[Federal Register Volume 73, Number 97 (Monday, May 19, 2008)]
[Proposed Rules]
[Pages 28866-28901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-10242]



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Part II





Federal Reserve System





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12 CFR Part 226



Truth in Lending; Proposed Rule

  Federal Register / Vol. 73, No. 97 / Monday, May 19, 2008 / Proposed 
Rules  

[[Page 28866]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1286]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; request for public comment.

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SUMMARY: On June 14, 2007, the Board published proposed amendments to 
Regulation Z, which implements the Truth in Lending Act (TILA), and to 
the staff commentary to the regulation, following a comprehensive 
review of TILA's rules for open-end (revolving) credit that is not 
home-secured. The proposed revisions addressed disclosures provided 
with credit card applications and solicitations, at account-opening, on 
periodic statements, when terms are changed on an account, and in 
advertisements.
    The Board is seeking comment on a limited number of additional 
revisions to the regulation and commentary. New proposed amendments 
address creditors' responsibilities to establish reasonable 
instructions for receiving timely payments and when a due date falls on 
a weekend or holiday. Creditors' responsibilities when investigating a 
claim of unauthorized transactions or an allegation of a billing error 
are also addressed. Advertisements for deferred interest plans would be 
required to provide additional information about how interest could be 
imposed. Comments submitted to the Board in response to the June 2007 
proposed revisions remain under consideration by the Board and need not 
be submitted a second time.

DATES: Comments must be received on or before July 18, 2008.

ADDRESSES: You may submit comments, identified by Docket No. R-1286, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include the 
docket number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

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

SUPPLEMENTARY INFORMATION:

I. Background on TILA and Regulation Z

    Congress enacted the Truth in Lending Act (TILA) based on findings 
that economic stability would be enhanced and competition among 
consumer credit providers would be strengthened by the informed use of 
credit resulting from consumers' awareness of the cost of credit. The 
purposes of TILA are (1) to provide a meaningful disclosure of credit 
terms to enable consumers to compare credit terms available in the 
marketplace more readily and avoid the uninformed use of credit; and 
(2) to protect consumers against inaccurate and unfair credit billing 
and credit card practices.
    TILA's disclosures differ depending on whether consumer credit is 
an open-end (revolving) plan or a closed-end (installment) loan. TILA 
also contains procedural and substantive protections for consumers. 
TILA is implemented by the Board's Regulation Z. An Official Staff 
Commentary interprets the requirements of Regulation Z. By statute, 
creditors that follow in good faith Board or official staff 
interpretations are insulated from civil liability, criminal penalties, 
or administrative sanction.

II. Review of Regulation Z's Rules for Open-End (Not Home-Secured) 
Plans

    The Board published proposed amendments to Regulation Z's rules for 
open-end plans that are not home-secured in June 2007 (June 2007 
Proposal). 72 FR 32948, June 14, 2007. The goal of the amendments is to 
improve the effectiveness of the disclosures that creditors provide to 
consumers at application and throughout the life of an open-end (not 
home-secured) account. The proposed changes affect the format, timing, 
and content requirements for the five main types of open-end credit 
disclosures governed by Regulation Z: (1) Credit and charge card 
application and solicitation disclosures; (2) account-opening 
disclosures; (3) periodic statement disclosures; (4) change-in-term 
notices; and (5) advertisements.
    The June 2007 Proposal was preceded by two advance notices of 
proposed rulemaking (ANPR). In December 2004, the Board announced its 
intent to conduct a review of Regulation Z in stages, starting with the 
rules for open-end (revolving) credit accounts that are not home-
secured, chiefly general-purpose credit cards and retail credit card 
plans (December 2004 ANPR). 69 FR 70925, December 8, 2004. The December 
2004 ANPR sought public comment on a variety of specific issues 
relating to three broad categories: the format of open-end credit 
disclosures, the content of those disclosures, and the substantive 
protections provided for open-end credit under the regulation.
    In October 2005, the Board published a second ANPR (October 2005 
ANPR). 70 FR 60235, October 17, 2005. The October 2005 ANPR solicited 
comment on implementing amendments to TILA contained in the Bankruptcy 
Abuse Prevention and Consumer Protection Act of 2005 (the ``Bankruptcy 
Act''). Public Law 109-8, 119 Stat. 23. The Bankruptcy Act's TILA 
amendments principally affect open-end credit accounts and require new 
disclosures on periodic statements, on credit card applications and 
solicitations, and in advertisements. In the October 2005 ANPR, the 
Board stated its intent to implement the Bankruptcy Act amendments as 
part of the Board's ongoing review of Regulation Z's open-end credit 
rules.
    In developing the June 2007 Proposal, the Board conducted consumer 
research, in addition to considering comments received on the two 
ANPRs. Specifically, the Board retained a research and consulting firm 
(Macro International) to assist the Board in using consumer testing to 
develop proposed model forms for the summary table disclosures provided 
in direct-mail solicitations and applications; disclosures provided at 
account opening; periodic statement disclosures; and subsequent 
disclosures, such as notices provided when key account

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terms are changed, and notices on checks provided to access credit card 
accounts. A report summarizing the results of the Board's testing 
efforts is available on the Board's Web site: http://www.federalreserve.gov.
    The Board received over 2,500 comments on the June 2007 Proposal. 
About 85% of these were from consumers and consumer groups, and of 
those, nearly all (99%) were from individuals. Regarding comments from 
industry representatives, about 10% were from financial institutions or 
their trade associations. The vast majority (90%) of the industry 
letters were from credit unions and their trade associations. Those 
latter comments were mainly about a proposed revision to the definition 
of open-end credit that could affect how many credit unions currently 
structure their consumer loan products.
    A summary of comments received in response to the June 2007 
Proposal and this rulemaking (May 2008 Proposal) will be included in 
the Board's final revisions to Regulation Z's open-end credit rules. In 
general, commenters generally supported the June 2007 Proposal and the 
Board's use of consumer testing to develop revisions to disclosure 
requirements. There was opposition to some aspects of the proposal. For 
example, industry representatives opposed many of the format 
requirements for periodic statements, as being overly prescriptive. 
They also opposed the Board's proposal to require creditors to provide 
at least 45 days' advance notice before certain key terms change or 
interest rates are increased due to default or delinquency. Consumer 
groups opposed the Board's proposed alternative that would eliminate 
the effective annual percentage rate (APR) as a periodic statement 
disclosure. Consumers and consumer groups also believe the Board's 
proposal was too limited in scope and urged the Board to provide more 
substantive protections and prohibit certain card issuer practices.
    In early 2008, the Board worked with its testing consultant, Macro 
International, to revise model disclosures in response to comments 
received, and in March 2008, the Board conducted an additional round of 
one-on-one cognitive interviews on revised disclosures provided with 
applications and solicitations, on periodic statements, and with checks 
that access a credit card account. The results of these interviews are 
discussed throughout the section-by-section analysis below, to the 
extent the March 2008 testing influenced the matters being proposed in 
this May 2008 Proposal.
    The Board will continue to work with its consultant to revise the 
model disclosures, based on comments received on the June 2007 and May 
2008 Proposals. Macro International then will conduct additional rounds 
of cognitive interviews to test the revised disclosures. After the 
cognitive interviews, quantitative testing will be conducted. The goal 
of the quantitative testing is to measure consumers' comprehension and 
the usability of the newly-developed disclosures relative to existing 
disclosures and formats.

III. Effect of Additional Rulemaking on June 2007 Proposal

    The Board is publishing additional proposed revisions to a limited 
number of provisions affecting Regulation Z's rules for open-end credit 
(May 2008 Proposal). Proposed amendments to Regulation Z that were 
published in June 2007 and are not addressed in VI. Section-by-section 
Analysis below remain under the Board's consideration as proposed. 
Comments submitted to the Board in response to those June 2007 proposed 
revisions to Regulation Z need not be submitted a second time.
    The Board, along with the Office of Thrift Supervision and the 
National Credit Union Administration, is also publishing elsewhere in 
today's Federal Register a proposal to adopt rules prohibiting specific 
unfair acts or practices with respect to consumer credit card accounts 
under their authority under the Federal Trade Commission Act (FTC 
Act).\1\ See 15 U.S.C. 57a(f)(1). The Board's proposal would add a new 
Subpart C to the Board's Regulation AA, Unfair or Deceptive Acts or 
Practices (2008 Regulation AA Proposal). 12 CFR part 227. The proposal 
would, among others, (1) prohibit banks from treating payments on a 
consumer credit card account as late unless the consumer is provided 
with a reasonable amount of time to make a payment, (2) establish rules 
governing the allocation of payments on outstanding balances, (3) limit 
banks' ability to increase the rate of interest applicable to any 
outstanding balance, and (4) prohibit banks from computing finance 
charges based on balances for days in billing cycles preceding the most 
recent billing cycle.
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    \1\ For simplicity, this notice will refer only to the Board's 
proposal.
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    At the end of the period for public comment for the May 2008 
Proposal and the 2008 Regulation AA Proposal, the Board will review the 
comments received and continue to conduct additional consumer tests on 
revised disclosures to consider any appropriate changes. The comment 
period for this May 2008 Proposal is 60 days (rather than 75 days, as 
provided in the Regulation AA Proposal) after this notice is published 
in the Federal Register, to facilitate a timely resumption and 
completion of the Board's consumer testing efforts. Following the 
Board's analysis of the comments (including comments from the June 2007 
Proposal) and the results of consumer testing, the Board anticipates 
adopting at the same time final rules for these related proposals. The 
Board will provide creditors and processors with an adequate time to 
implement the necessary changes.

IV. Summary of Proposed Revisions

    Applications and Solicitations. The June 2007 Proposal contained 
changes to the format and content of credit and charge card application 
and solicitation disclosures to make them more meaningful and easier 
for consumers to use. The May 2008 Proposal would revise the content 
requirements on several disclosures, as follows:
     Grace period labels. The June 2007 proposed requirement to 
use the term ``grace period'' as a heading in the summary table 
provided at application (and elsewhere such as at account opening or 
with checks that access credit card accounts) would be eliminated. The 
phrase ``how to avoid interest'' (or ``paying interest'' if no grace 
period exists) or substantially similar terminology would be required 
instead.
     Minimum interest charge. The May 2008 Proposal would add a 
de minimis dollar amount trigger of $1.00 for disclosing minimum 
interest or finance charges. Currently, card issuers must disclose in 
the summary table at application and account opening any minimum 
interest or finance charge. The $1.00 trigger would be adjusted when 
cumulative percentage changes to the Consumer Price Index added to the 
$1.00 trigger equals or exceeds the next whole dollar.
     Foreign transaction fees. The May 2008 Proposal would 
require issuers to disclose fees for purchase transactions in a foreign 
currency or conducted outside the United States in the table provided 
at application or solicitation. The June 2007 Proposal required 
creditors to disclose these fees in the summary table provided at 
account-opening but not in the table provided at application or 
solicitation.
     Penalty rate when credit privileges are terminated. 
Currently, card issuers are not required to disclose in the

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application summary table increased rates that apply when credit 
privileges are terminated. The May 2008 Proposal would eliminate the 
exception.
     Oral disclosures. Card issuers generally must provide cost 
disclosures in oral applications or solicitations initiated by the 
issuer. The May 2008 Proposal would require additional oral disclosures 
for issuers that require fees or a security deposit to issue the card 
that are 25 percent or more of the minimum credit limit offered for the 
account. These issuers would be required to orally provide the amount 
of available credit the consumer would have after paying the fees or 
security deposit, assuming the consumer receives the minimum credit 
limit.
    Account-opening Disclosures. The May 2008 Proposal would require 
creditors assessing fees at account opening that are 25 % or more of 
the minimum credit limit to provide a notice of the consumer's right to 
reject the plan after receiving disclosures if the consumer has not 
used the account or paid a fee (other than certain application fees). 
Changes regarding ``grace period'' terminology and minimum interest 
charge disclosure requirements are proposed to conform the disclosure 
requirements for the account-opening table to the requirements for the 
table required with applications or solicitations. Model forms are 
proposed to ease compliance for creditors offering open-end (not home-
secured) plans that are not accessed by credit cards, such as lines of 
credit or overdraft plans.
    Checks that Access Credit Card Accounts. The June 2007 Proposal 
required creditors to disclose on the front of the page containing the 
checks that access credit card accounts information such as the rates 
that will apply if the checks are used, any transaction fees, and 
whether or not a grace period exists. The May 2008 Proposal would add a 
requirement to disclose any date by which consumers must use the check 
to receive the disclosed rates.
    Changes in Consumer's Interest Rate and Other Account Terms. The 
June 2007 Proposal required that when a change-in-terms notice 
accompanies a periodic statement, creditors provide a tabular 
disclosure on the front of the periodic statement of the key terms 
being changed. Consistent with the 2008 Regulation AA Proposal that 
restricts creditors' ability to apply increased rates to certain 
existing balances, creditors would be required to clarify how existing 
or new balances would be affected by any rate increase.
    Crediting Payments. Currently, creditors may require consumers to 
comply with reasonable payment instructions, including a cut-off hour 
for receiving payments. The May 2008 Proposal deems a cut-off hour for 
mailed payments before 5 p.m. on the due date to be an unreasonable 
instruction. Creditors that set due dates on a weekend or holiday but 
do not accept mailed payments on those days would not be able to 
consider a payment received on the next business day as late for any 
reason.
    Investigating Claims of Unauthorized Transactions or Allegations of 
Billing Errors. Currently, creditors must conduct a reasonable 
investigation before imposing liability for an unauthorized 
transaction, and may reasonably request a consumer's cooperation. The 
May 2008 Proposal clarifies that a creditor may not, however, deny a 
claim solely if the consumer does not comply with a request to sign a 
written affidavit or file a police report, and for consistency extends 
guidance for reasonably investigating claims of unauthorized 
transactions to allegations of billing errors.
    Advertising Provisions. For deferred interest plans that advertise 
``no interest'' or similar terms, the May 2008 Proposal would add 
notice and proximity requirements to require advertisements to state 
the circumstances under which interest is charged from the date of 
purchase and, if applicable, that the minimum payments required will 
not pay off the balance in full by the end of the deferral period. 
Model clauses are proposed to ease compliance.

V. The Board's Rulemaking Authority

    TILA mandates that the Board prescribe regulations to carry out the 
purposes of the act. TILA also specifically authorizes the Board, among 
other things, to do the following:

     Issue regulations that contain such classifications, 
differentiations, or other provisions, or that provide for such 
adjustments and exceptions for any class of transactions, that in 
the Board's judgment are necessary or proper to effectuate the 
purposes of TILA, facilitate compliance with the act, or prevent 
circumvention or evasion. 15 U.S.C. 1604(a).
     Exempt from all or part of TILA any class of 
transactions if the Board determines that TILA coverage does not 
provide a meaningful benefit to consumers in the form of useful 
information or protection. The Board must consider factors 
identified in the act and publish its rationale at the time it 
proposes an exemption for comment. 15 U.S.C. 1604(f).
     Add or modify information required to be disclosed with 
credit and charge card applications or solicitations if the Board 
determines the action is necessary to carry out the purposes of, or 
prevent evasions of, the application and solicitation disclosure 
rules. 15 U.S.C. 1637(c)(5).
     Require disclosures in advertisements of open-end 
plans. 15 U.S.C. 1663.

    For the reasons discussed in this notice, the Board is using its 
specific authority under TILA, in concurrence with other TILA 
provisions, to effectuate the purposes of TILA, to prevent the 
circumvention or evasion of TILA, and to facilitate compliance with the 
act.

VI. Section-By-Section Analysis

Section 226.5 General Disclosure Requirements

5(a) Form of Disclosures
5(a)(1) General
Paragraph 5(a)(1)(ii)(A)
    Under Sec.  226.5(a)(1)(ii)(A) in the June 2007 Proposal, certain 
disclosures need not be written, including disclosures under Sec.  
226.6(b)(1) of charges that are imposed as part of the plan and may be 
provided at any time before the consumer agrees to pay or becomes 
obligated to pay for the charge, pursuant to the disclosure timing 
requirements of Sec.  226.5(b)(1)(ii). 72 FR 32948, 33043, June 14, 
2007. Under proposed Sec.  226.5(b)(1)(ii), these charges are charges 
that are imposed as part of the plan but that are not required to be 
disclosed in a tabular format under Sec.  226.6(b)(4). 72 FR 32948, 
33044, June 14, 2007. Such charges would include, for example, a charge 
to make an on-line payment on the account. In addition, under proposed 
Sec.  226.5(a)(1)(ii)(A), change-in-terms disclosures, under Sec.  
226.9(c)(2)(ii)(B), related to the disclosures discussed above (for 
example, an increase in the amount of an on-line payment charge) also 
need not be provided in writing.
    Commenters on the June 2007 Proposal suggested that creditors 
should be permitted to provide disclosures in electronic form, without 
having to comply with the consumer notice and consent procedures of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act), 
15 U.S.C. 7001 et seq., at the time an on-line or other electronic 
service is used. For example, commenters suggested, if a consumer 
wishes to make an on-line payment on the account, for which the 
creditor imposes a fee (which has not previously been disclosed), the 
creditor should be allowed to disclose the fee electronically, without 
E-Sign notice and consent, at the time the on-line payment service is 
requested.

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Commenters contended that such a provision would not harm consumers and 
would expedite transactions, and also that it would be consistent with 
the Board's proposal to permit oral disclosure of such fees.
    Under section 101(c) of the E-Sign Act, if a statute or regulation 
requires that consumer disclosures be provided in writing, certain 
notice and consent procedures must be followed in order to provide the 
disclosures in electronic form. Since, under the Board's June 2007 
Proposal, the disclosures discussed above are not required to be 
provided in writing, the Board believes that the E-Sign notice and 
consent requirements do not apply when the consumer requests the 
service in electronic form. The Board proposes to add comment 
5(a)(1)(ii)(A)-1 to clarify this matter.
Paragraph 5(a)(1)(iii)
    Under Sec.  226.5(a)(1)(iii) in the June 2007 Proposal, certain 
disclosures may be provided in electronic form without regard to the 
consumer notice and consent provisions of the E-Sign Act. The Board 
proposes to add comment 5(a)(1)(iii)-1 to clarify that the disclosures 
specified in Sec.  226.5(a)(1)(ii)(A) also may be provided in 
electronic form without regard to the E-Sign Act when the consumer 
requests the service in electronic form, such as on a creditor's Web 
site.
5(a)(2) Terminology
    Use of the term ``grace period''. Under Sec.  226.5(a)(2)(iii) in 
the June 2007 Proposal, the term ``grace period'' would be required to 
be used, as applicable, in any disclosure that must be in tabular 
format under proposed Sec.  226.5(a)(3). 72 FR 32948, 33044, June 14, 
2007. TILA Section 122(c)(2)(C), which is implemented currently in 
Sec.  226.5a(a)(2)(ii), requires credit card applications and 
solicitations under Sec.  226.5a to use the term ``grace period'' to 
describe the date by which or the period within which any credit 
extended for purchases may be repaid without incurring a finance 
charge. 15 U.S.C. 1632(c)(2)(C). The Board's proposal was meant to 
promote uniformity in the use of this term across other disclosures and 
thereby improve consumer understanding of the concept.
    Some industry commenters argued, however, that the Board should 
reconsider requiring use of the term ``grace period.'' One industry 
commenter noted that research conducted by the Board and by the United 
States Government Accountability Office (GAO), as well as the 
commenter's own research, demonstrated that the term is confusing as a 
descriptor of the interest-free period between the purchase and the due 
date for customers who pay their balances in full.\2\ This commenter 
suggested that the Board revise the disclosure of the grace period in 
the credit card application and solicitation table to use the heading 
``interest-free period'' instead of ``grace period.''
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    \2\ United States Government Accountability Office, Credit 
Cards: Increased Complexity in Rates and Fees Heightens Need for 
More Effective Disclosures to Consumers, 06-929 (September 2006) 
(GAO Report on Credit Card Rates and Fees).
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    The Board further tested alternative disclosures for the grace 
period in March 2008. Based on the results from consumer testing, as 
discussed in greater detail in the section-by-section analysis to Sec.  
226.5a(b)(5) below, the Board is using its authority under TILA 
Sections 105(a) and (f), and TILA Section 127(c)(5) to delete the 
requirement to use the term ``grace period'' in the table required by 
Sec.  226.5a. 15 U.S.C. 1604(a) and (f), 1637(c)(5). To maintain 
consistent terminology across other disclosures, the Board is also 
withdrawing its proposal under Sec.  226.5(a)(2)(iii) to require the 
term ``grace period'' to be used, as applicable, in any disclosure that 
must be in tabular format under proposed Sec.  226.5(a)(3). If this 
approach is adopted as proposed, conforming changes will also be made 
to remove the term ``grace period'' from all model forms and associated 
commentary when the Board adopts revisions to the Regulation Z rules 
for open-end (not home-secured) plans.
    The Board also notes that with the removal of the term ``grace 
period'' from the table required by Sec.  226.5a, use of the term 
``grace period'' in subsequent disclosures to the consumer would not be 
appropriate pursuant to the proposed requirement that creditors use 
consistent terminology under proposed Sec.  226.5(a)(2)(i). While the 
use of identical language is not required under proposed comment 
5(a)(2)-4, creditors are still required to use terms close enough in 
meaning to enable the consumer to relate the different disclosures. As 
discussed further below with respect to the proposed revisions to Sec.  
226.5a(b)(5), the Board proposes to require using language focused on 
the terms ``how to avoid paying interest'' or ``paying interest.'' 
Consequently, subsequent disclosures to consumers should also use 
similar terms.
5(b) Time of Disclosures
5(b)(1) Account-Opening Disclosures
5(b)(1)(ii) Charges Imposed as Part of an Open-End (Not Home-Secured) 
Plan
    Comment 5(b)(1)(ii)-1, under the June 2007 Proposal, states that 
charges that are imposed as part of an open-end (not home-secured) 
plan, other than those specified in Sec.  226.6(b)(4), may be disclosed 
orally or in writing at any time before a consumer agrees to pay the 
charge or becomes obligated for the charge. 72 FR 32948, 33104, June 
14, 2007. The Board proposes to revise the comment to clarify that 
electronic disclosure of these charges, without regard to the E-Sign 
Act notice and consent requirements, is also permissible as an 
alternative to oral or written disclosure, when a consumer requests a 
service in electronic form, such as on a creditor's Web site.
5(b)(1)(iv) Membership Fees
    TILA Section 127(a) requires creditors to provide specified 
disclosures ``before opening any account.'' 15 U.S.C. 1637(a). Section 
226.5(b)(1) requires these disclosures (identified in Sec.  226.6) to 
be furnished before the first transaction is made under the plan. In 
the June 2007 Proposal, guidance currently in comment 5(b)(1)-1 about 
creditors' ability to assess certain membership fees before consumers 
receive the account-opening disclosures was moved to Sec.  
226.5(b)(1)(iv). Currently and under the June 2007 Proposal, creditors 
may collect or obtain the consumer's promise to pay, a membership fee 
before the disclosures are provided, if the consumer can reject the 
plan after receiving the disclosures. If a consumer rejects the plan, 
the creditor must promptly refund the fee if it has been paid or take 
other action necessary to ensure the consumer is not obligated to pay 
the fee. 72 FR 32948, 33044, June 14, 2007.
    Comment 5(b)(1)-1 currently provides that if after receiving the 
account-opening disclosures, the consumer uses the account, pays a fee 
or negotiates a cash advance check, the creditor may consider the 
account not rejected. The comment, renumbered as comment 5(b)(1)(i)-1 
in the June 2007 Proposal, was amended to clarify that if the only 
activity on account is the creditor's assessment of fees (such as 
start-up fees), the consumer is not considered to have accepted the 
account until the consumer is provided with a billing statement and 
makes a payment. 72 FR 32948, 33103, June 14, 2007. The June 2007 
proposed clarification was intended to address concerns about some 
subprime card accounts that

[[Page 28870]]

assess a large number of fees at account opening. Consumers who have 
not made purchases or otherwise obtained credit on the account would 
have an opportunity to review their account-opening disclosures and 
decide whether to reject the account and decline to pay the fees.
    Few comments were received on the June 2007 proposed interpretation 
regarding when a consumer is considered to have accepted an account. 
Consumer groups supported the proposal but urged the Board to require a 
disclosure on periodic statements that would inform consumers about 
their right to reject the plan and not pay fees agreed to prior to 
receiving account-opening disclosures. An industry commenter also 
supported the proposal but suggested the Board provide a safe harbor 
for considering the account as accepted, such as 30 days after a 
consumer received a new credit card and account-opening disclosures.
    The Board proposes additional clarifications to ease compliance and 
to address further the concerns raised in the June 2007 Proposal. 
Comment 5(b)(1)-1, renumbered as comment 5(b)(1)(i)-1 in the June 2007 
Proposal, addresses a creditor's general duty to provide account-
opening disclosures ``before the first transaction.'' The comment is 
reorganized for clarity to provide existing examples of ``first 
transactions.''
    The Board further clarifies consumers' right not to pay fees that 
were assessed or agreed to be paid before the consumer received 
account-opening disclosures, if a consumer rejects a plan after 
receiving the disclosures, as stated in Sec.  226.5(b)(1)(iv) of the 
June 2007 Proposal. Currently and under the June 2007 Proposal, 
creditors may collect or obtain the consumer's agreement to pay 
``membership fees'' before providing account-opening disclosures if the 
consumer may reject the plan after receiving the disclosures, but the 
term ``membership fee'' is not defined. The Board proposes in revised 
Sec.  226.5(b)(1)(iv) and new comment 5(b)(1)(iv)-1 that ``membership 
fee'' has the same meaning as fees for issuance or availability of a 
credit or charge card under Sec.  226.5a(b)(2), for consistency and 
ease of compliance. Such fees include annual or other periodic fees, or 
``start-up'' fees such as account-opening fees. 72 FR 32948, 33046, 
33108, June 14, 2007.
    Comment 5(b)(1)-1, renumbered as comment 5(b)(1)(i)-1 in the June 
2007 Proposal, currently provides that home equity lines of credit 
(HELOCs) are not subject to the prohibition on the payment of fees 
other than application or refundable membership fees before account-
opening disclosures are provided. See Sec.  226.5b(h) regarding 
limitations on the collection of fees. This existing guidance is moved 
to revised Sec.  226.5(b)(1)(iv) and a new comment 5(b)(1)(iv)-4 for 
clarity.
    Also, under revised Sec.  226.5(b)(1)(iv), the Board proposes to 
clarify that if a consumer rejects an open-end (not home-secured) plan 
as permitted under that provision (i.e., if the creditor collects or 
obtains the consumer's agreement to pay ``membership fees'' before 
providing account-opening disclosures), consumers are not obligated to 
pay any membership fee, or any other fee or charge (other than an 
application fee that is charged to all applicants whether or not they 
receive the credit). The revision is intended to remove ambiguity that 
if a consumer rejects a plan under Sec.  226.5(b)(1)(iv), the consumer 
could nevertheless be obligated for fees or charges (including interest 
on unpaid fee balances) other than a ``membership fee'' or certain 
application fees.
    Comments 5(b)(1)(iv)-2 and -3 are proposed to provide guidance on 
when a consumer is considered to have rejected the plan. Comment 
5(b)(1)(iv)-2 provides guidance currently in comment 5(b)(1)-1, 
renumbered as comment 5(b)(1)(i)-1 in the June 2007 Proposal, that a 
consumer who has received account-opening 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. The Board proposes 
to provide a safe harbor: A creditor may deem the plan to be rejected 
if, 60 days after the creditor mailed the account-opening disclosures, 
the consumer has not used the account or made a payment on the account. 
The Board requests comment on whether another time period would be more 
appropriate.
    New comment 5(b)(1)(iv)-3 provides guidance currently in comment 
5(b)(1)-1, renumbered as comment 5(b)(1)(i)-1 in the June 2007 
Proposal, regarding when a consumer is considered to have ``used'' the 
account. The Board proposes to add that a consumer is not considered to 
use an account when, for example, a consumer receives a credit card in 
the mail and calls to activate the card for security purposes. This is 
added in response to requests for Board staff to provide guidance on 
the issue. The Board also proposes additional guidance about the 
assessment of creditors' fees, as a further response to concerns raised 
in the June 2007 Proposal. The comment would clarify that a consumer 
does not ``use'' an account when the creditor assesses fees (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) to the account. Similarly, the consumer does not ``use'' 
an account when, for example, 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.
    As discussed in the section-by-section analysis to Sec.  
226.6(b)(4)(vii), the Board also proposes a disclosure requirement for 
creditors that require substantial fees at account opening and leave 
consumers with a limited amount of available credit. Those creditors 
would be required to provide a notice of the consumer's right to reject 
the plan and not pay fees unless the consumer uses the account or pays 
the fees. The proposed revision to the timing rules in Sec.  
226.5(b)(1)(iv) regarding the collection of fees prior to the delivery 
of account-opening disclosures would apply to all open-end (not home-
secured) plans, although the Board believes the impact of the proposal 
would primarily affect some subprime credit card issuers. The Board 
solicits comment on the appropriate scope.

Section 226.5a Credit and Charge Card Applications and Solicitations

    TILA Section 127(c), implemented by Sec.  226.5a, requires card 
issuers to provide certain cost disclosures on or with an application 
or solicitation to open a credit or charge card account.\3\ 15 U.S.C. 
1637(c). The format and content requirements differ for cost 
disclosures in card applications or solicitations, depending on whether 
the applications or solicitations are given through direct mail, 
provided electronically, provided orally, or made available to the 
general public such as in ``take-one'' applications and in catalogs or 
magazines. Disclosures in applications and solicitations provided by 
direct mail or electronically must be presented in a table. For oral 
applications and solicitations, certain cost disclosures must be 
provided orally, except that issuers in some cases are allowed to 
provide the disclosures later in a written form. Applications and 
solicitations made available to the general public, such as in a take-
one application, must contain one of the

[[Page 28871]]

following: (1) The same disclosures as for direct mail presented in a 
table; (2) a narrative description of how finance charges and other 
charges are assessed, or (3) a statement that costs are involved, along 
with a toll-free telephone number to call for further information.\4\
---------------------------------------------------------------------------

    \3\ Charge cards are a type of credit card for which full 
payment is typically expected upon receipt of the billing statement. 
To ease discussion, this memorandum will refer simply to ``credit 
cards.''
    \4\ In the June 2007 Proposal, the Board proposed revising the 
rule applicable to take-ones to delete the option to satisfy the 
provisions of Sec.  226.5a by including a narrative description of 
how finance charge and other charges are assessed. See proposed 
Sec.  226.5a(e), 72 Fr 32948, 33048, June 14, 2007.
---------------------------------------------------------------------------

5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
    Currently, Sec.  226.5a(b)(1), which implements TILA Section 
127(c)(1)(A)(i)(I), requires issuers to disclose each APR that may be 
used to compute the finance charge on an outstanding balance for 
purchases, a cash advance, or a balance transfer. Comment 5a(b)(1)-7 
requires that if a 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 card issuer must disclose the increased 
penalty rate that may apply and the specific event or events that may 
result in the increased rate. The specific event or events must be 
described outside the table with an asterisk or other means to direct 
the consumer to the additional information. Comment 5a(b)(1)-7 also 
specifies that an issuer need not disclose an increased rate that would 
be imposed if credit privileges are permanently terminated.
    In the June 2007 Proposal, the Board proposed a number of changes 
to how penalty rates are disclosed in the table to enhance consumers' 
awareness of these rates and the specific event or events that may 
result in the increase of rates. See proposed Sec.  226.5a(b)(1)(iv) 
and new comment 5a(b)(1)-4 (previously comment 5a(b)(1)-7). 72 FR 
32948, 33046, June 14, 2007. For example, the Board proposed to require 
card issuers to briefly disclose in the table the specific event or 
events that may result in the penalty rate. In addition, the Board 
proposed that the penalty rate and the specific events that cause the 
penalty rate to be imposed must be disclosed in the same row of the 
table. See proposed Model Form G-10(A), 72 FR 32948, 33069, June 14, 
2007. The Board proposed to retain the current provision that an issuer 
need not disclose an increased rate that would be imposed if credit 
privileges are permanently terminated, but proposed to move this 
provision from current comment 5a(b)(1)-7 to proposed Sec.  
226.5a(b)(1)(iv).
    In response to the June 2007 Proposal, some consumer groups 
requested that the Board delete the statement that the card issuer need 
not disclose the increased rate that would be imposed if credit 
privileges are permanently terminated. They viewed this provision as 
inconsistent with the Board's other efforts to ensure that consumers 
are aware of penalty rates. They believed card issuers should be 
required to disclose this information in the table if the rate is 
different than the penalty rate that otherwise applies.
    The Board proposes to delete the current provision that an issuer 
need not disclose an increased rate that would be imposed if credit 
privileges are permanently terminated. The provision may be 
unnecessary. The Board is not aware of any issuers that are imposing an 
increased rate when credit privileges are permanently terminated that 
is different from the penalty rate. Moreover, the Board agrees that to 
the extent an issuer is charging a different rate when credit is 
permanently terminated than the penalty rate, this different rate 
should be disclosed along with the penalty rate.
    Elsewhere in today's Federal Register the Board proposes under 
Regulation AA that card issuers making firm offers of credit and 
offering a range of APRs or credit limits must also disclose clearly 
and conspicuously that if the consumer is approved for the credit, the 
APR and credit limit on the account will depend on the specific 
criteria bearing on creditworthiness. Model language is proposed that 
issuers may use to comply with the requirements. Under the June 2007 
Proposal, card issuers offering APRs that will depend on a later 
determination of the consumer's creditworthiness must disclose in the 
table provided with applications or solicitations, within prescribed 
format requirements, either specific rates or a range of rates, and a 
statement that the rate for which the consumer may qualify at account 
opening depends on the creditor's creditworthiness. 72 FR 32948, 33045, 
33046, June 14, 2007. If the approach under Regulation AA is adopted as 
proposed, appropriate conforming changes will be made to ensure 
consistency among the regulatory requirements and to facilitate 
compliance when the Board adopts revisions to the Regulation Z rules 
for open-end (not home-secured) credit.
5a(b)(3) Minimum Finance Charge
    Currently, Sec.  226.5a(b)(3), which implements TILA Section 
127(c)(1)(A)(ii)(II), requires that card issuers must disclose any 
minimum or fixed finance charge that could be imposed during a billing 
cycle. Card issuers typically impose a minimum charge (e.g., $.50) in 
lieu of interest in those months where a consumer would otherwise incur 
an interest charge that is less than the minimum charge (a so-called 
``minimum interest charge''). In response to the December 2004 ANPR, 
one industry commenter suggested that the Board no longer require that 
the minimum finance charge be disclosed in the table because these fees 
are typically small and consumers do not shop on them. Another industry 
commenter suggested that the Board only require that the minimum 
finance charge be included in the table if the charge is a significant 
amount. On the other hand, some consumer groups urged the Board to 
continue to include the minimum finance charge in the table because 
this charge can have a significant effect on the cost of credit.
    In the June 2007 Proposal, the Board proposed to retain the minimum 
finance charge disclosure in the table. Although minimum charges 
currently may be small, the Board was concerned that card issuers may 
increase these charges in the future. Also, the Board noted that it was 
aware of at least one credit card product for which no APR is charged, 
but each month a fixed charge is imposed based on the outstanding 
balance (for example, $6 charge per $1,000 balance). If the minimum 
finance charge disclosure was eliminated from the table, card issuers 
that offer this type of pricing would no longer be required to disclose 
the fixed charge in the table. The Board also did not propose to 
require the minimum finance charge only if it is a significant amount. 
The Board was concerned that this approach could undercut the 
uniformity of the table, and could be misleading to consumers. The 
Board also proposed to amend Sec.  226.5a(b)(3) to require card issuers 
to disclose in the table a brief description of the minimum finance 
charge, to give consumers context for when this charge will be imposed. 
72 FR 32948, 33046, June 14, 2007.
    In response to the June 2007 Proposal, several industry commenters 
again recommended that the Board delete this disclosure from the table 
unless the minimum finance charge is over a certain nominal amount. 
They indicated that in most cases, the minimum interest charge is so 
small as to be irrelevant to consumers. They believed that it should 
only be in the table if the minimum finance charge is a significant 
amount. Also, they believed that the purpose of the summary table is to 
highlight the most relevant terms that

[[Page 28872]]

consumers use in evaluating credit card applications. They suggested 
that it is unlikely that consumers would choose a card based on a 
minimal charge. Also, they believed that the retention of an irrelevant 
fee clutters the summary table, detracting from other more important 
terms. One commenter recommended that minimum interest charges under 
$2.00 should be excluded from disclosure in the table, and another 
commenter recommended a cut off of $1.00. Consumer groups agreed with 
the Board's proposal to require the disclosure of the minimum interest 
charge in all cases and not to allow issuers to exclude the minimum 
interest charge from the table if the charge was under a certain 
specific amount.
    The Board proposes to revise proposed Sec.  226.5a(b)(3) to provide 
that an issuer must disclose in the table any minimum or fixed finance 
charge in excess of $1.00 that could be imposed during a billing cycle 
and a brief description of the charge, pursuant to its authority under 
TILA Section 127(c)(5). 15 U.S.C. 1637(c)(5). The $1.00 amount would be 
adjusted to the next whole dollar amount when the sum of annual 
percentage changes in the Consumer Price Index in effect on the June 1 
of previous years equals or exceeds $1.00. See proposed comment 
5a(b)(3)-2. This approach in adjusting the dollar amount that triggers 
the disclosure of a minimum or fixed finance charge is similar to 
TILA's rules for adjusting a dollar amount of fees that trigger 
additional protections for certain home-secured loans. TILA 103(aa), 15 
U.S.C. 1602(aa). At the issuer's option, the issuer may disclose in the 
table any minimum or fixed finance charge below the threshold. This 
flexibility is intended to facilitate compliance when adjustments are 
made to the dollar threshold. For example, if an issuer has disclosed a 
$1.50 minimum finance charge in its application and solicitation table 
at the time the threshold is increased to $2.00, the issuer could 
continue to use forms with the minimum finance charge disclosed, even 
though the issuer would no longer be required to do so.
    The Board recognizes that most issuers currently charge a minimum 
interest charge of $1.00 or less. In consumer testing conducted by the 
Board in March 2008, participants were asked to compare disclosure 
tables for two credit card accounts and decide which account they would 
choose. In one of the disclosure tables, a small minimum interest 
charge was disclosed. In the other disclosure table, no minimum 
interest charge was disclosed. None of the participants indicated that 
they would choose the account where no minimum interest charge was 
disclosed because of this fact. Thus, the Board agrees that when the 
minimum interest charge is a de minimis amount (i.e., $1.00 or less, as 
adjusted for inflation), disclosure of the minimum interest charge is 
not information that consumers will use to shop for a card. The rule 
would continue to require disclosure in the table if the minimum 
interest charge is over this de minimis amount to ensure that consumers 
are aware of significant minimum interest charges that might impact 
them. The Board requests comment on whether $1.00 is the appropriate 
initial threshold amount.
5a(b)(4) Transaction Charges
    Section 226.5a(b)(4), which implements TILA Section 
127(c)(1)(A)(ii)(III), requires that card issuers disclose any 
transaction charge imposed on purchases. In the June 2007 Proposal, the 
Board proposed to amend Sec.  226.5a(b)(4) to explicitly exclude from 
the table fees charged for transactions in a foreign currency or that 
take place in a foreign country. 72 FR 32948, 33046, June 14, 2007. In 
an effort to streamline the contents of the table, the Board proposed 
to highlight only those fees that may be important for a significant 
number of consumers. In consumer testing for the Board, participants 
did not tend to mention foreign transaction fees as important fees they 
use to shop. In addition, there are few consumers who may pay these 
fees with any frequency. Thus, the Board proposed to except foreign 
transaction fees from disclosure of transaction fees. The Board 
proposed to include foreign transaction fees in the account-opening 
summary table that is required under proposed Sec.  226.6(b)(4), so 
that interested consumers can learn of the fees before using the card.
    In response to the June 2007 Proposal, some consumer groups 
recommended that the Board require foreign transaction fees in the 
table required under Sec.  226.5a. They questioned the utility of the 
Board requiring foreign transaction fees in the account-opening table 
required under Sec.  226.6, but prohibiting those fees to be disclosed 
in the table under Sec.  226.5a. They believed that consumers as well 
as the industry would be better served by eliminating the few 
differences between the disclosures required at the two stages. In 
addition, one industry commenter recommended that the table required 
under Sec.  226.5a include foreign transaction fees. This commenter 
believed that the foreign transaction fee is relevant to any consumer 
who travels in other countries, and the ability to choose a credit card 
based on the presence of the fee is important. In addition, the 
commenter noted that the large amount of press attention that the issue 
has received suggests that the presence or absence of the fee is now of 
interest to a significant number of consumers.
    The Board proposes to require that foreign transaction fees must be 
disclosed in the table required under Sec.  226.5a. Specifically, the 
Board proposes to withdraw proposed Sec.  226.5a(b)(4)(ii) that would 
have prevented a card issuer from disclosing a foreign transaction fee 
in the table required by Sec.  226.5a. In addition, the Board proposes 
to add comment 5a(b)(4)-2 to indicate that foreign transaction fees 
charged by the card issuer are considered transaction charges for the 
use of a card for purchases, and thus must be disclosed in the table 
required under Sec.  226.5a. The Board is concerned about the 
inconsistency in requiring foreign transaction fees in the account-
opening table required by Sec.  226.6, but prohibiting that fee in the 
table required by Sec.  226.5a. In the June 2007 Proposal, the Board 
proposed that issuers may substitute the account-opening table for the 
table required by Sec.  226.5a. See proposed comment 5a-2, 72 FR 32948, 
33105, June 14, 2007. The Board is concerned about those cases where 
one issuer substitutes the account-opening table for the table required 
under Sec.  226.5a (and thus is required to disclose the foreign 
transaction fee) but another issuer provides the table required under 
Sec.  226.5a (and thus is prohibited from disclosing the foreign 
transaction fee). If a consumer was comparing the disclosures for these 
two offers, it may appear to the consumer that the issuer providing the 
account-opening table charges a foreign transaction fee and the issuer 
providing the table required under Sec.  226.5a does not, even though 
the second issuer may charge the same or higher foreign transaction fee 
than the first issuer. Thus, to promote uniformity, the Board proposes 
to require issuers to disclose the foreign transaction fee in both the 
account-opening table required by Sec.  226.6 and the table required by 
Sec.  226.5a. See proposed comment 5a(b)(4)-2. The Board also proposes 
that foreign transaction fees would be disclosed in the table required 
by Sec.  226.5a similar to how those fees are disclosed in the proposed 
account-opening tables published in the June 2007 Proposal. See Model 
Forms and Samples G-17(A), (B) and (C) 72 FR

[[Page 28873]]

32948, 33074, 33075, 33076, June 14, 2007.
5a(b)(5) Grace Period
    Currently, Sec.  226.5a(b)(5), which implements TILA Section 
127(c)(A)(iii)(I), requires that card issuers disclose in the table 
required by Sec.  226.5a, the date by which or the period within which 
any credit extended for purchases may be repaid without incurring a 
finance charge. Section 226.5a(a)(2)(ii), which implements TILA Section 
122(c)(2)(C), requires credit card applications and solicitation under 
Sec.  226.5a to use the term ``grace period'' to describe the date by 
which or the period within which any credit extended for purchases may 
be repaid without incurring a finance charge. 15 U.S.C. 1632(c)(2)(C). 
In the June 2007 Proposal, the Board proposed new Sec.  
226.5(a)(2)(iii) to extend this requirement to use the term ``grace 
period'' to all references to such a term for the disclosures required 
to be in the form of a table, such as the account-opening table. 72 FR 
32948, 33044, June 14, 2007.
    In response to the June 2007 Proposal, one industry commenter 
recommended that the Board no longer mandate the use of the term 
``grace period'' in the table. Although TILA specifically requires use 
of the term ``grace period,'' this commenter urged the Board to use its 
exception authority to choose a term that is more understandable to 
consumers. This commenter pointed out that research conducted by the 
Board, by the GAO and by that commenter demonstrated that the term is 
confusing as a descriptor of the interest-free period between the 
purchase and the due date for customers who pay their balances in full. 
This commenter suggested that the Board revise the disclosure of the 
grace period in the table to use the heading ``interest-free period'' 
instead of ``grace period.''
    As discussed in the section-by-section analysis to Sec.  
226.5(a)(2), the Board proposes to use its exemption authority to 
delete the requirement to use the term ``grace period'' in the table 
required by Sec.  226.5a. 15 U.S.C. Sec. Sec.  1604(a) and (f) and 
1637(c)(5). As the Board discussed in the June 2007 Proposal, consumer 
testing conducted for the Board prior to that proposal indicated that 
some participants misunderstood the word ``grace period'' to mean the 
time after the payment due date that an issuer may give the consumer to 
pay the bill without charging a late-payment fee. The GAO in its Report 
on Credit Card Rates and Fees found similar misunderstandings by 
consumers in its consumer testing. Furthermore, many participants in 
the GAO testing incorrectly indicated that the grace period was the 
period of time promotional interest rates applied. Nonetheless, in 
consumer testing conducted for the Board prior to the June 2007 
Proposal, the Board found that participants tended to understand the 
term grace period more clearly when additional context was added, such 
as describing that if the consumer paid the bill in full each month, 
the consumer would have some period of time (e.g., 25 days) to pay the 
new purchase balance in full to avoid interest. Thus, the Board 
proposed to retain the term ``grace period.''
    As discussed above, in response to the June 2007 Proposal, one 
commenter performed its own testing with consumers on the grace period 
disclosure proposed by the Board. This commenter found that the term 
``grace period'' was still confusing to the consumers it tested, even 
with the additional context given in the grace period disclosure 
proposed by the Board. The commenter found that consumers understood 
the term ``interest-free period'' to more accurately describe the 
interest-free period between the purchase and the due date for 
customers who pay their balances in full.
    In consumer testing conducted by the Board prior to issuing the 
June 2007 Proposal, the Board tested the phrase ``interest-free 
period.'' The Board found that some consumers believed the phrase 
``interest-free period'' referred to the period of time that a 0% 
introductory rate would be in effect, instead of the grace period. In 
consumer testing conducted by the Board in March 2008, the Board tested 
disclosure tables for a credit card solicitation that used the phrase 
``How to Avoid Paying Interest on Purchases'' as the heading for the 
row containing the information on the grace period. Participants in 
this testing generally seemed to understand this phrase to describe the 
grace period. In addition, in the March 2008 consumer testing, the 
Board also tested the phrase ``Paying Interest'' in the context of a 
disclosure relating to a check that accesses a credit card account, 
where a grace period was not offered on this access check. 
Specifically, the phrase ``Paying Interest'' was used as the heading 
for the row containing information that no grace period was offered on 
the access check. Likewise, participants seemed to understand this 
phrase to mean that no grace period was being offered on the use of the 
access check. Thus, the Board proposes to revise proposed Sec.  
226.5a(b)(5) to require that issuers use the phrase ``How to Avoid 
Paying Interest on Purchases,'' or a substantially similar phrase, as 
the heading for the row describing the grace period. If no grace period 
on purchases is offered, when an issuer is disclosing this fact in the 
table, the issuer must use the phrase ``Paying Interest,'' or a 
substantially similar phrase, as the heading for the row describing 
that no grace period is offered.
    As discussed above, Sec.  226.5a(b)(5) requires that card issuers 
disclose in the table required by Sec.  226.5a, the date by which or 
the period within which any credit extended for purchases may be repaid 
without incurring a finance charge. Comment 5a(b)(5)-1 provides that a 
card issuer may, but need not, refer to the beginning or ending point 
of any grace period and briefly state any conditions on the 
applicability of the grace period. For example, the grace period 
disclosure might read ``30 days'' or ``30 days from the date of the 
periodic statement (provided you have paid your previous balance in 
full by the due date).''
    In the June 2007 Proposal, the Board proposed to amend Sec.  
226.5a(b)(5) to require card issuers to disclose briefly any conditions 
on the applicability of the grace period. 15 U.S.C. 1637(c)(5). 72 FR 
32948, 33046, June 14, 2007. The Board also proposed to amend comment 
5a(b)(5)-1 to provide guidance for how issuers may meet the 
requirements in proposed Sec.  226.5a(b)(5). Specifically, proposed 
comment 5a(b)(5)-1 provided that an issuer that conditions the grace 
period on the consumer paying his or her balance in full by the due 
date each month, or on the consumer paying the previous balance in full 
by the due date the prior month will be deemed to meet requirements in 
disclosing the grace period by providing the following disclosure: ``If 
you pay your entire balance in full each month, you have [at least] --
-- days after the close of each period to pay your balance on purchases 
without being charged interest.'' 72 FR 32948, 33109, June 14, 2007.
    In response to the June 2007 Proposal, several commenters suggested 
that the Board revise the model language provided in proposed comment 
5a(b)(5)-1 to describe the grace period. One commenter suggested the 
following language: ``Your due date is [at least] 25 days after your 
bill is totaled each month. If you don't pay your bill in full by your 
due date, you will be charged interest on the remaining balance.'' 
Other commenters also recommended that the Board revise the disclosure 
of the grace period to make clearer that the consumer must pay the 
total balance in full each month by the due date to avoid

[[Page 28874]]

paying interest on purchases. In addition, some consumer groups 
commented that if the issuer does not provide a grace period, the Board 
should mandate specific language that draws the consumer's attention to 
this fact.
    In the March 2008 consumer testing, the Board tested the following 
language to describe a grace period: ``Your due date is [at least] ---- 
days after the close of each billing cycle. We will not charge you 
interest on purchases if you pay your entire balance (excluding 
promotional balances) by the due date each month.'' Participants that 
read this language appeared to understand it correctly. Thus, the Board 
proposes to amend comment 5a(b)(5)-1 to provide this language as 
guidance to issuers on how to disclose a grace period. The Board notes 
that currently issuers typically require consumers to pay their entire 
balance in full each month to qualify for a grace period on purchases. 
Nonetheless, the Board proposes elsewhere in today's Federal Register 
to prohibit most issuers from requiring consumers to pay off 
promotional balances in order to receive any grace period offered on 
purchases. Thus, consistent with this proposed prohibition, the 
language in proposed comment 5a(b)(5)-1 indicates that the entire 
balance (excluding promotional balances) must be paid each month to 
avoid interest charges on purchases.
    Also, in the March 2008 consumer testing, the Board tested language 
to describe that no grace period was being offered. Specifically, in 
the context of testing a disclosure related to an access check where a 
grace period was not offered on this access check, the Board tested the 
following language: ``We will begin charging interest on these check 
transactions on the transaction date.'' Most participants that read 
this language understood there was no way to avoid paying interest on 
this check transaction, and therefore, that no grace period was being 
offered on this check transaction. Thus, the Board proposes to add 
comment 5a(b)(5)-2 to provide guidance on how to disclose the fact that 
no grace period on purchases is offered on the account. Specifically, 
proposed comment 5a(b)(5)-2 would provide that issuers may use the 
following language to describe that no grace period on purchases is 
offered, as applicable: ``We will begin charging interest on purchases 
on the transaction date.''
5a(b)(6) Balance Computation Method
    TILA Section 127(c)(1)(A)(iv) calls for the Board to name not more 
than five of the most common balance computation methods used by credit 
card issuers to calculate the balance on which finance charges are 
computed. 15 U.S.C. 1637(c)(1)(A)(iv). If issuers use one of the 
balance computation methods named by the Board, Sec.  226.5a(b)(6) 
requires that issuers must disclose the name of that balance 
computation method in the table as part of the disclosures required by 
Sec.  226.5a, and issuers are not required to provide a description of 
the balance computation method. If the issuer uses a balance 
computation method that is not named by the Board, the issuer must 
disclose a detailed explanation of the balance computation method. See 
current Sec.  226.5a(b)(6); Sec.  226.5a(a)(2)(i). In the June 2007 
Proposal, the Board proposed to retain a brief reference to the balance 
computation method, but move the disclosure from the table to directly 
below the table. See June 2007 proposed Sec.  226.5a(a)(2)(iii), 72 FR 
32948, 33045, June 14, 2007.
    Currently, the Board in Sec.  226.5a(g) has named four balance 
computation methods: (1) Average daily balance (including new 
purchases) or (excluding new purchases); (2) two-cycle average daily 
balance (including new purchases) or (excluding new purchases); (3) 
adjusted balance; and (4) previous balance. In the June 2007 Proposal, 
the Board proposed to retain these four balance computation methods.
    Elsewhere in today's Federal Register, the Board proposes to 
prohibit some issuers from using a balance computation method commonly 
referred to as the ``two-cycle'' balance method. Nonetheless, the Board 
does not propose deleting the two-cycle average daily balance method 
from the list in Sec.  226.5(g) because the prohibition, if adopted, 
would not apply to all issuers, such as state chartered credit unions 
that are not subject to National Credit Union Association rules.
5a(b)(15) Payment Allocation
    Some credit card issuers will allocate payments in excess of the 
minimum payment first to balances that are subject to the lowest APR. 
For example, if a cardholder made purchases using a credit card account 
and then initiated a balance transfer, the card issuer might allocate a 
payment (less than the amount of the balances) to the transferred 
balance portion of the account if that balance was subject to a lower 
APR than the purchases. Card issuers often will offer a discounted 
initial rate on balance transfers (such as 0 percent for an 
introductory period) with a credit card solicitation, but not offer the 
same discounted rate for purchases. In addition, the Board is aware of 
at least one issuer that offers the same discounted initial rate for 
balance transfers and purchases for a specified period of time, where 
the discounted rate for balance transfers (but not the discounted rate 
for purchases) may be extended until the balance transfer is paid off 
if the consumer makes a certain number of purchases each billing cycle. 
At the same time, issuers typically offer a grace period for purchases 
if a consumer pays his or her bill in full each month. Card issuers, 
however, do not typically offer a grace period on balance transfers or 
cash advances. Thus, on the offers described above, a consumer cannot 
take advantage of both the grace period on purchases and the discounted 
rate on balance transfers. The only way for a consumer to avoid paying 
interest on purchases--and thus have the benefit of the grace period--
is to pay off the entire balance, including the balance transfer 
subject to the discounted rate.
    In the consumer testing conducted for the Board prior to the June 
2007 Proposal, many participants did not understand that they could not 
take advantage of the grace period on purchases and the discounted rate 
on balance transfers at the same time. Model forms were tested that 
included a disclosure notice attempting to explain this to consumers. 
Nonetheless, testing showed that a significant percentage of 
participants still did not fully understand how payment allocation can 
affect their interest charges, even after reading the disclosure 
tested. In the supplementary information accompanying the June 2007 
Proposal, the Board indicated its plans to conduct further testing of 
the disclosure to determine whether the disclosure can be improved to 
more effectively communicate to consumers how payment allocation can 
affect their interest charges.
    In the June 2007 Proposal, the Board proposed to add Sec.  
226.5a(b)(15) to require card issuers to explain payment allocation to 
consumers. Specifically, the Board proposed that issuers explain how 
payment allocation would affect consumers, if an initial discounted 
rate was offered on balance transfers or cash advances but not 
purchases. The Board proposed that issuers must disclose to consumers 
that (1) the initial discounted rate applies only to balance transfers 
or cash advances, as applicable, and not to purchases; (2) that 
payments will be allocated to the balance transfer or cash advance 
balance, as applicable, before being allocated to any purchase balance 
during the time the discounted initial rate is in effect; and (3) that 
the consumer will incur interest on the

[[Page 28875]]

purchase balance until the entire balance is paid, including the 
transferred balance or cash advance balance, as applicable. 72 FR 
32948, 33047, June 14, 2007.
    In response to the June 2007 Proposal, several commenters 
recommended the Board test a simplified payment allocation disclosure 
that covers cases other than low rate balance transfers offered with a 
credit card. In consumer testing conducted for the Board in March 2008, 
the Board tested the following payment allocation disclosure: 
``Payments may be applied to balances with lower APRs first. If you 
have balances at higher APRs, you may pay more in interest because 
these balances cannot be paid off until all lower-APR balances are paid 
in full (including balance transfers you make at the introductory 
rate).'' Some participants understood from prior experience that 
issuers typically will apply payments to lower APR balances first and 
the fact that this method causes them to incur higher interest charges. 
For those participants that did not know about payment allocation 
methods from prior experience, the disclosure tested was not effective 
in explaining payment allocation to them.
    Elsewhere in today's Federal Register, the Board proposes 
substantive provisions on how issuers may allocate payments. To the 
extent these substantive provisions are adopted, the Board would 
withdraw its proposal to require a card issuer to explain payment 
allocation to consumers in the table.
5a(b)(16) Available Credit
    Elsewhere in today's Federal Register, the Board proposes under 
Regulation AA to address concerns regarding subprime credit cards by 
prohibiting institutions from financing security deposits and fees for 
credit availability (such as account-opening fees or membership fees) 
if those charges would exceed 50 percent of the credit limit during the 
first twelve months and from collecting at account opening fees that 
are 25 percent or more of the credit limit. Under the June 2007 
Proposal, card issuers that require fees or a security deposit to issue 
a card that are 25 percent or more of the minimum credit limit offered 
on the account must offer an example in the table provided with 
applications and solicitations of the amount of available credit the 
consumer would have after paying the fees or security deposit, assuming 
the creditor receives the minimum credit limit. 72 FR 32948, 33047, 
June 14, 2007. If the approach under Regulation AA is adopted as 
proposed, appropriate revisions will be made to ensure consistency 
among the regulatory requirements and to facilitate compliance when the 
Board adopts revisions to the Regulation Z rules for open-end (not 
home-secured) credit.
5a(d) Telephone Applications and Solicitations
5a(d)(1) Oral Disclosure
    Section 226.5a(d) specifies rules for providing cost disclosures in 
oral applications and solicitations initiated by a card issuer. 
Pursuant to TILA 127(c)(2), card issuers generally must provide certain 
cost disclosures during the oral conversation in which the application 
or solicitation is given. Alternatively, an issuer is not required to 
give the oral disclosures if the card issuer either does not impose a 
fee for the issuance or availability of a credit card (as described in 
Sec.  226.5a(b)(2)) or does not impose such a fee unless the consumer 
uses the card, provided that the card issuer provides the disclosures 
later in a written form. 15 U.S.C. 1637(c)(2).
    Currently, under Sec.  226.5a(d)(1), if the issuer provides the 
oral disclosures, the issuer must provide information required to be 
disclosed under Sec.  226.5a(b)(1) through Sec.  226.5a(b)(7). This 
includes information about (1) APRs; (2) fees for issuance or 
availability of credit; (3) minimum interest charges; (4) transaction 
charges for purchases; (5) grace period on purchases; (6) balance 
computation method; and (7) as applicable, a statement that charges 
incurred by use of the charge card are due when the periodic statement 
is received.
    In the June 2007 Proposal, the Board did not propose to revise 
Sec.  226.5a(d)(1). In response to the June 2007 Proposal, some 
consumer groups suggested that the Board revise Sec.  226.5a(d)(1) to 
require issuers that are marketing credit cards by telephone, to 
disclose additional information to consumers at the time of the phone 
call, such as the cash advance fee, the late payment fee, the over-
limit fee, the balance transfer fee, information about penalty rates, 
any fees for required insurance, or the disclosure about available 
credit in proposed Sec.  226.5a(b)(16). 72 FR 32948, 33047, June 14, 
2007.
    The Board proposes to amend Sec.  226.5a(d)(1) to require that if 
an issuer provides the oral disclosures, the issuer must also disclose 
orally the information about available credit in proposed Sec.  
226.5a(b)(16) if required to do so, pursuant to its authority under 
TILA Section 127(c)(5). 15 U.S.C. 1637(c)(5). Proposed Sec.  
226.5a(b)(16) provides that if (1) a card issuer imposes required fees 
for the issuance or availability of credit, or a security deposit, that 
will be charged against the card when the account is opened, and (2) 
the total of those fees and/or security deposit equal 25 percent or 
more of the minimum credit limit applicable to the card, the card 
issuer must disclose in the table an example of the amount of the 
available credit that a consumer would have remaining after these 
required fees or security deposit are debited to the account, assuming 
that the consumer receives the minimum credit limit offered on the 
relevant account. The issuer also must disclose the available credit 
remaining after including any optional fees for issuance or 
availability of credit that may be debited to the account.
    Currently, issuers that provide the oral disclosures must inform 
consumers about the fees for issuance and availability of credit that 
are applicable to the card. The Board believes that the information 
about available credit would complement this disclosure, by disclosing 
to consumers the impact of these fees on the available credit. The 
Board does not propose to require issuers to provide orally other fees 
applicable to the account, such as the cash advance fee, the late 
payment fee, the over-limit fee, the balance transfer fee or fees for 
required insurance. The Board is concerned that providing this 
information in oral conversations about credit cards would lead to 
information overload for consumers. The Board notes that issuers 
providing oral disclosures currently would be required to provide 
information about the penalty rate to consumers because this 
information is required to be disclosed pursuant to Sec.  226.5a(b)(1).

Section 226.6 Account-Opening Disclosures

    TILA Section 127(a), implemented in Sec.  226.6, requires creditors 
to provide information about key credit terms before an open-end plan 
is opened, such as rates and fees that may be assessed on the account. 
Consumers' rights and responsibilities in the case of unauthorized use 
or billing disputes are also explained. 15 U.S.C. 1637(a). See also 
Model Forms G-2 and G-3 in Appendix G.
    Descriptions of balance computation methods. Creditors are 
required, under Sec.  226.6(a)(1)(iii) and Sec.  226.6(b)(2)(i)(D) of 
the June 2007 Proposal, to explain the method used to determine the 
balance upon which rates are applied. 72 FR 32948, 33049, June 14, 
2007. Model Clauses that explain commonly used methods, such as the 
average daily balance method, are at Appendix G-1.

[[Page 28876]]

    The Model Clauses at Appendix G-1 were republished without change 
in the June 2007 Proposal. 72 FR 32948, 33066, June 14, 2007. The Board 
requested comment on whether model clauses for methods such as the 
``previous balance'' or ``adjusted balance'' method should be 
eliminated because they are no longer used. Few commenters addressed 
the issue. Commenters recommended retaining the existing clauses, and 
two commenters asked the Board to add a model clause explaining the 
daily balance method. The Board proposes to add a new paragraph (f) to 
describe a daily balance method in G-1 and in a new G-1A. In addition, 
a new Appendix G-1A is proposed for open-end (not home-secured) plans. 
The clauses in G-1A refer to ``interest charges'' rather than ``finance 
charges'' to explain balance computation methods. The Board's consumer 
testing prior to the June 2007 Proposal indicated that consumers 
generally had a better understanding of ``interest charge'' than 
``finance charge,'' which is reflected in the Board's use of 
``interest'' (rather than ``finance charge'') in proposed Account-
opening Samples and to describe costs other than fees on periodic 
statements. See proposed Samples G-17(B) and G-17(C) and Sec.  
226.7(b)(6)(iii). 72 FR 32948, 33075, 33076, and 33052, June 14, 2007. 
Comment App. G-1 is revised to clarify that for HELOCs subject to Sec.  
226.5b, creditors may properly use the model clauses in either Appendix 
G-1 or G-1A. References throughout the regulation and commentary to 
Model Clauses in G-1 will be updated to reflect the addition of G-1A 
when the Board adopts revisions to the rules for open-end credit (not 
home-secured) plans.
6(b)(2) Rules Relating to Rates for Open-End (Not Home-Secured) Plans
    The June 2007 Proposal sets forth in Sec.  226.6(b)(2) rules 
related to disclosing rates for open-end (not home-secured) plans. 72 
FR 32948, 33049, June 14, 2007. Creditors must disclose information 
about any rates that initially apply, and about rates that may apply 
after the initial rate ends. Under current rules, comment 6(a)(2)-11 
provides that creditors need not disclose increased rates that may 
apply if credit privileges are permanently terminated. That rule was 
retained in the June 2007 Proposal, but was moved to Sec.  
226.6(b)(4)(ii)(C) and comment 6(b)(2)(iii)-2.iii., to be consistent 
with Sec.  226.5a(b)(1)(iv) in the June 2007 Proposal. 72 FR 32948, 
33050, 33115, June 14, 2007. As discussed in the section-by-section 
analysis to Sec.  226.5a(b)(1), the Board proposes to eliminate that 
exception; accordingly, the references to increased rates upon 
permanently terminated credit privileges in Sec.  226.6(b)(4)(ii)(C) 
and in paragraph iii. to comment 6(b)(2)(iii)-2 are removed in this May 
2008 Proposal.
6(b)(4) Tabular Format Requirements for Open-End (Not Home-Secured) 
Plans
    In June 2007, the Board proposed in Sec.  226.6(b)(4) to introduce 
format requirements for account-opening disclosures for open-end (not 
home-secured) plans. The proposed summary of account-opening 
disclosures is based on the format and content requirements for the 
tabular disclosures provided with direct mail applications for credit 
and charge cards under Sec.  226.5a, as it would be revised under the 
June 2007 Proposal. Proposed forms under G-17 in Appendix G illustrate 
the account-opening tables. 72 FR 32948, 33049, 33074, 33075, 33076, 
June 14, 2007.
    Lines of credit without credit cards. The June 2007 Proposal to 
require a tabular summary of key terms to be provided before an account 
is opened applies to all open-end loan products, except HELOCs. This 
would include products such as credit card accounts, traditional 
overdraft credit plans, personal lines of credit, and revolving plans 
offered by retailers without a credit card.
    Some industry commenters asked the Board to limit any new 
disclosure rules to credit card accounts. They acknowledged that credit 
card accounts typically have complex terms, and a tabular summary is an 
effective way to present key disclosures. In contrast, these commenters 
noted that other open-end (not home-secured) products such as personal 
lines of credit or overdraft plans have very few of the cost terms 
required to be disclosed. Alternatively, if the Board continued to 
apply the new requirements to open-end plans other than HELOCs, 
commenters asked that the Board consider publishing model forms to ease 
compliance.
    The Board continues to believe that even for non-credit card 
accounts the benefit to consumers from receiving a concise summary of 
rates and important fees appears to outweigh the costs, such as 
developing the new disclosures and revising them as needed. To ease 
compliance and address commenters' concerns, the Board is publishing 
proposed Sample G-17(D) for open-end plans such as lines of credit or 
overdraft plans.
6(b)(4)(iii) Fees
6(b)(4)(iii)(D) Minimum Finance Charge
    TILA Section 127(a)(3), which is currently implemented in Sec.  
226.6(a)(4), requires creditors to disclose in account-opening 
disclosures the amount of the finance charge, including any minimum or 
fixed amount imposed as a finance charge. 15 U.S.C. 1637(a)(3). In the 
June 2007 Proposal, the Board required creditors to disclose in 
account-opening disclosures the amount of any finance charges in Sec.  
226.6(b)(1)(A), and further required creditors to disclose any minimum 
finance charge in the account-opening table in Sec.  
226.6(b)(4)(iii)(D). 72 FR 32948, 33049, 33050, June 14, 2007.
    In this May 2008 Proposal, the Board would require card issuers to 
disclose in the table provided with applications or solicitations 
minimum or fixed finance charges in excess of $1 that could be imposed 
during a billing cycle (along with a formula for adjusting the 
threshold over time) and a brief description of the charge, for the 
reasons discussed in the section-by-section analysis to Sec.  
226.5a(b)(3). At the card issuer's option, the card issuer may disclose 
in the table any minimum or fixed finance charge below the threshold. 
The Board proposes the same disclosure requirements to apply to the 
account-opening table for the same reasons. Section 226.6(b)(4)(iii)(D) 
would be revised and new comments 6(b)(4)(iii)-1 and -2 would be added, 
accordingly. As noted in the section-by-section analysis to Sec.  
226.5a(b)(4), under the June 2007 Proposal, card issuers may substitute 
the account-opening table for the table required by Sec.  226.5a. 
Conforming the minimum finance charge disclosure requirement for the 
two tables promotes consistency and uniformity.
    Under proposed Sec.  226.5(b)(1)(ii) of the June 2007 Proposal, 
charges that are imposed as part of the plan may be provided at any 
time before the consumer agrees to pay or becomes obligated to pay for 
the charge, pursuant to the disclosure timing requirements of Sec.  
226.5(b)(1)(ii). 72 FR 32948, 33044, June 14, 2007. Creditors may 
provide disclosures of these charges in writing but creditors are not 
required to do so. 72 FR 32948, 33043, June 14, 2007. See section-by-
section analysis to Sec.  226.5(a)(1) above. If creditors are required 
to disclose in the account-opening table minimum finance charges in 
excess of $1, minimum or fixed finance charges of $1 or less would no 
longer be required to be disclosed in writing at account-opening. The 
Board believes creditors will continue to do so, to meet the timing 
requirement to

[[Page 28877]]

disclose the fee before the consumer becomes obligated for the charge. 
And creditors that choose to charge more than $1 would be required to 
include the cost in the account-opening table.
6(b)(4)(iv) Grace Period
    Under TILA, creditors providing disclosures with applications and 
solicitations must discuss grace periods on purchases; at account 
opening, creditors must explain grace periods more generally. 15 U.S.C. 
1637(c)(1)(A)(iii); 15 U.S.C. 1637(a)(1). Section 226.6(b)(4)(iv) in 
the June 2007 Proposal required creditors to state for all balances on 
the account, whether or not a period exists in which consumers may 
avoid the imposition of finance charges, and if so, the length of the 
period. 72 FR 32948, 33050, June 14, 2007. As discussed in the section-
by-section analysis to Sec.  226.5(a)(2) and to Sec.  226.5a(b)(5), the 
Board is revising provisions relating to the description of grace 
periods. Section Sec.  226.6(b)(4)(iv) is revised and comment 
6(b)(4)(iv)-1 is added, consistent with the proposed revisions to Sec.  
226.5a(b)(5) and commentary. A reference to required use of the phrase 
``grace period'' in comment 6(b)(4)-3 of the June 2007 Proposal is 
withdrawn. 72 FR 32948, 33115, June 14, 2007.
6(b)(4)(vi) Payment Allocation
    Section 226.6(b)(4)(vi) of the June 2007 Proposal required 
creditors to disclose in the account-opening tabular summary, if 
applicable, the information regarding how payments will be allocated if 
the consumer transfers balances at a low rate and then makes purchases 
on the account. 72 FR 32948, 33050, June 14, 2007. The payment 
allocation disclosure requirements proposed for the account-opening 
table mirror the proposed requirements in Sec.  226.5a(b)(15) to be 
provided in the table given at application or solicitation. 72 FR 
32948, 33047, June 14, 2007. Elsewhere in today's Federal Register, the 
Board proposes limitations on how creditors may allocate payments on 
outstanding credit card balances. For the reasons discussed in the 
section-by-section analysis to Sec.  226.5a(b)(15), the Board would 
withdraw proposed Sec.  226.6(b)(4)(vi) to the extent the substantive 
rule is adopted.
6(b)(4)(vii) Available Credit
    The Board proposed in June 2007 a disclosure targeted at subprime 
card accounts that assess substantial fees at account opening and leave 
consumers with a limited amount of available credit. Proposed Sec.  
226.6(b)(4)(vii) applied to creditors that require fees for the 
availability or issuance of credit, or a security deposit, that equals 
25 percent or more of the minimum credit limit offered on the account. 
If that threshold is met, card issuers must disclose in the table an 
example of the amount of available credit the consumer would have after 
the fees or security deposit are debited to the account, assuming the 
consumer receives the minimum credit limit. 72 FR 32948, 33050, June 
14, 2007. The account-opening disclosures regarding available credit 
are also required for credit and charge card applications or 
solicitations. See proposed Sec.  226.5a(b)(16), 72 FR 32948, 33047, 
June 14, 2007.
    The Board proposes an additional disclosure to inform consumers 
about their right to reject a plan when fees have been charged and the 
consumer receives account-opening disclosures but has not used the 
account or paid a fee after receiving a billing statement (other than 
an application fee that is charged to all consumers who apply for the 
account whether or not they are accepted for the credit). Creditors 
must provide consumers with notice about the right to reject the plan 
in such circumstances. The Board believes that tailoring the disclosure 
to impact creditors offering subprime credit card accounts is 
appropriately narrow, but seeks comment on the scope of the proposed 
disclosure. The Board proposes a new comment 6(b)(4)(vii)-1 to provide 
creditors with model language to comply with the disclosure 
requirement, and conforming changes would be made to account-opening 
model forms and samples, if the revision to Sec.  226.6(b)(4)(vii) is 
adopted.
    As discussed in the section-by-section analysis to Sec.  
226.5a(b)(16), elsewhere in today's Federal Register, the Board 
proposes rules under Regulation AA regarding card issuers' ability to 
finance certain fee amounts, and when start-up fees may be collected 
during the first twelve months after the account is opened. If the 
approach under Regulation AA is adopted as proposed, appropriate 
revisions will be made to ensure consistency among the regulatory 
requirements and to facilitate compliance when the Board adopts 
revisions to the Regulation Z rules for open-end (not home-secured) 
credit.

Section 226.7 Periodic Statements

7(b) Rules Affecting Open-End (Not Home-Secured) Plans
7(b)(11) Due Date; Late Payment Costs
    In the June 2007 Proposal, the Board added Sec.  226.7(b)(11) to 
implement TILA amendments in the Bankruptcy Act that require creditors 
that charge a late-payment fee to disclose on the periodic statement 
(1) the payment due date or, if different, the earliest date on which 
the late-payment fee may be charged, and (2) the amount of the late-
payment fee. 15 U.S.C. 1637(b)(12). The Board also proposed to require 
that creditors disclose on the periodic statement any cut-off hour for 
receiving payments closely proximate to each reference of the due date, 
if the cut-off hour is before 5 p.m. on the due date. If the cut-off 
hours prior to 5 p.m. differ depending on the method of payment (such 
as by check or via the Internet), creditors would have been required to 
state the earliest time without specifying the method to which the cut-
off hour applies, to avoid information overload. See proposed Sec.  
226.7(b)(11)(i)(B), Sec.  226.7(b)(13). Under the June 2007 Proposal, 
cut-off hours of 5 p.m. or later could continue to be disclosed under 
the existing rule (including on the reverse side of periodic 
statements). 72 FR 32948, 33053, June 14, 2007.
    Comments were divided on the proposed cut-off hour disclosure for 
periodic statements. Industry representatives that have a cut-off hour 
earlier than 5 p.m. for an infrequently used payment means expressed 
concern about consumer confusion if the more commonly used payment 
method is later than 5 p.m. Consumer groups urged the Board also to 
adopt a ``postmark'' date on which consumers could rely to demonstrate 
their payment was mailed sufficiently in advance for the payment to be 
timely received, or to eliminate cut-off hours altogether. Both 
consumer groups and industry representatives asked the Board to clarify 
what time zone by which the cut-off hour should be measured.
    As discussed in the section-by-section analysis to Sec.  226.10(b), 
the Board proposes that to comply with the requirement in Sec.  226.10 
to provide reasonable payment instructions, a creditor's cut-off hour 
for receiving payments by mail can be no earlier than 5 p.m. in the 
location where the creditor has designated the payment to be sent. 
Comment is requested on whether there continues to be a need for 
creditors to disclose cut-off hours before 5 p.m. for payments made by 
telephone or electronically.

Section 226.9 Subsequent Disclosure Requirements

9(b) Disclosures for Supplemental Credit Access Devices and Additional 
Features
    Section 226.9(b) currently requires certain disclosures when a 
creditor adds a credit device or feature to an existing

[[Page 28878]]

open-end plan. When a creditor adds a credit feature or delivers a 
credit device to the consumer within 30 days of mailing or delivering 
the account-opening disclosures under current Sec.  226.6(a), and the 
device or feature is subject to the same finance charge terms 
previously disclosed, the creditor is not required to provide 
additional disclosures. If the credit feature or credit device is added 
more than 30 days after mailing or delivering the account-opening 
disclosures, and is subject to the same finance charge terms previously 
disclosed in the account-opening agreement, the creditor must disclose 
that the feature or device is for use in obtaining credit under the 
terms previously disclosed. However, if the added credit device or 
feature has finance charge terms that differ from the disclosures 
previously given at account opening, then disclosure of the differing 
terms must be given before the consumer uses the new feature or device.
    The June 2007 Proposal addressed disclosures that must be provided 
with checks that access credit card accounts (that are not home-
secured). A new Sec.  226.9(b)(3) would require certain information to 
be disclosed each time that such checks are mailed to a consumer, for 
checks mailed more than 30 days following the delivery of the account-
opening disclosures. Specifically, the June 2007 Proposal would require 
that the following key terms be disclosed on the front of the page 
containing the checks: (1) Any discounted initial rate, and when that 
rate will expire, if applicable; (2) the type of rate that will apply 
to the checks after expiration of any discounted initial rate (such as 
whether the purchase or cash advance rate applies) and the applicable 
APR; (3) any transaction fees applicable to the checks; and (4) whether 
a grace period applies to the checks, and if one does not apply, a 
statement that interest will be charged immediately. Proposed Sec.  
226.9(b)(3) would require that these key terms be disclosed in a 
tabular format substantially similar to Sample G-19 in Appendix G. 72 
FR 32948, 33056, 33082, June 14, 2007.
    The Board proposes to add a disclosure to the summary table 
required by Sec.  226.9(b)(3) in the June 2007 Proposal, pursuant to 
its authority under TILA Section 105(a). 15 U.S.C. 1604(a). The 
additional disclosure is set forth in proposed Sec.  226.9(b)(3)(C) and 
would require additional information regarding the expiration date of 
any offer of a discounted initial rate. If a discounted initial rate 
applies to the checks, the creditor would be required to disclose any 
date by which the consumer must use the checks in order to receive the 
discounted initial rate. If the creditor will honor the checks if they 
are used after the disclosed date but will apply to the advance an APR 
other than the discounted initial rate, the creditor must disclose that 
fact and the type of APR that will apply under those circumstances.
    The Board believes that it is important that consumers receive 
clear disclosures regarding the expiration date of any offer of a 
promotional rate that would be applicable to checks that access a 
credit card account. This disclosure is particularly important if the 
creditor will honor the checks, but at a higher interest rate, after 
the expiration date of the promotional rate offer. A consumer who is 
unaware of the expiration date for the offer of a promotional rate may 
use the check with the expectation of receiving the promotional rate, 
only to later discover, after he or she is contractually bound on the 
advance, that the check was subject to a higher interest rate than 
expected. This disclosure is designed to enable a consumer to better 
evaluate what the cost of using the check will be, and to make an 
informed decision whether to use the check or an alternative source of 
credit.
    In consumer testing conducted for the Board in March 2008, the 
Board tested a disclosure of the date by which a consumer must use 
checks that access a credit card account in order to qualify for a 
discounted initial rate offer. This disclosure was labeled ``Use by 
Date'' and stated ``You must use this check by 4/1/08 for the 
promotional APR to apply. If you use the check after that date, we may 
still honor the check but you will not receive the promotional APR. 
Instead, the standard APR for Cash Advances will apply.'' The responses 
given by testing participants indicated that they generally did not 
understand prior to the testing that there may be a use-by date 
applicable to an offer of a promotional rate for a check that accesses 
a credit card account. However, the participants that read the tested 
language understood that the standard cash advance rate, not the 
promotional rate, would apply if the check was used after April 1, 
2008. Thus, the Board believes that this disclosure may improve 
consumer understanding of the terms applicable to these checks. In 
addition to proposed Sec.  226.9(b)(3)(C), the Board also proposes a 
corresponding change to Sample G-19 to include the language that was 
tested in March 2008.
Paragraph 9(b)(3)(E)
    Section 226.9(b)(3)(D) in the June 2007 Proposal required creditors 
offering access checks to disclose, among other information, whether or 
not a period exists in which consumers may avoid the imposition of 
finance charges and, if so, the length of the period. 72 FR 32948, 
33056, June 14, 2007. As discussed in the section-by-section analysis 
to Sec.  226.5(a)(2), Sec.  226.5a(b)(5) and Sec.  226.6(b)(4)(iv), the 
Board is revising provisions relating to the description of grace 
periods. Section 226.9(b)(3)(E), as renumbered in the May 2008 
Proposal, is revised and comment 9(b)(3)(E)-1 is added, consistent with 
the proposed revisions to Sec.  226.5a(b)(5) and Sec.  226.6(b)(4)(iv) 
and related commentary. The Board also proposes to revise Sample G-19 
for conformity with the proposed revisions.
    Finally, the Board also is deleting from Sec.  226.9(b)(3)(A), as 
proposed in June 2007, the requirement that a creditor use the term 
``introductory'' or ``intro'' in immediate proximity to the listing of 
the discounted initial rate for checks that access a credit card 
account. This change is proposed for consistency with proposed 
revisions to Sec.  226.16(e)(2), which is discussed in more detail in 
the section-by-section analysis below and creates a new definition of 
``promotional rate'' to be used to describe offers of discounted 
initial interest rates that are made in connection with existing 
accounts. The Board is aware that checks that access a credit card 
account are provided to consumers that already have an existing credit 
card account, so the term ``promotional rate'' may be a more 
appropriate term than `` introductory rate'' for describing any 
discounted initial rate applicable to such checks. Sample G-19 is 
revised accordingly.
9(c) Change in Terms
9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans
9(c)(2)(ii) Charges Not Covered by Sec.  226.6(b)(4)
    In the June 2007 Proposal, the Board proposed Sec.  
226.9(c)(2)(ii), which stated that if a creditor increases a charge, or 
introduces a new charge, required to be disclosed under Sec.  
226.6(b)(1) but not covered by Sec.  226.6(b)(4), the creditor may 
provide notice to the consumer at a relevant time before the consumer 
agrees to or becomes obligated to pay the charge, and may provide the 
notice orally or in writing. 72 FR 32948, 33056, June 14, 2007. The 
Board proposes to amend comment 9(c)(2)(ii)-1 to reflect the 
permissibility of electronic notice and to clarify (by a cross-
reference to

[[Page 28879]]

comment 5(a)(1)(ii)(A)-1) that electronic notice may be provided 
without regard to the notice and consent requirements of the E-Sign Act 
when a consumer requests a service in electronic form.
9(c)(2)(iii) Disclosure Requirements
    As discussed elsewhere in today's Federal Register, subject to 
certain exceptions, the Board proposes to prohibit increasing the APR 
applicable to balances outstanding at the end of the fourteenth day 
after a notice disclosing the change in the APR is provided to the 
consumer. A creditor would, however, be permitted to apply a rate 
increase to such outstanding balances when the rate increase is due to: 
the operation of an index or formula; the expiration of a promotional 
rate; the loss of a promotional rate due to one or more events 
specified in the account agreement, provided that the bank increases 
the rate to the rate that would have applied after expiration of the 
promotional rate; or the consumer's failure to make the required 
minimum periodic payment within 30 days from the due date for that 
payment.
    For consistency with the proposed substantive restrictions 
regarding the application of increased APRs to pre-existing balances, 
the Board proposes a new Sec.  226.9(c)(2)(iii)(A)(7) to clarify that a 
creditor that provides a change in terms notice in connection with an 
increase in an APR must disclose the balances to which the increased 
rate will be applied, pursuant to its authority under TILA Section 
105(a). 15 U.S.C. 1604(a). If the creditor is subject to restrictions 
on rate increases to existing balances proposed elsewhere in today's 
Federal Register or other applicable law, the creditor would also 
identify the balances to which the current rate will continue to apply.
    The Board believes that it is important for consumers to be clearly 
notified when the current rate, rather than the increased rate, will 
continue to apply to balances already outstanding on their accounts. 
This disclosure could assist consumers to make better-informed 
decisions regarding usage of their accounts. For example, if a consumer 
erroneously believed that a rate increase would be applicable to the 
outstanding balance on the account, that consumer might seek an 
alternative source of credit with which to pay off the outstanding 
balance, even if the cost of such alternative credit may be higher than 
the rate that is in fact applicable to such balance.
    The Board proposes to revise Sample G-20 in Appendix G in order to 
include a disclosure that would comply with the new proposed 
requirement. Comment 9(c)(2)(iii)(A)-8, which discusses the content of 
Sample G-20, is revised accordingly.
9(g) Increase in Rates Due to Delinquency or Default as a Penalty
    In the June 2007 Proposal, the Board proposed to add a new section 
226.9(g), which would require that a creditor provide a consumer with 
45 days' advance notice when a rate is increased due to the consumer's 
delinquency or default, or if a rate is increased 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. 72 FR 
32948, 33058, June 14, 2007. As discussed elsewhere in today's Federal 
Register, the Board also proposes to prohibit the application of a 
penalty rate to balances that are outstanding at the end of the 
fourteenth day after a notice disclosing the change in the APR is 
provided to the consumer, except in the event that a consumer fails to 
make the required minimum periodic payment within 30 days from the due 
date for that payment.
    The Board proposes to add new illustrations to comment 9(g)-1, to 
provide guidance on the impact of substantive protections regarding the 
application of increased APRs to pre-existing balances on the timing 
requirements of 45 days' advance notice before delinquency or default 
rates or penalty rates may be imposed.
    The Board also proposes to revise Sec.  226.9(g)(3)(i)(D) of the 
June 2007 Proposal, which required creditors to disclose the balances 
to which a delinquency or default rate or penalty rate would be 
applied, and a new Sec.  226.9(g)(3)(i)(E), for conformity with the 
proposed substantive restriction regarding increased APRs on pre-
existing balances. Section 9(g)(3)(i)(D) would be revised to require 
creditors subject to the proposed substantive restrictions to disclose 
how balances may be affected if the consumer fails make the required 
minimum periodic payment within 30 days from the due date for that 
payment. New Sec.  226.9(g)(3)(i)(E) would require 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 required minimum periodic payment within 30 days from the due date 
for that payment. Conforming changes are also made to Sample G-21 in 
Appendix G.

Section 226.10 Prompt Crediting of Payments

    Section 226.10, which implements TILA Section 164, generally 
requires a creditor to credit to a consumer's account a payment that 
conforms to the creditor's instructions (also known as a conforming 
payment) as of the date of receipt, except when a delay in crediting 
the account will not result in a finance or other charge. 15 U.S.C. 
1666c; Sec.  226.10(a). Section 226.10 also requires a creditor that 
accepts a non-conforming payment to credit the payment within five days 
of receipt. See Sec.  226.10(b). The Board has previously interpreted 
Sec.  226.10 to permit creditors to specify cut-off times indicating 
the time when a payment is due, provided that the requirements for 
making payments are reasonable, to allow most consumers to make 
conforming payments without difficulty. See comments 10(b)-1 and -2. 
Pursuant to Sec.  226.10(b) and comment 10(b)-1, if a creditor imposes 
a cut-off time, it currently must be disclosed on the periodic 
statement; many creditors put the cut-off time on the back of 
statements.
10(b) Specific Requirements for Payments
    Reasonable requirements for cut-off times. In the June 2007 
Proposal, the Board sought to address concerns that cut-off times may 
effectively result in a due date that is one day earlier in practice 
than the due date disclosed. The Board did not propose to require a 
minimum cut-off time. Rather, the Board proposed a disclosure-based 
approach, which would have created a new Sec.  226.7(b)(11) to require 
that for open-end (not home-secured) plans, creditors must disclose the 
earliest of their cut-off times for payments in close proximity to the 
due date on the front page of the periodic statement, if that earliest 
cut-off time is before 5 p.m. on the due date. In recognition of the 
fact that creditors may have different cut-off times depending on the 
type of payment (e.g., mail, Internet, or telephone), the Board's 
proposal would have required that creditors disclose only the earliest 
cut-off time, if earlier than 5 p.m. on the due date. 72 FR 32948, 
33053, 33054, June 14, 2007.
    Although some consumers supported the proposed cut-off time 
disclosure, other consumers and consumer groups thought that the 
proposed disclosure would provide only a minimal benefit to consumers. 
These commenters recommended that the Board consider other approaches 
to more effectively address cut-off times. Consumer groups recommended 
that the Board adopt a postmark rule, under which the timeliness of a 
consumer's payment would be evaluated based on the date on which the 
payment was postmarked.

[[Page 28880]]

Some consumers commented that cut-off times are unfair and should be 
abolished, while other consumers suggested that the Board establish 
minimum cut-off times, for example, 4:00 p.m. in the time zone in which 
the billing center is located.
    Industry commenters expressed concern that the proposed disclosure 
would prove confusing to consumers. They noted that many creditors vary 
their cut-off times by payment channel and that disclosure of only the 
earliest cut-off hour would be inaccurate and misleading. They 
suggested that, if the Board retains this requirement, a creditor 
should be permitted to identify to which payment method the cut-off 
time relates, disclose the cut-off hours for all payment channels, or 
to disclose the cut-off hour for the payment method used by the 
consumer, if known. Industry commenters also asked that the Board relax 
the location requirement for the cut-off time disclosure on the 
periodic statement.
    Both consumer groups and industry commenters urged the Board to 
clarify which time zone should be considered when determining if the 
cut-off time is prior to 5 p.m.
    In light of feedback received on the June 2007 Proposal, the Board 
proposes to address cut-off times for mailed payments by providing 
guidance as to the types of requirements that would be reasonable for 
creditors to impose for payment received by mail. In part, the Board 
proposed to move guidance currently contained in the commentary to the 
regulation. Currently, comment 10(b)-1 provides examples of specific 
payment requirements creditors may impose, and comment 10(b)-2 states 
that payment requirements must be reasonable, in particular that it 
should not be difficult for most consumers to make conforming payments. 
The Board proposes to move the substance of comments 10(b)-1 and 10(b)-
2 to Sec. Sec.  226.10(b)(1) and (2) of the regulation. Under the May 
2008 Proposal, Sec.  226.10(b)(1) would state the general rule, namely 
that a creditor may specify reasonable requirements that enable most 
consumers to make conforming payments. The Board would expand upon the 
example in current comment 10(b)-1(i)(B) in new Sec.  226.10(b)(2)(ii), 
which would state that it would not be reasonable for a creditor to set 
a cut-off time for payments by mail that is earlier than 5 p.m. at the 
location specified by the creditor for receipt of such payments.
    The language in current comment 10(b)-2 stating that it should not 
be difficult for most consumers to make conforming payments would not 
be included in the proposed regulatory text. The Board believes that 
this language is unnecessary and that in substance is duplicative of 
the requirement that any payment requirements be reasonable and enable 
most consumers to make conforming payments.
    The Board believes that it is important that the requirements that 
a creditor sets for payments be reasonable, so that most consumers will 
be able to make payments that conform with those requirements. If the 
creditor's requirements make it unduly burdensome for a consumer to 
make a conforming payment, then a consumer may become subject to the 
fees and other penalties associated with late payments, without having 
a reasonable opportunity to avoid those adverse consequences. With 
regard to cut-off times, any cut-off time specified by a creditor on 
the due date for payments should afford consumers a reasonable 
opportunity to make payment on that date.
    At the same time, the Board is mindful of the burden that 
specifying a particular cut-off time or times by regulation could have 
on creditors. Each creditor may have different internal processes and 
systems, and may work with different vendors and service providers, so 
a one-size-fits-all approach may not be feasible. As a result, while 
the proposed regulation would contain one example of an unreasonable 
cut-off time for payments made by mail, it would not impose a single 
cut-off time on all creditors for all methods of payment. The Board 
requests comment on the operational burden that the proposed rule would 
impose on creditors.
    The Board has not proposed a postmark rule as suggested by consumer 
group commenters. In part, this is because the Board proposes elsewhere 
in today's Federal Register a rule that would require a creditor to 
provide consumers with a reasonable time to make payments. The Board 
believes this substantive protection effectively addresses the concerns 
expressed by consumer groups regarding insufficient time to make 
payments. The Board also believes that it would be difficult for 
consumers to retain proof of when their payments were postmarked, in 
order to challenge the prompt crediting of payments under such a rule. 
A consumer generally is not given proof of the postmark date at the 
time that he or she mails a payment; to effectively retain evidence of 
the postmark date, a consumer would in many cases need to pay extra 
postage charges in order to receive a proof of mailing. In addition, a 
mailed payment may not have a legible postmark date when it reaches the 
creditor or creditor's service provider. Finally, the Board believes 
there would be significant operational costs and burdens associated 
with capturing and recording the postmark dates for payments.
    Under the June 2007 Proposal, Sec.  226.10(b) contained a cross-
reference to Sec.  226.7(b)(11), regarding the disclosure of cut-off 
hours on periodic statements. In the section-by-section analysis to 
Sec.  226.7(b)(11), the Board solicits comment on whether disclosure of 
cut-off hours near the due date for payment methods other than mail 
(e.g., telephone or internet) should be retained. If the Board adopts 
revisions to Sec.  226.7 that do not require disclosure of any cut-off 
hour closely proximate to the due date, the proposed cross-reference 
would be withdrawn.
    June 2007 proposed revisions to comment 10(b)-2, regarding payments 
made via a creditor's Web site, remain unchanged.
10(d) Crediting of Payments When Creditor Does Not Receive or Accept 
Payments on Due Date
    Holiday and weekend due dates. The Board's June 2007 Proposal did 
not address the practice of setting due dates on dates on which a 
creditor does not accept payments, such as weekends or holidays. A 
weekend or holiday due date might occur, for example, if a creditor 
sets its payment due date on the same day (the 25th, for example) of 
each month. While in most months the 25th would fall on a business day, 
in other months the 25th might be a weekend day or holiday, due to 
fluctuations in the calendar. However, the Board received a number of 
comments from consumer groups, individual consumers, and a United 
States Senator criticizing weekend or holiday due dates. The comment 
letters expressed concern that a consumer whose due date falls on a 
date on which the creditor does not accept payments must pay one or 
several days early in order to avoid the imposition of fees or other 
penalties that are associated with a late payment. Comment letters from 
consumers indicated that, for many consumers, weekend and holiday due 
dates are a common occurrence. Some of these commenters suggested that 
the Board mandate an automatic grace period until the next business day 
for any such weekend or holiday due dates. Other commenters recommended 
that the Board prohibit weekend or holiday due dates.
    In response to these comments, the Board proposes a new Sec.  
226.10(d) that

[[Page 28881]]

would require a creditor to treat a payment received by mail the next 
business day as timely, if the due date for the payment is a day on 
which the creditor does not receive or accept payment by mail, such a 
day on which the U.S. Postal Service does not deliver mail. Thus, a 
consumer whose due date falls on a Sunday on which a creditor does not 
accept payment by mail would not be subject to late payment fees or 
increases in the interest rate applicable to the account due to late 
payment if the consumer's payment were received by mail on the next day 
that the creditor does accept payment by mail. The Board proposes this 
rule using its authority to regulate the prompt posting of payments 
under TILA section 164, which states that ``[p]ayments received from an 
obligor under an open end consumer credit plan by the creditor shall be 
posted promptly to the obligor's account as specified in regulations of 
the Board.'' 15 U.S.C. 1666c.
    The Board acknowledges that this proposal may require creditors to 
modify their systems to ensure that payment due dates do not fall on 
dates when they do not receive mail or to backdate payments or waive 
fees and interest, which would impose some degree of burden on 
creditors. The Board solicits comment on the extent of the burden 
associated with any system modification that would be required to 
comply with the proposed rule.
    The proposed rule in Sec.  226.10(d) would be limited to payments 
made by mail. The Board is particularly concerned about payments by 
mail because the consumer's time to pay, as a practical matter, is the 
most limited for those payments, since a consumer paying by mail must 
account for the time that it takes the payment to reach the creditor. 
The Board solicits comment as to whether this rule also should address 
payments made by other means, such as telephone payments or payments 
made via the internet.
    The Board notes that it also received a large number of comment 
letters from consumers who expressed concern more generally that the 
amount of time consumers are given to pay their bills is continually 
decreasing. The Board believes that its proposal under Regulation Z 
regarding weekend or holiday due dates will complement the Board's 
proposal to require banks to provide a consumer with a reasonable 
amount of time to make payments.

Section 226.12 Special Credit Card Provisions

12(a) Issuance of Credit Card
    TILA Section 132, which is implemented by Sec.  226.12(a) of 
Regulation Z, generally prohibits creditors from issuing credit cards 
except in response to a request or application. Section 132 explicitly 
exempts from this prohibition credit cards issued as renewals of or 
substitutes for previously accepted credit cards. 15 U.S.C. 1642.
    The Board has been asked over the years to provide guidance on 
actions card issuers may take to ``substitute'' on an unsolicited basis 
a new card for an accepted credit card. See Comment 12(a)(2)-2. For 
example, the Board has provided guidance that card issuers may, on an 
unsolicited basis, substitute a new card that reflects a change in the 
card issuer's name, or that can be used to access new account features 
such as when the card originally accepted could be used only for 
purchases and the creditor substitutes a new card that can also be used 
to obtain cash advances.
    The Board has also provided guidance on limitations on an issuer's 
ability to issue a new card as a substitute for an accepted card. For 
example, if the originally accepted card is honored only at Merchant A, 
the issuer cannot substitute a new card that is honored only at 
Merchant B. To be a permissible substitution in this example, the new 
card must continue to be honored by Merchant A, even though the card 
may also be used at Merchant B or other merchants. Card issuers rely on 
this interpretation to substitute on an unsolicited basis a general-
purpose bank card that is honored at many merchants for a card 
originally honored by a single merchant.
    Over the years, consumers have expressed their confusion, and in 
some cases frustration, when they receive on an unsolicited basis a new 
general-purpose card (which may be honored at multiple merchants) that 
is sent in substitution for a card originally honored by a single 
merchant. They express concern about potential identity theft when 
cards are sent out without warning or notice, and frustration about the 
issuer's unilateral decision to change fundamentally the potential uses 
of the card from that originally requested.
    The June 2007 Proposal did not propose changes to the Board's 
current guidance on issuing credit cards in renewal of or substitution 
for an accepted credit card. Consumer groups urged the Board to limit 
the ability of card issuers to issue on an unsolicited basis a new card 
for an accepted card, for example, if the credit features differ 
greatly or if the accepted card has not been used for an extended 
period of time. Industry commenters, on the other hand, generally 
supported the Board's proposal to retain the existing guidance on 
permissible renewals and substitutions.
    The Board has become aware of issuances in which general-purpose 
cards were sent on an unsolicited basis as a substitute for the 
merchant card where the accounts for the originally accepted card had 
not been active with the merchant for a long period of time. This 
practice is permitted under current rules. Some consumers who responded 
to the June 2007 Proposal urged the Board to limit issuers' ability to 
send cards without consent or warning in these circumstances, due to 
concerns of cardholder security and identity theft.
    The Board proposes a narrow response to address concerns about the 
unsolicited issuance of new cards for accepted cards on accounts that 
have been inactive for a long period of time. Under the proposed 
revision to comment 12(a)(2)-2.v., a card issuer that proposes to 
change the merchant base that will honor the card, such as from a card 
that is honored by a single merchant to a general-purpose card, may not 
properly substitute the new card for the accepted card without a 
specific request or application if the account has been inactive for a 
24 month period preceding the issuance of the substitute card. Changing 
the merchant base to enable the card holder to use an accepted card at 
a new affiliate of the merchant is not affected by the proposal. Under 
the proposal, an account is considered inactive if no credit has been 
extended and the account has no outstanding balance. See proposed Sec.  
226.11(b)(2), which implements TILA amendments in the Bankruptcy Act 
affecting accounts that are ``inactive'' for three consecutive months. 
72 FR 32948, 33058, June 14, 2007. The Board requests comment on 
whether a longer time period, such as 36 months, would be more 
appropriate.
    The proposal would not affect the renewal or substitution of cards 
by the original card issuer when, for example, a consumer opens a 
credit card account with a merchant to take advantage of a discounted 
purchase price or a low introductory rate, and does not use the card 
for a number of years. In that case, the issuer could send a new card 
on an unsolicited basis in renewal of or substitution for the 
originally accepted card, even if the new card could be used to obtain 
additional credit features with the retailer. Nor does the proposal 
limit

[[Page 28882]]

creditors' ability to send a general-purpose card in place of an 
inactive retail card if the consumer specifically requests or applies 
for the general-purpose card. The proposal would, however, address 
consumers' confusion when a card issued by a creditor with whom the 
consumer may have no previous relationship arrives in the mail on an 
unsolicited basis, as a substitute for a retail card account the 
consumer has not used in some time.
12(b) Liability of Cardholder for Unauthorized Use
    TILA and Regulation Z provide protections to consumers against 
losses due to unauthorized transactions on open-end plans. See TILA 
Section 133; 15 U.S.C. 1643, Sec.  226.12(b); TILA Section 161(b)(1); 
15 U.S.C. 1666(b)(1), Sec.  226.13(a)(1). Comment 12(b)-2 and -3 
address a card issuer's rights and responsibilities in responding to a 
claim of unauthorized use under Sec.  226.12. Comment 12(b)-2 clarifies 
that a card issuer is not required to impose any liability. Comment 
12(b)-3 clarifies that the card issuer wishing to impose liability must 
investigate claims in a reasonable manner and provides guidance on 
conducting an investigation of a claim. As discussed in the section-by-
section analysis to Sec.  226.13(f), which requires creditors to 
conduct a reasonable investigation of an allegation of a billing error, 
the Board proposes to include guidance currently provided in the 
context of a claim of unauthorized transactions under Sec.  226.12(b) 
in proposed comment 13(f)-3.
    Comment 12(b)-3 provides that a card issuer may reasonably request 
the consumer's cooperation. A card issuer may not, however, 
automatically deny a claim based solely on the consumer's failure or 
refusal to comply with a particular request. The Board proposes to add, 
by way of example, that such requests would include any card issuer 
requirement that the consumer submit a signed statement or affidavit or 
file a police report. See 59 FR 64351, 64352, December 14, 1994; 60 FR 
16771, 16774, April 3, 1995. The Board is concerned that such card 
issuer requests could cause a chilling effect on a consumer's ability 
to assert his or her right to avoid liability for an unauthorized 
transaction. However, if the card issuer otherwise has no knowledge of 
facts confirming the billing error, comment 12(b)-3 states that the 
lack of information resulting from the consumer's failure or refusal to 
comply with a particular request may lead the card issuer reasonably to 
terminate the investigation.

Section 226.13 Billing Error Resolution

13(f) Procedures if Different Billing Error or No Billing Error 
Occurred
    Section 226.13(f) sets forth procedures for resolving billing error 
claims if the creditor determines that no error or a different error 
occurred. A creditor must first conduct a reasonable investigation 
before the creditor may deny a consumer's claim or conclude that the 
billing error occurred differently than as asserted by the consumer. 
See TILA Section 161(a)(3)(B)(ii); 15 U.S.C. 1666(a)(3)(B)(ii). 
Footnote 31 was proposed to be deleted as unnecessary, in light of the 
general obligation under Sec.  226.13(f). The footnote provides that to 
resolve allegations of nondelivery of property or services, creditors 
must determine whether property or services were actually delivered, 
mailed, or sent as agreed. To resolve allegations of incorrect 
information on a periodic statement due to an incorrect report, 
creditors must determine that the information was correct. See Sec.  
226.13(f), footnote 31.
    Consumer advocates urged the Board to retain the substance of 
footnote 31. They noted that the current guidance in footnote 31 
requires issuers to take concrete steps for resolving claims of 
nondelivery such as obtaining delivery records or contacting merchants, 
to consumers' detriment. Without this guidance, advocates expressed 
concern that issuers would conduct more perfunctory investigations as, 
in their view, has been the case by some creditors applying the same 
``reasonable investigation'' standard for investigations into 
allegations of errors on credit reports under the Fair Credit Reporting 
Act. 15 U.S.C. 1681 et seq. In light of the commenters' concerns, the 
Board proposes to reinstate the substance of footnote 31 in a new 
comment 13(f)-3.
    TILA and Regulation Z provide protections to consumers against 
losses due to unauthorized transactions on open-end plans. See TILA 
Section 133; 15 U.S.C. 1643, Sec.  226.12(b); TILA Section 161(b)(1); 
15 U.S.C. 1666(b)(1), Sec.  226.13(a)(1). In reviewing its guidance on 
conducting a reasonable investigation under Sec.  226.13(f), the Board 
notes that card issuers have express guidance on conducting a 
reasonable investigation of a claim of unauthorized transaction under 
Sec.  226.12(b) but there is no similar guidance for creditors under 
Sec.  226.13. See comment 12(b)-3. To harmonize the standards under the 
two provisions and address inquiries Board staff has received over the 
years on this issue, the Board proposes to include applicable guidance 
currently provided in the context of a claim of unauthorized 
transactions under Sec.  226.12(b) in proposed comment 13(f)-3.
    In contrast to comment 12(b)-3, which applies to the unauthorized 
use of a credit card, the corresponding guidance in comment 13(f)-3 
would apply to all creditors offering an open-end plan. The comment 
would provide that in conducting an investigation of an allegation of a 
billing error, a creditor may reasonably request the consumer's 
cooperation. A creditor may not automatically deny a claim based solely 
on the consumer's failure or refusal to comply with a particular 
request. Consistent with the proposed revision to comment 12(b)-3, 
discussed in the section-by-section analysis to Sec.  226.12(b), the 
proposed comment further states, by way of example, that such requests 
include any creditor requirement that the consumer submit a signed 
statement or affidavit or file a police report. See 59 FR 64351, 64352, 
December 14, 1994; 60 FR 16771, 16774, April 3, 1995. The Board is 
concerned that such creditor requests could cause a chilling effect on 
a consumer's ability to assert his or her billing error rights. 
However, consistent with the guidance in comment 12(b)-3, if the 
creditor otherwise has no knowledge of facts confirming the billing 
error, comment 13(f)-3 would provide that 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, as illustrated in the proposed comment.

Section 226.14 Determination of Annual Percentage Rate

    TILA Section 127(b)(6) requires disclosure of an APR calculated as 
the quotient of the total finance charge for the period to which the 
charge relates divided by the amount on which the finance charge is 
based, multiplied by the number of periods in the year. 15 U.S.C. 
1637(b)(6). This rate has come to be known as the ``historical APR'' or 
``effective APR.'' Section 226.14(c) contains the rules for determining 
the effective APR. Comment 14(c)-10 provides guidance on how to 
determine the effective APR when the finance charges imposed during the 
billing cycle relate to activity in a prior cycle, such as for 
adjustments relating to error resolution, when transactions occur late 
in a billing cycle and are impracticable to post until the following 
billing cycle, or when a consumer fails to pay a purchase balance under 
a deferred

[[Page 28883]]

interest feature by the payment due date and interest is imposed from 
the date of purchase.
    In the June 2007 Proposal, the Board proposed two alternative 
approaches for disclosing an effective APR. 72 FR 32948, 33052, June 
14, 2007. In discussing the proposal, the Board noted that there has 
been a longstanding controversy about the extent to which the effective 
APR disclosure requirement advances TILA's purposes to provide 
consumers with information about the cost of credit that helps 
consumers compare credit costs and make informed credit decisions, and 
to strengthen competition in the consumer credit markets, or undermines 
them. 15 U.S.C. 1601(a). The first alternative was designed to improve 
the disclosure and consumer understanding and reduce creditor 
uncertainty about the effective APR computation. The second approach 
would eliminate the requirement to disclose the effective APR. 72 FR 
32948, 32998, 32999, June 14, 2007. Comments to the June 2007 were 
sharply divided on the matter.
    Elsewhere in today's Federal Register, the Board proposes to 
prohibit banks from computing finance charges based on balances for 
days in billing cycles that precede the most recent billing cycle (so 
called two-cycle billing method). Interest adjustments due to error 
resolutions or in connection with deferred interest plans are not 
intended to be affected by the substantive ban. If, after additional 
consumer testing and analysis of the comments received, the Board 
determines to retain the effective APR disclosure requirement and the 
substantive prohibition on computing finance charges based on previous 
billing cycles is adopted, the Board will conform comment 14(c)-10 to 
the extent appropriate.

Section 226.16 Advertising

16(e) Promotional Rates
    In the June 2007 Proposal, the Board proposed to implement TILA 
Section 127(c)(6), as added by Section 1303(a) of the Bankruptcy Act, 
and TILA Section 127(c)(7), as added by Section 1304(a) of the 
Bankruptcy Act, in Sec.  226.16(e). TILA Section 127(c)(6) requires 
that if a credit card issuer states an introductory rate in 
applications, solicitations, and all accompanying promotional 
materials, the issuer must use the term ``introductory'' clearly and 
conspicuously in immediate proximity to each mention of the 
introductory rate. 15 U.S.C. 1637(c)(6). In addition, TILA Section 
127(c)(6) requires credit card issuers to disclose, in a prominent 
location closely proximate to the first mention of the introductory 
rate, other than the listing of the rate in the table required for 
credit card applications and solicitations, the time period when the 
introductory rate expires and the rate that will apply after the 
introductory rate expires. TILA Section 127(c)(7) further applies these 
requirements to ``any solicitation to open a credit card account for 
any person under an open end consumer credit plan using the Internet or 
other interactive computer service.'' 15 U.S.C. 1637(c)(7).
    In implementing these sections of the Bankruptcy Act, the Board 
proposed in the June 2007 Proposal to expand the types of disclosures 
to which these rules would apply. See proposed Sec.  226.5a(a)(2)(v), 
72 FR 32948, 33045, June 14, 2007. The Board also proposed to extend 
these requirements for the presentation of introductory rates to other 
written or electronic advertisements for open-end credit plans that may 
not accompany an application or solicitation (other than advertisements 
of HELOCs subject to Sec.  226.5b, which were addressed in the Board's 
proposed rule regarding new regulatory protections for consumers in the 
residential mortgage market, 73 FR 1672, 1721, January 9, 2008). 72 FR 
32948, 33064, June 14, 2007.
    Several industry commenters stated that the Board's proposed use of 
the term ``introductory rate'' and required use of the word 
``introductory'' or ``intro'' was overly broad in some cases. In 
particular, industry commenters were critical of the use of these terms 
as applied to special rates offered to consumers with an existing 
account. These commenters noted that in the marketplace, the phrase 
``introductory rates'' refers to promotional rates offered in 
connection with the opening of a new account. In contrast, special 
rates offered by card issuers to consumers with existing accounts are 
typically called ``promotional rates.'' These commenters believed that 
consumers would be confused by the word ``introductory'' or ``intro'' 
associated with a special rate offered on a consumer's already-opened 
account.
    In light of these concerns, the Board proposes to revise Sec.  
226.16(e)(2) as proposed in June 2007, to define separately 
``promotional'' and ``introductory'' rates. For consistency, the Board 
proposes the same definition of promotional rates in connection with 
proposed substantive protections under the FTC Act, published elsewhere 
in today's Federal Register. As a result of these revisions, the 
requirement to state the term ``introductory'' under Sec.  226.16(e)(3) 
of the June 2007 Proposal will be limited to promotional rates that are 
considered ``introductory rates'' under the revised Sec.  226.16(e)(2). 
Conforming revisions to Sec.  226.16(e)(4) and to commentary provisions 
to Sec.  226.16(e) are also proposed. If revisions to Sec.  
226.16(e)(2) are adopted as proposed, conforming changes will also be 
made throughout Regulation Z and associated commentary to be consistent 
with these new definitions when the Board adopts revisions to the 
Regulation Z rules for open-end (not home-secured) plans.
16(e)(1) Scope
    As discussed in the June 2007 Proposal, the Bankruptcy Act 
amendments regarding ``introductory rates'' apply to direct-mail 
applications and solicitations, and accompanying promotional materials, 
as well as Internet-based credit card solicitations. The Board proposed 
to extend these requirements not only to publicly available 
applications and solicitations to open a credit card account, and all 
accompanying materials, but also to electronic applications. See 
proposed Sec.  226.5a(a)(2)(v), 72 FR 32948, 33045, June 14, 2007. In 
addition, in the interest of consistency and to promote the informed 
use of credit, the Board proposed to extend the requirements of Sec.  
226.16(e) to other written and electronic advertisements for open-end 
credit plans that may not accompany an application or solicitation, 
other than advertisements of HELOCs subject to Sec.  226.5(b). 72 FR 
32948, 33064, June 14, 2007.
    The Board solicits comment on whether all or any of the information 
required under Sec.  226.16(e) to be provided with the disclosure of a 
promotional rate would be helpful in advertisements that are not in 
written or electronic form such as in telephone, radio, or television 
advertisements. Furthermore, the current proposed guidance on complying 
with Sec.  226.16(e) is directed towards written and electronic 
advertisements. If these requirements are extended to advertisements 
that are not in written or electronic form, additional guidance 
regarding how advertisers may comply with the requirements may be 
needed, for example, to apply proximity requirements in an oral 
context. Therefore, the Board also solicits comment on appropriate 
additional guidance if the requirements are extended to advertisements 
that are not in written or electronic form.
16(e)(2) Definitions
    In the June 2007 Proposal, the Board proposed to define the term 
``introductory rate'' as any rate of

[[Page 28884]]

interest applicable to an open-end plan for an introductory period if 
that rate is less than the advertised APR that will apply at the end of 
the introductory period. 72 FR 32948, 33064, June 14, 2007. As 
discussed above, since this proposed definition for ``introductory 
rate'' would have encompassed special rates that may be offered to 
consumers with existing accounts, the Board proposes to modify the 
definition and to refer to these rates as ``promotional rates.'' A new 
definition for ``introductory rate'' is also proposed, which would 
define them as promotional rates that are offered in connection with 
the opening of an account.
    Specifically, the Board would modify the June 2007 proposed 
definition of ``introductory rate'' for the new definition of 
``promotional rate'' to apply more generally to any APR applicable to 
one or more balances or transactions on a consumer credit card account 
for a specified period of time that is lower than the APR that will be 
in effect at the end of that period. In addition to removing the 
reference to ``introductory period,'' the new proposed definition of 
``promotional rate'' also recognizes that special rate offers may not 
apply to the entire account but may only apply to a specific balance or 
transaction. Furthermore, the new definition removes the term 
``advertised,'' which commenters asserted would imply that the APR in 
effect after the introductory period had to have been ``advertised'' 
before the requirements under proposed Sec. Sec.  226.16(e)(3) and (4) 
would have applied. This was not the Board's intention. The Board's 
proposed use of the term ``advertised'' in the definition was intended 
to refer to the advertising requirements regarding variable rates and 
the accuracy requirements for such rates. The Board will instead 
address these requirements in a new comment 16(e)-1.
    New proposed comment 16(e)-1 provides that if a variable rate will 
apply at the end of the promotional period, the promotional rate must 
be compared to the APR that would have been advertised had such rate 
applied instead of the promotional rate. In direct-mail credit card 
applications and solicitations (and accompanying promotional 
materials), this rate is one that must have been in effect within 60 
days before the date of mailing, as required under proposed Sec.  
226.5a(c)(2)(i) (and currently under Sec.  226.5a(b)(1)(ii)). For 
variable-rate disclosures provided by electronic communication, this 
rate is one that was in effect within 30 days before mailing the 
disclosures to a consumer's electronic mail address, or within the last 
30 days of making it available at another location such as a card 
issuer's web site, as required under proposed Sec.  226.5a(c)(2)(ii) 
(and currently under Sec.  226.5a(b)(1)(iii)).
    Elsewhere in today's Federal Register, the Board proposes to 
establish rules regarding the allocation of payments on outstanding 
credit card balances, and proposes to define ``promotional rate'' as a 
part of the proposal. Consistent with the 2008 Regulation AA Proposal, 
the proposed definition under Sec.  226.16(e) would also include any 
APR applicable to one or more transactions on a consumer credit card 
account that is lower than the APR that applies to other transactions 
of the same type. This definition is meant to capture ``life of 
balance'' offers where a special rate is offered on a particular 
balance for as long as any portion of that balance exists. A new 
proposed comment 16(e)-2 provides an illustrative example of a ``life 
of balance'' offer and is similar to a comment proposed in the 2008 
Regulation AA Proposal. The new proposed comment 16(e)-2 will result in 
the renumbering of current proposed comments 16(e)-2 through 16(e)-5 
under the June 2007 Proposal.
    The Board also proposes a new definition for ``introductory rate'' 
to conform more closely to how the term is most commonly used. Proposed 
Sec.  226.16(e)(2)(ii) would define ``introductory rate'' as a 
promotional rate that is offered in connection with the opening of an 
account.
    Finally, the Board also proposes to define ``promotional period'' 
in Sec.  226.16(e)(2)(iii). The definition is similar to one previously 
proposed for ``introductory period'' in the June 2007 Proposal, which 
in turn was consistent with the definition in TILA Section 
127(c)(6)(D)(ii).
16(e)(3) Stating the Term ``Introductory''
    The Board proposed in the June 2007 Proposal to implement TILA 
Section 127(c)(6)(A), as added by section 1303(a) of the Bankruptcy 
Act, in Sec.  226.16(e)(3). 72 FR 32948, 33064, June 14, 2007. TILA 
Section 127(c)(6)(A) requires the term ``introductory'' to be used in 
immediate proximity to each listing of the temporary APR in the 
application, solicitation, or promotional materials accompanying such 
application or solicitation. 15 U.S.C. 1637(c)(6)(A).
    Section 226.16(e)(3) remains unchanged from the June 2007 Proposal. 
The Board notes, however, with the proposed revision to the definition 
of ``introductory rate'' in Sec.  226.16(e)(2), as discussed above, 
Sec.  226.16(e)(3) would not apply to all promotional rates. Instead, 
only promotional rates offered in connection with the opening of an 
account (i.e., introductory rates) would be covered under Sec.  
226.16(e)(3). Proposed comment 16(e)-1 under the June 2007 Proposal has 
been deleted as unnecessary since the clarification is already included 
in the regulation.
16(e)(4) Stating the Promotional Period and Post-Promotional Rate
    The Board proposed Sec.  226.16(e)(4) in the June 2007 Proposal to 
implement TILA Section 127(c)(6)(A), as added by Section 1303(a) of the 
Bankruptcy Act. 72 FR 32948, 33064, June 14, 2007. TILA Section 
127(c)(6)(A) requires that the time period in which the introductory 
period will end and the APR that will apply after the end of the 
introductory period be listed in a clear and conspicuous manner in a 
``prominent location closely proximate to the first listing'' of the 
introductory APR (excluding disclosures in the application and 
solicitation table). 15 U.S.C. 1637(c)(6)(A).
    As discussed above, the Board proposes changes to the definition of 
``introductory rate'' in response to comments received on the June 2007 
Proposal. In order to be consistent with the proposed changes to Sec.  
226.16(e)(2), the Board proposes to replace the term ``introductory'' 
with the term ``promotional'' in proposed Sec.  226.16(e)(4). 
Furthermore, while the Board is broadening the types of rates covered 
under the term ``promotional rates'' to special life-of-balance-type 
offers under proposed Sec.  226.16(e)(2)(i)(B), the Board recognizes 
that requiring disclosure of when the promotional rate will end and the 
post-promotional rate that will apply after the end of the promotional 
period would not make sense for these types of offers since the rate in 
effect for such offers last as long as the balance is in existence. 
Therefore, the Board proposes that the requirements of Sec.  
226.16(e)(4) apply only to promotional rates under Sec.  
226.16(e)(2)(i)(A). Similar changes are proposed for proposed comments 
16(e)-4, 16(e)-5, and 16(e)-6 (previously proposed comments 16(e)-3, 
16(e)-4, and 16(e)-5). 72 FR 32948, 33143, 33144, June 14, 2007.
16(h) Deferred Interest Offers
    Many creditors offer deferred interest plans where consumers may 
avoid paying interest on purchases if the outstanding balance is paid 
in full by the end of the deferred interest period. If the outstanding 
balance is not paid in full when the deferred interest period

[[Page 28885]]

ends, these deferred interest plans often require the consumer to pay 
interest that has accrued during the deferred interest period. 
Moreover, these plans typically begin charging interest accrued from 
the date of purchase if the consumer defaults on the credit agreement. 
Some deferred interest plans define default under the card agreement to 
include failure to make a minimum payment during the deferred interest 
period while other plans do not. Advertisements often prominently 
disclose the possibility of financing the purchase of goods or services 
at no interest.
    The Board proposes to use its authority under TILA Section 143(3) 
to add a new Sec.  226.16(h) to address the Board's concern that the 
disclosures currently required under Regulation Z may not adequately 
inform consumers of the terms of deferred interest offers. 15 U.S.C. 
1663(3). It is not clear that many of these types of offers would be 
covered under the requirements regarding promotional rates under 
proposed Sec.  226.16(e), nor that such requirements would be 
particularly helpful to consumers in understanding deferred interest 
offers. Separately, the allocation of payments for deferred interest 
offers is addressed in the Board's Regulation AA Proposal published 
elsewhere in today's Federal Register.
    The Board's proposed rules regarding deferred interest offers would 
incorporate many of the concepts currently proposed for promotional 
rates under Sec.  226.16(e). Specifically, the Board proposes to 
require that the deferred interest period be disclosed in immediate 
proximity to each statement regarding interest or payments during the 
deferred interest period. The Board also proposes that certain 
information about the terms of the deferred interest offer be disclosed 
in close proximity to the first statement regarding interest or 
payments during the deferred interest period. These proposals are 
discussed in more detail below.
    Conforming changes have been proposed for proposed comment 16(b)-4, 
which is current comment 16(b)-9. The Board also notes that guidance in 
comment 7(b)-1 as proposed in June 2007 (renumbered from current 7-3) 
refers to ``deferred payment'' transactions rather than ``deferred 
interest'' offers. 72 FR 32948, 33120, June 14, 2007. The Board will 
conform terminology when the revisions to the rules for open-end (not 
home-secured) plans are adopted.
16(h)(1) Scope
    Similar to the rules applicable to promotional rates under proposed 
Sec.  226.16(e), the Board proposes that the rules related to deferred 
interest offers under proposed Sec.  226.16(h) be applicable to all 
written and electronic advertisements, including accompanying 
promotional materials for direct mail applications or solicitations and 
accompanying promotional materials for publicly available applications 
or solicitations.
    As discussed above in the section-by-section analysis to Sec.  
226.16(e)(1), the Board solicits comment on whether the proposed 
requirements relating to promotional rates should be extended to 
advertisements that are not in written or electronic form, such as 
telephone, radio, and television advertisements, and if so, what 
additional guidance would be appropriate. Similarly, the Board requests 
comment on whether the proposed requirements for deferred interest 
offers under Sec.  226.16(h) should be applicable to advertisements 
that are not in written or electronic form, and if so, what additional 
guidance would be appropriate to help advertisers comply with these 
requirements.
16(h)(2) Definitions
    The Board proposes to define ``deferred interest'' in new Sec.  
226.16(h)(2) as finance charges on balances or transactions that a 
consumer is not obligated to pay if those balances or transactions are 
paid in full by a specified date. The term does not, however, include 
finance charges the creditor allows a consumer to avoid in connection 
with a recurring grace period. Therefore, an advertisement including 
information on a recurring grace period that could potentially apply 
each billing period, would not be subject to the additional disclosure 
requirements under Sec.  226.16(h). This definition is similar to the 
definition proposed in the 2008 Regulation AA Proposal, published 
elsewhere in today's Federal Register. In proposed comment 16(h)-1, the 
Board notes that deferred interest offers do not include offers that 
allow a consumer to defer payments during a specified time period, but 
where the consumer is not obligated under any circumstances for any 
interest or other finance charges that could be attributable to that 
period. Furthermore, deferred interest offers do not include 0% APR 
offers where a consumer is not obligated under any circumstances for 
interest attributable to the time period the 0% APR was in effect, 
though such offers may be considered promotional rates under proposed 
Sec.  226.16(e)(2)(i).
    Furthermore, the Board proposes to define the ``deferred interest 
period'' for purposes of proposed Sec.  226.16(h) as the maximum period 
from the date the consumer becomes obligated for the balance or 
transaction until the specified date that the consumer must pay the 
balance or transaction in full in order to avoid finance charges on 
such balance or transaction.
16(h)(3) Stating the Deferred Interest Period
    The Board proposes to add new Sec.  226.16(h)(3) to require that 
the deferred interest period or the date by which the consumer must pay 
the balance or transaction in full to avoid finance charges on such 
balance or transaction be disclosed clearly and conspicuously in 
immediate proximity to each statement of ``no interest,'' ``no 
payments,'' or ``deferred interest'' or similar term regarding interest 
or payments during the deferred interest period. Proposed comment 
16(h)-2 would provide guidance on the meaning of ``immediate 
proximity'' by providing a safe harbor similar to the one provided in 
comment 16(e)-3 of this May 2008 Proposal (renumbered from comment 
16(e)-2 under the June 2007 Proposal). Therefore, under proposed 
comment 16(h)-2, if the deferred interest period is disclosed in the 
same phrase as each statement of ``no interest,'' ``no payments,'' or 
``deferred interest'' or similar term regarding interest or payments 
during the deferred interest period (for example, ``no interest for 12 
months,'' ``no payments until December 2008'', or ``12 months of 
deferred interest''), the deferred interest period or date will be 
deemed to be in immediate proximity to the statement. Furthermore, the 
Board proposes that these terms must be equally prominent in order to 
be considered ``clear and conspicuous'' and proposes to amend comment 
16-2 to reflect this.
    The proposal will better ensure clear disclosure of the time period 
in which the consumer has to pay the balance or transaction amount in 
order to avoid being charged interest by requiring both a proximity and 
prominence requirement for the disclosure of the deferred interest 
period or date. This information combined with the information that the 
Board proposes to require in Sec.  226.16(h)(4), as discussed below, 
will help consumers to understand these offers when statements of ``no 
interest,'' ``no payments,'' or other similar terms are used in 
advertisements.

[[Page 28886]]

16(h)(4) Stating the Terms of the Deferred Interest Offer
    In order to ensure that consumers notice and fully understand 
certain terms related to a deferred interest offer, the Board proposes 
that certain disclosures be required in a prominent location closely 
proximate to the first listing of a statement of ``no interest,'' ``no 
payments,'' ``deferred interest,'' or a similar term regarding interest 
or payments during the deferred interest period. In particular, the 
Board proposes to require a statement that if the balance or 
transaction is not paid within the deferred interest period, interest 
will be charged from the date the consumer became obligated for the 
balance or transaction. The Board also proposes to require a statement 
that interest can also be charged from the date the consumer became 
obligated for the balance or transaction if the account is otherwise in 
default. If the minimum monthly payments on the account do not fully 
amortize the balance or transaction within the deferred interest 
period, the advertisement also must state that making only the minimum 
monthly payments will not pay off the balance or transaction in time to 
avoid interest charges. To facilitate compliance with this provision, 
the Board proposes model language in Sample G-22 in Appendix G.
    While most advertisements of deferred interest offers describe the 
conditions required to take advantage of the offer, the conditions are 
often placed in a location that is not easily noticed or stated in 
terms that are not easily understood. The Board believes that by 
requiring this information to be in a prominent location closely 
proximate to the first listing of a statement of ``no interest,'' ``no 
payments,'' ``deferred interest,'' or a similar term regarding interest 
and payments under the deferred interest period, and by providing model 
language for this information, disclosure of this information will be 
more noticeable and understandable to consumers.
    Under proposed Sec.  226.16(e)(4), the promotional period and post-
promotional rate must be in a prominent location closely proximate to 
the first listing of the promotional rate, in accordance with the 
requirements of TILA Section 127(c)(6), as added by Section 1303(a) of 
the Bankruptcy Act. In the June 2007 Proposal, the Board provided 
proposed guidance on the meaning of ``prominent location closely 
proximate'' and ``first listing.'' See proposed comment 16(e)-3 and 
16(e)-4, 72 FR 32948, 33143, 33144, June 14, 2007, renumbered as 16(e)-
4 and 16(e)-5 in this May 2008 Proposal. To be consistent with the 
guidance proposed for these terms under Sec.  226.16(e)(4), the Board 
also proposes similar guidance in comments 16(h)-3 and 16(h)-4. As a 
result, proposed comment 16(h)-3 would provide that the information 
required under proposed Sec.  226.16(h)(4) that is in the same 
paragraph as the first listing of a statement of ``no interest,'' ``no 
payments,'' ``deferred interest'' or similar term regarding interest or 
payments during the deferred interest period would be deemed to be in a 
prominent location closely proximate to the statement. Similar to 
proposed comment 16(e)-4, information appearing in a footnote would not 
be deemed to be in a prominent location closely proximate to the 
statement.
    Proposed comment 16(h)-4 further provides that the first listing of 
a statement of ``no interest,'' ``no payments,'' or deferred interest 
or similar term regarding interest or payments during the deferred 
interest period is the most prominent listing of one of these 
statements on the front side of the first page of the principal 
promotional document. Consistent with proposed comment 16(e)-5 in this 
May 2008 Proposal (renumbered from comment 16e-4 under the June 2007 
TILA Proposal), the comment borrows the concept of ``principal 
promotional document'' from the Federal Trade Commission's definition 
of the term under the Fair Credit Reporting Act. 16 CFR 642.2(b). If 
one of these statements is not listed on the principal promotional 
document or there is no principal promotional document, the first 
listing of one of these statements is the most prominent listing of the 
statement on the front side of the first page of each document 
containing one of these statements. The Board also proposes that the 
listing with the largest type size be a safe harbor for determining 
which listing is the most prominent. In the proposed comment, the Board 
also notes that consistent with comment 16(c)-1, a catalog or other 
multiple-page advertisement is considered one document for these 
purposes.
    The Board also proposes comment 16(h)-5 to clarify that the 
information the Board proposes to require under Sec.  226.16(h)(4) does 
not need to be segregated from other information the advertisement 
discloses about the deferred interest offer. This may include triggered 
terms that the advertisement is required to disclose under Sec.  
226.16(b). The comment is consistent with the Board's approach on many 
other required disclosures under Regulation Z. See comment 5(a)-2. 
Moreover, the Board believes flexibility is warranted to allow 
advertisers to provide other information that may be essential for the 
consumer to evaluate the offer such as a minimum purchase amount to 
qualify for the deferred interest offer.
16(h)(5) Envelope Excluded
    The Board proposed Sec.  226.16(e)(5) to implement TILA Section 
127(c)(6)(B), as added by Section 1303(a) of the Bankruptcy Act. 15 
U.S.C. 1637(c)(6)(B). TILA Section 127(c)(6)(B) specifically excludes 
envelopes or other enclosures in which an application or solicitation 
to open a credit card account is mailed from the requirements of TILA 
Section 127(c)(6)(A)(ii) and (iii). Under the June 2007 Proposal, the 
Board also proposed to exclude banner advertisements and pop-up 
advertisements that are linked to an electronic application or 
solicitation. 72 FR 32948, 33064, June 14, 2007.
    Similarly, the Board proposes to exclude envelopes or other 
enclosures in which an application or solicitation is mailed, or banner 
advertisements or pop-up advertisements linked to an electronic 
application or solicitation from the requirements of proposed Sec.  
226.16(h)(4). Interested consumers generally look at the contents of an 
envelope or click on the link in the banner advertisement or pop-up 
advertisement in order to learn more about an offer instead of relying 
solely on the information on an envelope, banner advertisement, or pop-
up advertisement to become informed about an offer. Furthermore, given 
the limited space that envelopes, banner advertisements, and pop-up 
advertisements have to convey information, the Board believes there is 
little need to impose the burden of providing the information proposed 
under Sec.  226.16(h)(4) on these types of communications.

Appendix G--Open-End Model Forms and Clauses; Appendix H--Closed-End 
Model Forms and Clauses

    Appendices G and H set forth model forms, model clauses and sample 
forms that creditors may use to comply with the requirements of 
Regulation Z. Appendix G contains model forms, model clauses and sample 
forms applicable to open-end plans.
    The Board proposes to add a sample form to illustrate, in the 
tabular format, the disclosures required under Sec.  226.6(b)(4) for 
account-opening disclosures for open-end plans such as lines of credit 
or an overdraft plan. See proposed Sample G-17(D).
    The Board also proposes to revise Sample G-19 that may be used when 
access checks are provided on a credit

[[Page 28887]]

card account, as discussed in the section-by-section analysis to Sec.  
226.9(b)(3), and Samples G-20 and G-21 that may be used when terms 
change or rates are increased, as discussed in the section-by-section 
analysis to Sec.  226.9(c)(2) and Sec.  226.9(g).
    Finally, the Board proposes new model clauses G-22 that creditors 
offering deferred interest plans may use in advertisements.

VII. Initial Regulatory Flexibility Act Analysis

    In accordance with Section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 601-612) (RFA), the Board is publishing an initial regulatory 
flexibility analysis for the proposed amendments to Regulation Z.
    The Board believes that the amendments to Regulation Z in this May 
2008 Proposal would not, standing alone, have a significant economic 
impact on a substantial number of small entities. However, based on its 
analysis and for the reasons stated in the June 2007 Proposal, the 
Board believes that, in the aggregate, the amendments to Regulation Z 
contained in the June 2007 Proposal and in this May 2008 Proposal would 
have a significant economic impact on a substantial number of small 
entities. 72 FR 32948, 33033, 33034, June 14, 2007. A final regulatory 
flexibility analysis will be conducted after consideration of comments 
received during the public comment period for this May 2008 Proposal 
and further consideration of comments received on the June 2007 
Proposal. The Board requests public comment in the following areas.
    1. Reasons, statement of objectives and legal basis for the 
proposed rule. The purpose of the Truth in Lending Act is to promote 
the informed use of consumer credit by providing for disclosures about 
its terms and cost. In this regard, the goal of the proposed amendments 
to Regulation Z in this May 2008 Proposal and the June 2007 Proposal is 
to improve the effectiveness of the disclosures that creditors provide 
to consumers at application and throughout the life of an open-end 
account. Accordingly, the Board is proposing changes to format, timing, 
and content requirements for the five main types of disclosures 
governed by Regulation Z: (1) Credit and charge card application and 
solicitation disclosures; (2) account-opening disclosures; (3) periodic 
statement disclosures; (4) change-in-terms notices; and (5) advertising 
provisions.
    The SUPPLEMENTARY INFORMATION above and the SUPPLEMENTARY 
INFORMATION for the June 2007 Proposal describe in detail the reasons, 
objectives, and legal basis for each component of the proposed rules. 
72 FR 32948 through 33036, June 14, 2007.
    2. Description of small entities to which the proposed rule would 
apply. The total number of small entities likely to be affected by the 
proposal is unknown, because the open-end credit provisions of TILA and 
Regulation Z have broad applicability to individuals and businesses 
that extend even small amounts of consumer credit. See Sec.  
226.1(c)(1).\5\ Based on December 31, 2007 call report data, there are 
approximately 12,479 depository institutions in the United States that 
have assets of $165 million or less and thus are considered small 
entities for purposes of the Regulatory Flexibility Act. Of them, there 
were 2,159 banks, 3,445 insured credit unions, and 26 other thrift 
institutions with credit card assets (or securitizations), and total 
assets of $165 million or less. The number of small non-depository 
institutions that are subject to Regulation Z's open-end credit 
provisions cannot be determined from information in call reports, but 
recent congressional testimony by an industry trade group indicated 
that 200 retailers, 40 oil companies, and 40 third-party private label 
credit card issuers of various sizes also issue credit cards.\6\ There 
is no comprehensive listing of small consumer finance companies that 
may be affected by the proposed rules or of small merchants that offer 
their own credit plans for the purchase of goods or services. 
Furthermore, it is unknown how many of these small entities offer open-
end credit plans as opposed to closed-end credit products, which would 
not be affected by the proposed rule.
---------------------------------------------------------------------------

    \5\ Regulation Z generally applies to ``each individual or 
business that offers or extends credit when four conditions are met: 
(i) the credit is offered or extended to consumers; (ii) the 
offering or extension of credit is done regularly; (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.'' Sec.  226.1(c)(1).
    \6\ Testimony of Edward L. Yingling for the American Bankers' 
Association before the Subcommittee on Financial Institutions and 
Consumer Credit, Financial Services Committee, United States House 
of Representatives, April 26, 2007, fn. 1, p 3.
---------------------------------------------------------------------------

    The effect of the proposed revisions to Regulation Z on small 
entities also is unknown. Small entities would be required to, among 
other things, conform their open-end credit disclosures, including 
those in solicitations, account opening materials, periodic statements, 
and change-in-terms notices, and advertisements to the revised rules. 
The Board has sought to reduce the burden on small entities, where 
possible, by proposing model forms that can be used to ease compliance 
with the proposed rules. Small entities also would be required to 
update their systems to comply with the proposed rules regarding 
reasonable cut-off times for payments and weekend or holiday payment 
due dates.
    The precise costs to small entities of updating their systems are 
difficult to predict. These costs will depend on a number of factors 
that are unknown to the Board, including, among other things, the 
specifications of the current systems used by such entities to prepare 
and provide disclosures and administer open-end accounts, the 
complexity of the terms of the open-end credit products that they 
offer, and the range of such product offerings. Nevertheless, the Board 
believes that these costs, in the aggregate for the June 2007 and May 
2008 Proposals, will have a significant economic effect on small 
entities. The Board seeks information and comment on the effects of the 
proposed rules on small entities.
    3. Projected reporting, recordkeeping and other compliance 
requirements of the proposed rule. The compliance requirements of the 
proposed revisions to Regulation Z included in this May 2008 Proposal 
are described above in VI. Section-by-Section Analysis. The compliance 
requirements of the proposed revisions to Regulation Z in the June 2007 
Proposal are described in the section-by-section analysis included with 
those proposals. 72 FR 32948, 32958 through 33033, June 14, 2007. The 
Board seeks information and comment on any costs, compliance 
requirements, or changes in operating procedures arising from the 
application of the proposed rule to small institutions.
    4. Other federal rules. As noted in the section-by-section analysis 
in the June 2007 Proposal for Sec.  226.13(i), there is a potential 
conflict between Regulation Z and Regulation E with respect to error 
resolution procedures when a transaction involves both an extension of 
credit and an electronic fund transfer. 72 FR 32948, 33019, June 14, 
2007. The Board has not identified any federal rules that duplicate, 
overlap, or conflict with the proposed revisions to Regulation Z in 
this May 2008 Proposal. The Board seeks comment regarding any statutes 
or regulations, including state or local statutes or regulations, that 
would duplicate, overlap, or conflict with the proposed rule. The Board 
also seeks comment regarding any duplication, overlap, or conflict 
between the proposed revisions to

[[Page 28888]]

Regulation Z in this May 2008 Proposal and the 2008 Regulation AA 
Proposal discussed elsewhere in today's Federal Register.
    5. Significant alternatives to the proposed revisions. As 
previously noted, the June 2007 Proposal and the May 2008 Proposal 
implement the Board's mandate to prescribe regulations that carry out 
the purposes of TILA. In addition, portions of the June 2007 Proposal 
are intended to implement certain provisions of the Bankruptcy Act that 
require new disclosures on periodic statements, on credit card 
applications and solicitations, and in advertisements. The Board seeks 
with both the June 2007 Proposal and the May 2008 Proposal to balance 
the benefits to consumers arising out of more effective TILA 
disclosures against the additional burdens on creditors and other 
entities subject to TILA. To that end, and as discussed above in VI. 
Section-by-section Analysis and in the section-by-section analysis 
accompanying the June 2007 Proposal, consumer testing was conducted for 
the Board in order to assess the effectiveness of the proposed 
revisions to Regulation Z. 72 FR 32948, 32958 through 33033, June 14, 
2007. In this manner, the Board has sought to avoid imposing additional 
regulatory requirements without evidence that these proposed revisions 
may be beneficial to consumer understanding regarding open-end credit 
products.
    The Board welcomes comments on any significant alternatives, 
consistent with TILA and the Bankruptcy Act, that would minimize the 
impact of the proposed rule on small entities.

VIII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the 
proposed rule under the authority delegated to the Board by the Office 
of Management and Budget (OMB). The collection of information that is 
required by this proposed rule is found in 12 CFR part 226. The Federal 
Reserve may not conduct or sponsor, and an organization is not required 
to respond to, this information collection unless the information 
collection displays a currently valid OMB control number. The OMB 
control number is 7100-0199.
    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Federal 
Reserve does not collect any information, no issue of confidentiality 
arises. The respondents/recordkeepers are creditors and other entities 
subject to Regulation Z, including for-profit financial institutions 
and small businesses.
    TILA and Regulation Z are intended to ensure effective disclosure 
of the costs and terms of credit to consumers. For open-end credit, 
creditors are required to, among other things, disclose information 
about the initial costs and terms and to provide periodic statements of 
account activity, notices of changes in terms, and statements of rights 
concerning billing error procedures. Regulation Z requires specific 
types of disclosures for credit and charge card accounts and home 
equity plans. For closed-end loans, such as mortgage and installment 
loans, cost disclosures are required to be provided prior to 
consummation. Special disclosures are required in connection with 
certain products, such as reverse mortgages, certain variable-rate 
loans, and certain mortgages with rates and fees above specified 
thresholds. TILA and Regulation Z also contain rules concerning credit 
advertising. Creditors are required to retain evidence of compliance 
for twenty-four months (Sec.  226.25), but Regulation Z does not 
specify the types of records that must be retained.
    Under the PRA, the Federal Reserve accounts for the paperwork 
burden associated with Regulation Z for the state member banks and 
other creditors supervised by the Federal Reserve that engage in 
lending covered by Regulation Z and, therefore, are respondents under 
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: State member banks, branches and agencies of 
foreign banks (other than federal branches, federal agencies, and 
insured state branches of foreign banks), commercial lending companies 
owned or controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act. Other federal agencies 
account for the paperwork burden on other creditors. The current total 
annual burden to comply with the provisions of Regulation Z is 
estimated to be 552,398 hours for the 1,172 Federal Reserve-regulated 
institutions that are deemed to be respondents for the purposes of the 
PRA. To ease the burden and cost of complying with Regulation Z 
(particularly for small entities), the Federal Reserve provides model 
forms, which are appended to the regulation.
    As mentioned in the preamble the Federal Reserve is seeking comment 
on additional revisions to the June 2007 Proposal. The Federal Reserve 
believes the proposed additional revisions would not increase the 
burden estimates published in the June 2007 Proposal. 72 FR 32948, 
33034, 33035, June 14, 2007. However, at this time the Federal Reserve 
is restating a portion of its burden estimates published in the June 
2007 Proposal to correct minor mathematical errors. In addition, the 
Federal Reserve will address respondent burden associated with a 
Regulation AA proposed rule and previously implemented notice to 
cosigners.
    In the June 2007 Proposal, the Federal Reserve estimated that the 
proposed revisions would increase the total annual burden on a one-time 
basis from 552,398 to 625,638 hours, an increase of 73,240 hours. 72 FR 
32948, 33035, June 14, 2007. The Federal Reserve affirms its 
methodology; however, due to a mathematical error, the annual onetime 
burden for the proposed revisions to the rules governing periodic 
statements was understated by 4,000 hours. The correct annual onetime 
burden for this disclosure requirement is 46,880 hours (not 42,800); 
therefore, the total annual onetime burden for all requirements would 
increase by 77,240 hours. This one-time burden estimate does not 
include the burden addressing the Home Ownership and Equity Protection 
Act disclosures as announced in a separate proposed rulemaking (Docket 
No. R-1305, 73 FR 1672, January 9, 2008).
    The Federal Reserve estimated in the June 2007 Proposal that the 
proposed total annual burden on a continuing basis would increase from 
552,398 to 607,759 hours, an increase of 55,361 hours. However, the 
burden for revisions to the change-in-terms notices was incorrectly 
calculated as 55,361 hours. The correct annual burden for the proposed 
revision on a continuing basis would be 18,454 hours, a difference of 
36,907 hours. Thus, the total burden on a continuing basis would 
increase from 552,398 to 570,852 hours.
    Elsewhere in today's Federal Register, the Federal Reserve, along 
with the Office of Thrift Supervision (OTS) and the National Credit 
Union Association, are proposing to adopt substantive protections using 
their authority under the Federal Trade Commission Act (FTC Act) to 
address unfair and deceptive acts or practices. The proposed rule would 
prohibit institutions from engaging in certain acts or practices in 
connection with credit cards. This proposal evolved from the Federal 
Reserve's June 2007 Proposal and the OTS August 2007 Advance Notice of 
Proposed Rulemaking under the FTC Act. 72 FR 43570, August 6, 2007. The 
Federal Reserve's proposed rule under Regulation AA is coordinated with 
its June 2007 Proposal amending Regulation Z's rules for open-end 
credit.

[[Page 28889]]

Under Regulation AA's proposed Sec.  227.28, creditors would be 
prohibited from certain marketing practices in relation to prescreened 
firm offers for consumer credit card accounts unless a disclaimer 
sufficiently explains the limitations of the offers. The Federal 
Reserve anticipates that creditors would, with no additional burden, 
incorporate the proposed disclosure requirement under Sec.  227.28 with 
the existing disclosure requirements for credit and charge card 
applications and solicitations under Sec.  226.5a. Thus in order to 
avoid double-counting the Federal Reserve will account for the PRA 
burden associated with proposed Regulation AA Sec.  227.28 under 
Regulation Z Sec.  226.5a.
    Under current Sec.  227.14(b), creditors must provide a clear and 
conspicuous disclosure statement shall be given in writing to a 
cosigner prior to being obligated on credit transactions subject to 
Sec.  227.14(b). The disclosure statement shall be substantively 
similar to the example provided in Sec.  227.14(b). This disclosure is 
standardized and does not change from one individual to another; thus, 
the cost and burden to the industry is low. The Federal Reserve 
proposes to account for the burden associated with Regulation AA's 
Sec.  227.14(b) under Regulation Z. The proposed annual burden 
associated with Sec.  227.14(b) is estimated to be 16,943 hours. The 
proposed total annual burden for the Regulation Z information 
collection, including the revisions in the June 2007 Proposal, in this 
May 2008 Proposal, and the Regulation AA disclosure requirements is 
estimated to be 665,035 hours, an increase of 112,637 hours.
    The title of the Regulation Z information collection will be 
updated to account for these sections of Regulation AA.
    The other federal financial agencies are responsible for estimating 
and reporting to OMB the total paperwork burden for the institutions 
for which they have administrative enforcement authority. They may, but 
are not required to, use the Federal Reserve's burden estimates. Using 
the Federal Reserve's method, the total current estimated annual burden 
for all financial institutions subject to Regulation Z, including 
Federal Reserve-supervised institutions, would be approximately 
12,324,037 hours. The proposed rule would impose a one-time increase in 
the estimated annual burden for all institutions subject to Regulation 
Z by 1,271,944 hours to 13,595,981 hours. On a continuing basis, the 
proposed revisions to the change-in-terms notices would increase the 
estimated annual frequency, thus increasing the total annual burden on 
a continuing basis from 12,324,037 to 13,230,534 hours. The inclusion 
of the Regulation AA requirements would increase the total annual 
burden from 12,324,037 to 16,679,157 hours. The above estimates 
represent an average across all respondents and reflect variations 
between institutions based on their size, complexity, and practices. 
All covered institutions, including card issuers, retailers, and 
depository institutions (of which there are approximately 19,300) 
potentially are affected by this collection of information, and thus 
are respondents for purposes of the PRA.
    Comments are invited on: (1) Whether the proposed collection of 
information is necessary for the proper performance of the Federal 
Reserve's functions; including whether the information has practical 
utility; (2) the accuracy of the Federal Reserve's estimate of the 
burden of the proposed information collection, including the cost of 
compliance; (3) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (4) ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments on the collection of information should be sent to 
Michelle Shore, Federal Reserve Board Clearance Officer, Division of 
Research and Statistics, Mail Stop 151-A, Board of Governors of the 
Federal Reserve System, Washington, DC 20551, with copies of such 
comments sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0199),\7\ Washington, DC 20503.
---------------------------------------------------------------------------

    \7\ The Paperwork Reduction Project number (7100-0200) published 
in the June 14, 2007, notice was incorrect.
---------------------------------------------------------------------------

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside bold-faced arrows while 
language that would be deleted is set off with bold-faced brackets. If 
a provision in the regulation or commentary was also proposed to be 
revised in the June 2007 Proposal, in addition to this rulemaking, 
bold-faced arrows or brackets, as appropriate, also reflect the June 
2007 proposed revisions.

List of Subjects in 12 CFR Part 226

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

Authority and Issuance

    For the reasons set forth in the preamble, the Board further 
proposes to amend 12 CFR part 226, as proposed to be amended at 71 FR 
32948, June 14, 2007, as follows:

PART 226--TRUTH IN LENDING (REGULATION Z)

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

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).

    2. Section 226.5 is amended by revising paragraph (a)(2)(iii) and 
paragraph (b)(1)(iv) to read as follows:

Subpart B--Open-End Credit


Sec.  226.5  General disclosure requirements.

    (a) Form of disclosures.
* * * * *
    [rtrif](2) Terminology.[ltrif]
* * * * *
    [rtrif](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. 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.[ltrif]
* * * * *
    (b) Time of disclosures.
    (1) [lsqbb]Initial[rsqbb] [rtrif]Account-opening[ltrif] 
disclosures.
* * * * *
    [rtrif](iv) Membership fees.
    A. General. In general, a creditor may not collect any fee (other 
than application fees excludable from the finance charge under Sec.  
226.4(c)(1)) before account-opening disclosures are provided. However, 
a creditor may collect, or obtain the consumer's agreement to pay, a 
membership fee before providing account-opening disclosures if, after 
receiving the disclosures the consumer may reject the plan and have no 
obligation to pay any fee that was assessed or agreed to be paid before 
the consumer received account-opening disclosures, or any other fee or 
charge. A membership fee

[[Page 28890]]

for purposes of this paragraph has the same meaning as a fee for the 
issuance or availability of credit described in Sec.  226.5a(b)(2). If 
the consumer rejects the plan, the creditor must promptly refund the 
membership fee if it has been paid, or take other action necessary to 
ensure the consumer is not obligated to pay that fee or any other fee 
or charge. Application fees permitted by paragraph (b)(1)(v) of this 
section are not affected by this requirement.
    B. Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec.  226.5b, are not subject to the 
requirements of paragraph (b)(1)(iv)(A) of this section.[ltrif]
* * * * *
    3. Section 226.5a is amended by revising paragraph (b)(1)(iv), 
paragraph (b)(3), paragraph (b)(4), paragraph (b)(5), and paragraph 
(d)(1) to read as follows:


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

* * * * *
    (b) Required disclosures. * * *
    (1) * * *
    [rtrif](iv) Penalty 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, 
pursuant to paragraph (b)(1) of this section the card issuer must 
disclose the increased rate that would apply, a description of the 
types of balances to which the increased rate will 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. Issuers must briefly disclose the circumstances under 
which any discounted initial rate may be revoked, and the rate that 
will apply after the revocation.[ltrif]
* * * * *
    (3) Minimum finance charge. Any minimum or fixed finance charge 
[rtrif]if it exceeds $1.00[ltrif] that could be imposed during a 
billing cycle[rtrif], and a brief description of the charge. The $1.00 
threshold amount shall be adjusted to the next whole dollar amount when 
the sum of annual percentage changes in the Consumer Price Index in 
effect on the June 1 of previous years equals or exceeds $1.00. The 
card issuer may, at its option, disclose in the table minimum or fixed 
finance charges below the dollar threshold.[ltrif]
    (4) Transaction charges. Any transaction charge imposed [rtrif]by 
the card issuer[ltrif] 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 [rtrif]due to a periodic interest rate and any conditions on the 
availability of the grace period.[ltrif] 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. [rtrif]When an issuer is disclosing a grace period in the 
tabular format, the phrase ``How to Avoid Paying Interest on 
Purchases,'' or a substantially similar phrase, shall be used as the 
heading for the row describing the grace period. If no grace period on 
purchases is offered, when an issuer is disclosing this fact in the 
tabular format, the phrase ``Paying Interest,'' or a substantially 
similar phrase, shall be used as the heading for the row describing 
that no grace period is offered.[ltrif]
* * * * *
    (d) Telephone applications and solicitations--(1) Oral disclosure. 
The card issuer shall disclose orally the information in paragraphs 
(b)(1) through (7) [rtrif]and (b)(16)[ltrif] of this section, to the 
extent applicable, in a telephone application or solicitation initiated 
by the card issuer.
* * * * *
    4. Section 226.6 is amended by revising paragraph (b)(4)(ii)(C), 
paragraph (b)(4)(iii)(D), paragraph (b)(4)(iv), and paragraph 
(b)(4)(vii), as follows:


Sec.  226.6 [rtrif]Account-opening disclosures[ltrif]  [Initial 
disclosure statement].

* * * * *
    [rtrif](b) Rules affecting open-end (not home-secured) 
plans.[ltrif]
* * * * *
    [rtrif](4) Tabular format requirements for open-end (not home-
secured) plans.[ltrif]
* * * * *
    [rtrif](ii) Annual percentage rate.[ltrif]
* * * * *
    [rtrif](C) Increased penalty rates. If a rate may increase upon the 
occurrence of 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)(4)(ii) of this section the increased penalty rate that may apply, a 
description of the types of balances to which the increased rate will 
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 a temporary initial rate is lower than 
the rate that will apply after the temporary rate expires, the creditor 
must briefly disclose the circumstances under which any initial 
discounted rates may be revoked, and the rate that will apply after the 
initial discounted rate is revoked.[ltrif]
* * * * *
    [rtrif](iii) Fees.
* * * * *
    (D) Minimum finance charge. Any minimum or fixed finance 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 to the next whole dollar amount when the sum of annual 
percentage changes in the Consumer Price Index in effect on the June 1 
of previous years equals or exceeds $1.00. The creditor may, at its 
option, disclose in the table minimum or fixed finance charges below 
the dollar threshold
    (iv) Grace period. An explanation of whether or not any time period 
exists within which any credit that has been extended may be repaid 
without incurring a finance charge. When disclosing in the tabular 
format whether or not there is a grace period, the phrase ``How to 
Avoid Paying Interest on [lsqbb]the applicable feature[rsqbb]'' or a 
substantially similar phrase, shall be used as the row heading when a 
feature on the account has a grace period. When disclosing in the 
tabular format the fact that no grace period exists for any feature of 
the account, the phrase ``Paying Interest'' or a substantially similar 
phrase shall be used as the row heading.[ltrif]
* * * * *
    [rtrif](vii) Available credit. If a creditor requires fees for the 
issuance or availability of an open-end plan described in paragraph 
(b)(4)(iii)(A) of this section, or a security deposit, and the total 
amount of those required fees or security deposit that will be imposed 
when the account is opened and charged to the account equal 25 percent 
or more of the minimum credit limit offered with the plan, a creditor 
must disclose the amount of the available credit that a consumer will 
have 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 25 percent threshold test is met, the 
creditor must only consider fees for issuance or availability of 
credit, or a security deposit, that is 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 
25 percent threshold test is met, the creditor in providing the 
disclosure

[[Page 28891]]

must disclose the amount of available credit 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 billing statement.[ltrif]
* * * * *
    5. Section 226.9 is amended by revising paragraph (b)(3), paragraph 
(c)(2)(iii), and paragraph (g)(3) to read as follows:


Sec.  226.9  Subsequent disclosure requirements.

* * * * *
    (b) Disclosures for supplemental credit [rtrif]access[ltrif] 
devices and additional features.
* * * * *
    [rtrif](3) Checks that access a credit card account. (i) 
Disclosures. For open-end plans not subject to the requirements of 
Sec.  226.5b, if checks that can be used to access a credit card 
account are provided more than 30 days after account-opening 
disclosures under Sec.  226.6(b)(1) are given, or are provided within 
30 days of the account-opening disclosures and the finance charge terms 
for the checks differ from disclosures previously given, 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:
    (A) If an initial rate that applies to the checks is temporary and 
is lower than the rate that will apply after the temporary rate 
expires, the discounted initial rate and the time period during which 
the discounted initial rate will remain in effect;
    (B) The type of rate that will apply to the checks (such as whether 
the purchase or cash advance rate applies) and the applicable annual 
percentage rate. If a discounted initial rate applies, a creditor must 
disclose the type of rate that will apply after the discounted initial 
rate expires, and the annual percentage rate that will apply after the 
discounted initial rate expires. In 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;
    (C) If a discounted initial rate applies to the checks, the date, 
if any, by which the consumer must use the checks in order to qualify 
for the discounted initial rate. If the creditor will honor checks used 
after such date but will apply an annual percentage rate other than the 
discounted initial 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;
    (D) Any transaction fees applicable to the checks disclosed under 
Sec.  226.6(b)(1); and
    (E) 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'' or a substantially similar phrase, shall be used as the 
row heading when a grace period applies to credit extended by the use 
of the checks. When disclosing in the tabular format the fact that no 
grace period exists for credit extended by use of the checks, the 
phrase ``Paying Interest'' or a substantially similar phrase 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 given. A 
variable annual percentage rate is accurate if it was in effect within 
30 days of when the disclosures are given.[ltrif]
* * * * *
* * * * *
    (c) Change in terms.
* * * * *
    [rtrif](2) Rules affecting open-end (not home-secured) 
plans.[ltrif]
* * * * *
    [rtrif](iii) Disclosure requirements.
    (A) Changes to terms described in account-opening table. If a 
creditor changes a term required to be disclosed pursuant under Sec.  
226.6(b)(4), the creditor must provide the following information on the 
notice provided pursuant to paragraph (c)(2)(i) of this section:
    (1) A summary of the changes made to terms described in Sec.  
226.6(b)(4);
    (2) A statement that changes are being made to the account;
    (3) A statement indicating the consumer has the right to opt-out of 
these changes, if applicable, and a reference to additional information 
describing the opt-out right provided in the notice, if applicable;
    (4) The date the changes will become effective;
    (5) If applicable, a statement that the consumer may find 
additional information about the summarized changes, and other changes 
to the account, in the notice;
    (6) If the creditor is changing a rate on the account, other than a 
penalty rate, a statement that if a penalty rate currently applies to 
the consumer's account, the new rate described in the notice will not 
apply to the consumer's account until the consumer's account balances 
are no longer subject to the penalty rate, and
    (7) If the change in terms being disclosed is an increase in an 
annual percentage rate, the balances to which the increased rate will 
be applied. If applicable, a statement identifying the balances to 
which the current rate will continue to apply as of the effective date 
of the change in terms.[ltrif]
* * * * *
    [rtrif](g) Increase in rates due to delinquency or default or as a 
penalty.[ltrif]
* * * * *
    [rtrif](3)(i) Disclosure requirements for rate increases. 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:
    (A) A statement that the consumer's actions have triggered the 
delinquency or default rate or penalty rate, as applicable;
    (B) The date on which the delinquency or default rate or penalty 
rate will apply;
    (C) 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;
    (D) A statement indicating to which balances the delinquency or 
default rate or penalty rate will be applied, including if applicable, 
the balances that would be affected if a consumer fails to make a 
required minimum periodic payment within 30 days from the due date for 
that payment; and
    (E) 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 required minimum 
periodic payment within 30 days from the due date for that 
payment.[ltrif]
* * * * *
    6. Section 226.10 is amended by revising paragraph (b) and adding a 
new paragraph (d) to read as follows:


Sec.  226.10  Prompt crediting of payments.

* * * * *
    (b) Specific requirements for payments.

[[Page 28892]]

    [rtrif](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, provided 
that it would not be reasonable for a creditor to set a cut-off time 
for payments by mail that is 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;
    (v) Specifying one particular address for receiving payments, such 
as a post office box.
    (3) Nonconforming payments.[ltrif] If a creditor specifies, on or 
with the periodic statement, requirements for the consumer to follow in 
making payments, but accepts a payment that does not conform to the 
requirements, the creditor shall credit the payment within five days of 
receipt.
* * * * *
    [rtrif](d) Crediting of payments when creditor does not receive or 
accept payments on due date. If the due date for payments is a day on 
which the creditor does not receive or accept payments by mail, for 
example if the U.S. Postal Service does not deliver mail on that date, 
the creditor may not treat a payment received by mail the next business 
day as late for any purpose.[ltrif]
* * * * *
    7. Section 226.16 is amended by revising paragraph (e) and adding 
paragraph (h) to read as follows:


Sec.  226.16  Advertising.

* * * * *
    [rtrif](e) Promotional rates.
    (1) Scope. The requirements of this paragraph apply to any written 
or electronic advertisement of a consumer credit card account, 
including promotional materials accompanying applications or 
solicitations subject to Sec.  226.5a(c) or accompanying applications 
or solicitations subject to Sec.  226.5a(e).
    (2) Definitions.
    (i) Promotional rate means:
    (A) Any annual percentage rate applicable to one or more balances 
or transactions on a consumer credit card account for a specified 
period of time that is lower than the annual percentage rate that will 
be in effect at the end of that period; or
    (B) Any annual percentage rate applicable to one or more 
transactions on a consumer credit card account that is lower than the 
annual percentage rate that applies to other transactions of the same 
type.
    (ii) Introductory rate means a promotional rate offered in 
connection with the opening of an account.
    (iii) Promotional period means the maximum time period for which 
the promotional rate may be applicable.
    (3) Stating the term ``introductory''. If any annual percentage 
rate that may be applied to the account is an introductory rate, the 
term introductory or intro must be in immediate proximity to each 
listing of the introductory rate.
    (4) Stating the promotional period and post-promotional rate. If 
any annual percentage rate that may be applied to the account is a 
promotional rate under paragraph (e)(2)(i)(A) of this section, the 
following must be stated in a clear and conspicuous manner in a 
prominent location closely proximate to the first listing of the 
promotional rate:
    (i) The date the promotional rate will end or the promotional 
period; and
    (ii) The annual percentage rate that will apply after the end of 
the promotional period. If such rate is variable, the annual percentage 
rate must comply with the accuracy standards in Sec. Sec.  
226.5a(c)(2), 226.5a(e)(4), or 226.16(b)(1)(ii) as applicable. If such 
rate cannot be determined at the time disclosures are given because the 
rate depends on a later determination of the consumer's 
creditworthiness, the advertisement must disclose the specific rates or 
the range of rates that might apply.
    (5) Envelope excluded. The requirements in paragraph (e)(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.[ltrif]
* * * * *
    [rtrif](h) Deferred interest offers.
    (1) Scope. The requirements of this paragraph apply to any written 
or electronic advertisement of a consumer credit card account, 
including promotional materials accompanying applications or 
solicitations subject to Sec.  226.5a(c) or accompanying applications 
or solicitations subject to Sec.  226.5a(e).
    (2) Definitions. (i) ``Deferred interest'' means finance charges on 
balances or transactions that a consumer is not obligated to pay if 
those balances or transactions are paid in full by a specified date. 
``Deferred interest'' does not mean any finance charges the creditor 
allows a consumer to avoid in connection with any recurring grace 
period.
    (ii) The maximum period from the date the consumer becomes 
obligated for the balance or transaction until the date that the 
consumer must pay the balance or transaction in full in order to avoid 
finance charges on such balance or transaction is the ``deferred 
interest period.''
    (3) Stating the deferred interest period. If a deferred interest 
offer is advertised, the deferred interest period or the date by which 
the consumer must pay the balance or transaction in full to avoid 
finance charges on such balance or transaction must be stated in a 
clear and conspicuous manner in immediate proximity to each statement 
of ``no interest,'' ``no payments,'' or ``deferred interest'' or 
similar term regarding interest or payments during the deferred 
interest period.
    (4) Stating the terms of the deferred interest offer. If any 
deferred interest offer is advertised, the following must be stated in 
a prominent location closely proximate to the first statement of ``no 
interest,'' ``no payments,'' or ``deferred interest'' or similar term 
regarding interest or payments during the deferred interest period, in 
language similar to Sample G-22 in Appendix G:
    (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;
    (ii) 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 account is otherwise in default; and
    (iii) If the minimum monthly payments do not fully amortize the 
balance or transaction during the deferred interest period, a statement 
that making only the minimum monthly payments will not pay off the 
balance or transaction in time to avoid interest charges.
    (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.[ltrif]
* * * * *

[[Page 28893]]

    8. In Part 226, Appendix G is amended by:
    A. Revising the table of contents at the beginning of the appendix;
    B. Add paragraph (g) to Form (G-1)
    C. Revising Forms G-19, G-20, and G-21; and
    D. Adding new Forms G-1A, G-17(D), and G-22 in numerical order.

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

G-1 Balance Computation Methods Model Clauses [rtrif](Home Equity 
Plans)[ltrif] (Sec. Sec.  226.6 and 226.7)
[rtrif]G-1A Balance Computation Methods Model Clauses (Plans other 
than Home Equity Plans) (Sec. Sec.  226.6 and 226.7)[ltrif]
G-2 Liability for Unauthorized Use Model Clause [rtrif](Home Equity 
Plans)[ltrif] (Sec.  226.12)
[rtrif]G-2(A) Liability for Unauthorized Use Model Clause 
[rtrif](Plans Other Than Home Equity Plans) (Sec.  226.12)[ltrif]
G-3 Long-Form Billing-Error Rights Model Form [rtrif](Home Equity 
Plans)[ltrif] (Sec. Sec.  226.6 and 226.9)
[rtrif]G-3(A) Long-Form Billing-Error Rights Model Form 
[rtrif](Plans Other Than Home Equity Plans)[ltrif] (Sec. Sec.  226.6 
and 226.9)[ltrif]
G-4 Alternative Billing-Error Rights Model Form [rtrif](Home Equity 
Plans)[ltrif] (Sec.  226.9)
[rtrif]G-4(A) Alternative Billing-Error Rights Model Form (Plans 
Other Than Home Equity Plans) (Sec.  226.9)[ltrif]
G-5 Rescission Model Form (When Opening an Account) (Sec.  226.15)
G-6 Rescission Model Form (For Each Transaction) (Sec.  226.15)
G-7 Rescission Model Form (When Increasing the Credit Limit) (Sec.  
226.15)
G-8 Rescission Model Form (When Adding a Security Interest) (Sec.  
226.15)
G-9 Rescission Model Form (When Increasing the Security) (Sec.  
226.15)
G-10(A) Applications and Solicitations Model Form (Credit Cards) 
(Sec.  226.5a(b))
G-10(B) Applications and Solicitations Sample (Credit Cards) (Sec.  
226.5a(b))
G-10(C) Applications and Solicitations [rtrif]Sample (Credit 
Cards)[ltrif] [lsqbb]Model Form (Charge Cards)[rsqbb] (Sec.  
226.5a(b))
[rtrif]G-10(D) Applications and Solicitations Model Form (Charge 
Cards) (Sec.  226.5a(b))[ltrif]
[rtrif]G-10(E) Applications and Solicitations Sample (Charge Cards) 
(Sec.  226.5a(b))[ltrif]
G-11 Applications and Solicitations Made Available to General Public 
Model Clauses (Sec.  226.5a(e))
G-12 [rtrif]Reserved[ltrif] [lsqbb]Charge Card Model Clause (When 
Access to Plan Offered by Another) (Sec.  226.5a(f))[rsqbb]
G-13(A) Change in Insurance Provider Model Form (Combined Notice) 
(Sec.  226.9(f))
G-13(B) Change in Insurance Provider Model Form (Sec.  226.9(f)(2))
G-14A Home Equity Sample
G-14B Home Equity Sample
G-15 Home Equity Model Clauses
[rtrif]G-16(A) Debt Suspension Model Clause (Sec.  
226.4(d)(3))[ltrif]
[rtrif]G-16(B) Debt Suspension Sample (Sec.  226.4(d)(3))[ltrif]
[rtrif]G-17(A) Account-opening Model Form (Sec.  226.6(b)(4))[ltrif]
[rtrif]G-17(B) Account-opening Sample (Sec.  226.6(b)(4))[ltrif]
[rtrif]G-17(C) Account-opening Sample (Sec.  226.6(b)(4))[ltrif]
[rtrif]G-17(D) Account-opening Sample (Sec.  226.6(b)(4))[ltrif]
[rtrif]G-18(A) Transactions; Interest Charges; Fees Sample (Sec.  
226.7(b))[ltrif]
[rtrif]G-18(B) Fee-inclusive APR Sample (Sec.  226.7(b))[ltrif]
[rtrif]G-18(C) Late Payment Fee Sample (Sec.  226.7(b))[ltrif]
[rtrif]G-18(D) Actual Repayment Period Sample Disclosure on Periodic 
Statement (Sec.  226.7(b))[ltrif]
[rtrif]G-18(E) New Balance, Due Date, Late Payment and Minimum 
Payment Sample (Credit cards) (Sec.  226.7(b))[ltrif]
[rtrif]G-18(F) New Balance, Due Date, and Late Payment Sample (Open-
end Plans (Non-credit-card Accounts)) (Sec.  226.7(b))[ltrif]
[rtrif]G-18(G) Periodic Statement Form[ltrif]
[rtrif]G-18(H) Periodic Statement Form[ltrif]
[rtrif]G-19 Checks Accessing a Credit Card Account Sample (Sec.  
226.9(b)(3))[ltrif]
[rtrif]G-20 Change-in-Terms Sample (Sec.  226.9(c)(2))[ltrif]
[rtrif]G-21 Penalty Rate Increase Sample (Sec.  226.9(g)(3))[ltrif]
[rtrif]G-22 Deferred Interest Offer Clauses (Sec.  226.16(h)[ltrif] 
XXX

G-1 Balance Computation Methods Model Clauses [rtrif](Home Equity 
Plans)[ltrif]

* * * * *

[rtrif](f) Daily Balance Method (Including Current Transactions)

    We figure [lsqbb]a portion of[rsqbb] 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 [lsqbb]purchases/advances/fees[rsqbb], and subtract 
[lsqbb]any unpaid finance charges and[rsqbb] any payments or 
credits. This gives us the daily balance.[ltrif]

[rtrif]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 [lsqbb]any unpaid 
interest or other finance charges and[rsqbb] any payments and 
credits received during the present billing cycle.

(b) Previous Balance Method

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

(c) Average Daily Balance Method (Excluding Current Transactions)

    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To 
get the ``average daily balance'' we take the beginning balance of 
your account each day and subtract [lsqbb]any unpaid interest or 
other finance charges and[rsqbb] any payments or credits. We do not 
add in any new [lsqbb]purchases/advances/fees[rsqbb]. 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 [lsqbb]purchases/advances/
fees[rsqbb], and subtract [lsqbb]any unpaid interest or other 
finance charges and[rsqbb] 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 [lsqbb]purchases/advances/fees[rsqbb] 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 
[lsqbb]purchases/advances/fees[rsqbb], and subtract [lsqbb]any 
unpaid interest or other finance charges and[rsqbb] any payments or 
credits. This gives us the daily balance.[ltrif]
* * * * *

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[rtrif]G-22 Deferred Interest Offer Clauses

    Interest will be charged to your account from the purchase date 
if the purchase balance is not paid in full within the/by 
[lsqbb]deferred interest period/date[rsqbb] or if the account is 
otherwise in default. [lsqbb]Making only the minimum monthly 
payments on your account will not pay off the purchase in time to 
avoid interest.[rsqbb][ltrif]
    9. In Supplement I to Part 226:
    A. Under Section 226.5--General Disclosure Requirements:
    i. Under 5(a) Form of disclosures, under revised heading 5(a)(1)--
General., under new heading 5(a)(1)(ii)A). paragraph 1. is added, and 
under new heading Paragraph 5(a)(1)(iii)., paragraph 1 is added.
    ii. Under 5(b) Time of disclosures, under revised heading 5(b)(1) 
Account-opening disclosures., under revised heading 5(b)(1)(i) General 
rule., paragraph 1. is revised, under revised heading 5(b)(1)(ii) 
Charges imposed as part of an open-end (not home-secured) plan., 
paragraph 1. is revised, and under new heading 5(b)(1)(iv) Membership 
fees., paragraphs 1., 2., 3. and 4. are added.
    B. Under Section 226.5a--Credit and Charge Card Applications and 
Solicitations, under 5a(b) Required Disclosures, under revised heading 
5a(b)(3) Minimum Finance Charge, paragraph 2. is added, under 5a(b)(4) 
Transaction Charges, paragraph 2. is added, and under 5a(b)(5) Grace 
Period, paragraph 1. is revised and paragraph 2. is added.
    C. Under revised heading Section 226.6--Account-opening 
Disclosures, under revised heading 6(b) Rules affecting open-end (not 
home-secured) plans., under revised heading 6(b)(2) Rules relating to 
rates for open-end (not home-secured) plans., under revised heading 
Paragraph 6(b)(2)(iii)., paragraph 2. is revised, under revised heading 
6(b)(4) Tabular Format requirements for open-end (not home-secured) 
plans., paragraph 3. is revised, under new headings 6(b)(4)(iii) Fees. 
and 6(b)(4)(iii)(D) Minimum finance charge., paragraphs 1. and 2. are 
added, under new heading 6(b)(4)(iv) Grace period., paragraph 1. is 
added, and under new heading 6(b)(4)(vii) Available credit., paragraph 
1. is added.
    D. Under Section 226.9 Subsequent Disclosure Requirements:
    i. Under revised heading 9(b) Disclosures for Supplemental Credit 
Access Devices and Additional Features., the heading for Paragraph 
9(b)(3) is revised, under the new heading Paragraph 9(b)(3)(E)., 
paragraph 1. is added.
    ii. Under 9(c) Change in Terms., under revised heading 9(c)(2) 
Rules Affecting Open-End (Not Home-Secured) Plans, under revised 
heading 9(c)(2)(ii) Charges Not Covered by Sec.  226.6(b)(4), paragraph 
1. is revised,

[[Page 28896]]

and under revised headings 9(c)(2)(iii) Disclosure Requirements and 
9(c)(2)(iii)(A) Changes to Terms Described in Sec.  226.6(b)(4), 
paragraph 8. is revised.
    iii. Under revised heading 9(g) Increase in Rates Due to 
Delinquency or Default or as a Penalty, paragraph 1. is revised.
    E. Under Section 226.10--Prompt Crediting of Payments, under 10(b) 
Specific requirements for payments., paragraphs 1. and 2. are revised.
    F. Under Section 226.12--Special Credit Card Provisions:
    i. Under 12(a) Issuance of credit cards., under Paragraph 12(a)(2), 
paragraph 2. is revised.
    ii. Under 12(b) Liability of cardholder for unauthorized use., 
paragraph 3. is revised.
    G. Under Section 226.13--Billing-Error Resolution, under 13(f) 
Procedures if different billing error or no billing error occurred., 
paragraph 3. is added.
    H. Under Section 226.16--Advertising:
    i. Paragraph 2. is revised.
    ii. Under heading 16(b) Actually available terms., paragraph 4. is 
revised.
    iii. Under revised heading 16(e) Promotional rates., paragraphs 1., 
2., 3., 4. and 5.are revised and paragraph 6. is added.
    iv. Under new heading 16(h) Deferred interest offers., paragraphs 
1., 2., 3., 4. and 5.are added.
    I. Under revised heading APPENDICES G AND H--OPEN-END AND CLOSED-
END MODEL FORMS AND CLAUSES, under heading APPENDIX G--OPEN-END MODEL 
FORMS AND CLAUSES, paragraphs 1. and 5. are revised.

Supplement I to Part 226--Official Staff Intepretations

* * * * *

Subpart B--Open-End Credit

Section 226.5--General Disclosure Requirements

    5(a) Form of disclosures.
    [lsqbb]Paragraph[rsqbb] 5(a)(1) [rtrif]--General.[ltrif]
* * * * *
    [rtrif]Paragraph 5(a)(1)(ii)(A).[ltrif]
    1. Electronic disclosures. Disclosures that need not be provided 
in writing under Sec.  226.5(a)(1)(ii)(A) may be provided in 
writing, orally, or in electronic form. If the consumer requests the 
service in electric form, such as on the creditor's Web site, the 
specified disclosures may be provided in electronic form without 
regard to the consumer consent or other provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 
U.S.C. 7001 et seq.).
    Paragraph 5(a)(1)(iii).
    1. Disclosures not subject to E-Sign Act. See the commentary to 
Sec.  226.5(a)(1)(ii)(A) regarding disclosures (in addition to those 
specified under Sec.  226.5(a)(1)(iii)) that may be provided in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act.[ltrif]
* * * * *
    5(b) Time of disclosures.
    5(b)(1) [lsqbb]Initial[rsqbb] [rtrif]Account-opening[ltrif] 
disclosures.
    [rtrif]5(b)(1)(i) General rule.[ltrif]
    1. Disclosure before the first transaction. [rtrif]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 paragraph 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).[ltrif] [lsqbb]The rule that the 
initial disclosure statement must be furnished ``before the first 
transaction'' requires delivery of the initial disclosure statement 
before the consumer becomes obligated on the plan. For example, the 
initial disclosures must be given before the consumer makes the 
first purchase (such as when a consumer opens a credit plan and 
makes purchases contemporaneously at a retail store) receives the 
first advance, or pays any fees or charges under the plan other than 
an application fee or refundable membership fee (see below). The 
prohibition on the payment of fees other than application or 
refundable membership fees before initial disclosures are provided 
does not apply to home equity plans subject to Sec.  226.5b. See the 
commentary to Sec.  226.5b(h) regarding the collection of fees for 
home equity plans covered by Sec.  226.5b.
     If the consumer pays a membership fee before receiving 
the Truth in Lending account-opening disclosures, or the consumer 
agrees to the imposition of a membership fee at the time of 
application and the Truth in Lending disclosure statement is not 
given at that time, disclosures are timely as long as the consumer, 
after receiving the disclosures, can reject the plan. The creditor 
must refund the membership fee if it has been paid, or clear the 
account if it has been debited to the consumer's account.
     If the consumer receives a cash advance check at the 
same time the Truth in Lending 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).
     Initial disclosures need not be given before the 
imposition of an application fee under Sec.  226.4(c)(1).
     If, after receiving the disclosures, the consumer uses 
the account, pays a fee, or negotiates a cash advance check, the 
creditor may consider the account not rejected for purposes of this 
section.[rsqbb]
* * * * *
    [rtrif]5(b)(1)(ii) Charges imposed as part of an open-end (not 
home-secured) plan.
    1. Disclosing charges before the fee is imposed. Creditors may 
disclose charges imposed as part of an open-end (not home-secured) 
plan orally or in writing at any time before a consumer agrees to 
pay the fee or becomes obligated for the charge, unless the charge 
is specified under Sec.  226.6(b)(4). (Such charges may 
alternatively be disclosed in electronic form; see the commentary to 
Sec.  226.5(a)(1)(ii)(A).) Creditors meet the standard to provide 
disclosures at a relevant time if the oral, written, or electronic 
disclosure of such a charge is given when a consumer would likely 
notice it, such as when deciding whether to purchase the service 
that would trigger the charge. 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.[ltrif]
* * * * *
    [rtrif]5(b)(1)(iv) Membership fees.
    1. Membership fees. See Sec.  226.5a(b)(2) and related 
commentary for guidance on fees for issuance or availability of a 
credit or charge card.
    2. Rejecting the plan. If a consumer has paid or promised to pay 
a membership fee (other than an application fee excludable from the 
finance charge under Sec.  226.4(c)(1)) before receiving account-
opening disclosures, the consumer may, after receiving the 
disclosures, reject the plan and not be obligated for the membership 
fee or any other fee or charge (other than an application fee 
excludable from the finance charge under Sec.  226.4(c)(1)). 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. A creditor may deem a plan 
to be rejected if, 60 days after the creditor mailed the account-
opening disclosures, the consumer has not used the account or made a 
payment on the account.
    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, such as for 
security purposes. A consumer also does not ``use'' the account when 
the creditor assesses fees (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) on the account. This includes, 
for example, 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.

[[Page 28897]]

    4. Home-equity plans. Creditors offering home-equity plans 
subject to the requirements of Sec.  226.5b are subject to the 
requirements of Sec.  226.5b(h) regarding the collection of fees.
* * * * *

Section 226.5a--Credit and Charge Card Applications and 
Solicitations

* * * * *
    [rtrif]5a(b)(3) Minimum Finance Charge.
* * * * *
    2. Adjustment of $1.00 threshold amount. The $1.00 threshold 
amount will be adjusted to the next whole dollar amount when the sum 
of annual percentage changes in the Consumer Price Index in effect 
on the June 1 of previous years equals or exceeds $1.00. The Board 
will publish adjustments, as appropriate.[ltrif]
    [rtrif]5a(b)(4) Transaction Charges.
* * * * *
    [rtrif]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 in a foreign country.[ltrif]
    5a(b)(5) Grace Period.
    1. How [rtrif]grace period[ltrif] disclosure is made. [rtrif]The 
card issuer must state any conditions on the applicability of the 
grace period. An issuer that conditions the grace period on the 
consumer paying his or her balance in full by the due date each 
month, or on the consumer paying the previous balance in full by the 
due date the prior month will be deemed to meet these requirements 
by providing the following disclosure: ``Your due date is [at 
least]----days after the close of each billing cycle. We will not 
charge you interest on purchases if you pay your entire balance 
(excluding promotional balances) by the due date each month.'' 
[ltrif][lsqbb]The card issuer may, but need not, refer to the 
beginning or ending point of any grace period and briefly state any 
conditions on the applicability of the grace period. For example, 
the grace period disclosure might read ``30 days'' or ``30 days from 
the date of the periodic statement (provided you have paid your 
previous balance in full by the due date).''[rsqbb]
    [rtrif]2. No grace period. The issuer may use the following 
language to describe that no grace period is offered, as applicable: 
``We will begin charging interest on purchases on the transaction 
date.''[ltrif]
* * * * *
    Section 226.6--[rtrif]Account-Opening Disclosures[ltrif] 
[lsqbb]Initial Disclosure Statement[rsqbb]
* * * * *
    [rtrif]6(b) Rules affecting open-end (not home-secured) 
plans[ltrif] [lsqbb]Other charges[rsqbb].
* * * * *
    [rtrif]6(b)(2) Rules relating to rates for open-end (not home-
secured) plans.[ltrif]
* * * * *
    [rtrif]Paragraph 6(b)(2)(iii).[ltrif]
* * * * *
    [rtrif]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 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.[ltrif]
* * * * *
    [rtrif]6(b)(4) Tabular format requirements for open-end (not 
home-secured) plans.[ltrif]
* * * * *
    [rtrif]3. Terminology. Section 226.6(b)(4)(i) 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; but see Sec.  226.5(a)(2) for special rules that apply 
to the penalty rate disclosure required by Sec.  226.6(b)(4)(ii)(C), 
and to the disclosure of required insurance products or debt 
cancellation or suspension products pursuant to Sec.  
226.6(b)(4)(v).[ltrif]
* * * * *
    [rtrif]6(b)(4)(iii) Fees.
    6(b)(4)(iii)(D) Minimum finance 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.
    2. Adjustment of $1.00 threshold amount. The $1.00 threshold 
amount will be adjusted to the next whole dollar amount when the sum 
of annual percentage changes in the Consumer Price Index in effect 
on the June 1 of previous years equals or exceeds $1.00. The Board 
will publish adjustments, as appropriate.
    6(b)(4)(iv) Grace period.
    1. Grace period. Creditors may use the following language to 
describe a grace period: ``Your due date is [lsqbb]at least[rsqbb] 
---- days after the close of each billing cycle. We will not charge 
you interest on [applicable transactions] if you pay your entire 
balance (excluding promotional balances) by the due date each 
month.'' Creditors may use the following language to describe that 
no grace period is offered, as applicable: ``We will begin charging 
interest on [lsqbb]applicable transactions[rsqbb] on the transaction 
date.''[ltrif]
* * * * *
    6(b)(4)(vii) 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 (other than [name of fee 
that is excludable from the finance charge under Sec.  
226.4(c)(1)]).''
* * * * *

Section 226.9--Subsequent Disclosure Requirements

* * * * *
    9(b) Disclosures for Supplemental [rtrif]Credit[ltrif] Access 
Devices and Additional Features.
* * * * *
    [rtrif]9(b)(3) Checks That Access a Credit Card Account.[ltrif]
* * * * *
    [rtrif]Paragraph 9(b)(3)(E).
    1. Grace period. Creditors may use the following language to 
describe a grace period: ``Your due date is [lsqbb]at least[rsqbb] 
---- days after the close of each billing cycle. We will not charge 
you interest when you use these checks if you pay your entire 
balance (excluding promotional balances) by the due date each 
month.'' Creditors may use the following language to describe that 
no grace period is offered, as applicable: ``We will begin charging 
interest on these checks on the transaction date.''[ltrif]
* * * * *
    9(c) Change in Terms.
* * * * *
    [rtrif]9(c)(2) Rules Affecting Open-End (Not Home-Secured) 
Plans.[ltrif]
* * * * *
    [rtrif]9(c)(2)(ii) Charges Not Covered by Sec.  
226.6(b)(4).[ltrif]
* * * * *
    [rtrif]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.  226.6(b)(1) but is not required to 
be disclosed as part of the account-opening summary table under 
Sec.  226.6(b)(4), the creditor may either, at its option (1) 
provide at least 45 days written advance notice before the change 
becomes effective to comply with the requirements of Sec.  
226.9(c)(2)(i), or (2) 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 any time before 
the consumer agrees to or becomes obligated to pay the charge. (See 
the commentary under Sec.  226.5(a)(1)(ii)(A) regarding disclosure 
of such charges 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.  226.6(b)(1) but is not required to be disclosed 
in the account-opening summary table under Sec.  226.6(b)(4). 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 
any time before the consumer agrees to or becomes obligated to pay 
the charge.[ltrif]
* * * * *
    [rtrif]9(c)(2)(iii) Disclosure Requirements.

[[Page 28898]]

    9(c)(2)(iii)(A) Changes to Terms Described in Sec.  226.6(b)(4).
* * * * *
    [rtrif]8. Content. Sample G-20 contains an example of how to 
comply with the requirements in Sec.  226.9(c)(2)(iii) when the 
following terms are being changed: (1) A variable rate is being 
changed to a non-variable rate of 16.99%; and (2) the late payment 
fee is being increased to $32 if the consumer's balance is less than 
or equal to $1,000 and $39 if the consumer's balance is more than 
$1,000. The sample explains when the new rate will apply to new 
transactions and to which balances the current rate will continue to 
apply.[ltrif]
* * * * *
    [rtrif]9(g) Increase in Rates Due to Delinquency or Default or 
as a Penalty.
    1. Applicability. i. General. Section 226.9(g) requires a 
creditor to provide written notice to a consumer when (1) a rate is 
increased due to the consumer's delinquency or default, or (2) 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. This notice must 
be provided after the occurrence of the event that triggered the 
imposition of the rate increase and at least 45 days prior to the 
effective date of the increase. For example, assume a credit card 
account agreement provides that the annual percentage rates on the 
account may increase to 28 percent if the consumer pays late once, 
and assume that the consumer pays late one month. If the creditor 
will increase the rates on the account because of this late payment, 
the creditor must provide the consumer written notice of the 
increase at least 45 days before the increase becomes effective.
    ii. Illustrations. Under this section, creditors must provide 
written notice to a consumer when rates are increased due to the 
consumer's delinquency or default or as a penalty. The notice must 
be provided after the occurrence of the event that triggers the rate 
increase and at least 45 days prior to the effective date of the 
increase. Creditors subject to Regulation AA, 12 CFR 227.24 or 
similar law are generally prohibited from increasing the APR, as of 
the effective date of the increase, for balances outstanding at the 
end of 14 days after the date the notice of increased rates was 
provided, with certain exceptions, including, specifically, if the 
creditor fails to receive the consumer's minimum periodic payment 
within 30 days from the due date of that payment. For a creditor 
that is subject to Regulation AA, 12 CFR 227.24 or similar law that 
provides a notice of a rate increase due to the consumer's 
delinquency or default or as a penalty, and the creditor does not 
receive the consumer's minimum periodic payment within 30 days from 
the due date of the payment before the increased rate goes into 
effect, the creditor may apply the increased rate to all balances 
when the increased rate goes into effect. If, however, the consumer 
does not become 30 days late before the effective date of the rate 
increase, the creditor may only apply the increased rate to 
transactions made after the end of 14 days after the date the notice 
of increased rates was provided. Also, if the consumer becomes 30 
days late after the increased rate becomes effective, the creditor 
must provide the consumer a written notice that the increased rate 
will now apply to all balances, and that notice must be given an 
least 45 days prior to the effective date of the increased rate 
applying to all balances. The following illustrate the timing 
requirements for rate increases under Sec.  226.9(g) for creditors 
that are also subject to Regulation AA, 12 CFR 227.24 or similar 
law:
    A. A credit card account agreement provides that the annual 
percentage rates on the account may increase to 28 percent if the 
consumer pays late once. The consumer's minimum periodic payment is 
due June 15 and the consumer pays late. On June 24 the creditor 
provides written notice of the increase. The notice provides that 
the penalty rate of 28 percent has been triggered and will apply as 
of August 9 to transactions made on or after July 9. The consumer's 
minimum periodic payment for June is received on June 30. On August 
9, an increased rate of 28 percent may be applied to transactions 
made on or after July 9. The current rate will apply to balances 
existing on July 8.
    B. Same facts as in paragraph 9(g) 1. ii.A., except the consumer 
fails to make any payment until July 20. On August 9, the increased 
rate of 28 percent may be applied to transactions made on or after 
that date, and to existing balances, as provided in Regulation AA, 
12 CFR 227.24 or similar law.
    C. The same result would apply if under the credit card 
agreement, the annual percentage rates on the account may increase 
to 28 percent if the consumer exceeds the credit limit once, the 
consumer exceeded his credit limit on June 5 and the creditor 
provides written notice of the increase on June 9. As in ii.B. 
above, the consumer fails to make the minimum periodic payment due 
June 15 until July 20. On July 25, the increased rate of 28 percent 
may be applied to transactions made on or after that date, and to 
existing balances, as provided in Regulation AA, 12 CFR 227.24 or 
similar law. See G-21 in Appendix G for language that complies with 
the requirements of Sec.  226.9(g).
    D. Same facts as in paragraph 9(g) 1. ii.A., except the 
following October, the consumer fails to make the minimum periodic 
payment due October 15 until November 20. The increased rate of 28 
percent that has applied since August 9 continues to apply to 
transactions made on or after July 9. To apply the rate of 28 
percent to the remaining outstanding balances that existed on July 
8, the creditor would be required to send a new notice under Sec.  
226.9(g) after the consumer triggered the penalty rate for all 
balances. That is, if the creditor provides a written notice of the 
increase on November 26, the creditor could apply the penalty rate 
of 28% to all balances on January 11 of the following year.
    E. A creditor currently assesses a non-variable annual 
percentage rate of 12.99 percent on purchases, and provides written 
notice on May 31 that a non-variable annual percentage rate will be 
increased to 15.99 percent as of July 16 for all purchase 
transactions on the account on or after June 15. Purchase balances 
existing on June 14 will remain at the current rate. The credit card 
account agreement indicates that the annual percentage rates on the 
account may increase to 28 percent if the consumer pays late once. 
The consumer's minimum periodic payment is due June 15 and the 
consumer pays late. On June 24 the creditor provides written notice 
of the increase to the penalty rate as a consequence of the 
consumer's late payment. The notice provides that the penalty rate 
of 28 percent has been triggered and will apply on August 9 to 
transactions made on or after July 9. The consumer's minimum 
periodic payment for June is received on June 30. On July 16, the 
new purchase annual percentage rate of 15.99 percent becomes 
effective for new purchases made on or after June 15. The current 
rate of 12.99 percent will apply to balances existing on June 14. On 
August 9, the 28 percent annual percentage rate will apply to 
transactions made on or after July 9. A rate of 12.99 percent will 
apply to the balances existing on June 14, and a rate of 15.99 
percent will apply to purchases between June 15 and July 8.
    F. Same facts as paragraph 9(g) 1. ii.E., except the consumer 
fails to make any payment until July 20. On July 15, the new 
purchase annual percentage rate of 15.99 percent becomes effective 
for new purchases made on or after June 15. The current rate of 
12.99 percent will continue to apply to balances existing on June 
14. On August 9, the increased rate of 28 percent may be applied to 
transactions that occur on or after July 9, and to existing 
balances, as provided in Regulation AA, 12 CFR 227.24 or similar 
law.[ltrif]
* * * * *

Section 226.10--Prompt Crediting of Payments

* * * * *
    10(b) Specific requirements for payments.
    1. [lsqbb]Payment requirements. The creditor may specify 
requirements for making payments, such as:
     Requiring that payments be accompanied by the account 
number or the payment stub
     Setting a cutoff hour for payment to be received, or 
set different hours for payments 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
     Specifying one particular address for receiving 
payments, such as a post office box[rsqbb]
    [rtrif] Payment by electronic fund transfer. [ltrif] A creditor 
may be prohibited[lsqbb], however,[rsqbb] from specifying payment 
for preauthorized electronic fund transfer. (See section 913 of the 
Electronic Fund Transfer Act.)
    2. [rtrif] Payment via creditor's web site. 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 would generally be 
conforming payments for purposes of Sec.  226.10(b).[ltrif] 
[lsqbb]Payment requirements--limitations. Requirements for making 
payments must be reasonable; it should not be difficult for most 
consumers to make

[[Page 28899]]

conforming payments. For example, it would not be reasonable to 
require that all payments be made in person between 10 a.m. and 11 
a.m., since this would require consumers to take time off from their 
jobs to deliver payments.[rsqbb]
* * * * *

Section 226.12--Special Credit Card Provisions

* * * * *
    12(a) Issuance of credit cards.
* * * * *
    Paragraph 12(a)(2).
* * * * *
    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, [rtrif] provided that [ltrif] the 
new card [rtrif] is [ltrif][lsqbb]must be[rsqbb] honored by at least 
one of the persons that honored the original card. [rtrif] 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 and the consumer has not obtained an 
extension of credit with the existing merchant base within 24 months 
prior to the issuance of the new card. A credit card cannot be 
issued in these circumstances without a request or application. For 
purposes of Sec.  226.12(a), an account is inactive if no credit has 
been extended and if the account has no outstanding balance for 24 
months. See Sec.  226.11(b)(2). [ltrif]
* * * * *
    12(b) Liability of cardholder for unauthorized use.
* * * * *
    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[rtrif], 
including providing an affidavit or filing a police report[ltrif]; 
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. Requesting a written, signed statement from the cardholder 
or authorized user. [rtrif] However, a creditor may not require an 
affidavit as a part of a reasonable investigation. [ltrif]
    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.
* * * * *

Section 226.13--Billing-Error Resolution

* * * * *
    13(f) Procedures if different billing error or no billing error 
occurred.
* * * * *
    [rtrif]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.
    i. Unauthorized transaction. In conducting an investigation of a 
billing error notice alleging an unauthorized transaction under 
paragraph (a)(1) of this section, 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 creditor's records, including other credit 
slips.
    E. Requesting documentation to assist in the verification of the 
claim.
    F. Requesting a written, signed statement from the consumer (or 
authorized user, in the case of a credit card account). However, a 
creditor may not require an affidavit 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 paragraph (a)(3) of this section, 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.[ltrif]
* * * * *

Section 226.16--Advertising

* * * * *
    [rtrif]2. Clear and conspicuous standard--promotional rates and 
deferred interest offers. For purposes of Sec.  226.16(e), a clear 
and conspicuous disclosure means the required information in 
Sec. Sec.  226.16(e)(4)(i) and (ii) must be equally prominent to the 
promotional rate to which it applies. If the information in 
Sec. Sec.  226.16(e)(4)(i) and (ii) is the same type size as the 
promotional rate to which it applies, the disclosures would be 
deemed to be equally prominent. For purposes of Sec.  226.16(h), a 
clear and conspicuous disclosure means the required information in 
Sec.  226.16(h)(3) must be equally prominent to each statement of 
``no interest'', ``no payments,'' or ``deferred interest'' or 
similar term regarding interest or payments during the deferred 
interest period. If the disclosure of the deferred interest period

[[Page 28900]]

required in Sec. Sec.  226.16(h)(3) is the same type size as the 
statement of ``no interest'', ``no payments,'' or ``deferred 
interest'' or similar term regarding interest or payments during the 
deferred interest period, the disclosure would be deemed to be 
equally prominent.[ltrif]
* * * * *
    16(b) Advertisement of terms that require additional 
disclosures.
* * * * *
    [rtrif]4. Deferred interest programs or other similar deferment 
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.  
226.6. However, a statement such as ``No interest charges until 
May'' or any other statement regarding when interest or finance 
charges begin to accrue or are charged to the consumer is a 
triggering term, whether appearing alone or in conjunction with a 
description of a deferred billing, deferred payment, or deferred 
interest program such as the examples above.[ltrif]
    [rtrif]16(e) Promotional rates.
    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.  
226.16(e)(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.  
226.5a(c)(2) and Sec.  226.5a(e)(4), as applicable.
    2. Example of promotional rate under Sec.  226.16(e)(2)(i)(B). A 
creditor generally offers a 15% rate of interest for purchases on a 
consumer credit card account. For purchases made during a particular 
month, however, the creditor offers a rate of 5% that will apply 
until the consumer pays those purchases in full. Under Sec.  
226.16(e)(2)(i)(B), the 5% rate is a ``promotional rate'' because it 
is lower than the 15% rate that applies to other purchases.
    3. Immediate proximity. Including the term ``introductory'' or 
``intro'' in the same phrase as the listing of the introductory rate 
is deemed to be in immediate proximity of the listing.
    4. Prominent location closely proximate. Information required to 
be disclosed in Sec. Sec.  226.16(e)(4)(i) and (ii) that is in the 
same paragraph as the first listing of the promotional rate 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.
    5. First listing. For purposes of Sec.  226.16(e)(4), the first 
listing of the promotional rate is the most prominent listing of the 
rate 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 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 on the front side of the first page of 
each document listing the promotional rate. If the listing of the 
promotional rate with the largest type size on the front side of the 
first page of the principal promotional document (or each document 
listing the promotional rate if the promotional rate 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.
    6. 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%).[ltrif]
* * * * *
    [rtrif]16(h) Deferred interest offers.
    1. Deferred interest clarified. Deferred interest offers do not 
include offers that allow a consumer to defer payments during a 
specified period of time, and the consumer is not obligated under 
any circumstances for any interest or other finance charges that 
could be attributable to that period. Deferred interest 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 is in effect, though 
such offers may be considered promotional rates under Sec.  
226.16(e)(2)(i).
    2. Immediate proximity. Including the deferred interest period 
in the same phrase as the statement of ``no interest,'' ``no 
payments,'' or ``deferred interest'' or similar term regarding 
interest or payments during the deferred interest period is deemed 
to be in immediate proximity of the statement.
    3. Prominent location closely proximate. Information required to 
be disclosed in Sec. Sec.  226.16(h)(4)(i), (ii), and (iii) that is 
in the same paragraph as the first statement of ``no interest,'' 
``no payments,'' or ``deferred interest'' 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 will not be considered in a 
prominent location closely proximate to the statement.
    4. First listing. For purposes of Sec.  226.16(h)(4), the first 
statement of ``no interest,'' ``no payments,'' or ``deferred 
interest'' or similar term regarding interest or payments during the 
deferred interest period is the most prominent listing of one of 
these statements on the front side of the first page of the 
principal promotional document. The 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 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 the listing of one of these 
statements with the largest type size 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 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.  226.16(h)(4).
    5. Additional information. Consistent with comment 5(a)-2, the 
information required under Sec.  226.16(h)(4) need not be segregated 
from other information regarding the deferred interest offer. 
Advertisements may also be required to provide additional 
information pursuant to Sec.  226.16(b) though such information need 
not be integrated with the information required under Sec.  
226.16(h)(4).[ltrif]
* * * * *

[rtrif]Appendices[ltrif] [lsqbb]Appendixes[rsqbb] G and H--Open-End and 
Closed-End Model Forms and Clauses

* * * * *

Appendix G--Open-End Model Forms and Clauses

    1. Model[rtrif]s[ltrif] G-1 [rtrif]and G-1A[ltrif]. The model 
disclosures in G-1 [rtrif]and G-1A[ltrif] (different balance 
computation methods) may be used in both the [rtrif]account-
opening[ltrif] [lsqbb]initial[rsqbb] disclosures under Sec.  226.6 
and the periodic disclosures under Sec.  226.7. As is clear from the 
models given, ``shorthand'' descriptions of the balance computation 
methods are not sufficient[rtrif], except where Sec.  226.7(b)(5) 
applies. For creditors using model G-1,[ltrif] 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. [lsqbb]In 
addition,[rsqbb] If unpaid [rtrif]interest or[ltrif] 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 
section 226.7 [rtrif](a)(5) and 
226.7(b)(5)[ltrif][lsqbb](e)[rsqbb].) [rtrif]For open-end plans 
subject to the requirements of Sec.  226.5b, creditors may, at their 
option, use the clauses in G-1 or G-1A.[ltrif]
* * * * *

[[Page 28901]]

    5. Model G-10(A), sample[rtrif]s[ltrif] G-10(B) and 
[lsqbb]model[rsqbb] G-10(C)[rtrif], model G-10(D), sample G-10(E), 
model G-17(A), and samples G-17(B), 17(C) and 17(D)[ltrif].
    i. Model G-10(A) and sample[rtrif]s[ltrif] G-10(B) [rtrif]and G-
10(C)[ltrif] illustrate, in the tabular format, [all of] the 
disclosures required under Sec.  226.5a for applications and 
solicitations for credit cards other than charge cards. [lsqbb]Model 
G-10(B) is a sample disclosure illustrating an account with a lower 
introductory rate and penalty rate.[rsqbb] Model G-
10[rtrif](D)[ltrif] [lsqbb](C)[rsqbb] [rtrif]and sample G-
10(E)[ltrif] illustrate[lsqbb]s[rsqbb] the tabular format disclosure 
for charge card applications and solicitations and reflects 
[lsqbb]all of[rsqbb] the disclosures in the table. [rtrif]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.  226.6(b)(4) for 
account-opening disclosures.[ltrif]
    ii. Except as otherwise permitted, disclosures must be 
substantially similar in sequence and format to model forms G-10(A) 
[rtrif], G-10(D)[ltrif] and [rtrif]G-17(A)[ltrif]. [lsqbb]The 
disclosures may, however, be arranged vertically or horizontally and 
need not be highlighted aside from being included in the 
table.[rsqbb] While proper use of the model forms will be deemed in 
compliance with the regulation, card issuers are permitted to use 
headings [lsqbb]and disclosures[rsqbb] other than those in the forms 
(with an exception relating to the use of [lsqbb]``grace 
period''[rsqbb] [rtrif]``penalty APR'', and in relation to required 
insurance, or debt cancellation or suspension coverage, the term 
``required'' and the name of the product[ltrif]) if they are clear 
and concise and are substantially similar to the headings [lsqbb]and 
disclosures[rsqbb] contained in model forms.
    [rtrif]iii. Models G-10(A) and G-17(A) contain two alternative 
headings (``Minimum Interest Charge'' and ``Minimum Charge'') for 
disclosing a minimum finance charge under Sec.  226.5a(b)(3) and 
Sec.  226.6(b)(4)(iii)(D). If a creditor imposes a minimum finance 
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.'' Other minimum finance 
charges should be disclosed under the heading ``Minimum Charge.''
    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.  
226.5a(b)(2) or Sec.  226.6(b)(4)(iii)(A). If the only fee for 
issuance or availability of credit disclosed under Sec.  
226.5a(b)(2) or Sec.  226.6(b)(4)(iii)(A) is an annual fee, a 
creditor should use the heading ``Annual Fee'' to disclose this fee. 
If a creditor imposes fees for issuance or availability of credit 
disclosed under Sec.  226.5a(b)(2) or Sec.  226.6(b)(4)(iii)(A) 
other than, or in addition to, an annual fee, the creditor should 
use the heading ``Set-up and Maintenance Fees'' 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.  226.5a or 226.6(b)(4) disclosures, 
samples G-10(B), G-10(C), G-17(B) and G-17(C) are designed to be 
printed on an 8\1/2\ x 14 sheet of paper. 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 Ariel 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 
three components: The applicable balance transfer rate, a cross 
reference to the balance transfer fee, and a notice about payment 
allocation. The samples show these three 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; and
    F. Sufficient contrast between the text and the background. 
Generally, black text was used on white paper.
    vi. While the Board is not requiring creditors to use the above 
formatting techniques in presenting information in the table (except 
for the 10-point and 16-point font requirement), the Board 
encourages creditors to consider these techniques when deciding how 
to disclose information in the table, to ensure that the information 
is presented in a readable format.[ltrif]
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, May 2, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8-10242 Filed 5-16-08; 8:45 am]
BILLING CODE 6210-01-P