Closing Disclosure to 
identify the transaction as the same for which the initial and revised 
Loan Estimates were provided.
    38(b) Loan terms.
    1. Guidance. See the commentary to Sec. 1026.37(b) for guidance on 
the content of the disclosures required by Sec. 1026.38(b).
    38(c) Projected payments.
    1. In general. For guidance on the disclosure of the projected 
payments table, see Sec. 1026.37(c) and its commentary.
    38(c)(1) Projected payments or range of payments.
    1. Escrow account analysis. The amount of estimated escrow payments 
disclosed on the Closing Disclosure is accurate if it differs from the 
estimated escrow payment disclosed on the Loan Estimate because of the 
escrow account analysis described in Regulation X, 12 CFR 1024.17.
    38(d) Costs at closing.
    38(d)(2) Alternative table for transactions without a seller.

[[Page 974]]

    1. Required use. The disclosure of the cash to close table in Sec. 
1026.38(d)(2) may only be provided by a creditor in a transaction 
without a seller. The use of this alternative table for transactions 
without a seller is required if the Loan Estimate provided to the 
consumer disclosed the optional alternative table pursuant to Sec. 
1026.37(d)(2), and must be used in conjunction with the use of the 
alternative calculating cash to close disclosure under Sec. 1026.38(e).
    2. Method of indication. The indication of whether the cash is 
either due from or payable to the consumer is made by the use of check 
boxes as shown in form H-25(J) of appendix H to this part. Forms H-25(E) 
and H-25(G) of appendix H to this part contain examples of the use of 
these checkboxes.
    38(e) Alternative calculating cash to close table for transactions 
without a seller.
    1. Required use. The disclosure of the table in Sec. 1026.38(e) may 
only be provided by a creditor in a transaction without a seller. The 
use of this alternative calculating cash to close table for transactions 
without a seller is required for transactions in which the Loan Estimate 
provided to the consumer disclosed the optional alternative table 
pursuant to Sec. 1026.37(h)(2), and must be used in conjunction with 
the alternative disclosure under Sec. 1026.38(d)(2).
    2. More prominent disclosures. Section 1026.38(e)(1)(iii), (2)(iii), 
(3)(iii), and (4)(iii) requires that statements are given as to whether 
the ``Final'' amount disclosed under each subparagraph (ii) of Sec. 
1026.38(e)(1) through (e)(4) is different than or equal to, and in some 
cases whether the amount is greater than or less than, the corresponding 
``Loan Estimate'' amount disclosed under each subparagraph (i) of Sec. 
1026.38(e)(1) through (e)(4). These statements are more prominent than 
the other disclosures under Sec. 1026.38(e). The statement of whether 
the estimated and final amounts are different, stated as a ``Yes'' or 
``No'' in capital letters and in boldface, under the subheading ``Did 
this change?,'' as shown on forms H-25(E) and H-25(G) of appendix H to 
this part, complies with the requirement to state whether the amounts 
are different more prominently. Such statement of ``No'' satisfies the 
requirement to state that the estimated and final amounts are equal, and 
these sections do not provide for any narrative text to be included with 
such statement. The prominence requirement also requires that, in the 
event an increase or decrease in costs has occurred, certain words 
within the narrative text to be included under the subheading ``Did this 
change?'' for a ``Yes'' answer are displayed more prominently than other 
disclosures. For example, under Sec. 1026.38(e)(2)(iii)(A), this more 
prominent statement could take the form of the phrases ``Total Loan 
Costs (D)'' and ``Total Other Costs (I)'' being shown in boldface, as 
shown on forms H-25(E) and H-25(G) of appendix H to this part. See 
comment 38(e)-4 for further guidance regarding the prominence of such 
statements.
    3. Statements of differences. The dollar amounts disclosed under 
Sec. 1026.38 generally are shown to two decimal places unless otherwise 
required. See comment 38(t)(4)-1. As a result, any ``Final'' amount that 
is disclosed in the alternative ``Calculating Cash to Close'' table 
under Sec. 1026.38(e) is shown to two decimal places unless otherwise 
required. Pursuant to Sec. 1026.38(t)(4)(i)(C), however, any ``Loan 
Estimate'' amount that is disclosed in the alternative ``Calculating 
Cash to Close'' table under Sec. 1026.38(e) is shown to the nearest 
dollar amount, and thus matches the corresponding estimated amount 
disclosed on the Loan Estimate's ``Calculating Cash to Close'' table 
under Sec. 1026.37(h), which is shown to the nearest whole dollar 
pursuant to Sec. 1026.37(o)(4)(i)(A). For this reason, a ``Final'' 
amount shown to two decimal places could be a larger number than its 
corresponding ``Estimate'' amount shown to the nearest whole dollar, 
when, in fact, the apparent increase is due solely to rounding. 
Therefore, for purposes of Sec. 1026.38(e)(1)(iii), (2)(iii), (3)(iii), 
and (4)(iii), each statement of a change between the amounts disclosed 
on the Loan Estimate and the Closing Disclosure is based on the actual, 
non-rounded estimate that would have been disclosed on the Loan Estimate 
under Sec. 1026.37(h) if it had been shown to two decimal places rather 
than a whole dollar amount. For example, if the ``Loan Estimate'' amount 
of ``Total Closing Costs'' disclosed under Sec. 1026.38(e)(2)(i) is 
$12,500, and the ``Final'' amount of ``Total Closing Costs'' disclosed 
under Sec. 1026.38(e)(2)(ii) is $12,500.35, then even though the table 
would appear to show a $0.35 increase in ``Total Closing Costs,'' no 
statement of such increase is given under Sec. 1026.38(e)(2)(iii) so 
long as the actual, non-rounded estimate (i.e., the estimated amount of 
``Total Closing Costs'' that would have been shown on the Loan Estimate 
to two decimal places) is equal to $12,500.35.
    4. Statements that the consumer should see details. The provisions 
of Sec. 1026.38(e)(2)(iii)(A) and (e)(4)(iii)(A) each require a 
statement that the consumer should see certain details of the closing 
costs disclosed under Sec. 1026.38(f), (g), or (t). Forms H-25(E) and 
H-25(G) of appendix H to this part contain examples of these statements. 
For example, Sec. 1026.38(e)(4)(iii)(A) requires a statement that the 
consumer should see the details disclosed pursuant to Sec. 
1026.38(t)(5)(vii)(B), and, as shown on forms H-25(E) and H-25(G) of 
appendix H to this part, the statement, ``See Payoffs and Payments,'' in 
which the words ``Payoffs and Payments'' are in boldface, complies with 
this provision.

[[Page 975]]

    5. Statement of increase or decrease. Section 1026.38(e)(1)(iii)(A) 
requires a statement of whether the loan amount increased or decreased. 
A creditor complies with this requirement by disclosing, ``This amount 
increased'' or ``This amount decreased'' with the words ``increase'' and 
``decrease'' in boldface font.
    38(e)(1) Loan amount.
    Paragraph 38(e)(1)(iii)(A).
    1. Statements of increases or decreases. Section 
1026.38(e)(1)(iii)(A) requires a statement of whether the amount 
increased or decreased from the estimated amount. For Sec. 
1026.38(e)(1)(iii)(A), the statement, ``You increased this amount,'' in 
which the word ``increased'' is in boldface font and is replaced with 
the word ``decreased'' as applicable, complies with this provision.
    38(e)(2) Total closing costs.
    Paragraph 38(e)(2)(i).
    1. Reference to disclosure of total closing costs. Under Sec. 
1026.38(e)(2)(i), the amount disclosed is labeled ``Total Closing 
Costs,'' and such label is accompanied by a reference to the disclosure 
of ``Total Closing Costs'' under Sec. 1026.38(h)(1). This reference may 
take the form, for example, of a cross-reference in parenthesis to the 
row on the table disclosed under Sec. 1026.38(h) that includes the 
itemized amount for ``Total Closing Costs,'' as shown on form H-25 of 
appendix H to this part.
    Paragraph 38(e)(2)(iii)(A).
    1. Statements and references regarding the total loan costs and 
total other costs. Under Sec. 1026.38(e)(2)(iii)(A), the statements 
under the subheading ``Did this change?'' that the consumer should see 
the total loan costs and total other costs subtotals disclosed on the 
Closing Disclosure under Sec. 1026.38(f)(4) and (g)(5) are made only if 
and to the extent the difference in the ``Total Closing Costs'' is 
attributable to differences in itemized charges that are included in 
either or both of such subtotals.
    i. For example, if an increase in the ``Total Closing Costs'' is 
attributable only to an increase in the appraisal fee (which is an 
itemized charge on the Closing Disclosure under the subheading 
``Services Borrower Did Not Shop For,'' itself under the heading ``Loan 
Costs''), then a statement is given under the subheading ``Did this 
change?'' that the consumer should see the total loan costs subtotal 
disclosed on the Closing Disclosure under Sec. 1026.38(f)(4). If the 
increase in ``Total Closing Costs'' is attributable only to an increase 
in recording fees (which is an itemized charge on the Closing Disclosure 
under the subheading ``Taxes and Other Government Fees,'' itself under 
the heading ``Other Costs''), then a statement is given under the 
subheading ``Did this change?'' that the consumer should see the total 
other costs subtotal disclosed on the Closing Disclosure under Sec. 
1026.38(g)(5). If, however, the increase is attributable in part to an 
increase in the appraisal fee and in part to an increase in the 
recording fee, then a statement is given under the subheading ``Did this 
change?'' that the consumer should see the total loan costs and total 
other costs subtotals disclosed on the Closing Disclosure under Sec. 
1026.38(f)(4) and (g)(5).
    ii. For guidance regarding the requirement that this statement be 
accompanied by a reference to the disclosures of the total loan costs 
and total other costs under Sec. 1026.38(f)(4) and (g)(5), see comment 
38(e)(2)(i)-1. For an example of such reference, see form H-25 of 
appendix H to this part.
    2. Disclosure of excess amounts above limitations on increases in 
closing costs.
    i. Because certain closing costs, individually, are subject to the 
limitations on increases in closing costs under Sec. 1026.19(e)(3)(i) 
(e.g., fees paid to the creditor, transfer taxes, fees paid to an 
affiliate of the creditor), while other closing costs are collectively 
subject to the limitations on increases in closing costs under Sec. 
1026.19(e)(3)(ii) (e.g., recording fees, fees paid to an unaffiliated 
third party identified by the creditor if the creditor permitted the 
consumer to shop for the service provider), Sec. 1026.38(e)(2)(iii)(A) 
requires the creditor or closing agent to calculate subtotals for each 
type of excess amount, and then add such subtotals together to yield the 
dollar amount to be disclosed in the table. See commentary to Sec. 
1026.19(e)(3) for additional guidance on calculating excess amounts 
above the limitations on increases in closing costs under Sec. 
1026.19(e)(3).
    ii. Under Sec. 1026.38(e)(2)(iii)(A), calculation of the excess 
amounts above the limitations on increases in closing costs takes into 
account that the itemized, estimated closing costs disclosed on the Loan 
Estimate will not result in charges to the consumer if the service is 
not actually provided at or before consummation. For example, if the 
Loan Estimate included under ``Services You Cannot Shop For'' a $30 
charge for a ``title courier fee,'' but the title company elects to 
hand-deliver the title documents package to the creditor at no charge, 
the $30 fee is not factored into the calculation of the ``Total Closing 
Costs'' that are subject to the limitations on increases in closing 
costs. However, if the title courier fee was assessed, but at only $15, 
the charge is factored into the calculation because the third party 
service was actually provided, albeit at a lower amount than estimated. 
For an example, see form H-25 of appendix H to this part.
    iii. Under Sec. 1026.38(e)(2)(iii)(A), calculation of the excess 
amounts above the limitations on increases in closing costs takes into 
account that certain itemized charges listed on the Loan Estimate under 
the subheading ``Services You Can Shop For'' may be subject

[[Page 976]]

to different limitations depending on the circumstances. Such a charge 
would be subject to the limitations under Sec. 1026.19(e)(3)(i) if the 
consumer decided to use a provider affiliated with the creditor. 
However, the same charge would instead be subject to the limitations 
under Sec. 1026.19(e)(3)(ii) if the consumer selected a third party 
service provider unaffiliated with but identified by the creditor, and 
the creditor permitted the consumer to shop for the service provider. 
See commentary to Sec. 1026.19(e)(3) for additional guidance on 
calculating excess amounts above the limitations on increases in closing 
costs under Sec. 1026.19(e)(3).
    38(e)(3) Closing costs paid before closing.
    Paragraph 38(e)(3)(i).
    1. Estimate of closing costs paid before closing. Under Sec. 
1026.38(e)(3)(i), the ``Loan Estimate'' amount for ``Closing Costs 
Subtotal Paid Before Closing'' is always shown as ``$0,'' because an 
estimate of such amount is not disclosed on the Loan Estimate.
    Paragraph 38(e)(3)(iii)(B).
    1. Equal amount. Under Sec. 1026.38(e)(3)(iii)(B), the creditor or 
settlement agent gives a statement that the ``Final'' amount disclosed 
under Sec. 1026.38(e)(3)(ii) is equal to the ``Loan Estimate'' amount 
disclosed under Sec. 1026.38(e)(3)(i), only if the ``Final'' amount is 
$0, because the ``Loan Estimate'' amount is always disclosed as $0 
pursuant to Sec. 1026.38(e)(3)(i). See comment 38(e)(3)(i)-1.
    38(f) Closing cost details; loan costs.
    1. Lender-paid charges and specific lender credits. Charges that are 
designated as paid by others under Sec. 1026.38(f) and (g), below, may 
include the letter ``L'' in parentheses, i.e. ``(L),'' to the left of 
the amount in the column to designate those charges paid by the creditor 
pursuant to the legal obligation between the creditor and consumer.
    38(f)(1) Origination charges.
    1. Guidance in other comments. For a description of origination 
charges and discount points, see comments 37(f)(1)-1, -2, and -3.
    2. Loan originator compensation. All compensation paid to a loan 
originator, as defined by Sec. 1026.36(a)(1), that is a third-party 
associated with the transaction, regardless of the party that pays the 
compensation, must be disclosed pursuant to Sec. 1026.38(f)(1). 
Compensation from the consumer to a third-party loan originator is 
designated as borrower-paid at or before closing, as applicable, on the 
Closing Disclosure. Compensation from the creditor to a third-party loan 
originator is designated as paid by others on the Closing Disclosure. 
Compensation to a third-party loan originator from both the consumer and 
the creditor in the transaction is prohibited under Sec. 1026.36(d)(2).
    3. Calculating compensation to a loan originator from the creditor. 
The amount disclosed as paid from the creditor to a third-party loan 
originator under Sec. 1026.38(f)(1) is the dollar value of salaries, 
commissions, and any financial or similar compensation provided to a 
third-party loan originator by the creditor that are considered to be 
points and fees under Sec. 1026.32(b)(1)(ii). For additional guidance 
and examples on the calculation of compensation paid to the third-party 
loan originator from the creditor, see comments 32(b)(1)(ii)-1, --2, -3, 
and -4.
    38(f)(2) Services borrower did not shop for.
    1. Guidance in other comments. For examples of services, costs, and 
their descriptions disclosed under Sec. 1026.38(f)(2), see comments 
37(f)(2)-1, -2, -3, and -4.
    38(f)(3) Services borrower did shop for.
    1. Provider on written list. Items that were disclosed pursuant to 
Sec. 1026.37(f)(3) cannot be disclosed under Sec. 1026.38(f)(3) when 
the consumer selected a provider contained on the written list provided 
under Sec. 1026.19(e)(1)(vi)(C). Instead, such costs are disclosed 
pursuant to Sec. 1026.38(f)(2).
    38(f)(5) Subtotal of loan costs.
    1. Charges subtotaled. The only charges that are loan costs that are 
subtotaled pursuant to Sec. 1026.38(f)(5) are those costs designated 
borrower-paid at or before closing. Charges which are loan costs 
designated seller-paid at or before closing, or paid by others, are not 
subtotaled pursuant to Sec. 1026.38(f)(5). The subtotal of charges that 
are seller-paid at or before closing or paid by others is disclosed 
under Sec. 1026.38(h)(2).
    38(g) Closing costs details; other costs.
    38(g)(1) Taxes and other government fees.
    1. Guidance. For additional guidance on taxes and other government 
fees, see comments 37(g)(1)-1, -2, -3, and -4.
    2. Transfer taxes--itemization. The creditor may itemize the 
transfer taxes paid on as many lines as necessary pursuant to Sec. 
1026.38(g)(1) in order to disclose all of the transfer taxes paid as 
part of the transaction. The taxes should be allocated in the applicable 
columns as borrower-paid at or before closing, seller-paid at or before 
closing, or paid by others, as provided by State or local law, the terms 
of the legal obligation, or the real estate purchase contract.
    38(g)(2) Prepaids.
    1. Guidance. For additional guidance on prepaids, see comments 
37(g)(2)-1 and -2.
    2. Negative prepaid interest. The prepaid interest amount is 
disclosed as a negative number if the calculation of prepaid interest 
results in a negative number.
    3. No prepaid interest. If interest is not collected for a portion 
of a month or other period between closing and the date from which 
interest will be collected with the first monthly payment, then $0 must 
be disclosed under Sec. 1026.38(g)(2).
    4. Interest rate for prepaid interest. The interest rate disclosed 
pursuant to Sec. 1026.38(g)(2) is the interest rate disclosed under 
Sec. 1026.38(b), as required by Sec. 1026.37(b)(2).

[[Page 977]]

    5. Property taxes. For a description of items that constitute 
property taxes, see comment 43(b)(8)-2.
    38(g)(3) Initial escrow payment at closing.
    1. Initial escrow account itemization. The creditor must state the 
amount that it will require the consumer to place into a reserve or 
escrow account at consummation to be applied to recurring charges for 
property taxes, homeowner's and similar insurance, mortgage insurance, 
homeowner's association dues, condominium dues, and other periodic 
charges. Each periodic charge to be included in the escrow or reserve 
account must be itemized under the ``Initial Escrow Payment at Closing'' 
subheading, with a relevant label, monthly payment amount, and number of 
months collected at closing.
    2. Aggregate accounting. The method used to determine the aggregate 
adjustment for the purposes of establishing the escrow account is 
described in 12 CFR 1024.17(d)(2). Examples of this calculation 
methodology can be found in appendix E to 12 CFR part 1024. The 
aggregate adjustment, as illustrated by form H-25 of appendix H to this 
part, is disclosed as the last listed item in the amounts disclosed 
under Sec. 1026.38(g)(3).
    3. Escrowed tax payments for different timeframes. Payments for 
property taxes that are paid at different time periods can be itemized 
separately when done in accordance with 12 CFR 1024.17. For example, a 
general property tax covering a fiscal year from January 1 to December 
31 can be listed as a property tax under Sec. 1026.38(g)(3) and a 
separate property tax to fund schools that cover a fiscal year from 
November 1 to October 31 can be added as a separate itemized amount 
under Sec. 1026.38(g)(3).
    4. Property taxes. For a description of items that constitute 
property taxes, see comment 43(b)(8)-2.
    5. Definition of escrow account. For a description of the amounts 
included in the initial escrow account disclosure under Sec. 
1026.38(g)(3), see the definition of ``escrow account'' in 12 CFR 
1024.17(b).
    38(g)(4) Other.
    1. Costs disclosed. The costs disclosed under Sec. 1026.38(g)(4) 
include all real estate brokerage fees, homeowner's or condominium 
association charges paid at consummation, home warranties, inspection 
fees, and other fees that are part of the real estate closing but not 
required by the creditor or not disclosed elsewhere under Sec. 1026.38.
    2. Owner's title insurance premium. In a jurisdiction where 
simultaneous issuance title insurance rates are permitted, any owner's 
title insurance premium disclosed under Sec. 1026.38(g)(4) is 
calculated by using the full owner's title insurance premium, adding any 
simultaneous issuance premium for issuance of lender's coverage, and 
then deducting the full premium for lender's coverage disclosed under 
Sec. 1026.38(f)(2) or (f)(3). Section 1026.38(g)(4)(i) requires that 
the disclosure of the cost of the premium for an owner's title insurance 
policy include ``Title--'' at the beginning of the label. In addition, 
Sec. 1026.38(g)(4)(ii) requires that the disclosure of the cost of the 
premium for an owner's title insurance policy include the parenthetical 
``(optional)'' at the end of the label when designated borrower-paid at 
or before closing.
    3. Guidance. For additional guidance on the use of the term 
``(optional)'' under Sec. 1026.38(g)(4)(ii), see comment 37(g)(4)-3.
    4. Real estate commissions. The amount of real estate commissions 
pursuant to Sec. 1026.38(g)(4) must be the total amount paid to any 
real estate brokerage as a commission, regardless of the identity of the 
party holding any earnest money deposit. Additional charges made by real 
estate brokerages or agents to the seller or consumer are itemized 
separately as additional items for services rendered, with a description 
of the service and an identification of the person ultimately receiving 
the payment.
    38(g)(6) Subtotal of costs.
    1. Costs subtotaled. The only costs that are subtotaled pursuant to 
Sec. 1026.38(g)(6) are those costs that are designated borrower-paid at 
or before closing. Costs that are designated seller-paid at or before 
closing, or paid by others, are not subtotaled pursuant to Sec. 
1026.38(g)(6). The subtotal of charges that are designated seller-paid 
at or before closing or paid by others is disclosed under Sec. 
1026.38(h)(2).
    38(h) Closing cost totals.
    Paragraph 38(h)(2).
    1. Charges paid by seller and by others subtotaled. All loan costs 
and other costs that are designated seller-paid at or before closing, or 
paid by others, are also totaled under Sec. 1026.38(h)(2).
    Paragraph 38(h)(3).
    1. General lender credits. When the consumer receives a generalized 
credit from the creditor for closing costs, the amount of the credit 
must be disclosed under Sec. 1026.38(h)(3). However, if such credit is 
attributable to a specific loan cost or other cost listed in the Closing 
Cost Details tables, pursuant to Sec. 1026.38(f) or (g), that amount 
should be reflected in the Paid by Others column in the Closing Cost 
Details tables under Sec. 1026.38(f) or (g). For a description of 
lender credits from the creditor, see comment 17(c)(1)-19. For a 
discussion of general lender credits and lender credits for specific 
charges, see comment 19(e)(3)(i)-5.
    2. Credits for excess charges. Credits from the creditor to offset 
an amount charged in excess of the limitations described in Sec. 
1026.19(e)(3) are disclosed pursuant to Sec. 1026.38(h)(3), along with 
a statement that such amount was paid to offset an excess charge, with 
funds other than closing funds.

[[Page 978]]

If an excess charge to the consumer is discovered after consummation and 
a refund provided, the corrected disclosure must be provided to the 
consumer under Sec. 1026.19(f)(2)(v). For an example, see form H-25(F) 
of appendix H to this part.
    Paragraph 38(h)(4).
    1. Consistent terminology and order of charges. On the Closing 
Disclosure the creditor must label the corresponding services and costs 
disclosed under Sec. 1026.38(f) and (g) using terminology that 
describes each item, as applicable, and must use terminology or the 
prescribed label, as applicable, that is consistent with that used on 
the Loan Estimate to identify each corresponding item. In addition, 
Sec. 1026.38(h)(4) requires the creditor to list the items disclosed 
under each subcategory of charges in a consistent order. If costs move 
between subheadings under Sec. 1026.38(f)(2) and (f)(3), listing the 
costs in alphabetical order in each subheading category is considered to 
be in compliance with Sec. 1026.38(h)(4). See comment 37(f)(5)-1 for 
guidance regarding the requirement to use terminology that describes the 
items to be disclosed.
    38(i) Calculating cash to close.
    1. More prominent disclosures. Section 1026.38(i)(1)(iii), (2)(iii), 
(3)(iii), (4)(iii), (5)(iii), (6)(iii), (7)(iii), and (8)(iii) requires 
that statements are given as to whether the ``Final'' amount disclosed 
under each subparagraph (ii) of Sec. 1026.38(i)(1) through (i)(8) is 
different or equal to, and in some cases whether the amount is greater 
than or less than, the corresponding ``Loan Estimate'' amount disclosed 
under each subparagraph (i) of Sec. 1026.38(i)(1) through (i)(8). These 
statements are more prominent than the other disclosures under Sec. 
1026.38(i). The statement of whether the estimated and final amounts are 
different, stated as a ``Yes'' or ``No'' in capital letters and in 
boldface font, under the subheading ``Did this change?,'' as shown on 
form H-25 of appendix H to this part, complies with the requirement to 
state whether the amounts are different more prominently. Such statement 
of ``No'' satisfies the requirement to state that the estimated and 
final amounts are equal, and these sections do not provide for any 
narrative text to be included with such statement. The prominence 
requirement also requires that, in the event an increase or decrease in 
costs has occurred, certain words within the narrative text to be 
included under the subheading ``Did this change?'' for a ``Yes'' answer 
are displayed more prominently than other disclosures. For example, 
under Sec. 1026.38(i)(1)(iii)(A), this more prominent statement could 
take the form of the phrases ``Total Loan Costs'' and ``Total Other 
Costs'' being shown in boldface, as shown on form H-25 of appendix H to 
this part. See comments 38(i)-3 and -4 for further guidance regarding 
the prominence of such statements.
    2. Statements of differences. The dollar amounts disclosed under 
Sec. 1026.38 generally are shown to two decimal places unless otherwise 
required. See comment 38(t)(4)-1. As a result, any ``Final'' amount that 
is disclosed in the ``Calculating Cash to Close'' table under Sec. 
1026.38(i) is shown to two decimal places unless otherwise required. 
Pursuant to Sec. 1026.38(t)(4)(i)(C), however, any ``Loan Estimate'' 
amount that is disclosed in the ``Calculating Cash to Close'' table 
under Sec. 1026.38(i) is shown rounded to the nearest dollar amount, 
and thus matches the corresponding estimated amount disclosed on the 
Loan Estimate's ``Calculating Cash to Close'' table under Sec. 
1026.37(h), which is shown rounded to the nearest whole dollar pursuant 
to Sec. 1026.37(o)(4)(i)(A). For this reason, a ``Final'' amount shown 
to two decimal places could be a larger number than its corresponding 
``Loan Estimate'' amount shown rounded to the nearest whole dollar, 
when, in fact, the apparent increase is due solely to rounding. 
Therefore, for purposes of Sec. 1026.38(i)(1)(iii), (2)(iii), (3)(iii), 
(4)(iii), (5)(iii), (6)(iii), (7)(iii), and (8)(iii), each statement of 
a change between the amounts disclosed on the Loan Estimate and the 
Closing Disclosure is based on the actual, non-rounded estimate that 
would have been disclosed on the Loan Estimate under Sec. 1026.37(h) if 
it had been shown to two decimal places rather than a whole dollar 
amount. For example, if the ``Loan Estimate'' amount of ``Total Closing 
Costs'' disclosed under Sec. 1026.38(i)(1)(i) is $12,500, and the 
``Final'' amount of ``Total Closing Costs'' disclosed under Sec. 
1026.38(i)(1)(ii) is $12,500.35, then even though the table would appear 
to show a $0.35 increase in ``Total Closing Costs,'' no statement of 
such increase is given under Sec. 1026.38(i)(1)(iii) so long as the 
actual, non-rounded estimate (i.e., the estimated amount of ``Total 
Closing Costs'' that would have been shown on the Loan Estimate to two 
decimal places) is equal to $12,500.35.
    3. Statements that the consumer should see details. The provisions 
of Sec. 1026.38(i)(4)(iii)(A), (i)(5)(iii)(A), (i)(7)(iii)(A), and 
(i)(8)(iii)(A) each require a statement that the consumer should see 
certain details of the closing costs disclosed under Sec. 1026.38(j). 
Form H-25 of appendix H to this part contains examples of these 
statements. For example, Sec. 1026.38(i)(7)(iii)(A) requires a 
statement that the consumer should see the details disclosed pursuant to 
Sec. 1026.38(j)(2)(v), and, as shown on form H-25(B) of appendix H to 
this part, the statement, ``See Seller Credits in Section L,'' in which 
the words ``Section L'' are in boldface font, complies with this 
provision. In addition, for example, Sec. 1026.38(i)(5)(iii)(A) 
requires a statement that the consumer should see the details disclosed 
pursuant to Sec. 1026.38(j)(2)(ii), and the following statement which 
is similar to that shown on form H-25(B) of appendix H to this part for

[[Page 979]]

Sec. 1026.38(i)(7)(iii)(A), ``See Deposit in Section L,'' in which the 
words ``Section L'' are in boldface font, complies with this provision. 
In addition, for example, the statement ``See details in Sections K and 
L,'' in which the words ``Sections K and L'' are in boldface font, 
complies with the requirement under Sec. 1026.38(i)(8)(iii)(A). See 
form H-25(B) of appendix H to this part for an example of the statement 
required by Sec. 1026.38(i)(8)(iii)(A).
    4. Statements of increases or decreases. The provisions of Sec. 
1026.38(i)(4)(iii)(A), (i)(5)(iii)(A), and (i)(6)(iii)(A) each require a 
statement of whether the amount increased or decreased from the 
estimated amount. For the statement required by Sec. 
1026.38(i)(6)(iii)(A), the statement ``This amount increased,'' in which 
the word ``increased'' is in boldface and is replaced with the word 
``decreased'' as applicable, complies with this requirement. For the 
statements required by Sec. 1026.38(i)(4)(iii)(A) and (i)(5)(iii)(A), 
the statement, ``You increased this payment,'' in which the word 
``increased'' is in boldface and is replaced with the word ``decreased'' 
as applicable, complies with these requirements.
    38(i)(1) Total closing costs.
    Paragraph 38(i)(1)(iii)(A).
    1. Statements and references regarding the total loan costs and 
total other costs. Under Sec. 1026.38(i)(1)(iii)(A), the statements 
under the subheading ``Did this change?'' that the consumer should see 
the total loan costs and total other costs subtotals disclosed on the 
Closing Disclosure under Sec. 1026.38(f)(4) and (g)(5) is made only if 
and to the extent the difference in the ``Total Closing Costs'' is 
attributable to differences in itemized charges that are included in 
either or both of such subtotals.
    i. For example, if an increase in the ``Total Closing Costs'' is 
attributable only to an increase in the appraisal fee (which is an 
itemized charge on the Closing Disclosure under the subheading 
``Services Borrower Did Not Shop For,'' itself under the heading ``Loan 
Costs''), then a statement is given under the subheading ``Did this 
change?'' that the consumer should see the total loan costs subtotal 
disclosed on the Closing Disclosure under Sec. 1026.38(f)(4). If the 
increase in ``Total Closing Costs'' is attributable only to an increase 
in recording fees (which is an itemized charge on the Closing Disclosure 
under the subheading ``Taxes and Other Government Fees,'' itself under 
the heading ``Other Costs''), then a statement is given under the 
subheading ``Did this change?'' that the consumer should see the total 
other costs subtotal disclosed on the Closing Disclosure under Sec. 
1026.38(g)(5). If, however, the increase is attributable in part to an 
increase in the appraisal fee and in part to an increase in the 
recording fee, then a statement is given under the subheading ``Did this 
change?'' that the consumer should see the total loan costs and total 
other costs subtotals disclosed on the Closing Disclosure under Sec. 
1026.38(f)(4) and (g)(5).
    ii. For guidance regarding the requirement that this statement be 
accompanied by a reference to the disclosures of the total loan costs 
and total other costs under Sec. 1026.38(f)(4) and (g)(5), see comment 
38(i)-1. For an example of such reference, see form H-25 of appendix H 
to this part.
    2. Disclosure of excess amounts above limitations on increases in 
closing costs.
    i. Because certain closing costs, individually, are subject to the 
limitations on increases in closing costs under Sec. 1026.19(e)(3)(i) 
(e.g., fees paid to the creditor, transfer taxes, fees paid to an 
affiliate of the creditor), while other closing costs are collectively 
subject to the limitations on increases in closing costs under Sec. 
1026.19(e)(3)(ii) (e.g., recording fees, fees paid to an unaffiliated 
third party identified by the creditor if the creditor permitted the 
consumer to shop for the service provider), Sec. 1026.38(i)(1)(iii)(A) 
requires the creditor or closing agent to calculate subtotals for each 
type of excess amount, and then add such subtotals together to yield the 
dollar amount to be disclosed in the table. See commentary to Sec. 
1026.19(e)(3) for additional guidance on calculating excess amounts 
above the limitations on increases in closing costs under Sec. 
1026.19(e)(3).
    ii. Under Sec. 1026.38(i)(1)(iii)(A), calculation of the excess 
amounts above the limitations on increases in closing costs takes into 
account that the itemized, estimated closing costs disclosed on the Loan 
Estimate will not result in charges to the consumer if the service is 
not actually provided at or before consummation. For example, if the 
Loan Estimate included under ``Services You Cannot Shop For'' a $30 
charge for a ``title courier fee,'' but the title company elects to 
hand-deliver the title documents package to the creditor at no charge, 
the $30 fee is not factored into the calculation of the ``Total Closing 
Costs'' that are subject to the limitations on increases in closing 
costs. However, if the title courier fee was assessed, but at only $15, 
the charge is factored into the calculation because the third-party 
service was actually provided, albeit at a lower amount than estimated.
    iii. Under Sec. 1026.38(i)(1)(iii)(A), calculation of the excess 
amounts above the limitations on increases in closing costs takes into 
account that certain itemized charges listed on the Loan Estimate under 
the subheading ``Services You Can Shop For'' may be subject to different 
limitations depending on the circumstances. Such a charge would be 
subject to the limitations under Sec. 1026.19(e)(3)(i) if the consumer 
decided to use a provider affiliated with the creditor. However, the 
same

[[Page 980]]

charge would instead be subject to the limitations under Sec. 
1026.19(e)(3)(ii) if the consumer selected a third-party service 
provider unaffiliated with but identified by the creditor, and the 
creditor permitted the consumer to shop for the service provider. See 
commentary to Sec. 1026.19(e)(3) for additional guidance on calculating 
excess amounts above the limitations on increases in closing costs under 
Sec. 1026.19(e)(3).
    3. Statements regarding excess amount and any credit to the 
consumer. Section 1026.38(i)(1)(iii)(A)(3) requires statements that an 
increase in closing costs exceeds legal limits by the dollar amount of 
the excess and a statement directing the consumer to the disclosure of 
lender credits under Sec. 1026.38(h)(3) if a credit is provided under 
Sec. 1026.19(f)(2)(v). See form H-25(F) of appendix H to this part for 
examples of such statements.
    38(i)(2) Closing costs paid before closing.
    Paragraph 38(i)(2)(i).
    1. Estimate of closing costs paid before closing. Under Sec. 
1026.38(i)(2)(i), the ``Loan Estimate'' amount for ``Closing Costs Paid 
Before Closing'' is always shown as ``$0,'' because an estimate of such 
amount is not disclosed on the Loan Estimate.
    Paragraph 38(i)(2)(iii)(B).
    1. Equal amount. Under Sec. 1026.38(i)(2)(iii)(B), the creditor or 
closing agent will give a statement that the ``Final'' amount disclosed 
under Sec. 1026.38(i)(2)(ii) is equal to the ``Loan Estimate'' amount 
disclosed under Sec. 1026.38(i)(2)(i), only if the ``Final'' amount is 
$0, because the ``Loan Estimate'' amount is always disclosed as $0 
pursuant to Sec. 1026.38(i)(2)(i). See comment 38(i)(2)(i)-1.
    38(i)(4) Down payment/funds from borrower.
    Paragraph 38(i)(4)(ii)(A).
    1. Down payment. Under Sec. 1026.38(i)(4)(ii)(A), in a transaction 
that is a purchase as defined in Sec. 1026.37(a)(9)(i), the ``Final'' 
amount disclosed for ``Down Payment/Funds from Borrower'' reflects any 
change, following delivery of the Loan Estimate, in the amount of down 
payment required of the consumer. This change might result, for example, 
from an increase in the purchase price of the property.
    Paragraph 38(i)(4)(ii)(B).
    1. Funds from borrower. Section 1026.38(i)(4)(ii)(B) provides that, 
in a transaction other than a purchase as defined in Sec. 
1026.37(a)(9)(i), the ``Final'' amount disclosed for ``Down Payment/
Funds from Borrower'' is the amount of ``Funds from Borrower'' 
determined in accordance with Sec. 1026.38(i)(6)(iv). Under Sec. 
1026.38(i)(6)(iv), the ``Final'' amount of ``Funds from Borrower'' to be 
disclosed under Sec. 1026.38(i)(4)(ii)(B) is determined by subtracting 
from the total amount of all existing debt being satisfied in the real 
estate closing and disclosed under Sec. 1026.38(j)(1)(v) (except to the 
extent the satisfaction of such existing debt is disclosed under Sec. 
1026.38(g)) the principal amount of the credit extended, and is 
disclosed either as a positive number or $0 depending on the result of 
the calculation. An increase in the ``Final'' amount of ``Funds from 
Borrower'' compared to the corresponding ``Loan Estimate'' amount might 
result, for example, from a decrease in the amount of the credit 
extended or an increase in the payoff amount for the consumer's existing 
debt that is secured by the property. For additional guidance regarding 
the determination of the ``Down Payment/Funds from Borrower'' amount, 
see comment 38(i)(6)(ii)-1.
    Paragraph 38(i)(4)(iii)(A).
    1. Statement of differences. Section 1026.38(i)(4)(iii)(A) requires, 
as applicable, a statement that the consumer has increased or decreased 
this payment, along with a statement that the consumer should see the 
details disclosed under Sec. 1026.38(j)(1) or (j)(2), as applicable. 
The applicable disclosure to be referenced corresponds to the label on 
the Closing Disclosure under which the information accounting for the 
increase in the ``Down Payment/Funds from Borrower'' amount is 
disclosed. For example, in a transaction that is a purchase as defined 
in Sec. 1026.37(a)(9)(i), if the purchase price of the property has 
increased and therefore caused the ``Down Payment'' amount to increase, 
the statement, ``You increased this payment. See details in Section K,'' 
with the words ``increased'' and ``Section K'' in boldface, complies 
with this requirement. In a purchase or refinancing transaction, in the 
event the amount of the credit extended by the creditor has decreased 
and therefore caused the ``Funds from Borrower'' amount to increase, the 
statement can read, for example, ``You increased this payment. See 
details in Section L,'' with the same in boldface.
    38(i)(5) Deposit.
    1. When no deposit in a purchase transaction. Section 1026.38(i)(5) 
requires the disclosure in the Calculating Cash to Close table of the 
deposit required to be disclosed under Sec. 1026.37(h)(1)(iv) and under 
Sec. 1026.38(j)(2)(ii), and the subheadings ``Loan Estimate'' and 
``Final,'' respectively. Under Sec. 1026.37(h)(1)(iv), in all 
transactions other than a purchase transaction as defined in Sec. 
1026.37(a)(9)(i), the amount required to be disclosed is $0. In a 
purchase transaction in which no such deposit is paid in connection with 
the transaction, under Sec. Sec. 1026.37(h)(1)(iv) and 1026.38(i)(5)(i) 
and (ii) the amount required to be disclosed is $0.
    38(i)(6) Funds for borrower.
    Paragraph 38(i)(6)(ii).
    1. Final funds for borrower. Section 1026.38(i)(6)(ii) provides that 
the ``Final'' amount for ``Funds for Borrower'' is determined in 
accordance with Sec. 1026.38(i)(6)(iv). Under Sec. 1026.38(i)(6)(iv), 
the ``Final'' amount of ``Funds for Borrower'' to be disclosed

[[Page 981]]

under Sec. 1026.38(i)(6)(ii) is determined by subtracting from the 
total amount of all existing debt being satisfied in the transaction and 
disclosed under Sec. 1026.38(j)(1)(v) (except to the extent the 
satisfaction of such existing debt is disclosed under Sec. 1026.38(g)) 
the principal amount of the credit extended (excluding any amount 
disclosed under Sec. 1026.38(i)(3)(ii)), and is disclosed under Sec. 
1026.38(i)(6)(ii) either as a negative number or $0.00 depending on the 
result of the calculation. The ``Final'' amount of ``Funds for 
Borrower'' disclosed under Sec. 1026.38(i)(6)(ii) is the amount to be 
disbursed to the consumer or a designee of the consumer at consummation, 
if any.
    38(i)(7) Seller credits.
    Paragraph 38(i)(7)(ii).
    1. Final seller credits. Under Sec. 1026.38(i)(7)(ii), the 
``Final'' amount of ``Seller Credits'' reflects any change, following 
the delivery of the Loan Estimate, in the amount of funds given by the 
seller to the consumer for generalized (i.e., lump sum) credits for 
closing costs or for allowances for items purchased separately (e.g., if 
the seller is a builder). Seller credits are distinguished from payments 
by the seller for items attributable to periods of time prior to 
consummation, which are among the ``Adjustments and Other Credits'' 
separately disclosed pursuant to Sec. 1026.38(i)(8). For additional 
guidance regarding seller credits, see comments 38(j)(2)(v)-1 and -2.
    38(i)(8) Adjustments and other credits.
    Paragraph 38(i)(8)(ii).
    1. Adjustments and other credits. Under Sec. 1026.38(i)(8)(ii), the 
``Final'' amount for ``Adjustments and Other Credits'' would include, 
for example, prorations of taxes or homeowners' association fees, 
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 
consummation, and interest on loan assumptions. This category also 
includes generalized credits toward closing costs given by parties other 
than the seller. For additional guidance regarding adjustments and other 
credits, see commentary to Sec. Sec. 1026.37(h)(7) and 
1026.38(j)(2)(vi) and (j)(2)(xi). If the calculation required by Sec. 
1026.38(i)(8)(ii) yields a negative number, the creditor or closing 
agent discloses the amount as a negative number.
    38(i)(9) Cash to close.
    Paragraph 38(i)(9)(ii).
    1. Final cash to close amount. The ``Final'' amount of ``Cash to 
Close'' disclosed under Sec. 1026.38(i)(9)(ii) is the same as the 
amount disclosed on the Closing Disclosure as ``Cash to Close'' under 
Sec. 1026.38(j)(3)(iii). If the calculation required by Sec. 
1026.38(i)(9)(ii) yields a negative number, the creditor or closing 
agent discloses the amount as a negative number.
    2. More prominent disclosure. Section 1026.38(i)(9)(ii) requires 
that the disclosure of the ``Final'' amount of ``Cash to Close'' be more 
prominent than the other disclosures under Sec. 1026.38(i). Such more 
prominent disclosure can take the form, for example, of boldface font, 
as shown on form H-25 of appendix H to this part.
    38(j) Summary of borrower's transaction.
    1. In general. It is permissible to have two separate Closing 
Disclosures in a transaction: one that reflects the consumer's costs and 
credits only, which is provided to the consumer, and one that reflects 
the seller's costs and credits only, which is provided to the seller. 
See Sec. 1026.38(t)(5)(v) and (vi). Some State laws may prohibit 
provision of information about the consumer to the seller and about the 
seller to the consumer.
    2. Addenda. Additional pages may be attached to the Closing 
Disclosure to add lines, as necessary, to accommodate the complete 
listing of all items required to be shown on the Closing Disclosure 
under Sec. 1026.38(j) and (k), and for the purpose of including 
customary recitals and information used locally in real estate closings 
(for example, breakdown of payoff figures, a breakdown of the consumer's 
total monthly mortgage payments, an accounting of debits received and 
check disbursements, a statement stating receipt of funds, applicable 
special stipulations between consumer and seller, and the date funds are 
transferred). See Sec. 1026.38(t)(5)(ix). A reference such as ``See 
attached page for additional information'' should be placed in the 
applicable section of the Closing Disclosure.
    3. Identical amounts. The amounts disclosed under the following 
provisions of Sec. 1026.38(j) are the same as the amounts disclosed 
under the corresponding provisions of Sec. 1026.38(k): Sec. 
1026.38(j)(1)(ii) and (k)(1)(ii); Sec. 1026.38(j)(1)(iii) and 
(k)(1)(iii); if the amount disclosed under Sec. 1026.38(j)(1)(v) is 
attributable to contractual adjustments between the consumer and seller, 
Sec. 1026.38(j)(1)(v) and (k)(1)(iv); Sec. 1026.38(j)(1)(vii) and 
(k)(1)(vi); Sec. 1026.38(j)(1)(viii) and (k)(1)(vii); Sec. 
1026.38(j)(1)(ix) and (k)(1)(viii); Sec. 1026.38(j)(1)(x) and 
(k)(1)(ix); Sec. 1026.38(j)(2)(iv) and (k)(2)(iv); Sec. 
1026.38(j)(2)(v) and (k)(2)(vii); Sec. 1026.38(j)(2)(viii) and 
(k)(2)(x); Sec. 1026.38(j)(2)(ix) and (k)(2)(xi); Sec. 
1026.38(j)(2)(x) and (k)(2)(xii); and Sec. 1026.38(j)(2)(xi) and 
(k)(2)(xiii).
    38(j)(1) Itemization of amounts due from borrower.
    Paragraph 38(j)(1)(ii).
    1. Contract sales price and personal property. Section 
1026.38(j)(1)(ii) requires disclosure of the contract sales price of the 
property being sold, excluding the price of any tangible personal 
property if the consumer and seller have agreed to a separate price for 
such items. Personal property is defined by State law, but could include 
such items as carpets, drapes, and appliances. Manufactured homes

[[Page 982]]

are not considered personal property under Sec. 1026.38(j)(1)(ii).
    Paragraph 38(j)(1)(v).
    1. Contractual adjustments. Section 1026.38(j)(1)(v) requires 
disclosure of amounts owed by the consumer that are not otherwise 
disclosed pursuant to Sec. 1026.38(j). For example, the following items 
must be disclosed under Sec. 1026.38(j), to the extent applicable:
    i. The balance in the seller's reserve account held in connection 
with an existing loan, if assigned to the consumer in a loan assumption 
transaction;
    ii. Any rent that the consumer will collect after the real estate 
closing for a period of time prior to the real estate closing; and
    iii. The treatment of any tenant security deposit.
    2. Other consumer charges. The amounts disclosed under Sec. 
1026.38(j)(1)(v) which are for charges owed by the consumer at the real 
estate closing not otherwise disclosed pursuant to Sec. 1026.38(f), 
(g), and (j) will not have a corresponding credit in the summary of the 
seller's transaction under Sec. 1026.38(k)(1)(iv). For example, the 
amounts paid to any existing holders of liens on the property in a 
refinance transaction, and any outstanding real estate property taxes 
are disclosed under Sec. 1026.38(j)(1)(v) without a corresponding 
credit in the summary of the seller's transaction under Sec. 
1026.38(k)(1)(iv).
    Paragraph 38(j)(1)(x).
    1. Additional adjustments. Examples of items for which adjustments 
may be made include taxes, other than those disclosed pursuant to Sec. 
1026.38(j)(1)(vii) and (viii), paid in advance for an entire year or 
other period, when the real estate closing occurs prior to the 
expiration of the year or other period for which they were paid. 
Additional examples of items for which adjustments may be made include:
    i. Flood and hazard insurance premiums, if the consumer is being 
substituted as an insured under the same policy;
    ii. Mortgage insurance in loan assumptions;
    iii. Planned unit development or condominium association assessments 
paid in advance;
    iv. Fuel or other supplies on hand, purchased by the seller, which 
the consumer will use when the consumer takes possession of the 
property; and
    v. Ground rent paid in advance.
    38(j)(2) Itemization of amounts already paid by or on behalf of 
borrower.
    Paragraph 38(j)(2)(ii).
    1. Deposit. All amounts paid into a trust account by the consumer 
pursuant to the contract of sale for real estate, any addenda thereto, 
or any other agreement between the consumer and seller must be disclosed 
under Sec. 1026.38(j)(2)(ii). If there is no deposit paid in a 
transaction, that amount is left blank on the Closing Disclosure.
    2. Reduction of deposit when deposit used to pay for closing charges 
prior to closing. If the consumer's deposit has been applied toward a 
charge for a closing cost, the amount applied should not be included in 
the amount disclosed pursuant to Sec. 1026.38(j)(2)(ii), but instead 
should be shown on the appropriate line for the closing cost in the 
Closing Cost Detail tables pursuant to Sec. 1026.38(f) or (g), 
designated borrower-paid before closing.
    Paragraph 38(j)(2)(iii).
    1. First user loan. For purposes of Sec. 1026.38(j), a first user 
loan is a loan to finance construction of a new structure or purchase of 
a new manufactured home that is known at the time of consummation to be 
real property under State law, where the structure was constructed for 
sale or the manufactured home was purchased for purposes of resale and 
the loan is used as or converted to a loan to finance purchase by the 
first user. For other loans subject to Sec. 1026.19(f) that finance 
construction of a new structure or purchase of a manufactured home that 
is known at the time of consummation to be real property under State 
law, the sales price of the land and the construction cost or purchase 
price of the manufactured home should be disclosed separately and the 
amount of the loan in the current transaction must be disclosed. The 
remainder of the Closing Disclosure should be completed taking into 
account adjustments and charges related to the temporary financing and 
permanent financing that are known at the time of consummation.
    Paragraph 38(j)(2)(iv).
    1. Assumption of existing loan obligation of seller by consumer. The 
outstanding amount of any loans that the consumer is assuming, or 
subject to which the consumer is taking title to the property must be 
disclosed under Sec. 1026.38(j)(2)(iv). When more than one loan is 
being assumed, the total amount of all outstanding loans being assumed 
should be disclosed under Sec. 1026.38(j)(2)(iv).
    Paragraph 38(j)(2)(v).
    1. General seller credits. When the consumer receives a generalized 
credit from the seller for closing costs or where the seller (typically 
a builder) is making an allowance to the consumer for items to purchase 
separately, the amount of the credit must be disclosed. However, if the 
seller credit is attributable to a specific loan cost or other cost 
listed in the Closing Cost Details tables, pursuant to Sec. 1026.38(f) 
or (g), that amount should be reflected in the seller-paid column in the 
Closing Cost Details tables under Sec. 1026.38(f) or (g).
    2. Other seller credits. Any other obligations of the seller to be 
paid directly to the consumer, such as for issues identified at a walk-
through of the property prior to closing, are disclosed under Sec. 
1026.38(j)(2)(v).
    Paragraph 38(j)(2)(vi).

[[Page 983]]

    1. Credits from any party other than the seller or creditor. Section 
1026.38(j)(2)(vi) requires disclosure of a description and the amount of 
items paid by or on behalf of the consumer and not disclosed elsewhere 
under Sec. 1026.38(j)(2). For example, credits a consumer receives from 
a real estate agent or other third party, other than a seller or 
creditor, are disclosed pursuant to Sec. 1026.38(j)(2)(vi). However, if 
the credit is attributable to a specific closing cost listed in the 
Closing Cost Details tables under Sec. 1026.38(f) or (g), that amount 
should be reflected in the paid by others column on the Closing Cost 
Details tables and not in the disclosure required under Sec. 
1026.38(j)(2)(vi). Similarly, if a real estate agent rebates a portion 
of the agent's commission to the consumer, the rebate should be listed 
as a credit along with a description of the rebate, which must include 
the name of the party giving the credit.
    2. Subordinate financing proceeds. Any financing arrangements or 
other new loans not otherwise disclosed pursuant to Sec. 
1026.38(j)(2)(iii) or (iv) must also be disclosed pursuant to Sec. 
1026.38(j)(2)(vi). For example, if the consumer is using a second 
mortgage or note to finance part of the purchase price, whether from the 
same creditor, another creditor, or the seller, the principal amount of 
the loan must be disclosed with a brief explanation. If the net proceeds 
of a second loan are less than the principal amount of the second loan, 
the net proceeds may be listed on the same line as the principal amount 
of the second loan. For an example, see form H-25(C) of appendix H to 
this part.
    3. Satisfaction of existing subordinate liens by consumer. For 
payments to subordinate lien holders by or on behalf of the consumer, 
disclosure of any amounts paid with funds other than closing funds, as 
defined under Sec. 1026.38(j)(4)(ii), in connection with the second 
mortgage payoff are required to be disclosed under Sec. 
1026.38(j)(2)(vi), with a statement that such amounts were paid outside 
of closing funds. For an example, see form H-25(D) of appendix H to this 
part.
    4. Transferred escrow balances. In a refinance transaction, any 
transferred escrow balance is listed as a credit pursuant to Sec. 
1026.38(j)(2)(vi), along with a description of the transferred escrow 
balance.
    5. Gift funds. A credit must be disclosed for any money or other 
payments made by family members or third parties not otherwise 
associated with the transaction, along with a description of the nature 
of the funds provided under Sec. 1026.38(j)(2)(vi).
    Paragraph 38(j)(2)(xi).
    1. Examples. Examples of items that would be disclosed under Sec. 
1026.38(j)(2)(xi) include:
    i. Utilities used but not paid for by the seller;
    ii. Rent collected in advance by the seller from a tenant for a 
period extending beyond the closing date; and
    iii. Interest on loan assumptions.
    38(j)(3) Calculation of borrower's transaction.
    Paragraph 38(j)(3)(iii).
    1. Stating if amount is due to or from consumer. To comply with 
Sec. 1026.38(j)(3)(iii), the creditor must state either the cash 
required from the consumer at closing, or cash payable to the consumer 
at closing.
    2. Methodology. To calculate the cash to close, total the amounts 
disclosed under Sec. 1026.38(j)(3)(i) and (ii). If that calculation 
results in a positive amount, the amount is due from the consumer. If 
the calculation results in a negative amount, the amount is due to the 
consumer.
    38(j)(4) Items paid outside of closing funds.
    Paragraph 38(j)(4)(i).
    1. Charges not paid with closing funds. Section 1026.38(j)(4)(i) 
requires that any charges not paid from closing funds but that otherwise 
are disclosed pursuant to Sec. 1026.38(j) be marked as ``paid outside 
of closing'' or ``P.O.C.'' The disclosure must include a statement of 
the party making the payment, such as the consumer, seller, loan 
originator, real estate agent, or any other person. For an example of a 
disclosure of a charge not made from closing funds, see form H-25(D) of 
appendix H to this part. For an explanation of what constitutes closing 
funds, see Sec. 1026.38(j)(4)(ii).
    2. Items paid without closing funds not included in sums. Charges 
that are paid outside of closing funds under Sec. 1026.38(j)(4)(i) 
should not be included in computing totals under Sec. 1026.38(j)(1) and 
(j)(2).
    38(k) Summary of seller's transaction.
    1. Transactions with no seller. Section 1026.38(k) does not apply in 
transactions where there is no seller, such as a refinance transaction.
    2. Extra line items. For guidance regarding the use of addenda for 
items disclosed on the Closing Disclosure under Sec. 1026.38(k), see 
comment 38(j)-2.
    3. Identical amounts. The amounts disclosed under certain provisions 
of Sec. 1026.38(k) are the same as the amounts disclosed under certain 
provisions of Sec. 1026.38(j). See comment 38(j)-3 for a listing of the 
specific provisions.
    38(k)(2) Itemization of amounts due from seller.
    Paragraph 38(k)(2)(ii).
    1. Distributions of deposit to seller prior to closing. If the 
deposit or any portion thereof has been disbursed to the seller prior to 
closing, the amount of the deposit that has been distributed to the 
seller must be disclosed under Sec. 1026.38(k)(2)(ii).
    Paragraph 38(k)(2)(iv).
    1. Assumption of existing loan obligation of seller by consumer. If 
the consumer is assuming or taking title subject to existing liens

[[Page 984]]

and the amounts of the outstanding balance of the liens are to be 
deducted from the sales price, the amounts of the outstanding balance of 
the liens must be disclosed under Sec. 1026.38(k)(2)(iv).
    2. Other seller credits. Any other obligations of the seller to be 
paid directly to the consumer, such as credits for issues identified at 
a walk-through of the property prior to the real estate closing, are 
disclosed under Sec. 1026.38(k)(2)(vii).
    Paragraph 38(k)(2)(viii).
    1. Satisfaction of other seller obligations. Seller obligations, 
other than second liens, that must be paid off to clear title to the 
property must be disclosed pursuant to Sec. 1026.38(k)(2)(viii). 
Examples of disclosures pursuant to Sec. 1026.38(k)(2)(viii) include 
the satisfaction of outstanding liens imposed due to Federal, State, or 
local income taxes, real estate property tax liens, judgments against 
the seller reduced to a lien upon the property, or any other obligations 
the seller wishes the closing agent to pay from their proceeds at the 
real estate closing.
    2. Consumer satisfaction of outstanding subordinate loans. If the 
consumer is satisfying existing liens which will not be deducted from 
the sales price, the amount of the outstanding balance of the loan must 
be disclosed under Sec. 1026.38(k)(2)(viii). For example, the amount of 
any second lien which will be paid as part of the real estate closing 
that is not deducted from the seller's proceeds under Sec. 
1026.38(k)(2)(iv), is disclosed under Sec. 1026.38(k)(2)(viii). For 
payments to the subordinate lien holder, any amounts paid must be 
disclosed, and other amounts paid by or on behalf of the seller must be 
disclosed as paid outside of closing funds under Sec. 
1026.38(j)(2)(vi). For additional discussion, see comment 38(j)(2)(vi)-
2.
    3. Escrows held by closing agent for payment of invoices received 
after consummation. Funds to be held by the closing agent for the 
payment of either repairs, or water, fuel, or other utility bills that 
cannot be prorated between the parties at closing because the amounts 
used by the seller prior to closing are not yet known must be disclosed 
under Sec. 1026.38(k)(2)(viii). Subsequent disclosure of the actual 
amount of these post-closing items to be paid from closing funds is 
optional.
    38(k)(3) Calculation of seller's transaction.
    1. Stating if amount is due to or from seller. To comply with Sec. 
1026.38(k)(3)(iii), the creditor must state either the cash required 
from the seller at closing, or cash payable to the seller at closing.
    2. Methodology. To calculate the cash due to or from the consumer, 
total the amounts disclosed under Sec. 1026.38(k)(3)(i) and (ii). If 
that calculation results in a positive amount, the amount is due to the 
seller. If the calculation results in a negative amount, the amount is 
due from the seller.
    38(k)(4) Items paid outside of closing funds.
    1. Guidance. For guidance regarding the disclosure of items paid 
with funds other than closing funds, see comments 38(j)(4)(i)-1 and -2.
    38(l) Loan disclosures.
    38(l)(2) Demand feature.
    1. Covered features. See comment 18(i)-2 for a description of demand 
features triggering the disclosure requirements of Sec. 1026.38(l)(2).
    38(l)(3) Late payment.
    1. Guidance. See the commentary to Sec. 1026.37(m)(4) for guidance 
on disclosing late payment fees, as required under Sec. 1026.38(l)(3).
    38(l)(6) Security interest.
    1. Alternate property address. Section 1026.38(l)(6) requires 
disclosure of the address for the property that secures the credit, 
including the zip code. If the address is unavailable, Sec. 
1026.38(l)(6) requires disclosure of other location information for the 
property, such as a lot number; however, disclosure of a zip code is 
required in all instances. For transactions secured by a consumer's 
interest in a timeshare plan, the creditor may disclose as other 
location information a lot, square, or other such number or other legal 
description of the property assigned by the local governing authority, 
or if no such number or description is available, disclose the name of 
the timeshare property or properties with a designation indicating that 
the property is an interest in a timeshare plan.
    2. Personal property. Where personal property also secures the 
credit transaction, a description of that property may be disclosed, at 
the creditor's option, pursuant to Sec. 1026.38(l)(6). If the form does 
not provide enough space to disclose a description of personal property 
to be disclosed under Sec. 1026.38(l)(6), an additional page may be 
used and appended to the end of the form provided that the creditor 
complies with the requirements of Sec. 1026.38(t)(3). The creditor may 
use one addendum to disclose the personal property under Sec. 
1026.38(a)(3)(vi) and (l)(6). See comment 38(a)(3)(vi)-1.
    38(l)(7) Escrow account.
    Paragraph 38(l)(7)(i)(A)(2).
    1. Estimated costs not paid by escrow account funds. Section 
1026.38(l)(7)(i)(A)(2) requires the creditor to estimate the amount the 
consumer is likely to pay during the first year after consummation for 
charges described in Sec. 1026.37(c)(4)(ii) that are known to the 
creditor that will not be paid using escrow account funds. The creditor 
discloses this amount only if an escrow account will be established for 
the payment of any amounts described in Sec. 1026.37(c)(4)(ii). The 
creditor complies with this provision by disclosing the amount of such 
charges used to calculate the estimated taxes, insurance, and 
assessments disclosed pursuant to Sec. 1026.38(c)(1) as the total 
amount scheduled to be paid during the first year after consummation.
    Paragraph 38(l)(7)(i)(A)(4).

[[Page 985]]

    1. Estimated costs paid using escrow account funds. The amount the 
consumer will be required to pay into an escrow account with each 
periodic payment during the first year after consummation pursuant to 
Sec. 1026.38(l)(7)(i)(A)(4) is the amount of estimated escrow payments 
disclosed pursuant to Sec. 1026.38(c)(1).
    Paragraph 38(l)(7)(i)(B)(1).
    1. Estimated costs paid directly by the consumer. The estimated 
total amount the consumer will pay directly for charges described in 
Sec. 1026.37(c)(4)(ii) that are known to the creditor in the absence of 
an escrow account during the first year after consummation pursuant to 
Sec. 1026.38(l)(7)(i)(B)(1) is the amount of estimated taxes, 
insurance, and assessments disclosed pursuant to Sec. 1026.38(c)(1) as 
the estimated total amount scheduled to be paid during the first year 
after consummation. The creditor discloses this amount only if no escrow 
account will be established for the payment of amounts described in 
Sec. 1026.37(c)(4)(ii).
    38(m) Adjustable payment table.
    1. Guidance. See the commentary to Sec. 1026.37(i) for guidance 
regarding the disclosure required by Sec. 1026.38(m).
    2. Master heading. The disclosure required by Sec. 1026.38(m) is 
required to be provided under a different master heading than the 
disclosure required by Sec. 1026.37(i), but all other requirements 
applicable to the disclosure required by Sec. 1026.37(i) apply to the 
disclosure required by Sec. 1026.38(m).
    3. When table is not permitted to be disclosed. Like the disclosure 
required by Sec. 1026.37(i), the disclosure required by Sec. 
1026.38(m) is required only if the periodic principal and interest 
payment may change after consummation based on a loan term other than on 
an adjustment to the interest rate or if the transaction is a seasonal 
payment product as described under Sec. 1026.37(a)(10)(ii)(E). If the 
transaction does not contain these terms, this table is not permitted on 
the Closing Disclosure. See comments 37-1 and 37(i)-1.
    4. Final loan terms. The disclosures required by Sec. 1026.38(m) 
must include the information required by Sec. 1026.37(i), as 
applicable, but the creditor must make the disclosure using the 
information that is required by Sec. 1026.19(f). See comments 
19(f)(1)(i)-1 and -2.
    38(n) Adjustable interest rate table.
    1. Guidance. See the commentary to Sec. 1026.37(j) for guidance 
regarding the disclosures required by Sec. 1026.38(n).
    2. Master heading. The disclosure required by Sec. 1026.38(n) is 
required to be provided under a different master heading than the 
disclosure required by Sec. 1026.37(j), but all other requirements 
applicable to the disclosure required by Sec. 1026.37(j) apply to the 
disclosure required by Sec. 1026.38(n).
    3. When table is not permitted to be disclosed. Like the disclosure 
required by Sec. 1026.37(j), the disclosure required by Sec. 
1026.38(n) is required only if the interest rate may change after 
consummation based on the terms of the legal obligation. If the interest 
rate will not change after consummation, this table is not permitted on 
the Closing Disclosure. See comments 37-1 and 37(j)-1.
    4. Final loan terms. The disclosures required by Sec. 1026.38(n) 
must include the information required by Sec. 1026.37(j), as 
applicable, but the creditor must make the disclosure using the 
information that is known at the time the disclosure is required to be 
provided by Sec. 1026.19(f).
    38(o) Loan calculations.
    38(o)(1) Total of payments.
    1. Calculation of total of payments. The total of payments is 
calculated in the same manner as the ``In 5 Years'' disclosure pursuant 
to Sec. 1026.37(l)(1)(i), except that the disclosed amount reflects the 
total payments through the end of the loan term. For guidance on the 
amounts included in the total of payments calculation, see comment 
37(l)(1)(i)-1.
    38(o)(2) Finance charge.
    1. Calculation of finance charge. The finance charge is calculated 
in accordance with the requirements of Sec. 1026.4 and its commentary 
and is expressed as a dollar amount.
    2. Disclosure. The finance charge is disclosed as a total amount; 
the components of the finance charge are not itemized.
    38(o)(3) Amount financed.
    1. Calculation of amount financed. The amount financed is calculated 
in accordance with the requirements of Sec. 1026.18(b) and its 
commentary.
    38(o)(5) Total interest percentage.
    1. In general. For guidance on calculation and disclosure of the 
total interest percentage, see Sec. 1026.37(l)(3) and its commentary.
    38(p) Other disclosures.
    38(p)(1) Appraisal.
    1. Applicability. The disclosure required by Sec. 1026.38(p)(1) is 
only applicable to closed-end transactions subject to Sec. 1026.19(f) 
that are also subject either to 15 U.S.C. 1639h or 1691(e), as 
implemented by this part or Regulation B, 12 CFR part 1002, 
respectively. Accordingly, if a transaction is not subject to either of 
those provisions, the disclosure required by Sec. 1026.38(p)(1) may be 
left blank on form H-25 of appendix H to this part.
    38(p)(3) Liability after foreclosure.
    1. State law requirements. If the creditor forecloses on the 
property and the proceeds of the foreclosure sale are less than the 
unpaid balance on the loan, whether the consumer has continued or 
additional responsibility for the loan balance after foreclosure, and 
the conditions under which liability occurs, will vary by State. If the 
applicable State law affords any type of protection, other than a 
statute of limitations that only limits the timeframe in which a 
creditor may seek redress, Sec. 1026.38(p)(3) requires a statement that 
State law may protect the

[[Page 986]]

consumer from liability for the unpaid balance.
    38(q) Questions notice.
    Paragraph 38(q)(3).
    1. Prominent question mark. The notice required under Sec. 
1026.38(q) includes a prominent question mark. This prominent question 
mark is an aspect of form H-25 of appendix H to this part, the standard 
form or model form, as applicable, pursuant to Sec. 1026.38(t). If the 
creditor deviates from the depiction of the question mark as shown on 
form H-25, the creditor complies with Sec. 1026.38(q) if (1) the size 
and location of the question mark on the Closing Disclosure are 
substantially similar in size and location to the question mark shown on 
form H-25, and (2) the creditor otherwise complies with Sec. 
1026.38(t)(5) regarding permissible changes to the form of the Closing 
Disclosure.
    38(r) Contact information.
    1. Each person to be identified. Form H-25 of appendix H to this 
part includes the contact information required to be disclosed under 
Sec. 1026.38(r) generally in a five-column tabular format (i.e., there 
are columns from left to right that disclose the contact information for 
the creditor, mortgage broker, consumer's real estate broker, seller's 
real estate broker, and settlement agent). Columns are left blank where 
no such person is participating in the transaction. For example, if 
there is no mortgage broker involved in the transaction, the column for 
the mortgage broker is left blank. Conversely, in the event the 
transaction involves more than one of each such person (e.g., two 
sellers' real estate brokers splitting a commission), the space in the 
contact information table provided on form H-25 of appendix H to this 
part may be altered to accommodate the information for such persons, 
provided that the information required by Sec. 1026.38(o),(p),(q),(r) 
and (s) is disclosed on the same page as illustrated by form H-25. If 
the space provided on form H-25 does not accommodate the addition of 
such information, an additional table to accommodate the information may 
be provided on a separate page, with an appropriate reference to the 
additional table. A creditor or settlement agent may also omit a column 
on the table that is inapplicable or, if necessary, replace an 
inapplicable column with the contact information for the additional 
person.
    2. Name of person. Where Sec. 1026.38(r)(1) calls for disclosure of 
the name of the person participating in the transaction, the person's 
legal name (e.g., the name used for registration, incorporation, or 
chartering purposes), the person's trade name, if any, or an 
abbreviation of the person's legal name or the trade name is disclosed, 
so long as the disclosure is clear and conspicuous as required by Sec. 
1026.38(t)(1)(i). For example, if the creditor's legal name is ``Alpha 
Beta Chi Bank and Trust Company, N.A.'' and its trade name is ``ABC 
Bank,'' then under Sec. 1026.38(r)(1) the full legal name, the trade 
name, or an abbreviation such as ``ABC Bank & Trust Co.'' may be 
disclosed. However, the abbreviation ``Bank & Trust Co.'' is not 
sufficiently distinct to enable a consumer to identify the person, and 
therefore would not be clear and conspicuous. If the creditor, mortgage 
broker, seller's real estate broker, consumer's real estate broker, or 
settlement agent participating in the transaction is a natural person, 
the natural person's name is listed in the Sec. 1026.38(r)(1) and 
(r)(4) disclosures (assuming that such natural person is the primary 
contact for the consumer or seller, as applicable).
    3. Address. The address disclosed under Sec. 1026.38(r)(2) is the 
identified person's place of business where the primary contact for the 
transaction is located (usually the local office), rather than a general 
corporate headquarters address. If a natural person's name is to be 
disclosed under Sec. 1026.38(r)(1), see comment 38(r)-2, the business 
address of such natural person is listed (assuming that such natural 
person is the primary contact for the consumer or seller, as 
applicable).
    4. NMLSR ID. Section 1026.38(r)(3) and (5) requires the disclosure 
of an NMLSR identification (ID) number for each person identified in the 
table. The NMLSR ID is a unique number or other identifier that is 
generally assigned by the Nationwide Mortgage Licensing System & 
Registry (NMLSR) to individuals registered or licensed through NMLSR to 
provide loan originating services (for more information, see the Secure 
and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) 
sections 1503(3) and (12) and 1504, 12 U.S.C. 5102(3) and (12) and 5103, 
and its implementing regulations (i.e., 12 CFR 1007.103(a) and 
1008.103(a)(2)). An entity may also have an NMLSR ID. Thus, any NMLSR ID 
that is obtained by a creditor or mortgage broker entity disclosed under 
Sec. 1026.38(r)(1), as applicable, or a natural person disclosed under 
Sec. 1026.38(r)(4), either as required under the SAFE Act or otherwise, 
is disclosed. If the creditor, mortgage broker, or natural person has an 
NMLSR ID and a separate license number or unique identifier issued by 
the applicable State, locality, or other regulatory body with 
responsibility for licensing and/or registering such entity or person's 
business activities, both the NMLSR ID and the separate license number 
or unique identifier may be disclosed. The space in the table is left 
blank for the disclosures in the columns corresponding to persons that 
have no NMLSR ID to be disclosed under Sec. 1026.38(r)(3) and (5); 
provided that, the creditor may omit the column from the table or, if 
necessary, replace the column with the contact information for an 
additional person. See comment 38(r)-1.

[[Page 987]]

    5. License number or unique identifier. Section 1026.38(r)(3) and 
(5) requires the disclosure of a license number or unique identifier for 
each person (including natural persons) identified in the table who does 
not have a NMLSR ID if the applicable State, locality, or other 
regulatory body with responsibility for licensing and/or registering 
such person's business activities has issued a license number or other 
unique identifier to such person under Sec. 1026.38(r)(3) and (5). The 
space in the table is left blank for the disclosures in the columns 
corresponding to persons who are not subject to the issuance of such a 
license number or unique identifier to be disclosed under Sec. 
1026.38(r)(3) and (5); provided that, the creditor or settlement agent 
may omit the column from the table or, if necessary, replace the column 
with the contact information for an additional person. See comment 
38(r)-1. In addition, under Sec. 1026.38(r)(3) and (5), the 
abbreviation of the State or the jurisdiction or regulatory body that 
issued such license or registration is required to be included before 
the word ``License'' in the label required by Sec. 1026.37(r)(3) and 
(5). If no such license or registration is required to be disclosed, 
such as if an NMLSR number is disclosed, the space provided for such an 
abbreviation in form H-25 of appendix H to this part may be left blank. 
A creditor complies with the requirements of Sec. 1026.38(r)(3) and (5) 
to disclose the abbreviation of the State by disclosing a U.S. Postal 
Service State abbreviation, if applicable.
    6. Contact. Section 1026.38(r)(4) requires the disclosure of the 
primary contact for the consumer. The primary contact is the natural 
person employed by the person disclosed under Sec. 1026.38(r)(1) who 
interacts most frequently with the consumer and who has an NMLSR ID or, 
if none, a license number or other unique identifier to be disclosed 
under Sec. 1026.38(r)(5), as applicable. For example, if the senior 
loan officer employed by the creditor or mortgage broker disclosed under 
Sec. 1026.38(r)(1) has an NMLSR ID, but the consumer meets with a 
different loan officer to complete the application and answer questions, 
the senior loan officer's name is disclosed under Sec. 1026.38(r)(4) 
unless the other loan officer also has an NMLSR ID, in which case the 
other loan officer's name is disclosed. Further, if the sales agent 
employed by the consumer's real estate broker disclosed under Sec. 
1026.38(r)(1) has a State-issued brokers' license number, but the 
consumer meets with an associate sales agent to tour the property being 
purchased and complete the sales contract, the sales agent's name is 
disclosed under Sec. 1026.38(r)(4) unless the associate sales agent 
also has a State-issued license number, in which case the associate 
sales agent's name is disclosed. Moreover, if the closing attorney 
employed by the settlement agent disclosed under Sec. 1026.38(r)(1) has 
a State-issued settlement agent license number, but the consumer meets 
with the attorney's assistant to fill out any necessary documentation 
prior to the closing and to answer questions, the closing attorney's 
name is disclosed under Sec. 1026.38(r)(4) because the assistant is 
only performing clerical functions.
    7. Email address and phone number. Section 1026.38(r)(6) and (7) 
requires disclosure of the email address and phone number, respectively, 
for the persons listed in Sec. 1026.37(r)(4). Disclosure of a general 
number or email address for the lender, mortgage broker, real estate 
broker, or settlement agent, as applicable, satisfies this requirement 
if no such information is generally available for such person.
    38(s) Signature statement.
    1. General requirements. See the commentary to Sec. 1026.37(n) for 
guidance regarding the optional signature requirements and signature 
lines for multiple consumers.
    38(t) Form of disclosures.
    38(t)(1) General requirements.
    1. Clear and conspicuous; segregation. The clear and conspicuous 
standard requires that the disclosures required by Sec. 1026.38 be 
legible and in a readily understandable form. The disclosures also must 
be grouped together and segregated from everything else. As required by 
Sec. 1026.38(t)(3), the disclosures for any transaction that is a 
federally related mortgage loan under Regulation X, 12 CFR 1024.2, must 
be made using the standard form H-25 of appendix H to this part. 
Accordingly, use of that form constitutes compliance with the clear and 
conspicuous and segregation requirements of Sec. 1026.38(t)(1).
    2. 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. Under Sec. 1026.38(t)(1)(ii), creditors may 
not include any additional information in the disclosures required by 
Sec. 1026.38. Thus, the disclosures must show the large final payment 
as a balloon payment in the projected payments table required by Sec. 
1026.38(c) and

[[Page 988]]

should not, for example, reflect the other options available to the 
consumer at maturity.
    38(t)(2) Headings and labels.
    1. Estimated amounts. Certain amounts are estimated when provided on 
the disclosure required by Sec. 1026.37. When disclosed as required by 
Sec. 1026.38, however, many of the corresponding disclosures must be 
actual amounts rather than estimates in accordance with the requirements 
of Sec. 1026.19(f), even though the provision of Sec. 1026.38 cross-
references a counterpart in Sec. 1026.37. Section 1026.38(t)(2) 
provides that, if a master heading, heading, subheading, label, or 
similar designation contains the word ``estimated'' in form H-25 of 
appendix H to this part, that heading, label, or similar designation 
shall contain the word ``estimated.'' Thus, Sec. 1026.38(t)(2) 
incorporates the ``estimated'' designations reflected on form H-25 into 
the requirements of Sec. 1026.38. See comment 37(o)(2)-1.
    38(t)(3) Form.
    1. Non-federally related mortgage loans. For a transaction that a 
non-federally related mortgage loan, the creditor is not required to use 
form H-25 of appendix H to this part, although its use as a model form 
for such transactions, if properly completed with accurate content, 
constitutes compliance with the clear and conspicuous and segregation 
requirements of Sec. 1026.38(t)(1)(i). Even when the creditor elects 
not to use the model form, Sec. 1026.38(t)(1)(ii) requires that the 
disclosures contain only the information required by Sec. 1026.38(a) 
through (s), and that the creditor make the disclosures in the same 
order as they occur in form H-25, use the same headings, labels, and 
similar designations as used in the form (many of which also are 
expressly required by Sec. 1026.38(a) through (s)), and position the 
disclosures relative to those designations in the same manner as shown 
in the form. In order to be in a format substantially similar to form H-
25, the disclosures required by Sec. 1026.38 must be provided on letter 
size (8.5[sec] x 11[sec]) paper.
    38(t)(4) Rounding.
    1. Generally. Consistent with Sec. 1026.2(b)(4), any amount 
required to be disclosed by Sec. 1026.38 and not required to be rounded 
by Sec. 1026.38(t)(4) must be disclosed as an exact numerical amount 
using decimal places where applicable, unless otherwise provided. For 
example, under Sec. 1026.38(t)(4), the principal and interest payment 
disclosed under Sec. 1026.37(b)(3) and Sec. 1026.38(b) must be 
disclosed using decimal places even if the amount of cents is zero, in 
contrast to the loan amount disclosed under Sec. 1026.37(b)(1) and 
Sec. 1026.38(b).
    2. Guidance. For guidance regarding the requirements of Sec. 
1026.38(t)(4), see the commentary to Sec. 1026.37(o)(4).
    38(t)(5) Exceptions.
    1. Permissible changes. The changes required and permitted by Sec. 
1026.38(t)(5) are permitted for federally related mortgage loans for 
which the use of form H-25 is required under Sec. 1026.38(t)(3). For 
non-federally related mortgage loans, the changes required or permitted 
by Sec. 1026.38(t)(5), do not affect the substance, clarity, or 
meaningful sequence of the disclosure and therefore, are permissible. 
Any changes to the disclosure not specified in Sec. 1026.38(t)(5) or 
not permitted by other provisions of Sec. 1026.38 are not permissible 
for federally related mortgage loans. Creditors in non-federally related 
mortgage loans making any changes that affect the substance, clarity, or 
meaningful sequence of the disclosure will lose their protection from 
civil liability under TILA section 130.
    2. Manual completion. The creditor, or settlement agent preparing 
the form, under Sec. 1026.19(f)(1)(v) is not required to use a 
computer, typewriter, or other word processor to complete the disclosure 
required by Sec. 1026.38. The creditor or settlement agent may fill in 
information and amounts required to be disclosed by Sec. 1026.38 on 
form H-25 of appendix H to this part by hand printing or using any other 
method, provided the person produces clear and legible text and uses the 
formatting required by Sec. 1026.38, including replicating bold font 
where required.
    3. Unit-period. Section 1026.38(t)(5)(i) provides that wherever form 
H-25 or Sec. 1026.38 uses ``monthly'' to describe the frequency of any 
payments or uses ``month'' to describe the applicable unit-period, the 
creditor is required to substitute the appropriate term to reflect the 
fact that the transaction's terms provide for other than monthly 
periodic payments, such as bi-weekly or quarterly payments. For purposes 
of Sec. 1026.38, the term ``unit-period'' has the same meaning as in 
appendix J to Regulation Z.
    4. Signature lines. Section 1026.38(t) does not restrict the 
addition of signature lines to the disclosure required by Sec. 1026.38, 
provided any signature lines for confirmations of receipt of the 
disclosure appear only under the ``Confirm Receipt'' heading required by 
Sec. 1026.38(s) as illustrated by form H-25 of appendix H to this part. 
If the number of signatures requested by the creditor for confirming 
receipt of the disclosure requires space for signature lines in excess 
of that provided on form H-25, an additional page may be added to 
accommodate the additional signature lines with an appropriate reference 
to the additional page. Such additional page should also contain the 
heading and statement required by Sec. 1026.38(s) in the format 
provided on form H-25. Signatures for a purpose other than confirming 
receipt of the form may be obtained on a separate page, and consistent 
with Sec. 1026.38(t)(1)(i), not on the same page as the information 
required by Sec. 1026.38.
    5. Additional page. Information required or permitted to be 
disclosed by Sec. 1026.38 on a separate page should be formatted 
similarly

[[Page 989]]

to form H-25 of appendix H to this part, so as not to affect the 
substance, clarity, or meaningful sequence of the disclosure. In 
addition, information provided on additional pages should be 
consolidated on as few pages as necessary so as not to affect the 
substance, clarity, or meaningful sequence of the disclosure.
    6. Page numbers. References required by provisions of Sec. 1026.38 
to information disclosed pursuant to other provisions of the section, as 
illustrated on form H-25 of appendix H, may be altered to refer to the 
appropriate page number of the form containing such information.
    7. Translation. Section 1026.38(t)(5)(viii) permits the translation 
of form H-25 into languages other than English, similar to Sec. 
1026.37(o)(5)(ii). Pursuant Sec. 1026.38(t)(5)(viii) creditors may 
modify form H-25 to the extent that translation prevents the headings, 
labels, designations, and required disclosure items under Sec. 1026.38 
from fitting in the space provided on form H-25. For example, if the 
translation of a required label does not fit within the line provided 
for such label in form H-25, the label may be disclosed over two lines. 
See form H-28 of appendix H to this part for Spanish translations of 
form H-25.
    38(t)(5)(iv) Closing Cost Details.
    1. Line numbers; closing cost details. Section 1026.38(t)(5)(iv)(A) 
permits the deletion of unused lines from the disclosures required by 
Sec. 1026.38(f)(1) through (3) and (g)(1) through (4), if necessary to 
allow the addition of lines to other sections that require them for the 
required disclosures. This provision permits creditors and settlement 
agents to use the space gained from deleting unused lines for additional 
lines to accommodate all of the costs that are required to be itemized. 
For example, if the only origination charge required by Sec. 
1026.38(f)(1) is points, the remaining seven lines illustrated on form 
H-25 of appendix H to this part may be deleted and added to the 
disclosure required by Sec. 1026.38(g)(4), if seven lines in addition 
to those provided on form H-25 are necessary to accommodate such 
disclosure.
    2. Two pages; closing cost details. Section 1026.38(t)(5)(iv)(B) 
permits the disclosure of the information required by Sec. 1026.38(f) 
through (h) over two pages, but only if form H-25 of appendix H to this 
part, as modified pursuant to Sec. 1026.38(t)(5)(iv)(A), does not 
accommodate all of the costs required to be disclosed on one page. If 
the deletion of unused lines and the addition of such lines to other 
sections permits the disclosures required by Sec. 1026.38(f) through 
(h) to fit on one page, modification pursuant to Sec. 
1026.38(t)(5)(iv)(B) is not permissible.
    3. Separate pages for Loan Costs and Other Costs. The modification 
permitted by Sec. 1026.38(t)(5)(iv)(B) allows the information required 
by Sec. 1026.38(f) through (h) to be disclosed over two pages, numbered 
as ``2a'' and ``2b.'' For an example of such a modification, see form H-
25(H) of appendix H to this part. Under this modification, the 
information required by Sec. 1026.38(h) must remain on the same page as 
the information required by Sec. 1026.38(g). Accordingly, the Loan 
Costs section of form H-25 may appear on its own page ``2a,'' but the 
Other Costs section must appear on the same page as the Total Closing 
Costs section on page ``2b.'' The modifications permitted by Sec. 
1026.38(t)(5)(iv)(A) and (B) may be used in conjunction to ensure 
disclosure of Sec. 1026.38(f) on one page and Sec. 1026.38(g) and (h) 
on a separate page.
    38(t)(5)(vii) Transaction without a seller.
    1. Alternative tables. The alternative tables pursuant to Sec. 
1026.38(d)(2) and (e) are required to be disclosed to use the 
modification permitted under Sec. 1026.38(t)(5)(vii).
    2. Appraised property value. The modifications permitted by Sec. 
1026.38(t)(5)(vii) do not specifically refer to the label required by 
Sec. 1026.38(a)(3)(vii)(B) for transactions that do not involve a 
seller, because the label is required by that section and is a 
requirement and not considered a modification. As required by Sec. 
1026.38(a)(3)(vii)(B), a form used for a transaction that does not 
involve a seller and is modified pursuant to Sec. 1026.38(t)(5)(viii) 
must contain the label ``Appraised Prop. Value'' or ``Estimated Prop. 
Value'' where there is no appraisal, and the information is required by 
Sec. 1026.38(a)(3)(vii)(B).
    38(t)(5)(ix) Customary recitals and information.
    1. Customary recitals and information. Section 1026.38(t)(5)(ix) 
permits an additional page to be added to the disclosure for customary 
recitals and information used locally in real estate settlements. 
Examples of such information include a breakdown of payoff figures, a 
breakdown of the consumer'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.

             Section 1026.39--Mortgage Transfer Disclosures

                                * * * * *

    39(d) Content of required disclosures.

                                * * * * *

    2. Partial payment policy. The disclosures required by Sec. 
1026.39(d)(5) must identify whether the covered person accepts periodic 
payments from the consumer that are less than the full amount due and 
whether the covered person applies the payments to a consumer's loan or 
holds the payments in a separate account until the consumer pays the 
remainder of the full amount due. The

[[Page 990]]

disclosures required by Sec. 1026.39(d)(5) apply only to a mortgage 
loan that is a closed-end consumer credit transaction secured by a 
dwelling or real property and that is not a reverse mortgage transaction 
subject to Sec. 1026.33. In an open-end consumer credit transaction 
secured by the consumer's principal dwelling, Sec. 1026.39(d) requires 
a covered person to provide the disclosures required by Sec. 
1026.39(d)(1) through (4), but not the partial payment policy disclosure 
required by Sec. 1026.39(d)(5). If, however, the dwelling in the open-
end consumer credit transaction is not the consumer's principal dwelling 
(e.g., it is used solely for vacation purposes), none of the disclosures 
required by Sec. 1026.39(d) is required because the transaction is not 
a mortgage loan for purposes of Sec. 1026.39. See Sec. 1026.39(a)(2). 
In contrast, a closed-end consumer credit transaction secured by the 
consumer's dwelling that is not the consumer's principal dwelling is 
considered a mortgage loan for purposes of Sec. 1026.39. Assuming that 
the transaction is not a reverse mortgage transaction subject to Sec. 
1026.33, Sec. 1026.39(d) requires a covered person to provide the 
disclosures under Sec. 1026.39(d)(1) through (5). But if the 
transaction is a reverse mortgage transaction subject to Sec. 1026.33, 
Sec. 1026.39(d) requires a covered person to provide only the 
disclosures under Sec. 1026.39(d)(1) through (4).

                                * * * * *

    39(d)(5) Partial payment policy.
    1. Format of disclosure. Section 1026.39(d)(5) requires disclosure 
of the partial payment policy of covered persons for closed-end consumer 
credit transactions secured by a dwelling or real property, other than a 
reverse mortgage transaction subject to Sec. 1026.33. A covered person 
may utilize the format of the disclosure illustrated by form H-25 of 
appendix H to this part for the information required to be disclosed by 
Sec. 1026.38(l)(5). For example, the statement required Sec. 
1026.39(d)(5)(iii) that a new covered person may have a different 
partial payment policy may be disclosed using the language illustrated 
by form H-25, which states ``If this loan is sold, your new lender may 
have a different policy.'' The text illustrated by form H-25 may be 
modified to suit the format of the covered person's disclosure under 
Sec. 1026.39. For example, the format illustrated by form H-25 begins 
with the text, ``Your lender may'' or ``Your lender does not,'' which 
may not be suitable to the format of the covered person's other 
disclosures under Sec. 1026.39. This text may be modified to suit the 
format of the covered person's integrated disclosure, using a phrase 
such as ``We will'' or ``We are your new lender and have a different 
Partial Payment Policy than your previous lender. Under our policy we 
will.'' Any modifications must be appropriate and not affect the 
substance, clarity, or meaningful sequence of the disclosure.

                                * * * * *

             Appendix D--Multiple-Advance Construction Loans

                                * * * * *

    6. Relation to Sec. 1026.18(s). A creditor must disclose an 
interest rate and payment summary table for certain transactions secured 
by a dwelling, pursuant to Sec. 1026.18(s), instead of the general 
payment schedule required by Sec. 1026.18(g) or the projected payments 
table required by Sec. Sec. 1026.37(c) and 1026.38(c). Accordingly, 
some home construction loans that are secured by a dwelling are subject 
to Sec. 1026.18(s) and not Sec. 1026.18(g). See comment app. D-7 for a 
discussion of transactions that are subject to Sec. Sec. 1026.37 and 
1026.38. Under Sec. 1026.17(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. Following are illustrations of 
the application of appendix D to transactions subject to Sec. 
1026.18(s), under each of these two alternatives:
    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, where 
interest is payable on the amount actually advanced for the time it is 
outstanding, the construction phase must be disclosed pursuant to 
appendix D, part II.C.1, 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

[[Page 991]]

and the timing of such payments. The interest rate and payment summary 
table disclosed under Sec. 1026.18(s) in such cases 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.
    7. Relation to Sec. Sec. 1026.37 and 1026.38. A creditor must 
disclose a projected payments table for certain transactions secured by 
real property, pursuant to Sec. Sec. 1026.37(c) and 1026.38(c), instead 
of the general payment schedule required by Sec. 1026.18(g) or the 
interest rate and payments summary table required by Sec. 1026.18(s). 
Accordingly, some home construction loans that are secured by real 
property are subject to Sec. Sec. 1026.37(c) and 1026.38(c) and not 
Sec. 1026.18(g). See comment app. D-6 for a discussion of transactions 
that are subject to Sec. 1026.18(s). Under Sec. 1026.17(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. 
Following are illustrations of the application of appendix D to 
transactions subject to Sec. Sec. 1026.37(c) and 1026.38(c), under each 
of these two alternatives:
    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. Sec. 1026.37(c) and 1026.38(c). Under 
Sec. Sec. 1026.37(c) and 1026.38(c), the creditor must disclose the 
periodic payments during the construction phase in a projected payments 
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. Sec. 1026.37(c) and 
1026.38(c) rather than Sec. 1026.18(g). The creditor determines the 
amount of the interest-only payment to be made during the construction 
phase using the assumption in appendix D, part I.A.1. Also, because the 
construction phase is being disclosed as a separate transaction and its 
terms do not repay all principal, the creditor must disclose the 
construction phase transaction as a product with a balloon payment 
feature, pursuant to Sec. Sec. 1026.37(a)(10)(ii)(D) and 
1026.38(a)(5)(iii), in addition to reflecting the balloon payment in the 
projected payments table.
    ii. If the creditor elects to disclose the construction and 
permanent phases as a single transaction, the repayment schedule must be 
disclosed pursuant to appendix D, part II.C.2. Under appendix D, part 
II.C.2, the projected payments table must reflect the interest-only 
payments during the construction phase in a first column, followed by 
the appropriate column(s) reflecting the amortizing payments for the 
permanent phase. The creditor determines the amount of the interest-only 
payment to be made during the construction phase using the assumption in 
appendix D, part II.A.1.

                                * * * * *

   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, H-24, H-25, H-26, H-27, 
H-28, 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.)

[[Page 992]]

    vii. Using a vertical, rather than a horizontal, format for the 
boxes in the closed-end disclosures.

                                * * * * *

                Appendix H--Closed-End Forms and Clauses

                                * * * * *

    16. Samples H-13 through H-15. These samples illustrate various 
closed-end transactions. Samples H-13 and H-15 are for transactions 
subject to Sec. 1026.17(a). Samples H-13 and H-15 do not illustrate the 
requirements of Sec. 1026.18(c) or (p) regarding the itemization of the 
amount financed and a reference to contract documents. See form H-2 for 
a model for these requirements.

                                * * * * *

    19. Sample H-15. This sample illustrates a graduated payment 
transaction subject to Sec. 1026.17(a) 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 guarantee insurance 
premium of $225.00, are included in the prepaid finance charge. The 
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 guarantee insurance 
portion of the obligation.

                                * * * * *

    29. Model Form H-29. Model form H-29 contains the disclosures for 
the cancellation of an escrow account established in connection with a 
closed-end transaction secured by a first lien on real property or a 
dwelling.
    i. This model form illustrates the disclosures required by Sec. 
1026.20(e).
    ii. A creditor or servicer satisfies Sec. 1026.20(e) if it provides 
model form H-29 or a substantially similar notice, which is properly 
completed with the disclosures required by Sec. 1026.20(e).
    iii. Although creditors and servicers are not required to use a 
certain paper size in disclosing the information under Sec. 1026.20(e), 
model form H-29 is designed to be printed on an 8\1/2\ x 1- inch sheet 
of paper. In addition, the following formatting techniques were used in 
presenting the information in the model form to ensure that the 
information is readable:
    A. A readable font style and font size (10-point minimum font size);
    B. Sufficient spacing between lines of the text;
    C. Standard spacing between words and characters. In other words, 
the text was not compressed to appear smaller than 10-point type;
    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.
    iv. While the regulation does not require creditors or servicers to 
use the above formatting techniques in presenting information in the 
tabular format (except for the 10-point minimum font size requirement), 
creditors and servicers are encouraged to consider these techniques when 
deciding how to disclose information in the notice to ensure that the 
information is presented in a readable format.
    v. Creditors and servicers may use color, shading and similar 
graphic techniques with respect to the notice, so long as the notice 
remains substantially similar to model form H-29.
    30. Standard Loan Estimate and Closing Disclosure forms. Forms H-
24(A) through (G), H-25(A) through (J), and H-28(A) through (J) are 
model forms for the disclosures required under Sec. Sec. 1026.37 and 
1026.38. However, pursuant to Sec. Sec. 1026.37(o)(3) and 
1026.38(t)(3), for federally related mortgage loans forms H-24(A) 
through (G) and H-25(A) through (J) are standard forms required to be 
used for the disclosures required under Sec. Sec. 1026.37 and 1026.38, 
respectively.



PART 1030_TRUTH IN SAVINGS (REGULATION DD)

Sec.
1030.1 Authority, purpose, coverage, and effect on state laws.
1030.2 Definitions.
1030.3 General disclosure requirements.
1030.4 Account disclosures.
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

[[Page 993]]

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.
    (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

[[Page 994]]

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 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

[[Page 995]]

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;
    (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

[[Page 996]]

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 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:

[[Page 997]]

    (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.
    (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

[[Page 998]]

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.
    (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

[[Page 999]]

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.
    (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.

[[Page 1000]]

    (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, 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.

      Appendix A to Part 1030--Annual Percentage Yield Calculation

    The annual percentage yield measures the total amount of interest 
paid on an account

[[Page 1001]]

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%

 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

[[Page 1002]]

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.
    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%


[[Page 1003]]


    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 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.

[[Page 1004]]

                                 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 periodic statements more often than the period for which 
interest is compounded shall use the following special formula:

[[Page 1005]]

[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%

         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 ----%.

                        (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

[[Page 1006]]

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).
    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.

[[Page 1007]]

    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) ----].
    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.

[[Page 1008]]

[GRAPHIC] [TIFF OMITTED] TR21DE11.037


[[Page 1009]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.038


[[Page 1010]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.039


[[Page 1011]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.040


[[Page 1012]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.041


[[Page 1013]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.042


[[Page 1014]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.043


[[Page 1015]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.044


[[Page 1016]]


[GRAPHIC] [TIFF OMITTED] TR21DE11.045


[[Page 1017]]



              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.

      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.

           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 1018]]

    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 1019]]

    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.
    2. Relation to advertising. The advertising rules do not cover an 
oral response to a question about rates.

[[Page 1020]]

    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 accounts. (See appendix A, Part I, Paragraph 
D.)

[[Page 1021]]

    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 1022]]

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 1023]]

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 1024]]

    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 1025]]

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 1026]]

    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 1027]]

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.

                       Section 1030.10 [Reserved]

    Section 1030.11--Additional Disclosures Regarding the Payment of 
                               Overdrafts

    (a) Disclosure of total fees on periodic statements.

[[Page 1028]]

    (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 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

[[Page 1029]]

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 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));

[[Page 1030]]

    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 the 
annual percentage yield earned. For accounts paying interest based on 
the daily balance method that compound and credit

[[Page 1031]]

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

              Subpart A_General Provisions and Definitions

Sec.
1070.1 Authority, purpose and scope.
1070.2 General definitions.
1070.3 Custodian of records; certification; alternative authority.

[[Page 1032]]

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.
1070.48 Privileges not affected by disclosure to the CFPB.

                          Subpart E_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. 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: 78 FR 11503, Feb. 15, 2013, 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. 3501 et seq. 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 paragraph (a)(1) of 
this section to the extent those responsibilities require

[[Page 1033]]

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 1034]]

    (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, or is subject to the CFPB's 
supervisory authority; 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) 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)), and includes any political subdivision thereof.
    (q) Supervised financial institution means a financial institution 
that is or that may become 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

[[Page 1035]]

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 Web page on the CFPB's Web site, http:/
/www.consumerfinance.gov, which provide additional information about 
this topic.

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 Sec. 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 Sec. 1070.13 of this subpart); and
    (3) Information required to be made available to any member of the 
public upon specific request (see Sec. Sec. 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 Sec. 
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 
Sec. Sec. 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. 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

[[Page 1036]]

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;
    (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 Sec. 
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 1700 G Street NW., Washington, DC 20552. 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, Consumer Financial Protection Bureau, 1700 G Street NW., 
Washington, DC 20552. 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, Consumer Financial Protection Bureau, 1700 G Street 
NW., Washington, DC 20552. 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 the name of the requester and, to the extent 
available, a mailing address, telephone number,

[[Page 1037]]

and email 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 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 Sec. 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 Sec. 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 Sec. 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 Sec. 
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 substantially all of the information 
required by and that otherwise conforms with paragraphs (b) and (c) of 
this section. 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, in any material respect, 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 if it 
does so, it shall 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

[[Page 1038]]

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.
    (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 Sec. 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

[[Page 1039]]

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.

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 or in 
other cases that the CFPB deems appropriate.
    (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 Sec. 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 Sec. 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

[[Page 1040]]

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 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 Sec. 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 Sec. 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 producible 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 Sec. 1070.22 of this subpart. Fees may 
be charged for search and review time as stated in Sec. 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 
Sec. 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

[[Page 1041]]

information, the CFPB shall refer the responsibility for responding to 
the request to the classifying or originating agency, as appropriate.

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 paragraph 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 (e)(1)(i) 
of this section 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

[[Page 1042]]

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 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 
Sec. 1070.18(b) of this subpart);
    (2) To assign a particular fee category to the requestor (as 
provided in Sec. 1070.22(b) of this subpart);
    (3) To deny a request for a reduction or waiver of fees (as provided 
in Sec. 1070.22(e) of this subpart);
    (4) That no records exist that are responsive to the request (as 
provided in Sec. 1070.18(b) of this subpart); or
    (5) To deny a request for expedited processing (as provided in Sec. 
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 Sec. 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

[[Page 1043]]

of the letter of initial determination, and, where possible, enclose a 
copy of the initial request and the initial determination being 
appealed.
    (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 Sec. 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.
    (3) If the initial determination is remanded on appeal to the Chief 
FOIA Officer for further action, the requester shall be so notified and 
the request shall be processed in accordance with the decision on 
appeal. The remanded request shall be treated as a new request received 
by the CFPB as of the date when the General Counsel transmits the remand 
notification to the requester. The procedures and deadlines set forth in 
this subpart for processing, deciding, responding to, and filing 
administrative appeals of new FOIA requests shall apply to the remanded 
request.
    (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 
or printing records at the rate of $0.10 per page.
    (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, the CFPB shall charge search fees

[[Page 1044]]

at the rate of $9.00 per fifteen (15) minutes of search time whenever 
only administrative/clerical employees conduct a search and at the rate 
of $23.00 per fifteen (15) minutes of search time whenever only 
professional/executive employees conduct a search. Search charges shall 
also 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 costs 
of conducting an electronic records search, including computer search 
time, runs, and output. The CFPB shall also charge for time spent by 
computer operators or programmers (at the rates set forth in paragraph 
(a)(2)(i) of this section) who conduct or assist in the conduct of an 
electronic records search.
    (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, the CFPB shall charge review 
fees at the rate of $9.00 per fifteen (15) minutes of search time 
whenever only administrative/clerical employees review records and at 
the rate of $23.00 per fifteen (15) minutes of search time whenever only 
professional/executive employees review records. 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 
paragraph, 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

[[Page 1045]]

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 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 Sec. 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

[[Page 1046]]

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. 
1070.15 or 1070.21 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 a representative of the news media 
or 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

[[Page 1047]]

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.
    (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.

[[Page 1048]]

    (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 (Pub. L. 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 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 CFPB-wide responsibility for efficient and appropriate 
compliance with the FOIA;
    (2) Monitor implementation of the FOIA throughout the CFPB and keep 
the Director, 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 CFPB's handbook and the CFPB's annual report on 
the FOIA, and by providing an overview, where appropriate, of certain 
general categories of CFPB records to which those exemptions apply;
    (6) Designate one or more FOIA Public Liaisons; and
    (7) Maintain and update, as necessary and in accordance with the 
requirements of this subpart, the CFPB's FOIA Web site, including its e-
FOIA Library.
    (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

[[Page 1049]]

    (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 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.
    (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:
    (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, arbitrators, 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 
served upon the General Counsel, Consumer Financial Protection Bureau, 
1700 G Street NW., Washington, DC 20552. 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

[[Page 1050]]

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) of this section, 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 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) of this section should be 
served upon the General Counsel, Consumer Financial Protection Bureau, 
1700 G Street NW., Washington, DC 20552. Service must be effected as 
provided in applicable rules and regulations governing service in 
Federal judicial and administrative proceedings. 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) of this section is sought to be delivered to a CFPB employee other 
than in the manner prescribed in paragraph (b) of this section, such 
employee shall 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 for, or otherwise authorized to accept on behalf of 
its employees, any subpoenas, orders, or other demands or requests, 
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, orders, or other demands or requests 
that are directed to former employees of the CFPB in connection with the 
performance of official CFPB duties shall also be served upon the 
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

[[Page 1051]]

employees, former employees who receive subpoenas, orders, or similar 
compulsory process 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 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

[[Page 1052]]

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 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;
    (9) The need to avoid involving the CFPB in controversial issues not 
related to its mission;
    (10) Compliance would interfere with supervisory examinations, 
compromise the CFPB's supervisory functions or programs, or undermine 
public confidence in supervised financial institutions; and
    (11) Compliance would interfere with the CFPB's ability to monitor 
for risks to consumers in the offering or provision of consumer 
financial products and services.
    (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

[[Page 1053]]

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, 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 current or former employee or contractor or consultant 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, contractor, or consultant of 
the CFPB; or
    (2) Any CFPB employee, contractor, or consultant when the disclosure 
of such confidential information to that employee, contractor, or 
consultant is not relevant to the performance of the employee's, 
contractor's, or consultant's assigned duties.
    (b) Disclosures to contractors and consultants. CFPB contractors or 
consultants may receive confidential information only if such 
contractors or consultants certify 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 
          supervised financial institutions and their affiliates and by 
          supervised financial institutions and their affiliates to 
          others.

    (a) Discretionary disclosure of confidential supervisory information 
to supervised financial institutions and their affiliates. The CFPB may, 
in its discretion, and

[[Page 1054]]

to the extent consistent with applicable law, disclose confidential 
supervisory information concerning a supervised financial institution or 
its service providers to that supervised financial institution or to its 
affiliates.
    (b) Disclosure of confidential supervisory information by a 
supervised financial institution or its affiliates. Unless directed 
otherwise by the Associate Director for Supervision, Enforcement, and 
Fair Lending or by his or her delegee:
    (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 
affiliates and to the following individuals to the extent that the 
disclosure of such confidential supervisory information is relevant to 
the performance of such individuals' assigned duties:
    (i) The directors, officers, trustees, members, general partners, or 
employees of the supervised financial institution; and
    (ii) The directors, officers, trustees, members, general partners, 
or employees of the affiliates of the supervised financial institution.
    (2) Any supervised financial institution or affiliate thereof that 
is lawfully in possession of confidential supervisory information of the 
CFPB pursuant to this section may disclose such information, or portions 
thereof, to:
    (i) Its certified public accountant, legal counsel, contractor, 
consultant, or service provider; or
    (ii) Another person, with the prior written approval of the 
Associate Director for Supervision, Enforcement, and Fair Lending or his 
or her delegee.
    (3) Where a supervised financial institution or its affiliate 
discloses confidential supervisory information pursuant to this 
paragraph (b) of this section:
    (i) The recipient of such confidential supervisory information shall 
not, without the prior written approval of the Associate Director for 
Supervision, Enforcement, and Fair Lending or his or her delegee, 
utilize, make, or retain copies of, or disclose confidential supervisory 
information for any purpose, except as is necessary to provide advice or 
services to the supervised financial institution or its affiliate; and
    (ii) The supervised financial institution or affiliate disclosing 
the confidential supervisory information shall take reasonable steps to 
ensure that the recipient complies with paragraph (b)(3)(i) of this 
section.

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 confidence, including 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 section, the CFPB may, in its sole 
discretion, disclose confidential information to a Federal or State 
agency to the extent that the disclosure of the information is relevant 
to the exercise of the agency's statutory or regulatory authority or, 
with respect to the disclosure of

[[Page 1055]]

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, Enforcement, and Fair Lending 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 certifying and identifying the agency's legal 
authority for requesting the documents;
    (iv) A statement certifying and identifying the agency's legal 
authority for protecting the requested information from public 
disclosure; and
    (v) A certification that the agency will maintain the requested 
confidential information in confidence, including 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.
    (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 set forth in 12 U.S.C. 5562(d)(2), 
provided that, upon the receipt by the CFPB of a request from the 
Congress for confidential information that a financial institution 
submitted to the CFPB along with a claim that such information consists 
of a trade secret or privileged or confidential commercial or financial 
information, or confidential supervisory information, the CFPB shall 
notify the financial institution in writing of its receipt of the 
request and provide the institution with a copy of the request;
    (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 agencies and other government agencies in 
summary form to the extent necessary to notify such agencies of 
potential violations of laws subject to their jurisdiction; or
    (6) As required under any other applicable law.

[[Page 1056]]

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 disclose 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 subpart, 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:
    (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) To the extent permitted by applicable law, 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) 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 order of a court of competent jurisdiction 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

[[Page 1057]]

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 under this subpart 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. (1) In General. The CFPB shall not be deemed to have 
waived any privilege applicable to any information by transferring that 
information to, or permitting that information to be used by, any 
Federal or State agency.
    (2) Rule of Construction. Paragraph (c)(1) of this section shall not 
be construed as implying that any person waives any privilege applicable 
to any information because paragraph (c)(1) of this section does not 
apply to the transfer or use of that information.

Sec. 1070.48  Privileges not affected by disclosure to the CFPB.

    (a) In General. The submission by any person of any information to 
the CFPB for any purpose in the course of any supervisory or regulatory 
process of the CFPB shall not be construed as waiving, destroying, or 
otherwise affecting any privilege such person may claim with respect to 
such information under Federal or State law as to any person or entity 
other than the CFPB.
    (b) Rule of Construction. Paragraph (a) of this section shall not be 
construed as implying or establishing that--
    (1) Any person waives any privilege applicable to information that 
is submitted or transferred under circumstances to which paragraph (a) 
of this section does not apply; or
    (2) Any person would waive any privilege applicable to any 
information by submitting the information to the CFPB but for this 
section.

                        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;
    (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.

[[Page 1058]]

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 Sec. 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 the 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, 
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 
20552.
    (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 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

[[Page 1059]]

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 
paragraphs (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 shall provide the information to a licensed 
physician or other appropriate representative that the requester 
designates, who shall 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 Sec. 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 requester has 
already done so in a related request for access or amendment.
    (b) Burden of proof. In a request for amendment of a record, the 
requester bears the burden of proving by a preponderance of the evidence 
that the record is not accurate, relevant, timely, or complete.

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:

[[Page 1060]]

    (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 Sec. 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.

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
    (4) CFPB.005 Consumer Response System
    (b) Information compiled for civil actions or proceedings. This 
subpart does not permit an individual to have access to any information 
compiled in reasonable anticipation of a civil action or proceeding.

[[Page 1061]]

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 subpart, 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 of--
    (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
    (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

[[Page 1062]]

    (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 or destroyed 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 1071_RULE IMPLEMENTING EQUAL ACCESS TO JUSTICE ACT

                            Subpart A_General

Sec.
1071.100 Purpose.
1071.101 When the Act applies.
1071.102 Proceedings covered.
1071.103 Eligibility of applicants.
1071.104 Standards for awards.
1071.105 Allowable fees and other expenses.
1071.106 Delegations of authority.

             Subpart B_Information Required from Applicants

1071.200 Contents of application.
1071.201 Net worth exhibit.
1071.202 Documentation of fees and expenses.
1071.203 When an application may be filed.

            Subpart C_Procedures for Considering Applications

1071.300 Filing and service of documents.
1071.301 Answer to application.
1071.302 Reply.
1071.303 Comments by other parties.
1071.304 Settlement.
1071.305 Further proceedings.
1071.306 Recommended decision.
1071.307 Bureau review.
1071.308 Judicial review.
1071.309 Payment of award.

    Authority: 5 U.S.C. 504.

    Source: 77 FR 39119, June 29, 2012, unless otherwise noted.

                            Subpart A_General

Sec. 1071.100  Purpose.

    (a) In general. The Equal Access to Justice Act (the Act), 5 U.S.C. 
504, provides for the award of attorney fees and other expenses to 
eligible individuals and entities who are parties to certain 
administrative proceedings (adversary adjudications) before the Bureau 
of Consumer Financial Protection (the Bureau). An eligible party may 
receive an award when it prevails over the Bureau, unless the Bureau's 
position in the proceeding was substantially justified or special 
circumstances make an award unjust. This part describes the parties 
eligible for awards and the proceedings that are covered. This part also 
explains how to apply for awards, and the procedures and standards that 
the Bureau will use in ruling on those applications.
    (b) When an eligible party will receive an award. An eligible party 
will receive an award when:
    (1) It prevails in the adversary adjudication, unless the Bureau's 
position in the proceeding was substantially justified or special 
circumstances make an award unjust. Whether or not

[[Page 1063]]

the position of the Bureau was substantially justified will be 
determined on the basis of the administrative record as a whole that is 
made in the adversary proceeding for which fees and other expenses are 
sought; or
    (2) The Bureau's demand is substantially in excess of the decision 
of the adjudicative officer and is unreasonable when compared with that 
decision, under all the facts and circumstances of the case, unless the 
party has committed a willful violation of law or otherwise acted in bad 
faith, or special circumstances make an award unjust. ``Demand'' means 
the express final written demand made by the Bureau prior to initiation 
of the adversary adjudication, but does not include a recitation by the 
Bureau of the statutory penalty in the notice of charges or elsewhere 
when accompanied by an express demand for a lesser amount. The relief 
requested in the Bureau's notice of charges issued pursuant to 12 CFR 
1081.200(b)(3) may constitute the Bureau's demand only where the notice 
of charges was not preceded by an express final written demand.

Sec. 1071.101  When the Act applies.

    The Act applies to any adversary adjudication pending before the 
Bureau at any time after July 21, 2011.

Sec. 1071.102  Proceedings covered.

    The Act applies to all adjudicative proceedings under part 1081 as 
defined in Sec. 1081.103.

Sec. 1071.103  Eligibility of applicants.

    (a) To be eligible for an award of attorney fees and other expenses 
under the Act, the applicant must be a party to the adversary 
adjudication for which it seeks an award. The term ``party'' is defined 
in 5 U.S.C. 551(3). The applicant must show that it meets all conditions 
of eligibility set out in this subpart.
    (b) The types of eligible applicants are as follows:
    (1) An individual with a net worth of not more than $2 million;
    (2) The sole owner of an unincorporated business who has a net worth 
of not more than $7 million, including both personal and business 
interests, and not more than 500 employees;
    (3) A charitable or other tax-exempt organization described in 
section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)) 
with not more than 500 employees;
    (4) A cooperative association as defined in section 15(a) of the 
Agricultural Marketing Act (12 U.S.C. 1141j(a)) with not more than 500 
employees; or
    (5) Any other partnership, corporation, association, or public or 
private organization with a net worth of not more than $7 million and 
not more than 500 employees.
    (6) For purposes of receiving an award for fees and expenses for 
defending against an excessive Bureau demand, any small entity, as that 
term is defined under 5 U.S.C. 601(6).
    (c) For purposes of eligibility, the net worth and number of 
employees of an applicant shall be determined as of the date the 
proceeding was initiated.
    (d) An applicant who owns an unincorporated business will be 
considered an ``individual'' rather than a ``sole owner of an 
unincorporated business'' if the issues on which the applicant prevails 
are related primarily to personal interests rather than to business 
interests.
    (e) The employees of an applicant include all persons who regularly 
perform services for remuneration for the applicant, under the 
applicant's direction and control. Part-time employees shall be included 
on a proportional basis.
    (f) The net worth and number of employees of the applicant and all 
of its affiliates shall be aggregated to determine eligibility. Any 
individual or group of individuals, corporation or other entity that 
directly or indirectly controls or owns a majority of the voting shares 
or other interest of the applicant, or any corporation or entity of 
which the applicant directly or indirectly owns or controls a majority 
of the voting shares or other interest, will be considered an affiliate 
of that business for purposes of this part, unless the adjudicative 
officer determines that such treatment would be unjust and contrary to 
the purposes of the Act in light of the actual relationship between the 
affiliated entities. In addition, the adjudicative officer may determine 
that financial relationships of

[[Page 1064]]

the applicant other than those described in this paragraph constitute 
special circumstances that would make an award unjust.
    (g) An applicant that participates in a proceeding primarily on 
behalf of one or more other persons or entities that would be ineligible 
is not itself eligible for an award.

Sec. 1071.104  Standards for awards.

    (a) For a prevailing party:
    (1) An eligible prevailing applicant may receive an award for fees 
and expenses incurred after initiation of the adversary adjudication in 
connection with the entire adversary adjudication, or on a substantive 
portion of the adversary adjudication that is sufficiently significant 
and discrete to merit treatment as a separate unit, unless the position 
of the Bureau was substantially justified. The burden of proof that an 
award should not be made to an eligible prevailing applicant because the 
Bureau's position was substantially justified is on counsel for the 
Bureau. However, no presumption arises that the Bureau's position was 
not substantially justified simply because the Bureau did not prevail.
    (2) An award will be reduced or denied if the applicant has unduly 
or unreasonably protracted the proceeding or if special circumstances 
make the award sought unjust.
    (b) For a party defending against an excessive demand:
    (1) An eligible applicant will receive an award for fees and 
expenses incurred after initiation of the adversary adjudication related 
to defending against the portion of a Bureau demand that is 
substantially in excess of the decision of the adjudicative officer and 
is unreasonable when compared with that decision under all the facts and 
circumstances of the case.
    (2) An award will be denied if the applicant has committed a willful 
violation of law or otherwise acted in bad faith or if special 
circumstances make an award unjust.

Sec. 1071.105  Allowable fees and other expenses.

    (a) Subject to the limitations in paragraph (b) of this section, 
awards will be based on rates customarily charged, in the locale of the 
hearing, by persons engaged in the business of acting as attorneys, 
agents and expert witnesses, even if the services were made available 
without charge or at a reduced rate to the applicant.
    (b) No award for the fee of any attorney or agent under this rule 
may exceed the hourly rate specified in 5 U.S.C. 504(b)(1)(A). No award 
to compensate an expert witness may exceed the reasonable rate at which 
the Bureau pays witnesses with similar expertise. However an award may 
also include the reasonable expenses of the attorney, agent or witness 
as a separate item, if the attorney, agent or witness ordinarily charges 
clients separately for such expenses.
    (c) In determining the reasonableness of the fee sought for an 
attorney, agent or expert witness, the adjudicative officer shall 
consider the following:
    (1) If the attorney, agent or witness is in private practice, his or 
her customary fee for similar services, or, if an employee of the 
applicant, the fully allocated cost of the services;
    (2) The prevailing rate for similar services in the community in 
which the attorney, agent or witness ordinarily performs services;
    (3) The time actually spent in the representation of the applicant;
    (4) The time reasonably spent in light of the difficulty or 
complexity of the issues in the proceeding; and
    (5) Such other factors as may bear on the value of the services 
provided.
    (d) The reasonable cost of any study, analysis, engineering report, 
test, project or similar matter prepared on behalf of a party may be 
awarded, to the extent that the charge for the services does not exceed 
the prevailing rate for similar services, and the study or other matter 
was necessary for preparation of the applicant's case.
    (e) An award of fees or expenses under the Act is limited to fees 
and expenses incurred after initiation of the adversary adjudication 
and, with respect to excessive demands, the fees and expenses incurred 
in defending against the excessive portion of the demand.

[[Page 1065]]

Sec. 1071.106  Delegations of authority.

    The Director may delegate authority to take final action on matters 
pertaining to the Equal Access to Justice Act in particular cases.

             Subpart B_Information Required from Applicants

Sec. 1071.200  Contents of application.

    An application for an award of fees and expenses under the Act shall 
contain the following:
    (a) Identity of the applicant and the proceeding for which the award 
is sought;
    (b) A showing that the applicant has prevailed; or, if the applicant 
has not prevailed, a showing that the Bureau's demand was substantially 
in excess of the decision of the adjudicative officer and was 
unreasonable when compared with that decision, under the facts and 
circumstances of that case;
    (c) Identification of the Bureau position(s) in the proceeding that 
the applicant alleges was (were) not substantially justified; or, 
identification of the Bureau's demand that is alleged to be excessive 
and unreasonable and an explanation as to why the demand was excessive 
and unreasonable;
    (d) A brief description of the type and purpose of the organization 
or business (unless the applicant is an individual).
    (e) A statement of how the applicant meets the eligibility criteria 
of Sec. 1071.103;
    (f) The amount of fees and expenses incurred after the initiation of 
the adversary adjudication, or in the case of a claim for defending 
against an allegedly excessive demand, the amount of fees and expenses 
incurred after the initiation of the adjudicative proceeding 
attributable to the allegedly excessive portion of the demand;
    (g) Any other matter the applicant wishes the Bureau to consider in 
determining whether and in what amount an award should be made; and
    (h) A written verification under oath or under penalty of perjury 
that the information provided is true and correct, accompanied by the 
signature of the applicant or an authorized officer or attorney.

Sec. 1071.201  Net worth exhibit.

    (a) The application shall also include a detailed exhibit showing 
that the applicant's net worth did not exceed $2 million (if an 
individual) or $7 million (for all other applicants, including their 
affiliates) when the proceeding was initiated. The exhibit may be in any 
form convenient to the applicant that provides full disclosure of the 
applicant's and its affiliates' assets and liabilities and is sufficient 
to determine whether the applicant qualifies under the standards in this 
subpart. The adjudicative officer may require an applicant to file 
additional information to determine its eligibility for an award.
    (b) However, an applicant may omit this exhibit if:
    (1) It attaches a copy of a ruling by the Internal Revenue Service 
that it qualifies as an organization described in section 501(c)(3) of 
the Internal Revenue Code (26 U.S.C. 501(c)(3)) or, in the case of a 
tax-exempt organization not required to obtain a ruling from the 
Internal Revenue Service on its exempt status, a statement that 
describes the basis for the applicant's belief that it qualifies under 
such section;
    (2) It states that it is a cooperative association as defined in 
section 15(a) of the Agricultural Marketing Act (12 U.S.C. 1141j(a));
    (3) In the case of an application for an award related to an 
allegedly excessive demand by the Bureau, it demonstrates that it is a 
small entity as that term is defined by 5 U.S.C. 601(6).
    (c) Ordinarily, the net worth exhibit will be included in the public 
record of the proceeding. However, an applicant that objects to public 
disclosure of information in any portion of the exhibit and believes 
there are legal grounds for withholding it from disclosure may submit 
that exhibit directly to the adjudicative officer in a sealed envelope 
labeled ``Confidential Financial Information,'' accompanied by a motion 
to withhold the information from public disclosure. The motion shall 
describe the information sought to be withheld and explain, in detail, 
why it falls within one or more of the specific exemptions from 
mandatory disclosure under the Freedom of Information Act,

[[Page 1066]]

5 U.S.C. 522(b)(1) through (9), why public disclosure of the information 
would adversely affect the applicant, and why disclosure is not required 
in the public interest. The material in question shall be served on 
Bureau counsel but need not be served on any other party to the 
proceeding. If the adjudicative officer finds that the information 
should not be withheld from disclosure, it shall be placed in the public 
record of the proceeding. Otherwise, any request to inspect or copy the 
exhibit shall be handled in accordance with the Bureau's established 
procedures under the Freedom of Information Act, 12 CFR subpart B.

Sec. 1071.202  Documentation of fees and expenses.

    The application shall be accompanied by full documentation of the 
fees and expenses incurred after initiation of the adversary 
adjudication, including the cost of any study, engineering report, test, 
or project for which an award is sought. With respect to a claim for 
fees and expenses involving an excessive demand by the Bureau, the 
application shall be accompanied by full documentation of the fees and 
expenses incurred after initiation of the adversary adjudication, 
including the cost of any study, engineering report, test, or project 
for which an award is sought attributable to the portion of the demand 
alleged to be excessive and unreasonable. A separate itemized statement 
shall be submitted for each professional firm or individual whose 
services are covered by the application, showing the hours spent in 
connection with the proceeding by each individual, a description of the 
specific services performed, the rate at which each fee has been 
computed, any expenses for which reimbursement is sought, the total 
amount claimed, and the total amount paid or payable by the applicant or 
by any other person or entity for the services provided. The 
adjudicative officer may require the applicant to provide vouchers, 
receipts, or other substantiation for any expenses claimed.

Sec. 1071.203  When an application may be filed.

    (a) An application may be filed not later than 30 days after the 
final disposition of the proceeding to which the application relates.
    (b) If review or reconsideration is sought or taken of a decision, 
proceedings for the award of fees shall be stayed pending final 
disposition of the underlying controversy.
    (c) For purposes of this subpart, final disposition means the later 
of--
    (1) The date that the Director's final order issued pursuant to 
Sec. 1081.405 is final and unappealable, both within the agency and to 
the courts; or
    (2) The date that the Bureau issues any other final resolution of a 
proceeding, such as a consent agreement, settlement or voluntary 
dismissal, that is not subject to a petition for reconsideration.

            Subpart C_Procedures for Considering Applications

Sec. 1071.300  Filing and service of documents.

    (a) Any application for an award or other pleading or document 
related to an application shall be filed and served on all parties to 
the proceeding in the same manner as other pleadings in proceedings 
under part 1081.
    (b) In addition, a copy of each application for fees and expenses 
shall be served on the General Counsel of the Bureau.

Sec. 1071.301  Answer to application.

    (a) Within 30 days after service of an application, counsel 
representing the Bureau may file an answer to the application. Unless 
Bureau counsel requests an extension of time for filing or files a 
statement of intent to negotiate under paragraph (b) of this section, 
failure to file an answer within the 30-day period may be treated as 
consent to the award requested.
    (b) If Bureau counsel and the applicant believe that the issues in 
the fee application can be settled, they may jointly file a statement of 
their intent to negotiate a settlement. The filing of this statement 
shall extend the time for filing an answer for an additional 30

[[Page 1067]]

days and further extensions may be granted by the adjudicative officer 
upon joint request by Bureau counsel and the applicant.
    (c) The answer shall explain in detail any objections to the award 
requested and identify the facts relied on in support of Bureau 
counsel's position. If the answer is based on any alleged facts not 
already in the record of the proceeding, Bureau counsel shall include 
with the answer either supporting affidavits or a request for further 
proceedings under Sec. 1071.305 of this part.

Sec. 1071.302  Reply.

    Within 15 days after service of an answer, the applicant may file a 
reply. If the reply is based on any alleged facts not already in the 
record of the proceeding, the applicant shall include with the reply 
either supporting affidavits or a request for further proceedings under 
Sec. 1071.305 of this part.

Sec. 1071.303  Comments by other parties.

    Any party to a proceeding other than the applicant and Bureau 
counsel may file comments on an application within 30 days after it is 
served or on an answer within 15 days after it is served. A commenting 
party may not participate further in proceedings on the application 
unless the adjudicative officer determines that the public interest 
requires such participation in order to permit full exploration of 
matters raised in the comments.

Sec. 1071.304  Settlement.

    The applicant and Bureau counsel may agree on a proposed settlement 
of the award before final action on the application, either in 
connection with a settlement of the underlying proceeding or after the 
underlying proceeding has been concluded, in accordance with the 
Bureau's standard settlement procedures. If a prevailing party and 
Bureau counsel agree on a proposed settlement of an award before an 
application has been filed, the application shall be filed with the 
proposed settlement. If a proposed settlement of an underlying 
proceeding provides that each side shall bear its own expenses and the 
settlement is accepted, no application may be filed.

Sec. 1071.305  Further proceedings.

    (a) Ordinarily, the determination of an award will be made on the 
basis of the written record. However, on request of either the applicant 
or Bureau counsel, or on his or her own initiative, the adjudicative 
officer may order further proceedings, such as an informal conference, 
oral argument, additional written submissions or an evidentiary hearing. 
Such further proceedings shall be held only when necessary for full and 
fair resolution of the issues arising from the application, and shall be 
conducted as promptly as possible.
    (b) A request that the adjudicative officer order further 
proceedings under this section shall specifically identify the 
information sought or the disputed issues and shall explain why the 
additional proceedings are necessary to resolve the issues.

Sec. 1071.306  Recommended decision.

    The adjudicative officer shall issue a recommended decision on the 
application within 60 days after the time for filing a reply, or where 
further proceedings are held, within 60 days after completion of such 
proceedings.
    (a) For a decision involving a prevailing party: The decision shall 
include written findings and conclusions on the applicant's eligibility 
and status as a prevailing party, and an explanation of the reasons for 
any difference between the amount requested and the amount awarded. The 
decision shall include, if at issue, findings on whether the agency's 
position was substantially justified, whether the applicant unduly 
protracted the proceedings, or whether special circumstances make an 
award unjust.
    (b) For a decision involving an allegedly excessive Bureau demand: 
The decision on the application shall include written findings and 
conclusions on the applicant's eligibility and an explanation of the 
reasons why the Bureau's demand was or was not determined to be 
substantially in excess of the underlying decision of the adjudicative 
officer and was or was not unreasonable when compared with that 
decision. That determination shall be based upon all the facts and 
circumstances of

[[Page 1068]]

the case. The decision on the application shall also include, if at 
issue, findings on whether the applicant has committed a willful 
violation of law or otherwise acted in bad faith, or whether special 
circumstances make an award unjust.

Sec. 1071.307  Bureau review.

    Either the applicant or Bureau counsel may seek review of the 
recommended decision on the fee application by filing a notice of appeal 
under Sec. 1081.402(a), or the Director may decide to review the 
decision on his or her own initiative, in accordance with Sec. 
1081.402(b). If neither the applicant nor Bureau counsel seeks review 
and the Director does not take review on his or her own initiative, the 
Director will adopt the recommended decision on the application as the 
final decision of the Bureau within 30 days of the issuance of the 
recommended decision. Whether to review a decision is a matter within 
the discretion of the Director. If review is taken, the Director will 
issue a final decision on the application or remand the application to 
the adjudicative officer for further proceedings.

Sec. 1071.308  Judicial review.

    Judicial review of final Bureau decisions on awards may be sought as 
provided in 5 U.S.C. 504(c)(2).

Sec. 1071.309  Payment of award.

    An applicant seeking payment of an award shall submit to the Bureau 
a copy of the Bureau's final decision granting the award, accompanied by 
a statement that the applicant will not seek review of the decision in 
the United States courts. An applicant shall be paid the amount awarded 
within 60 days of entry of the final decision unless judicial review of 
the award or of the underlying decision of the adversary adjudication 
has been sought by the applicant or any other party to the proceeding.



PART 1072_ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF DISABILITY
IN PROGRAMS AND ACTIVITIES CONDUCTED BY THE BUREAU OF CONSUMER
FINANCIAL PROTECTION

Sec.
1072.101 Purpose.
1072.102 Application.
1072.103 Definitions.
1072.104 Review of compliance.
1072.105 Notice.
1072.106 General prohibitions against discrimination.
1072.107 Employment.
1072.108 Program accessibility: Discrimination prohibited.
1072.109 Program accessibility: Existing facilites.
1072.110 Program accessibility: New construction and alterations.
1072.111 Communications.
1072.112 Compliance procedures.

    Authority: 29 U.S.C. 794; 29 U.S.C. 794d.

    Source: 77 FR 46609, August 6, 2012, unless otherwise noted.

Sec. 1072.101  Purpose.

    (a) This part implements section 504 of the Rehabilitation Act of 
1973, as amended by the Rehabilitation, Comprehensive Services, and 
Developmental Disabilities Amendments of 1978, Sec. 119 (Pub. L. 95-602, 
92 Stat. 2982), the Rehabilitation Act Amendments of 1986 (Pub. L. 99-
506, 100 Stat. 1810), the Workforce Investment Act of 1998 (Pub. L. 105-
220, 112 Stat. 936), and the Americans with Disabilities Act Amendments 
of 2008 (Pub. L. 110-325, 122 Stat. 3553), to prohibit discrimination on 
the basis of disability in programs or activities conducted by Executive 
agencies or the United States Postal Service.
    (b) This part is also intended to implement section 508 of the 
Rehabilitation Act of 1973 as amended to ensure that employees and 
members of the public with disabilities have access to, and are able to 
use, electronic and information technology (EIT) to the same extent as 
individuals without disabilities, unless an undue burden would be 
imposed on the department or the Bureau. Specifically, this part 
clarifies that individuals with disabilities may

[[Page 1069]]

utilize the complaint procedures established in section 504 to enforce 
rights guaranteed under section 508.

Sec. 1072.102  Application.

    This part applies to all programs, activities, and electronic and 
information technology developed, procured, maintained, used, or 
conducted by the Bureau.

Sec. 1072.103  Definitions.

    For purposes of this part Auxiliary aids means services or devices 
that enable persons with impaired sensory, manual, or speaking skills to 
have an opportunity to participate in, and enjoy the benefits of, 
programs or activities conducted by the Bureau. For example, auxiliary 
aids useful for persons with impaired vision include readers, Brailled 
materials, audio recordings and other similar services and devices. 
Auxiliary aids useful for persons with impaired hearing include 
telephone handset amplifiers, telephones compatible with hearing aids, 
telecommunications devices for deaf persons (TDD's), interpreters, 
Computer-aided real-time transcription (CART), captioning, note takers, 
written materials, and other similar services and devices.
    Bureau means the Bureau of Consumer Financial Protection.
    Complete complaint means a written statement or a complaint in 
audio, Braille, electronic, and/or video format, that contains the 
complainant's name and address, and describes the Bureau's alleged 
discriminatory action in sufficient detail to inform the Bureau of the 
nature and date of the alleged violation of section 504 or section 508. 
It shall be signed by the complainant or by someone authorized to do so 
on his or her behalf. Complaints in audio, Braille, electronic, and/or 
video formats shall contain an affirmative identity statement of the 
individual, which for this purpose shall be considered to be 
functionally equivalent to a complaint's signature. Complaints filed on 
behalf of classes of individuals with disabilities shall also identify 
(where possible) the alleged victims of discrimination.
    Electronic and information technology means information technology 
and any equipment or interconnected system or subsystem of equipment 
that is used in the creation, conversion, or duplication of data or 
information. The term includes, but is not limited to, 
telecommunications products (such as telephones), information kiosks and 
transaction machines, world-wide web sites, multimedia, and office 
equipment such as copiers and fax machines. The term does not include 
any equipment that contains embedded information technology that is used 
as an integral part of the product, but the principal function of which 
is not the acquisition, storage, manipulation, management, movement, 
control, display, switching, interchange, transmission, or reception of 
data or information. For example, HVAC (heating, ventilation, and air 
conditioning) equipment such as thermostats or temperature control 
devices, and medical equipment where information technology is integral 
to its operation are not electronic and information technology.
    Facility means all or any portion of a building, structure, 
equipment, road, walk, parking lot, rolling stock or other conveyance, 
or other real or personal property.
    Has a record of such an impairment means has a history of, or has 
been misclassified as having, a mental or physical impairment that 
substantially limits one or more of the individual's major life 
activities.
    Is regarded as having an impairment means--
    (1) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the Bureau as constituting 
such a limitation;
    (2) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (3) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the Bureau as having such an impairment.
    Individual with a disability means any person who has a physical or 
mental impairment that substantially limits one or more of the 
individual's major life activities, has a record of such an impairment, 
or is regarded as having

[[Page 1070]]

such an impairment. As used in this definition, the phrase:
    Major life activities includes without limitation--
    (1) Caring for oneself, performing manual tasks, seeing, hearing, 
eating, sleeping, walking, standing, sitting, reaching, lifting, 
bending, speaking, breathing, learning, reading, concentrating, 
thinking, communicating, interacting with others, and working.
    (2) The operation of major bodily functions of the immune system, 
special sense organs and skin, normal cell growth, and digestive 
genitourinary, bowel, bladder, neurological, brain, respiratory, 
circulatory, cardiovascular, endocrine, hemic, lymphatic, 
musculoskeletal, and reproductive functions. The operation of a major 
bodily function includes the operation of an individual organ within a 
body system.
    (3) In determining other examples of major life activities, the 
Bureau will follow the guidance provided by EEOC in its 2011 regulations 
interpreting the Americans with Disabilities Act Amendments Act of 2008.
    Physical or mental impairment includes without limitation:
    (1) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive, digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine.
    (2) Any mental or psychological disorder such as an intellectual 
disability, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities.
    (3) Diseases and conditions such as orthopedic, visual, speech and 
hearing impairments, cerebral palsy, epilepsy, muscular dystrophy, 
multiple sclerosis, cancer, heart disease, diabetes, intellectual 
disability, emotional illness, drug addiction and alcoholism.
    Program or Activity means any activity of the Bureau permitted or 
required by its enabling statutes, including but not limited to any 
proceeding, investigation, hearing, or meeting.
    Qualified individual with a disability means:
    (1) In reference to individuals other than employees of the Bureau--
    (i) With respect to any Bureau program or activity under which an 
individual is required to perform services or to achieve a level of 
accomplishment, an individual with a disability who, with or without 
reasonable accommodations, meets the essential eligibility requirements 
for participation in the program or activity, and who can achieve the 
purpose of the program or activity without modifications in the program 
or activity that would result in a fundamental alteration in its nature; 
or
    (ii) With respect to any other program or activity, an individual 
with a disability who, with or without reasonable modification to rules, 
policies, or practices that do not change the fundamental nature of the 
activity, or the provision of auxiliary aids, meets the essential 
eligibility requirements for participation in, or receipt of benefits 
from, that program or activity; or
    (2) In reference to individuals employed by the Bureau, the 
definition of that term for purposes of employment contained in 29 CFR 
1630.2(m), which is made applicable to this part by Sec. 1072.101.
    Section 504 means section 504 of the Rehabilitation Act of 1973 as 
amended. As used in this part, Sec. 504 applies only to programs or 
activities conducted by Executive agencies and not to federally assisted 
programs.
    Section 508 means section 508 of the Rehabilitation Act of 1973 as 
amended.

Sec. 1072.104  Review of compliance.

    (a) The Bureau shall, within two years of the promulgation of this 
regulation, review its current policies and practices in view of 
advances in relevant technology and achievability. Based on this review, 
the Bureau shall modify its practices and procedures to ensure that the 
Bureau's programs and activities are fully accessible.
    (b) The Bureau shall provide an opportunity to interested persons, 
including individuals with disabilities or organizations representing 
individuals with disabilities, to participate in the review process.

[[Page 1071]]

    (c) The Bureau shall maintain on file and make available for public 
inspection until three years following the completion of the compliance 
review--
    (1) A description of areas examined and any problems identified; and
    (2) A description of any modifications made.

Sec. 1072.105  Notice.

    The Bureau shall make available to all Bureau employees, applicants, 
participants, beneficiaries, and other interested persons information 
regarding the provisions of this part and its applicability to the 
programs or activities conducted by the Bureau in a manner that apprises 
them of the protections against discrimination provided by Sec. 504 and 
this regulation.

Sec. 1072.106  General prohibitions against discrimination.

    (a) No qualified individual with a disability in the United States, 
shall, on the basis of disability, be excluded from the participation 
in, be denied the benefits of, or otherwise be subjected to 
discrimination under any program or activity conducted by the Bureau.
    (b) Discriminatory actions prohibited. (1) The Bureau, in providing 
any aid, benefit, or service, may not directly or through contractual, 
licensing, or other arrangements, on the basis of disability--
    (i) Deny a qualified individual with a disability the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (ii) Afford a qualified individual with a disability an opportunity 
to participate in or benefit from the aid, benefit, or service that is 
not substantially equivalent to that afforded others;
    (iii) Provide different or separate aid, benefits or services to 
individuals with disabilities or to any class of individuals with 
disabilities than is provided to others unless such action is necessary 
to provide qualified individuals with disabilities with aid, benefits or 
services that are as effective as those provided to others;
    (iv) Deny a qualified individual with a disability the opportunity 
to participate as a member of planning or advisory boards.
    (2) For purposes of this part, aids, benefits, and services, to be 
equally effective, are not required to produce the identical result or 
level of achievement for individuals with disabilities and for persons 
who are not so identified, but must afford individuals with disabilities 
a reasonable opportunity to obtain the same result, to gain the same 
benefit, or to reach the same level of achievement in the most 
integrated setting appropriate to the individual's needs.
    (3) Even if the Bureau is permitted, under paragraph (b)(1)(iv) of 
this section, to operate a separate or different program for individuals 
with disabilities or for any class of individuals with disabilities, to 
the extent reasonably feasible, the Bureau must permit any qualified 
individual with a disability who wishes to participate in the program 
that is not separate or different to do so.
    (4) The Bureau may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration the purpose 
or effect of which would--
    (i) Subject qualified individuals with disabilities to unlawful 
discrimination on the basis of disability; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with disabilities.
    (5) The Bureau may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would--
    (i) Exclude individuals with disabilities from, deny them the 
benefits of, or otherwise subject them to unlawful discrimination under 
any program or activity conducted by the Bureau; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to individuals with 
disabilities.
    (6) The Bureau, in the selection of procurement contractors, may not 
use criteria that subject qualified individuals with disabilities to 
unlawful discrimination on the basis of disability.
    (7) The Bureau may not administer a licensing or certification 
program in a manner that subjects qualified individuals with 
disabilities to unlawful discrimination on the basis of disability,

[[Page 1072]]

nor may the Bureau establish requirements for the programs or activities 
of licensees or certified entities that subject qualified individuals 
with disabilities to unlawful discrimination on the basis of disability. 
However, the programs or activities of entities that are licensed or 
certified by the Bureau are not, themselves, covered by this part.
    (8) The Bureau shall make reasonable modifications in policies, 
practices, or procedures when the modifications are necessary to avoid 
discrimination on the basis of disability, unless the Bureau can 
demonstrate that making the modifications would fundamentally alter the 
nature of the program, service, or activity.
    (c) The exclusion of persons who have not self-identified as having 
disabilities from the benefits of a program limited by federal statute 
or Executive order to individuals with disabilities or the exclusion of 
a specific class of individuals with disabilities from a program limited 
by federal statute or Executive order to a different class of 
individuals with disabilities is not prohibited by this part.
    (d) The Bureau shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with disabilities.

Sec. 1072.107  Employment.

    No qualified individual with disability shall, on the basis of 
disability, be subjected to unlawful discrimination in employment under 
any program or activity conducted by the Bureau. The definitions, 
requirements and procedures of Sec. 501 of the Rehabilitation Act of 
1973, 29 U.S.C. 791, as established by the Equal Employment Opportunity 
Commission in 29 CFR parts 1614 and 1630, shall apply to employment in 
federally conducted programs or activities.

Sec. 1072.108  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 1072.109 no qualified 
individual with a disability shall, because the Bureau's facilities are 
inaccessible to or unusable by individuals with disabilities, be denied 
the benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the Bureau .

Sec. 1072.109  Program accessibility: Existing facilities.

    (a) General. The Bureau shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is accessible 
to and usable by individuals with disabilities. This paragraph does not 
require the Bureau
    (1) To make structural alterations in each of its existing 
facilities in order to make them accessible to and usable by individuals 
with disabilities where other methods are effective in achieving 
compliance with this section; or
    (2) To take any action that would result in a fundamental alteration 
in the nature of a program or activity or in undue financial and 
administrative burdens. If an action would result in such an alteration 
or such burdens, the Bureau shall take any other action that would not 
result in such an alteration or such burdens but would nevertheless to 
the extent reasonably feasible ensure that individuals with disabilities 
receive the benefits and services of the program or activity.
    (b) Methods. The Bureau may comply with the requirements of this 
section through such means as redesign of equipment, reassignment of 
services to accessible buildings, assignment of aides to beneficiaries, 
home visits, delivery of services at alternate accessible sites, 
alteration of existing facilities and construction of new facilities, 
use of accessible rolling stock, or any other methods that result in 
making its programs or activities readily accessible to and usable by 
individuals with disabilities. The Bureau, in making alterations to 
existing buildings, shall meet accessibility requirements to the extent 
compelled by the Architectural Barriers Act of 1968, as amended (42 
U.S.C. 4151-4157), and any regulations implementing it. In choosing 
among available methods for meeting the requirements of this section, 
the Bureau shall give priority to those methods that offer programs and 
activities to qualified individuals with disabilities in the most 
integrated setting appropriate.

[[Page 1073]]

    (c) Time period for compliance. The Bureau shall comply with the 
obligations established under this section within ninety (90) days of 
the effective date of this part except that where structural changes in 
facilities are undertaken, such changes in facilities are undertaken, 
such changes shall be made within three years of the effective date of 
this part, but in any event as expeditiously as possible.

Sec. 1072.110  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf of, or for the use of the Bureau shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with disabilities. The definitions, requirements, and 
standards of the Architectural Barriers Act (42 U.S.C. 4151-4157), as 
implemented in 41 CFR 101-19.600 through 101-19.607, apply to buildings 
covered by this section.

Sec. 1072.111  Communications.

    (a) The Bureau shall take appropriate steps to effectively 
communicate with applicants, participants, personnel of other federal 
entities, and members of the public.
    (1) The Bureau shall furnish appropriate auxiliary aids where 
necessary to afford an individual with a disability an equal opportunity 
to participate in, and enjoy the benefits of, a program or activity 
conducted by the Bureau.
    (i) In determining what type of auxiliary aid is necessary, the 
Bureau shall give consideration to any reasonable request of the 
individual with a disability.
    (ii) The Bureau need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal nature 
to applicants or participants in programs.
    (2) Where the Bureau communicates with applicants and beneficiaries 
by
    telephone, the Bureau shall use a telecommunication device for deaf 
persons (TDD's) or equally effective telecommunication systems to 
communicate with persons with impaired hearing.
    (b) The Bureau shall make available to interested persons, including 
persons with impaired vision or hearing, information as to the existence 
and location of accessible services, activities, and facilities.
    (c) The Bureau shall post notices at a primary entrance to each of 
its inaccessible facilities, directing users to an accessible facility, 
or to a location at which they can obtain information about accessible 
facilities. The international symbol for accessibility shall be used at 
each primary entrance of an accessible facility.
    (d) This section does not require the Bureau to take any action that 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens.

Sec. 1072.112  Compliance procedures.

    (a) Except as provided in paragraph (b) of this section, this 
section applies to all allegations of discrimination on the basis of 
disability in programs and activities conducted by the Bureau and denial 
of access to electronic and information technology.
    (b) The Bureau shall process complaints alleging violations of 
section 504 with respect to employment according to the procedures 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1614 pursuant to section 501 of the Rehabilitation Act of 1973 (29 
U.S.C. 791).
    (c) All other complaints alleging violations of section 504 or 
section 508 may be sent to Labor and Employee Relations, Office of the 
Chief Human Capital Officer Consumer Financial Protection Bureau, 1700 G 
Street NW., Washington, DC 20052. The Office of the Chief Human Capital 
Officer shall be responsible for coordinating implementation of this 
section.
    (d) Complaint-filing procedures. (1) Any person who believes that he 
or she has been subjected to discrimination prohibited by this part may 
by himself or herself or by his or her authorized representative file a 
complaint. Any person who believes that any specific class of persons 
has been subjected to discrimination prohibited by this part and who is 
a member of that class or the authorized representative of a member of 
that class may file a class complaint.

[[Page 1074]]

    (2) The Bureau shall accept and investigate each timely filed, 
complete complaint over which it has jurisdiction.
    (3) A complete complaint must be filed within 180 days of the 
alleged act of discrimination. A complaint submitted to the Bureau via 
first-class mail will be deemed to have been filed when postmarked. A 
complaint submitted to the Bureau via any other means of delivery will 
be deemed to have been filed when received by the Bureau. The Bureau may 
extend this time period for good cause.
    (e) If the Bureau receives a complaint over which it does not have 
jurisdiction, it shall promptly notify the complainant and shall make 
reasonable efforts to refer the complaint to the appropriate government 
entity.
    (f) The Bureau shall notify the Architectural and Transportation 
Barriers Compliance Board upon receipt of any complaint alleging that a 
building or facility that is subject to the Architectural Barriers Act 
of 1968, as amended (42 U.S.C. 4151-4157), is not readily accessible to 
and usable by individuals with disabilities.
    (g)(1) Within 180 days of the receipt of a timely filed, complete 
complaint over which it has jurisdiction, the Bureau shall notify the 
complainant of the results of the investigation in a letter containing:
    (i) Findings of fact and conclusions of law;
    (ii) A description of a remedy for each violation found; and
    (iii) A notice of the right to appeal.
    (2) Bureau employees are required to cooperate in the investigation 
and attempted resolution of complaints. Employees who are required to 
participate in any investigation under this section shall do so as part 
of their official duties and during the course of regular duty hours.
    (3) If a complaint is resolved informally, the terms of the 
agreement shall be reduced to writing and made part of the complaint 
file, with a copy of the agreement provided to the complainant. The 
written agreement shall describe the subject matter of the complaint and 
any corrective action to which the parties have agreed.
    (h) Appeals of the findings of fact and conclusions of law or 
remedies must be filed by the complainant within 30 days of receipt from 
the Bureau of the letter required by Sec. 1072.112(g). The Bureau may 
extend this time for good cause.
    (i) Timely appeals shall be accepted and processed by the Chief 
Human Capital Officer, who will issue the final agency decision which 
may include appropriate corrective action to be taken by the Bureau.
    (j) The Bureau shall notify the complainant of the results of the 
appeal within 60 days of the receipt of the timely appeal. If the Bureau 
determines that it needs additional information from the complainant, it 
shall have 60 days from the date it received the additional information 
to make its determination on the appeal.
    (k) The time limits cited in paragraphs (g) and (j) of this section 
may be extended for an individual case when the Chief Human Capital 
Officer determines there is good cause, based on the particular 
circumstances of that case, for the extension.
    (l) The Bureau may delegate its authority for conducting complaint 
investigations to other federal agencies or may contract with a 
nongovernment investigator to perform the investigation, but the 
authority for making the final determination may not be delegated to 
another entity.



PART 1073_PROCEDURES FOR BUREAU DEBT COLLECTION

                Subpart A_Scope, Purpose, and Definitions

Sec.
1073.101 Scope.
1073.102 Purpose.
1073.103 Definitions.

                     Subpart B_Administrative Offset

1073.201 Applicability and scope.
1073.202 Collection.
1073.203 Omission of procedures.
1073.204 Debtor's rights.
1073.205 No requirement for duplicate notice.
1073.206 Interest, penalties, and administrative costs.
1073.207 Termination or suspension of collection action.
1073.208 Refunds.

[[Page 1075]]

1073.209 Requests for offset to other Federal agencies.
1073.210 Requests for offset from other Federal agencies.

                         Subpart C_Salary Offset

1073.301 Scope.
1073.302 Notice requirement where CFPB is creditor agency.
1073.303 Procedures to request a hearing.
1073.304 Failure to timely submit request for a hearing.
1073.305 Procedures for hearing.
1073.306 Salary offset process.
1073.307 Voluntary repayment agreements as alternative to salary offset 
          where the CFPB is the creditor agency.
1073.308 Special review of repayment agreement or salary offset due to 
          changed circumstances.
1073.309 Interest, penalties, and administrative costs.
1073.310 Refunds.
1073.311 Non-waiver of rights by payment.
1073.312 Exception to procedures.

                Subpart D_Administrative Wage Garnishment

1073.401 Administrative wage garnishment.

                       Subpart E_Tax Refund Offset

1073.501 Tax refund offset.

    Authority: 5 U.S.C. 301; 5 U.S.C. 5514; 31 U.S.C. 3711, et seq.

    Source: 78 FR 41678, July 11, 2013, unless otherwise noted.

                Subpart A_Scope, Purpose, and Definitions

Sec. 1073.101  Scope.

    This part establishes Bureau procedures for the collection of 
certain debts owed to the United States.
    (a) This part applies to collections by the Bureau from:
    (1) Federal employees who are indebted to the Bureau;
    (2) Employees of the Bureau who are indebted to other agencies; and
    (3) Other persons, organizations, or entities that are indebted to 
the United States, except those excluded in paragraph (b) of this 
section.
    (b) This part does not apply:
    (1) To debts or claims arising under the Internal Revenue Code 
(Title 26, U.S. Code), the Social Security Act (42 U.S.C. 301 et seq.), 
or the tariff laws of the United States;
    (2) To a situation to which the Contract Disputes Act (41 U.S.C. 
7101 et seq.) applies; or
    (3) To debts arising out of acquisition contracts subject to the 
Federal Acquisition Regulation. These debts shall be determined, 
collected, compromised, terminated, or settled in accordance with that 
regulation (see 48 CFR part 32).
    (4) In any other case where collection of a debt is exclusively 
provided for or prohibited by another statute or applicable regulation.
    (c) In addition to the procedures set forth in this part, the Bureau 
shall also follow the procedures set forth in 5 CFR part 550, subpart K, 
for the collection by offset from indebted government employees, and in 
31 CFR part 285 and the Federal Claims Collection Standards (FCCS) (31 
CFR chapter IX and parts 900 through 904) for the collection of debts 
owed to the United States.
    (d) Nothing in this part precludes the compromise, suspension, or 
termination of collection actions, where appropriate, under standards 
implementing the Debt Collection Improvement Act (DCIA) (31 U.S.C. 3711 
et seq.), the FCCS, or any other applicable law.

Sec. 1073.102  Purpose.

    The purpose of this part is to implement Federal statutes and 
regulatory standards authorizing the Bureau to collect debts owed to the 
United States. This part is intended to be consistent with the following 
Federal statutes and regulations:
    (1) DCIA at 31 U.S.C. 3711 (collection and compromise of claims), 
section 3716 (administrative offset), section 3717 (interest and penalty 
on claims), and section 3718 (contracts for collection services); 31 CFR 
part 285 (debt collection authorities under the DCIA)
    (2) 31 CFR chapter IX and parts 900 through 904 (FCCS);
    (3) 5 U.S.C. 5514, 5 CFR part 550, subpart K (salary offset);
    (4) 5 U.S.C. 5584 (waiver of claims for overpayment);
    (5) 31 U.S.C. 3720D, 31 CFR 285.11 (administrative wage 
garnishment); and
    (6) 26 U.S.C. 6402(d), 31 U.S.C. 3720A, and 31 CFR 285.2 (tax refund 
offset).

[[Page 1076]]

Sec. 1073.103  Definitions.

    Except where the context clearly indicates otherwise, the following 
definitions shall apply to this part.
    Administrative offset means withholding funds payable by the United 
States to, or held by the United States for, a person to satisfy a debt.
    Agency means a department, agency, court, court administrative 
office, or instrumentality in the executive, judicial, or legislative 
branch of the Federal government, including government corporations.
    Bureau or CFPB means the Bureau of Consumer Financial Protection.
    Centralized administrative offset means an offset initiated by 
referral to the Secretary of the Treasury, or where applicable a debt 
collection center designated by the Department of the Treasury, by a 
creditor agency of a past due debt for the purpose of collection under 
the Treasury's centralized offset program.
    Certification means a written statement transmitted from a creditor 
agency to a paying agency for purposes of administrative or salary 
offset, to the Financial Management Service (FMS) for offset or to the 
Secretary of the Treasury for centralized administrative offset. The 
certification confirms the existence and amount of the debt and verifies 
that the creditor agency has afforded the debtor the required procedural 
protections. Where the debtor requests a hearing on a claimed debt, the 
decision by a hearing official or administrative law judge constitutes a 
certification.
    Compromise means the settlement or forgiveness of a debt under 31 
U.S.C. 3711, in accordance with standards set forth in the FCCS and 
applicable Federal law.
    Creditor agency means an agency of the Federal Government to which 
the debt is owed, or a debt collection center when acting on behalf of a 
creditor agency to collect a debt. An agency may be both the creditor 
agency and the paying agency.
    Debt or claim means an amount of money, funds, or property that has 
been determined by an agency official to be due the United States from 
any person, organization, or entity, except another Federal entity. For 
purposes of this part, a debt or claim owed to the Bureau constitutes a 
debt or claim owed to the United States.
    Debt collection center means the Department of the Treasury or other 
government agency or division designated by the Secretary of the 
Treasury with authority to collect debts on behalf of creditor agencies 
in accordance with 31 U.S.C. 3711(g).
    Debtor means a person who owes a debt or a claim. The term 
``person'' includes any individual, organization, or entity, except 
another Federal agency.
    Director means the Director of the Bureau of Consumer Financial 
Protection or the Director's designee.
    Disposable pay means that part of current adjusted basic pay, 
special pay, incentive pay, retired pay, retainer pay, and, in the case 
of an employee not entitled to adjusted basic pay, other authorized pay, 
remaining for each pay period after the deduction of any amount required 
by law to be withheld.
    Federal Claims Collection Standards (FCCS) means standards published 
at 31 CFR Parts 900 through 904.
    Financial Management Service (FMS) is a Bureau of the Department of 
the Treasury.
    Garnishment means the process of withholding amounts from the 
disposable pay of a person employed outside the Federal Government, and 
the paying of those amounts to a creditor in satisfaction of a 
withholding order.
    Non-centralized administrative offset means offsets that an agency 
conducts, at the agency's discretion, internally or in cooperation with 
the agency certifying or authorizing payment to the debtor.
    Notice of Intent to Offset or Notice of Intent means a written 
notice from a creditor agency to an employee, organization, entity, or 
restitution debtor that claims a debt and informs the debtor that the 
creditor agency intends to collect the debt by administrative or salary 
offset. The notice also informs the debtor of certain procedural rights 
with respect to the claimed debt and respective offset procedure.
    Paying agency means the agency of the Federal Government that 
withholds funds payable to a person who owes a debt to an agency of the 
Federal

[[Page 1077]]

Government. The term ``person'' includes any individual, organization, 
or entity, except another Federal agency. An agency may be both the 
creditor agency and the paying agency.
    Recoupment means a special method of adjusting debts arising under 
the same transaction or occurrence.
    Salary offset means an administrative offset to collect a debt under 
5 U.S.C. 5514 by deduction(s) at one or more officially established pay 
intervals from the current pay account of a Federal employee without his 
or her consent.
    Withholding order means any order for withholding or garnishment of 
pay issued by an agency, or judicial or administrative body.

                     Subpart B_Administrative Offset

Sec. 1073.201  Applicability and scope.

    (a) Applicability. The provisions of this subpart apply to the 
collection of debts owed to the United States arising out of the 
activities of, or referred to, the Bureau. This subpart is intended to 
be consistent with the Federal Claims Collection Standards (31 CFR 
chapter IX and parts 900 through 904) on administrative offset issued by 
the Department of Treasury and the Department of Justice.
    (b) Centralized administrative offset. (1) The Director will refer 
any eligible debt over 180 days delinquent to the Department of the 
Treasury or a designated debt collection center for collection by 
centralized administrative offset. The Director may also refer any 
eligible debt less than 180 days delinquent to the Department of the 
Treasury for offset.
    (2) At least 60 days prior to referring a debt to the Department of 
the Treasury in accordance with paragraph (b)(1) of this section, the 
Director will send notice to the debtor in accordance with the 
requirements of Sec. 1073.204 of this subpart.
    (c) Non-centralized administrative offset. (1) When centralized 
administrative offset is not available or appropriate, the Director may 
collect past-due, legally enforceable debts through non-centralized 
administrative offset. In these cases, the Director may offset a payment 
internally or make an offset request directly to a paying agency.
    (2) At least 30 days prior to offsetting a payment internally or 
requesting a paying agency to offset a payment in accordance with 
paragraph (c)(1) of this section, the Director will send notice to the 
debtor in accordance with the requirements of Sec. 1073.204 of this 
subpart.

Sec. 1073.202  Collection.

    (a) The Director may collect a claim from a person by administrative 
offset of monies payable by the Government only after:
    (1) Providing the debtor with the procedures of this subpart; and
    (2) Providing the paying agency with written certification that the 
debtor owes the debt in the amount stated and that the Bureau, as 
creditor agency, has complied with this part.
    (b) The Director will initiate collection by administrative offset 
of only those debts for which that remedy is permissible under 31 CFR 
901.3(a).
    (c) Unless otherwise provided, debts or payments not subject to 
administrative offset under 31 U.S.C. 3716 may be collected by 
administrative offset under common law, or any other applicable 
statutory authority.

Sec. 1073.203  Omission of procedures.

    The Bureau shall not be required to follow the procedures described 
in Sec. 1073.204 where:
    (a) The offset is in the nature of a recoupment;
    (b) The debt arises under a contract as set forth in Cecile 
Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993); or
    (c) In the case of non-centralized administrative offsets, the 
Bureau first learns of the existence of the amount owed by the debtor 
when there is insufficient time before payment would be made to the 
debtor/payee to allow for prior notice and an opportunity to review. 
When prior notice and an opportunity to review are omitted, the Director 
shall give the debtor such notice and an opportunity for review as soon 
as practicable and shall promptly refund any money ultimately found not 
to be due to the U.S. Government.

Sec. 1073.204  Debtor's rights.

    (a) Debtor's rights prior to collection or referral. Prior to 
collecting any claim

[[Page 1078]]

by administrative offset or referring such claim to another agency for 
collection through administrative offset, the Director shall provide the 
debtor with the following:
    (1) A Notice of Intent to Offset, which shall include written notice 
of the type and amount of the debt, the intention of the Director to use 
administrative offset to collect the debt, and an explanation of the 
debtor's rights under 31 U.S.C. 3716;
    (2) An opportunity to inspect and copy Bureau records related to the 
debt, unless such records are exempt from disclosure;
    (3) An opportunity for review within the Bureau of the determination 
of indebtedness; and
    (4) An opportunity to enter into a written agreement to repay the 
debt.
    (b) Opportunity for review. (1) Any request by the debtor for such 
review shall be in writing and shall be submitted to the Bureau within 
30 calendar days of the date of the Notice of Intent to Offset. The 
Director may waive the time limit for requesting review for good cause 
shown by the debtor;
    (2) Upon receipt of a request for review by the debtor, the Director 
shall provide the debtor with a reasonable opportunity for an oral 
hearing when the Director determines that the question of the 
indebtedness cannot be resolved by review of the documentary evidence 
alone (e.g., when the determination turns on an issue of credibility or 
veracity). Unless otherwise required by law, an oral hearing under this 
section is not required to be a formal evidentiary hearing, although all 
significant matters discussed at the hearing shall be documented.
    (3) In cases where an oral hearing is not required by this section, 
the Bureau shall make its determination based on a documentary hearing 
consisting of a review of the written record.

Sec. 1073.205  No requirement for duplicate notice.

    Where the Director previously has given a debtor any of the required 
notice and review opportunities with respect to a particular debt, the 
Director is not required to duplicate such notice and review 
opportunities prior to initiating administrative offset.

Sec. 1073.206  Interest, penalties, and administrative costs.

    (a) Pursuant to 31 U.S.C. 3717, the Director shall assess interest, 
penalties, and administrative costs on debts owed to the United States. 
Interest, penalties, and administrative costs will be assessed in 
accordance with 31 CFR 901.9.
    (b) The Director shall waive collection of interest on a debt or any 
portion of the debt which is paid in full within 30 days after the date 
on which the interest began to accrue.
    (c) The Director may waive interest accrued during a period a 
disputed debt is under investigation or review by the Bureau, i.e., from 
the date the Bureau receives a request for review until the date the 
Bureau issues a final agency decision. The Director may only grant this 
waiver for good cause shown by the debtor. This waiver must be requested 
by the debtor before the expiration of the 30-day waiver period 
described in paragraph (b) of this section.
    (d) The Director may at any time waive collection of interest, 
penalties, or administrative costs if he or she finds that one or more 
of the following conditions exists:
    (1) The Debtor is unable to pay any significant sum toward the debt 
within a reasonable period of time;
    (2) Collection of interest, penalties, or administrative costs will 
jeopardize collection of the principal of the debt;
    (3) The Bureau is unable to enforce collection in full within a 
reasonable period of time through collection proceedings; or
    (4) Collection is against equity and good conscience or is not in 
the best interest of the United States.
    (e) The Director is authorized to assess interest, penalties, 
administrative costs, or other related charges on debts that are not 
subject to 31 U.S.C. 3717 to the extent authorized under the common law 
or other applicable statutory authority.

Sec. 1073.207  Termination or suspension of collection action.

    The Director may suspend or terminate collection action on a claim 
not in

[[Page 1079]]

excess of $100,000, or such other amount as the Attorney General may 
direct, exclusive of interest, penalties, and administrative costs, 
after deducting the amount of partial payments or collections, if any. 
Any such termination or suspension shall be conducted in accordance with 
the requirements of 31 U.S.C. 3711 under the procedures established in 
31 CFR part 903.

Sec. 1073.208  Refunds.

    Amounts recovered by administrative offset but later found not to be 
owed to the Government shall be promptly refunded. Unless required by 
law or contract, such refunds shall not bear interest.

Sec. 1073.209  Request for offset to other Federal agencies.

    The Director may request that a debt owed to the Bureau be 
administratively offset against funds due and payable to a debtor by 
another Federal agency. In requesting administrative offset, the Bureau, 
as the creditor agency, will provide written certification to the 
Federal agency holding funds payable to the debtor, stating:
    (a) That the debtor owes the debt;
    (b) The amount and basis of the debt; and
    (c) That the Bureau has fully complied with the requirements of its 
own administrative offset regulations and the applicable provisions of 
31 U.S.C. 3716.

Sec. 1073.210  Request for offset from other Federal agencies.

    Any Federal agency may request that funds due and payable to its 
debtor by the Bureau be administratively offset by the Bureau in order 
to collect a debt owed to such agency by the debtor. The Director shall 
initiate the requested offset only upon:
    (a) Receipt of written certification from the creditor agency 
stating:
    (1) That the debtor owes the debt;
    (2) The amount and basis of the debt; and
    (3) That the creditor agency has fully complied with its own 
administrative offset regulations and with the applicable provisions of 
31 U.S.C. 3716; and
    (b) A determination that collection by offset against funds payable 
by the Bureau would be in the best interest of the United States and 
that such offset would not be contrary to law.

                         Subpart C_Salary Offset

Sec. 1073.301  Scope.

    (a) These salary offset regulations should be read in conjunction 
with 5 U.S.C. 5514 and 5 CFR part 550, subpart K, and apply to the 
collection of debts owed by employees of the Bureau or other Federal 
agencies.
    (b) These salary offset procedures do not apply:
    (1) Where an employee consents to the recovery of a debt from his 
current pay account;
    (2) To debts arising under the Internal Revenue Code (Title 26, U.S. 
Code), the tariff laws of the United States, or to any case where 
collection of a debt by salary offset is explicitly provided for or 
prohibited by another statute.
    (c) These procedures do not preclude an employee from requesting a 
waiver of an erroneous payment under 5 U.S.C. 5584, or from questioning 
the amount or validity of a debt, in the manner specified by law or 
these agency regulations. This subpart also does not preclude an 
employee from requesting waiver of the collection of a debt under any 
other applicable statutory authority.
    (d) When possible, salary offset through centralized administrative 
offset procedures should be attempted before seeking salary offset from 
a paying agency different than the creditor agency.

Sec. 1073.302  Notice requirement where CFPB is creditor agency.

    Where the Bureau seeks salary offset under 5 U.S.C. 5514 as the 
creditor agency, the Director shall first provide the employee with a 
written Notice of Intent to Offset at least 30 calendar days before 
salary offset is to commence. The Notice of Intent to Offset shall 
include the following information and statements:
    (a) That the Director has determined that a debt is owed to the 
Bureau, and the origin, nature, and amount of the debt;
    (b) That the Director intends to collect the debt by means of 
deduction

[[Page 1080]]

from the employee's current disposable pay account;
    (c) The frequency and amount of the intended deduction, stated as a 
fixed dollar amount or as a percentage of disposable pay, not to exceed 
15 percent of disposable pay;
    (d) That the Director intends to continue the deductions until the 
debt is paid in full or otherwise resolved;
    (e) The opportunity (under terms agreeable to the Director) to 
establish a schedule for the voluntary repayment of the debt or enter 
into a written agreement to establish a schedule for repayment of the 
debt in lieu of offset. The agreement must be in writing, signed by both 
the employee and the Director, and documented in the Bureau's files;
    (f) The Bureau's policy concerning interest, penalties, and 
administrative costs, including a statement that such assessments must 
be made unless excused in accordance with the FCCS or these regulations;
    (g) That the employee has the right to inspect and copy Bureau 
records not exempt from disclosure that relate to the debt or, if the 
employee or his or her representative cannot personally inspect the 
records, to request and receive a copy of such records;
    (1) Such requests must be made in writing, and identify by name and 
address the designated individual to whom the request should be sent.
    (2) Upon receipt of such a request, the designated official shall 
notify the employee of the time and location where the records may be 
inspected and copied;
    (h) That the employee has a right to a hearing regarding the 
existence and amount of the debt claimed or the salary offset schedule 
proposed by the Director, provided that the employee files a request for 
such a hearing with the Bureau in accordance with Sec. 1073.303. Such a 
hearing will be conducted by an impartial official who is an 
administrative law judge or who is an other hearing official not under 
the supervision or control of the Director;
    (i) The procedure and deadline for requesting a hearing, including 
the name, address, and telephone number of the designated individual to 
whom a request for hearing must be sent;
    (j) That a request for hearing must be received by the Bureau within 
15 calendar days following receipt of the Notice of Intent, and that 
filing of a request for hearing will stay the commencement of collection 
proceedings;
    (k) That the Director will initiate salary offset procedures not 
less than 30 days from the date of the employee's receipt of the Notice 
of Intent to Offset, unless the employee files a timely request for a 
hearing;
    (l) That if a hearing is held, the administrative law judge or other 
hearing official will issue a decision on the hearing at the earliest 
practical date, but not later than 60 days after the filing of the 
request for the hearing, unless the employee requests and the hearing 
official grants a delay in the proceedings;
    (m) That any knowingly false or frivolous statements, 
representations, or evidence may subject the employee to:
    (1) Disciplinary procedures appropriate under 5 U.S.C. chapter 75, 5 
CFR part 752, or any other applicable statutes or regulations;
    (2) Penalties under the False Claims Act, 31 U.S.C. 3729 through 
3731, or under any other applicable statutory authority; or
    (3) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002 or 
under any other applicable statutory authority;
    (n) That the employee also has the right to request waiver of 
overpayment pursuant to 5 U.S.C. 5584, and may exercise any other rights 
and remedies available under statutes or regulations governing the 
program for which the collection is being made; and
    (o) That amounts paid on or deducted from the debt which are later 
waived or found not to be owed to the United States will be promptly 
refunded to the employee, unless there are applicable contractual or 
statutory provisions to the contrary.

Sec. 1073.303  Procedures to request a hearing.

    (a) To request a hearing, an employee must send a written request to 
the designated official indicated in the Notice of Intent stating why 
the employee believes the determination concerning the existence or 
amount of debt is in error. The request must be received by

[[Page 1081]]

the Bureau within 15 calendar days following the employee's receipt of 
the Notice of Intent.
    (b) The request must be signed by the employee and fully identify 
and explain with reasonable specificity all the facts, evidence, and 
witnesses, if any, which the employee believes support his or her 
position. The request for hearing must state whether the employee is 
requesting an oral or documentary hearing. If an oral hearing is 
requested, the request shall explain why the matter cannot be resolved 
by a review of documentary evidence alone.

Sec. 1073.304  Failure to timely submit request for a hearing.

    If the Bureau does not receive an employee's request for hearing 
within the 15-day period set forth in Sec. 1073.303, the employee shall 
not be entitled to a hearing, and salary offset may be initiated. 
However, the Bureau may accept an untimely request for hearing if the 
employee can show that the delay was because of circumstances beyond his 
or her control or because of failure to receive notice of the time limit 
(unless otherwise aware of it).

Sec. 1073.305  Procedures for hearing.

    (a) Obtaining the services of a hearing official. The Director must 
obtain the services of an impartial hearing official who is an 
administrative law judge or who is an other official not under the 
supervision or control of the Director. The Director shall designate an 
administrative law judge or contact an agent of another agency 
designated in appendix A to 5 CFR part 581 to arrange for a hearing 
official.
    (b) Notice and format of hearing--(1) Notice. The hearing official 
shall determine whether the hearing shall be oral or documentary and 
shall notify the employee of the form of the hearing. If the hearing 
will be oral, the notice shall set forth the date, time, and location of 
the hearing, which must be held within 30 calendar days after the 
request is received, unless the employee requests that the hearing be 
delayed. If the hearing will be documentary, the employee shall be 
notified to submit evidence and written arguments in support of his or 
her case to the hearing official within 30 calendar days.
    (2) Oral hearing. The hearing official may grant a request for an 
oral hearing if he or she determines that the issues raised by the 
employee cannot be resolved by review of documentary evidence alone 
(e.g., where credibility or veracity is at issue). Witnesses who testify 
in oral hearings shall do so under written or recorded oath or 
affirmation. An oral hearing is not required to be a formal evidentiary 
hearing. Oral hearings may take the form of, but are not limited to:
    (i) Informal conferences with the hearing official in which the 
employee and Bureau representative are given full opportunity to present 
evidence, witnesses, and argument;
    (ii) Informal meetings in which the hearing official interviews the 
employee; or
    (iii) Formal written submissions with an opportunity for oral 
presentation.
    (3) Documentary hearing. If the hearing official determines that an 
oral hearing is not necessary, he or she will make the determination 
based upon a review of the available written record, including any 
documentation submitted by the employee in support of his or her 
position.
    (4) Record. The hearing official shall maintain a summary record of 
any hearing conducted under this section.
    (c) Rescheduling of the hearing date. The hearing official shall 
reschedule a hearing if requested to do so by both parties, who shall be 
given reasonable notice of the time and place of this new hearing.
    (d) Failure to appear or submit documentary evidence. In the absence 
of good cause shown, an employee who fails to appear at an oral hearing, 
or fails to submit documentary evidence for a documentary hearing, will 
have waived the right to a hearing. Furthermore, the employee will have 
been deemed to admit the existence and amount of the debt as described 
in the Notice of Intent. If the representative of the creditor agency 
fails to appear without good cause shown, the hearing official shall 
proceed with the hearing as scheduled, and issue a decision based upon 
the oral testimony presented and

[[Page 1082]]

the documentation submitted by both parties.
    (e) Date of decision. The hearing official shall issue a written 
decision based upon the evidence and information developed at the 
hearing, as soon as practicable after the hearing, but not later than 60 
calendar days after the date on which the request for hearing was 
received by the Bureau, unless the hearing was delayed at the request of 
the employee. In the event of such a delay, the 60-day decision period 
shall be extended by the number of days by which the hearing was 
postponed. The decision of the hearing official shall be final.
    (f) Content of decision. The written decision shall include:
    (1) The facts purported to evidence the nature and origin of the 
proposed debt;
    (2) The hearing official's analysis, findings and conclusions, in 
light of the hearing, as to the employee's and/or Bureau's grounds, the 
amount and validity of the alleged debt and, where applicable, the 
repayment schedule.

Sec. 1073.306  Salary offset process.

    (a) Method and source of deductions. Salary offsets under this 
subpart shall be deducted from current disposable pay, except as 
provided in paragraph (e) of this section.
    (b) Determination of disposable pay. The Bureau's Office of the 
Chief Financial Officer will consult with the Bureau's Office of Human 
Capital to determine the amount of a Bureau employee's disposable pay 
and will implement the salary offset. If the debtor is not employed by 
the Bureau, the agency employing the debtor will determine the amount of 
the employee's disposable pay and will implement the salary offset.
    (c) When salary offset may begin. Deductions shall begin within 
three official pay periods following, as applicable, the initiation of 
salary offset without a hearing under Sec. 1073.304, the decision of 
the hearing official under Sec. 1073.305, or receipt of the creditor 
agency's request for offset where the Bureau is not the creditor agency.
    (d) Amount of salary offset. The amount to be offset from each 
salary payment will be up to 15 percent of a debtor's disposable pay, as 
follows:
    (1) If the amount of the debt is equal to or less than 15 percent of 
the disposable pay, such debt generally will be collected in one lump 
sum payment;
    (2) If the employee is financially unable to pay in one lump sum or 
the amount of the debt exceeds 15 percent of disposable pay for an 
officially established pay interval, collection will be made in 
installments. Installment deductions will be made over a period of no 
greater than the anticipated period of employment, except as provided in 
paragraph (e) of this section. Installment deductions must ordinarily 
bear a reasonable relationship to the size of the debt and the 
employee's ability to pay. An installment deduction will not exceed 15 
percent of the disposable pay from which the deduction is made unless 
the employee has agreed in writing to the deduction of a greater amount. 
The creditor agency may determine that smaller deductions are 
appropriate based on the employee's ability to pay.
    (e) Final salary or other payment. After the employee has separated 
either voluntarily or involuntarily from the payment agency, the payment 
agency may, pursuant to 31 U.S.C. 3716, make a lump sum deduction 
exceeding 15 percent of disposable pay from any final salary or other 
payments in order to satisfy a debt. If the debt cannot be liquidated by 
offset from any final payment due the former employee as of the date of 
separation, it may be offset under 31 U.S.C. 3716 from later payments of 
any kind due the former employee from the United States, unless 
prohibited by law.

Sec. 1073.307  Voluntary repayment agreements as alternative to salary 
          offset where the CFPB is the creditor agency.

    (a) In response to a Notice of Intent, an employee may propose to 
voluntarily repay the debt through scheduled voluntary payments, in lieu 
of salary offset. An employee who wishes to repay a debt in this manner 
shall submit to the Bureau a written agreement proposing a repayment 
schedule. This

[[Page 1083]]

proposal must be received by the Bureau within 30 calendar days 
following the date of the Notice of Intent.
    (b) The Director shall notify the employee whether the employee's 
proposed voluntary repayment agreement is acceptable. It is within the 
discretion of the Director whether to accept or reject the debtor's 
proposal, or whether to propose to the debtor a modification of the 
proposed repayment agreement:
    (1) If the Director decides that the proposed repayment agreement is 
unacceptable, he or she shall notify the employee and the employee shall 
have 30 calendar days from the date he or she received notice of the 
decision in which to file a request for a hearing on the proposed 
repayment agreement, as provided in Sec. 1073.303; or
    (2) If the Director decides that the proposed repayment agreement is 
acceptable or the debtor agrees to a modification proposed by the 
Director, the agreement shall be put in writing and signed by both the 
employee and the Director.

Sec. 1073.308  Special review of repayment agreement or salary offset 
          due to changed circumstances.

    (a) An employee subject to a voluntary repayment agreement or salary 
offset payable to the Bureau as creditor agency may request a special 
review by the Director of the amount of the salary offset or voluntary 
repayment, based on materially changed circumstances, including, but not 
limited to, catastrophic illness, divorce, death, or disability. A 
request for special review may be made at any time.
    (b) In support of a request for special review, the employee shall 
submit to the Bureau a detailed statement and supporting documents for 
the employee, his or her spouse, and dependents indicating:
    (1) Income from all sources;
    (2) Assets;
    (3) Liabilities;
    (4) Number of dependents;
    (5) Monthly expenses for food, housing, clothing, and 
transportation;
    (6) Medical expenses; and
    (7) Exceptional expenses, if any.
    (c) The employee shall also file an alternative proposed offset or 
payment schedule and a statement, with supporting documents, showing why 
the current salary offset or payments result in extreme financial 
hardship to the employee.
    (d) The Director shall evaluate the statement and supporting 
documents and determine whether the original salary offset or repayment 
schedule imposes extreme financial hardship on the employee, for 
example, by preventing the employee from meeting essential subsistence 
expenses such as food, housing, clothing, transportation, and medical 
care. The Director shall notify the employee in writing within 30 
calendar days of his or her determination.
    (e) If the special review results in a revised salary offset or 
repayment schedule, the Director shall provide a new certification to 
the paying agency.

Sec. 1073.309  Interest, penalties, and administrative costs.

    Where the Bureau is the creditor agency, it shall assess interest, 
penalties, and administrative costs pursuant to the procedures set forth 
in Sec. 1073.206 and in accordance with 31 U.S.C. 3717 and 31 CFR parts 
900 through 904.

Sec. 1073.310  Refunds.

    (a) Where the Bureau is the creditor agency, it shall promptly 
refund any amount deducted under the authority of 5 U.S.C. 5514 when the 
debt is waived or otherwise found not to be owing to the United States 
(unless expressly prohibited by statute or regulation), or when an 
administrative or judicial order directs the Bureau to refund amounts 
deducted from the employee's current pay.
    (b) Unless required by law or contract, such refunds shall not bear 
interest.

Sec. 1073.311  Non-waiver of rights by payment.

    An employee's involuntary payment of all or any portion of a debt 
being collected under 5 U.S.C. 5514 shall not be construed as a waiver 
of any rights which the employee may have under 5 U.S.C. 5514 or any 
other provision of

[[Page 1084]]

contract or law, unless there are statutory or contractual provisions to 
the contrary.

Sec. 1073.312  Exception to procedures.

    (a) The procedures set forth in this subpart shall not apply to the 
following:
    (1) Any adjustment to pay arising out of an employee's election of 
coverage or a change in coverage under a Federal benefits program 
requiring periodic deductions from pay, if the amount to be recovered 
was accumulated over four pay periods or less;
    (2) A routine intra-agency adjustment of pay that is made to correct 
an overpayment attributable to clerical or administrative errors or 
delays in processing pay documents, if the overpayment occurred within 
the four pay periods preceding the adjustment and, at the time of such 
adjustment, or as soon thereafter as practical, the individual is 
provided written notice of the nature and amount of the adjustment and a 
point of contact for contesting such adjustment; or
    (3) Any adjustment to collect a debt amounting to $50 or less, if, 
at the time of such adjustment, or as soon thereafter as practical, the 
individual is provided written notice of the nature and amount of the 
adjustment and a point of contact for contesting such adjustment.
    (b) In the event of a negative adjustment to pay, as described in 
subsection (a)(1), the Bureau will provide a clear and concise statement 
in the employee's earnings statement advising the employee of the 
previous overpayment at the time the adjustment is made.

                Subpart D_Administrative Wage Garnishment

Sec. 1073.401  Administrative wage garnishment.

    The Director may collect debts from a debtor's wages by means of 
administrative wage garnishment in accordance with the requirements of 
31 U.S.C. 3720D under the procedures established in 31 CFR 285.11.

                       Subpart E_Tax Refund Offset

Sec. 1073.501  Tax refund offset.

    The provisions of 26 U.S.C. 6402(d) and 31 U.S.C. 3720A authorize 
the Secretary of the Treasury to offset a debt owed to the United States 
Government from the tax refund due a taxpayer. The Director may 
administer tax refund offsets in accordance with the requirements of 31 
U.S.C. 3720A under the procedures established in 31 CFR 285.2.



PART 1074_PROCEDURE RELATING TO RULEMAKING

Sec.
1074.1 Date of issuance of Bureau rules.

    Authority: 12 U.S.C. 5492(a)(1), 5512(b).

    Source: 77 FR 76354, Dec. 28, 2012, unless otherwise noted.

Sec. 1074.1  Date of issuance of Bureau rules.

    A final Bureau of Consumer Financial Protection (Bureau) rule is 
deemed issued upon the earlier of the following:
    (a) When the final rule is posted on the Bureau's Web site; or
    (b) When the final rule is published in the Federal Register.



PART 1075_CONSUMER FINANCIAL CIVIL PENALTY FUND RULE

Sec.
1075.100 Scope and purpose.
1075.101 Definitions.
1075.102 Fund administrator.
1075.103 Eligible victims.
1075.104 Payments to victims.
1075.105 Allocating funds from the Civil Penalty Fund--in general.
1075.106 Allocating funds to classes of victims.
1075.107 Allocating funds to consumer education and financial literacy 
          programs.
1075.108 Distributing payments to victims.
1075.109 When payments to victims are impracticable.
1075.110 Reporting requirements.

    Authority: 12 U.S.C. 5512(b)(1), 5497(d).

    Source: 78 FR 26501, May 7, 2013, unless otherwise noted.

[[Page 1085]]

Sec. 1075.100  Scope and purpose.

    Section 1017(d)(1) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010, Public Law 111-203, 124 Stat. 1978 (12 U.S.C. 
5497(d)) (Dodd-Frank Act) establishes the ``Consumer Financial Civil 
Penalty Fund.'' This part describes the conditions under which victims 
will be eligible for payments from the Consumer Financial Civil Penalty 
Fund and the amounts of the payments they may receive. This part also 
establishes procedures and guidelines for allocating funds from the 
Consumer Financial Civil Penalty Fund to classes of victims and 
distributing such funds to individual victims, and for allocating funds 
to consumer education and financial literacy programs. This part also 
establishes reporting requirements.

Sec. 1075.101  Definitions.

    For the purposes of this part, the following definitions apply:
    Bureau means the Bureau of Consumer Financial Protection.
    Bureau enforcement action means any judicial or administrative 
action or proceeding in which the Bureau has obtained relief with 
respect to a violation.
    Chief Financial Officer means the Chief Financial Officer of the 
Bureau or any Bureau employee to whom that officer has delegated 
authority to act under this part. In the absence of a Chief Financial 
Officer of the Bureau, the Director shall designate an alternative 
official of the Bureau to perform the functions of the Chief Financial 
Officer under this part.
    Civil Penalty Fund means the Consumer Financial Civil Penalty Fund 
established by 12 U.S.C. 5497(d).
    Civil Penalty Fund Governance Board means the body, comprised of 
senior Bureau officials, established by the Director of the Bureau to 
advise on matters relating to the Civil Penalty Fund.
    Class of victims means a group of similarly situated victims who 
suffered harm from the same or similar violations for which the Bureau 
obtained relief in a Bureau enforcement action.
    Defendant means a party in a Bureau enforcement action that is found 
or alleged to have committed a violation.
    Final order means a consent order or settlement issued by a court or 
by the Bureau, or an appealable order issued by a court or by the Bureau 
as to which the time for filing an appeal has expired and no appeals are 
pending. For purposes of this definition, ``appeals'' include petitions 
for reconsideration, review, rehearing, and certiorari.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, cooperative 
organization, or other entity.
    Redress means any amounts--including but not limited to restitution, 
refunds, and damages--that a final order requires a defendant:
    (1) To distribute, credit, or otherwise pay to those harmed by a 
violation; or
    (2) To pay to the Bureau or another intermediary for distribution to 
those harmed by the violation.
    Victim means a person harmed as a result of a violation.
    Violation means any act or omission that constitutes a violation of 
law for which the Bureau is authorized to obtain relief pursuant to 12 
U.S.C. 5565(a).

Sec. 1075.102  Fund administrator.

    (a) In general. There is established the position of Civil Penalty 
Fund Administrator (Fund Administrator). The Fund Administrator will 
report to the Chief Financial Officer. The Chief Financial Officer may, 
to the extent permitted by applicable law, relieve the Fund 
Administrator of the duties of that position without notice, without 
cause, and prior to the naming of a successor Fund Administrator.
    (b) Powers and duties. The Fund Administrator will have the powers 
and duties assigned to that official in this part.
    (c) Interpretation of these regulations. (1) On its own initiative 
or at the Fund Administrator's request, the Civil Penalty Fund 
Governance Board may advise or direct the Fund Administrator on the 
administration of the Civil Penalty Fund, including regarding the 
interpretation of this part and its application to particular facts and 
circumstances.
    (2) The Fund Administrator must follow any written directions that 
the Civil Penalty Fund Governance Board

[[Page 1086]]

provides pursuant to paragraph (c)(1) of this section.
    (d) Unavailability of the Fund Administrator. If there is no Fund 
Administrator or if the Fund Administrator is otherwise unavailable, the 
Chief Financial Officer will perform the functions and duties of the 
Fund Administrator.

Sec. 1075.103  Eligible victims.

    A victim is eligible for payment from the Civil Penalty Fund if a 
final order in a Bureau enforcement action imposed a civil penalty for 
the violation or violations that harmed the victim.

Sec. 1075.104  Payments to victims.

    (a) In general. The Bureau will use funds in the Civil Penalty Fund 
for payments to compensate eligible victims' uncompensated harm, as 
described in to paragraph (b) of this section.
    (b) Victims' uncompensated harm. (1) A victim's uncompensated harm 
is the victim's compensable harm, as described in paragraph (c) of this 
section, minus any compensation for that harm that the victim has 
received or is reasonably expected to receive.
    (2) For purposes of paragraph (b)(1) of this section, a victim has 
received or is reasonably expected to receive compensation in the amount 
of:
    (i) Any Civil Penalty Fund payment that the victim has previously 
received or will receive as a result of a previous allocation from the 
Civil Penalty Fund to the victim's class;
    (ii) Any redress that a final order in a Bureau enforcement action 
orders to be distributed, credited, or otherwise paid to the victim, and 
that has not been suspended or waived and that the Chief Financial 
Officer has not determined to be uncollectible; and
    (iii) Any other redress that the Bureau knows that has been 
distributed, credited, or otherwise paid to the victim, or has been paid 
to an intermediary for distribution to the victim, to the extent that:
    (A) That redress compensates the victim for the same harm as would 
be compensated by a Civil Penalty Fund payment; and
    (B) It is not unduly burdensome, in light of the amounts at stake, 
to determine the amount of that redress or the extent to which it 
compensates the victim for the same harm as would be compensated by a 
Civil Penalty Fund payment.
    (3) If the Fund Administrator deems it impracticable to assess the 
uncompensated harm of individual victims in a class, each individual 
victim's uncompensated harm will be the victim's share of the aggregate 
uncompensated harm of the victim's class.
    (c) Victims' compensable harm. Victims' compensable harm for 
purposes of this part is as follows:
    (1) If a final order in a Bureau enforcement action ordered redress 
for a class of victims, the compensable harm of each victim in the class 
is equal to that victim's share of the total redress ordered, including 
any amounts that are suspended or waived.
    (2) If a final order in a Bureau enforcement action does not order 
redress for a class of victims, those victims' compensable harm is as 
follows:
    (i) If the Bureau sought redress for a class of victims but a court 
or administrative tribunal denied that request for redress in the final 
order, the victims in that class have no compensable harm.
    (ii) Except as provided in paragraph (c)(2)(i) of this section, if 
the final order in the Bureau enforcement action specifies the amount of 
the victims' harm, including by prescribing a formula for calculating 
that harm, each victim's compensable harm is equal to that victim's 
share of the amount specified.
    (iii) Except as provided in paragraph (c)(2)(i) of this section, if 
the final order in the Bureau enforcement action does not specify the 
amount of the victims' harm, each victim's compensable harm is equal to 
the victim's out-of-pocket losses that resulted from the violation or 
violations for which a civil penalty was imposed, except to the extent 
such losses are impracticable to determine.

Sec. 1075.105  Allocating funds from the Civil Penalty Fund--in 
          general.

    (a) In general. The Fund Administrator will allocate Civil Penalty 
Fund funds specified in paragraph (c) of this section to classes of 
victims and to

[[Page 1087]]

consumer education and financial literacy programs as appropriate 
according to the schedule established in paragraph (b) of this section 
and the guidelines established in Sec. Sec. 1075.106 and 1075.107.
    (b) Schedule for making allocations. (1) Within 60 days of May 7, 
2013, the Fund Administrator will establish, and publish on 
www.consumerfinance.gov, a schedule for allocating funds in the Civil 
Penalty Fund, in accordance with the following:
    (i) The schedule will establish six-month periods and identify the 
start and end dates of those periods. The start date of one period will 
be the day immediately after the end date of the preceding period.
    (ii) Notwithstanding paragraph (b)(1)(i) of this section, the first 
and second periods may be longer or shorter than six months to allow 
future six-month periods to start and end on dates that better serve 
administrative efficiency. The first and second periods will constitute 
``six-month periods'' under this part regardless of their actual length.
    (iii) The start date of the first period is July 21, 2011.
    (2) Within 60 days after the end of a six-month period, the Fund 
Administrator will allocate available funds in the Civil Penalty Fund in 
accordance with Sec. Sec. 1075.106 and 1075.107.
    (3) If the Civil Penalty Fund Governance Board determines that the 
schedule established under paragraph (b)(1) of this section should be 
changed to better serve administrative efficiency, it may change that 
schedule by directing the Fund Administrator to publish the new schedule 
on www.consumerfinance.gov. Any new schedule must comply with paragraph 
(b)(1)(i) of this section. The first period of any new schedule may be 
shorter or longer than six months. That first period will constitute a 
``six-month period'' under this part regardless of its actual length.
    (c) Funds available for allocation. The funds available for 
allocation following the end of a six-month period are those funds that 
were in the Civil Penalty Fund on the end date of that six-month period, 
minus:
    (1) Any funds already allocated,
    (2) Any funds that the Fund Administrator determines are necessary 
for authorized administrative expenses, and
    (3) Any funds collected pursuant to an order that has not yet become 
a final order.

Sec. 1075.106  Allocating funds to classes of victims.

    (a) Allocations when there are sufficient funds available to 
compensate all uncompensated harm. If the funds available under Sec. 
1075.105(c) are sufficient, the Fund Administrator will allocate to each 
class of victims the amount necessary to compensate fully the 
uncompensated harm, determined under Sec. 1075.104(b) as of the last 
day of the most recently concluded six-month period, of all victims in 
that class to whom it is practicable to make payments.
    (b) Allocations when there are insufficient funds available to 
compensate all uncompensated harm. If the funds available under Sec. 
1075.105(c) are not sufficient to make the allocations described in 
paragraph (a) of this section, the Fund Administrator will allocate the 
available funds to classes of victims as follows:
    (1) Priority to classes of victims from the most recent six-month 
period. The Fund Administrator will first allocate funds to classes of 
victims from the most recently concluded six-month period, as determined 
under paragraph (b)(2) of this section. If funds remain after allocating 
to each class of victims from that six-month period the amount necessary 
to compensate fully the uncompensated harm, determined under Sec. 
1075.104(b) as of the last day of the most recently concluded six-month 
period, of all victims in that class to whom it is practicable to make 
payments, the Fund Administrator next will allocate funds to classes of 
victims from the preceding six-month period, and so forth until no funds 
remain.
    (2) Assigning classes of victims to a six-month period. For purposes 
of this paragraph (b), the Fund Administrator will assign each class of 
victims to the six-month period in which the victims first had 
uncompensated harm as described in Sec. 1075.104(b). When a class of 
victims

[[Page 1088]]

first had uncompensated harm as described in Sec. 1075.104(b) will be 
determined as follows:
    (i) If redress was ordered for a class of victims in a Bureau 
enforcement action but suspended or waived in whole or in part, the 
class of victims first had uncompensated harm as described in Sec. 
1075.104(b) on the date the suspension or waiver became effective.
    (ii) If redress was ordered for a class of victims in a Bureau 
enforcement action but determined by the Chief Financial Officer to be 
uncollectible in whole or in part, the class of victims first had 
uncompensated harm as described in Sec. 1075.104(b) on the date the 
Chief Financial Officer made that determination.
    (iii) If no redress was ordered for a class of victims in a Bureau 
enforcement action, the class of victims first had uncompensated harm as 
described in Sec. 1075.104(b) on the date the order imposing a civil 
penalty became a final order.
    (c) No allocation to a class of victims if making payments would be 
impracticable. Notwithstanding any other provision in this section, the 
Fund Administrator will not allocate funds available under Sec. 
1075.105(c) to a class of victims if she determines that making payments 
to that class of victims would be impracticable.
    (d) Fund Administrator's discretion. (1) Notwithstanding any 
provision in this part, the Fund Administrator, in her discretion, may 
depart from the procedures specified by this section, including by 
declining to make, or altering the amount of, any allocation provided 
for by this section. Whenever the Fund Administrator exercises this 
discretion, she will provide the Civil Penalty Fund Governance Board a 
written explanation of the reason for departing from the procedures 
specified by this section.
    (2) If, in allocating funds during a given time period described in 
Sec. 1075.105(b)(2), the Fund Administrator exercises her discretion 
under paragraph (d)(1) of this section, she may allocate funds to 
consumer education and financial literacy programs under 1075.107 during 
that time period only to the same extent she could have absent that 
exercise of discretion.

Sec. 1075.107  Allocating funds to consumer education and financial 
          literacy programs.

    (a) If funds available under Sec. 1075.105(c) remain after the Fund 
Administrator allocates funds as described in Sec. 1075.106(a), the 
Fund Administrator may allocate those remaining funds for consumer 
education and financial literacy programs.
    (b) The Fund Administrator shall not have the authority to allocate 
funds to particular consumer education or financial literacy programs or 
otherwise to select the particular consumer education or financial 
literacy programs for which allocated funds will be used.

Sec. 1075.108  Distributing payments to victims.

    (a) Designation of a payments administrator. Upon allocating Civil 
Penalty Fund funds to a class of victims pursuant to Sec. 1075.106, the 
Fund Administrator will designate a payments administrator who will be 
responsible for distributing payments to the victims in that class. A 
payments administrator may be any person, including a Bureau employee or 
contractor.
    (b) Distribution plan. The payments administrator must submit to the 
Fund Administrator a proposed plan for the distribution of funds 
allocated to a class of victims. The Fund Administrator will approve, 
approve with modifications, or disapprove the proposed distribution 
plan. If the Fund Administrator disapproves a proposed plan, the 
payments administrator must submit a new proposed plan.
    (c) Contents of plan. The Fund Administrator will instruct the 
payments administrator to prepare a distribution plan and may require 
that plan to include:
    (1) Procedures for determining the amount each victim will receive. 
Such procedures may, but need not, include a process for submitting and 
approving claims.
    (2) Procedures for locating and notifying victims eligible or 
potentially eligible for payment.
    (3) The method or methods by which the payments will be made.
    (4) The method or methods by which potentially eligible victims may 
contact the payments administrator.

[[Page 1089]]

    (5) Any other provisions that the Fund Administrator deems 
appropriate.
    (d) Distribution of payments. The payments administrator will make 
payments to victims in a class, except to the extent such payments are 
impracticable, in accordance with the distribution plan approved under 
paragraph (b) of this section and subject to the Fund Administrator's 
supervision.
    (e) Disposition of funds remaining after attempted distribution to a 
class of victims. If funds allocated to a class of victims remain after 
a payments administrator distributes payments to that class, the 
payments administrator will distribute those remaining funds as follows:
    (1) To the extent practicable, the payments administrator will 
distribute those remaining funds to victims in that class up to the 
amount of their remaining uncompensated harm as described in Sec. 
1075.104(b).
    (2) Any remaining funds that cannot be distributed pursuant to 
paragraph (e)(1) of this section will be returned to the Civil Penalty 
Fund.

Sec. 1075.109  When payments to victims are impracticable.

    (a) Individual payments. Making a payment to an individual victim 
will be deemed impracticable if:
    (1) The payment to the victim would be of such a small amount that 
the victim would not be likely to redeem the payment;
    (2) The payment to the victim is too small to justify the cost of 
locating the victim and making the payment;
    (3) The victim cannot be located with effort that is reasonable in 
light of the amount of the payment;
    (4) The victim does not timely submit information that a 
distribution plan requires to be submitted before a payment will be 
made;
    (5) The victim does not redeem the payment within a reasonable time; 
or
    (6) The Fund Administrator determines that other circumstances make 
it unreasonable to make a payment to the victim.
    (b) Payments to a class of victims. Making payments to a class of 
victims will be deemed impracticable if:
    (1) The expected aggregate actual payment to the class of victims is 
too small to justify the costs of locating the victims in the class and 
making payments to them;
    (2) It would be impracticable under paragraph (a) of this section to 
make a payment to any victim in the class; or
    (3) The Fund Administrator determines that other circumstances make 
it unreasonable to make payments to the class.

Sec. 1075.110  Reporting requirements.

    The Fund Administrator must issue regular reports, on at least an 
annual basis, that describe how funds in the Civil Penalty Fund have 
been allocated, the basis for those allocations, and how funds that have 
been allocated to classes of victims have been distributed. These 
reports will be made available on www.consumerfinance.gov.



PART 1076_CLAIMS AGAINST THE UNITED STATES

Sec.
1076.101 Claims against a Bureau employee based on negligence, wrongful 
          act or omission.

    Authority: 12 U.S.C. 5492(a)(1), (11); 28 U.S.C. 2672; 28 CFR 14.11.

    Source: 78 FR , Aug. 5, 2013, unless otherwise noted.

Sec. 1076.101  Claims against a Bureau employee based on negligence, 
          wrongful act or omission.

    (a) Procedure for filing claims. A claimant, or the claimant's duly 
authorized agent or legal representative may present a claim against a 
Bureau employee based on negligence, or wrongful act or omission, as 
specified in 28 CFR 14.3. Claimant or claimant's duly authorized agent 
or legal representative must file with the General Counsel of the Bureau 
a completed Claim for Damage or Injury (Standard Form 95), together with 
appropriate evidence and information, as specified in 28 CFR 14.4. 
Standard Form 95 may be obtained at http://www.justice.gov/civil/docs--
forms./SF-95.pdf, or from the CFPB. Claimants also may submit a claim in 
the form of a letter or any other writing, a written statement, an audio 
file, a Braille or electronic document, and/or a video, as

[[Page 1090]]

long as the submission contains all of the requirements of an 
administrative claim specified in 28 CFR part 14. Claims should be 
mailed or delivered to the General Counsel, Legal Division, CFPB, 1700 G 
Street NW., Washington, DC 20552, or emailed to CFPB--
[email protected].
    (b) Determination of claims--(1) Delegation of authority to 
determine claims. The General Counsel, and such employees of the Legal 
Division as the General Counsel may designate are authorized to 
consider, ascertain, adjust, determine, compromise, and settle claims 
pursuant to the FTCA, as amended, and the regulations contained in 28 
CFR part 14 and in this section.
    (2) Disallowance of claims. If the General Counsel, or the General 
Counsel's designee, denies a claim, the General Counsel or designee 
shall notify the claimant, or the claimant's duly authorized agent or 
legal representative.



PART 1080_RULES RELATING TO INVESTIGATIONS

Sec.
1080.1 Scope.
1080.2 Definitions.
1080.3 Policy as to private controversies.
1080.4 Initiating and conducting investigations.
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, 12 U.S.C. 5481 et seq.

    Source: 77 FR 39108, June 29, 2012, unless otherwise noted.

Sec. 1080.1  Scope.

    The rules of this part apply to Bureau investigations conducted 
pursuant to section 1052 of the Dodd-Frank Act, 12 U.S.C. 5562.

Sec. 1080.2  Definitions.

    For the purposes of this part, unless explicitly stated to the 
contrary:
    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.
    Documentary material means the original or any copy of any book, 
document, record, report, memorandum, paper, communication, tabulation, 
chart, log, electronic file, or other data or data compilation stored in 
any medium, including electronically stored information.
    Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer 
Financial Protection Act of 2010, as amended, Public Law 111-203 (July 
21, 2010), title X, codified at 12 U.S.C. 5481 et seq.
    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.
    Office of Enforcement means the office of the Bureau responsible for 
enforcement of Federal consumer financial law.
    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.

[[Page 1091]]

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  Initiating and conducting investigations.

    The Assistant Director of the Office of Enforcement and the Deputy 
Assistant Directors of the Office of Enforcement have the nondelegable 
authority to initiate investigations. Bureau investigations are 
conducted by Bureau investigators designated and duly authorized under 
section 1052 of the Dodd-Frank Act, 12 U.S.C. 5562, to conduct such 
investigations. Bureau investigators are authorized to exercise and 
perform their duties in accordance with the laws of the United States 
and the regulations of the Bureau.

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 
Director of the Bureau, the Assistant Director of the Office of 
Enforcement, and the Deputy Assistant Directors of the Office of 
Enforcement, have the nondelegable authority to 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 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

[[Page 1092]]

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. 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) Meet and confer. The recipient of a civil investigative demand 
shall meet and confer with a Bureau investigator within 10 calendar days 
after receipt of the demand or before the deadline for filing a petition 
to modify or set aside the demand, whichever is earlier, to discuss and 
attempt to resolve all issues regarding compliance with the civil 
investigative demand. The Assistant Director of the Office of 
Enforcement and the Deputy Assistant Directors of the Office of 
Enforcement may authorize the waiver of this requirement for routine 
third-party civil investigative demands or in other circumstances where 
he or she determines that a meeting is unnecessary. The meeting may be 
in person or by telephone.
    (1) Personnel. The recipient must make available at the meeting 
personnel with the knowledge necessary to resolve any issues relevant to 
compliance with the demand. Such personnel could include individuals 
knowledgeable about the recipient's information or records management 
systems and/or the recipient's organizational structure.
    (2) ESI. If the civil investigative demand seeks ESI, the recipient 
shall ensure that a person familiar with its ESI systems and methods of 
retrieval participates in the meeting.
    (3) Petitions. The Bureau will not consider petitions to set aside 
or modify a civil investigative demand unless the recipient has 
meaningfully engaged in the meet and confer process described in this 
subsection and will consider only issues raised during the meet and 
confer process.
    (d) Compliance. The Assistant Director of the Office of Enforcement 
and

[[Page 1093]]

the Deputy Assistant Directors of the Office of Enforcement are 
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.
    (e) 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 Office of 
Enforcement within 20 calendar days after service of the civil 
investigative demand, or, if the return date is less than 20 calendar 
days after service, prior to the return date. Such petition shall set 
forth all 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 pursuant to section 1080.6(c) 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 
meeting between counsel, and the names of all parties participating in 
each such meeting.
    (2) Extensions of time. The Assistant Director of the Office of 
Enforcement and the Deputy Assistant Directors of the Office of 
Enforcement are authorized to rule upon requests for extensions of time 
within which to file such petitions. Requests for extensions of time are 
disfavored.
    (3) Bureau investigator response. Bureau investigators may, without 
serving the petitioner, provide the Director with a statement setting 
forth any factual and legal response to a petition for an order 
modifying or setting aside the demand.
    (4) Disposition. The Director has the authority to rule upon a 
petition for an order modifying or setting aside a civil investigative 
demand. The order may be served on the petitioner via email, facsimile, 
or any other method reasonably calculated to provide notice of the order 
to the petitioner.
    (f) 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.
    (g) Public disclosure. All such petitions and the Director's orders 
in response to those petitions are part of the public records of the 
Bureau unless the Bureau determines otherwise for good cause shown. Any 
showing of good cause must be made no later than the time the petition 
is filed.

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 1094]]

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 section 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 section 1080.6(e).
    (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 with respect to the Bureau 
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 of 
privilege or protection 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 with respect to 
the Bureau 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 
by the witness shall be entered and identified upon the transcript by

[[Page 1095]]

the Bureau investigator with a statement of the reasons given by the 
witness for making such changes. The transcript shall then be signed by 
the witness and submitted to the Bureau unless the witness cannot be 
found, is ill, waives in writing his or her right to signature, or 
refuses to sign. If the signed transcript is not submitted to the Bureau 
within 30 calendar days of the witness 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 where it is claimed that a witness is 
privileged to refuse to answer the question. Counsel may not otherwise 
consult with the witness while a question directed to the witness is 
pending.
    (2) Any objections made under the rules in this part shall be made 
only for the purpose of protecting a constitutional or other legal right 
or privilege, including the privilege against self-incrimination. 
Neither the witness nor counsel shall otherwise object or refuse to 
answer any question. Any objection during an investigational hearing 
shall be stated concisely on the record in a nonargumentative and 
nonsuggestive manner. Following an objection, the examination shall 
proceed and the testimony shall be taken, except for testimony requiring 
the witness to divulge information protected by the claim of privilege 
or work product.
    (3) 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 in 
accordance with Sec. 1080.6(e). 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.
    (4) 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.
    (5) 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 actions consistent with those 
described in 12 CFR 1081.107(c) to suspend or disbar the attorney from 
further practice before the Bureau or exclude the attorney 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 Director, the Assistant Director of the Office of 
Enforcement, and the General Counsel of the Bureau are authorized to:

[[Page 1096]]

    (1) Institute, on behalf of the Bureau, an enforcement proceeding in 
the district court of the United States for any 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 Office of Enforcement and the 
Deputy Assistant Directors of the Office of Enforcement are authorized 
to close Bureau investigations.

Sec. 1080.12  Orders requiring witnesses to testify or provide other 
          information and granting immunity.

    The Director has the nondelegable authority 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 and granting 
immunity under 18 U.S.C. 6004.

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 12 CFR 1070.3 and 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, written reports, answers to questions, 
tangible things or transcripts of oral testimony the Bureau receives in 
any form or format 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 title.
    (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

                         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.
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.

[[Page 1097]]

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 and disclosure statement and notification of financial 
          interest.
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.

            Subpart E_Temporary Cease-and-Desist Proceedings

1081.500 Scope.
1081.501 Basis for issuance, form, and service.
1081.502 Judicial review, duration.

    Authority: 12 U.S.C. 5563(e); 12 U.S.C. 5512(b).

    Source: 77 FR 39083, June 29, 2012, unless otherwise noted.

                         Subpart A_General Rules

Sec. 1081.100  Scope of the rules of practice.

    Subparts A, B, C, and D of this part prescribe rules of practice and 
procedure applicable to adjudication proceedings authorized by section 
1053 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (Dodd-Frank Act) to ensure or enforce compliance with the 
provisions of Title X of the Dodd-Frank Act, rules prescribed by the 
Bureau under Title X of the Dodd-Frank Act, and any other Federal law or 
regulation that the Bureau is authorized to enforce. Except as otherwise 
provided in this part, the rules of practice contained in subparts A, B, 
C, and D of this part do not govern the conduct of Bureau 
investigations, investigational hearings or other proceedings that do 
not arise from proceedings after a notice of charges or a stipulation 
and consent order.

[78 FR 59164, Sept. 26, 2013]

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 1098]]

    (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; and
    (d) To the extent this part uses terms defined by section 1002 of 
the Dodd-Frank Act, such terms shall have the same meaning as set forth 
therein, unless defined differently by Sec. 1081.103.

Sec. 1081.103  Definitions.

    For the purposes of this part, unless explicitly stated to the 
contrary:
    Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010, Public Law 111-203 (July 21, 2010).
    Adjudication proceeding means a proceeding conducted pursuant to 
section 1053 of the Dodd-Frank Act and intended to lead to the 
formulation of a final order other than a temporary order to cease and 
desist issued pursuant to section 1053(c) of the Dodd-Frank 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 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.
    Enforcement counsel means any individual who files a notice of 
appearance as counsel on behalf of the Bureau in an adjudication 
proceeding.
    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, except that it does not 
include a stipulation and consent order under Sec. 1081.200(d).
    Office of Administrative Adjudication means the office of the Bureau 
responsible for conducting adjudication proceedings.
    Office of Enforcement means the office of the Bureau responsible for 
enforcement of Federal consumer financial law.
    Party means the Bureau, any person named as a party in any notice of 
charges issued pursuant to this part, and, to the extent applicable, any 
person who intervenes in the proceeding pursuant to Sec. 1081.119(a) to 
seek a protective order.
    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 the party named in the notice of charges.
    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).

[[Page 1099]]

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.
    (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 materially 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 subject to the 
supervision or direction of, or responsible to, 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

[[Page 1100]]

hearing officer does not disqualify himself or herself within ten 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 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 or 
by a court of the United States or of any State.
    (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, must 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 other address 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 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

[[Page 1101]]

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.

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, email 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).

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

[[Page 1102]]

    (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.
    (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 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's right to petition for review or for a writ of certiorari has 
lapsed without a 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 ten 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 upon 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.

[[Page 1103]]

Sec. 1081.111  Filing of papers.

    (a) Filing. The following papers must be filed by parties in an 
adjudication proceeding: the notice of charges, proof of service of the 
notice of charges, notices of appearance, answer, the disclosure 
statement required under Sec. 1081.201(e), motion, 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 Office of Administrative 
Adjudication, 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 in accordance with guidance issued by 
the Office of Administrative Adjudication; or
    (2) Any of the following methods if respondent demonstrates, in 
accordance with guidance issued by the Office of Administrative 
Adjudication, that electronic filing is not practicable:
    (i) Personal delivery;
    (ii) Delivery to a reliable commercial courier service or overnight 
delivery service; or
    (iii) Mailing the papers through the U.S. Postal Service by First 
Class Mail, Registered Mail, Certified Mail or Express Mail.
    (c) Papers filed in an adjudication proceeding are presumed to be 
public. Unless otherwise ordered by the Bureau or the hearing officer, 
all papers filed in connection with an adjudication proceeding are 
presumed to be open to the public. The Bureau may provide public access 
to and publish any papers filed in an adjudication proceeding except if 
there is a pending motion for a protective order filed pursuant to Sec. 
1081.119, or if there is an order from the Director, hearing officer, or 
a Federal court authorizing the confidential treatment of the papers 
filed.

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 email 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 one 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 Office of 
Administrative Adjudication or the hearing officer may reject a document 
for filing that materially fails to comply with these rules.
    (e) Sensitive personal information. Sensitive personal information 
means 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. Sensitive personal information shall not be included in, and 
must be redacted or omitted from, filings unless the person filing the 
paper determines that such information is relevant or otherwise 
necessary for the conduct of the proceeding. If the person filing a 
paper determines the sensitive personal information contained in the 
paper is relevant or necessary to the proceeding, the person shall file 
the paper in accordance with paragraph (f)

[[Page 1104]]

of this section, including filing an expurgated copy of the paper with 
the sensitive personal information redacted.
    (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 or a copy of the order from 
the Director, hearing officer, or Federal court authorizing such 
confidential treatment. The filing must comply with any applicable order 
of the Director or hearing officer and 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.
    (g) Certificate of service. Any papers filed in an adjudication 
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.

Sec. 1081.113  Service of papers.

    (a) When required. In every adjudication proceeding, each paper 
required to be filed by Sec. 1081.111 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), 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 or as otherwise ordered by the hearing officer or the Director, 
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) 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 Cass 
Mail, Registered Mail, Certified Mail or Express Mail delivery addressed 
to the person; or
    (4) Sending the papers through a third-party 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

[[Page 1105]]

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 through the U.S. Postal 
Service by Registered Mail, Certified Mail or Express Mail delivery, 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)(i) or (ii) 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 receipt or 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 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 and file 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 Registered Mail, Certified Mail 
or Express Mail, the Bureau shall maintain the confirmation of receipt 
or 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)(i) or (d)(1)(ii) 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 
ten 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;

[[Page 1106]]

    (2) In the case of overnight commercial delivery service, Express 
Mail delivery, First Class Mail, Registered Mail, or Certified Mail, 
upon deposit in or delivery to an appropriate point of collection; or
    (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 Mail, Registered Mail, 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 on 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.
    (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 Office 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

[[Page 1107]]

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) Rights of third parties. Any party that intends to disclose 
information obtained from a third party that is subject to a claim of 
confidentiality must provide notice to the third party at least ten days 
prior to the proposed disclosure of such information. In response to 
such notice, the third party may consent to the disclosure of such 
information, which may be conditioned on the entry of an appropriate 
protective order, or may intervene in the proceeding for the limited 
purpose of moving for a protective order pursuant to this section. Any 
written filing by a party that contains such confidential information 
must be accompanied by a certification that proper notice was provided. 
The act of making any oral motion or oral argument by any counsel or 
party which contains such confidential information constitutes a 
certification that proper notice was provided. A third party wishing to 
intervene for purposes of protecting its confidential information may 
file a single motion, in conformity with all applicable rules, setting 
forth the basis of both the third party's right to intervene and the 
basis for the protective order, in conformity with paragraph (b).
    (b) Procedure. In any adjudication proceeding, a party, including a 
third party who has intervened pursuant to paragraph (a) of this 
section, 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 documents or testimony without revealing 
confidential details, and a copy of the proposed protective order. A 
motion for confidential treatment of documents should be filed in 
accordance with Sec. 1081.112(f), and all other applicable rules.
    (c) Basis for issuance. Documents and testimony introduced in a 
public hearing, or filed in connection with an adjudication proceeding, 
are presumed to be public. A motion for a protective order shall be 
granted:
    (1) Upon a finding that public disclosure will likely result in a 
clearly defined, serious injury to the party or third party requesting 
confidential treatment;
    (2) After finding that the material constitutes sensitive personal 
information, as defined in Sec. 1081.112(e);
    (3) If all parties, including third parties to the extent their 
information is at issue, stipulate to the entry of a protective order; 
or
    (4) Where public disclosure is prohibited by law.
    (d) Requests for additional information supporting confidentiality. 
The hearing officer may require a movant under paragraph (b) 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 
five-day period.
    (e) Confidentiality of documents pending decision. Pending a 
determination

[[Page 1108]]

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 respondent in an adjudication proceeding 
instituted under this part, 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 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 Dodd-Frank 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 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.
    (d) Consent orders. If the Director accepts the offer of settlement, 
all terms and conditions of a settlement entered into under this section 
shall be recorded in a written stipulation signed by all settling 
parties, and a consent order concluding the proceeding. The stipulation 
and consent order shall be filed pursuant to Sec. 1081.111, and shall 
recite or incorporate as a part of the stipulation the provisions of 
paragraphs (c)(3) and (4) of this section. The Director will then issue 
a consent order, which shall be a final order concluding the proceeding.

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.

[[Page 1109]]

        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 subparts A, 
B, C, and D of this part is commenced by filing of a notice of charges 
by the Bureau in accordance with Sec. 1081.111. The notice of charges 
must be served by the Bureau upon the respondent in accordance with 
Sec. 1081.113(d)(1).
    (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 
ten days from the date of service except if there is a pending motion 
for a protective order filed pursuant to Sec. 1081.119.
    (d) Commencement of proceeding through a consent order. 
Notwithstanding paragraph (a) of this section, where the parties agree 
to settlement before the filing of a notice of charges, a proceeding may 
be commenced by filing a stipulation and consent order. The stipulation 
and consent order shall be filed pursuant to Sec. 1081.111. The 
stipulation shall contain the information required under Sec. 
1081.120(d), and the consent order shall contain the information 
required under paragraphs (b)(1) through (b)(2) of this section. The 
proceeding shall be concluded upon issuance of the consent order by the 
Director.
    (e) 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.

[77 FR 39083, June 29, 2012, as amended at 78 FR 59164, Sept. 26, 2013]

Sec. 1081.201  Answer and disclosure statement and notification of 
          financial interest.

    (a) Time to file answer. 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 shall 
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

[[Page 1110]]

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 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.
    (e) Disclosure statement and notification of financial interest--(1) 
Who must file; contents. A respondent, nongovernmental intervenor, or 
nongovernmental amicus must file a disclosure statement and notification 
of financial interest that:
    (i) Identifies any parent corporation, any publicly owned 
corporation owning ten percent or more of its stock, and any publicly 
owned corporation not a party to the proceeding that has a financial 
interest in the outcome of the proceeding and the nature of that 
interest; or
    (ii) States that there are no such corporations.
    (2) Time for filing; supplemental filing. A respondent, 
nongovernmental intervenor, or nongovernmental amicus must:
    (i) File the disclosure statement with its first appearance, 
pleading, motion, response, or other request addressed to the hearing 
officer or the Bureau; and
    (ii) Promptly file a supplemental statement if any required 
information changes.

Sec. 1081.202  Amended pleadings.

    (a) Amendments before the hearing. The notice of charges, answer, or 
any other pleading may be amended or supplemented only with the opposing 
party's written consent or leave of the hearing officer. 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 ten 
days after service of the amended notice of charges, whichever is later, 
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

[[Page 1111]]

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, counsel for all parties shall appear before the hearing officer 
in person at a specified time and place or 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 Dodd-Frank 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;
    (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(c), 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

[[Page 1112]]

motions for summary disposition. A non-dispositive motion filed pursuant 
to another section 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 ten 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 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 section of this part, 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 motion 
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 Office of Enforcement shall make available for inspection and 
copying by any respondent documents obtained by the Office of 
Enforcement prior to the institution of proceedings, from persons

[[Page 1113]]

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 Office 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 Office of Enforcement shall make available for 
inspection and copying by any respondent:
    (i) Each civil investigative demand or other written request to 
provide documents or to be interviewed issued by the Office 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 Office of the Bureau if the Office 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.
    (3) Nothing in paragraph (a) of this section shall limit the right 
of the Office 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 
Office of Enforcement to produce a final examination or inspection 
report prepared by any other Office of the Bureau or any other 
government agency to a respondent who is not the subject of that report.
    (b) Documents that may be withheld. (1) The Office 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 was obtained from a domestic or foreign 
governmental entity and is either not relevant to the resolution of the 
proceeding or was provided on condition that the information not be 
disclosed;
    (iv) The document would disclose the identity of a confidential 
source;
    (v) Applicable law prohibits the disclosure of the document; or
    (vi) 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 
Office of Enforcement in connection with an adjudication proceeding to 
withhold material exculpatory evidence in the possession of the Office 
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 
Office of Enforcement to produce a list of documents or categories of 
documents withheld pursuant to paragraphs (b)(1)(i) through (v) of this 
section or to submit to the hearing officer any document withheld, 
except for any documents that are being withheld pursuant to section 
(b)(1)(iii), in which case the Office of Enforcement shall inform the 
other parties of the fact that such documents are being withheld, but no 
further disclosures regarding those documents shall be required. The 
hearing officer may determine whether any withheld document should be 
made available for inspection and copying. When similar documents are 
withheld pursuant to paragraphs (b)(1)(i) through (v) 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 Office 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.

[[Page 1114]]

    (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 Office 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 Office 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 
Office 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 Office of Enforcement acquires 
information that it intends to rely upon at a hearing after making its 
disclosures under paragraph (a)(1) of this section, the Office of 
Enforcement shall supplement its 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 Office 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) The 
disclosure of privileged or protected information or communications by 
any party during an adjudication proceeding 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 any party that received the information or 
communication of the claim and the basis for it.
    (2) 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.
    (3) The disclosure of privileged or protected information or 
communications by any party during an adjudication proceeding shall 
waive the privilege or protection, with respect to other parties to the 
proceeding, 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 Office of 
Enforcement produce for inspection and copying any statement of any 
person called or to be called as a witness by the Office 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

[[Page 1115]]

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 Office 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 other person.
    (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, 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.
    (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.
    (g) Production of documentary material. Production of documentary 
material in response to a subpoena shall be made under a sworn 
certificate, in such form as the subpoena designates, by the person to 
whom the subpoena 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 subpoena and in the possession, custody, or control of the person 
to whom the subpoena is directed has been produced and made available to 
the custodian.
    (h) 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 ten days after the date of service of such subpoena, move that 
the subpoena be

[[Page 1116]]

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.
    (i) 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's General Counsel 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 title X of 
the Dodd-Frank Act. Failure to request that the Bureau's General Counsel 
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's testimony for the 
record may request 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 a 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's 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

[[Page 1117]]

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.
    (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.
    (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 ten days after the 
date of service of such subpoena, move that the deposition subpoena be 
quashed or modified. Such motion must include a 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.

[[Page 1118]]

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 transcript and exhibits shall be filed 
with the Office of Administrative Adjudication. 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's General Counsel 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 title X of the Dodd-
Frank Act. Failure to request that the Bureau 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 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 ten 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 
hearing, 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

[[Page 1119]]

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 eight 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(g).
    (e) A party may not discover facts known or opinions held by an 
expert who has been retained or specifically employed by another party 
in anticipation of litigation or preparation for the hearing and who is 
not listed as a witness for the hearing. A party may not discover drafts 
of any report required by this section, regardless of the form in which 
the draft is recorded, or any communications between another party's 
attorney and any of that other party's experts, regardless of the form 
of the communications, except to the extent that the communications:
    (1) Relate to compensation for the testifying expert's study or 
testimony;
    (2) Identify facts or data that the other party's attorney provided 
and that the testifying expert considered in forming the opinions to be 
expressed; or
    (3) Identify assumptions that the other party's attorney provided 
and that the testifying expert relied on in forming the opinions to be 
expressed.
    (f) 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:
    (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);
    (3) The ruling or order suspended or barred an individual from 
appearing before the Bureau pursuant to Sec. 1081.107(c); 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

[[Page 1120]]

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's 
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 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.

[[Page 1121]]

    (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 ten 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, 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).
    (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(c), 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 ten 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;

[[Page 1122]]

    (2) A final list of witnesses to be called to testify at the 
hearing, including the 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 hearing or by 
deposition within the preceding four years, and a list of publications 
authored or co-authored by the expert within the preceding ten 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) Formal requirements as to amicus briefs. Amicus briefs shall be 
filed pursuant to Sec. 1081.111 and shall comply with the requirements 
of Sec. 1081.112 and shall be subject to the length limitation set 
forth in Sec. 1081.212(e).
    (e) 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 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

[[Page 1123]]

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 the Bureau, a prudential 
regulator, as that term is defined in section 1002(24) of the Dodd-Frank 
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.
    (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

[[Page 1124]]

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 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

[[Page 1125]]

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 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 
Office of Administrative Adjudication 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

[[Page 1126]]

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 ten 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 
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. Upon filing by the hearing 
officer of the recommended decision, the Office of Administrative 
Adjudication shall promptly transmit the recommended decision to the 
Director and serve the recommended decision upon the parties.

[[Page 1127]]

Sec. 1081.401  Transmission of documents to Director; record index; 
          certification.

    (a) Filing of index. At the same time the Office of Administrative 
Adjudication transmits the recommended decision to the Director, the 
hearing officer shall furnish to the Director a certified index of the 
entire record of the proceedings. 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) Retention of record items by the Office of Administrative 
Adjudication. After the close of the hearing, the Office of 
Administrative Adjudication shall retain 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 filed with the Office of Administrative Adjudication.

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 Office of Administrative Adjudication within ten 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 ten 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 perfects an appeal of 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 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.

[[Page 1128]]

    (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 Office of Administrative Adjudication will 
notify the parties that the case has been submitted for final Bureau 
decision. The Director will issue and the Office of Administrative 
Adjudication will serve the Director's final decision and order within 
90 days after such notice, unless within that time 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 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

[[Page 1129]]

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 Dodd-Frank 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.

            Subpart E_Temporary Cease-and-Desist Proceedings

    Source: 78 FR 59164, Sept. 26, 2013, unless otherwise noted.

Sec. 1081.500  Scope.

    (a) This subpart prescribes the rules of practice and procedure 
applicable to the issuance of a temporary cease-and-desist order 
authorized by section 1053(c) of the Dodd-Frank Act (12 U.S.C. 5563(c)).
    (b) The issuance of a temporary cease-and-desist order does not stay 
or otherwise affect the proceedings instituted by the issuance of a 
notice of charges, which are governed by subparts A, B, C, and D of this 
part.

Sec. 1081.501  Basis for issuance, form, and service.

    (a) In general. The Director or his or her designee may issue a 
temporary cease-and-desist order if he or she determines that one or 
more of the alleged violations specified in a notice of charges, or the 
continuation thereof, is likely to cause the respondent to be insolvent 
or otherwise prejudice the interests of consumers before the completion 
of the adjudication proceeding. A temporary cease-and-desist order may 
require the respondent to cease and desist from any violation or 
practice specified in the notice of charges and to take affirmative 
action to prevent or remedy such insolvency or other condition pending 
completion of the proceedings initiated by the issuance of a notice of 
charges.
    (b) Incomplete or inaccurate records. When a notice of charges 
specifies, on the basis of particular facts and circumstances, that the 
books and records of a respondent are so incomplete or inaccurate that 
the Bureau is unable to determine the financial condition of the 
respondent or the details or purpose of any transaction or transactions 
that may have a material effect on the financial condition of the 
respondent,

[[Page 1130]]

then the Director or his or her designee may issue a temporary order 
requiring:
    (1) The cessation of any activity or practice which gave rise, 
whether in whole or in part, to the incomplete or inaccurate state of 
the books or records; or
    (2) Affirmative action to restore such books or records to a 
complete and accurate state, until the completion of the adjudication 
proceeding.
    (c) Content, scope and form of order. Every temporary cease-and-
desist order accompanying a notice of charges shall describe:
    (1) The basis for its issuance, including the alleged violations and 
the harm that is likely to result without the issuance of an order; and
    (2) The act or acts the respondent is to take or refrain from 
taking.
    (d) Effective and enforceable upon service. A temporary cease-and-
desist order is effective and enforceable upon service.
    (e) Service. Service of a temporary cease-and-desist order shall be 
made pursuant to Sec. 1081.113(d).

Sec. 1081.502  Judicial review, duration.

    (a) Availability of judicial review. Judicial review of a temporary 
cease-and-desist order shall be available solely as provided in section 
1053(c)(2) of the Dodd-Frank Act (12 U.S.C. 5563(c)(2)). Any respondent 
seeking judicial review of a temporary cease-and-desist order issued 
under this subpart must, not later than ten calendar days after service 
of the temporary cease-and-desist order, apply to the United States 
district court for the judicial district in which the residence or 
principal office or place of business of the respondent is located, or 
the United States District Court for the District of Columbia, for an 
injunction setting aside, limiting, or suspending the enforcement, 
operation, or effectiveness of such order.
    (b) Duration. Unless set aside, limited, or suspended by the 
Director or his or her designee, or by a court in proceedings authorized 
under section 1053(c)(2) of the Dodd-Frank Act (12 U.S.C. 5563(c)(2)), a 
temporary cease-and-desist order shall remain effective and enforceable 
until:
    (1) The effective date of a final order issued upon the conclusion 
of the adjudication proceeding;
    (2) With respect to a temporary cease-and-desist order issued 
pursuant to Sec. 1081.501(b) only, the Bureau determines by examination 
or otherwise that the books and records are accurate and reflect the 
financial condition of the respondent, and the Director or his or her 
designee issues an order terminating, limiting, or suspending the 
temporary cease-and-desist order.



PART 1082_STATE OFFICIAL NOTIFICATION RULES

    Authority: 12 U.S.C. 5481 et seq.

    Source: 77 FR 39116, June 29, 2012, unless otherwise noted.

Sec. 1082.1  Procedures for notifying the Bureau of Consumer Financial 
          Protection when a State Official takes an action to enforce 
          title X of the Dodd-Frank Wall Street Reform and Consumer 
          Financial Protection Act of 2010.

    (a) Notice requirement. (1) Pursuant to 12 U.S.C. 5552(b) and except 
as provided in paragraph (b) of this section, every State attorney 
general and State regulator (State Official) shall provide the notice 
described in paragraph (c) of this section to the Office of Enforcement 
of the Bureau of Consumer Financial Protection (the Bureau), the office 
of the Bureau responsible for enforcement of Federal consumer financial 
law pursuant to title X of the Dodd-Frank Wall Street Reform and 
Consumer Financial Protection Act of 2010, as amended, Public Law 111-
203 (July 21, 2010), codified at 12 U.S.C. 5481 et seq. (the Dodd-Frank 
Act), and the Office of the Executive Secretary of the Bureau at least 
ten calendar days prior to initiating any action against any covered 
person. For purposes of this section, an action requiring notification 
is any adjudicative proceeding before a court or an administrative or 
regulatory body to determine whether a violation of any provision of 
title X of the Dodd-Frank Act or any regulation prescribed thereunder 
has occurred. Initiating an action under this

[[Page 1131]]

section would include but not be limited to the filing of a complaint, 
motion for relief, or other document which initiates an action or a 
proceeding.
    (2) Notice shall be provided to the Office 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 
Office of Enforcement or its successor entity should be contacted.
    (3) On the same date that notice is provided to the Office 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 
transmitting or mailing the materials described in paragraph (c) of this 
section.
    (5) The Office 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 
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.
    (2) Notice shall be provided in accordance with the procedures set 
forth in paragraphs (a)(2) through (4) of this section.
    (3) The Office 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, including:
    (i) The court or body in which the action is to be initiated;
    (ii) The identity of the parties to the action;
    (iii) The nature of the action to be initiated;
    (iv) The anticipated date of initiating the action;
    (v) The alleged facts underlying the action;
    (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;
    (vii) A determination as to whether there may be a need to 
coordinate the prosecution of the action so as not to interfere with any 
action, including any rulemaking, undertaken by the Bureau, a prudential 
regulator, or another Federal agency; and
    (viii) A statement by the State Official setting forth any 
limitations on the disclosure of the substance or fact of the notice to 
any person or entity outside of the recipient 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, 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, including any orders issued by a court 
or other body;
    (ii) Any case number, matter number, or designation assigned to the 
action; and

[[Page 1132]]

    (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, in addition to the requirements set forth in paragraph (c)(3) of 
this section, the notice shall further include a complete, unredacted 
copy of any document filed by any party in relation to the action 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 described in paragraphs (a) and 
(b) of this section, the Bureau may:
    (1) Intervene in the action as a party;
    (2) Upon intervening,
    (i) Remove the action to the appropriate United States district 
court, if the action 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) The information described in 
paragraph (c) of this section, including the complaint, motion for 
relief, or other document, as well as the fact that notice has been 
provided, shall be subject to any limitations on disclosure imposed by 
the State Official pursuant to paragraph (c)(1)(viii) of this section; 
provided, however, that the recipient may disclose such information:
    (i) As required by law;
    (ii) When the information is or becomes publicly available;
    (iii) With the consent of the State Official; or
    (iv) To another State or Federal government entity when necessary to 
protect the public interest, after consultation with the State Official 
who provided the notice.
    (2) Provision of notice by a State Official and disclosure of 
information pursuant to paragraph (e)(1) of this section shall not be 
deemed a waiver of any applicable privilege.
    (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 Dodd-Frank Act or any 
regulation prescribed thereunder.



PART 1090_DEFINING LARGER PARTICIPANTS OF CERTAIN CONSUMER FINANCIAL
PRODUCT AND SERVICE MARKETS

                            Subpart A_General

Sec.
1090.100 Scope and purpose.
1090.101 Definitions.
1090.102 Status as larger participant subject to supervision.
1090.103 Assessing status as a larger participant.

                            Subpart B_Markets

1090.104 Consumer Reporting Market.
1090.105 Consumer debt collection market.
1090.106 Student loan servicing market.

    Authority: 12 U.S.C. 5514(a)(1)(B); 12 U.S.C. 5514(a)(2); 12 U.S.C. 
5514(b)(7)(A); and 12 U.S.C. 5512(b)(1).

    Source: 77 FR 42898, July 20, 2012, unless otherwise noted.

                            Subpart A_General

Sec. 1090.100  Scope and purpose.

    This part defines those nonbank covered persons that qualify as 
larger participants of certain markets for consumer financial products 
or services pursuant to 12 U.S.C. 5514(a)(1)(B) and (a)(2). A larger 
participant of a market covered by this part is subject to the 
supervisory authority of the Bureau under 12 U.S.C. 5514. This part also 
establishes rules to facilitate the Bureau's supervision of such larger 
participants pursuant to 12 U.S.C. 5514(b)(7).

[[Page 1133]]

Sec. 1090.101  Definitions.

    For the purposes of this part, the following definitions apply:
    Affiliated company means any company (other than an insured 
depository institution or insured credit union) that controls, is 
controlled by, or is under common control with, a person.
    (1) For purposes of this definition ``company'' means any 
corporation, limited liability company, business trust, general or 
limited partnership, proprietorship, cooperative, association, or 
similar organization.
    (2) A person has control over another person if:
    (i) The person directly or indirectly or acting through one or more 
other persons owns, controls, or has power to vote 25 percent or more of 
any class of voting securities or similar ownership interest of the 
other person;
    (ii) The person controls in any manner the election of a majority of 
the directors, trustees, members, or general partners of the other 
person; or
    (iii) The person directly or indirectly exercises a controlling 
influence over the management or policies of the other person.
    Assistant Director means the Bureau's Assistant Director for Nonbank 
Supervision or her or his designee. The Director of the Bureau may 
perform the functions of the Assistant Director under this part. In the 
event there is no such Assistant Director, the Director of the Bureau 
may designate an alternative Bureau employee to fulfill the duties of 
the Assistant Director under this part.
    Bureau means the Bureau of Consumer Financial Protection.
    Completed fiscal year means a tax year including any fiscal year, 
calendar year, or short tax year. ``Fiscal year,'' ``calendar year,'' 
``tax year,'' and ``short tax year'' have the meanings attributed to 
them by the IRS as set forth in IRS Publication 538, which provides 
that:
    (1) A ``fiscal year'' is 12 consecutive months ending on the last 
day of any month except December 31.
    (2) A ``calendar year'' is 12 consecutive months ending on December 
31.
    (3) A ``tax year'' is an annual accounting period for keeping 
records and reporting income and expenses, or, if appropriate, a short 
tax year. An annual accounting period does not include a short tax year.
    (4) A ``short tax year'' is a tax year of less than 12 months.
    Consumer means an individual or an agent, trustee, or representative 
acting on behalf of an individual.
    Consumer financial product or service means any financial product or 
service, as defined in 12 U.S.C. 5481(15), that is described in one or 
more categories under:
    (1) 12 U.S.C. 5481(15)(A) and is offered or provided for use by 
consumers primarily for personal, family, or household purposes; or
    (2) Clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A) and is 
delivered, offered, or provided in connection with a consumer financial 
product or service referred to in paragraph (1) of this definition.
    Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.
    Larger participant means a nonbank covered person that has met a 
test under subpart B of this part within the period provided in Sec. 
1090.102 of this part.
    Nonbank covered person means, except for persons described in 12 
U.S.C. 5515(a) and 5516(a):
    (1) Any person that engages in offering or providing a consumer 
financial product or service; and
    (2) Any affiliate of a person that engages in offering or providing 
a consumer product or service if such affiliate acts as a service 
provider to such person.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, cooperative 
organization, or other entity.
    Supervision and supervisory activity mean the Bureau's exercise, or 
intended exercise, of supervisory authority, including by initiating or 
undertaking an examination, or requiring a report of a person, pursuant 
to 12 U.S.C. 5514.

Sec. 1090.102  Status as larger participant subject to supervision.

    A person qualifying as a larger participant under subpart B of this 
part

[[Page 1134]]

shall not cease to be a larger participant under this part until two 
years from the first day of the tax year in which the person last met 
the applicable test under subpart B.

Sec. 1090.103  Assessing status as a larger participant.

    (a) If a person receives a written communication from the Bureau 
initiating a supervisory activity pursuant to 12 U.S.C. 5514, such 
person may respond by asserting that the person does not meet the 
definition of a larger participant of a market covered by this part 
within 45 days of the date of the communication. Such response must be 
sent to the Assistant Director by electronic transmission at the address 
included in the communication and must include an affidavit setting 
forth an explanation of the basis for the person's assertion that it 
does not meet the definition of larger participant of a market covered 
by this part and therefore is not subject to the Bureau's supervisory 
authority under 12 U.S.C. 5514. In addition, a person may include with 
the response copies of any records, documents, or other information on 
which the person relied in making the assertion.
    (b) A person shall be deemed to have waived the opportunity, at any 
time that it may dispute that it qualifies as a larger participant, to 
rely on any argument, records, documents, or other information that it 
fails to submit to the Assistant Director under paragraph (a) of this 
section. A person who fails to respond to the Bureau's written 
communication within 45 days will be deemed to have acknowledged that it 
is a larger participant.
    (c) The Assistant Director shall review the affidavit, any attached 
records, documents, or other information submitted pursuant to paragraph 
(a) of this section, and any other information the Assistant Director 
deems relevant, and thereafter send by electronic transmission to the 
person a statement explaining whether the person meets the definition 
for a larger participant of a market covered by this part.
    (d) At any time, including prior to issuing the written 
communication referred to in paragraph (a) of this section, the 
Assistant Director may require that a person provide to the Bureau such 
records, documents, and information as the Assistant Director may deem 
appropriate to assess whether a person qualifies as a larger 
participant. Persons must provide the requisite records, documents, and 
other information to the Bureau within the time period specified in the 
request.
    (e) The Assistant Director, in her or his discretion, may modify any 
timeframe prescribed by this section on her or his own initiative or for 
good cause shown.

                            Subpart B_Markets

Sec. 1090.104  Consumer Reporting Market.

    (a) Market-Related definitions.
    Annual receipts means receipts calculated as follows:
    (i) Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus ``cost of goods sold'' as these 
terms are defined and reported on Internal Revenue Service (IRS) tax 
return forms (such as Form 1120 for corporations; Form 1120S and 
Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for 
LLCs; Form 1065 and Schedule K for partnerships; Form 1040, Schedule C 
for sole proprietorships). Receipts do not include net capital gains or 
losses; taxes collected for and remitted to a taxing authority if 
included in gross or total income, such as sales or other taxes 
collected from customers and excluding taxes levied on the entity or its 
employees; and amounts collected for another (but fees earned in 
connection with such collections are receipts). Items such as 
subcontractor costs, reimbursements for purchases a contractor makes at 
a customer's request, and employee-based costs such as payroll taxes are 
included in receipts.
    (ii) Period of measurement. (A) Annual receipts of a person that has 
been in business for three or more completed fiscal years means the 
total receipts of the person over its three most recently completed 
fiscal years divided by three.
    (B) Annual receipts of a person that has been in business for less 
than three completed fiscal years means the total

[[Page 1135]]

receipts of the person for the period the person has been in business 
divided by the number of weeks in business, multiplied by 52.
    (C) Where a person has been in business for three or more completed 
fiscal years, but one of the years within its period of measurement is a 
short tax year, annual receipts means the total receipts for the short 
year and the two full fiscal or calendar years divided by the total 
number of weeks in the short year and the two full fiscal or calendar 
years, multiplied by 52.
    (iii) Annual receipts of affiliated companies. (A) The annual 
receipts of a person are calculated by adding the annual receipts of the 
person with the annual receipts of each of its affiliated companies.
    (B) If a person has acquired an affiliated company or been acquired 
by an affiliated company during the applicable period of measurement, 
the annual receipts of the person and the affiliated company are 
aggregated for the entire period of measurement (not just the period 
after the affiliation arose).
    (C) Receipts are calculated separately for the person and each of 
its affiliated companies in accordance with paragraph (ii) of this 
definition even though this may result in using a different period of 
measurement to calculate an affiliated company's annual receipts. Thus, 
for example, if an affiliated company has been in business for a period 
of less than three years, the affiliated company's receipts are to be 
annualized in accordance with paragraph (ii)(B) of this definition even 
if the person has been in business for three or more completed fiscal 
years.
    (D) The annual receipts of a formerly affiliated company are not 
included if affiliation ceased before the applicable period of 
measurement as set forth in paragraph (ii) of this definition. This 
exclusion of annual receipts of formerly affiliated companies applies 
during the entire period of measurement, rather than only for the period 
after which affiliation ceased.
    Consumer reporting means:
    (i) In general. Consumer reporting means collecting, analyzing, 
maintaining, or providing consumer report information or other account 
information used or expected to be used in any decision by another 
person regarding the offering or provision of any consumer financial 
product or service.
    (ii) Exclusion for transaction and experience information. Consumer 
reporting does not include the activities of a person to the extent that 
a person collects, analyzes, maintains, or provides information that 
relates solely to the person's transactions or experiences with 
consumers.
    (iii) Exclusion for furnishing affiliate information to a consumer 
reporting entity. Consumer reporting does not include the activities of 
a person to the extent that a person provides information that solely 
relates to transactions or experiences between a consumer and an 
affiliate of such person to another person that is engaged in consumer 
reporting.
    (iv) Exclusion for certain authorizations or approvals. Consumer 
reporting does not include any authorization or approval of a specific 
extension of credit directly or indirectly by the issuer of a credit 
card or similar device.
    (v) Exclusion for providing information to be used solely in a 
decision regarding employment, government licensing, or residential 
leasing or tenancy. Consumer reporting does not include the activities 
of a person to the extent that a person provides consumer report or 
other account information that is used or expected to be used solely 
regarding a decision for employment, government licensing, or a 
residential lease or tenancy involving a consumer, or to be used solely 
in any decision regarding the offering or provision of a product or 
service that is not a consumer financial product or service.
    (b) Test to define larger participants. A nonbank covered person 
that offers or provides consumer reporting is a larger participant of 
the consumer reporting market if the person's annual receipts resulting 
from consumer reporting are more than $7 million.

Sec. 1090.105  Consumer debt collection market.

    (a) Market-Related definitions. As used in this subpart:
    Annual receipts means, for the consumer debt collection market, 
receipts calculated as follows:

[[Page 1136]]

    (i) Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus ``cost of goods sold'' as these 
terms are defined and reported on Internal Revenue Service (IRS) tax 
return forms (such as Form 1120 for corporations; Form 1120S and 
Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for 
LLCs; Form 1065 and Schedule K for partnerships; and Form 1040, Schedule 
C for sole proprietorships). Receipts do not include net capital gains 
or losses; taxes collected for and remitted to a taxing authority if 
included in gross or total income, such as sales or other taxes 
collected from customers but excluding taxes levied on the entity or its 
employees; or amounts collected for another (but fees earned in 
connection with such collections are receipts). Items such as 
subcontractor costs, reimbursements for purchases a contractor makes at 
a customer's request, and employee-based costs such as payroll taxes are 
included in receipts.
    (ii) Period of measurement. (A) Annual receipts of a person that has 
been in business for three or more completed fiscal years means the 
total receipts of the person over its three most recently completed 
fiscal years divided by three.
    (B) Annual receipts of a person that has been in business for less 
than three completed fiscal years means the total receipts of the person 
for the period the person has been in business divided by the number of 
weeks in business, multiplied by 52.
    (C) Where a person has been in business for three or more completed 
fiscal years, but one of the years within its period of measurement is a 
short tax year, annual receipts means the total receipts for the short 
year and the two full fiscal or calendar years divided by the total 
number of weeks in the short year and the two full fiscal or calendar 
years, multiplied by 52.
    (iii) Annual receipts of affiliated companies. (A) The annual 
receipts of a person are calculated by adding the annual receipts of the 
person with the annual receipts of each of its affiliated companies.
    (B) If a person has acquired an affiliated company or been acquired 
by an affiliated company during the applicable period of measurement, 
the annual receipts of the person and the affiliated company are 
aggregated for the entire period of measurement (not just the period 
after the affiliation arose).
    (C) Receipts are calculated separately for the person and each of 
its affiliated companies in accordance with paragraph (ii) of this 
definition even though this may result in using a different period of 
measurement to calculate an affiliated company's annual receipts. Thus, 
for example, if an affiliated company has been in business for a period 
of less than three years, the affiliated company's receipts are to be 
annualized in accordance with paragraph (ii) of this definition even if 
the person has been in business for three or more completed fiscal 
years.
    (D) The annual receipts of a formerly affiliated company are not 
included if affiliation ceased before the applicable period of 
measurement as set forth in paragraph (ii) of this definition. This 
exclusion of annual receipts of formerly affiliated companies applies 
during the entire period of measurement, rather than only for the period 
after which affiliation ceased.
    (E) Annual receipts do not include receipts that result from the 
collection of debt that was originally owed to a medical provider.
    Consumer debt collection is a debt collector's collection of debt 
incurred by a consumer primarily for personal, family, or household 
purposes and related to a consumer financial product or service.
    Creditor means any person who offers or extends credit creating a 
debt or to whom a debt is owed, but such term does not include any 
person to the extent that the person receives an assignment or transfer 
of a debt in default solely for the purpose of facilitating the 
collection of debt for another.
    Debt collector means any person who uses any instrumentality of 
interstate commerce or the mails in any business the principal purpose 
of which is the collection of any debts, or who regularly collects or 
attempts to collect, directly or indirectly, debts owed or due or 
asserted to be owed or due to another. Notwithstanding the exclusion 
provided by paragraph (iii) of this definition, the term includes any 
creditor

[[Page 1137]]

who, in the process of collecting his own debts, uses any name other 
than his own which would indicate that a third person is collecting or 
attempting to collect such debts. The term does not include:
    (i) Any person while acting as a debt collector for another person, 
both of whom are related by common ownership or affiliated by corporate 
control, if the person acting as a debt collector does so only for 
persons to whom it is so related or affiliated and if the principal 
business of such person is not the collection of debts;
    (ii) Any nonprofit organization which, at the request of consumers, 
performs bona fide consumer credit counseling and assists consumers in 
the liquidation of their debts by receiving payments from such consumers 
and distributing such amounts to creditors;
    (iii) Any person collecting or attempting to collect any debt owed 
or due or asserted to be owed or due another to the extent such 
activity:
    (A) Concerns a debt which was originated by such person; or
    (B) Concerns a debt which was not in default at the time it was 
obtained by such person; and
    (iv) Any person engaged solely in enforcing a security interest.
    (b) Test to define larger participants. A nonbank covered person is 
a larger participant of the consumer debt collection market if the 
nonbank covered person's annual receipts resulting from consumer debt 
collection are more than $10 million.

[77 FR 65798, Oct. 31, 2012 as amended at 77 FR 72913, Dec. 7, 2012]

Sec. 1090.106  Student loan servicing market.

    (a) Market-related definitions. As used in this subpart:
    Account volume means the number of accounts with respect to which a 
nonbank covered person is considered to perform student loan servicing, 
calculated as follows:
    (i) Number of accounts. A nonbank covered person has at least one 
account for each student or prior student with respect to whom the 
nonbank covered person performs student loan servicing. If a nonbank 
covered person is receiving separate fees for performing student loan 
servicing with respect to a given student or prior student, the nonbank 
covered person has one account for each stream of fees to which the 
person is entitled.
    (ii) Time of measurement. The number of accounts is counted as of 
December 31 of the prior calendar year.
    (iii) Affiliated companies. (A) The account volume of a nonbank 
covered person is the sum of the number of accounts of that nonbank 
covered person and of any affiliated companies of that person.
    (B) If two persons become affiliated companies, each person's number 
of accounts as of the prior calendar year's December 31 is included in 
the total account volume.
    (C) If two affiliated companies cease to be affiliated companies, 
the number of accounts of each continues to be included in the other's 
account volume until the succeeding December 31.
    Post-secondary education expenses means any of the expenses that are 
included as part of the cost of attendance of a student as defined in 20 
U.S.C. 1087ll.
    Post-secondary education loan means a loan that is made, insured or 
guaranteed under Title IV of the Higher Education Act of 1965 (20 U.S.C. 
1070 et seq.) or that is extended to a consumer with the expectation 
that the funds extended will be used in whole or in part to pay post-
secondary education expenses. A loan that is extended in order to 
refinance or consolidate a consumer's existing post-secondary education 
loans is also a post-secondary education loan. However, no loan under an 
open-end credit plan (as defined in Regulation Z, 12 CFR 1026.2(a)(20)) 
or loan that is secured by real property is a post-secondary education 
loan, regardless of the purpose for the loan.
    Student loan servicing means:
    (i)(A) Receiving any scheduled periodic payments from a borrower or 
notification of such payments and
    (B) Applying payments to the borrower's account pursuant to the 
terms of the post-secondary education loan or of the contract governing 
the servicing;
    (ii) During a period when no payment is required on a post-secondary 
education loan,

[[Page 1138]]

    (A) Maintaining account records for the loan and
    (B) Communicating with the borrower regarding the loan, on behalf of 
the loan's holder; or
    (iii) Interactions with a borrower, including activities to help 
prevent default on obligations arising from post-secondary education 
loans, conducted to facilitate the activities described in paragraph (i) 
or (ii) of this definition.
    (b) Test to define larger participants. A nonbank covered person 
that offers or provides student loan servicing is a larger participant 
of the student loan servicing market if the nonbank covered person's 
account volume exceeds one million.

[78 FR 73406, Dec. 6, 2013]

    Effective Date Note: At 78 FR 73406, Dec. 6, 2013, Sec. 1090.106 
was added, effective Mar. 1, 2014.



PART 1091_PROCEDURAL RULE TO ESTABLISH SUPERVISORY AUTHORITY OVER
CERTAIN NONBANK COVERED PERSONS BASED ON RISK DETERMINATION

                            Subpart A_General

Sec.
1091.100 Scope and purpose.
1091.101 Definitions.

        Subpart B_Determination and Voluntary Consent Procedures

1091.102 Issuance of Notice of Reasonable Cause.
1091.103 Contents of Notice.
1091.104 Service of Notice.
1091.105 Response.
1091.106 Supplemental oral response.
1091.107 Manner of filing and serving papers.
1091.108 Recommended determination.
1091.109 Determination by the Director.
1091.110 Voluntary consent to Bureau's authority.
1091.111 Notice and response included in adjudication proceeding 
          otherwise brought by the Bureau.
1091.112 No limitation on relief sought in civil action or 
          administrative adjudication.

                 Subpart C_Post-Determination Procedures

1091.113 Petition for termination of order.

                   Subpart D_Time Limits and Deadlines

1091.114 Construction of time limits.
1091.115 Change of time limits and confidentiality of proceedings.

    Authority: 12 U.S.C. 5512(b)(1), 5514(a)(1)(C), 5514(b)(7).

    Source: 78 FR 40375, July 3, 2013, unless otherwise noted.

                            Subpart A_General

Sec. 1091.100  Scope and purpose.

    This part sets forth procedures to implement section 1024(a)(1)(C) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010, Public Law 111-203 (12 U.S.C. 5514(a)(1)(C)) (Dodd-Frank Act), and 
establishes rules to facilitate the Bureau's supervisory authority over 
certain nonbank covered persons pursuant to section 1024(b)(7) of the 
Dodd-Frank Act (12 U.S.C. 5514(b)(7)).

Sec. 1091.101  Definitions.

    For the purposes of this part, the following definitions apply:
    Assistant Director means an Assistant Director for Supervision. If 
there is no Assistant Director, the Associate Director may designate an 
alternative Bureau employee to perform the functions of an Assistant 
Director under this part.
    Associate Director means the Associate Director of the Bureau's 
Division of Supervision, Enforcement, and Fair Lending, or his or her 
designee. If there is no Associate Director, the Director may designate 
an alternative Bureau employee to perform the functions of the Associate 
Director under this part.
    Bureau means the Bureau of Consumer Financial Protection.
    Consumer means an individual or an agent, trustee, or representative 
acting on behalf of an individual.
    Consumer financial product or service means any financial product or 
service, as defined in 12 U.S.C. 5481(15), that is described in one or 
more categories under:
    (1) 12 U.S.C. 5481(15) and is offered or provided for use by 
consumers primarily for personal, family, or household purposes; or

[[Page 1139]]

    (2) Clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A) and is 
delivered, offered, or provided in connection with a consumer financial 
product or service referred to in subparagraph (1) of this paragraph.
    Decisional employee means any employee of the Bureau who has not 
engaged in:
    (1) Assisting the initiating official in either determining whether 
to issue a Notice of Reasonable Cause, or presenting the initiating 
official's position in support of a Notice of Reasonable Cause, either 
in writing or in a supplemental oral response, to the Associate 
Director; or
    (2) Assisting the Associate Director in the preparation of a 
recommended determination.
    Director means the Director of the Bureau or his or her designee. If 
there is no Director, the term shall mean a person authorized to perform 
the functions of the Director under this part, or his or her designee.
    Executive Secretary means the Executive Secretary of the Bureau.
    Initiating official means an Assistant Director or a Bureau employee 
designated to act as an ``initiating official'' by an Assistant 
Director. If there is not an Assistant Director, the Associate Director 
may designate a Bureau employee to perform the functions of an 
initiating official under this part.
    Nonbank covered person means, except for persons described in 12 
U.S.C. 5515(a) and 5516(a):
    (1) Any person that engages in offering or providing a consumer 
financial product or service; and
    (2) Any affiliate of a person described in subparagraph (1) of this 
paragraph if such affiliate acts as a service provider to such person.
    Notice of Reasonable Cause and Notice mean a Notice issued under 
Sec. 1091.102.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, cooperative 
organization, or other entity.
    Respondent means a person who has been issued a Notice of Reasonable 
Cause under Sec. 1091.102.
    Response means the response to a Notice of Reasonable Cause filed by 
a respondent with the Associate Director under Sec. 1091.105.

        Subpart B_Determination and Voluntary Consent Procedures

Sec. 1091.102  Issuance of Notice of Reasonable Cause.

    (a) An initiating official is authorized to issue a Notice of 
Reasonable Cause to a person stating that the Bureau may have reasonable 
cause to determine that the respondent is a nonbank covered person that 
is engaging, or has engaged, in conduct that poses risks to consumers 
with regard to the offering or provision of consumer financial products 
or services.
    (b) A Notice of Reasonable Cause shall be based on:
    (1) Complaints collected through the system under 12 U.S.C. 
5493(b)(3); or
    (2) Information from other sources.
    (c) Except as provided in Sec. 1091.111, a Notice of Reasonable 
Cause shall contain the information set forth in Sec. 1091.103, and be 
served on respondent as described in Sec. 1091.104.

Sec. 1091.103  Contents of Notice.

    (a) A Notice of Reasonable Cause shall contain the following:
    (1) A description of the basis for the assertion that the Bureau may 
have reasonable cause to determine that a respondent is a nonbank 
covered person that is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services, including a summary of the documents, 
records, or other items relied on by the initiating official to issue a 
Notice. Such summary will be consistent with the protection of sensitive 
information, including compliance with federal privacy law and 
whistleblower protections; and
    (2) A statement informing a respondent that:
    (i) A respondent may file with the Associate Director a written 
response to a Notice of Reasonable Cause no later than 30 days after the 
Notice is served on the respondent;
    (ii) The written response shall include the elements addressed in 
Sec. 1091.105(b);

[[Page 1140]]

    (iii) A respondent may request in its written response to a Notice 
an opportunity to present an in-person or telephonic supplemental oral 
response to the Associate Director as set forth in Sec. 1091.106;
    (iv) A failure timely to file a response to a Notice shall 
constitute a waiver of a respondent's right to respond, and may result 
in a default determination by the Director, based on the Notice, that a 
respondent is a nonbank covered person that is engaging, or has engaged, 
in conduct that poses risks to consumers with regard to the offering or 
provision of consumer financial products or services and the issuance of 
a decision and order subjecting a respondent to the Bureau's supervisory 
authority pursuant to 12 U.S.C. 5514(a)(1)(C);
    (v) The Associate Director shall serve a respondent with a notice of 
the date and time of a supplemental oral response, if a respondent has 
requested the opportunity to present a supplemental oral response, 
within 14 days of the Associate Director's receipt of a timely-filed 
response;
    (vi) If a respondent has not requested the opportunity to present a 
supplemental oral response, the Associate Director shall, not later than 
45 days after receiving a timely-filed response, or not later than 45 
days after the service of a Notice of Reasonable Cause when a respondent 
fails to file a timely response, provide a recommended determination to 
the Director including either a proposed decision and order subjecting a 
respondent to the Bureau's supervisory authority pursuant to 12 U.S.C. 
5514(a)(1)(C), or a proposed notification that the Bureau has determined 
not to subject a respondent to the Bureau's supervisory authority at 
that time, pursuant to Sec. 1091.108; and
    (vii) In connection with a proceeding under this part, including a 
petition for termination under Sec. 1091.113, all documents, records or 
other items submitted by a respondent to the Bureau, all documents 
prepared by, or on behalf of, or for the use of the Bureau, and any 
communications between the Bureau and a person, shall be deemed 
confidential supervisory information under 12 CFR 1070.2(i)(1).
    (b) A Notice shall be accompanied by a form of consent agreement by 
which a respondent may voluntarily consent to the Bureau's authority to 
supervise a respondent under 12 U.S.C. 5514. A completed and executed 
form of consent agreement under this paragraph:
    (1) Shall not constitute an admission that a respondent is a nonbank 
covered person that is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services;
    (2) Shall result in an order by the Director that a respondent is 
subject to the Bureau's supervisory authority under 12 U.S.C. 5514 for a 
period of two years from the date of such order; and
    (3) Shall include a provision that a respondent entering into a 
consent agreement waives any right to judicial review of such consent 
agreement.
    (c) Nothing in this section shall be construed as requiring the 
Bureau to produce any documents or other information to a respondent 
other than as set forth in this section.

Sec. 1091.104  Service of Notice.

    (a) A Notice of Reasonable Cause shall be served on a respondent as 
follows:
    (1) To individuals. A Notice shall be served on a respondent that is 
a natural person by delivering a copy of the Notice to the individual or 
to an agent authorized by appointment or by law to receive such a 
Notice. Delivery, for purposes of this paragraph, means handing a copy 
of a 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 a Notice addressed to the individual through the U.S. Postal 
Service by Registered Mail, Certified Mail or Express Mail delivery, or 
by third-party commercial carrier, for overnight delivery and obtaining 
a confirmation of receipt.
    (2) To corporations or entities. Notice shall be served on a person 
other than an individual by delivering a copy of a

[[Page 1141]]

Notice to an officer, managing or general agent, or any other agent 
authorized by appointment or law to receive such a Notice, by any method 
specified in paragraph (a)(1) of this section.
    (3) Upon persons registered with the Bureau. In addition to any 
other method of service specified in paragraph (a)(1) or (2) of this 
section, Notice may be served on a person registered with the Bureau by 
sending a copy of a Notice 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 
receipt or attempted delivery.
    (4) Upon persons in a foreign country. Notice may be served on a 
person in a foreign country by any method specified in paragraph (a)(1) 
or (2) 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.
    (5) Record of service. The Bureau shall maintain a record of service 
of a Notice on a respondent, 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 a Notice was given. If service is made by U.S. Postal 
Service Registered Mail, Certified Mail, or Express Mail, the Bureau 
shall maintain the confirmation of receipt or attempted delivery.
    (6) Waiver of service. In lieu of service as set forth in paragraph 
(a)(1) or (2) of this section, a person may be provided a copy of a 
Notice by First Class Mail or other reliable means if a written waiver 
of service is obtained from the person to be served. In the case of a 
respondent that is not a natural person, a written waiver may be 
provided by an officer, managing or general member, or partner 
authorized to represent the respondent.
    (b) The initiating official shall promptly submit a copy of a Notice 
and a copy of the certificate of service to the Associate Director.

Sec. 1091.105  Response.

    (a) Timing. Within 30 days of service of a Notice, a respondent 
shall file any response with the Associate Director according to the 
instructions set forth in a Notice.
    (b) Content of the response. (1) The response shall set forth the 
basis for a respondent's contention that the respondent is not a nonbank 
covered person that is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services.
    (2) The response shall include all documents, records, or other 
evidence a respondent wishes to use to support the arguments or 
assertions set forth in the response.
    (3) Any request to present a supplemental oral response, including 
the respondent's preference for a telephonic or in-person supplemental 
oral response, must be included in the response. A respondent's failure 
to request to present a supplemental oral response shall constitute a 
waiver of the opportunity to present a supplemental oral response.
    (4) A response shall include an affidavit or declaration, made by 
the individual respondent if a natural person, or, if a corporate or 
other entity that is not a natural person, by an officer, managing or 
general member, or partner authorized to represent the respondent, 
affirming that the response is true and accurate and does not contain 
any omissions that would cause the response to be materially misleading.
    (5) Notwithstanding any other provisions of this paragraph, a 
respondent may respond to a Notice of Reasonable Cause by voluntarily 
consenting to the Bureau's authority to supervise the respondent under 
12 U.S.C. 5514 by completing and executing the consent agreement form 
provided to the respondent with a Notice of Reasonable Cause in 
accordance with Sec. 1091.103(b).
    (c) Default. Failure of a respondent to file a response within the 
time period set forth in paragraph (a) of this section shall constitute 
a waiver of the respondent's right to respond, and shall,

[[Page 1142]]

based on the Notice, authorize the Associate Director, without further 
notice to the respondent, to issue a proposed decision and order as 
provided in Sec. 1091.108(c)(1) and the Director to issue a decision 
and order as provided in Sec. 1091.109(a)(1).
    (d) Waiver. A respondent shall be deemed to have waived the right, 
at any future stage of an Associate Director's or the Director's 
consideration of a matter, and in any petition for judicial review of an 
order issued pursuant to Sec. 1091.109(a)(1), to rely on any argument, 
record, document, or other information that the respondent does not 
raise or include in its response.
    (e) No Discovery. There shall be no discovery in connection with a 
response.

Sec. 1091.106  Supplemental oral response.

    (a) A respondent may request in a response under Sec. 1091.105 the 
opportunity to present to the Associate Director a supplemental oral 
response in support of a respondent's assertion that the respondent is 
not a nonbank covered person that is engaging, or has engaged, in 
conduct that poses risks to consumers with regard to the offering or 
provision of consumer financial products or services.
    (b) The conduct of a supplemental oral response shall be subject to 
the following procedures:
    (1) A supplemental oral response shall be, at the respondent's 
preference, by telephone or in person at the Bureau's headquarters in 
Washington, DC. If a respondent requests in its written response a 
supplemental oral response but does not specify whether such response 
shall be conducted via telephone or in person, the supplemental oral 
response will be conducted by telephone unless otherwise directed by the 
Associate Director;
    (2) The Associate Director may impose any limitations on the conduct 
of a supplemental oral response, including but not limited to 
establishing a time limit for the presentation of a supplemental oral 
response, and limiting the subjects to be addressed in a supplemental 
oral response;
    (3) There shall be no discovery permitted or witnesses called in 
connection with a supplemental oral response;
    (4) If a respondent is a corporate or other entity, and not a 
natural person, the respondent shall be represented in any supplemental 
oral response by:
    (i) An officer, managing or general member, or partner authorized to 
represent the respondent; or
    (ii) An attorney in good standing of the bar of the highest court of 
any State.
    (5) If a respondent is a natural person, the respondent shall be 
represented in any supplemental oral response by:
    (i) Himself or herself; or
    (ii) An attorney in good standing of the bar of the highest court of 
any State.
    (6) The Associate Director shall cause an audio recording of a 
supplemental oral response to be made by a court reporter. A respondent 
may purchase a copy or transcript of the recording at the respondent's 
own expense.
    (c) The initiating official may participate in any supplemental oral 
response conducted under this section.
    (d) The Associate Director shall serve on a respondent, within 14 
days after the Associate Director receives the respondent's timely-filed 
response requesting a supplemental oral response, a notice setting forth 
the date, time, and general information relating to the conduct of a 
supplemental oral response. The date of a supplemental oral response 
shall be scheduled not less than ten days after the date the respondent 
is served with the notice of supplemental oral response.
    (e) The notice of supplemental oral response shall be served on a 
respondent pursuant to Sec. 1091.107.
    (f) The Associate Director shall send a copy of the notice of 
supplemental oral response to the initiating official.
    (g) A respondent's failure to participate in a supplemental oral 
response scheduled by the Associate Director shall constitute the 
respondent's waiver of the opportunity to present a supplemental oral 
response.

Sec. 1091.107  Manner of filing and serving papers.

    Unless otherwise specified by the Associate Director or Director, a 
respondent shall file the response and any

[[Page 1143]]

other paper with the Executive Secretary at the mailing or electronic 
address provided by the Bureau, and the Associate Director and Director 
shall serve any paper, other than a Notice as set forth in Sec. 
1091.104, on a respondent, by:
    (a) Electronic transmission upon any condition specified by the 
Associate Director or Director; or
    (b) Any of the following methods if a respondent demonstrates 
electronic filing is not practicable and the Associate Director or 
Director permits:
    (1) Personal delivery;
    (2) Delivery through a reliable commercial courier service or 
overnight delivery service; or
    (3) Mailing the papers by U.S. Postal Service First Class, 
Registered, Certified, or Express Mail.

Sec. 1091.108  Recommended determination.

    (a) If a respondent did not voluntarily consent to the Bureau's 
supervision authority, and did not request the opportunity to present a 
supplemental oral response, not later than 45 days after receipt of a 
timely-filed response, or not later than 45 days after the service of a 
Notice of Reasonable Cause when a respondent fails to file a timely 
response, the Associate Director shall make a recommended determination 
whether there is reasonable cause for the Bureau to determine that the 
respondent is a nonbank covered person that is engaging, or has engaged, 
in conduct that poses risks to consumers with regard to the offering or 
provision of consumer financial products or services which should result 
in an order subjecting the respondent to the Bureau's authority under 12 
U.S.C. 5514(a)(1)(C).
    (b) If a respondent did request the opportunity to present a 
supplemental oral response, not later than 90 days after service of a 
Notice of Reasonable Cause, the Associate Director shall make a 
recommended determination whether there is reasonable cause for the 
Bureau to determine that the respondent is a nonbank covered person that 
is engaging, or has engaged, in conduct that poses risks to consumers 
with regard to the offering or provision of consumer financial products 
or services which should result in an order subjecting the respondent to 
the Bureau's authority under 12 U.S.C. 5514(a)(1)(C).
    (c) Upon making the recommended determination described in 
paragraphs (a) or (b) of this section, the Associate Director shall 
submit to the Director either:
    (1) A proposed decision and order that would subject a respondent to 
the Bureau's supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C) 
if adopted by the Director; or
    (2) A proposed notification that a respondent should not be 
subjected to the Bureau's supervisory authority under 12 U.S.C. 
5514(a)(1)(C) based on the proceedings. Such a notification shall have 
no precedential effect and shall not prevent the issuance of another 
Notice of Reasonable Cause pursuant to either Sec. 1091.102, or the 
procedures set forth in Sec. 1091.111, at any time, or from issuance of 
a decision and order based on another Notice recommending that a 
respondent be subject to the Bureau's authority pursuant to either of 
those sections.
    (d) Any proposed decision and order issued by the Associate Director 
pursuant to paragraph (c)(1) of this section shall set forth:
    (1) A statement that the Associate Director has preliminarily 
determined based on reasonable cause that a respondent is a nonbank 
covered person that is engaging, or has engaged, in conduct that poses 
risks to consumers with regard to the offering or provision of consumer 
financial products or services;
    (2) The basis for the Associate Director's determination; and
    (3) A proposed order directing that, pursuant to this determination, 
as of a specified date a respondent shall be subject to the Bureau's 
supervisory authority under 12 U.S.C. 5514.
    (e) The Associate Director shall include with the recommended 
determination submitted to the Director copies of the following:
    (1) The Notice of Reasonable Cause;
    (2) The record of service of a Notice of Reasonable Cause;
    (3) A respondent's response and any documents, records, or other 
items filed with the written response;

[[Page 1144]]

    (4) Any document, record, or other item considered by the Associate 
Director to be material in making a recommended determination; and
    (5) An audio recording of a supplemental oral response, if a 
supplemental oral response was conducted, and/or a transcript if a 
transcript was prepared at a respondent's request or if requested by the 
Director.
    (f) The requirement that the Associate Director provide to the 
Director the items described in paragraph (e) of this section shall 
confer no substantive rights on a respondent and any omission of an item 
may be cured by the Associate Director to the extent applicable.

Sec. 1091.109  Determination by the Director.

    (a) Not later than 45 days after receipt of the Associate Director's 
recommended determination, the Director shall, after considering the 
recommended determination and all documents, records, and other items 
submitted therewith by the Associate Director, make a determination 
either adopting without revision, modifying, or rejecting the Associate 
Director's recommended determination, and shall issue to respondent, 
with copies to the Associate Director and the initiating official:
    (1) A decision and order subjecting the respondent to the Bureau's 
supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C); or
    (2) A notification that the Director has determined that the 
respondent is not subject to the Bureau's supervisory authority under 12 
U.S.C. 5514(a)(1)(C) as a result of the proceedings. Such notification 
shall have no precedential effect and shall not prevent the issuance of 
another Notice of Reasonable Cause pursuant to either Sec. 1091.102, or 
the procedures set forth in Sec. 1091.111, at any time, or the issuance 
of an order based on another Notice subjecting the respondent to the 
Bureau's authority pursuant to either of those sections.
    (b) Any decision and order issued by the Director pursuant to 
paragraph (a)(1) of this section shall include:
    (1) A statement that the Director adopts the Associate Director's 
proposed decision and order without revision as the Director's decision 
and order, or that the Director rejects or modifies the Associate 
Director's proposed determination for reasons set forth by the Director;
    (2) A statement that the Director has determined that the Bureau has 
reasonable cause to determine that a respondent is a nonbank covered 
person that is engaging, or has engaged, in conduct that poses risks to 
consumers with regard to the offering or provision of consumer financial 
products or services;
    (3) The basis for the Director's determination, which may be an 
adoption of the basis set forth in the Associate Director's proposed 
decision;
    (4) An order directing that, pursuant to this determination, as of a 
specified date a respondent shall be subject to the Bureau's supervisory 
authority under 12 U.S.C. 5514 and informing a respondent that the 
respondent may petition for termination of the Bureau's supervisory 
authority no sooner than two years from the date of the order, and no 
more than annually thereafter; and
    (5) A copy of the recommended determination issued by the Associate 
Director.
    (c) Only decisional employees may advise and assist the Director in 
the consideration and disposition of a proceeding under this part.
    (d) A decision and order issued pursuant to paragraph (a)(1) of this 
section shall constitute final agency action under 5 U.S.C. 704.
    (e) Any item required to be served on a respondent under this 
section shall be served pursuant to Sec. 1091.107.

Sec. 1091.110  Voluntary consent to Bureau's authority.

    (a) Notwithstanding any other provision, pursuant to a consent 
agreement agreed to by the Bureau, a person may voluntarily consent to 
the Bureau's supervisory authority under 12 U.S.C. 5514, and such 
voluntary consent agreement shall not be subject to any right of 
judicial review.
    (b) The consent agreement of any person, pursuant to paragraph (a) 
of this section, that specifies the duration of time that such person 
will be subject to the Bureau's authority under 12

[[Page 1145]]

U.S.C. 5514 shall not be eligible for a petition for termination of 
order pursuant to Sec. 1091.113, and a consent agreement shall state 
that a respondent entering into a consent agreement waives any right to 
judicial review of such consent agreement.

Sec. 1091.111  Notice and response included in adjudication proceeding 
          otherwise brought by the Bureau.

    (a) Notwithstanding Sec. Sec. 1091.102 through 1091.106, the Bureau 
may, in its discretion, provide the notice and opportunity to respond 
required by 12 U.S.C. 5514(a)(1)(C) in a notice of charges otherwise 
brought by the Bureau pursuant to 12 CFR 1081.200 and the adjudication 
proceedings pursuant to part 1081. Also, a person may agree to submit to 
the Bureau's supervisory authority under 12 U.S.C. 5514(a)(1)(C) as part 
of a consent order entered into in connection with an adjudication 
proceeding or civil action.
    (b) If the Bureau chooses to proceed in the manner described in 
paragraph (a) of this section, it shall so indicate in the notice of 
charges, and any order of the Director resulting from the notice of 
charges shall constitute the order referred to in 12 U.S.C. 
5514(a)(1)(C).
    (c) If the Bureau proceeds pursuant to paragraph (a) of this 
section, the provisions of Sec. Sec. 1091.101 through 1091.110, and 
1091.113 through 1091.115 will be inapplicable to such proceeding.

Sec. 1091.112  No limitation on relief sought in civil action or 
          administrative adjudication.

    Nothing in this part shall be construed to limit the relief the 
Bureau may seek in any civil action or administrative adjudication, 
including but not limited to, seeking an order to have a person deemed 
subject to the Bureau's supervisory authority under 12 U.S.C. 5514, 
including for the reasons set forth in 12 U.S.C. 5514(a)(1)(C).

                 Subpart C_Post-Determination Procedures

Sec. 1091.113  Petition for termination of order.

    (a) Any person subject to an order issued pursuant to Sec. 
1091.109(a)(1) may, no sooner than two years after issuance of such an 
order and no more frequently than annually thereafter, petition the 
Director for termination of the order.
    (b) A petition for termination submitted pursuant to paragraph (a) 
of this section shall set forth the reasons supporting termination of 
the order, including any actions taken by a respondent since issuance of 
the order to address the conduct that led to issuance of the order, and 
may include any supporting information or evidence that the petitioner 
believes is relevant to the Director's determination of the matter.
    (c) A petition for termination shall be filed by the petitioner with 
the Executive Secretary at the mailing or electronic address provided by 
the Bureau.
    (d) The Director shall, promptly upon receipt of a petition for 
termination, send a copy of the same to the initiating official.
    (1) The initiating official may, within 30 days of his or her 
receipt of a copy of a petition for termination, file with the Director 
a response to the petition stating whether the initiating official 
recommends that the order be terminated, or modified, or that the 
petition for termination be denied and the basis for such 
recommendation.
    (2) The initiating official shall serve a copy of the response to a 
petition for termination on the petitioner pursuant to Sec. 1091.107 at 
the time of filing it with the Director.
    (e) Not later than 90 days after submission of a petition under 
paragraph (a) of this section, the Director shall issue a written 
decision either terminating or modifying the order, or denying the 
petition. If the Director modifies the order or denies the petition, the 
Director shall explain the basis for his or her decision with respect to 
the petition and send the written decision to the petitioner and the 
initiating official.
    (1) The Director shall serve the written decision on a petition for 
termination of order on a respondent pursuant to Sec. 1091.107.
    (2) The Director shall send a copy of the written decision on a 
petition for termination of order to the Associate

[[Page 1146]]

Director and initiating official promptly upon issuing the written 
decision.
    (3) The decision of the Director made pursuant to paragraph (e) of 
this section shall constitute final agency action under 5 U.S.C. 704.

                   Subpart D_Time Limits and Deadlines

Sec. 1091.114  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by this 
part, or by order of the Associate Director or Director, 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 ten days or less, not including any 
additional time allowed for in paragraph (c) of this section.
    (b) Filing or service of papers. 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 the person served;
    (2) In the case of overnight commercial delivery service, U.S. 
Postal Service Express Mail delivery, or First Class, Registered, or 
Certified Mail, upon deposit in or delivery to an appropriate point of 
collection; or
    (3) In the case of electronic transmission, including email, 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 U.S. Postal Service 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. 1091.115  Change of time limits and confidentiality of 
          proceedings.

    (a) Except as otherwise provided by law, the Associate Director 
until the issuance of a recommended determination, or the Director at 
any time thereafter, at their respective discretion, may extend the time 
limits prescribed by this part or by any notice or order issued pursuant 
to this part. Any request for an extension of a time limit by a 
respondent must be for good cause shown, in writing, and filed with the 
Associate Director or Director, as appropriate. The mere filing of a 
written request for an extension does not alleviate a respondent of the 
obligation to meet an applicable time limit absent written confirmation 
that an extension has been granted.
    (b) Deadlines for action by the initiating official, Associate 
Director, or the Director established in this part confer no substantive 
rights on respondents.
    (c) In connection with a proceeding under this part, including a 
petition for termination under Sec. 1091.113, all documents, records or 
other items submitted by a respondent to the Bureau, all documents 
prepared by, or on behalf of, or for the use of the Bureau, and any 
communications between the Bureau and a person, shall be deemed 
confidential supervisory information under 12 CFR 1070.2(i)(1).

[[Page 1147]]



                              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 1149]]



                    Table of CFR Titles and Chapters


                      (Revised as January 1, 2014)

                      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 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 1150]]

       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)
     XXXIV  Department of Education (Parts 3400--3499)
      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--199)
        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)

[[Page 1151]]

    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
     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)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)

[[Page 1152]]

    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (9600--9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
     XCVII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--99)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         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)

[[Page 1153]]

      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)
       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)

[[Page 1154]]

        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)

                           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)

[[Page 1155]]

               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)

                    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)

[[Page 1156]]

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             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)

[[Page 1157]]

                       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)

                      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)

[[Page 1158]]

        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)
         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)

[[Page 1159]]

        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)

                      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)

[[Page 1160]]

      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)
     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)

[[Page 1161]]

         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
       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 (700--799)[Reserved]
            Subtitle C--Regulations Relating to Education
        XI  National Institute for Literacy (Parts 1100--1199)
       XII  National Council on Disability (Parts 1200--1299)

[[Page 1162]]

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        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  U.S. 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--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        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)

[[Page 1163]]

       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          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)

[[Page 1164]]

         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   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 400--999)
        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)
         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)

[[Page 1165]]

       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)
     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)

[[Page 1166]]

        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)
        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 (Parts 5300--5399)[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)

[[Page 1167]]

         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       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 (Parts 1400--
                1499)[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)

[[Page 1169]]





           Alphabetical List of Agencies Appearing in the CFR


                     (Revised as of January 1, 2014)

                                                  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
Afghanistan Reconstruction, Special Inspector     22, LXXXIII
     General for
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

[[Page 1170]]

Animal and Plant Health Inspection Service        7, III; 9, I
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
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
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 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 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              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, 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
Customs and Border Protection                     19, I

[[Page 1171]]

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 Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 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
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99

[[Page 1172]]

  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
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV

[[Page 1173]]

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; 8, 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
  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
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V

[[Page 1174]]

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
Iraq Reconstruction, Special Inspector General    5, LXXXVII
     for
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
Labor Department                                  5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V

[[Page 1175]]

  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 Royalty Board                         37, III
  U.S. Copyright Office                           37, II
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              5, LXXXVI; 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
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

[[Page 1176]]

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
Privacy and Civil Liberties Oversight Board       6, X
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
Rural Housing Service                             7, XVIII, XXXV, L
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII, L

[[Page 1177]]

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
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
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
  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
[[Page 1178]]

U.S. Copyright Office                             37, II
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 1179]]



List of CFR Sections Affected

All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2009 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, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2009

  (No regulations published from January 1, 2009, through December 31, 
                                  2009)

                                  2010

  (No regulations published from January 1, 2010, through December 31, 
                                  2010)

                                  2011

12 CFR
                                                                   76 FR
                                                                    Page
1026 Added; interim................................................79772
1030 Added; interim................................................79278
1070 Added; interim................................................45377
1080 Added; interim................................................45170
1081 Added; interim................................................45351
1082 Added; interim................................................45175

                                  2012

12 CFR
                                                                   77 FR
                                                                    Page
1026 Authority citation revised......................69738, 69739, 70114
1026.1 (a) revised; (c)(5) added...................................70114
1026 Supplement I amended............................69738, 69739, 70114
1070.47 (c) revised................................................39623
1070.48 Added......................................................39623
1071 Added; interim................................................39119
1072 Added; interim................................................46609
1074 Added.........................................................76354
1080 Revised.......................................................39108
1081 Revised.......................................................39083
1082 Revised.......................................................39116
1090 Added.........................................................42898
1090.105 Added; eff. 1-2-13........................................65798
    Corrected; eff. 1-2-13.........................................72913

                                  2013

12 CFR
                                                                   78 FR
                                                                    Page
Chapter X
1026 Authority citation revised; eff. 1-10-14......................44718
1026.1 (d)(5) revised; eff. 1-10-14.................................6962
    Regulation at 78 FR 6962 confirmed.............................69753
    (b), (c)(5), (d)(5) and (e) revised; eff. 8-1-15...............80106
1026.2 (a)(3), (6) and (25) revised; eff. 8-1-15...................80106
1026.3 Introductory text revised; (h) added; eff. 8-1-15...........80107
1026.17 (a)(1) and (b) revised; eff. 1-10-14.......................11004
    Regulation at 78 FR 11004 confirmed............................69753
    (a) introductory text added; (b), (f) introductory text, (g) 
introductory text and (h) introductory text revised; eff. 8-1-15 
                                                                   80107
1026.18 Introductory text, (k)(1), (2), (s) introductory text, 
        (3)(i)(C) and (t)(1) revised; eff. 8-1-15..................80108

[[Page 1180]]

1026.19 (a)(1)(i) and (ii) revised; (a)(5) removed; (e), (f) and 
        (g) added; eff. 8-1-15.....................................80108
1026.20 Heading, (c) and (d) revised; eff. 1-10-14.................11004
    (c)(1)(ii)(A) and (B) amended; (c)(1)(ii)(C) added; interim; 
eff. 1-10-14.......................................................63005
    Regulation at 78 FR 11004 confirmed............................69753
    (e) added; eff. 8-1-15.........................................80111
1026.22 (a)(4) and (5) revised; eff. 8-1-15........................80112
1026.23 (a)(3)(ii) revised.........................................30745
    (a)(3)(ii) revised; eff. 1-10-14...............................60440
1026.25 (a) revised; (c)(3) added; eff. 1-10-14.....................6583
    (c)(2) added; eff. 1-10-14.....................................11410
     Regulation at 78 FR 11410 eff. date changed from 1-10-14 to 
1-1-14.............................................................60382
    Regulation at 78 FR 11410 confirmed............................69753
    (a) revised; (c)(1) added; eff. 8-1-15.........................80112
1026.28 (a)(1) revised; eff. 8-1-15................................80112
1026.31 (c)(1) revised; (h) added; eff. 1-10-14.....................6962
    (g), (h)(1)(iii)(A) and (2)(iii)(A) revised; eff. 1-10-14......60440
    Regulation at 78 FR 6962 confirmed.............................69753
1026.32 Heading and (b)(1) revised; (b)(2) removed; (b)(3) through 
        (6) added; eff. 1-10-14.....................................6583
    (a), (c)(3), (4), (5), (d) introductory text, (1), (6) and (8) 
revised; (d)(7) removed; (b)(2), (3)(ii), (4)(ii) and (6)(ii) 
added; eff. 1-10-14.................................................6962
    (b)(1)(ii) and (2)(ii) revised; eff. 1-10-14...................35502
    (a)(2)(iii), (b)(1)(ii), (vi), (2)(ii), (vi), (6)(ii) and 
(d)(1)(ii)(C) revised; eff. 1-10-14................................60440
    Regulation at 78 FR 6962 confirmed.............................69753
    Regulation at 78 FR 35502 confirmed............................69753
1026.34 Revised; eff. 1-10-14.......................................6964
    (a)(4)(i) revised..............................................30745
    (a)(5)(ii), (iv)(D) and (E) revised; (a)(5)(iv)(F) added; 
interim; eff. 1-10-14..............................................63005
1026.35 Revised.....................................................4753
    (b)(1) amended; (b)(2)(iii)(A), (iv)(A) and (B) revised; (e) 
added; eff. in part 6-1-13 through 1-9-14..........................30745
    (b)(2)(i)(D), (iii)(A) and (D)(1) revised; eff. in part 1-10-
14.................................................................60441
    (c) added; eff. 1-18-14........................................10442
    (e) introductory text revised; (e)(3) redesignated as (e)(4); 
new (e)(3) added...................................................44718
    Regulation at 78 FR 6964 confirmed.............................69753
    Regulation at 78 FR 10442 confirmed............................69753
    (c) heading, (1)(ii), (iii), (iv), (2) introductory text, (i), 
(ii) and (v) revised; (c)(1)(v), (vi), (vii), (2)(vii) and (viii) 
added; eff. 1-18-14................................................78585
    (c)(2)(viii) revised; eff. 7-18-15.............................78586
1026.36 (k) added; eff. 1-10-14.....................................6966
    (c) revised; eff. 1-10-14......................................11006
    Heading, (a) heading, (1), (d)(1), (2), (e)(3)(i)(C) and (f) 
revised; (a)(3), (4), (5), (b), (g) through (j) added; eff. in 
part 1-10-14.......................................................11410
    (a), (b), (d), (e), (f), (j) Regulation at 78 FR 11410 eff. 
date changed from 1-10-14 to 1-1-14................................60382
    Regulation at 78 FR 11410 eff. date delayed in part to 1-10-14
                                                                   32547
    (a)(1)(i)(A), (B), (f)(3)(i) introductory text, (ii), (i) and 
(j)(2) revised; (a)(6) and (b) added; eff. 1-10-14.................60441
    Regulation at 78 FR 6966 confirmed.............................69753
    Regulation at 78 FR 11410 confirmed............................69753
    Regulation at 78 FR 11006 confirmed............................69753
1026.37 Added; eff. 8-1-15.........................................80113
1026.38 Added; eff. 8-1-15.........................................80120
1026.39 (a)(2) and (d) introductory text revised; (d)(5) added; 
        eff. 8-1-15................................................80130
1026.41 Added; eff. 1-10-14........................................11007
    (a)(1), (e)(4)(ii) and (iii) revised; eff. 1-10-14.............44718
    (e)(5) added; interim; eff. 1-10-14............................63005
1026.43 Added; eff. 1-10-14.........................................6584

[[Page 1181]]

    (a)(3)(ii), (iii), (b)(4), (e)(1), (2) and (g)(1)(ii)(B) 
revised; (a)(3)(iv), (v), (vi), (e)(5) and (6) added; eff. 1-10-14
                                                                   35502
    (e)(4)(ii)(A) introductory text, (B)through (E) revised; eff. 
1-10-14............................................................44718
    (a)(2), (e)(4)(ii) introductory text and (C) revised; eff. 1-
10-14..............................................................60442
    (e)(4)(ii)(C) revised; interim; eff. 1-10-14...................63006
    Regulation at 78 FR 35502 confirmed............................69753
1026.51 (a)(1) and (b) revised.....................................25837
1026.52 (a)(1) revised.............................................18797
    (b)(1)(ii)(A) and (B) revised..................................76035
1026 Supplement I amended.......4754, 18797, 25837, 30745, 60442, 70196, 
                                                                   76035
    Supplement I amended; eff. 1-10-14.........6596, 6967, 11016, 11413, 
                                                            35504, 44725
    Supplement I corrected; eff. 1-10-14....................45842, 60450
    Supplement I amended; eff. 1-18-14.............................10444
    Supplement I amended; interim; eff. 1-10-14....................63006
    Supplement I amended; eff. 1-18-14.............................78586
    Supplement I amended...........................................79287
    Supplement I amended; eff. 8-1-15..............................80302
    Appendix D amended; eff. 8-1-15................................80130
    Appendix H amended; eff. 1-10-14........................11008, 60442
    Appendix H amended; eff. 8-1-15................................80130
    Appendices N and O added; eff. 1-18-14.........................10444
    Appendix N amended; eff. 1-18-14...............................78586
    Appendix Q added; eff. 1-10-14..................................6589
    Appendix Q revised; eff. 1-10-14...............................44718
    Regulation at 78 FR 6967 confirmed.............................69753
    Regulation at 78 FR 10442 confirmed............................69753
    Regulation at 78 FR 11413 confirmed............................69753
    Regulation at 78 FR 11008 confirmed............................69753
    Regulation at 78 FR 11016 confirmed............................69753
    Regulation at 78 FR 35504 confirmed............................69753
1070 Revised.......................................................11503
1073 Added.........................................................41678
1075 Added.........................................................26501
1076 Added.........................................................47153
1081 Authority citation revised; interim...........................59164
1081.100 Revised; interim..........................................59164
1081.200 (a) revised; interim......................................59164
1081.500--1081.502 (Subpart E) Added; interim......................59164
1090.106 Added; eff. 3-1-14........................................73406
1091 Added.........................................................40375


                                  [all]