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Federal Housing Finance Agency.
Final rule.
The Federal Housing Finance Agency (FHFA) is issuing a final regulation that sets forth factors to be considered by the Director of FHFA in acting upon the Director's authority to limit golden parachute payments to entity-affiliated parties in connection with the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Federal Home Loan Banks.
Alfred M. Pollard, General Counsel, (202) 414-3788 (not a toll-free number), Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The telephone number for the Telecommunications Device for the Deaf is (800) 877-8339.
The Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654, amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501
The Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB) will be abolished one year after enactment of the HERA. However, the regulated entities continue to operate under regulations promulgated by OFHEO and FHFB until such regulations are superseded by regulations promulgated by the FHFA.
Section 1114 of HERA amended 12 U.S.C. 4518 to provide additional authorities for FHFA in addressing certain compensation and benefits, specifically golden parachute payments and indemnification payments. HERA added a new paragraph (e) to section 4518 addressing regulation and prohibition of these benefits. While paragraphs (e)(1) and (e)(3)-(6) are self executing, Congress provided that for paragraph (e)(2) addressing factors to be taken into account when acting regarding golden parachutes and indemnification, FHFA prescribe, by regulation, factors to be considered. The factors set forth in paragraph (e)(2) are explicit and provide guidance to the Director in taking an action under the statute.
FHFA published an Interim Final Rule that was effective on September 16, 2008, the date of publication in the
FHFA received comments from individuals in the general public, nine Federal Home Loan Banks, and Fannie Mae. In general, the public commented that severance should not be paid to departing executives of the Enterprises, particularly the Chief Executive Officers. The consensus among these individuals was that any such payment would be excessive, irresponsible, and grossly unfair to taxpayers.
The Banks commented that they shared widespread public concern over excessive golden parachute payments paid by failed or failing companies. The Banks noted that fulfillment of their housing and liquidity mission, consistent with safe and sound operation, demands a high caliber workforce, and that reasonable and customary separation benefits are an important and appropriate component of the Banks' retention, hiring, and workforce management efforts. To that end, the Banks requested that FHFA consider standards set forth in the Federal Deposit Insurance Corporation (FDIC) regulations on golden parachute payments, which were promulgated pursuant to the Federal Deposit Insurance Act (FDI Act), for guidance as FHFA considers changes to the Interim Final Rule.
Similarly, Fannie Mae suggested that FHFA revise the Interim Final Rule to more closely follow the FDIC regulations, and also the Farm Credit System Insurance Corporation (FCSIC) regulations, which adopted the FDIC's approach.
FHFA gave careful consideration to the comments of the Banks and Fannie Mae requesting conformance of the provisions of the Interim Final Rule with the provisions of FDIC and FCSIC regulations relating to golden parachutes. In publishing the Interim Final Rule, FHFA primarily sought comment on factors the Director would consider in acting on golden parachute payments. The comments received to the Interim Final Rule address other elements of a golden parachute regulation. For this reason, FHFA has determined that it will consider adding provisions similar to those of the FDIC golden parachute regulation in a subsequent rulemaking. The FDIC regulation describes more specifically benefits included or excluded from the term “golden parachute payment.” It should be noted that, consistent with the FDIC regulation, benefits provided under qualified and nonqualified deferred compensation plans are excluded from the term “golden parachute payment” under the Interim Final Rule and under this final regulation.
For purposes of this regulation, FHFA considered a comment by Fannie Mae that addressed one of the factors to be taken into account by the Director when acting regarding golden parachutes,
(f) Any other factor the Director determines relevant to the facts and circumstances surrounding the golden parachute payment, including but not limited to negligence, gross negligence, neglect, willful misconduct, breach of fiduciary duty, and malfeasance on the part of an entity-affiliated party.
Fannie Mae requested that paragraph (f) of § 1231.5 be amended to mirror the “catchall” factor adopted by the FDIC and the FCSIC in their regulations, whereby the Director would consider: “Any other factors or circumstances which would indicate that the proposed payment would be contrary to the intent of section 1318(e) of the Act or this part.” In commenting on the requested amendment, Fannie Mae stated that there are substantial benefits to regulatory uniformity in terms of predictability and fairness, and there is no apparent difference in congressional intent or in the policy implications of golden parachute restrictions that would call for a different standard in the present context. By mirroring the “catchall” factor adopted by the FDIC and the FCSIC, Fannie Mae claimed focus would be on the intent of the statute, and would permit the Director to consider all appropriate factors in determining whether to deny or limit proposed golden parachute payments.
After consideration of Fannie Mae's comment, FHFA determined to amend paragraph (f) of § 1231.5 to follow more closely the statutory language in section 1318 of the Act that the Director may consider in the oversight of compensation of an executive officer. To that end, as relevant facts and circumstances for the Director to consider with respect to golden parachute payments, FHFA has deleted the following language: “but not limited to negligence, gross negligence, neglect” and has substituted in lieu thereof the following language: “any fraudulent act or omission, breach of fiduciary duty, violation of law, rule, regulation, order, or written agreement, and the level of”.
The Final Rule does not contain any information collection requirement that requires the approval of OMB under the Paperwork Reduction Act (44 U.S.C. 3501
The Regulatory Flexibility Act (5 U.S.C. 601
Golden Parachutes, Government-Sponsored Enterprises.
Accordingly, the Interim Final Rule at part 1231 of Title 12 CFR Chapter XII, published at 73 FR 53356 on September 16, 2008, and corrected at 73 FR 54309 on September 19, 2008, and at 73 FR 54673 on September 23, 2008, is adopted as a final rule with the following changes:
12 U.S.C. 4518(e).
(f) Any other factor the Director determines relevant to the facts and circumstances surrounding the golden parachute payment, including any fraudulent act or omission, breach of fiduciary duty, violation of law, rule, regulation, order, or written agreement, and the level of willful misconduct, breach of fiduciary duty, and malfeasance on the part of an entity-affiliated party.
Federal Energy Regulatory Commission.
Final Rule: Order Granting Extension of Time.
On November 20, 2008, the Federal Energy Regulatory Commission issued a Final Rule in Order No. 720 which amended part 284 of its regulations to require, in relevant part, major non-interstate natural gas pipelines to post, on a daily basis, certain information regarding scheduled volumes in natural gas to be transported. The date for major non-interstate pipelines to comply with the requirements of Order No. 720 is being extended at the request of the American Gas Association.
Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.
In the matter of: Docket No. RM08-2-000, Pipeline Posting Requirements under Section 23 of the Natural Gas Act.
1. On November 20, 2008, the Federal Energy Regulatory Commission (Commission) issued a Final Rule in Order No. 720,
2. On December 11, 2008, the American Gas Association (AGA) filed a Motion for an Extension of Time to Comply with Order No. 720. AGA further requested expedited treatment of its motion. Answers in support of the motion were subsequently filed by the Texas Pipeline Association (TPA), Pacific Gas and Electric Company (PG&E), and Shell Offshore Inc. (Shell). These parties seek an extension of time for major non-interstate pipelines to comply with the requirements of Order No. 720.
3. The Commission grants an extension of time as requested in the motion and supported in the answers. In particular, we find the answers submitted by commenters to be persuasive. The commenters argue that some major non-interstate pipelines will need additional time in which to determine which receipt and delivery points are subject to the posting requirements, obtain corporate approval for expenditures needed for compliance, and develop Internet posting systems. Additionally, we agree that some compliance activities may be premature prior to the issuance of an order on rehearing of Order No. 720.
4. Therefore, we grant an extension of time for major non-interstate pipelines to comply with the requirements of Order No. 720 until 150 days following the issuance of an order addressing the pending requests for rehearing. We do not modify the deadline by which interstate pipelines must comply with the requirements of Order No. 720. Interstate pipelines must begin posting relevant information regarding no-notice service within 60 days following the publication of Order No. 720 in the
The Commission orders:
Major non-interstate pipelines must comply with the requirements of Order No. 720 within 150 days following the issuance of an order on rehearing in this proceeding.
By the Commission.
Internal Revenue Service (IRS), Treasury.
Correcting amendment.
This document contains corrections to final regulations (TD 9436) that were published in the
This correction is effective January 29, 2009, and is applicable on December 22, 2008.
Michael E. Hara, (202) 622-4910, and Matthew S. Cooper, (202) 622-4940 (not toll-free numbers).
The final regulations that are the subject of this document are under sections 6060, 6107, 6109, 6694, 6695, 6696, and 7701 of the Internal Revenue Code.
As published, final regulations (TD 9436) contains errors that may prove to be misleading and are in need of clarification.
Income taxes, Reporting and recordkeeping requirements.
Generation-skipping transfer taxes, Reporting and recordkeeping requirements.
Gift taxes, Reporting and recordkeeping requirements.
Generation-skipping transfer taxes, Reporting and recordkeeping requirements.
Employment taxes, Income taxes, Penalties, Pensions, Railroad retirement, Reporting and recordkeeping requirements, Social security, Unemployment compensation.
Excise taxes, Reporting and recordkeeping requirements.
Excise taxes, Motor vehicles, Reporting and recordkeeping requirements.
Excise taxes, Gambling, Reporting and recordkeeping requirements.
Excise taxes, Foundations, Investments, Lobbying, Reporting and recordkeeping requirements.
Excise taxes, Pensions, Reporting and recordkeeping requirements.
Excise taxes, Investments, Reporting and recordkeeping requirements.
Excise taxes, Lobbying, Nonprofit organizations, Reporting and recordkeeping requirements.
Excise taxes, Reporting and recordkeeping requirements.
Excise taxes, Reporting and recordkeeping requirements.
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.
26 U.S.C. 7805 * * *
(d) * * *
(1) For the civil penalty for failure to furnish a copy of the return or claim for refund to the taxpayers (or nontaxable entity) as required under paragraph (a) of this section, see section 6695(a) and § 1.6695-1(a).
(2) For the civil penalty for failure to retain a copy of the return or claim for refund, or to retain a record as required under paragraph (b) of this section, see section 6695(d) and § 1.6695-1(d).
(b) * * *
(2) * * * If there is a signing tax return preparer within the meaning of § 301.7701-15(b)(1) of this chapter within a firm, the signing tax return preparer generally will be considered the person who is primarily responsible for all of the positions on the return or claim for refund giving rise to an understatement unless, based upon credible information from any source, it is concluded that the signing tax return preparer is not primarily responsible for the position(s) on the return or claim for refund giving rise to an understatement. * * *
(f) * * *
(4) * * *
(d) * * *
(1) * * * For an exception to the section 6694(a) penalty for reasonable cause and good faith, see paragraph (e) of this section.
(2) * * * For purposes of determining whether the tax return preparer has a reasonable basis for a position, a tax return preparer may rely in good faith without verification upon information furnished by the taxpayer and information and advice furnished by another advisor, another tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer's firm), as provided in §§ 1.6694-1(e) and 1.6694-2(e)(5).
(3) * * *
(ii) * * * In addition, disclosure of a position is adequate in the case of a nonsigning tax return preparer if, with respect to that position, the tax return preparer complies with the provisions of paragraph (d)(3)(ii)(A) or (B) of this section, whichever is applicable.
(c) * * *
(2) A tax return preparer is not considered to have recklessly or intentionally disregarded a rule or regulation if the position contrary to the rule or regulation has a reasonable basis as defined in § 1.6694-2(d)(2) and is adequately disclosed in accordance with §§ 1.6694-2(d)(3)(i)(A) or (C) or 1.6694-2(d)(3)(ii). In the case of a position contrary to a regulation, the position must represent a good faith challenge to the validity of the regulation and, when disclosed in accordance with §§ 1.6694-2(d)(3)(i)(A) or (C) or 1.6694-2(d)(3)(ii), the tax return preparer must identify the regulation being challenged. * * *
(a) * * *
(2) * * *
(ii) In order faithfully to carry out their official duties, have so arranged their affairs that they have less than full knowledge of the property that they hold or of the debts for which they are responsible, if information is deleted from the copy in order to preserve or maintain this arrangement.
(g)
26 U.S.C. 7805 * * *
Section 20.6109-1 also issued under 26 U.S.C. 6109(a). * * *
(a)
26 U.S.C. 7805 * * *
Section 25.6109-1 also issued under 26 U.S.C. 6109(a). * * *
(a)
26 U.S.C. 7805 * * *
Section 26.6109-1 also issued under 26 U.S.C. 6109(a). * * *
(a)
26 U.S.C. 7805 * * *
(a)
(a)
26 U.S.C. 7805 * * *
Section 40.6109-1 also issued under 26 U.S.C. 6109(a). * * *
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
26 U.S.C. 7805 * * *
(a)
26 U.S.C. 7805 * * *
Section 44.6109-1 also issued under 26 U.S.C. 6109(a). * * *
(a)
26 U.S.C. 7805 * * *
Section 53.6109-1 also issued under 26 U.S.C. 6109(a). * * *
26 U.S.C. 7805 * * *
Section 54.6109-1 also issued under 26 U.S.C. 6109(a). * * *
On page 78458, in the third column, in paragraph 107, the instruction “Section 56.6694-3 is added to read as follows:” is removed and the language “Section 54.6694-3 is added to read as follows:” is added in its place.
26 U.S.C. 7805 * * *
Section 55.6109-1 also issued under 26 U.S.C. 6109(a). * * *
26 U.S.C. 7805 * * *
Section 56.6109-1 also issued under 26 U.S.C. 6109(a). * * *
26 U.S.C. 7805 * * *
Section 156.6109-1 also issued under 26 U.S.C. 6109(a). * * *
26 U.S.C. 7805 * * *
Section 157.6109-1 also issued under 26 U.S.C. 6109(a). * * *
26 U.S.C. 7805 * * *
(f) * * *
(1) * * *
(xi) * * *
(B) A waiver of restriction on assessment after initiation of an audit of the taxpayer or another taxpayer if a determination in the audit of the other taxpayer affects, directly or indirectly, the liability of the taxpayer for tax.
Forest Service, USDA.
Final rule; notice of delay of effective date and comment period.
In accordance with the memorandum of January 20, 2009, from the Assistant to the President and Chief of Staff, entitled “Regulatory Review,” published in the
Effective January 28, 2009, the effective date of the rule amending 36 CFR parts 223 and 261 published at 73 FR 79367, December 29, 2008, is delayed until March 30, 2009. Comments must be received by March 2, 2009.
The public may send comments to USDA Forest Service, FM, Director, 201 14th Street, SW., Mailstop 1103, Washington, DC 20024, or by e-mail to
Richard Fitzgerald, Forest Service, Forest Management Staff, (202) 205-1753. Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern Standard Time, Monday through Friday.
In accordance with the memorandum of January 20, 2009, from the Assistant to the President and Chief of Staff, entitled “Regulatory Review,” published in the
The Department is seeking comment from the public on any issues or concerns on the policy raised by the December rule. The December rule is needed to promote sustainability in light of the increased public demands for both timber and non-timber special forest products and forest botanical products over the past 10 years. In many cases, these demands are challenging sustainability, particularly in the most heavily used parts of the National Forest System. The December rule will help ensure the continued sustainability of special forest products and forest botanical products.
Federal Communications Commission.
Final rule.
The Commission makes rule changes to Part 1 of the Commission's rules, and amends its Schedule of Application Fees to adjust its fees for processing applications and other filings.
Effective January 29, 2009.
1. By this Order, adopted September 15, 2008 and released September 22, 2008, the Commission makes rule changes to part 1 of the Commission's
2. The Commission will send a copy of this Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act,
3. Accordingly,
4.
Administrative practice and procedure.
1. The Authority citation for part 1 continues to read as follows:
15 U.S.C. 79
Those services designated with an asterisk in the payment type code column have associated regulatory fees that must be paid at the same time the application fee is paid. Please refer to § 1.1152 for the appropriate regulatory fee that must be paid for this service. Remit manual filings and/or payment for these services to the: Federal Communications Commission, Wireless Bureau Applications, P.O. Box 979097, St. Louis, MO 63197-9000.
Remit manual filings and/or payment for these services to the: Federal Communications Commission, OET Services, P.O. Box 979095, St. Louis, MO 63197-9000.
Remit manual filings and/or payment for these services to the: Federal Communications Commission, Media Bureau Services, P.O. Box 979089, St. Louis, MO 63197-9000.
Remit manual filings and/or payment for these services to the: Federal Communications Commission, Wireline Competition Bureau Applications, P.O. Box 979091, St. Louis, MO 63197-9000.
Remit manual filings and/or payment for these services to the: Federal Communications Commission, Enforcement Bureau , P.O. Box 979094, St. Louis, MO 63197-9000 with the exception of Accounting and Audits, which will be invoiced. Carriers should
Remit manual filings and/or payment for these services to the: Federal Communications Commission, International Bureau Applications, P.O. Box 979093, St. Louis, MO 63197-9000.
Remit payment (along with a copy of invoice) for these services to the: Federal Communications Commission, International Telecommunication Fees, P.O. Box 979096, St. Louis, MO 63197-9000
Remit manual filings and/or payment for these services to the: Federal Communications Commission, Homeland Bureau Applications, P.O. Box 979092, St. Louis, MO 63197-9000
(c) Applicants in the Media Services for first-come, first-served construction permits will be entitled to a refund of the fee, if, within fifteen days of the issuance of a Public Notice indicating there is a previously filed pending application for the same vacant channel, such applicant notifies the Commission that they no longer wish their application to remain on file behind the first applicant and any other applicants filed before his or her application, and the applicant specifically requests a refund of the fee paid and dismissal of his or her application.
Federal Communications Commission.
Final rule.
In this document, the Federal Communications Commission (Commission or FCC) adopts additional measures for domestic implementation of Automatic Identification Systems (AIS), an advanced marine vessel tracking and navigation technology that can significantly enhance our Nation's homeland security as well as maritime safety. Specifically, in the
Effective March 2, 2009 except for § 80.231, which contains new information collection requirements, that have not been approved by OMB. The Federal Communications Commission will publish a document in the
Jeffrey Tobias,
This is a summary of the Federal Communications Commission's
1. In this
2. Many commenters argue that Channel 87B should be designated exclusively for AIS use in the inland VPCSAs for reasons independent of the need to accommodate satellite AIS. These commenters note that AIS offers great benefits as a tool to assist vessels in navigating safely on waterways within inland VPCSAs, just as it does with respect to vessels in coastal areas and on the high seas. These commenters echo RTCM's assertion, made earlier in this proceeding, that AIS can provide vessel operators with the ability to “see” around islands and bends in narrow, obstructed or winding waterways in a way that radar cannot. According to RTCM, the unique navigational benefits of AIS will be especially important for large passenger vessels, large barge tows and similar vessels that have limited maneuverability on these inland waterways.
3. Commenters assert that designation of a channel other than Channel 87B for inland AIS operations would result in many of the same problems that led the Commission to reject the use of a channel or channels other than Channel 87B for AIS in the maritime VPCSAs,
4. Most commenters also believe that non-AIS operations should be prohibited on Channel 87B in the inland VPCSAs in order to protect the integrity of AIS operations not only in the inland VPCSAs, but also in the maritime VPCSAs and even in international waters. NTIA contends that the threat of co-channel interference to AIS from non-AIS transmissions on Channel 87B in inland VPCSAs is such that the Commission's main objective in this proceeding—to ensure that AIS is deployed widely, quickly, reliably, and cost-effectively, and in a manner that will maximize its capabilities—“cannot be fully attained unless the Commission designates AIS Channel 87B on a nationwide basis.” Commenters note, in this regard, that, non-AIS transmissions on Channel 87B from transmitters located within inland VPCSAs would cause interference to AIS transmissions, even on the high seas, due to atmospheric “ducting,” which can cause VHF signals to be received several hundred miles away. Even relatively distant non-AIS transmissions on Channel 87B could therefore interfere with and degrade AIS operations, reducing the effectiveness of AIS for homeland security as well as navigational safety.
5. MariTEL disputes the other commenters' arguments that non-AIS operations on Channel 87B, even in inland VPCSAs, will cause interference to AIS operations. MariTEL contends that the Commission previously considered and rejected similar arguments in permitting the use of VPC spectrum for land mobile operations pursuant to waivers. In those waiver decisions, according to MariTEL, the Commission determined that the use of VPC channels for maritime communications would not be compromised if land mobile use of the channels occurred sufficiently distant from the coast and navigable waterways. This argument overlooks the fact that the referenced decisions by the Wireless Telecommunications Bureau's former Public Safety and Critical Infrastructure Division did not permit land mobile use of Channel 87B, and expressly conditioned the non-maritime use of the frequencies on there being no harmful interference to current or future marine communications, including but not limited to AIS. In addition, the waivers granted in those cases were of limited geographic scope. The Commission therefore is not persuaded that those waiver decisions contradict the consensus view of the commenters other than MariTEL that non-AIS operations in inland VPCSAs can cause harmful interference to co-channel AIS communications, or that these decisions otherwise undermine the rationale for a nationwide designation of Channel 87B for AIS. The Commission therefore concludes that the public interest in homeland security and maritime safety would best be served by prohibiting non-AIS operations on Channel 87B throughout the Nation in order to protect the integrity of terrestrial (
6. In addition, the Commission concludes that non-AIS operations on Channel 87B would likely cause interference to satellite AIS communications. NTIA says that “[p]reliminary reports demonstrate that, with specific configurations, it is possible for land-based stations reliably to receive AIS signals from approximately 350 nautical miles.” The Maritime Transportation and Security Act of 2002 (MTSA), however, requires the Coast Guard to develop long-range tracking capabilities, and the Coast Guard's goal in furtherance of that mandate is to extend AIS coverage to two thousand nautical miles from the United States shoreline. NTIA is therefore exploring the possibility of using a low earth orbit communications satellite system to receive, process and relay AIS data, and has contracted with ORBCOMM, a mobile satellite service licensee, to evaluate satellite detection of AIS signals. The consensus of the commenters is that satellite AIS, if it proves feasible, will offer significant advantages over terrestrial AIS by, for example, expanding vessel tracking capabilities to encompass areas of the high seas well beyond the reach of non-satellite AIS.
7. NTIA and other commenters argue that the Commission should bar non-AIS transmissions on Channel 87B, even in inland areas, in order to avoid disruptions to satellite reception of AIS signals, which could, as ORBCOMM
8. MariTEL argues that the Commission should not designate Channel 87B for AIS in the inland VPCSAs as an accommodation to satellite AIS because “there is no evidence that space-based monitoring will provide the Coast Guard with any more information than it would otherwise receive from terrestrial monitoring,” and because, even if such space-based monitoring of AIS transmissions on Channel 87B is deemed beneficial, satellite AIS can co-exist with non-AIS operations on Channel 87B in inland VPCSAs. The Commission finds neither argument to be convincing. MariTEL does not dispute that satellite AIS can greatly enlarge the distance at which AIS transmissions can be received and relayed. In addition, MariTEL's argument that an AIS satellite should be able to distinguish land mobile radio transmissions on Channel 87B in inland VPCSAs from AIS transmissions on the channel elsewhere fails to effectively address the comments submitted by the entities responsible for implementing satellite AIS indicating that it is not currently possible to filter out the non-AIS transmissions, and that those non-AIS transmissions would likely degrade satellite AIS reception, even with respect to AIS transmissions from vessels far from shore. The Commission therefore concludes that non-AIS operations on Channel 87B would likely need to be terminated if satellite AIS proves feasible and is fully implemented.
9. In sum, the Commission agrees with commenters such as NTIA that “[t]here are compelling safety and national security reasons to designate Channel 87B for AIS on a nationwide basis.” Because the desirability of deploying AIS in coastal and international waters applies equally to inland rivers and lakes, the optimization of the domestic AIS network clearly requires the designation of Channels 87B and 88B for inland AIS, and permitting any non-AIS uses of Channel 87B anywhere in the Nation would compromise the integrity of the domestic, and by extension the global, AIS network. The Commission also finds that implementation of satellite AIS would serve the public interest, and that clearing Channel 87B of non-AIS operations would be necessary to maximize the effectiveness of satellite AIS operations
10. As a consequence of its designation of Channel 87B for AIS in the inland VPCSAs, the Commission must establish a framework for clearing the channel of non-AIS operations. In the
11. With respect to geographic licensees in the inland VPCSAs, the Commission noted earlier in this proceeding that two duplex channel pairs in the VHF maritime band have been set aside in each inland VPCSA as public safety interoperability channels. Specifically, Channel 25 (157.250/161.850 MHz) is set aside in every inland VPCSA, and either Channel 84 (157.225/161.825 MHz) or Channel 85 (157.275/161.875 MHz) is also set aside in each inland VPCSA. The Commission's ULS database indicates that only four entities are currently licensed pursuant to the set-aside. The Commission noted earlier in this proceeding that it had designated significant additional spectrum for public safety interoperability, in the VHF band and elsewhere, in the years following the set-aside of these VPC channels for that purpose, and it requested comment as to whether, in the event it designated Channel 87B for exclusive AIS use nationwide, any of these set-aside channels should be redesignated for use by inland VPCSA licensees.
12. In light of its determination to redesignate Channel 87B for exclusive AIS use in those VPCSAs, the Commission finds that it is appropriate to redesignate one of the public safety set-aside channel pairs in each inland VPCSA for use by inland VPCSA licensees. The only commenters addressing this issue—MariTEL, PacifiCorp, and RTCM—all favor redesignation of the channels, at least in the absence of any showing that they are needed for public safety interoperability communications. MariTEL argues that “equity demands nothing less.” MariTEL also suggests that giving inland VPCSA licensees replacement spectrum would make them “whole” for the loss of Channel 87B.
13. The Commission therefore redesignates duplex Channels 84 and 85 for VPC communications in the inland VPCSAs. (The Commission decides to make Channels 84/85 available to inland VPCSA licensees, rather than Channel 25, for several reasons. All four of the public safety licensees are licensed on Channel 25, but not all four are licensed on the other channels. In addition, Channel 25 is more useful for public safety interoperability because it is set aside throughout the inland VPCSAs. Finally, PacifiCorp, the only commenter addressing this precise issue, favors the reallocation of Channels 84 and 85, explaining that the reallocation of those channels would be more beneficial than a reallocation of Channel 25 in providing additional flexibility to inland VPCSA licensees and lessees with respect to signal strength across the border of adjacent VPCSAs.) Like incumbent site-based PLMR licensees operating on Channel 87B, site-based incumbents currently authorized on Channels 84/85 will remain authorized to operate on those
14. In order to provide a transition period for inland VPCSA geographic licensees to switch from Channel 87B to Channels 84/85, the Commission will permit inland VPCSA geographic licensees to continue to operate on Channel 87B for up to two years after the effective date of these rules, while allowing them to modify their licenses to replace Channel 87B with Channel 84 or Channel 85, as appropriate, any time after the effective date. This transition period should be ample to avoid any disruption of existing operations by inland VPCSA licensees, and should not otherwise prove onerous to the licensees. At the same time, this limited relief for existing inland VPCSA licensees should not compromise efforts to implement AIS in the United States as quickly and broadly as possible. At the end of the two-year transition period, the Commission will modify any inland VPCSA licenses that were not previously modified to replace Channel 87B with Channel 84 or Channel 85, as appropriate.
15. In the
16. Almost all of the commenters addressing this question believe that private sector entities should not be licensed to operate AIS base stations. NTIA states that control of AIS base stations is “an inherently federal government function.” According to NTIA, AIS base stations control all aspects of the AIS network, and can override certain shipborne AIS functions. It explains, “Base stations manage the AIS VHF Data Link by managing communications traffic on AIS through various means to provide for the safety of navigation, to obtain information necessary for VTS [Vessel Traffic Services] and national security purposes, to transmit safety related messages, and to serve as an aid to navigation.” RTCM adds, “This power of AIS Base Stations to affect the operating characteristics of AIS systems should only be available to federal agencies with responsibility for navigational safety and security.”
17. Alone among the commenters, MariTEL asserts that AIS base stations should also be permitted to conduct commercial operations. MariTEL also argues that a determination not to permit private sector entities to be licensed for AIS base stations means that Channel 87B will in fact have been reallocated for exclusive Federal use, not the shared Federal/non-Federal use to which the Commission said the channel was being reallocated in the
18. The Commission agrees with NTIA and the other commenters who argue that the responsibilities of operating AIS base stations should be undertaken only by Federal entities. AIS base stations will query and send commands to vessels. They will have the capability of overriding certain shipborne AIS functions through remote control. They will serve as aids to navigation, in a fashion similar to lighthouses. They will be responsible for maritime traffic management. Given the critical role played by AIS base stations in the global AIS network, it would be inappropriate to permit private sector entities, or even state or local government entities, to operate such stations in the United States. Permitting non-Federal entities to control AIS base stations could potentially jeopardize maritime domain awareness and maritime safety by diffusing responsibility and accountability for AIS base station operations.
19. It follows from this determination—that only Federal entities should operate AIS base stations—that the Commission should not promulgate rules for the licensing and operation of AIS base stations. The Commission is statutorily prohibited from licensing Federal Government radio stations. There is likewise no reason for the Commission to adopt rules to govern the certification of AIS base station equipment, because the Commission plays no role in certifying equipment for Federal Government stations. Although most commenters favor the international standard, IEC 62320-1, as the basis for equipment certification rules for AIS base stations, the comments do not account for the fact that radiofrequency equipment used in Federal Government radio stations is subject to certification by NTIA, not the Commission. In any event, the Commission has no reason to expect that the Federal Government will employ AIS base station equipment that is not compatible with the international standards. The Commission therefore declines to adopt any rules pertaining to the licensing, operation, or certification of equipment for AIS base stations.
20. The final set of issues presented in the
21. The commenters addressing this issue generally favor the Commission's proposal to incorporate by reference IEC 62287-1 as the standard for certifying Class B AIS equipment under part 80. As ACR Electronics explains, the incorporation by reference of IEC 62287-1 is the option most consistent with the paramount goals of this proceeding to facilitate speedy and widespread deployment of AIS equipment. Given that, as ACR Electronics also notes, there currently is no alternative basis for certifying Class B AIS equipment, rejection of IEC 62287-1 as the standard for certifying Class B AIS devices would necessitate the development of a different standard, which would result in a substantial and unacceptable additional delay before Commission certification of Class B AIS devices could begin. Further, reliance on the existing IEC standard will reduce the cost of Class B AIS devices, and thus promote voluntary AIS carriage. It will also moot any concerns regarding interoperability of Class B AIS devices both domestically and on a worldwide basis.
22. The Commission disagrees with MariTEL's contention that the Commission should delay certifying Class B AIS equipment until it determines whether IEC 62287-1 ensures that Class B AIS devices do not cause interference to VPC operations in adjacent spectrum. The Commission already has determined, after reviewing an extensive record that included separate technical studies submitted by MariTEL and NTIA, that “the interference impact of wideband simplex AIS on VPC operations can be effectively mitigated through commercially reasonable means,” and MariTEL has not adduced any evidence to suggest that Class B AIS devices would pose a greater interference threat to VPC operations than Class A AIS devices, or that adopting rules for the certification of Class B AIS devices otherwise requires revisiting that earlier determination. The Commission finds, in sum, that certification of Class B AIS equipment in accordance with the established international standard for such equipment would serve the public interest for the same reasons that underlie the Commission's earlier determination to certify Class A AIS equipment in accordance with the established Class A international standard. The Commission therefore amends our rules as proposed to incorporate by reference IEC 62287-1 as the standard for certifying Class B AIS equipment under Part 80.
23. The Commission also agrees in principle with those commenters who believe that the Commission should adopt additional measures, beyond reliance on IEC 62287-1, to ensure the accuracy of MMSIs and other static data programmed into Class B AIS devices. The Commission has reviewed the proposals to that end in the record, some of which are very detailed and extensive. As discussed below, the Commission adopts three measures to provide better assurance that Class B AIS devices will be programmed with the correct static data, and in particular the correct MMSI. None of these measures conflicts with IEC 62287-1, and none should be burdensome for either equipment manufacturers or end users. It is unnecessary, and might be counterproductive, to prescribe more complicated processes, as some comments contemplate.
24. First, as urged by NTIA, the Commission prohibits any person from knowingly entering an incorrect MMSI or other static data in a Class B AIS device. Although this is a very basic measure, it ensures and clarifies that the Commission may impose the full range of sanctions at its disposal for the willful or knowing entry of false data. The Commission says it would view any violations of this requirement as very serious, because the transmission of inaccurate static data could result in the misidentification of vessels, thus compromising the Coast Guard's ability to use AIS to full effect on behalf of its maritime domain awareness efforts. Second, the Commission requires that the static data, including MMSI, be entered by sellers and professional installers of Class B AIS devices, not the end users. As commenters note, IEC 62287-1 prohibits end users from altering MMSIs, once programmed in the unit, but does not prohibit end users from entering the numbers initially. Thus, this requirement would go further than IEC 62287-1 by requiring professional entry of the MMSI number at the point of sale or installation. NTIA proposes such a requirement, and it is consistent with the comments of ACR Electronics, RTCM and the Task Force asking the Commission to require persons that sell and install Class B AIS units to ensure that the appropriate static data is entered, or at least to encourage them to enter the data themselves. Third, and also as recommended by NTIA, as well as by RTCM, the Commission requires manufacturers to include a conspicuous label on Class B AIS devices explaining how to enter and confirm static data, and warning that inputting an MMSI that has not been properly assigned to the end user, or otherwise entering any improper or inaccurate static data, is prohibited. Manufacturers also will be required to include this information in the user's manual. As RTCM notes, IEC 62287-1 contains only minimal guidance on the contents of manuals and user instructions, so adoption of this requirement does not conflict with the standard. NTIA believes that these three measures together provide a significant safeguard to ensure that the static data transmitted from Class B AIS devices, particularly MMSIs, are accurate and reliable. The Commission therefore adopts these measures. The Commission also adopts its proposal, unopposed by any commenter, that applicants for Commission certification of a Class B AIS device first obtain Coast Guard certification of the device, consistent with the Commission's procedures for Class A AIS devices.
25. Finally, the Commission notes that, while the
26. This document contains new information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the Office of Management and Budget (OMB) for review under Section 3507(d) of the
27. In this present document, we have assessed the effects of establishing labeling requirements for manufacturers of Class B AIS devices, and find that the labeling requirements adopted herein would not impose an undue burden or excessive cost on such manufacturers, including those that have fewer than 25 employees. We also find that the public interest in ensuring that Class B AIS devices transmit accurate static data, including the correct MMSI number, which is the underlying purpose of the labeling requirements, outweighs the incremental compliance cost on manufacturers, including those that have 25 or fewer employees.
28. The Commission will send a copy of this
29. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the
30. The rules adopted in the
31. No comments were submitted specifically in response to the IRFA. However, one of the commenters, MariTEL, Inc. (MariTEL), contends that the Commission should not designate Channel 87B for AIS in inland VPCSAs, should not adopt rules based on international standards for the certification of AIS base station equipment, and should not authorize Class B AIS devices pursuant to the international standards, because such measures would cause interference to VHF Public Coast (VPC) stations operating on adjacent channels. As discussed in detail in Section E of this FRFA, we have considered the potential economic impact on small entities of these rules, and we have considered alternatives that would reduce the potential economic impact on small entities of the rules enacted herein, regardless of whether the potential economic impact was discussed in any comments.
32. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA).
33. Small businesses in the aviation and marine radio services use a very high frequency (VHF) marine or aircraft radio and, as appropriate, an emergency position-indicating radio beacon (and/or radar) or an emergency locator transmitter. The Commission has not developed a small business size standard specifically applicable to these small businesses. For purposes of this analysis, the Commission uses the SBA small business size standard for the category “Cellular and Other Wireless Telecommunications,” which is 1,500 or fewer employees. Between December 3, 1998 and December 14, 1998, the Commission held an auction of 42 VHF Public Coast (VPC) licenses in the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz (coast transmit) bands. For purposes of the auction, the Commission defined a “small” business as an entity that, together with controlling interests and affiliates, has average gross revenues for the preceding three years not to exceed fifteen million dollars. In addition, a “very small” business is one that, together with controlling interests and affiliates, has average gross revenues for the preceding three years not to exceed three million dollars. There are approximately 10,672 licensees in the Marine Coast Service, and the Commission estimates that almost all of them qualify as “small” businesses under the above special small business size standards.
34. The rule amendments adopted in the
35. The RFA requires an agency to describe any significant alternatives that it has considered in developing its approach, which may include the following four alternatives (among others): “(1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.”
36. In the IRFA for the
37. In the
38. Finally, the Commission requested comment in the
39. Although the Commission received no comments specifically addressed to the IRFA for the
40. In order to avoid the disruption of VPC station operations in inland VPCSAs that might otherwise stem from the designation of Channel 87B for exclusive AIS use in the inland VPCSAs, the Commission has provided the licensees of those stations with both a significant transitional period to adjust to the loss of Channel 87B, as well as a replacement channel. Specifically, the Commission has provided that site-based licensees operating on Channel 87B in inland areas may continue to use that channel for fifteen years after the effective date of these rule changes, and that geographic licensees operating on Channel 87B in inland VPCSAs may continue to operate on the channel for a period of two years following the effective date of these rule amendments. In addition, in each inland VPCSA, the Commission is making a duplex channel pair, either Channel 84 or Channel 85, depending on the inland VPCSA, available for VPC use by the geographic licensee as a replacement for Channel 87B. Channel 84/85 will be made available immediately upon the effective date of these rule amendments; thus, licensees will be able to operate on either Channel 84/85 or Channel 87B for a significant period of time, allowing migration of existing users of Channel 87B to alternative spectrum without disruption of existing operations on Channel 87B. In addition, the only commenter opposing the designation of Channel 87B for AIS use in inland VPCSAs has indicated that the redesignation of Channel 84/85 for VPC use could suffice to compensate licensees for the loss of use of Channel 87B.
41. The Commission has determined not to adopt rules for the certification of AIS base station equipment, or for the licensing and operation of AIS base stations, because AIS base stations perform critical maritime safety and homeland security functions, and should therefore be controlled only by Federal entities. Accordingly, there is no present need to further consider how such rules might affect small entities.
42. In addition, the Commission continues to find, for the reasons stated in the IRFA accompanying the
43. Finally, the Commission has also determined in the
44. The Commission will send a copy of this
Communications equipment.
Incorporation by reference, Communications equipment, Marine safety, Radio, Vessels.
Communications equipment, Radio.
47 U.S.C. 154, 302a, 303, and 336, unless otherwise noted.
US399 The frequency bands 161.9625-161.9875 MHz (AIS 1 with its center frequency at 161.975 MHz) and 162.0125-162.0375 MHz (AIS 2 with its center frequency at 162.025 MHz) are allocated to the maritime mobile service on a primary basis for Federal Government and non-Federal Government use, and shall be used exclusively for Automatic Identification Systems (AIS). However, in VHF Public Coast Service Areas (VPCSAs) 1-9, site-based stations licensed prior to November 13, 2006, may continue to operate on a co-primary basis in the frequency band 161.9625-161.9875 MHz until expiration of the license term for licenses in active status as of November 13, 2006. Also, in VPCSAs 10-42, site-based stations licensed in the frequency band 161.9625-161.9875 MHz prior to March 2, 2009 may remain authorized to operate on a co-primary basis in that frequency band until March 4, 2024, and geographical stations licensed in the frequency band 161.9625-161.9875 MHz prior to March 2, 2009 may continue to operate on a co-primary basis in that frequency band until March 2, 2011.
Secs. 4, 303, 307(e), 309, and 332, 48 Stat. 1066, 1082, as amended; 47 U.S.C. 154, 303, 307(e), 309, and 332, unless otherwise noted. Interpret or apply 48 Stat. 1064-1068, 1081-1105, as amended; 47 U.S.C. 151-155, 301-609; 3 UST 3450, 3 UST 4726, 12 UST 2377.
(a) Class B Automatic Identification System (AIS) equipment must meet the technical requirements of the International Electro-technical Commission (IEC) 62287-1 International Standard, “Maritime navigation and radio communication equipment and systems—Class B shipborne equipment of the Automatic Identification System—Part 1: Carrier—sense time division multiple access (CSTDMA) techniques,” First Edition 2006-03. The Director of the Federal Register approves this incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of this standard can be inspected at the Federal Communications Commission, 445 12th Street, SW., Washington, DC (Reference Information Center), call 1-888-225-5322 or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to:
(b) In addition to the labels or other identifying information required under §§ 2.925 and 2.926 of this chapter, each Class B AIS device shall include a conspicuous label that includes: Instructions on how to accurately enter into the device and confirm static data pertaining to the vessel in which the device is or will be installed; and the following statement: “WARNING: It is a violation of the rules of the Federal Communications Commission to input an MMSI that has not been properly assigned to the end user, or to otherwise input any inaccurate data in this
(c) Prior to submitting a certification application for a Class B AIS device, the following information must be submitted in duplicate to the Commandant (CG-521), U.S. Coast Guard, 2100 2nd Street, SW., Washington, DC 20593-0001:
(1) The name of the manufacturer or grantee and the model number of the AIS device; and
(2) Copies of the test report and test data obtained from the test facility showing that the device complies with the environmental and operational requirements identified in IEC 62287-1.
(d) After reviewing the information described in paragraph (c) of this section, the U.S. Coast Guard will issue a letter stating whether the AIS device satisfies all of the requirements specified in IEC 62287-1.
(e) A certification application for an AIS device submitted to the Commission must contain a copy of the U.S. Coast Guard letter stating that the device satisfies all of the requirements specified in IEC 62287-1, a copy of the technical test data, and the instruction manual(s).
(a) Prior to submitting a certification application for a Class A AIS device, the following information must be submitted in duplicate to the Commandant (G-PSE), U.S. Coast Guard, 2100 2nd Street, SW., Washington, DC 20593-0001:
(c)
(ii) Service areas in the marine VHF 156-162 MHz band are VHF Public Coast Service Areas (VPCSAs). As listed in the table in this paragraph, VPCSAs are based on, and composed of one or more of, the U.S. Department of Commerce's 172 Economic Areas (EAs).
(3) VPCSA licensees may not operate on Channel 228B (162.0125 MHz), which is available for use in the Coast Guard's Ports and Waterways Safety System (PAWSS). In addition, VPCSA licensees may not operate on Channel AIS 1 (161.975 MHz) or Channel AIS 2 (162.025 MHz), which are designated exclusively for Automatic Identification Systems (AIS), except to receive AIS communications to the same extent, and subject to the same limitations, as other shore stations participating in AIS.
Automatic Identification Systems (AIS) are a maritime broadcast service. The simplex channels at 161.975 MHz (AIS 1) and 162.025 MHz (AIS 2), each with a 25 kHz bandwidth, may be authorized only for AIS. In accordance with the Maritime Transportation Security Act, the United States Coast Guard regulates AIS carriage requirements for non-Federal Government ships. These requirements are codified at 33 CFR 164.46, 401.20.
(c) * * *
(12) * * *
(vi) With respect to Class B AIS devices only, IEC 62287-1 International Standard, “Maritime navigation and radio communication equipment and systems—Class B shipborne equipment of the Automatic Identification System—part 1: Carrier—sense time division multiple access (CSTDMA) techniques,” First Edition 2006-03 (incorporated by reference at § 80.231).
The authority citation for part 90 continues to read as follows:
Secs. 4(i), 11, 303(g), 303(r) and 332(c)(7) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 161, 303(g), 303(r), 332(c)(7).
(g) Former public correspondence working channel in the maritime VHF (156-162 MHz) band allocated for public safety use in 33 inland Economic Areas.
(2) In VHF Public Coast Service Areas (VPCSAs) 10-42, the duplex channel pair 157.250 MHz/161.850 MHz (VHF Maritime Channel 25) is allocated for public safety use by entities eligible for licensing under paragraph (a) of this section, and is designated primarily for the purpose of interoperability communications.
(i) The channel pair 157.250 MHz/161.850 MHz was formerly allocated and assigned (under § 80.371(c) (1997) of this chapter) as a public correspondence working channel in the maritime VHF 156-162 MHz band, and was also shared (under former § 90.283 (1997) of this chapter) with private land mobile stations, including grandfathered public safety licensees. Thus, there are grandfathered licensees nationwide (maritime and private land mobile radio stations, including by rule waiver) operating on this channel both inside and outside of VPCSAs 10-42.
(ii) The channel pairs 157.225 MHz/161.825 MHz and 157.275 MHz/161.875 MHz were formerly allocated and assigned under this section as public safety interoperability channels but were reallocated for assignment as VHF public coast station channels under § 80.371(c) of this chapter. Public safety operations licensed on these channels as of March 2, 2009 or licensed pursuant to an application filed prior to September 19, 2008, may remain authorized to operate on the channels on a primary basis until March 4, 2024.
(3) * * *
(i) Provide evidence of frequency coordination in accordance with § 90.175. Public safety coordinators except the Special Emergency Coordinator are certified to coordinate applications for the channel pair 157.250 MHz/161.850 MHz (
(ii) Station power, as measured at the output terminals of the transmitter, must not exceed 50 Watts for base stations and 20 Watts for mobile stations, except in accordance with the provisions of paragraph (g)(3)(vi) of this section. Antenna height (HAAT) must not exceed 122 meters (400 feet) for base stations and 4.5 meters (15 feet) for mobile stations, except in accordance with paragraph (g)(3)(vi) of this section. Antenna height (HAAT) must not exceed 122 meters (400 feet) for base stations and 4.5 meters (15 feet) for mobile stations, except in accordance with paragraph (g)(3)(vi) of this section. Such base and mobile channels shall not be operated on board aircraft in flight.
(iii) * * *
(B) Protect stations described in paragraph (g)(2)(i) of this section, by frequency coordination in accordance § 90.175 of this part.
(D)
(vi) Applicants seeking to be licensed for stations exceeding the power/antenna height limits of the table in paragraph (g)(3)(iv) of this section must request a waiver of that paragraph and must submit with their application an interference analysis, based upon an appropriate, generally-accepted terrain-based propagation model, that shows that co-channel protected entities, described in paragraph (g)(3)(iii) of this section, would receive the same or greater interference protection than the relevant criteria outlined in paragraph (g)(3)(iii) of this section.
Forest Service, Agriculture; Fish and Wildlife Service, Interior.
Proposed rule.
This proposed rule would establish regulations for hunting and trapping seasons, harvest limits, methods, and means related to taking of wildlife for subsistence uses during the 2010-11 and 2011-12 regulatory years. The Federal Subsistence Board completes the biennial process of revising subsistence hunting and trapping regulations in even-numbered years and subsistence fishing and shellfish regulations in odd-numbered years; public proposal and review processes take place during the preceding year. The Board also addresses customary and traditional use determinations during the applicable biennial cycle. When final, the resulting rulemaking will replace the existing subsistence wildlife taking regulations, which expire on June 30, 2010. This rule would also amend the customary and traditional use determinations of the Federal Subsistence Board and the general regulations on subsistence taking of fish and wildlife.
•
•
• Hand delivery to the Designated Federal Official attending any of the Federal Subsistence Regional Advisory Council public meetings. See
We will post all comments on
Chair, Federal Subsistence Board, c/o U.S. Fish and Wildlife Service, Attention: Peter J. Probasco, Office of Subsistence Management; (907) 786-3888 or
Under Title VIII of the Alaska National Interest Lands Conservation Act (ANILCA) (16 U.S.C. 3111-3126), the Secretary of the Interior and the Secretary of Agriculture (Secretaries) jointly implement the Federal Subsistence Management Program. This program grants a preference for subsistence uses of fish and wildlife resources on Federal public lands and waters in Alaska. The Secretaries first published regulations to carry out this program in the
Consistent with subpart B of these regulations, the Departments established a Federal Subsistence Board to administer the Federal Subsistence Management Program. The Board is made up of:
• Chair appointed by the Secretary of the Interior with concurrence of the Secretary of Agriculture;
• Alaska Regional Director, U.S. Fish and Wildlife Service;
• Alaska Regional Director, U.S. National Park Service;
• Alaska State Director, U.S. Bureau of Land Management;
• Alaska Regional Director, U.S. Bureau of Indian Affairs; and
• Alaska Regional Forester, U.S. Forest Service.
Through the Board, these agencies participate in the development of regulations for subparts A, B, and C, which set forth the basic program, and they continue to work together on regularly revising the subpart D regulations, which, among other things, set forth specific harvest seasons and limits.
In administering the program, the Secretaries divided Alaska into 10 subsistence resource regions, each of which is represented by a Regional Council. The Regional Councils provide a forum for rural residents with personal knowledge of local conditions and resource requirements to have a meaningful role in the subsistence management of fish and wildlife on Federal public lands in Alaska. The Regional Council members represent varied geographical, cultural, and user diversity within each region.
The Regional Councils have a substantial role in reviewing this proposed rule and making recommendations for the final rule. The Federal Subsistence Board (Board), through the Regional Councils, will hold meetings on this proposed rule at the following locations in Alaska, on the following dates:
During May 2009, the written proposals to change subpart D hunting and trapping regulations and subpart C customary and traditional use determinations will be compiled and distributed for public review. During the 30-day public comment period, which is presently scheduled to end on June 18, 2009, written public comments will be accepted on the distributed proposals.
The Board, through the Regional Councils, will hold a second series of meetings in August through October 2009, to receive comments on specific proposals and to develop recommendations to the Board at the following locations in Alaska, on the following dates:
A notice will be published of specific dates, times, and meeting locations in local and statewide newspapers prior to both series of meetings. Locations and dates may change based on weather or local circumstances. The amount of work on each Regional Council's agenda determines the length of each Regional Council meeting.
The Board will discuss and evaluate proposed changes to the subsistence management regulations during a public meeting scheduled to be held in Anchorage, AK, on January 12, 2010. The Council Chairs, or their designated representatives, will present their respective Councils' recommendations at the Board meeting. Additional oral testimony may be provided on specific proposals before the Board at that time. At that public meeting, the Board will deliberate and take final action on proposals received that request changes to this proposed rule.
Proposals to the Board to modify wildlife harvest regulations and customary and traditional use determinations must include the following information:
(a) Name, address, and telephone number of the requestor;
(b) Each section and/or paragraph designation in this proposed rule for which changes are suggested;
(c) A statement explaining why each change is necessary;
(d) Proposed wording changes; and
(e) Any additional information that you believe will help the Board in evaluating the proposed change.
The Board rejects proposals that fail to include the above information, or proposals that are beyond the scope of authorities in § _.24, subpart C (the regulations governing customary and traditional use determinations), and §§ _.25, and_.26, subpart D (the general and specific regulations governing the subsistence take of wildlife). During the January 12, 2010, meeting, the Board may defer review and action on some proposals to allow time for local cooperative planning efforts, or to acquire additional needed information. The Board may elect to defer taking action on any given proposal if the workload of staff, Regional Councils, or the Board becomes excessive. These deferrals may be based on recommendations by the affected Regional Council(s) or staff members, or on the basis of the Board's intention to do least harm to the subsistence user and the resource involved. The Board may consider and act on alternatives that address the intent of a proposal while differing in approach.
Subpart D regulations are subject to periodic review and revision. The Federal Subsistence Board completes the biennial process of revising subsistence hunting and trapping regulations in even-numbered years and subsistence fishing and shellfish regulations in odd-numbered years; public proposal and review processes take place during the preceding year. The Board also addresses customary and traditional use determinations during the applicable biennial cycle.
The text of the 2008-10 subparts C and D final rule published June 24, 2008
A Draft Environmental Impact Statement (DEIS) that described four alternatives for developing a Federal Subsistence Management Program was distributed for public comment on October 7, 1991. The Final Environmental Impact Statement (FEIS) was published on February 28, 1992. The Record of Decision (ROD) on Subsistence Management for Federal Public Lands in Alaska was signed April 6, 1992. The selected alternative in the FEIS (Alternative IV) defined the administrative framework of an annual regulatory cycle for subsistence regulations.
A 1997 environmental assessment dealt with the expansion of Federal jurisdiction over fisheries and is available at the office listed under
An ANILCA Section 810 analysis was completed as part of the FEIS process on the Federal Subsistence Management Program. The intent of all Federal subsistence regulations is to accord subsistence uses of fish and wildlife on public lands a priority over the taking of fish and wildlife on such lands for other purposes, unless restriction is necessary to conserve healthy fish and wildlife populations. The final section 810 analysis determination appeared in the April 6, 1992, ROD and concluded that the Federal Subsistence Management Program, under Alternative IV with an annual process for setting subsistence regulations, may have some local impacts on subsistence uses, but will not likely restrict subsistence uses significantly.
During the subsequent environmental assessment process for extending fisheries jurisdiction, an evaluation of the effects of this rule was conducted in accordance with section 810. That evaluation also supported the Secretaries' determination that the rule will not reach the “may significantly restrict” threshold that would require notice and hearings under ANILCA section 810(a).
The information collection requirements contained in this rule have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
The Office of Management and Budget (OMB) has determined that this rule is not significant and has not reviewed this rule under Executive Order 12866. OMB bases its determination upon the following four criteria:
(a) Whether the rule will have an annual effect of $100 million or more on the economy or adversely affect an economic sector, productivity, jobs, the environment, or other units of the government.
(b) Whether the rule will create inconsistencies with other agencies' actions.
(c) Whether the rule will materially affect entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients.
(d) Whether the rule raises novel legal or policy issues.
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601
Under the Small Business Regulatory Enforcement Fairness Act (5 U.S.C. 801
Title VIII of ANILCA requires the Secretaries to administer a subsistence priority on public lands. The scope of this program is limited by definition to certain public lands. Likewise, these regulations have no potential takings of private property implications as defined by Executive Order 12630.
The Secretaries have determined and certify pursuant to the Unfunded Mandates Reform Act, 2 U.S.C. 1502
The Secretaries have determined that these regulations meet the applicable standards provided in Sections 3(a) and 3(b)(2) of Executive Order 12988, regarding civil justice reform.
In accordance with Executive Order 13132, the rule does not have sufficient Federalism implications to warrant the preparation of a Federalism Assessment. Title VIII of ANILCA precludes the State from exercising subsistence management authority over fish and wildlife resources on Federal lands unless it meets certain requirements.
In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), Executive Order 13175, and 512 DM 2, we have evaluated possible effects on Federally recognized Indian tribes and have
On May 18, 2001, the President issued Executive Order 13211 on regulations that significantly affect energy supply, distribution, or use. This Executive Order requires agencies to prepare Statements of Energy Effects when undertaking certain actions. This rule is not a significant regulatory action under Executive Order 13211, affecting energy supply, distribution, or use, and no Statement of Energy Effects is required.
Theo Matuskowitz drafted these regulations under the guidance of Peter J. Probasco of the Office of Subsistence Management, Alaska Regional Office, U.S. Fish and Wildlife Service, Anchorage, Alaska. Additional assistance was provided by:
• Daniel Sharp, Alaska State Office, Bureau of Land Management;
• Sandy Rabinowitch and Nancy Swanton, Alaska Regional Office, National Park Service;
• Drs. Warren Eastland and Glenn Chen, Alaska Regional Office, Bureau of Indian Affairs;
• Jerry Berg and Carl Jack, Alaska Regional Office, U.S. Fish and Wildlife Service; and
• Steve Kessler, Alaska Regional Office, U.S. Forest Service.
Administrative practice and procedure, Alaska, Fish, National forests, Public lands, Reporting and recordkeeping requirements, Wildlife.
Administrative practice and procedure, Alaska, Fish, National forests, Public lands, Reporting and recordkeeping requirements, Wildlife.
For the reasons set out in the preamble, the Federal Subsistence Board proposes to amend 36 CFR part 242 and 50 CFR part 100 for the 2010-11 and 2011-12 regulatory years. The text of the proposed rule is the same as the final rule for the 2008-09 and 2009-10 wildlife regulatory years published in the
Postal Service
Proposed rule.
In February 2009, the Postal Service will file a notice of mailing services price adjustments with the Postal Regulatory Commission, effective in May 2009. This proposed rule provides the mailing standards that would accompany new prices in 2009 and 2010.
We must receive your comments on or before March 2, 2009.
Mail or deliver written comments to the Manager, Mailing Standards, U.S. Postal Service, 475 L'Enfant Plaza, SW., Room 3436, Washington, DC 20260-3436. You may inspect and photocopy all written comments at USPS Headquarters Library, 475 L'Enfant Plaza, SW., 11th Floor N, Washington, DC between 9 a.m. and 4 p.m., Monday through Friday. E-mail comments, containing the name and address of the commenter, may be sent to:
Bill Chatfield, 202-268-7278.
The Postal Service's proposed rule includes: Several mail classification changes, modifications to mailpiece characteristics, and changes in classification terminology. This proposed rule contains the revisions to
We think it is vital to share proposed modifications to mailing standards as far in advance as possible; therefore, included are additional proposed revisions scheduled for implementation in May 2010. We summarize the revisions by shape for 2009 and 2010, and provide proposed changes to the mailing standards in the DMM. We invite your comments on the proposed standards.
In May 2009, we propose alignment of standards for commercial machinable and automation letters so all machinable letters have the physical characteristics required of automation letters, with the exception of a qualifying barcode. Commercial letters that are not machinable are mailed as nonmachinable letters.
We propose a new minimum 0.009-inch thickness standard for automation and machinable letters.
We propose new static charge and the coefficient of friction standards for automation and machinable letters to ensure they do not produce excessive static charge and can be handled efficiently when inducted and removed from processing equipment.
Our proposal revises the list of nonmachinable characteristics. We clarify that letters with nonpaper surfaces, and letters with keys, coins or similar objects that are either loose or thick enough to make a letter nonuniform in thickness, render letters nonmachinable. Letters that do not meet the “automation-compatible” physical standards in DMM 201.3.0 would be considered nonmachinable letters.
We propose to allow optional sortation of First-Class Mail and Standard Mail automation letters and Standard Mail machinable letters to all applicable sort levels, with prices matching the level of sortation chosen.
We propose to revise standards for window envelopes on letter-size mailpieces, restricting the size of an address block window to extend no closer to the bottom edge than
Effective in May 2009, we plan to extend the eligibility for automation prices to certain flat-size mailpieces that are not able to meet the flexibility standards in DMM 301.1.3, but that are able to demonstrate flats machine compatibility through a Pricing and Classification Service Center (PCSC)-administered testing process. Some flat-
We propose that the polywrap standards in DMM 301.3.3, currently applicable only to automation flats, be extended to all flat-size mailpieces using polywrap including saturation carrier route flats. The use of automation-compatible polywrap on all flat-size mailpieces improves mail processing efficiency and applies standardization and consistency for mailers of polywrapped flats. We also propose to redefine measurement of height and length dimensions by including polywrap selvage when measuring for maximum dimensions because selvage that extends beyond the maximum height or length may interfere with efficient processing. We would not include selvage when measuring for minimum dimensions, however, because the selvage is not substantial enough for it to be considered part of a uniformly thick flat. Polywrap products approved for flats are available from a number of independent vendors and the approval process for these products is described in DMM 301 and on the USPS
Effective in May 2009, we propose to extend the deflection standards, currently applicable to automation flats, to all flat-size mailpieces, except those mailed at saturation carrier route prices. The deflection standards change to allow one inch less of vertical deflection (droop) than is currently allowed. We propose to eliminate the current exception for oblong flats (those with a bound edge on the shorter side) so all flats would be tested with the length placed perpendicular to the edge of a flat surface. The broader application and revision of deflection standards will improve processing efficiencies within USPS systems, assuring better machinability of flat-size mailpieces.
We propose to simplify mail preparation by eliminating the bundling requirements for First-Class Mail commercial flats. The new tray-based standards streamline mail preparation and processing and improve efficiency for this type of mail. Similar to the current tray-based preparation option for First-Class Mail flats, prices will be based on the sort level of the tray. Mailers may improve efficiency by eliminating bundling, and the minimum number of pieces per tray will be changed to 50 pieces within a tray, rather than the 90 pieces required today.
We remove definitions of irregular parcels from the mail preparation standards in DMM 465, 475, and 485, and provide references to the current definition of irregular parcels in DMM 401.
These initial changes proposed for May 2010 include modifications that enhance processing and delivery efficiency while continuing to offer mailers choices.
We propose to merge standards for nonautomation and automation flats in May 2010; requiring all machinable flats, whether or not they are barcoded, to have the same physical characteristics. The terminology would likely change to machinable, barcoded machinable, and irregular flats.
We propose new flexibility standards for May 2010. Current standards in DMM 301.1.3 describe minimum flexibility as demonstrated by “tabletop” flexibility tests. Effective May 2009, we are proposing to extend automation prices to certain flat-size mailpieces not able to meet the flexibility standards in 301.1.3, but able to demonstrate flat machine compatibility through a PCSC-administered testing process. Delivery of rigid pieces is often more costly than delivery of foldable flats. For May 2010, we propose the flexibility standards noted above, be replaced with a single flexibility standard requiring all machinable flat-size mailpieces to be foldable, parallel to the length, to a height no greater than 5 inches. Flat-size pieces failing to meet this level of flexibility may be categorized as irregular flats.
We propose to modify standards in May 2010 for all flats, except those mailed as saturation carrier route, to prevent inserts from falling out of the host flat-size mailpiece during normal sortation and delivery. We propose that loose inserts less than 75% of the size of a host mailpiece be limited to single-ply unfolded cards, when the mailpiece is not enclosed in polywrap, an envelope, or other wrapper. Allowable loose inserts should be injected well into the body of the mailpiece.
For May 2010, we propose a new “irregular flats” category. This category encompasses two types of flat-size mailpieces. One example is a flat-size piece that is machinable, but with parcel-like characteristics that affect deliverability, such as pieces with rigid contents because the pieces cannot be folded. Another type of irregular flat would be one that is foldable with favorable delivery characteristics, but is not machinable, such as flimsy pieces that are difficult to process on automation equipment.
In 2007, we created a NFM category for Standard Mail items that could not meet revised automation flats standards. In May 2010, we propose to discontinue or redefine the NFM category. Pieces that would have been mailed as NFMs can likely qualify as Standard Mail parcels. Some NFMs, with modifications, might be mailable as machinable or irregular flats in 2010.
We encourage customers to comment on the May 2010 proposed changes and hope that this notice provides the opportunity to for mailers prepare for possible operation changes ahead of the proposed May 2010 effective date.
Although we are exempt from the notice and comment requirements of the Administrative Procedure Act [5 U.S.C of 553(b), (c)] regarding proposed rulemaking by 39 U.S.C. 410(a), we invite public comments on the following proposed revisions to
Administrative practice and procedure, Postal Service.
Accordingly, 39 CFR part 111 is proposed to be amended as follows:
1. The authority citation for 39 CFR part 111 continues to read as follows:
5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 414, 416, 3001-3011, 3201-3219, 3403-3406, 3621, 3622, 3626, 3632, 3633, and 5001.
2. Revise the following sections of
A letter-size piece is nonmachinable (see 6.4) if it has one or more of the following characteristics (see 601.1.4 to determine the length, height, top, and bottom of a mailpiece):
b. Is polybagged, polywrapped, enclosed in any plastic material, or has an exterior surface made of a material that is not paper. Paper envelopes with windows prepared under 202.5.8 and 601.6.3 do not make mailpieces nonmachinable.
d. Contains items such as pens, pencils, keys, or coins that cause the thickness of the mailpiece to be uneven; or loose keys or coins or similar objects not affixed to the contents within the mailpiece. Loose items may cause a letter to be nonmailable when mailed in paper envelopes; see 601.2.3,
h. Is a self-mailer that is not prepared according to 201.3.14.1.
i. Is a booklet that is not prepared according to 201.3.14.2.
Letter-size mail is:
a. Not less than 5 inches long, 3
All pieces of First-Class Mail and Standard Mail machinable letters must meet the standards for automation-compatible letters in 201.3.0. * * *
A letter-size piece is nonmachinable if it has an exterior surface that is not made of paper or if it does not meet the standards in 201.3.0. In addition, a letter-size piece is nonmachinable if it weighs more than 3.3 ounces (up to 3.5 ounces) unless it has a barcode and is eligible for and claims automation letter prices or Standard Mail Enhanced Carrier Route letter prices.
Each letter-size piece must be rectangular (see 1.1.1) and:
c. For thickness, no more than 0.25 inch, or less than 0.009-inch thick, except for cards mailed at First-Class Mail postcard prices. Cards eligible for and mailed at postcard prices may be no more than 0.016-inch thick or less than 0.007-inch thick.
Letter-sized machinable and automation mailpieces must be made of paper material with the following characteristics:
a. Static charge of less than 2 KV when tested using test method ASTM D4470.
b. Kinetic coefficient of friction between 0.26 and 0.34 when tested as paper to same paper using test method ASTM D4917.
When the barcode is included as part of the address block:
If a window envelope is used to display the address and a barcode in the address block, the clearance between the leftmost and rightmost bars and any printing or window edge must be at least 0.125 (
When the barcode is printed in the lower right corner on an insert, a barcode window may be used to allow only the barcode to be read through the window. The barcode window must not
a.
b.
c.
d.
The following standards apply to window covers for address block windows as well as barcode windows:
a. The window cover must be made of a nontinted clear or transparent material (
b. The edges of the window cover must be securely glued to the envelope and must not extend closer than
c. Covered windows may extend to no more than
* * * Preparation sequence, tray size, and Line 1 labeling:
b.
c.
d.
* * * Preparation sequence, tray size, and labeling:
b. AADC (optional, but required for AADC price); 150-piece minimum (overflow allowed); labeling: * * *
* * * Preparation sequence, tray size, and Line 1 labeling:
b. 3-digit/scheme; optional, but required for 3-digit price (150-piece minimum, except no minimum for optional origin/entry 3-digit/scheme(s)); overflow allowed; for Line 1, use L002, Column B.
c.
d.
The length of a flat-size mailpiece is the longest dimension. The height is the dimension perpendicular to the length. When determining the maximum height or length of a flat, include any selvage of polywrap material that may enclose the piece. When determining the minimum height or length of a flat, do not include the selvage of any polywrap material that may enclose the piece.
Flat-size mailpieces must be flexible (see 1.3) and must meet maximum deflection standards. Flat-size pieces mailed at saturation carrier route prices are not required to meet these deflection standards. Test deflection as follows:
a. For pieces 10 inches or longer (see Exhibit 1.5a):
1. Place the piece on a flat surface with the length perpendicular to the edge of the surface and extend the piece 5 inches off the edge of the surface. Test square-shaped bound flats by placing the bound edge parallel to the edge. Turn the piece around and repeat the process.
2. The piece is mailable at flat prices if it does not droop more than 3 inches vertically at either end.
b. For pieces less than 10 inches long (see Exhibit 1.5b):
1. Place the piece on a flat surface with the length perpendicular to the edge of the surface and extend the piece one-half of its length off the edge of the surface. Test square-shaped bound flats by placing the bound edge parallel to the edge. Turn the piece around and repeat the process.
2. The piece is mailable at flat prices if it does not droop more than 2 inches less than the extended length. For example, a piece 8 inches long would extend 4 inches off a flat surface. It must not droop more than 2 inches vertically at either end.
Mailers using polywrap film or similar material to enclose or cover flat-size mailpieces must use a product meeting the standards in 1.6. Film approved for use under 1.6.5 must meet the specifications in Exhibit 1.6.1 as follows:
a. Films or similar coverings must meet all six properties in Exhibit 1.6.1.
b. If the address label is affixed to the outside of the polywrap, the haze property (property 2) does not apply.
c. Only products listed as approved on the USPS RIBBS Web site (
Mailers who polywrap flats must use polywrap that meets all of the properties in this exhibit.
To ensure that all polywrap manufacturers use the same criteria, the Postal Service developed specification USPS-T-3204,
a. Test each film according to procedures listed in USPS-T-3204,
Mailpieces that do not meet the standards in 1.1 through 1.6 are not eligible for flat-size prices and must pay applicable prices as follows:
a. First-Class Mail—Parcel prices.
b. Standard Mail—Not Flat-Machinable or parcel prices.
c. Bound Printed Matter—Parcel prices.
Flat-size mailpieces meeting the standards in 1.0 and 3.0, but unable to meet the minimum flexibility standards described in 1.3, are not eligible for automation prices unless the mailpieces demonstrate flats-machine compatibility. Until May 2010, rigid flat-size mailpieces in paper, polywrap or similar packaging that allows for the pieces to be grasped and inducted into USPS flat-sorting equipment may qualify for automation prices when meeting the following standards:
a. Mailpieces must be enclosed in envelopes or similar packaging capable of withstanding normal processing on USPS flat-sorting equipment.
b. Mailpieces must be approved for automation flats prices by the USPS. Mailers seeking approval for mailpieces under this standard must contact the Pricing and Classification Service Center (PCSC) for instructions on submitting sample mailpieces for testing (see 608.8.0 for address). Mailpieces having a previous approval from the PCSC for automation flats prices, granted after May 2007, are not required to be resubmitted for a new approval. These and all other approvals granted under 3.3 expire in May 2010.
c. Mailpieces approved for automation flats pricing under this standard must print the endorsement “Automation Flat” directly under the postage imprint.
It is recommended that all automation flats be foldable to a height no greater than 5 inches. Effective May 2010, flat-size automation mailpieces must be foldable, parallel to the length, to a height no greater than 5 inches (in addition to meeting the flexibility standards in 1.3). With a postal employee observing, customers may demonstrate the flexibility, according to these standards, of their own mailpieces. The employee does not then need to perform the test.
When the barcode is included as part of the address block:
d. * * * Window envelopes also must meet the specifications in 601.6.3.
All pieces in a First-Class Mail automation price mailing must:
e. Bear an accurate barcode meeting the standards in 708.4.0, a delivery point barcode (DPBC), or an Intelligent Mail barcode with a delivery point routing code, either on the piece or on an insert showing through a barcode window.
Automation prices apply to each piece that is sorted under 335.6.5,
a. Groups of 50 or more pieces in 5-digit trays qualify for the 5-digit price. Preparation to qualify for the 5-digit price is optional and need not be done for all 5-digit destinations.
b. Groups of 50 or more pieces in 3-digit trays qualify for the 3-digit price.
c. Pieces in origin 3-digit trays and groups of 50 or more pieces in ADC trays qualify for the ADC price.
Mailings are defined as:
b. The types of First-Class Mail listed below must not be part of the same mailing despite being in the same processing category (see 705.9.0,
1. Automation price and any other type of mail, except under 705.9.0.
2. Presorted price and any other type of mail, except under 705.9.0.
3. Single-piece price and any other type of mail.
4. Machinable and nonmachinable pieces.
For purposes of preparing mail:
b. For purposes of preparing automation flats, a full flat tray is one that contains at least 50 pieces of automation flats or one that is physically full. For nonautomation flats, a full flat tray is one that is physically full. A physically full tray contains at least a single stack of mail lying flat on the bottom of the tray and filling the tray to the bottom of the handholds. Before additional trays for the same destination are prepared, trays must be filled with additional available pieces (up to the reasonable capacity of the tray).
g. An instruction to group pieces means the pieces are to be sorted as a unit (as if bundled) but not actually secured into a bundle.
h. A
All flat tray preparation is subject to these standards:
f. For automation mailings, one less-than-full overflow tray may be prepared for a presort destination when the total number of pieces for that destination meets the minimum for preparation of the tray level, and when one or more full trays for that destination are also prepared.
g. For automation mailings, if the total number of pieces for a presort destination meets or exceeds the minimum number of pieces required to prepare a tray for that destination, but the total volume does not physically fill a single tray, then the mail for that presort destination may be prepared in a less-than-full tray.
h. Pieces prepared as automation flats do not have to be grouped by 3-digit ZIP Code prefix in ADC trays or by ADC in mixed ADC trays if the mailing is prepared using an MLOCR/barcode sorter and standardized documentation is submitted.
Mailers may prepare First-Class Mail flat-size pieces in EMM letter trays instead of flat trays if the following standards are met:
c. All mail must be prepared under 6.6, and must not be prepared in bundles.
Each mailing of Presorted First-Class Mail must be prepared under 4.0 and 333.3.0,
If a single mailing job contains an automation mailing and a Presorted mailing, and both mailings are reported on the same postage statement, the mailing job must be presorted under the cotraying standards in 705.9.0.
Automation First-Class Mail flats must be prepared under 5.0 and meet the eligibility standards for the price claimed; trays must bear the appropriate barcoded container labels under 708.6.0,
Tray size, preparation sequence, and Line 1 labeling:
a. 5-digit: Optional, but 5-digit trays required for price eligibility (50-piece minimum); one overflow tray allowed; for Line 1, use city, state, and 5-digit ZIP Code destination of pieces (for military mail see 3.3c). (Preparation to qualify for 5-digit price is optional and need not be done for all 5-digit destinations.)
b. 3-digit: Required (50-piece minimum); one overflow tray allowed; for Line 1, use L002, Column A for 3-digit destinations.
c.
d.
e. Mixed ADC (required); no minimum for price eligibility. Group
If the mailing job contains an automation mailing and a Presorted mailing, and both mailings are reported on the same postage statement, the mailing job must be prepared under the cotraying standards in 705.9.0.
Rectangular Standard Mail pieces with any of the following characteristics must be prepared as
All mailings of Presorted Bound Printed Matter (BPM) are subject to these general standards:
b. All pieces in a mailing must be within the same processing category. See 401.1.0 for definitions of machinable and irregular parcels.
All mailings of Presorted Media Mail are subject to the standards in 5.0 and to these general requirements:
b. All parcels in a mailing must be within the same processing category. See 401.1.0 for definitions of machinable and irregular parcels.
All mailings of Presorted Library Mail are subject to the standards in 5.0,
b. All pieces in a mailing must be within the same processing category. See 401.1.0 for definitions of machinable and irregular parcels.
* * * Any window envelope used for letter-size or flat-size mail must meet the following additional standards:
e. The following standards apply to an address block window on machinable and automation letters:
1. Address block windows on letters over 3 ounces must be covered. Address block windows may be covered on other mail.
2. Uncovered or open windows must be no larger than 2 inches by 4
3. Covers for address block windows are subject to 202.5.12.
Flats in an automation mailing prepared under 335.6.5 must be cotrayed with flats in a Presorted mailing under the following conditions:
a. The automation pieces and Presorted pieces are part of the same mailing job and reported on the same postage statement.
b. Pieces in the automation mailing must meet the criteria for a flat under 301.3.0. Pieces in the Presorted mailing must meet the criteria for a flat under 301.1.0.
c. The automation mailing must meet the eligibility criteria in 333.5.0, except that the traying criteria in 9.1.4 must be met rather than the traying criteria in 335.5.0.
d. The Presorted mailing must meet the eligibility criteria in 333.3.0, except that the traying and documentation criteria in 9.1.1 and 9.1.4 must be met rather than the traying and documentation criteria in 335.4.0.
f. The pieces from the automation mailing and the pieces from the Presorted mailing must be sorted into the same trays as described in 9.1.2.
Presorted and automation pieces must be presorted together into trays (cotrayed) in the sequence listed below. Trays must be labeled using the following information for Lines 1 and 2 and 335.4.0 for other tray label criteria.
a.
1.
2.
b.
1.
2.
c.
1.
2.
1.
2.
e.
1.
2.
We will publish an appropriate amendment to 39 CFR Part 111 to reflect these changes if our proposal is adopted.
Postal Service.
Proposed rule.
The Postal Accountability and Enhancement Act requires the Postal Service to prescribe regulations for the safe transportation of hazardous materials in the mail, and to prescribe regulations for the conduct of proceedings to determine the implementation of civil penalties, clean-up costs and damages for violations of these hazardous materials regulations. Accordingly, the Postal Service proposes to adopt new rules of practice for its Office of the Judicial Officer.
Comments must be received on or before March 2, 2009.
Judicial Officer Department, United States Postal Service, 2101 Wilson Boulevard, Suite 600, Arlington, VA 22201-3078.
Administrative Judge Gary E. Shapiro, (703) 812-1910.
The Postal Accountability and Enhancement Act (Pub. L. 109-435, 120 Stat. 3198 (December 20, 2006)) inserted section 3018 into title 39, United States Code. Section 3018(a) requires the Postal Service “to prescribe regulations for the safe transportation of hazardous material in the mail.” Section 3018(c) requires the Postal Service to implement procedures for the imposition of civil penalties, clean-up costs and damages for violations of these hazardous materials regulations. Section 3018(d) provides that the Postal Service may determine that a person has violated these regulations only after notice and an opportunity for a hearing in accordance with section 3001(m) of title 39, United States Code.
Accordingly, the Postal Service is proposing to adopt implementing regulations as new 39 CFR part 958, which would designate the Chief Postal Inspector as the Postal Service's Determining Official for purposes of these rules. Any hearing would be presided over by an Administrative Law Judge designated by the Postal Service Judicial Officer. Administrative appeals of a Presiding Officer's decision would be determined by the Judicial Officer.
Although exempt from the notice and comment requirements of the Administrative Procedure Act (5 U.S.C. 553(b), (c)) regarding proposed rulemaking by 39 U.S.C. 410(a), the Postal Service invites public comment on the following rules proposed to be codified at title 39, Code of Federal Regulations, part 958.
Administrative practice and procedure, Penalties, Postal Service.
For the reasons stated in the preamble, the Postal Service proposes to amend 39 CFR part 958 as set forth below:
1. Part 958 is added to read as follows:
39 U.S.C. 204; 39 U.S.C. 401; 39 U.S.C. 3001; 39 U.S.C. 3018.
This part establishes the procedures governing the hearing and appeal rights of any person alleged to be liable for civil penalties, clean-up costs and/or damages for mailing hazardous materials and/or related violations under 39 U.S.C. 3018.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Within 30 days of being served the Postal Service's Complaint alleging liability under 39 U.S.C. 3018, the respondent may request a hearing by filing a written Hearing Petition with the Recorder. The respondent's Petition must include the following:
(a) The words “Petition for Hearing Related to Prohibitions Regarding the Mailing of Hazardous Material” or other words reasonably identifying it as such;
(b) The name of the respondent as well as his or her work and home addresses, and work and home telephone numbers; and other address and telephone number where the respondent may be contacted about the hearing proceedings;
(c) The date on which the respondent received the Complaint issued by the Determining Official;
(d) A statement indicating whether the respondent requests an oral hearing or a decision solely on the written record;
(e) If the respondent requests an oral hearing, a statement proposing a city for the hearing site, with justification for holding the hearing in that city, as well as recommended dates for the hearing; and
(f) A statement admitting or denying each of the allegations of liability made in the Complaint, and stating any defense on which the respondent intends to rely.
(a) If the respondent fails to request a hearing within the specified period, the Determining Official shall transmit the Complaint to the Judicial Officer for referral to a Presiding Officer, who shall issue an Initial Decision based upon the information contained in the Complaint.
(b) If the respondent files a Hearing Petition, the Determining Official, upon receiving a copy of the Petition, shall promptly transmit to the Presiding Officer a copy of the Postal Service's Complaint.
(a) A hearing under this part shall be conducted by the Presiding Officer on the record (1) to determine whether the respondent is liable under 39 U.S.C. 3018, and (2) if so, to determine the amount of any civil penalties, clean-up costs and/or damages to be imposed.
(b) The Postal Service must prove its case against a respondent by a preponderance of the evidence.
(c) The parties may offer for insertion onto the record such relevant evidence as they deem appropriate and as would be admissible under the generally accepted rules of evidence applied in the courts of the United States in nonjury trials, subject, however, to the sound discretion of the Presiding Officer in supervising the extent and manner of presentation of such evidence. In general, admissibility will hinge on relevancy and materiality. However, relevant evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.
(a) Within a reasonable time after receiving the respondent's Hearing Petition and the Complaint, the Presiding Officer shall serve upon the respondent and the Determining Official, a Notice of Docketing and Hearing.
(b) The Notice of Docketing and Hearing required by paragraph (a) of this section may include:
(1) The tentative site, date, and time of the oral hearing, if one is requested;
(2) The legal authority and jurisdiction under which the hearing is to be held;
(3) The nature of the hearing;
(4) The matters of fact and law to be decided;
(5) A description of the procedures governing the conduct of the hearing; and
(6) Such other information as the Presiding Officer deems appropriate.
An oral hearing under this part shall be held:
(a) In the judicial district of the United States in which the respondent resides or transacts business;
(b) In the judicial district of the United States in which the incident or incidents occurred upon which the determination of liability under 39 U.S.C. 3018 was made by the Determining Official; or
(c) In such other place as may be determined by the Presiding Officer.
Subject to the sound discretion of the Presiding Officer, acting under § 958.9, parties to a hearing under this part shall have the right:
(a) To be accompanied, represented, and advised, by an attorney or representative of his or her own choosing;
(b) To participate in any conferences held by the Presiding Officer;
(c) To agree to stipulations of fact or law, which shall be made part of the record;
(d) To make opening and closing statements at the oral hearing;
(e) To present oral and documentary evidence relevant to the issues;
(f) To submit rebuttal evidence;
(g) To conduct such cross-examination as may be required for a full and true disclosure of the facts; and
(h) To submit written briefs, proposed findings of fact, and proposed conclusions of law.
(a) The Presiding Officer shall conduct a fair and impartial hearing, avoid unnecessary delay, maintain order, and assure that a record of the proceeding is made.
(b) The Presiding Officer's authority includes, but is not limited to, the following:
(1) Establishing, upon adequate notice to all parties, the date and time of the oral hearing, if any, as well as, in accordance with § 958.7, selecting the hearing site;
(2) Holding conferences, by telephone or in person, to identify or simplify the issues, or to consider other matters that may aid in the expeditious resolution of the proceeding;
(3) Continuing or recessing the hearing in whole or in part for a reasonable period of time;
(4) Administering oaths and affirmations to witnesses;
(5) Ruling on all offers, motions, requests by the parties, and other procedural matters;
(6) Issuing any notices, orders, or memoranda to the parties concerning the proceedings;
(7) Regulating the scope and timing of discovery;
(8) Regulating the course of the hearing and the conduct of the parties and their representatives;
(9) Examining witnesses;
(10) Receiving, ruling on, excluding, or limiting evidence in order to assure that relevant, reliable and probative evidence is elicited on the issues in dispute, but irrelevant, immaterial or repetitious evidence is excluded;
(11) Deciding cases, upon motion of a party, in whole or in part by summary judgment where there is no disputed issue of material fact;
(12) Establishing the record in the case; and
(13) Issuing a written Initial Decision containing findings of fact, conclusions of law, and determinations with respect to whether civil penalties, clean-up costs and/or damages for mailing hazardous materials and/or related violations under 39 U.S.C. 3018 should be imposed, and if so, the amounts thereof, after taking into account the penalty considerations contained in 39 U.S.C. 3018(e).
(a) At a reasonable time after issuing the Notice of Docketing and Hearing, and with adequate notice to the parties, the Presiding Officer may conduct, in person or by telephone, one or more prehearing conferences to discuss the following:
(1) Simplification of the issues;
(2) The necessity or desirability of amendments to the pleadings, including the need for a more definite statement;
(3) Stipulations or admissions of fact or as to the contents and authenticity of documents;
(4) Limitation of the number of witnesses;
(5) Exchange of witness lists, copies of prior statements of witnesses, and copies of hearing exhibits;
(6) Scheduling dates for the exchange of witness lists and of proposed exhibits;
(7) Discovery;
(8) Possible changes in the scheduled oral hearing date, time or site, if requested; and
(9) Any other matters related to the proceeding.
(b) Within a reasonable time after the completion of a prehearing conference, the Presiding Officer shall issue an order detailing all matters agreed upon by the parties, or ordered by the Presiding Officer, at such conference.
Except as provided in this paragraph, after receiving the Notice of Docketing and Hearing the respondent may review and obtain a copy of all relevant and material documents, transcripts, records, and other materials which relate to the determination of liability by the Determining Official under 39 U.S.C. 3018, and all exculpatory information in the possession of the Determining Official relating to liability for civil penalties, clean-up costs and/or damages for mailing hazardous materials and/or related violations under 39 U.S.C. 3018. The respondent is not entitled to review or obtain a copy of any document, transcript, record, or other material which is privileged under Federal law. The Presiding Officer is authorized to issue orders placing limitations on the scope, method, time and place for accessing this information, and provisions for protecting the secrecy of confidential information or documents.
(a)
(b)
(1) The time, place, and manner of taking depositions shall be as mutually agreed by the parties, or failing such agreement, governed by order of the Presiding Officer.
(2) No testimony taken by depositions shall be considered as part of the record in the hearing unless and until such testimony is offered and received into evidence by order of the Presiding Officer. Deposition testimony will not ordinarily be received in evidence if an oral hearing is requested by either party, and the deponent is available to testify personally at the hearing. In such instances, however, deposition testimony may be used to contradict or impeach the testimony of the witness given at the hearing. In cases submitted for a decision on a written record, the Presiding Officer may, in his or her discretion, receive deposition testimony as evidence in supplementation of that record.
(c)
(d)
(e)
(f)
(a)
(1) Failing to comply with a lawful order or prescribed procedure;
(2) Failing to prosecute or defend an action; or
(3) Engaging in other misconduct that interferes with the speedy, orderly, or fair conduct of the hearing.
(b)
(c)
(1) Draw an inference in favor of the requesting party with regard to the information sought;
(2) Prohibit such party from introducing evidence concerning, or otherwise relying upon, testimony relating to the information sought;
(3) Permit the requesting party to introduce secondary evidence concerning the information sought; and
(4) Strike any part of the pleadings or other submissions of the party failing to comply with such request.
(d)
(e)
Communications between a Presiding Officer and a party shall not be made on any matter in issue unless on notice and opportunity for all parties to participate. This prohibition does not apply to procedural matters. A memorandum of any communication between the Presiding Officer and a party shall be transmitted by the Presiding Officer to all parties.
Post-hearing briefs and reply briefs may be submitted upon such terms as established by the Presiding Officer at the conclusion of the hearing.
Testimony and argument at oral hearings shall be reported verbatim, unless the Presiding Officer orders otherwise. Transcripts or copies of the proceedings may be obtained by the parties at such rates as may be fixed by contract between the reporter and the Postal Service.
(a) After the conclusion of the hearing, and the receipt of briefs, if any, from the parties, the Presiding Officer shall issue a written Initial Decision, including his or her findings and determinations. Such decision shall include the findings of fact and conclusions of law which the Presiding Officer relies upon in determining whether the respondent is liable for civil penalties, clean-up costs and/or damages for mailing hazardous materials and/or related violations under 39 U.S.C. 3018, and, if liability is found, shall set forth the amount of any civil penalties, clean-up costs and/or damages imposed.
(b) The Presiding Officer shall promptly send to each party a copy of his or her Initial Decision. A party may, in accordance with § 958.18, appeal an adverse Initial Decision to the Judicial Officer. Unless a party timely appeals in accordance with § 958.18, the Presiding Officer's Initial Decision, including the findings and determinations, becomes the final agency decision.
(a)
(1) The Notice of Appeal must be accompanied by a written brief specifying the party's exceptions, and any reasons for such exceptions, to the Presiding Officer's Initial Decision.
(2) Within 30 days of receiving the party's brief, the opposing party may file with the Judicial Officer a response to the specified exceptions to the Presiding Officer's Initial Decision.
(b)
(1) The Judicial Officer may affirm, reduce, reverse, or remand any determination about a penalty or assessment by the Presiding Officer.
(2) The Judicial Officer shall not consider any argument or objection that was not raised in the hearing unless the interested party demonstrates that the failure to raise the argument or objection before the Presiding Officer was caused by extraordinary circumstances.
(3) If any party demonstrates to the satisfaction of the Judicial Officer that additional evidence not presented at the hearing is material and that there were reasonable grounds for the failure to present such evidence, the Judicial Officer may remand the matter to the Presiding Officer for consideration of such additional evidence.
(c)
(a) Every pleading filed in a proceeding under this part must contain a caption setting forth the title of the action, the docket number (after assignment by the Recorder), an accurate designation of the document, and the name, address, and telephone number of the party on whose behalf the paper was filed. It shall also be signed by the party or party representative submitting the document.
(b) The original and three copies of all pleadings and documents in a proceeding conducted under this part shall be filed with the Recorder, Judicial Officer Department, United States Postal Service, 2101 Wilson Boulevard, Suite 600, Arlington, Virginia 22201-3078. Normal Recorder business hours are between 8:15 a.m. and 4:45 p.m., eastern standard or daylight saving time. The Recorder will transmit a copy of each document filed to the other party, and the original to the Presiding Officer.
(c) Pleadings or other document transmittals to, or communications with, the Postal Service, other than to the Recorder under paragraph (a) of this section, shall be made through the Determining Official or designated Postal Service attorney. If a notice of appearance by a representative is filed on behalf of the respondent, pleadings or document transmittals to, or communications with, the respondent shall be made through his or her representative.
Unless otherwise specified, service of a Notice of Docketing and Hearing or any other document under this part shall be effected by registered or certified mail, return receipt requested, or by personal delivery. In the case of personal service, the person making service shall, if possible, secure from the party or other person sought to be served, or his or her agent, a written acknowledgement of receipt, showing the date and time of such receipt. If the person upon whom service is made declines to acknowledge receipt, the
In computing any period of time provided for by this part, or any order issued pursuant to this part, the time begins with the day following the act, event, or default, and includes the last day of the period, unless it is a Saturday, Sunday, or legal holiday observed by the Federal Government, in which event it includes the next business day. Except as otherwise provided in these rules or an applicable order, prescribed periods of time are measured in calendar days rather than business days.
Continuances and extensions may be granted under these rules for good cause shown.
Either party may make offers of settlement or proposals of adjustment at any time. The Determining Official has the exclusive authority to compromise or settle any determinations of liability for civil penalties, clean-up costs and/or damages for mailing hazardous materials and/or related violations under 39 U.S.C. 3018, without the consent of the Presiding Officer or Judicial Officer.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Proposed rule; reopening of public comment period.
On November 20, 2008, NMFS proposed to designate critical habitat for the endangered U.S. distinct population segment (DPS) of smalltooth sawfish. As part of that proposal, NMFS provided a 60-day public comment period, ending on January 20, 2009. Additionally, NMFS held two public hearings in Cape Coral and Naples, FL in January 2009. NMFS has received requests for an extension of the public comment period. In response to these requests, NMFS is reopening the public comment period for the proposed action.
Written comments on this proposed rule must be received by 5 p.m. EST on February 13, 2009. Comments received between the close of the first comment period on January 20, 2009, and the reopening of the comment period on January 29, 2009 will be considered.
You may submit comments, identified by the Regulatory Information Number (RIN) 0648-AV74, by any of the following methods:
Mail: Assistant Regional Administrator, Protected Resources Division, NMFS, Southeast Regional Office, 263 13th Avenue South, St. Petersburg, FL 33701.
Facsimile (fax) to: 727-824-5309 Attention Shelley Norton.
Electronic Submissions: Submit all electronic comments to
Instructions: All comments received are considered part of the public record and will generally be posted to
Shelley Norton, NMFS, Southeast Regional Office, at 727-824-5312; or Lisa Manning, NMFS, Office of Protected Resources, at 301-713-1401.
On November 20, 2008, we published a proposed rule (73 FR 70290) to designate critical habitat for the endangered U.S. DPS of smalltooth sawfish. We held two public hearings on the proposed designation, one in Naples, FL on January 5, 2009, and one in Cape Coral, FL on January 14, 2009. Several requests have been received to reopen the public comment period for the proposed listing. The public comment period for the proposed listing closed on January 20, 2009. NMFS is reopening the public comment period until February 13, 2009, to receive additional local and public information and comments that may be relevant to our consideration of this rulemaking. Public comments received between the close of the first comment period on January 20, 2009, and the reopening of the comment period January 29, 2009 will also be considered timely.
16 U.S.C. 1531
Rural Utilities Service, USDA.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35, as amended), the United States Department of Agriculture (USDA) Rural Development administers rural utilities programs through the Rural Utilities Service. USDA Rural Development invites comments on this information collection for which the Agency intends to request approval from the Office of Management and Budget (OMB).
Comments on this notice must be received by March 30, 2009.
Michele Brooks, Director, Program Development and Regulatory Analysis, Rural Utilities Service, 1400 Independence Ave., SW., STOP 1522, Room 5162 South Building, Washington, DC 20250-1522. Telephone: (202) 690-1078. Fax: (202) 720-8435.
The Office of Management and Budget's (OMB) regulation (5 CFR part 1320) implementing provisions of the Paperwork Reduction Act of 1995 (Pub. L. 104-13) requires that interested members of the public and affected agencies have an opportunity to comment on information collection and recordkeeping activities (see 5 CFR 1320.8(d)). This notice identifies an information collection that RUS is submitting to OMB as a revision to an existing collection.
Copies of this information collection can be obtained from MaryPat Daskal, Program Development and Regulatory Analysis, at (202) 720-7853, Fax: (202) 720-4120.
All responses to this notice will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.
Rural Utilities Service, USDA.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35, as amended), the United States Department of Agriculture (USDA Rural Development administers rural utilities programs through the Rural Utilities Service. The USDA Rural Development invites comments on the following information collections for which the Agency intends to request approval from the Office of Management and Budget (OMB).
Comments on this notice must be received by March 30, 2009.
Michele Brooks, Director, Program Development and Regulatory Analysis, USDA Rural Development Utilities Programs, 1400 Independence Ave., SW., STOP 1522, Room 5162, South Building, Washington, DC 20250-1522. Telephone: (202) 690-1078. Fax: (202) 720-8435.
The Office of Management and Budget's (OMB) regulation (5 CFR part 1320) implementing provisions of the Paperwork Reduction Act of 1995 (Pub. L. 104-13) requires that interested members of the public and affected agencies have an opportunity to comment on information collection and recordkeeping activities [see 5 CFR 1320.8(d)]. This notice identifies information collections that RUS is submitting to OMB for extension.
International Trade Administration.
Notice.
The Department of Commerce, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995.
Written comments must be submitted on or before March 30, 2009.
Direct all written comments to Diana Hynek, Departmental Paperwork Clearance Officer, Department of Commerce, Room 7845, 14th and Constitution Avenue, NW., Washington, DC 20230 (or via the Internet at
Requests for additional information or copies of the information collection instrument(s) and instructions should be directed to Gregory Campbell, Statutory Import Programs; phone number: (202) 482-2239; fax number: (202) 501-7952; and e-mail address:
The Departments of Commerce and the Interior are required by Public Law 97-446, as amended by Public Law 103-465, Public Law 106-36 and Public Law 108-429, to administer the distribution of watch duty-exemptions and watch and jewelry duty-refunds to program producers in the U.S. insular possessions and the Northern Mariana Islands. The primary consideration in collecting information is the enforcement of the laws and the information gathered is limited to that necessary to prevent abuse of the program and to permit a fair and equitable distribution of its benefits. The Form ITA-340P is used to provide the data to assist in verification of duty-free shipments of watches into the United States and make certain the allocations are not exceeded. Forms ITA-360P and ITA-361P are necessary to implement the duty-refund program for the watch and jewelry producers. Form ITA-360P requires no information unless the recipient wishes to transfer the certificate. Form ITA-361P must be completed each time a certificate holder wishes to obtain a portion, or all, of the duty-refund authorized by the certificate. The duty-refund benefit is issued biannually and the forms are used for the distribution of the duty-refund benefit.
Paper format or electronically.
Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of this information collection; they also will become a matter of public record.
International Trade Administration.
Notice.
The Department of Commerce, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995.
Written comments must be submitted on or before March 30, 2009.
Direct all written comments to Diana Hynek, Departmental Paperwork Clearance Officer, Department of Commerce, Room 7845, 14th and Constitution Avenue, NW., Washington, DC 20230 (or via the Internet at
Requests for additional information or copies of the information collection instrument and instructions should be directed to Susan Crawford, phone: 202-482-2050, e-mail:
The Commercial Service (CS) requests a revision to the currently approved collection for User Satisfaction Surveys associated with the following export assistance programs and services:
• Export counseling,
• Pay-for-use export services such as matchmaking and due diligence,
• Trade promotion and educational events such as trade fairs, seminars and Webinars,
• Trade Information Call Center,
• Advocacy services.
The CS is mandated to provide export assistance to U.S. firms and the feedback obtained from the User Satisfaction Surveys is crucial to ensuring that clients are provided with effective and appropriate export services. This feedback enables CS to improve services to better meet the needs of their clients.
Clients that work with the CS have the opportunity to provide feedback via an electronic link to a comment card at the completion of each pay-for-use service, trade promotion event and advocacy case.
CS would also like to provide clients with the opportunity to give feedback at any time during the course of their working relationship with a CS trade specialist. CS proposes to revise their information collection by providing a feedback opportunity to their clients via a comment card link in a tagline at the bottom of CS staff's e-mail messages.
Comment cards (sent to a client after the completion of a pay-for-use export service, trade promotion event or educational seminar/Webinar, and advocacy case) in an e-mail message delivering a hot link to a Web enabled survey. If the client does not respond to the survey within two weeks, another e-mail reminder is sent to the client.
The e-mail tagline comment card will also be a link to a Web enabled survey.
An automated telephone survey will be used for the Trade Information Call Center survey, so that callers can immediately respond without having to provide their e-mail address.
Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden (including hours and cost) of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of this information collection; they also will become a matter of public record.
Import Administration, International Trade Administration, Department of Commerce.
On December 22, 2008, ABC Tools MFG. Corp. (ABC Tools) filed a request for a new shipper review of the antidumping duty order on hand trucks and certain parts thereof (hand trucks) from the People's Republic of China (PRC). The Department of Commerce (the Department) has determined that ABC Tools' request meets the statutory and regulatory requirements for initiation and we are, accordingly, initiating a new shipper review in accordance with section 751(a)(2)(B) of the Tariff Act of 1930, as amended (the Act) and 19 CFR 351.214(a). The period of review (POR) is December 1, 2007, through November 30, 2008.
David Cordell or Robert James, AD/CVD Operations, Office 7, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-0408 or (202) 482-0469, respectively.
The notice announcing the antidumping duty order on hand trucks from the PRC was published on December 2, 2004. See
Pursuant to section 751(a)(2)(B)(i)(I) of the Act and 19 CFR 351.214(b)(2)(i), ABC Tools certified that it did not
In addition to the certifications described above, pursuant to 19 CFR 351.214(b)(2)(iv), ABC Tools submitted documentation establishing the following: (1) The date on which it first shipped hand trucks for export to the United States; (2) the volume of its first shipment; (3) an entry of subject merchandise for consumption in the United States; and (4) a sale of subject hand trucks by ABC Tools to an unaffiliated customer in the United States during the twelve-month period immediately preceding the annual anniversary month of the antidumping duty order on hand trucks from the PRC.
Pursuant to section 751(a)(2)(B) of the Act and 19 CFR 351.214(d)(1), we find that the request submitted by ABC Tools meets the threshold requirements for initiation of a new shipper review of hand trucks from the PRC produced and exported by ABC Tools.
This review covers the period from December 1, 2007, through November 30, 2008.
It is the Department's usual practice, in cases involving non-market economies, to require that a company seeking to establish eligibility for an antidumping duty rate separate from the country-wide rate provide evidence of
On August 17, 2006, the Pension Protection Act of 2006 (H.R. 4) was signed into law. Section 1632 of H.R. 4 temporarily suspends the authority of the Department to instruct U.S. Customs and Border Protection to collect a bond or other security in lieu of a cash deposit in a new shipper review. Therefore, the posting of a bond or other security under section 751(a)(2)(B)(iii) of the Act in lieu of a cash deposit is not available in this case. Importers of hand trucks produced and exported by ABC Tools must continue to post cash deposits of estimated antidumping duties on each entry of subject merchandise at the PRC-wide entity rate of 383.6 percent.
Interested parties needing access to proprietary information in this new shipper review should submit applications for disclosure under administrative protective order in accordance with 19 CFR 351.305 and 351.306.
This initiation and notice are in accordance with section 751(a)(2)(B) of the Act and 19 CFR 351.214 and 351.221(c)(1)(i).
Department of Commerce.
Notice.
The United States Department of Commerce, International Trade Administration, U.S. and Foreign Commercial Service is organizing an Aerospace Executive Service (AES) trade mission to the Latin America Aero and Defence (LAAD) 2009 show, in Rio de Janeiro, Brazil, April 14-17, 2009. LAAD is in its sixth biennial year and is a certified U.S. Department of Commerce trade show. The AES will include representatives from a variety of U.S. aerospace-industry manufacturers and service providers. The mission participants will benefit from individual, pre-screened appointments at the Riocentro trade show location with potential agents, distributors, and end-users whose capabilities are targeted to each U.S. participant's requirements. Participating companies will also benefit from exhibitor access to the trade show, a product literature display at LAAD, country briefings, and logistical support during the trade mission program.
LAAD features equipment and services for the internal security and Special Forces, as well as state-of-the-art equipment and services to the conventional armed forces of Latin America. Visitors include military, aerospace, and airline decision makers from throughout Latin America and the world. In 2007, 315 companies from 28 countries exhibited a wide range of commercial and military aerospace and ground support equipment and services, including aerospace materials and interiors, airport ground support equipment, aircraft maintenance services and equipment, avionics and radar systems, simulators and training equipment and unmanned aerial vehicles.
Latin America's defense market represents emerging opportunities for aerospace manufacturers with a growing demand for new and upgraded fighters, surveillance and patrol platforms, air-to-air tankers and counter-insurgency/anti-narcotics equipment. Military expenditures in Latin America are expected to reach $32.2 billion in 2009. In addition, Latin American governments plan to introduce new and updated systems. Specifically Brazil, Colombia, Mexico, and Chile are planning to procure nuclear-powered submarine capability, technologies for counter-insurgency operations against guerillas and illicit drug crops, counter-narcotics, and tanker aircraft for in-flight refueling.
In Brazil, the armed forces are continuing to modernize its equipment and systems. The Government of Brazil is making financing a priority in order for the Brazilian Air Force to address its most urgent updating requirements. Additionally, Latin American countries are participating in United Nations-sponsored peace keeping and disaster relief missions throughout the world, creating additional procurement requirements.
The goal of the AES at Latin America Aerospace and Defence (LAAD) 2009 is to facilitate an effective presence for small- to medium-sized U.S. companies that may not yet be ready to incur the major expenses associated with purchasing and staffing exhibition space. The AES enables U.S. aerospace companies to familiarize themselves with this important trade fair, to conduct market research, and to explore export opportunities through pre-screened meetings with potential partners. With Commercial Service staff on hand to help further company-specific objectives, the AES provides access to Brazil and other international markets and business partners in a manner that cannot be matched by simply attending the show as a visitor.
The AES at LAAD will formally begin on Tuesday, April 14, 2009, with a company briefing and visit to the trade show on the opening day. On Wednesday, April 15, and Thursday, April 16, AES participants will benefit from pre-screened meetings (with up to eight appointments per company) with prospective distributors and end-users arranged by the Commercial Service in Brazil. These meetings will be held in private rooms at the Riocentro Convention Center. No exhibition or larger demonstration items will be permitted, unless the AES participating company separately purchases exhibitor booth space directly from Clarion Expo, the show organizer. On the final day of the show, Friday, April 17, AES participants can visit the show floor at LAAD and hold their own independently scheduled follow up meetings, with Commercial Service staff available at the show to assist, as needed.
The AES package at LAAD 2009 also includes the following:
• Official show entry (or exhibitor) passes.
• Listing in the LAAD 2009 Exhibitor's Directory.
• Company product literature on display in the U.S. booth.
• Logistical support (interpreter for pre-scheduled meetings, ground transportation to/from the show each day, and coordination of hotel arrangements).
All parties interested in participating in the AES at LAAD 2009 must complete and submit an application package for consideration by the Department of Commerce. All applicants will be evaluated on their ability to meet certain conditions and best satisfy the selection criteria as outlined below. A minimum of 5 and maximum of 6 companies will be selected to participate in the mission from the applicant pool. U.S. companies already doing business in Latin America as well as U.S. companies seeking to enter Latin American markets for the first time may apply.
After a company has been selected to participate on the mission, a payment to the Department of Commerce in the form of a participation fee is required. The participation fee will be $4,500 for large firms and $3,000 for a small or medium-sized enterprise (SME).
• An applicant must submit a completed and signed mission application and supplemental application materials, including adequate information on the company's products and/or services, primary market objectives, and goals for participation. If the Department of Commerce receives an incomplete application, the Department may reject the application, request additional information, or take the lack of information into account when evaluating the applications.
• Each applicant must also certify that the products and services it seeks to export through the mission are either produced in the United States, or, if not, marketed under the name of a U.S. firm and have at least 51 percent U.S. content of the value of the finished product or service.
• Each applicant's products must meet LAAD 2009 trade fair rules. Regulation information can be found at the show's Web site at
Selection Criteria: Selection will be based on the following criteria:
• Suitability of the company's products or services to the Latin American market.
• Applicant's potential for business in Latin America, including likelihood of exports resulting from the mission.
• Relevance of the company's business line to the mission's goals.
Referrals from political organizations and any documents containing references to partisan political activities (including political contributions) will be removed from an applicant's submission and not considered during the selection process.
Mission recruitment will be conducted in an open and public manner, including publication in the
Recruitment for the mission will begin immediately and conclude no later than March 1, 2009. Applications will be available online at
Import Administration, International Trade Administration, Department of Commerce.
On December 22, 2008, the United States Court of International Trade (CIT) sustained the Department of Commerce's (the Department) results of redetermination pursuant to the CIT's remand and entered final judgment in
Scott Lindsay, AD/CVD Operations, Office 6, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-0780.
On March 14, 2006, the Department issued its final results in the antidumping duty administrative review of oil country tubular goods, other than drill pipe, from Korea covering the POR of August 1, 2003 through July 31, 2004.
In
However, in the
In its decision in
This notice is issued and published in accordance with section 516A(c)(1) of the Act.
National Oceanic and Atmospheric Administration (NOAA).
Notice.
The Department of Commerce, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995.
Written comments must be submitted on or before March 30, 2009.
Direct all written comments to Diana Hynek, Departmental Paperwork Clearance Officer, Department of Commerce, Room 7845, 14th and Constitution Avenue, NW., Washington, DC 20230 (or via the Internet at
Requests for additional information or copies of the information collection instrument and instructions should be directed to Douglas Potts, National Marine Fisheries Service, (978) 281-9341 or
A proposed emergency rule for the NE Multispecies Fishery Management Plan (FMP) was published in the
The reduction in the DAS allocated to NE multispecies permit holders limited the ability of some vessels to participate in the fishery, resulting in a loss of revenue and/or the ability to operate at a profit. In order to mitigate some of the adverse economic impacts of the effort reductions, the DAS Leasing Program was established by the Council, among other provisions, in Amendment 13. The DAS Leasing Program enables vessels to increase their revenue by either leasing additional DAS from another vessel or using them to increase their participation in the fishery, or by leasing their allocated DAS that they may not use to another vessel.
Applications will be submitted by mail.
Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of this information collection; they also will become a matter of public record.
Office of the Assistant Secretary of Defense (Networks and Information Integration)/DoD Chief Information Officer. DoD.
Notice.
In compliance with Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Office of the Assistant Secretary of Defense (Networks and Information Integration)/DoD Chief Information Officer announces a proposed new public information collection and seeks public comment on the provisions thereof. Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed information collection; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology.
Consideration will be given to all comments received by March 30, 2009.
You may submit comments, identified by docket number and title, by any of the following methods:
•
•
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to Office of DoD Chief Information Officer, ATTN: Ms. Sandra Smith, 1225 South Clark St., Suite 910, Arlington, VA, 22202.
The IASP, authorized by Section 2200 of title 10 of the United States Code, is designed to: increase the number of new entrants to DoD who possess key Information Assurance (IA) and IT skill sets, and serve as a tool to develop and retain well-educated military and civilian personnel who support the Department's critical IT management and infrastructure protection functions. The IASP recruitment track is for college students who, on completion of the program, come to work for the DoD. The retention track is for current DoD employees who are excused from duty to attend college courses through the IASP. Pending availability of funds, the IASP may also award capacity-building grants to colleges and universities designated as CAE/IAEs for such purposes as developing IA curricula and faculty, and building IA laboratories. The recruitment, retention and grant programs all require a competitive application process. Additionally, there is an assessment process which examines how grant funds were spent, as well as an assessment process requiring status reports from students in the program, and university faculty representatives (Principal Investigators) for the purpose of program evaluation.
In order to apply for any aspect of the program, paperwork is required so that the DoD may judge the merits of a given application and determine how best to allocate IASP funds.
The Recruitment, Capacity-Building, and Assessment aspects of the IASP apply to non-DoD employee members of the general public who choose to become involved in the program and thus become subject to information collection requirements. The Retention aspect of the IASP applies only to current DoD personnel, and thus its information collection requirements are not addressed in this request.
Office of the Under Secretary of Defense (Personnel and Readiness); DoD.
Committee meeting.
Pursuant to the Federal Advisory Committee Act of 1972 (5 U.S.C., Appendix, as amended), the Sunshine in Government Act of 1976 (5 U.S.C. 522b, as amended), 41 CFR 102-3.140, 41 CFR 102-3.150, and 41 CFR 102-3.160 announcement is made of the following committee meeting of the Defense Task Force on Sexual Assault in the Military Services (hereafter referred to as the Task Force).
Open meeting: February 13, 2009 (8 a.m. to 12 p.m. Pacific Standard Time (hereafter referred to as PST).
Administrative and/or Preparatory work activities meeting: 1 p.m. to 3 p.m. PST.
San Diego, California. A specific location is still to be determined.
Colonel Jackson-Chandler, Designated Federal Officer, Defense Task Force on Sexual Assault in the Military Services, 2850 Eisenhower Avenue, Suite 100, Alexandria, Virginia 22314; Telephone: (703) 325-6640; Fax: (703) 325-6710/6711; DSN number 221-6640;
The purpose of the Administrative and/or Preparatory work activities meeting:
a. Administrative work activities: to discuss administrative matters or to receive administrative information from a Federal officer or agency; and
b. Preparatory work activities: to gather information, conduct research, or analyze relevant issues and facts in preparation for a meeting of the advisory committee, or to draft position papers for deliberation by the advisory committee.
Pursuant to 41 CFR 102-3.160 meetings convened solely for Administrative and/or Preparatory work activities meetings are exempt from open meeting requirements and is not open to the public.
The Task Force's open meetings will be held at a place to be determined in San Diego, California from 8 a.m. to 12 p.m. PST, Friday, February 2009 followed by an Administrative and/or Preparatory work activities meeting from 1 p.m. The open meeting is open to the public pursuant to 5 U.S.C. 552b, as amended, and 41 CFR 102-3.140 through 102-3.165, and subject to the availability of space; the Administrative and/or Preparatory work activities meeting, however, is not open to the public and is exempt from open meeting requirements pursuant to 41 CFR 102-3.160.
Pursuant to 41 CFR 102-3.105(j), 102-3.140(c), section 10(a)(3) of the Federal Advisory Committee Act, as amended, and subject to the procedures outlined in this notice any member of the public or interested organization may submit a written statement to the Defense Task Force on Sexual Assault in the Military Services membership about the stated agency and/or to give input as to the mission and function of the task force. Though written statements may be submitted at any time for consideration or in response to a stated agenda to a planned meeting, statements must be received in a timely fashion for consideration at a specific meeting.
All written statements intended to be considered for the open meeting that is subject to this notice shall be submitted to the Designated Federal Officer for the Defense Task Force on Sexual Assault in the Military Services no later than 5 p.m. Eastern Standard Time (hereafter referred to as EST), Wednesday, February 4, 2009. This individual will review all timely submitted written statements and will provide those statements to the task force membership for consideration.
Persons desiring to make an oral presentation to the committee must notify the Designated Federal Officer no later than 5 p.m. EST, Wednesday, February 4, 2009. Oral presentations by members of the public will be permitted only on February 13, 2009, from 11 a.m. to 12 p.m. before the task force. Presentations will be limited to ten (10) minutes each. Number of oral presentations to be made will depend on the number of requests received from members of the public and the time allotted. Each person desiring to make an oral presentation must provide the Designated Federal Officer for the Defense Task Force on Sexual Assault in the Military Services with one (1) written copy of the presentation by 5 p.m. EST, Wednesday, February 4, 2009, and bring 15 written copies of any material that is intended for distribution at the meeting. Contact information for the Designated Federal Officer is provided in this notice or can be obtained from the GSA's FACA Database—
The Designated Federal Officer, pursuant to 41 CFR 102-3.150, will announce planned meetings of the Defense Task Force on Sexual Assault in the Military Services. The Designated Federal Officer, at that time, may provide additional guidance on the submission of written statements and/or live testimony that are in response to the stated agenda for the planned meeting in question.
Federal Energy Regulatory Commission.
Notice of proposed information collection and request for comments.
In compliance with the requirements of section 3506(c)(2)(a) of the Paperwork Reduction Act of 1995 (Pub. L. 104-13), the Federal Energy Regulatory Commission (Commission) is soliciting public comment on the specific aspects of the information collection described below.
Comments in consideration of the collection of information are due March 24, 2009.
An example of the FERC-585 contingency plan may be obtained from the Commission's Web site (at
Comments may be filed electronically via the eFiling link on the Commission's Web site at
Commenters filing electronically should not make a paper filing. Commenters that are not able to file electronically must send an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE., Washington, DC 20426.
Users interested in receiving automatic notification of activity in this docket may do so through eSubscription (at
Michael Miller may be reached by telephone at (202) 502-8415, by fax at (202) 273-0873, and by e-mail at
The information collected under the requirements of FERC-585 “Reporting of Electric Energy Shortages and Contingency Plans under PURPA” (OMB No. 1902-0138) is used by the Commission to implement the statutory provisions of section 206 of the Public Utility Regulatory Policies Act of 1979 (PURPA) Public Law 95-617, 92 Stat. 3117. Section 206 of PURPA amended the Federal Power Act (FPA) by adding a new subsection (g) to section 202, under which the Commission by rule, was to require each public utility to (1) report to the Commission and appropriate state regulatory authorities of any anticipated shortages of electric energy or capacity which would affect the utility's capability to serve its wholesale customers; and (2) report to the Commission and any appropriate state regulatory authority contingency plan that would outline what circumstances might give rise to such occurrences.
In Order No. 575, the Commission modified the reporting requirements in 18 CFR 294.101(b) to provide that, if a public utility includes in its rates schedule, provisions that: (a) During electric energy and capacity shortages it will treat firm power wholesale customers without undue discrimination or preference; and (b) it will report any modifications to its contingency plan for accommodating shortages within 15 days to the appropriate state regulatory agency and to the affected wholesale customers, then the utility need not file with the Commission an additional statement of contingency plan for accommodating such shortages. This revision merely changed the reporting mechanism; the public utility's contingency plan would be located in its filed rate rather than in a separate document.
In Order No. 659, the Commission modified the reporting requirements in 18 CFR 294.101(e) to provide that the means by which public utilities must comply with the requirements to report shortages and anticipated shortages is to submit this information electronically using the Office of Electric Reliability's pager system at
The Commission uses the information to evaluate and formulate an appropriate option for action in the event an unanticipated shortage is reported and/or materializes. Without this information, the Commission and State agencies would be unable to: (1) Examine and approve or modify utility actions, (2) prepare a response to anticipated disruptions in electric energy, and (3) ensure equitable treatment of all public utility customers under the shortage situations. The Commission implements these filing requirements in the Code of Federal Regulations (CFR) under 18 CFR Part 294.
Estimated annual cost to respondents is $4,450.78 (73.25 hours/2,080 hours per year times $126,384 per year average per employee = $4,450.78).
The reporting burden includes the total time, effort, or financial resources expended to generate, maintain, retain, disclose, or provide the information including: (1) Reviewing instructions; (2) developing, acquiring, installing, and utilizing technology and systems for the purposes of collecting, validating, verifying, processing, maintaining, disclosing and providing information; (3) adjusting the existing ways to comply with any previously applicable instructions and requirements; (4) training personnel to respond to a collection of information; (5) searching data sources; (6) completing and reviewing the collection of information; and (7) transmitting, or otherwise disclosing the information.
The estimate of cost for respondents is based upon salaries for professional and clerical support, as well as direct and indirect overhead costs. Direct costs include all costs directly attributable to providing this information, such as administrative costs and the cost for information technology. Indirect or overhead costs are costs incurred by an organization in support of its mission. These costs apply to activities which benefit the whole organization rather than any one particular function or activity.
Comments are invited on: (1) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (2) the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
Take notice that on January 13, 2009, Colorado Interstate Gas Company (CIG), P.O. Box 1087, Colorado Springs, CO 80944, filed an application in Docket No. CP09-45-000, pursuant to section 7(b) of the Natural Gas Act and section 157.5 of the Commission's regulations, requesting permission and approval to abandon, by sale and transfer to Chipeta Processing LLC (Chipeta), CIG's existing Natural Buttes Compressor Station and Processing Plant along with certain pipeline facilities and appurtenances located in Uintah County, Utah. Take further notice that on January 15, 2009, Chipeta, 1099 18th Street, Suite 1800, Denver, CO 80202, filed an application in Docket No. CP09-48-000, pursuant to Rule 207(a)(2) of the Commission's regulations, requesting a Declaratory Order disclaiming jurisdiction and declaring certain facilities (The facilities CIG proposes to abandon by sale in Docket No. CP09-45-000) and services to be exempt from Regulation under the Natural Gas Act, all as more fully set
Any questions regarding this application, Docket No. CP09-45-000, should be directed to Richard Derryberry, Director, Regulatory Affairs, Colorado Interstate Gas Company, PO Box 1087 Colorado Springs, CO 80944, telephone: (719) 520-3782, Fax: (719) 667-7534, e-mail:
Any questions regarding this application, Docket No. CP09-48-000, should be directed to Alex T. Wyche, Andarko Petroleum Corporation, 1099 18th St., Suite 1800, Denver, CO 80202, telephone: (720) 929-6073, e-mail:
Pursuant to Section 157.9 of the Commission's rules, 18 CFR 157.9, within 90 days of this Notice the Commission staff will either: Complete its environmental assessment (EA) and place it into the Commission's public record (eLibrary) for this proceeding; or issue a Notice of Schedule for Environmental Review. If a Notice of Schedule for Environmental Review is issued, it will indicate, among other milestones, the anticipated date for the Commission staff's issuance of the final environmental impact statement (FEIS) or EA for this proposal. The filing of the EA in the Commission's public record for this proceeding or the issuance of a Notice of Schedule for Environmental Review will serve to notify federal and state agencies of the timing for the completion of all necessary reviews, and the subsequent need to complete all federal authorizations within 90 days of the date of issuance of the Commission staff's FEIS or EA.
There are two ways to become involved in the Commission's review of this project. First, any person wishing to obtain legal status by becoming a party to the proceedings for this project should, on or before the comment date stated below, file with the Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, a motion to intervene in accordance with the requirements of the Commission's Rules of Practice and Procedure (18 CFR 385.214 or 385.211) and the Regulations under the NGA (18 CFR 157.10). A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies of all documents filed by the applicant and by all other parties. A party must submit 14 copies of filings made with the Commission and must mail a copy to the applicant and to every other party in the proceeding. Only parties to the proceeding can ask for court review of Commission orders in the proceeding.
However, a person does not have to intervene in order to have comments considered. The second way to participate is by filing with the Secretary of the Commission, as soon as possible, an original and two copies of comments in support of or in opposition to this project. The Commission will consider these comments in determining the appropriate action to be taken, but the filing of a comment alone will not serve to make the filer a party to the proceeding. The Commission's rules require that persons filing comments in opposition to the project provide copies of their protests only to the party or parties directly involved in the protest.
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commentors will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with the Commission's environmental review process. Environmental commentors will not be required to serve copies of filed documents on all other parties. However, the non-party commentors will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
The Commission strongly encourages electronic filings of comments, protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
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n. Comments, Protests, or Motions to Intervene—Anyone may submit comments, a protest, or a motion to intervene in accordance with the requirements of Rules of Practice and Procedure, 18 CFR 385.210, .211, .214. In determining the appropriate action to take, the Commission will consider all protests or other comments filed, but only those who file a motion to intervene in accordance with the Commission's Rules may become a party to the proceeding. Any comments, protests, or motions to intervene must be received on or before the specified comment date for the particular application.
o. Filing and Service of Responsive Documents—Any filings must bear in all capital letters the title “COMMENTS”, “RECOMMENDATIONS FOR TERMS AND CONDITIONS”, “PROTEST”, OR “MOTION TO INTERVENE”, as applicable, and the Project Number of the particular application to which the filing refers (P-2496-194). All documents (original and eight copies) should be filed with: Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426. A copy of any motion to intervene must also be served upon each representative of the Applicant specified in the particular application.
p. Agency Comments—Federal, State, and local agencies are invited to file comments on the described application. A copy of the application may be obtained by agencies directly from the Applicant. If an agency does not file comments within the time specified for filing comments, it will be presumed to have no comments. One copy of an agency's comments must also be sent to the Applicant's representatives.
q. Comments, protests and interventions may be filed electronically via the Internet in lieu of paper. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site at
Take notice that on December 11, 2008, Formosa Plastics Corp, Louisiana, located in Baton Rouge Louisiana on Gulf States Road filed with the Federal Energy Regulatory Commission an application for certification of a facility as a qualifying cogeneration facility pursuant to 18 CFR 292.207(b) of the Commission's regulations.
Formosa Plastics operates a topping-cycle cogeneration facility in which gas is used as the source of fuel to two General Electric flame Six Gas Turbines and to supplemental firing in the associated Heat Recovery Boilers. The power production capacity of the facility is 94,000 kw at 80 °F ambient conditions. Formosa's mailing address is P.O. Box 271, Baton Rouge, LA. 70821-0271.
Formosa Plastics is connected to the electrical grid through Entergy-Gulf States. Entergy—Gulf States furnishes electricity to Formosa Plastics' Baton Rouge site primarily for the purpose of providing “standby maintenance” and “emergency” power. Entergy-Gulf States provides this service through “General Service” and “Standby/Maintenance” utility contracts.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant. On or before the comment date, it is not necessary to serve motions to intervene or protests on persons other than the Applicant.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Take notice that the following application has been filed with the
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All documents (original and eight copies) should be filed with: Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426. Please include the project number (P-420-069) on any comments or motions filed. Comments, protests, and interventions may be filed electronically via the internet in lieu of paper. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's web site under the “e-Filing” link. The Commission strongly encourages e-filings.
The Commission's Rules of Practice and Procedure require all intervenors filing documents with the Commission to serve a copy of that document on each person whose name appears on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency. A copy of any motion to intervene must also be served upon each representative of the Applicant specified in the particular application.
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Commission staff member Bob Easton (Office of Energy Projects, 202-502-6045;
As “non-decisional” staff, Mr. Easton will not participate in an advisory capacity in the Commission's review of any offer of settlement or settlement agreement, or deliberations concerning the disposition of the relicense application in the above-referenced proceeding.
Different Commission “advisory staff” will be assigned to review any offer of settlement or settlement agreement, and to process the relicense application, including providing advice to the Commission with respect to the agreement and the application. Non-decisional staff and advisory staff are prohibited from communicating with one another concerning the merits of the settlement and the relicense application.
Take notice that during the month of December 2008, the status of the above-captioned entities as Exempt Wholesale Generators Companies became effective by operation of the Commission's regulations 18 CFR 366.7(a).
Take notice that on January 15, 2009, Mountain States Transmission Intertie, LLC (MSTI) and NorthWestern Corporation (NorthWestern) filed a Petition for Declaratory Order on Rate Treatments and Open Season for Transmission Export Project. MSTI and NorthWestern request the Commission to confirm that MSTI may charge negotiated rates for a proposed new high voltage transmission project to provide service from the NorthWestern system to southern Idaho, and that MSTI's proposal to give customers in NorthWestern's current MSTI service request queue a preference to the extent capacity is over-subscribed in the MSTI open season and to terminate the NorthWestern queue is not unduly discriminatory.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. On or before the comment date, it is not necessary to serve motions to intervene or protests on persons other than the Applicant.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Take notice that on January 15, 2009, NorthWestern Corporation (NorthWestern) filed a Petition for Declaratory Order requesting that the Commission approve NorthWestern's open season process for its contemplated Collector Project and grant certain requested waivers to effectuate the open season.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. On or before the comment date, it is not necessary to serve motions to intervene or protests on persons other than the Applicant.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Comment Date: 5 p.m. Eastern Time on February 17, 2009.
This is a supplemental notice in the above-referenced proceeding of Aspire Capital Management LLC's application for market-based rate authority, with an accompanying rate tariff, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability, is February 11, 2009.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 14 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First St., NE., Washington, DC 20426.
The filings in the above-referenced proceeding are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the Web site that enables subscribers to receive e-mail notification when a document is added to a subscribed dockets(s). For assistance with any FERC Online service, please e-mail
On January 14, 2009, Enterprise Texas Pipeline, LLC (Enterprise Texas) filed a request to defer review of its September 30, 2008 Petition for Rate Approval. It also requests that the Commission move forward on a separate track to complete its review of and ruling on all of the matters related to the Enterprise Texas Statement of Operating Conditions (SOC) that have been raised by intervenors in the above-captioned dockets and that are the subject of certain data requests.
The request states that Enterprise Texas has experienced a delay in placing the Sherman Lateral fully into service for the performance of services pursuant to Natural Gas Policy Act section 311 and it does not anticipate charging the proposed incremental rate until some time in the future. Enterprise Texas commits that it will not charge its proposed incremental rate for any interim service on the Sherman Lateral, but rather will only charge a rate no greater than the currently effective rate for the Enterprise Texas system that was approved in Docket No. PR07-12.
Notice is hereby given that answers to the motion are due no later than January 29, 2009.
Take notice that on January 14, 2009, National Fuel Gas Supply Corporation (National Fuel), 6363 Main Street, Williamsville, New York 14221, filed in Docket No. CP09-46-000, a prior notice request pursuant to sections 157.205 and 157.208 of the Federal Energy Regulatory Commission's regulations under the Natural Gas Act for authorization to increase the certificated Maximum Allowable Operating Pressure (MAOP) for Line K-M2 and a portion of Line K, originating and terminating in Erie County, New York, and to thereafter operate these lines up to and including the higher MAOP, all as more fully set forth in the application, which is on file with the Commission and open to public inspection. The filing may also be viewed on the Web at
Specifically, National Fuel proposes to uprate the MAOP of Lines K and K-M2 from the current MAOP of 220 psig to the requested MAOP of 320 psig. National Fuel states that the uprating of the MAOP of the lines will improve system reliability and flexibility. National Fuel estimates the cost of the project to be $200,000.
Any questions regarding the application should be directed to David W. Reitz, Deputy, General Counsel, National Fuel Gas supply Corporation, 6363 Main Street, Williamsville, New York 14221, at (716) 857-7949.
Any person may, within 60 days after the issuance of the instant notice by the Commission, file pursuant to Rule 214 of the Commission's Procedural Rules (18 CFR 385.214) a motion to intervene or notice of intervention. Any person filing to intervene or the Commission's staff may, pursuant to section 157.205 of the Commission's Regulations under the Natural Gas Act (NGA) (18 CFR 157.205) file a protest to the request. If no protest is filed within the time allowed therefore, the proposed activity shall be deemed to be authorized effective the day after the time allowed for protest. If a protest is filed and not withdrawn within 30 days after the time allowed for filing a protest, the instant request shall be treated as an application for authorization pursuant to section 7 of the NGA.
The Commission strongly encourages electronic filings of comments, protests, and interventions via the Internet in lieu of paper. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site (
Take notice that the Commission Staff will convene a technical conference in the above-referenced proceedings on Wednesday, January 28, 2009, at 10 a.m. (EST), in a room to be designated at the offices of the Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426.
On August 29, 2008, Equitrans, L.P. (Equitrans) filed tariff sheets to establish a new Tennessee Capacity Surcharge Tracker to recover reservation charges incurred by Equitrans under a Gas Transportation Agreement with Tennessee Gas Pipeline Company (Tennessee) and establish rules and procedures for Equitrans's shippers to utilize the Tennessee capacity. On September 30, 2008, the Commission accepted and suspended Equitrans's proposed tariff sheets, to become effective October 1, 2008, subject to refund and conditions, and further review.
FERC conferences are accessible under section 508 of the Rehabilitation Act of 1973. For accessibility accommodations please send an e-mail to
All interested persons are permitted to attend. For further information please contact Anna Fernandez at (202) 502-6682 or e-mail
Environmental Protection Agency (EPA).
Notice of final order on petition to object to a state operating permit.
Pursuant to Clean Air Act section 505(b)(2) and 40 CFR 70.8(d), the EPA Administrator signed an Order, dated January 8, 2009, denying a petition to object to a state operating permit issued by the Kentucky Division for Air Quality (KDAQ) to Thoroughbred Generating Company, LLC—Thoroughbred Generating Station (TGS) located near Central City, Muhlenberg County, Kentucky. This Order constitutes final action on the petition submitted by the Natural Resources Defense Council, Sierra Club, Valley Watch, the National Parks Conservation Association, the Ohio Valley Environmental Coalition, and Elizabeth and Hannah Crowe (Petitioners) on January 24, 2003. Pursuant to section 505(b)(2) of the Clean Air Act (the Act), any person may seek judicial review of the Order in the United States Court of Appeals for the appropriate circuit within 60 days of this notice under section 307(b) of the Act.
Copies of the final Order, the petition, and all pertinent information relating thereto are on file at the following location: EPA Region 4, Air, Pesticides and Toxics Management Division, 61 Forsyth Street, SW., Atlanta, Georgia 30303-8960. The final Order is also available electronically at the following address:
Art Hofmeister, Air Permits Section, EPA Region 4, at (404) 562-9115 or
The Act affords EPA a 45-day period to review and, as appropriate, to object to operating permits proposed by state permitting authorities under title V of the Act, 42 U.S.C. 7661-7661f. Section 505(b)(2) of the Act and 40 CFR 70.8(d) authorize any person to petition the EPA Administrator to object to a title V operating permit within 60 days after the expiration of EPA's 45-day review period if EPA has not objected on its own initiative. Petitions must be based only on objections to the permit that were raised with reasonable specificity during the public comment period provided by the state, unless the petitioner demonstrates that it was impracticable to raise these issues during the comment period or the grounds for the issues arose after this period.
Petitioners submitted a petition on January 24, 2003, requesting that EPA object to a state title V operating permit issued by KDAQ to TGS. However, on December 15, 2008, Thoroughbred Generating Company relinquished the permit at issue in the petition. Therefore, on January 8, 2009, the Administrator issued an Order denying the petition as moot since no permit about which EPA could object existed. The Order further explains EPA's rationale for denying the petition.
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency (EPA or Agency) Science Advisory Board (SAB) Staff Office announces a public meeting of the Science Advisory Board Expert Elicitation Advisory Panel to review EPA's draft
The meeting dates are Wednesday, February 25, 2009 from 9 a.m. to 5:30 p.m. through Thursday, February 26, 2009 from 9 a.m. to 1 p.m. (Eastern Time).
The meeting will be held in the SAB Conference Center, located at 1025 F Street, NW., Room 3705, Washington, DC 20004.
Members of the public who wish to obtain further information about this meeting may contact Dr. Angela Nugent, Designated Federal Officer (DFO). Dr. Nugent may be contacted at the EPA Science Advisory Board (1400F), U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue, NW., Washington, DC 20460; or via telephone/voice mail; (202) 343-9981; fax (202) 233-0643; or e-mail at
Pursuant to the Federal Advisory Committee Act, Public Law 92-463, notice is hereby given that the SAB Expert Elicitation Advisory Panel will hold a public meeting to review EPA's draft
EPA's Science Advisory Board Staff Office formed the SAB Expert Elicitation Advisory Panel after announcing the advisory activity in the
The Commission hereby gives notice of the filing of the following agreements under the Shipping Act of 1984. Interested parties may submit comments on agreements to the Secretary, Federal Maritime Commission, Washington, DC 20573, within ten days of the date this notice appears in the
By Order of the Federal Maritime Commission.
The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States. Additional information on all bank holding companies may be obtained from the National Information Center website at
Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than February 23, 2009.
Board of Governors of the Federal Reserve System, January 26, 2009.
Office of the Secretary, HHS.
In compliance with the requirement of section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Office of the Secretary (OS), Department of Health and Human Services, is publishing the following summary of a proposed information collection request for public comment. Interested persons are invited to send comments regarding this burden estimate or any other aspect of this collection of information, including any of the following subjects: (1) The necessity and utility of the proposed information collection for the proper performance of the agency's functions; (2) the accuracy of the estimated burden; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden. To obtain copies of the supporting statement and any related forms for the proposed paperwork collections referenced above, e-mail your request, including your address, phone number, OMB number, and OS document identifier, to
National Institute for Occupational Safety and Health (NIOSH), Department of Health and Human Services (HHS).
Notice.
HHS gives notice of a decision to designate a class of employees at Vitro Manufacturing in Canonsburg, Pennsylvania, as an addition to the Special Exposure Cohort (SEC) under the Energy Employees Occupational Illness Compensation Program Act of 2000. On January 16, 2009, the Secretary of HHS designated the following class of employees as an addition to the SEC:
All AWE employees who worked at Vitro Manufacturing in Canonsburg, Pennsylvania, from August 13, 1942 through December 31, 1957, for a number of work days aggregating at least 250 work days, occurring either solely under this employment or in combination with work days within the parameters established for one or more other classes of employees in the Special Exposure Cohort.
Larry Elliott, Director, Office of Compensation Analysis and Support, National Institute for Occupational Safety and Health (NIOSH), 4676 Columbia Parkway, MS C-46, Cincinnati, OH 45226, Telephone 513-533-6800 (this is not a toll-free number). Information requests can also be submitted by e-mail to
National Institute for Occupational Safety and Health (NIOSH), Department of Health and Human Services (HHS).
Notice.
HHS gives notice of a decision to designate a class of employees at the Mallinckrodt Chemical Co., Destrehan Street Plant in St. Louis, Missouri, as an addition to the Special Exposure Cohort (SEC) under the Energy Employees Occupational Illness Compensation Program Act of 2000. On January 16, 2009, the Secretary of HHS designated the following class of employees as an addition to the SEC:
All employees of DOE, its predecessor agencies, and their contractors and subcontractors who worked in the Uranium Division at the Mallinckrodt Chemical Co., Destrehan Street Plant in St. Louis, Missouri, from January 1, 1958 to December 31, 1958, for a number of work days aggregating at least 250 work days, occurring either solely under this employment or in combination with work days within the parameters established for one or more other classes of employees included in the SEC.
Larry Elliott, Director, Office of Compensation Analysis and Support, National Institute for Occupational Safety and Health (NIOSH), 4676 Columbia Parkway, MS C-46, Cincinnati, OH 45226, Telephone 513-533-6800 (this is not a toll-free number). Information requests can also be submitted by e-mail to
National Institute for Occupational Safety and Health (NIOSH), Department of Health and Human Services (HHS).
Notice.
HHS gives notice of a decision to designate a class of employees at the Metallurgical Laboratory in Chicago, Illinois, as an addition to the Special Exposure Cohort (SEC) under the Energy Employees Occupational Illness Compensation Program Act of 2000. On January 16, 2009, the Secretary of HHS designated the following class of employees as an addition to the SEC:
All AWE employees who worked at the Metallurgical Laboratory in Chicago, Illinois, from August 13, 1942 through June 30, 1946, for a number of work days aggregating at least 250 work days, occurring either solely under this employment or in combination with work days within the parameters established for one or more other classes of employees in the SEC.
Larry Elliott, Director, Office of Compensation Analysis and Support, National Institute for Occupational Safety and Health (NIOSH), 4676 Columbia Parkway, MS C-46, Cincinnati, OH 45226, Telephone 513-533-6800 (this is not a toll-free number). Information requests can also be submitted by e-mail to
Office of the Secretary, HHS.
Notice.
Notice is hereby given that the Office of Research Integrity (ORI) and the Assistant Secretary for Health have taken final action in the following case:
PHS found that Respondent engaged in research misconduct in the performance of research on yeast to test whether disruption of the tight controls, to prevent re-replication, on the initiation of DNA replication could produce gene amplifications with a copy number greater than two (2).
Specifically, Respondent falsified files containing raw scanned microarray images from another researcher's experiments to demonstrate that in experiments that she claimed to have conducted, she successfully observed gene amplifications with a copy number greater than two (2); there were 36 such instances of falsifying data files.
Dr. Afshar has entered into a Voluntary Settlement Agreement in which she has voluntarily agreed, for a period of three (3) years, beginning on December 22, 2008:
(1) To exclude herself from serving in any advisory capacity to PHS, including but not limited to service on any PHS advisory committee, board, and/or peer review committee, or as a consultant; and
(2) that any institution that submits an application for PHS support for a research project on which the Respondent's participation is proposed or that uses the Respondent in any capacity on PHS supported research, or that submits a report of PHS-funded research in which the Respondent is involved, must concurrently submit a plan for supervision of the Respondent's duties to the funding agency for approval. The supervisory plan must be designed to ensure the scientific integrity of the Respondent's research contribution. Respondent agrees to ensure that a copy of the supervisory plan also is submitted to ORI by the institution for ORI approval. Respondent agrees that she will not participate in any PHS-supported research until such a supervisory plan is submitted to ORI.
Director, Division of Investigative Oversight, Office of Research Integrity, 1101 Wootton Parkway, Suite 750, Rockville, MD 20852, (240) 453-8800.
Office of the Secretary, HHS.
Notice.
Notice is hereby given that the Office of Research Integrity (ORI) and the Assistant Secretary for Health have taken final action in the following case:
Specifically, PHS found that Respondent engaged in scientific misconduct by:
1. Dr. Nguyen's laboratory conducted a single experiment on the effect of Livistona extract on the growth of 10
A. The data reported for the control group were from an experiment in nude mice implanted with human breast tumor implants, rather than with mouse fibrosarcoma cell implants, as Dr. Nguyen reported in the paper. The control data for FSA implanted C3H mice could not be located in the laboratory records.
2. Dr. Nguyen's laboratory conducted a single experiment on the effect of Livistona extract on the growth of 10
A. Falsely stating in the associated text that there were ten mice per group and that the experiments were repeated once, while in fact, there were only five mice per group with no repetition of this experiment
B. Omitting data on the control curve for two of the measurement times (at 2 and 3.5 weeks) and falsely reporting the times at which three other measurements were taken.
3. Dr. Nguyen's laboratory conducted a single experiment (1998-99) testing the anti-angiogenic effects of
A. Figure 8 of NIH grant application P50 AT00I51-01, dated 5/19/99, plots the data as a bar graph. However, the same data were reported in Figure 1 of
4. Dr. Nguyen's laboratory tested whether the levels of bFGF (basic fibroblast growth factor) and VEGF (vascular endothelial growth factor) in nipple fluid aspirates were significantly elevated in breast cancer patients in comparison to values from normal lactating and non-lactating breasts. Dr. Nguyen falsified the number of subjects who were lactating in The Lancet 356:567-569, 2000, by claiming that bFGF data were obtained from four separate subjects while in fact the data were from both breasts of two subjects.
Dr. Nyugen has entered into a Voluntary Settlement Agreement with ORI. As part of that Agreement, Dr. Nyugen admits to UCLA's findings of fact but denies ORI's findings that the actions rise to the level of scientific misconduct. The settlement is not an admission of liability on the part of the Respondent. Dr. Nyugen voluntarily agreed, for a period of three (3) years, beginning on December 29, 2008:
(1) Not to serve in any advisory capacity to PHS, including but not limited to service on any PHS advisory committee, board, and/or peer review committee, or as a consultant; and
(2) That although Respondent is not currently engaged in PHS-supported research, any institution that submits an application for PHS support for a research project on which the Respondent's participation is proposed or that uses the Respondent in any capacity on PHS supported research, or that submits a report of PHS-funded research in which the Respondent is involved, must concurrently submit a plan for supervision of the Respondent(s duties to the funding agency for approval. The supervisory plan must be designed to ensure the scientific integrity of the Respondent(s research contribution. Respondent agreed to ensure that a copy of the supervisory plan also is submitted to ORI by the institution for ORI approval. Respondent agreed to not participate in any PHS-supported research until such a supervisory plan is submitted to ORI.
Director, Division of Investigative Oversight, Office of Research Integrity, 1101 Wootton Parkway, Suite 750, Rockville, MD 20852, (240) 453-8800.
Pursuant to Public Law 92-463, notice is hereby given of the eighteenth meeting of the Secretary's Advisory Committee on Genetics, Health, and Society (SACGHS), U.S. Public Health Service. The meeting will be held from 10 a.m. to approximately 5:30 p.m. on Thursday, March 12, 2009, and 8:30 a.m. to approximately 3 p.m. on Friday, March 13, 2009, at the Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201. The meeting will be open to the public with attendance limited to space available. The meeting also will be Web cast.
At this meeting, the Committee will begin to explore issues related to genetics and the future of the health care system with the first in a series of roundtables focusing on perspectives of stakeholders in the payer community. Other agenda items include a session on developments related to informed consent for genomic data sharing, discussion of the Committee's next steps to address concerns related to consumer-initiated genomic services, and updates on Department of Health and Human Services and agency priorities.
As always, the Committee welcomes hearing from anyone wishing to provide public comment on any issue related to genetics, health and society. Individuals who would like to provide public comment should notify the SACGHS Executive Secretary, Ms. Sarah Carr, by telephone at 301-496-9838 or e-mail at
Under authority of 42 U.S.C. 217a, Section 222 of the Public Health Service Act, as amended, the Department of Health and Human Services established SACGHS to serve as a public forum for deliberations on the broad range of human health and societal issues raised by the development and use of genetic and genomic technologies and, as warranted, to provide advice on these issues. The draft meeting agenda and other information about SACGHS, including information about access to the Web cast, will be available at the following Web site:
Agency for Healthcare Research and Quality, HHS.
Notice.
This notice announces the intention of the Agency for Healthcare Research and Quality (AHRQ) to request that the Office of Management and Budget (OMB) approve the proposed information collection project: “Assessing Organizational Responses to AHRQ's Health Literacy Pharmacy Tools.” In accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3506(c)(2)(A), AHRQ invitesthe public to comment on this proposed information collection.
Comments on this notice must be received by March 30, 2009.
Written comments should be submitted to: Doris Lefkowitz, Reports clearance Officer, AHRQ, by e-mail at
Copies of the proposed collection plans, data collection instruments, and specific details on the estimated burden can be obtained from the AHRQ Reports Clearance Officer.
Doris Lefkowitz, AHRQ Reports Clearance Officer, (301) 427-1477, or by e-mail at
According to the 2003 National Assessment of Adult Literacy, only 12 percent of adults have proficient health literacy-the capacity to obtain, process, and understand basic health information and services needed to make appropriate health decisions. Limited health literacy often leads to medication errors. For example, one study found that a majority of adults with low health literacy did not understand instructions to “take medication on an empty stomach.” Overall, it is estimated that low health literacy costs the U.S. health care system $50 billion to $73 billion per year. Pharmacies can serve as an important source of medication information for people with limited health literacy, but relatively few pharmacies have implemented health literacy practices (Praska
Recognizing that pharmacies may need outside knowledge and assistance to improve their health literacy practices, AHRQ, through a previous task order, supported the creation of the following four health literacy tools for pharmacy settings, which have been validated in institutional pharmacy settings.
1. Is Our Pharmacy Meeting Patients' Needs? A Pharmacy Health Literacy Assessment Tool User's Guide (Jacobson
2. Strategies to Improve Communication between Staff and Patients: Training Program for Pharmacy Staff (Kripalini & Jacobson, 2007).
3. How to Create a Pill Card (Jacobson
4. Telephone Reminders: A Tool to Help Refill Medications on Time (Jacobson
AHRQ now proposes to distribute these tools to a more diverse set of pharmacies and to conduct in-depth case studies to enhance our understanding about the conditions that may facilitate or impede the adoption of the tools in these settings. AHRQ would use insights gained to develop materials (promotional implementation guides) that could assist interested pharmacies in putting the tools into practice and anticipating and overcoming obstacles to doing so.
The pharmacy health literacy tools will be disseminated through an AHRQ Web site, which will also provide technical assistance to pharmacies that wish to implement the tools. A description of the tools and site will be distributed to pharmacists through national pharmacy organizations' trade publications and a direct mailing to chain pharmacy headquarters. We anticipate that we would be able to reach as many as 60,000 individual pharmacists across the country through these channels.
This project is being conducted pursuant to AHRQ's statutory authority to conduct and support research on healthcare and on systems for the delivery of such care, including activities with respect to: The quality, effectiveness, efficiency, appropriateness and value of health care services; quality measurement and improvement; and health care costs, productivity, organization, and market forces. 42 U.S.C. 299a(a)(1), (2), and (6).
Through its contractor, AHRQ proposes to conduct 7 in-depth case studies to assess pharmacies' experiences with implementation of one or more of these four health literacy tools, using interviews, site visits, review of documents and a survey of pharmacy staff from case study pharmacies. In addition, AHRQ will conduct 2 more limited studies of pharmacies that were aware of the tools but chose not to implement them.
A 2-day site visit with be conducted with each of the 7 sites that implement at least one of the tools. Each site visit will include a walk-through of the pharmacy site to see the physical layout, an interview with the key informant or contact person, and individual interviews with up to eight additional pharmacy employees, including the pharmacy manager, staff pharmacists, pharmacy technicians, and pharmacy clerks.
Therefore, up to 63 interviews will be completed across the 7 sites that implement one or more of the tools. In addition, up to 12 pharmacy staff at each of the 7 implementation sites will complete the tool's Pharmacy Staff Survey contained in the Pharmacy Health Literacy Assessment Tool.
For each of the two pharmacies which do not implement the tools, interviews will be conducted with up to 2 informants per site. The content of this interview will be similar, but not identical, to the interviews with staff at the implementing sites.
For pharmacists and other visitors to the AHRQ Web site, we will conduct a voluntary survey regarding health literacy in general, and feedback regarding AHRQ's health literacy tools. The Web site visitors' survey will be available on-line.
Exhibit I shows the estimated annualized burden hours for the respondents' time to participate in this case study. The staff interview at the implementation sites will be completed with up to 9 pharmacy staff members from each of the 7 pharmacies that implement all or part of the health literacy tools. Staff interviews at the two nonimplementation sites will be completed with up to 2 individuals per pharmacy. The staff interviews are estimated to last 1 hour. The pharmacy staff survey will be completed by up to 12 staff from the 7 implementation pharmacies and is estimated to take approximately 20 minutes. Lastly, the Web site visitor's survey will be completed by about 150 respondents and is estimated to take up to 12 minutes to complete. The total burden hours for all data collections is estimated to be 125 hours.
Exhibit 2 shows the estimated annualized cost burden for the respondents' time to provide the requested data. The estimated total cost burden is about $3,791.
The total cost of this contract to the government is $400,000. The project extends over three fiscal years. Exhibit 3 shows a breakdown of the total cost as well as the annualized cost.
In accordance with the above cited legislation, comments on the AHRQ information collection proposal are requested with regard to any of the
Comments submitted in response to this notice will be summarized and included in the request for OMB approval of the proposed information collection. All comments will become a matter of public record.
An application is required by Federal statute (the Help America Vote Act (HAVA) of 2002, Pub. L. 107-252, Section 291, Payments for Protection and Advocacy Systems, 42 U.S.C. 15461). Each State Protection & Advocacy (P&A) System must prepare an application in accordance with the program announcement.
There is no application kit; the P&As application may be in the format of its choice. It must, however, be signed by the P&As Executive Director or the designated representative, and contain the assurances as outlined under Part I. C. Use of Funds. The P&As designated representatives may signify their agreement with the conditions/assurances by signing and returning the assurance document Attachment B, found in Part IV of this Instruction. The assurance document signed by the Executive Director of the P&A, or other designated person, should be submitted with the application to the Administration on Developmental Disabilities.
An annual report is required by Federal statute (the Help America Vote Act (HAVA) of 2002, Pub. L. 107-252, Section 291, Payments for Protection and Advocacy Systems, 42 U.S.C. 15461). Each State Protection & Advocacy (P&A) System must prepare and submit an annual report at the end of every fiscal year. The report addresses the activities conducted with the funds provided during the year. The information from the annual report will be aggregated into an annual profile of how HAVA funds have been spent. The report will also provide an overview of the P&A goals and accomplishments and permit the Administration on Developmental Disabilities to track progress to monitor grant activities.
Food and Drug Administration, HHS.
Notice.
This notice announces a forthcoming meeting of a public advisory committee of the Food and Drug Administration (FDA). The meeting will be open to the public.
FDA intends to make background material available to the public no later than 2 business days before the meeting. If FDA is unable to post the background material on its Web site prior to the meeting, the background material will be made publicly available at the location of the advisory committee meeting, and the background material will be posted on FDA's Web site after the meeting. Background material is available at
Persons attending FDA's advisory committee meetings are advised that the agency is not responsible for providing access to electrical outlets.
FDA welcomes the attendance of the public at its advisory committee meetings and will make every effort to accommodate persons with physical disabilities or special needs. If you require special accommodations due to a disability, please contact Nicole Vesely at least 7 days in advance of the meeting.
FDA is committed to the orderly conduct of its advisory committee meetings. Please visit our Web site at
Notice of this meeting is given under the Federal Advisory Committee Act (5 U.S.C.app. 2).
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is requesting nominations for voting members to serve on the Allergenic Products Advisory Committee;Blood Products Advisory Committee; Cellular, Tissue, and Gene Therapies Advisory Committee; Transmissible Spongiform Encephalopathies Advisory Committee; and the Vaccines and Related Biological Products Advisory Committee. Nominations will be accepted for current vacancies and those that will or may occur through September 30, 2009.
FDA has a special interest in ensuring that women, minority groups, and individuals with disabilities are adequately represented on advisory committees and, therefore, encourages nominations of qualified candidates from these groups.
Because scheduled vacancies occur on various dates throughout each year, no cutoff date is established for the receipt of nominations. However, when possible, nominations should be received at least 6 months before the date of scheduled vacancies for each year, as indicated in this document.
All nominations for membership should be sent electronically to
Linda Amendt, Center for Biologics Evaluation and Research (HFM-71), Food and Drug Administration,1401 Rockville Pike, Rockville, MD 20852-1448, 301-827-1370, e-mail:
FDA is requesting nominations of voting members with appropriate expertise for vacancies listed as follows:
The committee reviews and evaluates available data concerning the safety, effectiveness, and adequacy of labeling of marketed and investigational allergenic biological products or materials that are administered to humans for the diagnosis, prevention, or treatment of allergies and allergic diseases.
The committee reviews and evaluates available data concerning the safety, effectiveness, and appropriate use of blood, products derived from blood and serum or biotechnology which are intended for use in the diagnosis, prevention, of treatment of human diseases.
The committee reviews and evaluates available data relating to the safety, effectiveness, and appropriate use of human cells, human tissues, gene transfer therapies, and xenotransplantation products which are
The committee reviews and evaluates available scientific data concerning the safety of products which may be at risk for transmission of spongiform encephalopathies having an impact on the public health.
The committee reviews and evaluates data concerning the safety, effectiveness, and appropriate use of vaccines and related biological products which are intended for use in the prevention, treatment, or diagnosis of human diseases.
Persons nominated for membership on the committees shall have adequately diversified experience appropriate to the work of the committee in such fields as clinical and administrative medicine, engineering, biological and physical sciences, statistics, and other related professions. The nature of specialized training and experience necessary to qualify the nominee as an expert suitable for appointment may include experience in medical practice, teaching, and/or research relevant to the field of activity of the committee. The particular need for vacancies on each committee for the calendar years 2008 and 2009 is shown in table 1 of this document. The term of office is up to 4 years depending on the appointment date. Committees meet one to five times a year. Most meetings are for 2 days.
Any interested person may nominate one or more qualified persons for membership on one or more of the advisory committees. Self-nominations are also accepted. Nominations shall include the name of the committee, a complete curriculum vitae of each nominee, current business address and telephone number, and shall state that the nominee is aware of the nomination. Potential candidates will be required to provide detailed information concerning such matters as financial holdings, employment, and research grants and/or contracts to permit evaluation of possible sources of conflict of interest.
This notice is issued under the Federal Advisory Committee Act (5 U.S.C. app. 2) and 21 CFR part 14 relating to advisory committees.
The Indian Health Service (IHS) estimated budget request for Fiscal Year (FY) 2009 includes $17,488,854 for the IHS Loan Repayment Program (LRP) for health professional educational loans (undergraduate and graduate) in return for full-time clinical service in Indian health programs.
This program announcement is subject to the appropriation of funds. This notice is being published early to coincide with the recruitment activity of the IHS, which competes with other Government and private health management organizations to employ qualified health professionals.
This program is authorized by Section 108 of the Indian Health Care Improvement Act (IHCIA) as amended, 25 U.S.C. 1601
The estimated funds available is approximately $17,488,854 to support approximately 391 competing awards averaging $44,740 per award for a two year contract. One year contract continuations will receive priority consideration in any award cycle. Applicants selected for participation in the FY 2009 program cycle will be expected to begin their service period no later than September 30, 2009.
Pursuant to Section 108(b), to be eligible to participate in the LRP, an individual must:
(1) (A) Be enrolled—
(i) In a course of study or program in an accredited institution, as determined by the Secretary, within any State and be scheduled to complete such course of study in the same year such individual applies to participate in such program; or
(ii) In an approved graduate training program in a health profession; or
(B) Have a degree in a health profession and a license to practice in a state; and
(2) (A) Be eligible for, or hold an appointment as a Commissioned Officer in the Regular or Reserve Corps of the Public Health Service (PHS); or
(B) Be eligible for selection for service in the Regular or Reserve Corps of the PHS; or
(C) Meet the professional standards for civil service employment in the IHS; or
(D) Be employed in an Indian health program without service obligation; and
(E) Submit to the Secretary an application for a contract to the LRP. The Secretary must approve the contract before the disbursement of loan repayments can be made to the participant. Participants will be required to fulfill their contract service agreements through full-time clinical practice at an Indian health program site determined by the Secretary. Loan repayment sites are characterized by physical, cultural, and professional isolation, and have histories of frequent staff turnover. All Indian health program sites are annually prioritized within the Agency by discipline, based on need or vacancy.
Any individual who owes an obligation for health professional service to the Federal Government, a State, or other entity is not eligible for the LRP unless the obligation will be completely satisfied before they begin service under this program.
Section 108 of the IHCIA, as amended by Public Laws 100-713 and 102-573, authorizes the IHS LRP and provides in pertinent part as follows:
“(a)(1) The Secretary, acting through the Service, shall establish a program to be known as the Indian Health Service Loan Repayment Program (hereinafter referred to as the “Loan Repayment Program”) in order to assure an adequate supply of trained health professionals necessary to maintain accreditation of, and provide health care services to Indians through, Indian health programs.”
Section 4(n) of the IHCIA, as amended by the Indian Health Care Improvement Technical Corrections Act of 1996, Public Law 104-313, provides that:
“Health Profession” means allopathic medicine, family medicine, internal medicine, pediatrics, geriatric medicine, obstetrics and gynecology, podiatric medicine, nursing, public health
For the purposes of this program, the term “Indian health program” is defined in Section 108(a)(2)(A), as follows:
(A) The term “Indian health program” means any health program or facility funded, in whole or in part, by the Service for the benefit of Indians and administered—
(i) Directly by the Service;
(ii) By any Indian Tribe or Tribal or Indian organization pursuant to a contract under—
(I) The Indian Self-Determination Act, or
(II) Section 23 of the Act of April 30, 1908, (25 U.S.C. 47), popularly known as the Buy Indian Act; or
(iii) By an urban Indian organization pursuant to Title V of this act.”
Section 108 of the IHCIA, as amended by Public Laws 100-713 and 102573, authorizes the IHS to determine specific health professions for which IHS LRP contracts will be awarded. The list of priority health professions that follows is based upon the needs of the IHS as well as upon the needs of American Indians and Alaska Natives.
(a) Medicine: Allopathic and Osteopathic.
(b) Nurse: Associate, B.S., and M.S. Degree.
(c) Clinical Psychology: PhD only.
(d) Social Work: Masters level only.
(e) Chemical Dependency Counseling: Baccalaureate and Masters level.
(f) Dentistry.
(g) Dental Hygiene.
(h) Pharmacy: B.S., Pharm. D.
(i) Optometry.
(j) Physician Assistant.
(k) Advanced Practice Nurses: Nurse Practitioner, Certified Nurse Midwife, Registered Nurse Anesthetist (Priority consideration will be given to Registered Nurse Anesthetists.).
(l) Podiatry: D.P.M.
(m) Physical Rehabilitation Services: Physical Therapy, Occupational Therapy, Speech-Language Pathology, and Audiology: M.S. and D.P.T.
(n) Diagnostic Radiology Technology: Certificate, Associate, and B.S.
(o) Medical Technology: Associate, and B.S.
(p) Public Health Nutritionist/Registered Dietitian.
(q) Engineering (Environmental): B.S. (Engineers must provide environmental engineering services to be eligible.).
(r) Environmental Health (Sanitarian): B.S.
(s) Health Records: R.H.J.T. and R.H.T.A.
(t) Respiratory Therapy.
(u) Ultrasonography.
Not applicable.
Interested individuals are reminded that the list of eligible health and allied health professions is effective for applicants for FY 2009. These priorities will remain in effect until superseded.
Application materials may be obtained by calling or writing to the address below. In addition, completed applications should be returned to: IHS Loan Repayment Program, 801 Thompson Avenue, Suite 120, Rockville, Maryland 20852, PH: 301/443-3396 [between 8 am. and 5 p.m. (EST) Monday through Friday, except Federal holidays].
Applications must be submitted on the form entitled “Application for the Indian Health Service Loan Repayment Program,” identified with the Office of Management and Budget approval number of OMB #0917-0014.
Completed applications may be submitted to the IHS Loan Repayment Program, 801 Thompson Avenue, Suite 120, Rockville, Maryland 20852. Applications for the FY2009 LRP will be accepted and evaluated monthly beginning January 16, 2009, and will continue to be accepted each month thereafter until all funds are exhausted for FY 2009. Subsequent monthly deadline dates are scheduled for Friday of the second full week of each month.
Applications shall be considered as meeting the deadline if they are either:
(a) Received on or before the deadline date; or
(b) Sent on or before the deadline date. (Applicants should request a legibly dated U.S. Postal Service postmark or obtain a legibly dated receipt from a commercial carrier or U.S. Postal Service.
Private metered postmarks are not acceptable as proof of timely mailing.).
Applications received after the monthly closing date will be held for consideration in the next monthly funding cycle. Applicants who do not receive funding by September 30, 2009, will be notified in writing.
This program is not subject to review under Executive Order 12372.
Not applicable.
All applicants must sign and submit to the Secretary, a written contract agreeing to accept repayment of educational loans and to serve for the applicable period of obligated service in a priority site as determined by the Secretary, and submit a signed affidavit attesting to the fact that they have been informed of the relative merits of the U.S. PHS Commissioned Corps and the Civil Service as employment options.
The IHS has identified the positions in each Indian health program for which there is a need or vacancy and ranked those positions in order of priority by developing discipline-specific prioritized lists of sites. Ranking criteria for these sites may include the following:
(a) Historically critical shortages caused by frequent staff turnover;
(b) Current unmatched vacancies in a health profession discipline;
(c) Projected vacancies in a health profession discipline;
(d) Ensuring that the staffing needs of Indian health programs administered by an Indian Tribe or Tribal health organization receive consideration on an equal basis with programs that are administered directly by the Service; and, (e) Giving priority to vacancies in Indian health programs that have a need for health professionals to provide health care services as a result of individuals having breached LRP contracts entered into under this section.
Consistent with this priority ranking, in determining applications to be approved and contracts to accept, the IHS will give priority to applications made by American Indians and Alaska Natives and to individuals recruited through the efforts of Indian Tribes or Tribal or Indian organizations.
Loan repayment awards will be made only to those individuals serving at facilities which have a site score of 70 or above during the first and second quarters and the first month of the third quarter of FY 2009, if funding is available.
One or all of the following factors may be applicable to an applicant, and the
(a) An applicant's length of current employment in the IHS, Tribal, or urban program.
(b) Availability for service earlier than other applicants (first come, first served).
(c) Date the individual's application was received.
Not applicable.
Notice of awards will be mailed on the last working day of each month. Once the applicant is approved for participation in the LRP, the applicant will receive confirmation of his/her loan repayment award and the duty site at which he/she will serve his/her loan repayment obligation.
Applicants may sign contractual agreements with the Secretary for two years. The IHS may repay all, or a portion of the applicant's health profession educational loans (undergraduate and graduate) for tuition expenses and reasonable educational and living expenses in amounts up to $20,000 per year for each year of contracted service. Payments will be made annually to the participant for the purpose of repaying his/her outstanding health profession educational loans. Payment of health profession education loans will be made to the participant within 120 days, from the date the contract becomes effective. The effective date of the contract is calculated from the date it is signed by the Secretary or his/her delegate, or the IHS, Tribal, urban, or “Buy-Indian” health center entry-on duty date, whichever is more recent.
In addition to the loan payment, participants are provided tax assistance payments in an amount not less than 20 percent and not more than 39 percent of the participant's total amount of loan repayments made for the taxable year involved. The loan repayments and the tax assistance payments are taxable income and will be reported to the Internal Revenue Service (IRS). The tax assistance payment will be paid to the IRS directly on the participant's behalf. LRP award recipients should be aware that the IRS may place them in a higher tax bracket than they would otherwise have been prior to their award.
Any individual who enters this program and satisfactorily completes his or her obligated period of service may apply to extend his/her contract on a year-by-year basis, as determined by the IHS. Participants extending their contracts may receive up to the maximum amount of $20,000 per year plus an additional 20 percent for Federal withholding.
Please address inquiries to Ms. Jacqueline K. Santiago, Chief, IHS Loan Repayment Program, 801 Thompson Avenue, Suite 120, Rockville, Maryland 20852, PH: 301/443-3396 [between 8 a.m. and 5 p.m. (EST) Monday through Friday, except Federal holidays].
IHS Area Offices and Service Units that are financially able are authorized to provide additional funding to make awards to applicants in the LRP, but not to exceed $35,000 a year plus tax assistance. All additional funding must be made in accordance with the priority system outlined below. Health professions given priority for selection above the $20,000 threshold are those identified as meeting the criteria in 25 U.S.C. 1616a(g)(2)(A) which provides that the Secretary shall consider the extent to which each such determination
(i) Affects the ability of the Secretary to maximize the number of contracts that can be provided under the LRP from the amounts appropriated for such contracts;
(ii) Provides an incentive to serve in Indian health programs with the greatest shortages of health professionals; and
(iii) Provides an incentive with respect to the health professional involved remaining in an Indian health program with such a health professional shortage, and continuing to provide primary health services, after the completion of the period of obligated service under the LRP.
Contracts may be awarded to those who are available for service no later than September 30, 2009, and must be in compliance with any limits in the appropriation and Section 108 of the IHCIA not to exceed the amount authorized in the IHS appropriation (up to $32,000,000 for FY 2009). In order to ensure compliance with the statutes, Area Offices or Service Units providing additional funding under this section are responsible for notifying the LRP of such payments before funding is offered to the LRP participant.
Should an IHS Area Office contribute to the LRP, those funds will be used for only those sites located in that Area. Those sites will retain their relative ranking from the national site-ranking list. For example, the Albuquerque Area Office identifies supplemental monies for dentists. Only the dental positions within the Albuquerque Area will be funded with the supplemental monies consistent with the national ranking and site index within that Area.
Should an IHS Service Unit contribute to the LRP, those funds will be used for only those sites located in that Service Unit. Those sites will retain their relative ranking from the national site-ranking list. For example, Chinle Service Unit 15 identifies supplemental monies for pharmacists. The Chinle Service Unit consists of two facilities, namely the Chinle Comprehensive Health Care Facility and the Tsaile PHS Indian Health Center. The national ranking will be used for the Chinle Comprehensive Health Care Facility (Score = 44) and the Tsaile PHS Indian Health Center (Score = 46). With a score of 46, the Tsaile PHS Indian Health Center would receive priority over the Chinle Comprehensive Health Care Facility.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Notice is hereby given of a change in the meeting of the National Cancer Advisory Board Ad Hoc Subcommittee on Communications, February 2, 2009, 6:30 p.m. to 8 p.m., Bethesda Marriott Suites, 6711 Democracy Boulevard, Bethesda, MD 20814 and the meeting of the National Cancer Advisory Board, February 3-4, 2009, 8 a.m. to 12 p.m., National Institutes of Health, Building 31, 31 Center Drive, Bethesda, MD 20892, which was published in the
This notice is amended to cancel the meeting of the National Cancer Advisory Board Ad Hoc Subcommittee on Communications and to change the end time of the National Cancer Advisory Board closed session on February 3 to 5:15 p.m. The closed session will be held from 4 p.m. to 5:15 p.m. Also, to change the start time of the open session of the National Cancer Advisory Board meeting on February 4 to 8:30 a.m.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and/or contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications and/or contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to Public Law 92-463, notice is hereby given of the eighteenth meeting of the Secretary's Advisory Committee on Genetics, Health, and Society (SACGHS), U.S. Public Health Service. The meeting will be held from 10 a.m. to approximately 5:30 p.m. on Thursday, March 12, 2009, and 8:30 a.m. to approximately 3 p.m. on Friday, March 13, 2009, at the Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201. The meeting will be open to the public with attendance limited to space available. The meeting also will be Web cast.
At this meeting, the Committee will begin to explore issues related to genetics and the future of the health care system with the first in a series of roundtables focusing on perspectives of stakeholders in the payer community. Other agenda items include a session on developments related to informed consent for genomic data sharing, discussion of the Committee's next steps to address concerns related to consumer-initiated genomic services, and updates on Department of Health and Human Services and agency priorities.
As always, the Committee welcomes hearing from anyone wishing to provide public comment on any issue related to genetics, health and society. Individuals who would like to provide public comment should notify the SACGHS Executive Secretary, Ms. Sarah Carr, by telephone at 301-496-9838 or e-mail at
Under authority of 42 U.S.C. 217a, Section 222 of the Public Health Service Act, as amended, the Department of Health and Human Services established SACGHS to serve as a public forum for deliberations on the broad range of human health and societal issues raised by the development and use of genetic and genomic technologies and, as warranted, to provide advice on these issues. The draft meeting agenda and other information about SACGHS, including information about access to the Web cast, will be available at the following Web site:
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of an emergency for the District of Columbia (FEMA-3300-EM), dated January 13, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-2705.
Notice is hereby given that, in a letter dated January 13, 2009, the President issued an emergency declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act), as follows:
I have determined that the emergency conditions in the District of Columbia resulting from the 56th Presidential Inauguration during the period of January 17-21, 2009, are of sufficient severity and magnitude to warrant an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121-5207 (the Stafford Act). Therefore, I declare that such an emergency exists in the District of Columbia.
You are authorized to provide appropriate assistance for required emergency measures, authorized under Title V of the Stafford Act to save lives and protect public health and safety, or to lessen or avert the threat of a catastrophe in the designated areas. Specifically, you are authorized to provide direct Federal assistance at 100 percent Federal funding for the period of January 17-21, 2009; and reimbursement of emergency protective measures (Category B), under the Public Assistance program, at 100 percent Federal funding for work performed on January 20, 2009. FEMA will reimburse for eligible emergency protective measures performed on January 20, 2009, only if the District has expended on the Presidential Inauguration during the period of January 17-21, 2009, the $15 million appropriated to it for “Emergency Planning and Security Costs” by the Continuing Appropriations Resolution 2009, P.L. 110-329. In addition, you are authorized to provide such other forms of assistance under Title V of the Stafford Act as you may deem appropriate.
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal emergency assistance and administrative expenses.
Further, you are authorized to make changes to this declaration to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, Department of Homeland Security, under Executive Order 12148, as amended, Donald L. Keldsen, of FEMA is appointed to act as the Federal Coordinating Officer for this declared emergency.
The following areas of the District of Columbia have been designated as adversely affected by this declared emergency:
The District of Columbia for direct Federal assistance at 100 percent Federal funding for the period of January 17-21, 2009; and reimbursement of emergency protective measures (Category B), under the Public Assistance program, at 100 percent Federal funding for work performed on January 20, 2009. FEMA will reimburse for eligible emergency protective measures performed on January 20, 2009, only if the District has expended on the Presidential Inauguration during the period of January 17-21, 2009, the $15 million appropriated to it for “Emergency Planning and Security Costs” by the Continuing Appropriations Resolution 2009, Public Law 110-329.
(The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households In Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of an emergency declaration for the State of New Hampshire (FEMA-3297-EM), dated December 13, 2008, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
Notice is hereby given that the incident period for this emergency is closed effective December 23, 2008.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of an emergency declaration for the State of New York (FEMA-3299-EM), dated December 18, 2008, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
The notice of an emergency declaration for the State of New York is hereby amended to include the following areas among those areas determined to have been adversely affected by the event declared an emergency by the President in his declaration of December 18, 2008.
Albany, Columbia, Delaware, Greene, Rensselaer, Saratoga, Schenectady, Schoharie, and Washington Counties for debris removal and emergency protective measures (Categories A and B), including direct Federal assistance, under the Public Assistance program (already designated for emergency protective measures [Category B], limited to direct Federal assistance, under the Public Assistance program).
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Hawaii (FEMA-1814-DR), dated January 5, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
Notice is hereby given that, in a letter dated January 5, 2009, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act), as follows:
I have determined that the damage in certain areas of the State of Hawaii resulting from severe storms and flooding during the period of December 10-16, 2008, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act). Therefore, I declare that such a major disaster exists in the State of Hawaii.
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Individual Assistance and Public Assistance in the designated areas and Hazard Mitigation throughout the State. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Public Assistance, Hazard Mitigation, and Other Needs Assistance will be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration to the extent allowable under the Stafford Act.
The time period prescribed for the implementation of section 310(a), Priority to Certain Applications for Public Facility and Public Housing Assistance, 42 U.S.C. 5153, shall be for a period not to exceed six months after the date of this declaration.
The Federal Emergency Management Agency (FEMA) hereby gives notice that
The following areas of the State of Hawaii have been designated as adversely affected by this major disaster:
City and County of Honolulu for Individual Assistance and Public Assistance.
Kauai County for Public Assistance.
All counties within the State of Hawaii are eligible to apply for assistance under the Hazard Mitigation Grant Program.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households In Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Maine (FEMA-1815-DR), dated January 9, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
Notice is hereby given that, in a letter dated January 9, 2009, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act), as follows:
I have determined that the damage in certain areas of the State of Maine resulting from a severe winter storm and flooding during the period of December 11-29, 2008, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act). Therefore, I declare that such a major disaster exists in the State of Maine.
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Public Assistance in the designated areas, Hazard Mitigation throughout the State, and any other forms of assistance under the Stafford Act that you deem appropriate. Direct Federal assistance is authorized. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Public Assistance and Hazard Mitigation will be limited to 75 percent of the total eligible costs. If Other Needs Assistance under Section 408 of the Stafford Act is later requested and warranted, Federal funding under that program will also be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, James N. Russo, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of Maine have been designated as adversely affected by this major disaster:
Androscoggin, Cumberland, Knox, Lincoln, Sagadahoc, Waldo, and York Counties for Public Assistance. Direct Federal assistance is authorized.
All counties within the State of Maine are eligible to apply for assistance under the Hazard Mitigation Grant Program.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the Commonwealth of Massachusetts (FEMA-1813-DR), dated January 5, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
Notice is hereby given that, in a letter dated January 5, 2009, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act), as follows:
I have determined that the damage in certain areas of the Commonwealth of Massachusetts resulting from a severe winter storm and flooding beginning on December 11, 2008, and continuing, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. §§ 5121-5207 (the Stafford Act). Therefore, I declare that such a major disaster exists in the Commonwealth of Massachusetts.
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Public Assistance in the designated areas, Hazard Mitigation throughout the State, and any other forms of assistance under the Stafford Act that you deem appropriate. Direct Federal assistance is authorized. Consistent with the requirement that Federal assistance
Further, you are authorized to make changes to this declaration to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Mark H. Landry, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the Commonwealth of Massachusetts have been designated as adversely affected by this major disaster:
Berkshire, Franklin, Hampden, Hampshire, and Worcester Counties for Public Assistance. Direct Federal assistance is authorized.
All counties within the Commonwealth of Massachusetts are eligible to apply for assistance under the Hazard Mitigation Grant Program.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of New Hampshire (FEMA-1812-DR), dated January 2, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
Notice is hereby given that, in a letter dated January 2, 2009, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act), as follows:
I have determined that the damage in certain areas of the State of New Hampshire resulting from a severe winter storm beginning on December 11, 2008, and continuing, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act). Therefore, I declare that such a major disaster exists in the State of New Hampshire.
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Public Assistance in the designated areas, Hazard Mitigation throughout the State, and any other forms of assistance under the Stafford Act that you deem appropriate. Direct Federal assistance is authorized. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Public Assistance and Hazard Mitigation will be limited to 75 percent of the total eligible costs. If Other Needs Assistance under Section 408 of the Stafford Act is later requested and warranted, Federal funding under that program will also be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, James N. Russo, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of New Hampshire have been designated as adversely affected by this major disaster:
Belknap, Carroll, Cheshire, Coos, Grafton, Hillsborough, Merrimack, Rockingham, Strafford, and Sullivan Counties for Public Assistance. Direct Federal assistance is authorized.
All counties within the State of New Hampshire are eligible to apply for assistance under the Hazard Mitigation Grant Program.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households In Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.
Federal Emergency Management Agency, DHS.
Notice.
This is a notice of the Presidential declaration of a major disaster for the State of Vermont (FEMA-1816-DR), dated January 14, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
Notice is hereby given that, in a letter dated January 14, 2009, the President issued a major disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act), as follows:
I have determined that the damage in certain areas of the State of Vermont resulting from a severe winter storm during the period of December 11-18, 2008, is of sufficient severity and magnitude to warrant a major
In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses.
You are authorized to provide Public Assistance in the designated areas, Hazard Mitigation throughout the State, and any other forms of assistance under the Stafford Act that you deem appropriate. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Public Assistance and Hazard Mitigation will be limited to 75 percent of the total eligible costs. If Other Needs Assistance under Section 408 of the Stafford Act is later requested and warranted, Federal funding under that program will also be limited to 75 percent of the total eligible costs.
Further, you are authorized to make changes to this declaration to the extent allowable under the Stafford Act.
The Federal Emergency Management Agency (FEMA) hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, Mark H. Landry, of FEMA is appointed to act as the Federal Coordinating Officer for this major disaster.
The following areas of the State of Vermont have been designated as adversely affected by this major disaster:
Bennington and Windham Counties for Public Assistance.
All counties within the State of Vermont are eligible to apply for assistance under the Hazard Mitigation Grant Program.
The following Catalog of Federal Domestic Assistance Numbers (CFDA) are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households In Presidentially Declared Disaster Areas; 97.049, Presidentially Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidentially Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the Commonwealth of Massachusetts (FEMA-1813-DR), dated January 5, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
The notice of a major disaster declaration for the Commonwealth of Massachusetts is hereby amended to include the following areas among those areas determined to have been adversely affected by the event declared a major disaster by the President in his declaration of January 5, 2009.
Essex and Middlesex Counties for Public Assistance, including direct Federal assistance.
Federal Emergency Management Agency, DHS.
Notice.
This notice amends the notice of a major disaster declaration for the State of New Hampshire (FEMA-1812-DR), dated January 2, 2009, and related determinations.
Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472, (202) 646-3886.
Notice is hereby given that the incident period for this disaster is closed effective December 23, 2008.
Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.
Notice of sale of mortgage loans.
This notice announces HUD's intention to sell certain unsubsidized multifamily and healthcare mortgage loans, without Federal Housing Administration (FHA) insurance, in a competitive, sealed bid sale (MHLS 2009-1). This notice also describes generally the bidding process for the sale and certain persons who are ineligible to bid.
The Bidder's Information Package (BIP) was made available to qualified bidders on January 9, 2009. Bids for the loans must be submitted on the bid date, which is currently scheduled for February 4, 2009. HUD anticipates that awards will be made on or before February 5, 2009. Closings are expected to take place between February 11, 2009 and February 18, 2009.
To become a qualified bidder and receive the BIP, prospective bidders must complete, execute, and submit a Confidentiality Agreement and a Qualification Statement acceptable to HUD. Both documents will be available on the HUD Web site at
John Lucey, Deputy Director, Asset Sales Office, Room 3136, Department of Housing and Urban Development, 451 Seventh Street, SW., Washington, DC 20410-8000; telephone 202-708-2625, extension 3927. Individuals with hearing-or speech impairments may call 202-708-4594 (TTY). These are not toll-free numbers.
HUD announces its intention to sell in MHLS 2009-1 certain unsubsidized mortgage loans (Mortgage Loans) secured by multifamily and healthcare properties located throughout the United States. The Mortgage Loans are comprised primarily of non-performing mortgage loans. A final listing of the Mortgage Loans will be included in the BIP. The Mortgage Loans will be sold without FHA insurance and with servicing released. HUD will offer qualified bidders an opportunity to bid competitively on the Mortgage Loans.
The Mortgage Loans will be stratified for bidding purposes into several mortgage loan pools. Each pool will contain Mortgage Loans that generally have similar performance, property type, geographic location, lien position and other characteristics. Qualified bidders may submit bids on one or more pools of Mortgage Loans or may bid on individual loans. A mortgagor who is a qualified bidder may submit an individual bid on its own Mortgage Loan. Interested Mortgagors should review the Qualification Statement to determine whether they may also be eligible to qualify to submit bids on one or more pools of Mortgage Loans or on individual loans in MHLS 2009-1.
The BIP will describe in detail the procedure for bidding in MHLS 2009-1. The BIP will also include a standardized nonnegotiable loan sale agreement (Loan Sale Agreement).
As part of its bid, each bidder must submit a deposit equal to the greater of $100,000 or 10% of the bid price. In the event the bidder's aggregate bid is less than $100,000.00, the minimum deposit shall be not less than fifty percent (50%) of the bidder's aggregate bid. HUD will evaluate the bids submitted and determine the successful bids in its sole and absolute discretion. If a bidder is successful, the bidder's deposit will be non-refundable and will be applied toward the purchase price. Deposits will be returned to unsuccessful bidders. Closings are scheduled to occur between February 11, 2009 and February 18, 2009.
These are the essential terms of sale. The Loan Sale Agreement, which will be included in the BIP, will contain additional terms and details. To ensure a competitive bidding process, the terms of the bidding process and the Loan Sale Agreement are not subject to negotiation.
The BIP will describe the due diligence process for reviewing loan files in MHLS 2009-1. Qualified bidders will be able to access loan information remotely via a high-speed Internet connection. Further information on performing due diligence review of the Mortgage Loans will be provided in the BIP.
HUD reserves the right to add Mortgage Loans to or delete Mortgage Loans from MHLS 2009-1 at any time prior to the Award Date. HUD also reserves the right to reject any and all bids, in whole or in part, without prejudice to HUD's right to include any Mortgage Loans in a later sale. Mortgage Loans will not be withdrawn after the Award Date except as is specifically provided in the Loan Sale Agreement.
This is a sale of unsubsidized mortgage loans pursuant to Section 204(a) of the Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1997, 12 U.S.C. 1715z-11a(a).
HUD selected a competitive sale as the method to sell the Mortgage Loans. This method of sale optimizes HUD's return on the sale of these Mortgage Loans, affords the greatest opportunity for all qualified bidders to bid on the Mortgage Loans, and provides the quickest and most efficient vehicle for HUD to dispose of the Mortgage Loans.
In order to bid in the sale, a prospective bidder must complete, execute and submit both a Confidentiality Agreement and a Qualification Statement acceptable to HUD. The following individuals and entities are ineligible to bid on any of the Mortgage Loans included in MHLS 2009-1:
(1) Any employee of HUD, a member of such employee's household, or an entity owned or controlled by any such employee or member of such an employee's household;
(2) Any individual or entity that is debarred, suspended, or excluded from doing business with HUD pursuant to Title 24 of the Code of Federal Regulations, part 24, and Title 2 of the Code of Federal Regulations, part 2424;
(3) Any contractor, subcontractor and/or consultant or advisor (including any agent, employee, partner, director, principal or affiliate of any of the foregoing) who performed services for or on behalf of HUD in connection with MHLS 2009-1;
(4) Any individual who was a principal, partner, director, agent or employee of any entity or individual described in subparagraph 3 above, at any time during which the entity or individual performed services for or on behalf of HUD in connection with MHLS 2009-1;
(5) Any individual or entity that uses the services, directly or indirectly, of any person or entity ineligible under subparagraphs 1 through 4 above to assist in preparing any of its bids on the Mortgage Loans;
(6) Any individual or entity which employs or uses the services of an employee of HUD (other than in such employee's official capacity) who is involved in MHLS 2009-1;
(7) Any mortgagor (or affiliate of a mortgagor) that failed to submit to HUD on or before January 27, 2009, audited financial statements for fiscal years 2000 through 2007 for a project securing a Mortgage Loan;
(8) Any individual or entity and any Related Party (as such term is defined in the Qualification Statement) of such individual or entity that is a mortgagor in any of HUD's multifamily housing programs and that is in default under such mortgage loan or is in violation of any regulatory or business agreements with HUD, unless such default or violation is cured on or before January 27, 2009;
(9) Any entity or individual that serviced or held any Mortgage Loan at any time during the 2-year period prior to January 1, 2009, is ineligible to bid on such Mortgage Loan or on the pool containing such Mortgage Loan, but may bid on loan pools that do not contain Mortgage Loans that they have serviced or held at any time during the 2-year period prior to January 1, 2009; and
(10) Also ineligible to bid on any Mortgage Loan are: (a) Any affiliate or principal of any entity or individual described in the preceding sentence (paragraph 9); (b) any employee or subcontractor of such entity or individual during that 2-year period; or (c) any entity or individual that employs or uses the services of any other entity or individual described in this paragraph in preparing its bid on such Mortgage Loan.
Prospective bidders should carefully review the Qualification Statement to determine whether they are eligible to submit bids on the Mortgage Loans in MHLS 2009-1.
HUD reserves the right, in its sole and absolute discretion, to disclose information regarding MHLS 2009-1, including, but not limited to, the identity of any successful bidder and its bid price or bid percentage for any pool of loans or individual loan, upon the closing of the sale of all the Mortgage Loans. Even if HUD elects not to publicly disclose any information relating to MHLS 2009-1, HUD will have the right to disclose any information that HUD is obligated to disclose pursuant to the Freedom of Information Act and all regulations promulgated there under.
This notice applies to MHLS 2009-1 and does not establish HUD's policy for the sale of other mortgage loans.
Bureau of Land Management, Interior.
Southeast Oregon Resource Advisory Council: Meeting.
Pursuant to the Federal Advisory Committee Act, the Department of the Interior Bureau of Land Management (BLM) announces the following advisory committee meeting:
The SEORAC will be briefed on BLM's wild horse and burro program, BLM's sagebrush habitat treatments and the current status of the Oregon Explorer grant. Council members will also provide orientation to new members, conduct chair elections, establish their 2009 annual work plan and meeting schedule, receive organizational updates from designated federal officials, give interest area updates, implement a subgroup establishment process, identify new subgroup members, present active subgroup reports and develop agenda items for the next meeting. Any other matters that may reasonably come before the SEORAC may also be addressed.
The public is welcome to attend all portions of the meeting and may contribute during the public comment period at 11 a.m. on February 27, 2009. Those who verbally address the SEORAC during the public comment period are asked to provide a written statement of their comments or presentation. Unless otherwise approved by the SEORAC chair, the public comment period will last no longer than 30 minutes, and each speaker may address the SEORAC for a maximum of five minutes.
Program information, meeting records and a roster of council members may be obtained from Scott Stoffel, Public Affairs Specialist, 1301 South G Street, Lakeview, OR 97630, (541) 947-6237. The meeting agenda will be posted at
Should you require reasonable accommodation, please contact the Lakeview District BLM at (541) 947-2177 as soon as possible.
National Park Service.
Notice of Availability for the Draft White-tailed Deer Management Plan/Environmental Impact Statement, Indiana Dunes National Lakeshore, Indiana.
Pursuant to Section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)), the National Park Service (NPS) announces the availability of a draft White-tailed Deer Management Plan and Environmental Impact Statement (EIS) for Indiana Dunes National Lakeshore, Indiana (Lakeshore).
The draft EIS will remain available for public review for 60 days following the publishing of the notice of availability in the
You may submit your comments by any one of several methods. You may comment via the Internet through the NPS Planning, Environment, and Public Comment Web site (
Copies of the draft EIS are available from the Superintendent, Indiana Dunes National Lakeshore, 1100 North Mineral Springs Road, Porter, Indiana 46304.
This EIS and plan describes four alternatives for the management of deer at the Lakeshore. Action is needed at this time to ensure that the local deer population does not become a dominant force that negatively influences ecosystem components within the Lakeshore, such as sensitive vegetation or other wildlife. Impacts to these Lakeshore resources would compromise the Lakeshore's purpose to preserve the exceptional biodiversity found within its boundaries. The Lakeshore staff currently implements resource management actions to protect other resources but no specific deer management plan exists.
Under Alternative A (no action), current deer management actions (including limited fencing, limited use of repellents, and inventorying and monitoring efforts) would continue; no new deer management actions would be taken. Alternative B would include all actions described under alternative A, but would also incorporate non-lethal actions to possibly reduce deer numbers in the Lakeshore. The additional actions would include the construction of additional small- and new large-scale exclosures, more extensive use of repellents in areas where fenced exclosures would not be appropriate or feasible, and phasing in reproductive control of does when there is a federally approved fertility control agent for application to free-ranging populations that provides multi-year (more than four years) efficacy for does. Alternative C would include all actions described under alternative A, but would also incorporate a direct reduction of the deer herd size through sharpshooting and capture/euthanasia, where appropriate. Alternative D would also include all the actions described under alternative A, but would incorporate a combination of specific lethal and non-lethal actions from alternatives B and C. These actions would include the reduction of the deer herd through sharpshooting, in combination with capture/euthanasia and phasing in reproductive control of does (as described in alternative B) for longer-term maintenance of lower herd numbers when there is a federally approved fertility control agent for application to free-ranging populations that provides multi-year (more than four years) efficacy for does.
The potential environmental consequences of the alternatives are addressed for vegetation, soils and water quality, white-tailed deer, other wildlife and wildlife habitat, sensitive and rare species, archeological resources, cultural landscapes, visitor use and experience, social values, visitor and employee health and safety, soundscapes, socioeconomic conditions, and national Lakeshore management and operations.
Contact Superintendent Dillon at the address above or by telephone at 219-926-7561.
Before including your address, telephone number, electronic mail address, or other personal identifying information in your comments, you should be aware that your entire comment (including your personal identifying information) may be made publicly available at any time. While you can ask us in your comments to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so. We will make all submissions from organizations or businesses, from individuals identifying themselves as representatives or officials, of organizations or businesses, available for public inspection in their entirety.
This document was received in the Office of the Federal Register on January 26, 2009.
U.S. International Trade Commission.
Closure of a portion of a Commission hearing.
Upon its own initiative, the Commission has determined to conduct a portion of its hearing in the above-captioned reviews scheduled for January 27, 2009,
Mary Jane Alves, Office of the General Counsel, United States International Trade Commission, 202-708-2969. Hearing-impaired individuals are advised that information on this matter may be obtained by contacting the Commission's TDD terminal on 202-205-3105.
In these reviews, there are only three domestic PVA producers, of which only two sell in the commercial market. There is only one producer of subject merchandise in Korea. Only one of several foreign producers in China and only one of four producers of subject merchandise in Japan submitted questionnaire responses in these reviews. In addition, there are only a limited number of importers of polyvinyl alcohol into the United States. Because much of the data in these reviews is confidential, the Commission believes that a closed session is justified by the need to discuss data that involve business proprietary information (BPI) concerning imports, individual foreign industries, the domestic industry, and prices. In making this decision, the Commission nevertheless reaffirms its belief that whenever possible its business should be conducted in public.
The hearing will include the usual public presentations by parties supporting continuation of the antidumping duty orders and those in support of revocation of these orders, with questions from the Commission. In addition, the hearing will include a ten minute
The General Counsel has certified, pursuant to Commission Rule 201.39 (19 CFR 201.39) that a portion of the Commission's hearing in
By order of the Commission.
United States International Trade Commission.
February 5, 2009 at 11 a.m.
Room 101, 500 E Street, SW., Washington, DC 20436, Telephone: (202) 205-2000.
Open to the public.
1. Agendas for future meetings: None.
2. Minutes.
3. Ratification List.
4. Inv. No. 731-TA-1143 (Final) (Small Diameter Graphite Electrodes from China)—briefing and vote. (The Commission is currently scheduled to transmit its determination and Commissioners' opinions to the Secretary of Commerce on or before February 18, 2009.)
5. Outstanding action jackets: None.
In accordance with Commission policy, subject matter listed above, not disposed of at the scheduled meeting, may be carried over to the agenda of the following meeting.
By order of the Commission.
30-Day Notice of Information Collection Under Review: Federal Coal Lease Request.
The Department of Justice (DOJ), Antitrust Division (ATR), will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The proposed information collection is published to obtain comments from the public and affected agencies. This proposed information collection was previously published in the
The purpose of this notice is to allow for an additional 30 days for public comment March 2, 2009. This process is conducted in accordance with 5 CFR 1320.10.
If you have comments (especially regarding the estimated public burden or associated response time), suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact Jill Ptacek, Antitrust Division, United States Department of Justice 450 5th Street, NW., Suite 4000, Washington, DC 20530.
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
(1)
(2)
(3)
(4)
(5) An estimate of the total number of respondents and the amount of time estimated for an average respondent to respond. It is estimated that 20 respondents will complete each form, with each response taking approximately two hours.
(6) An estimate of the total public burden (in hours) associated with the collection: There are an estimated 40 annual burden hours associated with this collection, in total.
If additional information is required, contact: Lynn Bryant, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Patrick Henry Building, Suite 1600, 601 D Street, NW., Washington, DC 20530.
60-Day Notice of Information Collection Under Review: Revised Application for Suspension of Deportation (40).
The Department of Justice (DOJ), Executive Office for Immigration Review (EOIR), will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The proposed information collection is published to obtain comments from the public and affected agencies. Comments are encouraged and will be accepted for “sixty days” until March 30, 2009. This process is conducted in accordance with 5 CFR 1320.10.
If you have comments especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact John N. Blum, Acting General Counsel, Executive Office for Immigration Review, U.S. Department of Justice, Suite 2600, 5107 Leesburg Pike, Falls Church, Virginia 22041; telephone: (703) 305-0470.
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
(1)
(2)
(3)
(4)
(5)
(6)
If additional information is required, contact: Lynn Bryant, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Patrick Henry Building, Suite 1600, 601 D Street, NW., Washington, DC 20530.
60-Day Notice of Information Collection Under Review: Notice of Entry of Appearance as Attorney or Representative Before the Immigration Court (Form EOIR-28).
The Department of Justice (DOJ), Executive Office for Immigration Review (EOIR) will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The proposed information collection is published to obtain comments from the public and affected agencies. Comments are encouraged and will be accepted for “sixty days” until March 30, 2009. This process is conducted in accordance with 5 CFR 1320.10.
If you have comments especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact John N. Blum, Acting General Counsel, Executive Office for Immigration Review, U.S. Department of Justice, Suite 2600, 5107 Leesburg Pike, Falls Church, Virginia 22041; telephone: (703) 305-0470.
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
(1)
(2)
(3)
(4)
(5)
(6)
If additional information is required contact: Lynn Bryant, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Patrick Henry Building, Suite 1600, 601 D Street, NW., Washington, DC 20530.
60-Day Notice of Information Collection Under Review: Request for Recognition of a Non-profit Religious, Charitable, Social Service, or Similar Organization (Form EOIR-31).
The Department of Justice (DOJ), Executive Office for Immigration Review (EOIR) will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The proposed information collection is published to obtain comments from the public and affected agencies. Comments are encouraged and will be accepted for “sixty days” until March 30, 2009. This process is conducted in accordance with 5 CFR 1320.10.
If you have comments, especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact John N. Blum, Acting General Counsel, Executive Office for Immigration Review, U.S. Department of Justice, Suite 2600, 5107 Leesburg Pike, Falls Church, Virginia 22041; telephone: (703) 305-0470.
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
(1)
(2)
(3)
(4)
(5)
(6)
If additional information is required, contact: Lynn Bryant, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Patrick Henry Building, Suite 1600, 601 D Street, NW., Washington, DC 20530.
The Department of Labor (DOL) hereby announces the submission of the following public information collection requests (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. chapter 35). A copy of each ICR, with applicable supporting documentation; including among other things a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site at
Interested parties are encouraged to send comments to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for the Occupational Safety and Health Administration (OSHA), Office of Management and Budget, Room 10235, Washington, DC 20503, Telephone: 202-395-7316/Fax: 202-395-6974 (these are not toll-free numbers), E-mail:
The OMB is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
The Department of Labor (DOL) hereby announces the submission of the following public information collection requests (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. chapter 35). A copy of each ICR, with applicable supporting documentation; including among other things a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site at
Interested parties are encouraged to send comments to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for the Mine Safety and Health Administration (MSHA), Office of Management and Budget, 725 17th Street, NW., Room 10235, Washington, DC 20503, Telephone: 202-395-4816/Fax: 202-395-6974 (these are not toll-free numbers), E-mail:
The OMB is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
The Department of Labor (DOL) hereby announces the submission of the following public information collection request (ICR) to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (Pub. L. 104-13, 44 U.S.C. chapter 35). A copy of this ICR, with applicable supporting documentation; including among other things a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained from the RegInfo.gov Web site at
Interested parties are encouraged to send comments to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for the Department of Labor—ETA, Office of Management and Budget, Room 10235, Washington, DC 20503, Telephone: 202-395-7316/Fax: 202-395-6974
The OMB is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
Mississippi River Commission.
9 a.m., March 30, 2009.
On board MISSISSIPPI V at City Front, Caruthersville, MO.
Open to the public.
(1) Summary report by President of the Commission on national and regional issues affecting the U.S. Army Corps of Engineers and Commission programs and projects on the Mississippi River and its tributaries; (2) District Commander's overview of current project issues within the St. Louis District; and (3) Presentations by local organizations and members of the public giving views or comments on any issue affecting the programs or projects of the Commission and the Corps of Engineers.
9 a.m., March 31, 2009.
On board MISSISSIPPI V at Tunica River Park, Tunica, MS.
Open to the public.
(1) Summary report by President of the Commission on national and regional issues affecting the U.S. Army Corps of Engineers and Commission programs and projects on the Mississippi River and its tributaries; (2) District Commander's overview of current project issues within the Memphis District; and (3) Presentations by local organizations and members of the public giving views or comments on any issue affecting the programs or projects of the Commission and the Corps of Engineers.
9 a.m., April 1, 2009.
On board MISSISSIPPI V at City Front, Vicksburg, MS.
Open to the public.
(1) Summary report by President of the Commission on national and regional issues affecting the U.S. Army Corps of Engineers and Commission programs and projects on the Mississippi River and its tributaries; (2) District Commander's overview of current project issues within the Memphis District; and (3) Presentations by local organizations and members of the public giving views or comments on any issue affecting the programs or projects of the Commission and the Corps of Engineers.
9 a.m., April 3, 2009.
On board MISSISSIPPI V at City Dock, Baton Rouge, LA.
Open to the public.
(1) Summary report by President of the Commission on national and regional issues affecting the U.S. Army Corps of Engineers and Commission programs and projects on the Mississippi River and its tributaries;
(2) District Commander's overview of current project issues within the Vicksburg District, and (3) Presentations by local organizations and members of the public giving views or comments on any issue affecting the programs or projects of the Commission and the Corps of Engineers.
Mr. Stephen Gambrell, telephone 601-634-5766.
3 p.m., Wednesday, January 28, 2009.
Board Room, 7th Floor, Room 7047, 1775 Duke Street, Alexandria, VA 22314-3428.
Closed.
1. Consideration of supervisory activities. Closed pursuant to Exemptions (4), (6), (8) and (9)(A)(ii).
Mary Rupp, Secretary of the Board, Telephone: 703-518-6304.
Nuclear Regulatory Commission.
Petition for rulemaking; denial.
The U.S. Nuclear Regulatory Commission (NRC) is denying a petition for rulemaking (PRM) submitted by Mr. Eric Epstein, Chairman of Three Mile Island Alert, Inc. (TMIA). The petitioner requested that the NRC amend its emergency preparedness regulations to require that all host school pick-up centers be located at least 5 to 10 miles beyond the radiation plume exposure boundary zone to ensure that all school children are protected in the event of a radiological emergency.
The docket for PRM-50-85 is closed on January 29, 2009.
Publicly available documents related to this petition, including public comments, the PRM, and the NRC's letter of denial to the petitioner, may be viewed electronically at
Publicly available documents created or received at the NRC after November 1, 1999, are also available electronically via the NRC's Electronic Reading Room at
Harry S. Tovmassian, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Telephone: (301) 415-3092; e-mail
On April 11, 2007, the NRC received a PRM (ADAMS Accession No. ML071070475) from Mr. Eric Epstein, Chairman of TMIA. The NRC docketed the petition on April 17, 2007, and assigned it Docket No. PRM-50-85. The petitioner requested that the Commission amend its emergency preparedness regulations in Title 10, Part 50, “Domestic Licensing of Production and Utilization Facilities,” of the
The NRC notes that, as discussed herein, the Federal Emergency Management Agency (FEMA) distinguishes host school pick-up centers from general population relocation centers. Host school pick-up centers serve as temporary locations where school children can be held while they wait for their parents or guardians to pick them up, whereas general population relocation centers offer longer term assistance to people displaced from their homes. FEMA guidance provides for the location of host schools outside the plume exposure pathway emergency planning zone (EPZ), whereas joint NRC and FEMA guidance provides for the location of general population relocation centers at least 5 miles and preferably 10 miles beyond the boundaries of the EPZ.
The Commission is responsible for licensing and regulating nuclear facilities as mandated by the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; and other applicable statutes. These responsibilities include protecting public health and safety, protecting the environment, and protecting and safeguarding nuclear materials and nuclear power plants in the interest of national security. In June 1979, the Commission began formal reconsideration of the role of emergency planning in ensuring the continued protection of the public health and safety. This effort resulted in the issuance of emergency preparedness regulations published in the
Although the NRC is the sole Federal agency responsible for licensing and regulating nuclear reactors, Federal oversight of radiological emergency planning and preparedness for nuclear facilities involves both FEMA and the NRC. Executive Order No.12148—Federal Emergency Management, dated July 15, 1979, assigned FEMA the authority and responsibility to establish Federal regulations and policies and to coordinate civilian emergency planning within emergency preparedness programs. In December 1979, a Presidential Directive assigned FEMA the lead Federal responsibility for State and local emergency planning and preparedness activities with respect to jurisdictions near nuclear reactors, while assigning onsite emergency planning and preparedness oversight to the NRC. The NRC and FEMA entered into a memorandum of understanding (MOU) that delineated the agencies' roles in ensuring adequate emergency preparedness. Under the provisions of this MOU (Appendix A, “Memorandum of Understanding Between Federal Emergency Management Agency and Nuclear Regulatory Commission,” to 44 CFR part 353, “Fee for Services in Support, Review, and Approval of State and Local Government or Licensee Radiological Emergency Plans and Preparedness”), FEMA reviews State and local emergency plans and preparedness and approves them based upon its findings and determinations with respect to the adequacy of the State and local plans and the capabilities of State and local governments to effectively implement these plans and preparedness measures. Accordingly, FEMA is the lead authority concerning the direction, recommendations, and determinations regarding offsite State and local government radiological emergency planning efforts necessary for the public health and safety.
FEMA provides its findings and determinations on offsite preparedness to the NRC for use in its licensing processes. The NRC reviews these findings and determinations and, in conjunction with its assessment of the onsite preparedness and capabilities, determines whether the overall state of emergency preparedness satisfies the requirements for the issuance of operating licenses for, or for the continued operation of, nuclear reactors.
In keeping with their respective statutory authorities, the NRC and FEMA issue and maintain regulations and regulatory guidance concerning emergency preparedness. The NRC and FEMA jointly developed broadly worded planning standards that onsite and offsite emergency plans would be required to meet in order to receive a favorable determination of preparedness. The respective agency regulations codified these planning standards (see 10 CFR 50.47(b) and 44 CFR 350.5(a)), and the NRC and FEMA provided supporting guidance in the agencies' jointly-prepared NUREG-0654/FEMA-REP-1, Revision1, “Criteria for Preparation and Evaluation of Radiological Emergency Response Plans and Preparedness in Support of Nuclear Power Plants,” dated November 30, 1980 (ML040420012), and addenda, dated March 31, 2001 (ML021050240). Each agency has further supplemented that guidance with guidance documents addressing emergency preparedness topics within its respective cognizance—the NRC with onsite topics and FEMA with offsite topics.
On July 10, 2007 (72 FR 37470), the NRC published a notice of receipt of
The NRC received 13 comment letters supporting the petition. One commenter stated that the granting of the petition is in accordance with the recommendations of the U.S. Department of Homeland Security (DHS). Another individual expressed the opinion that the current regulations allow evacuees to be taken to centers just over the 10-mile evacuation line, which could possibly have “some very bizarre results, such as children being evacuated across a street or to a neighbor's house,” and recommended that the NRC consider this “reasonable and well thought out petition.”
While supporting the petition, a State Representative from the Commonwealth of Pennsylvania reiterated the petitioner's observation that there is an inconsistency in the treatment of host school pick-up centers and general population relocation centers. Although host school pick-up centers may be just outside the 10-mile radiation exposure boundary zone, the commenter noted that “general population relocation centers * * * according to NRC and DHS/FEMA regulations, are required to be at least 5 miles and recommended to be at least 10 miles beyond” the EPZ.
A representative of a public advocacy group, Beyond Nuclear, supported the TMIA petition, but stated that the relocation centers are also designed to be “decontamination centers” and “reunification locations” and should be located at least “10 to 20 miles beyond the currently designated 50 mile radius of the ingestion pathway zone.” This commenter believes that the decontamination and reunification centers should be located at least 70 to 100 miles away from the reactor accident site.
A commenter representing Pilgrim Watch submitted two comment letters that differed only in the list of organizations and individuals cited as supporting the comments submitted. In addition to supporting the TMIA petition, the commenter cited several reasons for his opinion that NRC emergency planning regulations are not soundly based. The commenter believes that the 10-mile EPZ established by the NRC is arbitrary and that the NRC has relied on outdated and inappropriate radiation plume distribution models to justify emergency planning regulations and guidance regarding the placement of relocation centers.
The Environmental Coalition on Nuclear Power and the Sierra Club Pennsylvania Chapter endorse the TMIA petition but further comment that “the additional five to ten miles of protective distance would be inadequately protective for children.” These organizations cited the magnitude of potential releases, weather and travel conditions, time of day, and other factors as conditions that should be considered in siting the collection and relocation centers.
One commenter, representing the State of Tennessee, Tennessee Emergency Management Agency Program, opposed granting the petition. This commenter believes that it is not practical or wise to extend the distance for relocating children an additional 5 to 10 miles beyond the EPZ. He noted that the same buses will be needed for the evacuation during the general emergency and that greater distances of travel for school children increase the chance for a bus accident.
The petitioner asserted that “according to the NRC regulations listed in NUREG-0654r1, general population relocation centers are required to be located at least 5 miles beyond the radiation plume exposure boundary zone” and that the absence of such a requirement for host school pick-up centers constitutes a “regulatory gap.” The NRC does not agree with the petitioner's statement of concern. NUREG-0654/FEMA-REP-1, Rev. 1, does not contain NRC regulations or requirements. Regulatory Guide 1.101, Revision 4, “Emergency Planning and Preparedness for Nuclear Power Reactors,” issued July 2003 (ML032020276), identifies NUREG-0654/FEMA-REP-1, Rev. 1 as an acceptable method for showing compliance with the Commission's emergency preparedness regulations. The NRC uses the methods described in this guide, including NUREG-0654/FEMA-REP-1, Rev. 1, to evaluate emergency plans for nuclear power reactors. As with all NRC regulatory guidance, compliance is not required and applicants or licensees may propose alternative methods of complying with the requirements. Similarly, the NRC recognizes that FEMA may find alternatives used by State and local governments to be acceptable means for meeting the planning standards and the evaluation criteria in NUREG-0654/FEMA-REP-1, Rev 1.
Section II.J of NUREG-0654/FEMA-REP-1, Rev. 1, provides evaluation criteria for the planning standard in 10 CFR 50.47(b)(10), which addresses protective measures for “emergency workers and the public.” Although the NRC has not defined “public,” it is generally understood that it includes all segments of the population including school children. Section II.J.10 requires that an organization's plan to implement protective measures may include various capabilities and resources. Evaluation Criterion II.J.10.h in NUREG-0654/FEMA-REP-1, Rev 1, provides for the establishment of relocation centers (also known as “reception centers”) where evacuees are monitored, decontaminated (if necessary), and registered. Evaluation Criterion II.J.10.h provides that these facilities should be located at least 5 miles and preferably 10 miles beyond the boundaries of the EPZ. The NRC notes that, in the absence of exclusionary modifiers, this criterion applies to relocation centers for all segments of the population including school children. Furthermore, FEMA Guidance Memorandum EV-2, “Protective Actions for School Children,” provides for temporary sheltering outside the EPZ in host schools (or “host school pick-up centers” or “evacuation centers”) with no further stipulation regarding distance beyond the EPZ.
The NRC intentionally used broad language in the planning standards of 10 CFR 50.47(b) because they apply to applicants, licensees, State governments, and local governments. The planning standards do not contain prescriptive requirements but instead give the organizations the flexibility to develop plans and procedures that best fit their specific needs and the needs of the affected public that they are charged with protecting. The NRC and FEMA believe that numeric criteria, such as the minimum distance to a relocation center, properly belong in regulatory guidance. Because the existing regulatory structure already has minimum distance criteria for relocation centers for all segments of the population, including school children, no revision to 10 CFR part 50 is necessary in response to the petitioner's request.
In accordance with the NRC and FEMA MOU (44 CFR part 353), the NRC forwarded a copy of this petition to, and has discussed the petitioner's request with, FEMA. Subsequently, in a May 14,
The NRC observes that the schools specifically identified in the petition are all located in the West Shore School District. Based upon information provided to the community in the 2008-2009 West Shore School District Handbook (ML082890467), the NRC has determined that the district encompasses communities and schools within and outside of the EPZ. The West Shore District planning designates four West Shore District schools, all located outside the EPZ, as evacuation centers. Students at these four schools that reside within the EPZ would remain there until their parents or guardians pick them up. For two of the four schools, students who reside outside the EPZ would be sent home when buses were available provided that it was safe to do so. Students at other West Shore District schools located within the EPZ would be evacuated to one of the four designated evacuation centers to wait for their parents or guardians to pick them up. In its May 14, 2008, letter, FEMA stated that the Commonwealth of Pennsylvania's current practice of designating host schools for temporary sheltering of school children at locations outside the EPZ conforms with existing FEMA guidance.
The emergency planning basis provided in NUREG-0654/FEMA-REP-1, Rev. 1, summarizes the considerations that went into the establishment of the 10-mile EPZ. This basis provides that it would be unlikely that any protective action would be required beyond the EPZ and that the detailed planning for the EPZ would provide a substantial base for expansion of response efforts in the event of a highly unlikely worse case accident. The location of the relocation center that is stipulated in Evaluation Criterion II.J.10.h is generally based on avoiding the need to evacuate a relocation center in the unlikely event that it became necessary to expand protective actions beyond 10 miles. Host schools are not similarly affected because they are only a temporary arrangement until parents or guardians pick up their students. As such, the petitioner's request to apply the numeric criteria of Evaluation Criterion II.J.10.h to host schools that are used solely as evacuation pick-up sites is unwarranted.
The petitioner asserted that host schools that are located close to the EPZ do not provide the same level of protection as would facilities that are located further beyond the EPZ. Although the NRC agrees that radiation exposure decreases with increasing distance, the impact of the exposure on the persons exposed to the radiation is also a function of the duration of the exposure. As indicated in the May 14, 2008, FEMA letter, host school pick-up centers are only pick up points, and any students whose parents or guardians have not picked them up would be transported to a reception center. Thus, the duration of the students' stay at a host school is expected to be short, after which their parents or guardians would evacuate them further to the relocation center or to other individually arranged locations (
Based upon this evaluation of the petitioner's request and in consultation with FEMA, the NRC has found no sufficient basis to question the adequacy of FEMA guidance and findings regarding the adequacy of the protective action arrangements for school children. This finding, in conjunction with the finding that the existing regulations and regulatory guidance are adequate, is the basis for the Commission's decision to deny the petitioner's request.
Consistent with the reasons provided above for denying the petition, the NRC finds that the commenters do not present evidence to compel the NRC to consider seeking changes to the existing regulatory structure. In addition, commenters raised two issues that concern the size of the EPZ and the distance of the host schools from the EPZ that is required to provide adequate safety to school children. The NRC notes that although these issues exceed the scope of the petition, the existing regulations and guidance provide reasonable assurance of adequate protection for all members of the public in the event of a radiological incident at a nuclear power plant.
One commenter stated, without providing specific examples, that “many host pick-up schools are located within [the EPZ].” The petition does not make this claim and includes information from the West Shore School District explaining that all of the host school pick-up centers “are outside the ten[-]mile zone from TMI [Three Mile Island].”
Another commenter identified an implementation issue that may be encountered in the event that host school pick-up centers are sited an additional distance beyond the EPZ. Because FEMA reviews the adequacy of offsite emergency plans and preparedness and the capabilities of State and local governments to effectively implement these plans and preparedness measures and because the NRC reviews FEMA findings and determinations, the current regulatory structure already addresses the issue highlighted by the commenter.
The Commission is denying PRM-50-85 submitted by Mr. Epstein of TMIA. Current NRC regulations and NRC and FEMA regulatory guidance provide reasonable assurance of adequate protection of all members of the public, including school children, in the event of a nuclear power plant incident. Because it is prescriptive in nature and existing regulations and guidance already cover the petitioner's request, PRM-50-85 is hereby denied.
For the U.S. Nuclear Regulatory Commission.
The U.S. Nuclear Regulatory Commission (NRC) is considering issuance of an exemption from Title 10 of the Code of Federal Regulations (10 CFR) Part 50, Appendix R, Section III.G, “Fire Protection of Safe Shutdown Capability,” for the use of operator manual actions in lieu of the requirements specified in Section III.G.2 as requested by Exelon Generation Company, LLC, (the licensee, in addition to PSEG Nuclear, LLC) for operation of Peach Bottom Atomic Power Station (PBAPS), Units 2 and 3 located in York and Lancaster Counties, Pennsylvania. Therefore, as required by 10 CFR 51.21, the NRC is issuing this environmental assessment and finding of no significant impact.
The proposed action would grant an exemption to 10 CFR Part 50, Appendix R, Section III.G.2 for 25 operator manual actions contained in the licensee's Fire Protection Program (FPP). The licensee's FPP requires that the identified operator manual actions be performed outside of the control room to achieve shutdown following fires in certain fire areas. The licensee states that each of the manual actions were subjected to a manual action feasibility review for PBAPS that determined that the manual actions are feasible and can be readily performed.
The proposed action is in accordance with the licensee's application dated October 5, 2007, as supplemented on May 1 and December 11, 2008 (Agencywide Documents Access and Management System (ADAMS) Accession Numbers ML072820129, ML081220873 and ML083470170, respectively).
The proposed exemption from 10 CFR Part 50, Appendix R, was submitted in response to the need for an exemption as identified by NRC Regulatory Information Summary (RIS) 2006-10, “Regulatory Expectations with Appendix R Paragraph III.G.2 Operator Manual Actions.” The RIS noted that NRC inspections identified that some licensees had relied upon operator manual actions, instead of the options specified in 10 CFR Part 50, Appendix R, Section III.G.2, as a permanent solution to resolve issues related to Thermo-Lag 330-1 fire barriers. The licensee indicates that the operator manual actions, referenced in the October 5, 2007, application, were previously included in correspondence with the NRC and found acceptable in a fire protection-related Safety Evaluation (1993 SE) dated September 16, 1993 (ADAMS Accession Number ML081690220). However, RIS 2006-10 identifies that an exemption under 10 CFR Part 50.12 is necessary for use of the manual actions in lieu of the requirements of 10 CFR Part 50, Appendix R, Section III.G.2, even if the NRC previously issued a safety evaluation found the manual actions acceptable. The proposed exemption provides the formal vehicle for NRC approval for the use of the specified operator manual actions instead of the options specified in 10 CFR Part 50, Appendix R, Section III.G.2.
The NRC has completed its safety evaluation of the proposed action and concludes that the exemption will not present an undue risk to the public health and safety. The details of the NRC staff's safety evaluation will be provided in the exemption that will be issued as part of the letter to the licensee approving the exemption to the regulation.
In the 1993 SE, the NRC staff evaluated the operator manual actions presented in the proposed exemption, and found that they maintained a safe shutdown capability that satisfies the requirements of 10 CFR Part 50, Appendix R, Section III.G. In addition, the licensee supplemented the October 5, 2007, request for exemption with additional information in a letter dated December 11, 2008, to confirm that the operator manual actions addressed in the 1993 SE are feasible and that the safety basis for these actions remains valid. Therefore, the proposed action will not significantly increase the probability or consequences of accidents. No changes are being made in the types of effluents that may be released offsite. There is no significant increase in the amount of any effluent released offsite. There is no significant increase in occupational or public radiation exposure. Therefore, there are no significant radiological environmental impacts associated with the proposed action. The NRC staff, thus, concludes that granting the proposed exemption would result in no significant radiological environmental impact.
With regard to potential non-radiological impacts, the proposed action does not have a potential to affect any historic sites. It does not affect non-radiological plant effluents and has no other environmental impact. Therefore, there are no significant non-radiological environmental impacts associated with the proposed action.
Accordingly, the NRC concludes that there are no significant environmental impacts associated with the proposed action.
As an alternative to the proposed action, the NRC staff considered denial of the proposed action (
The action does not involve the use of any different resources than those previously considered in the Final Environmental Statement for PBAPS Units 1, 2, and 3, dated April 1973, and for PBAPS Units 2 and 3, “Generic Environmental Impact Statement for License Renewal of Nuclear Plants,” (NUREG-1437, Supplement 10), dated January 2003.
In accordance with its stated policy, on August 8, 2008, the NRC staff consulted with the Pennsylvania State official, Dennis Dyckman of the Pennsylvania State Department of Environmental Protection, regarding the environmental impact of the proposed action. The State official had no comments.
On the basis of the environmental assessment, the NRC concludes that the proposed action will not have a significant effect on the quality of the human environment. Accordingly, the NRC has determined not to prepare an environmental impact statement for the proposed action.
For further details with respect to the proposed action, see the licensee's letter dated October 5, 2007, as supplemented on May 1 and December 11, 2008 (ADAMS Accession Numbers ML072820129, ML081220873 and ML083470170, respectively). Documents may be examined, and/or copied for a fee, at the NRC's Public Document Room (PDR), located at One White Flint North, Public File Area O1 F21, 11555 Rockville Pike (first floor), Rockville, Maryland. Publicly available records will be accessible electronically from the ADAMS Public Electronic Reading Room on the Internet at the NRC Web site,
For the Nuclear Regulatory Commission.
Nuclear Regulatory Commission.
Correction.
This document corrects a notice appearing in the
June Cai at (301) 415-5192;
On page 4262, column 1, in the fourth complete paragraph, in the 17th line, is corrected to delete “Some of the questions use terminology such as ‘your organization,’ but input from individual stakeholders who may not be part of a specific organization in the topic area are requested as well.”
On page 4262, column 1, in the seventh paragraph, in the 46th line, is corrected to read: “How do you generally view the relationship or hierarchy between safety and security functions and decision making”?
On page 4262, column 1, in the eighth paragraph, in the 61st line, is corrected to read: “Are there any other examples where efforts to maintain safety and security require different approaches or result in competing outcomes that need to be addressed to achieve the desired outcome or goal”?
For the Nuclear Regulatory Commission.
Office of the United States Trade Representative.
Notice.
In accordance with relevant provisions of the Harmonized Tariff Schedule of the United States (HTS), the Office of the United States Trade Representative (USTR) is providing notice of its determination of the trade surplus in certain sugar goods of Peru. As described below, the level of Peru's trade surplus in these goods relates to the quantity of sugar goods for which the United States grants duty-free tariff treatment under the United States—Peru Trade Promotion Agreement (Peru TPA).
Inquiries may be mailed or delivered to Leslie O'Connor, Director of Agricultural Affairs, Office of Agricultural Affairs, Office of the United States Trade Representative, 600 17th Street, NW., Washington, DC 20508.
Leslie O'Connor, Office of Agricultural Affairs, 202-395-6127.
Pursuant to section 101 of the United States—Peru Trade Promotion Agreement Implementation Act (Pub. L. 110-138; 19 U.S.C. 3805 note), Presidential Proclamation No. 8341 of January 16, 2009 (74 FR 4105) implemented the Peru TPA on behalf of the United States and modified the HTS to reflect the tariff and rules of origin treatment provided for in the Peru TPA.
U.S. Note 28(c) to subchapter XXII of HTS chapter 98 provides that USTR is required to publish annually in the
U.S. Note 28(d) to subchapter XXII of HTS chapter 98 provides duty-free treatment for certain sugar goods of Peru entered under subheading 9822.06.10 in an amount equal to the lesser of Peru's trade surplus or the specific quantity set out in that note for that calendar year.
During calendar year (CY) 2007, the most recent year for which data is available, Peru's imports of the sugar goods described above exceeded its exports of those goods by 245,132 metric tons according to data published by its customs authority, the
Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94-409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, January 29, 2009 at 2 p.m.
Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain
The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (6), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (6), (7), 9(ii) and (10), permit consideration of the scheduled matters at the Closed Meeting.
Acting Chairman Walter, as duty officer, voted to consider the items listed for the Closed Meeting in closed session, and determined that no earlier notice thereof was possible.
The subject matter of the Closed Meeting scheduled for Thursday, January 29, 2009 will be:
Formal orders of investigation;
Institution and settlement of injunctive actions;
Institution and settlement of administrative proceedings of an enforcement nature;
A litigation matter;
A collection matter;
Adjudicatory matters; and
Other matters relating to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items.
For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact:
The Office of the Secretary at (202) 551-5400.
In notice document E9-349 beginning on page 1266 in the issue of Monday January 12, 2009 make the following correction:
On page 1268, in the second column, in the last line of the first paragraph, “January 29, 2009” should read “February 2, 2009”.
In notice document E8-31351 beginning on page 482 in the issue of Tuesday, January 6, 2009 make the following corrections:
1. On page 482, the department docket number is corrected to read as set forth above.
2. On page 483, in the second column, in the last line of the last paragraph, “January 26, 2009” should read “January 27, 2009”.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
Nasdaq proposes to adopt a proposed rule change to modify the requirements for members that provide “Sponsored Access” to Nasdaq's execution system.
The text of the proposed rule change is below. Proposed new language is italicized; proposed deletions are in brackets.
(a)-(c) No change.
(d)
[(1) Sponsored Participants must enter into and maintain customer agreements with one or more Sponsoring Members establishing proper relationship(s) and account(s) through which the Sponsored Participant may trade on the Nasdaq Market Center. Such customer agreement(s) must incorporate the Sponsorship Provisions set forth in paragraph (2) below.]
[(2) For a Sponsored Participant to obtain and maintain authorized access to the Nasdaq Market Center, a Sponsored Participant and its Sponsoring Member must agree in writing to the following Sponsorship Provisions:
(A) Sponsored Participant and its Sponsoring Member must have entered into and maintained a User Agreement with The NASDAQ Stock Market LLC. The Sponsoring Member must designate the Sponsored Participant by name in its User Agreement as such.
(B) Sponsoring Member acknowledges and agrees that
(i) All orders entered by the Sponsored Participants and any person acting on behalf of or in the name of such Sponsored Participant and any executions occurring as a result of such orders are binding in all respects on the Sponsoring Member and
(ii) Sponsoring Member is responsible for any and all actions taken by such Sponsored Participant and any person acting on behalf of or in the name of such Sponsored Participant.
(C) Sponsoring Member shall comply with the Nasdaq Certificate of Incorporation, Bylaws, Rules and procedures with regard to the Nasdaq Market Center and Sponsored Participant shall comply with Nasdaq Certificate of Incorporation, Bylaws, Rules and procedures with regard to the Nasdaq Market Center, as if Sponsored Participant were a Nasdaq Member.
(D) Sponsored Participant shall maintain, keep current and provide to
(E) Sponsored Participant shall familiarize its authorized individuals with all of the Sponsored Participant's obligations under this Rule and will assure that they receive appropriate training prior to any use or access to the Nasdaq Market Center.
(F) Sponsored Participant may not permit anyone other than authorized individuals to use or obtain access to the Nasdaq Market Center.
(G) Sponsored Participant shall take reasonable security precautions to prevent unauthorized use or access to the Nasdaq Market Center, including unauthorized entry of information into the Nasdaq Market Center, or the information and data made available therein. Sponsored Participant understands and agrees that Sponsored Participant is responsible for any and all orders, trades and other messages and instructions entered, transmitted or received under identifiers, passwords and security codes of authorized individuals, and for the trading and other consequences thereof.
(H) Sponsored Participant acknowledges its responsibility to establish adequate procedures and controls that permit it to effectively monitor its employees', agents' and customers' use and access to the Nasdaq Market Center for compliance with the terms of this agreement.
(I) Sponsored Participant shall pay when due all amounts, if any, payable to Sponsoring Member, Nasdaq, or any other third parties that arise from the Sponsored Participant's access to and use of the Nasdaq Market Center. Such amounts include, but are not limited to applicable exchange and regulatory fees.]
[(3) The Sponsoring Member must provide Nasdaq with a Notice of Consent acknowledging its responsibility for the orders, executions and actions of its Sponsored Participant at issue.]
(5)
In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
Nasdaq proposes to modify Rule 4611(d) which sets forth the requirements applicable to Nasdaq members that provide “Sponsored Access” by providing customers with electronic access to Nasdaq's execution system using the member's market participant identifier (“MPID”). Currently, Rule 4611(d) is substantially similar to Sponsored Access rules adopted by other national securities exchanges, including New York Stock Exchange Rule 123B and NYSE Arca Exchange Rule 7.29(b). Nasdaq is proposing to amend Rule 4611(d) to ensure that member firms that are assuming responsibility for their customers' trading activity have effective financial and regulatory oversight of the Sponsored Participant, and that Nasdaq has access to all information necessary to provide effective exchange oversight.
The proposal defines Sponsored Access as taking one of three general structures. First, “direct market access” occurs where the Sponsored Participant's orders pass-through the member's systems prior to reaching the exchange. Member firms routinely offer this form of access in the ordinary course of business presumably with effective regulatory and financial controls in place that are equivalent to those applied to the member firm's own orders. Second, “direct sponsored access” occurs where the Sponsored Participant is provided a dedicated line or port to Nasdaq, so that its orders do not first pass through the member's systems. As explained in more detail below, each port that permits entry of quotes and orders into Nasdaq is registered to and affiliated with a unique Nasdaq member firm but Nasdaq is not able to control or determine what external controls exist to ensure that quotes and orders entered into that port comply with applicable regulatory requirements, Third, “third party sponsored access” occurs where a service bureau, such as LAVA Trading, provides Sponsored Participants the technology to access the exchange and arranges for use of the member's MPID in connection with that arrangement under the auspices and via an arrangement with the Sponsoring Member. These definitions are non-exhaustive and designed to address the changing needs of the marketplace with flexibility while maintaining rigorous oversight.
The proposed rule re-affirms that member firms that offer any form of Sponsored Access assume responsibility for their Sponsored Participants' trading activity. The member firm must effectively assure compliance by each Sponsored Participant with appropriate financial controls and applicable regulatory requirements. As described more fully below, this would be accomplished through a combination of contractual commitments, financial and regulatory controls, and the monitoring of current activity reports that is designed to limit financial exposure and bolster regulatory compliance.
To facilitate effective oversight of Sponsored Access arrangements by Nasdaq and the member firms, Nasdaq is proposing to require members to obtain a contractual commitment from each Sponsored Access Participant that is provided direct access to Nasdaq through a dedicated port (“Direct Sponsored Access”). Access to Nasdaq's system is available through telecommunications ports that Nasdaq's offers exclusively to Nasdaq members. Each port is uniquely identified and is registered to one and only one Nasdaq member. Each message delivered to that port, delivered from that port into Nasdaq's systems, or delivered to the port by Nasdaq is tagged with the unique identifier for that port. As a result, every quotation, order, or execution that interacts with or is processed by Nasdaq's systems is attributable to a single Nasdaq member. That member is responsible for all trading activity occurring via that port, including activity of Sponsored Participants.
Where Sponsored Access is provided through a third party such as a service bureau (“Third Party Sponsored Access”), the member registers for a port but enables the service bureau to manage access to and activity of that port. In that case, the member firm will be required to obtain a contractual commitment from the service bureau that would include a commitment by the service bureau to obtain from each of its Sponsored Participant an appropriate contractual commitment for the benefit of the member firm. Through these contractual arrangements, Nasdaq will have the ability to obtain from its members any information necessary properly to monitor and address trading activity of Sponsored Participants. Pursuant to Rule 8210, members are required to comply with all requests for information, such as those stemming from investigations and enforcement actions, which may require the provision of information regarding individual Sponsored Participants.
To satisfy the proposed Contractual Provisions requirement, the Sponsored Participant or service bureau, as appropriate, will be required at minimum to commit to the following:
• All trading activity by the Sponsored Participant shall comply with all applicable federal securities laws and rules and Exchange rules, including but not limited to the Nasdaq Certificate of Incorporation, Bylaws, Rules and procedures with regard to the Nasdaq Market Center (“Regulatory Requirements”).
• Sponsored Participant shall provide Sponsoring Member with access to its books and records promptly upon request, and otherwise cooperate with the Sponsoring Member in furtherance of Sponsoring Member's compliance with applicable Regulatory Requirements.
• Sponsored Participant shall maintain its trading activity within the credit, product or other financial limits specified by the Sponsoring Member.
• Sponsored Participant shall maintain all technology permitting sponsored access to Nasdaq in a physically secure manner and may not permit unauthorized individuals to use or obtain access to Nasdaq. Sponsored Participant shall familiarize its authorized individuals with the Regulatory Requirements and will provide appropriate training prior to use or access to Nasdaq.
• Sponsored Participant shall provide the Sponsoring Member complete and current corporate and financial information about the Sponsored Participant.
• Sponsored Participant shall agree that the Sponsoring Member or Nasdaq may immediately terminate the Sponsored Access if the Sponsored Participant or third party access provider fails to abide by its commitments.
Nasdaq is also proposing that member firms be required to assure that the Sponsored Access front-end or other functionality includes controls that systemically limit the member firm's financial exposure. At minimum, the Sponsored Access system must:
• Prevent each Sponsored Participant from entering orders that in aggregate exceed appropriate pre-set credit thresholds. Sponsoring Members may also set finely-tuned credit thresholds by sector, security or otherwise.
• Prevent Sponsored Participants from trading products that the Sponsored Participant or Sponsoring Member is restricted from trading.
• Prevent Sponsored Participants from submitting erroneous orders by providing for the rejection of orders that exceed certain price or size parameters, on an order-by-order basis or over a short period of time, or that indicate duplicative orders.
The member firm would be required to assure that the Sponsored Access front-end or other functionality includes controls that assure compliance with SEC and Nasdaq rules that can be systemically enforced. At minimum, the Sponsored Access system should assure compliance with: Rules relating to short selling; trading halts; proper uses of order types; proper use of Intermarket Sweep Orders; trading ahead of customer limit orders; prohibitions against manipulative trading practices, including wash sales and marking the close; restricted lists of securities for purposes of SEC Rule 10b-18; and applicable margin rules.
Finally, Nasdaq is proposing that member firms be required to assure that its compliance unit receives timely reports of all trading activity by its Sponsored Participants sufficient to permit the member firm to comply with applicable SEC and Nasdaq recordkeeping and reporting requirements, and to monitor for illegal activity such as market manipulation or insider trading. At minimum, the member firm's compliance unit should receive immediate post-trade execution reports of trading activity of its Sponsored Participants, including their identities; all required audit trail information no later than the end of the trading day; all information necessary to create and maintain the trading records required by Regulatory Requirements, no later than the end of the trading day.
Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.
Written comments were neither solicited nor received.
Within 35 days of the date of publication of this notice in the
(A) By order approve such proposed rule change; or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an e-mail to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2008-104. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
Nasdaq proposes to modify the compliance period applicable to listed companies that fail to meet the market value of listed securities requirement.
The text of the proposed rule change is below. Proposed new language is italicized; proposed deletions are in [brackets].
To qualify for listing in Nasdaq, a security of a domestic or Canadian issuer shall satisfy all applicable requirements contained in paragraphs (a), (b), and (c) hereof. Issuers that meet these requirements, but that are not listed on the Nasdaq Global Market, are listed on the Nasdaq Capital Market.
(a)-(b) No change
(c) In addition to the requirements contained in paragraph (a) and (b) above, and unless otherwise indicated, a security shall satisfy the following criteria for listing on Nasdaq:
(1)-(7) No change.
(8) (A)-(B) No change.
(C) A failure to meet the continued listing requirement for market value of listed securities shall be determined to exist only if the deficiency continues for a period of 10 consecutive business days. Upon such failure, the issuer shall be notified promptly and shall have a period of [30]
(D)-(E) No change.
(9)-(30) No change.
(d) No change.
To qualify for listing on Nasdaq, a security of a non-Canadian foreign issuer, an American Depositary Receipt (ADR) or similar security issued in respect of a security of a foreign issuer shall satisfy the requirements of paragraphs (a), (b), and (e) of this Rule. Issuers that meet these requirements, but that are not listed on the Nasdaq Global Market, are listed on the Nasdaq Capital Market.
(a)-(d) No change.
(e) In addition to the requirements contained in paragraphs (a) and (b), the security shall satisfy the criteria set out in this subsection for listing on Nasdaq. In the case of ADRs, the underlying security will be considered when determining the ADR's qualification for initial or continued listing on Nasdaq.
(1) No change.
(2) (A)-(C) No change.
(D) A failure to meet the continued listing requirements for market value of listed securities shall be determined to exist only if the deficiency continues for a period of 10 consecutive business days. Upon such failure, the issuer shall be notified promptly and shall have a period of [30]
(E) No change.
(3)-(26) No change.
(f) No change.
After listing as a Nasdaq Global Market security, a security must substantially meet the criteria set forth in paragraphs (a) or (b), and (c), (d), (e) (f), (g), (h) or (i) below to continue to remain listed on the Nasdaq Global Market. A security maintaining its listing under paragraph (b) need not also be in compliance with the quantitative maintenance criteria in the Rule 4300 series.
(a)-(d) No change.
(e) Compliance Periods
(1)-(3) No change.
(4) A failure to meet the continued listing requirements for market [capitalization]
(f)-(i) No change.
In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
Nasdaq proposes to modify the procedures applicable to listed companies that fail to meet the market value of listed securities requirement. A company fails to meet the continued listing requirement for market value of listed securities if the market value of listed securities is below the applicable threshold for a period of 10 consecutive business days.
Nasdaq has come to believe that the 30 day compliance period afforded by the existing rules is too short a period, especially during periods of market turmoil. Further, while companies are only allowed a 30 day period to regain compliance with the market value of listed securities requirement, they are allowed a 90 day compliance period to regain compliance with the requirement for market value of publicly held securities,
Nasdaq proposes that any company that previously received a delisting notification for failing to meet the market value of listed securities requirement would continue to be subject to delisting for that reason, unless a Hearings Panel grants the company an exception pursuant to Rule 4802(b)(2). A company that has not yet received a delisting notification from Nasdaq staff would have its compliance period extended to 90 calendar days from the date it was notified of the original deficiency. Thus, for example, if 25 days had elapsed since the company was notified of its 30-day compliance period under the old rule, the company would have an additional 65 days (including the five days remaining in the original compliance period), for a total compliance period of 90 days from the original notification.
Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
Written comments were neither solicited nor received.
Because the proposed rule change: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) does not become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act
The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule change will conform the length of the compliance period for a failure to meet the continued listing requirement for market value of listed securities with the current compliance period for a failure to meet the continued listing requirement for market value of publicly held shares. Because the publicly held shares listing requirement is merely a subset of the market value of listed securities requirement, the Commission believes that allowing companies that are deficient in the market value of listed securities requirement the same maximum time of 90 days that is currently available to cure a market value of publicly held securities deficiency raises no new regulatory issues. In addition, the Commission believes that waiving the 30-day operative delay will allow Nasdaq to immediately afford companies that may be deficient in the market value of listed securities requirement due to recent market volatility and conditions an additional 60 days to regain compliance.
At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors,
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an e-mail to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
In notice document E9-9 beginning on page 749 in the issue of Wednesday, January 7, 2009 make the following correction:
On page 750, in the third column, in the last line of the first paragraph, “January 27, 2009” should read “January 28, 2009”.
Overall grant making authority for this program is contained in the Mutual Educational and Cultural Exchange Act of 1961, Public Law 87-256, as amended, also known as the Fulbright-Hays Act. The purpose of the Act is “to enable the Government of the United States to increase mutual understanding between the people of the United States and the people of other countries * * *; to strengthen the ties which unite us with other nations by demonstrating the educational and cultural interests, developments, and achievements of the people of the United States and other nations * * * and thus to assist in the development of friendly, sympathetic and peaceful relations between the United States and the other countries of the world.” The funding authority for program is provided through Support for East European Democracy (SEED) legislation.
The goals of the program are to develop a sense of civic responsibility and commitment to community development among youth; to foster relationships among youth from different ethnic, religious, and national groups; to assist the successor generation of Montenegro and Serbia in developing the qualities it will need to lead their countries in the 21st century; and to promote mutual understanding between the people of the United States and the people of Montenegro and Serbia.
With these goals in mind, the Bureau of Educational and Cultural Affairs (ECA) is sponsoring this program to provide scholarships for secondary school students from Montenegro and Serbia to spend one academic year in the United States, living with U.S. host families and attending high school. Programmatic activities will introduce students to the principles of youth leadership, civic education, civil society, and community service, as they are practiced in the United States. Upon the students' return to Montenegro and Serbia, the program will continue to
Applicants should identify specific objectives that will demonstrate progress toward the goals stated above through the program. These will be the basis of an evaluation designed to measure the program's success. Please see Section IV.3d.3. on program monitoring and evaluation.
Applicants must be able to implement the program components both in the United States and in Montenegro and Serbia. The organization must have an established office in Montenegro and/or Serbia, and must be able to dedicate key staff to this program who possesses a thorough understanding of the secondary school student J Exchange Visitor Program regulations.
Student participants will arrive in their host communities during the month of August, and remain for 10 or 11 months until their departure between mid-May and June.
Proposed funding would support approximately 85 participants for an academic year program in 2010-11. Approximately 21% of the total number should be recruited from Montenegro; the rest should be recruited from all regions of Serbia.
Applicants should include a recruitment planning schedule.
The students will enroll in a U.S. high school and live with an American family, developing an understanding of U.S. life and culture. In addition to these firsthand experiences, students will participate in activities specifically designed to teach them about community life, citizen participation in a democracy, and U.S. culture during the exchange period. While in the United States, the focus of many of the students' enhancement activities will include principles of civil society, community service, and leadership through focused training and facilitation. Participants will have the opportunity to give presentations on their country and culture in community forums.
Upon the students' return to Montenegro and Serbia, the program will continue to support them as they apply their experiences in the United States to their lives at home. The ability of the grant recipient to track and engage alumni is a critical factor in the success of the program. Appropriate financial and organizational support for the follow-on component for alumni is as important as the U.S. exchange.
III.1. Eligible Applicants: Applications may be submitted by public and private non-profit organizations meeting the provisions described in Internal Revenue Code section 26 U.S.C. 501(c)(3).
III.2. Cost Sharing or Matching Funds: There is no minimum or maximum percentage required for this competition. However, the Bureau encourages applicants to provide maximum levels of cost sharing and funding in support of its programs.
When cost sharing is offered, it is understood and agreed that the applicant must provide the amount of cost sharing as stipulated in its proposal and later included in an approved agreement. Cost sharing may be in the form of allowable direct or indirect costs. For accountability, you must maintain written records to support all costs which are claimed as your contribution, as well as costs to be paid by the Federal government. Such records are subject to audit. The basis for determining the value of cash and in-kind contributions must be in accordance with OMB Circular A-110, (Revised), Subpart C.23—Cost Sharing and Matching. In the event you do not provide the minimum amount of cost sharing as stipulated in the approved budget, ECA's contribution will be reduced in like proportion.
III.3. Other Eligibility Requirements: Bureau grant guidelines require that organizations with less than four years experience in conducting international exchanges be limited to $60,000 in Bureau funding. ECA anticipates making one award, in an amount up to $1,360,000 to support program and administrative costs required to implement this exchange program. Therefore, organizations with less than four years experience in conducting international exchanges are ineligible to apply under this competition. The Bureau encourages applicants to provide maximum levels of cost sharing and funding in support of its programs.
Please read the complete Federal Register announcement before sending inquiries or submitting proposals. Once the RFGP deadline has passed, Bureau staff may not discuss this competition with applicants until the proposal review process has been completed.
IV.1. Contact Information To Request an Application Package: Please contact the Youth Programs Division, Office of Citizen Exchanges (ECA/PE/C/PY), U.S. Department of State, SA-44, 301 4th Street, SW., Room 220, Washington, DC 20547, telephone: (202) 453-8158, fax: (202) 453-8169; e-mail:
Alternatively, an electronic application package may be obtained from grants.gov. Please see section IV.3f for further information.
The Solicitation Package contains the Proposal Submission Instruction (PSI) document which consists of required application forms, and standard guidelines for proposal preparation. It also contains the Project Objectives, Goals and Implementation (POGI) document, which provides specific information, award criteria and budget instructions tailored to this competition.
Please specify Program Officer Amy Schulz and refer to the Funding Opportunity Number ECA/PE/C/PY-09-19 located at the top of this announcement on all other inquiries and correspondence.
IV.2. To Download a Solicitation Package Via Internet: The entire Solicitation Package may be downloaded from the Bureau's Web site at
Please read all information before downloading.
IV.3. Content and Form of Submission: Applicants must follow all instructions in the Solicitation Package. The application should be submitted per the instructions under IV.3f. “Application Deadline and Methods of Submission” section below.
IV.3a. You are required to have a Dun and Bradstreet Data Universal Numbering System (DUNS) number to apply for a grant or cooperative
IV.3b. All proposals must contain an executive summary, proposal narrative and budget.
IV.3c. You must have nonprofit status with the IRS at the time of application.
Those who file Internal Revenue Service Form 990, “Return of Organization Exempt From Income Tax,” must include a copy of relevant portions of this form.
Those who do not file IRS Form 990 must submit information above in the format of their choice.
If your organization is a private nonprofit which has not received a grant or cooperative agreement from ECA in the past three years, or if your organization received nonprofit status from the IRS within the past four years, you must submit the necessary documentation to verify nonprofit status as directed in the PSI document. Failure to do so will cause your proposal to be declared technically ineligible.
IV.3d. Please take into consideration the following information when preparing your proposal narrative:
IV.3d.1 Adherence to All Regulations Governing the J Visa. The Office of Citizen Exchanges of the Bureau of Educational and Cultural Affairs is the official program sponsor of the exchange program covered by this RFGP, and an employee of the Bureau will be the “Responsible Officer” for the program under the terms of 22 CFR 62, which covers the administration of the Exchange Visitor Program (J visa program). Under the terms of 22 CFR part 62, organizations receiving awards (either a grant or cooperative agreement) under this RFGP will be third parties “cooperating with or assisting the sponsor in the conduct of the sponsor's program.” The actions of recipient organizations shall be “imputed to the sponsor in evaluating the sponsor's compliance with” 22 CFR part 62. Therefore, the Bureau expects that any organization receiving an award under this competition will render all assistance necessary to enable the Bureau to fully comply with 22 CFR part 62
The Bureau of Educational and Cultural Affairs places critically important emphases on the secure and proper administration of Exchange Visitor (J visa) Programs and adherence by recipient organizations and program participants to all regulations governing the J visa program status. Therefore, proposals should explicitly state in writing that the applicant is prepared to assist the Bureau in meeting all requirements governing the administration of Exchange Visitor Programs as set forth in 22 CFR part 62. If your organization has experience as a designated Exchange Visitor Program Sponsor, the applicant should discuss their record of compliance with 22 CFR part 62
The Office of Citizen Exchanges of ECA will be responsible for issuing DS-2019 forms to participants in this program.
A copy of the complete regulations governing the administration of Exchange Visitor (J) programs is available at
IV.3d.2 Diversity, Freedom and Democracy Guidelines. Pursuant to the Bureau's authorizing legislation, programs must maintain a non-political character and should be balanced and representative of the diversity of American political, social, and cultural life. “Diversity” should be interpreted in the broadest sense and encompass differences including, but not limited to ethnicity, race, gender, religion, geographic location, socio-economic status, and disabilities. Applicants are strongly encouraged to adhere to the advancement of this principle both in program administration and in program content. Please refer to the review criteria under the ‘Support for Diversity' section for specific suggestions on incorporating diversity into your proposal. Public Law 104-319 provides that “in carrying out programs of educational and cultural exchange in countries whose people do not fully enjoy freedom and democracy,” the Bureau “shall take appropriate steps to provide opportunities for participation in such programs to human rights and democracy leaders of such countries.” Public Law 106-113 requires that the governments of the countries described above do not have inappropriate influence in the selection process. Proposals should reflect advancement of these goals in their program contents, to the full extent deemed feasible.
IV.3d.3 Program Monitoring and Evaluation. Proposals must include a plan to monitor and evaluate the project's success, both as the activities unfold and at the end of the program. The Bureau recommends that your proposal include a draft survey questionnaire or other technique plus a description of a methodology to use to link outcomes to original project objectives. The Bureau expects that the recipient organization will track participants or partners and be able to respond to key evaluation questions, including satisfaction with the program, learning as a result of the program, changes in behavior as a result of the program, and effects of the program on institutions (institutions in which participants work or partner institutions). The evaluation plan should include indicators that measure gains in mutual understanding as well as substantive knowledge.
Successful monitoring and evaluation depend heavily on setting clear goals and outcomes at the outset of a program. Your evaluation plan should include a description of your project's objectives, your anticipated project outcomes, and how and when you intend to measure these outcomes (performance indicators). The more that outcomes are “smart” (specific, measurable, attainable, results-oriented, and placed in a reasonable time frame), the easier it will be to conduct the evaluation. You should also show how your project objectives link to the goals of the program described in this RFGP.
Your monitoring and evaluation plan should clearly distinguish between program outputs and outcomes. Outputs are products and services delivered, often stated as an amount. Output information is important to show the scope or size of project activities, but it cannot substitute for information about progress towards outcomes or the results achieved. Examples of outputs include the number of people trained or the number of seminars conducted. Outcomes, in contrast, represent specific results a project is intended to
We encourage you to assess the following four levels of outcomes, as they relate to the program goals set out in the RFGP (listed here in increasing order of importance):
1. Participant satisfaction with the program and exchange experience.
2. Participant learning, such as increased knowledge, aptitude, skills, and changed understanding and attitude. Learning includes both substantive (subject-specific) learning and mutual understanding.
3. Participant behavior, concrete actions to apply knowledge in work or community; greater participation and responsibility in civic organizations; interpretation and explanation of experiences and new knowledge gained; continued contacts between participants, community members, and others.
a. Institutional changes, such as increased collaboration and partnerships, policy reforms, new programming, and organizational improvements.
Consideration should be given to the appropriate timing of data collection for each level of outcome. For example, satisfaction is usually captured as a short-term outcome, whereas behavior and institutional changes are normally considered longer-term outcomes.
Overall, the quality of your monitoring and evaluation plan will be judged on how well it (1) specifies intended outcomes; (2) gives clear descriptions of how each outcome will be measured; (3) identifies when particular outcomes will be measured; and (4) provides a clear description of the data collection strategies for each outcome (i.e., surveys, interviews, or focus groups). (Please note that evaluation plans that deal only with the first level of outcomes [satisfaction] will be deemed less competitive under the present evaluation criteria.)
Recipient organizations will be required to provide reports analyzing their evaluation findings to the Bureau in their regular program reports. All data collected, including survey responses and contact information, must be maintained for a minimum of three years and provided to the Bureau upon request.
Alumni Outreach/Follow-on Programming and Engagement: Please refer to the Proposal Submissions Instruction (PSI) document for additional guidance.
IV.3d.4 Describe your plans for: i.e. sustainability, overall program management, staffing, coordination with ECA and PAS or any other requirements etc.
IV.3e. Please take the following information into consideration when preparing your budget:
IV.3e.1 Applicants must submit SF-424A—“Budget Information—Non-Construction Programs” along with a comprehensive budget for the entire program. Budget requests may not exceed $1,360,000. There must be a summary budget as well as breakdowns reflecting both administrative and program budgets. Applicants may provide separate sub-budgets for each program component, phase, location, or activity to provide clarification.
IV.3e.2 Allowable costs for the program and additional budget guidance are outlined in detail in the POGI document.
Please refer to the Solicitation Package for complete budget guidelines and formatting instructions.
IV.3f. Application Deadline and Methods of Submission:
Along with the Project Title, all applicants must enter the above Reference Number in Box 11 on the SF-424 contained in the mandatory Proposal Submission Instructions (PSI) of the solicitation document.
IV.3f.1 Submitting Printed Applications. Applications must be shipped no later than the above deadline. Delivery services used by applicants must have in-place, centralized shipping identification and tracking systems that may be accessed via the Internet and delivery people who are identifiable by commonly recognized uniforms and delivery vehicles. Proposals shipped on or before the above deadline but received at ECA more than seven days after the deadline will be ineligible for further consideration under this competition.
Proposals shipped after the established deadlines are ineligible for consideration under this competition. ECA will not notify you upon receipt of application. It is each applicant's responsibility to ensure that each package is marked with a legible tracking number and to monitor/confirm delivery to ECA via the Internet. Delivery of proposal packages may not be made via local courier service or in person for this competition. Faxed documents will not be accepted at any time. Only proposals submitted as stated above will be considered.
When preparing your submission please make sure to include one extra copy of the completed SF-424 form and place it in an envelope addressed to “ECA/EX/PM”.
The original and seven copies of the application should be sent to: U.S. Department of State, SA-44, Bureau of Educational and Cultural Affairs, Ref.: ECA/PE/C/PY-09-19, Program Management, ECA/EX/PM, Room 534, 301 4th Street, SW., Washington, DC 20547.
Applicants submitting hard-copy applications must also submit the “Executive Summary” and “Proposal Narrative” sections of the proposal in text (.txt) or Microsoft Word format on a PC-formatted disk. The Bureau will provide these files electronically to the appropriate Public Affairs Sections at the U.S. embassies for their review.
IV.3f.2 Submitting Electronic Applications. Applicants have the option of submitting proposals electronically through Grants.gov (
Several of the steps in the Grants.gov registration process could take several weeks. Therefore, applicants should check with appropriate staff within their organizations immediately after reviewing this RFGP to confirm or determine their registration status with Grants.gov.
Once registered, the amount of time it can take to upload an application will vary depending on a variety of factors including the size of the application and the speed of your internet connection. In addition, validation of an electronic submission via Grants.gov can take up to two business days.
Therefore, we strongly recommend that you not wait until the application deadline to begin the submission process through Grants.gov.
The Grants.gov Web site includes extensive information on all phases/aspects of the Grants.gov process, including an extensive section on frequently asked questions, located under the “For Applicants” section of the Web site. ECA strongly recommends that all potential applicants review
Direct all questions regarding Grants.gov registration and submission to: Grants.gov Customer Support, Contact Center Phone: 800-518-4726, Business Hours: Monday-Friday, 7 a.m.-9 p.m. Eastern Time, E-mail:
Applicants have until midnight (12 a.m.), Washington, DC time of the closing date to ensure that their entire application has been uploaded to the Grants.gov site. There are no exceptions to the above deadline. Applications uploaded to the site after midnight of the application deadline date will be automatically rejected by the grants.gov system, and will be technically ineligible.
Please refer to the Grants.gov Web site, for definitions of various “application statuses” and the difference between a submission receipt and a submission validation. Applicants will receive a validation e-mail from grants.gov upon the successful submission of an application. Again, validation of an electronic submission via Grants.gov can take up to two business days. Therefore, we strongly recommend that you not wait until the application deadline to begin the submission process through Grants.gov. ECA will not notify you upon receipt of electronic applications.
It is the responsibility of all applicants submitting proposals via the Grants.gov Web portal to ensure that proposals have been received by Grants.gov in their entirety, and ECA bears no responsibility for data errors resulting from transmission or conversion processes.
IV.3g. Intergovernmental Review of Applications: Executive Order 12372 does not apply to this program.
V.1. Review Process: The Bureau will review all proposals for technical eligibility. Proposals will be deemed ineligible if they do not fully adhere to the guidelines stated herein and in the Solicitation Package. All eligible proposals will be reviewed by the program office, as well as the Public Diplomacy section overseas at the U.S. Embassy in Belgrade and Podgorica. Eligible proposals will be subject to compliance with Federal and Bureau regulations and guidelines and forwarded to Bureau grant panels for advisory review. Proposals may also be reviewed by the Office of the Legal Adviser or by other Department elements. Final funding decisions are at the discretion of the Department of State's Assistant Secretary for Educational and Cultural Affairs. Final technical authority for assistance awards (grants) resides with the Bureau's Grants Officer.
Technically eligible applications will be competitively reviewed according to the criteria stated below. These criteria are not rank ordered and all carry equal weight in the proposal evaluation:
1. Quality of the Program Idea: Proposals should exhibit originality, substance, precision, and relevance to the Bureau's mission.
2. Program Planning and Ability To Achieve Program Objectives: Detailed agenda and relevant work plan should demonstrate substantive undertakings and logistical capacity. Agenda and plan should adhere to the program overview and guidelines described above. Objectives should be reasonable, feasible, and flexible. Proposals should clearly demonstrate how the institution will meet the program's objectives and plan. Reviewers will assess the degree to which proposals engage participants in community activities that involve skills development and leadership training.
3. Multiplier Effect/Impact: Proposed programs should strengthen long-term mutual understanding, including maximum sharing of information and establishment of long-term institutional and individual linkages.
4. Support of Diversity: Proposals should demonstrate substantive support of the Bureau's policy on diversity. Achievable and relevant features should be cited in both program administration (selection of participants, host families, schools, program venues and program evaluation) and program content (orientations, program meetings, resource materials and follow-up activities).
5. Institutional Capacity and Institution's Record: Proposed personnel and institutional resources should be adequate and appropriate to achieve the program or project's goals. Reviewers will assess the applicant and its partners to determine if they offer adequate resources, expertise, and experience to fulfill program objectives. Partner activities should be clearly defined. Proposals should demonstrate an institutional record of successful exchange programs, including responsible fiscal management and full compliance with all reporting requirements for past Bureau awards (grants or cooperative agreements) as determined by Bureau Grants Staff. The Bureau will consider the past performance of prior recipients and the demonstrated potential of new applicants.
6. Follow-on Activities: Proposals should provide a plan for continued follow-on activity ensuring that Bureau supported programs are not isolated events.
7. Program Monitoring and Evaluation: Proposals should include a plan to monitor and evaluate the program's success, both as the activities unfold and at the end of the program. Reviewers will assess your plans to monitor student progress and program activities, particularly in regard to intended outcomes indicated in your proposal. The successful applicant will be expected to submit quarterly reports, which should be included as an inherent component of the work plan. A draft survey questionnaire or other technique, plus description of a methodology to use to link outcomes to original project objectives, is recommended.
8. Cost-effectiveness and Cost-sharing: The overhead and administrative components of the proposal, including salaries and honoraria, should be kept as low as possible. All other items should be necessary and appropriate. Proposals should maximize cost-sharing through other private sector support as well as institutional direct funding contributions. Preference will be given to organizations whose proposals demonstrate a quality, cost-effective program.
VI.1a. Award Notices: Final awards cannot be made until funds have been appropriated by Congress, allocated and committed through internal Bureau procedures. Successful applicants will receive a Federal Assistance Award (FAA) from the Bureau's Grants Office. The FAA and the original proposal with subsequent modifications (if applicable) shall be the only binding authorizing document between the recipient and the U.S. Government. The FAA will be signed by an authorized Grants Officer, and mailed to the recipient's responsible officer identified in the application.
Unsuccessful applicants will receive notification of the results of the application review from the ECA program office coordinating this competition.
VI.2. Administrative and National Policy Requirements: Terms and Conditions for the Administration of ECA agreements include the following:
Office of Management and Budget Circular A-122, “Cost Principles for Nonprofit Organizations.”
Office of Management and Budget Circular A-21, “Cost Principles for Educational Institutions.”
OMB Circular A-87, “Cost Principles for State, Local and Indian Governments”.
OMB Circular No. A-110 (Revised), Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and other Nonprofit Organizations.
OMB Circular No. A-102, Uniform Administrative Requirements for Grants-in-Aid to State and Local Governments.
OMB Circular No. A-133, Audits of States, Local Government, and Non-profit Organizations
Please reference the following websites for additional information:
VI.3. Reporting Requirements: You must provide ECA with a hard copy original plus one copy of the following reports:
(1.) A final program and financial report no more than 90 days after the expiration of the award;
(2.) Quarterly program and financial reports which should include both quantitative and qualitative data you have available.
(3.) A concise, one-page final program report summarizing program outcomes no more than 90 days after the expiration of the award. This one-page report will be transmitted to OMB, and be made available to the public via OMB's USAspending.gov Web site—as part of ECA's Federal Funding Accountability and Transparency Act (FFATA) reporting requirements. This report does not replace the last quarterly report.
(4.) A SF-PPR, “Performance Progress Report” Cover Sheet with all program reports.
Award recipients will be required to provide reports analyzing their evaluation findings to the Bureau in their regular program reports. (Please refer to IV. Application and Submission Instructions (IV.3.d.3) above for Program Monitoring and Evaluation information.
All data collected, including survey responses and contact information, must be maintained for a minimum of three years and provided to the Bureau upon request.
All reports must be sent to the ECA Grants Officer and ECA Program Officer listed in the final assistance award document.
Program Data Requirements: Award recipients will be required to maintain specific data on program participants and activities in an electronically accessible database format that can be shared with the Bureau as required. As a minimum, the data must include the following:
(1) Name, address, contact information and biographic sketch of all persons who travel internationally on funds provided by the agreement or who benefit from the award funding but do not travel.
(2) Itineraries of international and domestic travel, providing dates of travel and cities in which any exchange experiences take place. Final schedules for in-country and U.S. activities must be received by the ECA Program Officer at least three work days prior to the official opening of the activity.
For questions about this announcement, contact: Amy Schulz, Office of Citizen Exchanges, ECA/PE/C/PY, Room 220, U.S. Department of State, SA-44, 301 4th Street, SW., Washington, DC 20547. Telephone: (202) 453-8158 Fax number: (202) 453-8169, E-mail address:
All correspondence with the Bureau concerning this RFGP should reference the above title and number ECA/PE/C/PY-09-19.
Please read the complete announcement before sending inquiries or submitting proposals. Once the RFGP deadline has passed, Bureau staff may not discuss this competition with applicants until the proposal review process has been completed.
Notice: The terms and conditions published in this RFGP are binding and may not be modified by any Bureau representative. Explanatory information provided by the Bureau that contradicts published language will not be binding. Issuance of the RFGP does not constitute an award commitment on the part of the Government. The Bureau reserves the right to reduce, revise, or increase proposal budgets in accordance with the needs of the program and the availability of funds. Awards made will be subject to periodic reporting and evaluation requirements per section VI.3 above.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the exhibit objects, contact Julie Simpson, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: (202-453-8050). The address is U.S. Department of State, SA-44, 301 4th Street, SW., Room 700, Washington, DC 20547-0001.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March
For further information, including a list of the exhibit objects, contact Julie Simpson, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202-453-8050). The address is U.S. Department of State, SA-44, 301 4th Street, SW., Room 700, Washington, DC 20547-0001.
Members of the public may attend the meeting up to the seating capacity of the room. Interested persons may seek information by writing: Mr. T. J. Felleisen, U.S. Coast Guard (CG-5223), Room 1210, 2100 Second Street, SW., Washington, DC 20593-0001 or by calling (202) 372-1424.
The Shipping Coordinating Committee (SHC) will conduct an open meeting at 9:30 a.m. on Thursday, February 12, 2009, in Room 6103 of the United States Coast Guard Headquarters building, 2100 Second Street, SW., Washington, DC 20593. The primary purpose of the meeting is to prepare for the 52nd session of the Sub-Committee on Ship Design and Equipment (DE 52) of the International Maritime Organization (IMO) to be held March 16-20, 2009 at the IMO's London Headquarters. The primary matters to be considered at DE 52 include:
By virtue of the authority vested in the Secretary of State by the laws of the United States, and delegated to me by Delegation of Authority 245, dated April 23, 2001, I hereby delegate to the following officials to the extent authorized by law all authorities vested in the specified positions, including all authorities vested in the Secretary of State that have been or may be delegated or redelegated to those positions:
• To Deputy Assistant Secretary Steven J. Rodriguez, the authorities of the Assistant Secretary for Administration.
• To Deputy Assistant Secretary Eliot Kang, the authorities of the Assistant Secretary for International Security and Nonproliferation.
• To Deputy Spokesman, Robert A. Wood, the authorities of the Assistant Secretary for Public Affairs.
• To Deputy Assistant Secretary James L. Millette, the authorities of the Assistant Secretary for Resource Management.
• To Deputy Assistant Secretary Karin L. Look, the authorities of the Assistant Secretary for Verification, Compliance and Implementation.
• To Assistant Chief of Protocol for Diplomatic Affairs, Gladys Boluda authorities of the Chief of Protocol.
• To the Deputy Director, Edward Lacey, the authorities of the Director of Policy Planning.
• To Ruth E. Bennett, the authorities of the Senior Adviser on Women's Empowerment and the Director of the Office of International Women's Issues.
• To Nan E. Kennelly, the authorities of the Director of the Office to Monitor and Combat Trafficking in Persons.
Any authorities covered by this delegation are also hereby delegated to the Deputy Secretary for Management and Resources, the Under Secretary for Political Affairs and the Under Secretary for Management, and may also be exercised by the Secretary and the Deputy Secretary. Nothing in this delegation of authority shall be deemed to supersede any existing delegation of authority, which shall remain in full force and effect during and after this delegation.
This delegation shall become effective at noon on January 20, 2009, and shall expire upon the appointment and entry upon duty in each specific case of a subsequently appointed individual to serve in the respective position.
This memorandum shall be published in the
By virtue of the authority vested in the Secretary of State by the laws of the United States, and delegated to me by Delegation of Authority 245, dated April 23, 2001, I hereby delegate to the following officials to the extent authorized by law all authorities vested in the Under Secretary of State for Democracy and Global Affairs and Coordinator, including all authorities vested in the Secretary of State that have been or may be delegated or redelegated to that Under Secretary:
(1) To the Principal Deputy Assistant Secretary of State for Oceans and International Environmental Scientific Affairs, insofar as these authorities relate to the responsibilities of the Bureau of Oceans and International Environmental Scientific Affairs;
(2) To the Principal Deputy Assistant Secretary of State for Democracy, Human Rights and Labor, insofar as these authorities relate to the responsibilities of the Bureau of Democracy, Human Rights and Labor; and
(3) To the Principal Deputy Assistant Secretary of State for Population, Refugees and Migration, insofar as these authorities relate to the responsibilities of the Bureau of Population, Refugees and Migration.
Any authorities covered by this delegation are also hereby delegated to the Deputy Secretary for Management and Resources, the Under Secretary for Political Affairs and the Under Secretary for Management, and may also be exercised by the Secretary and the Deputy Secretary. Nothing in this delegation of authority shall be deemed to supersede any existing delegation of authority, which shall remain in full force and effect during and after this delegation.
This delegation shall become effective at noon on January 20, 2009, and shall expire upon the appointment and entry upon duty of a subsequently appointed individual to serve as Under Secretary for Democracy and Global Affairs and Coordinator.
This memorandum shall be published in the
By virtue of the authority vested in the Secretary of State by the laws of the United States, including Section 1 of the State Department Basic Authorities Act (22 U.S.C. 2651a), and delegated to me by Delegation of Authority 245, dated April 23, 2001, I hereby delegate to the Principal Deputy Assistant Secretary of State for the Bureau of Economic, Energy, and Business Affairs, to the extent authorized by law, all authorities vested in the Under Secretary of State for Economic, Energy and Agricultural Affairs, including all authorities vested in the Secretary of State that have been or may be delegated or redelegated to that Under Secretary.
Any authorities covered by this delegation are also hereby delegated to the Deputy Secretary for Management and Resources, the Under Secretary for Political Affairs and the Under Secretary for Management, and may also be exercised by the Secretary and the Deputy Secretary. Nothing in this delegation of authority shall be deemed to supersede any existing delegation of authority, which shall remain in full force and effect during and after this delegation.
This delegation shall become effective at noon on January 20, 2009, and shall expire upon the appointment and entry upon duty of a subsequently appointed individual to serve as Under Secretary for Economic, Energy and Agricultural Affairs.
This memorandum shall be published in the
By virtue of the authority vested in the Secretary of State by the laws of the United States, including the Foreign Assistance Act of 1961, the Arms Export Control Act, the Foreign Affairs Reform and Restructuring Act of 1998, and Section 1 of the State Department Basic Authorities Act (22 U.S.C. 2651a), and delegated to me by Delegation of Authority 245, dated April 23, 2001, I hereby delegate to Stephen D. Mull of the Office of the Under Secretary for Political Affairs, to the extent authorized by law, all authorities vested in the Under Secretary of State for Arms Control and International Security, including all authorities vested in the Secretary of State that have been or may be delegated or redelegated to that Under Secretary.
Any authorities covered by this delegation are also hereby delegated to the Deputy Secretary for Management and Resources, the Under Secretary for Political Affairs and the Under Secretary for Management, and may also be exercised by the Secretary and the Deputy Secretary. Nothing in this delegation of authority shall be deemed to supersede any existing delegation of authority, which shall remain in full force and effect during and after this delegation.
This delegation shall become effective at noon on January 20, 2009, and shall expire upon the appointment and entry upon duty of a subsequently appointed individual to serve as Under Secretary of State for Arms Control and International Security.
This memorandum shall be published in the
By virtue of the authority vested in the Secretary of State by the laws of the United States, including the Mutual Educational and Cultural Exchange Act of 1961, the United States Information and Educational Exchange Act of 1948, and the State Department Basic Authorities Act of 1956, and delegated to me by Delegation of Authority 245, dated April 23, 2001, I hereby delegate to the following officials to the extent authorized by law all authorities vested in the Under Secretary of State for Public Diplomacy and Public Affairs, including all authorities vested in the Secretary of State that have been or may be delegated or redelegated to that Under Secretary:
(1) To the Deputy Spokesman, Bureau of Public Affairs, insofar as these authorities relate to the responsibilities of the Bureau of Public Affairs;
(2) To the Principal Deputy Assistant Secretary of State for Educational and Cultural Affairs, insofar as these authorities relate to the responsibilities of the Bureau of Educational and Cultural Affairs, including responsibilities with respect to the John F. Kennedy Center for the Performing Arts and the President's Committee on the Arts and the Humanities; and
(3) To the Coordinator for International Information Programs, insofar as these authorities relate to the responsibilities of the Bureau of International Information Programs, including responsibilities with respect to the National Endowment for Democracy and the Broadcasting Board of Governors.
Any authorities covered by this delegation are also hereby delegated to the Deputy Secretary for Management and Resources, the Under Secretary for Political Affairs and the Under Secretary for Management, and may also be exercised by the Secretary and the Deputy Secretary. Nothing in this delegation of authority shall be deemed to supersede any existing delegation of authority, which shall remain in full force and effect during and after this delegation.
This delegation shall become effective at noon on January 20, 2009, and shall expire upon the appointment and entry upon duty of a subsequently appointed individual to serve as Under Secretary of State for Public Diplomacy and Public Affairs.
This memorandum shall be published in the
Federal Motor Carrier Safety Administration (FMCSA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FMCSA announces its plan to submit the Information Collection Request (ICR) described below to the Office of Management and Budget (OMB) for its review and approval and invites public comment. The collection involves the assessment of FMCSA's strategic decision to integrate its Information Technology (IT) with its business processes using portal technology to consolidate its systems and databases through the FMCSA COMPASS modernization initiative. The information to be collected will be used to assess the satisfaction of Federal, State, and industry customers with the FMCSA COMPASS Portal.
We must receive your comments on or before March 30, 2009.
You may submit comments bearing the Federal Docket Management System (FDMS) Docket Number FMCSA-2008-0354 using any of the following methods:
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Each submission must include the Agency name and the docket number for this Notice. Note that DOT posts all comments received without change to
Mr. Adam Schlicht, Department of Transportation, Federal Motor Carrier Safety Administration, West Building 6th Floor, 1200 New Jersey Avenue, SE., Washington, DC 20590. Telephone: 202-366-4441; e-mail:
Title II, section 207 of the E-Government Act of 2002 requires Government agencies to improve the methods by which government information, including information on the Internet, is organized, preserved, and made accessible to the public. To meet this goal, FMCSA plans to provide a survey on the FMCSA Portal, allowing users to assess its functionality. This functionality includes the capability for Federal, State, and Industry users to access the Agency's existing safety IT systems with a single set of credentials and have easy access to safety data about the companies that do business with FMCSA. The COMPASS program will also focus on improving the accuracy of data to help ensure information, such as carrier name and address, is valid and reliable.
FMCSA's legacy information systems are currently operational. However, having this many stand-alone systems has led to data quality concerns, a need for excessive IDs and passwords, and significant operational and maintenance costs. Integrating our information technologies with our business processes will, in turn, improve our operations considerably, particularly in terms of data quality, ease of use, and reduction of maintenance costs.
In early 2007, FMCSA' COMPASS program launched a series of releases of a new FMCSA Portal to its Federal, State and Industry customers. Over the coming years, more than 15 releases are planned. These releases will use portal technology to fuse and provide numerous services and functions via a single user interface and provide tailored services that seek to meet the needs of specific constituencies within our customer universe.
The FMCSA COMPASS Portal will entail considerable expenditure of Federal Government dollars over the years and will fundamentally impact the nature of the relationship between the Agency and its Federal, State, and Industry customers. Consequently, the Agency intends to conduct regular and ongoing assessments of customer satisfaction with COMPASS.
The primary purposes of this assessment are to:
• Determine the extent to which the FMCSA Portal functionality continues to meet the needs of Agency customers;
• Identify and prioritize additional modifications;
• Determine the extent that the FMCSA Portal has impacted FMCSA's relationships with its main customer groups.
The assessment will address:
• Overall customer satisfaction;
• Customer satisfaction against specific items;
• Performance of systems integrator against agreed objectives;
• Desired adjustments and modifications to systems;
• Demonstrated value of investment to FMCSA and DOT;
• Items about the FMCSA Portal that customers like best;
• Customer ideas for making the FMCSA Portal better.
The Department of Treasury will submit the following public information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104-13 after the date of publication of this notice. Copies of the submission(s) may be obtained by calling the Treasury Bureau Clearance Officer listed. Comments regarding this information collection should be addressed to the OMB reviewer listed and to the Treasury Department Clearance Officer, Department of the Treasury, Room 11020, 1750 Pennsylvania Avenue, NW., Washington, DC 20220.
Written comments should be received on or before March 2, 2009 to be assured of consideration.
The Department of the Treasury will submit the following public information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104-13 on or after the date of publication of this notice. Copies of the submission(s) may be obtained by calling the Treasury Bureau Clearance Officer listed. Comments regarding this information collection should be addressed to the OMB reviewer listed and to the Treasury Department Clearance Officer, Department of the Treasury, Room 11000, 1750 Pennsylvania Avenue, NW., Washington, DC 20220.
Board of Governors of the Federal Reserve System.
Proposed rule; request for public comment.
The Board is proposing to amend Regulation E, which implements the Electronic Fund Transfer Act, and the official staff commentary to the regulation, which interprets the requirements of Regulation E. The proposal would limit the ability of a financial institution to assess an overdraft fee for paying automated teller machine (ATM) withdrawals and one-time debit card transactions that overdraw a consumer's account, unless the consumer is given notice of the right to opt out of the payment of such overdrafts, and the consumer does not opt out. As an alternative approach, the proposal would limit the ability of a financial institution to assess an overdraft fee for paying ATM withdrawals and one-time debit card transactions that overdraw a consumer's account, unless the consumer affirmatively consents, or opts in, to the institution's payment of overdrafts for these transactions. In addition, the proposal would prohibit financial institutions from assessing an overdraft fee if the overdraft would not have occurred but for a debit hold placed on funds in the consumer's account that exceeds the actual amount of the transaction.
Comments must be received on or before March 30, 2009.
You may submit comments, identified by Docket No. R-1343, by any of the following methods:
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• Federal eRulemaking Portal:
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All public comments are available from the Board's Web site at
Ky Tran-Trong, Counsel, Dana Miller, Attorney, or Vivian Wong, Senior Attorney, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, DC 20551, at (202) 452-2412 or (202) 452-3667. For users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869.
The Electronic Fund Transfer Act (15 U.S.C. 1693
The official staff commentary (12 CFR part 205 (Supp. I)) interprets the requirements of Regulation E to facilitate compliance and provides protection from liability under Sections 915 and 916 of the EFTA for financial institutions and other persons subject to the Act. 15 U.S.C. 1693m(d)(1). The commentary is updated periodically to address significant questions that arise.
Historically, if a consumer sought to engage in a transaction that would overdraw his or her deposit account, the consumer's financial institution used its discretion on an ad hoc basis to determine whether to pay the overdraft. If an overdraft was paid, the institution usually imposed a fee on the consumer's account. In recent years, many institutions have largely automated the overdraft payment process. Automation is used to apply specific criteria for determining whether to honor overdrafts and to set limits on the amount of coverage provided.
Overdraft services vary among institutions but often share certain common characteristics. In most cases, consumers that meet a depository institution's criteria are automatically enrolled in overdraft services. While institutions generally do not underwrite on an individual account basis when enrolling the consumer in an overdraft service, most institutions will review individual accounts periodically to determine whether the consumer continues to qualify for the service and the amount of overdraft coverage provided. Most institutions disclose that the payment of overdrafts is discretionary, and that the institution has no legal obligation to pay any overdraft.
In the past, institutions generally provided overdraft coverage only for check transactions. In recent years, however, the service has been extended to cover overdrafts resulting from non-check transactions, including ATM withdrawals, debit card transactions at POS, online transactions, preauthorized transfers, and ACH transactions.
A flat fee is charged each time an overdraft is paid, regardless of the amount of the overdraft. Institutions commonly charge the same amount for paying the overdraft as they would if they returned the item unpaid. Some institutions may also impose a fee for each day the account remains overdrawn.
According to a recent report from the Government Accountability Office (GAO), the average cost of overdraft and insufficient funds fees was just over $26 per item in 2007.
From the industry's perspective, automated overdraft services enable institutions to reduce the cost of manually reviewing individual items, and also ensure that all consumers are treated consistently with respect to overdraft payment decisions. Industry representatives observe that whether an overdrawn check is paid or returned, the consumer will be charged the same amount by the consumer's financial institution. Industry representatives also assert, however, that when an overdrawn check is paid, consumers receive significant benefits because they can avoid additional fees that would be charged by the merchant if the item was returned unpaid, and other adverse consequences, such as the furnishing of negative information to a consumer reporting agency.
In contrast, consumer groups assert that overdraft transactions are a high-cost form of lending that trap low- and moderate-income consumers into paying high fees. Consumer groups also state that consumers are often enrolled in overdraft services automatically without their request or consent. In addition, consumer groups believe that by honoring overdrafts, institutions encourage consumer reliance on the service and therefore, consumers incur greater costs in the long run than they would if the transactions were not honored. Consumer groups note, for example, that historically, institutions declined a consumer's request for an ATM withdrawal or debit card transaction if the consumer did not have sufficient funds in his or her account.
In February 2005, the Board, Federal Deposit Insurance Commission (FDIC), Office of the Comptroller of the Currency (OCC), and National Credit Union Administration (NCUA) (collectively, the federal banking agencies) issued guidance on overdraft protection programs in response to the increased availability and customer use of overdraft protection services (Joint Guidance).
In May 2005, the Board revised Regulation DD and the staff commentary pursuant to its authority under the Truth in Savings Act (TISA) to address concerns about institutions' disclosure of overdraft fees generally, and the advertisement of overdraft services.
In May 2008, the Board, along with the OTS and the NCUA (collectively, the Agencies), proposed to exercise their authority under the Federal Trade Commission Act (FTC Act) to prohibit institutions from assessing any fees on a consumer's account in connection
Concurrent with the issuance of the May 2008 FTC Act Proposal, the Board separately issued a proposal under Regulation DD (Truth in Savings), which set forth proposed form, content, and timing requirements for providing the opt-out notice. 73 FR 28730, May 19, 2008. To facilitate compliance, the Regulation DD proposal contained a model form that institutions could use to satisfy the opt-out notice requirement. Collectively, the two proposals on overdraft services were intended to ensure that consumers understand how overdraft services operate generally and have the opportunity to avoid the associated costs where such services do not meet their needs.
In addition to the proposed requirements regarding the form and content of the opt-out notice, the Regulation DD proposal set forth proposed revisions that would require all institutions to provide aggregate totals for overdraft fees and for returned item fees for the statement period and the year-to-date. Currently, only institutions that promote the payment of overdrafts are subject to this requirement. The Regulation DD proposal also addressed balance disclosures provided to consumers through automated systems, such as ATMs and online banking services. These provisions are adopted in final form under Regulation DD elsewhere in today's
The Agencies received approximately 1,500 comment letters on the proposed opt-out right for overdraft services under the May 2008 FTC Act Proposal. Consumer groups, members of Congress, the FDIC, and individual consumers supported the Agencies' proposal, but urged the Agencies to require institutions to obtain a consumer's affirmative consent (that is, an opt-in) before any fees could be charged for paying an overdraft. Some of these commenters also argued that overdraft services provide extensions of credit that should be subject to the Truth in Lending Act (TILA) so that consumers would be better able to compare the cost of overdraft services to the cost of other credit alternatives.
In contrast, the majority of industry commenters opposed the proposed rule. Industry commenters asserted that consumers derive substantial benefit from overdraft services, particularly in connection with check transactions. While institutions generally assess the same fee whether a check is paid or returned, industry commenters observed that the payment of overdrafts for checks enables consumers to avoid other adverse consequences, such as merchant fees, the furnishing of negative information for credit reports, and violations of bad check laws. Some industry commenters urged the Board to instead use other regulatory authority, such as Regulations DD or E, to address concerns about overdraft services.
Industry commenters also asserted that consumers may not fully understand the implications of opting out, and that those who elect to do so might unintentionally incur significant costs. In this regard, industry commenters and the OCC stated that if the opt-out right applied to check transactions, more checks would be returned unpaid. Industry commenters and the OCC also noted a potential unintended consequence of the proposal could be that institutions would lengthen their availability schedules to the extent permitted by the Board's Regulation CC, 12 CFR part 229, to ensure that there are sufficient funds in the payor's account to cover a deposited check. As a result, they argued, consumers may experience a longer waiting period before gaining access to deposited funds than currently is the case today.
With respect to implementing the proposed opt-out requirement, industry commenters raised a number of operational issues. These commenters were most concerned about the feasibility of limiting the opt-out right only to overdrafts paid in connection with ATM withdrawals and POS debit card transactions. Some industry commenters, however, argued that if the Agencies deemed it necessary to create a consumer opt-out right, it should be limited to ATM withdrawals and POS debit card transactions. These commenters noted that the majority of complaints about overdraft services arise in connection with debit card transactions in which the amount of the overdraft fee is substantially higher than the amount of the overdraft. Industry commenters also questioned the merits of requiring institutions to provide an opt-out notice following the assessment of an overdraft fee in light of the costs of printing and mailing additional opt-out notices.
With respect to the debit hold provision, individual consumers and consumer groups generally supported the Agencies' proposal. Industry commenters, in contrast, expressed concern about the operational burdens associated with the proposal because it could require institutions to retroactively monitor, and adjust, overdraft fees that have been assessed to a consumer's account. Industry commenters also urged the Agencies to instead adopt a disclosure-based rule applying to merchants that are responsible for placing the hold.
The Board also received over 600 comments in response to the Regulation DD proposal regarding the timing, format and content of the opt-out notice. Most of the comments came from individual consumers, who supported the proposed rule. The remaining comments came from financial institutions, industry trade associations, consumer groups, members of Congress, other federal banking agencies, state and local governments, and others.
Consumer groups supported the proposed content and model form for notifying consumers of their right to opt out of an overdraft service, but urged the Board to enhance the model form in various ways, including making the opt-out notice more prominent. Several industry commenters argued that the proposed model form was unduly biased towards encouraging consumers to opt out, and did not sufficiently explain that the payment of overdrafts was discretionary. Some industry commenters also urged the Board to eliminate the requirement to provide notice of the opt-out right following the assessment of an overdraft fee, stating that an initial notice was sufficient to apprise consumers of that right.
In addition to reviewing the comments received on the two proposals, the Board worked with a testing consultant, Macro International, Inc. (Macro), to revise the proposed model opt-out notice and conduct consumer testing of the revised notice. Two rounds of one-on-one interviews with a diverse group of consumers were completed in the fall of 2008. In general,
During the first round of testing, Macro tested an opt-out form that allowed consumers to opt out of the payment of overdrafts for all transaction types, including checks and recurring debits. In the second round of testing, Macro tested an opt-out form that limited the opt-out right to ATM withdrawals and one-time debit card transactions made at POS and online. The majority of participants during both rounds indicated that they likely would not opt out if the opt-out also applied to checks. However, when asked if they would opt out if the choice was limited to opting out of overdrafts in connection with ATM withdrawals and one-time debit card purchases, half of the participants indicated that they would consider doing so.
The Board is proposing amendments to Regulation E and the staff commentary to assist consumers in understanding how overdraft services provided by their institutions operate and to ensure that consumers have the opportunity to limit the overdraft costs associated with ATM withdrawals and one-time debit card transactions where such services do not meet their needs. The Board is proposing two alternative approaches in proposed § 205.17 of Regulation E. In addition, as stated elsewhere in today's
Under the first approach, institutions would be required to provide consumers with notice of the right to opt out of the institution's overdraft service for ATM withdrawals and one-time debit card transactions. The notice must be provided to the consumer before the institution may assess any fees or charges to a consumer's account for paying such overdrafts. Under this approach, the opt-out notice would generally be given at account opening (or any time before any overdraft fees are assessed) and subsequently for each periodic statement cycle in which the institution assesses a fee or charge to the consumer's account for paying an overdraft.
Under the second approach, institutions would be required to provide consumers with notice of the right to opt in, or affirmatively consent, to the institution's overdraft service for ATM withdrawals and one-time debit card transactions. The notice must be provided, and the consumer's affirmative consent obtained, before the institution could assess a fee or charge on the consumer's account for paying such overdrafts. Under this approach, additional notices following the assessment of a fee or charge for paying an ATM or one-time debit card overdraft would not be required once the consumer has opted in to the overdraft service.
Both approaches would permit institutions to implement the consumer's choice by providing an account that would not permit the payment of overdrafts for ATM withdrawals and one-time debit card transactions. The proposal provides two alternatives for implementing the consumer's choice for both of the opt-out and opt-in approaches. Under one alternative, the proposal would require an institution to provide an account that has the same terms, conditions, or features that are provided for consumers who do not opt out, except for features that limit the institution's payment of such overdrafts. Under another alternative, the proposal would allow institutions to vary the terms, conditions, or features for the account that does not permit the payment of ATM and one-time debit card overdrafts, provided that the differences are not so substantial that they discourage a reasonable consumer from exercising his or her right to opt out of the payment of such overdrafts (or compel a reasonable consumer to opt in).
To facilitate compliance, the proposal provides model forms that institutions may use to satisfy their disclosure obligations. The Board intends to conduct additional consumer testing of the proposed model forms following issuance of this proposal.
The Board is also proposing to prohibit institutions from assessing an overdraft fee where the overdraft would not have occurred but for a debit hold placed on funds in an amount that exceeds the actual transaction amount and where the merchant can determine the actual transaction amount within a short period of time after authorization of the transaction (for example, fuel purchases at a gas station). The prohibition, set forth in proposed § 205.19, would not apply if the institution adopts procedures designed to release the hold within a reasonable period of time.
In light of this proposal, and as discussed elsewhere in today's
The Board is issuing the proposed opt-out (and opt-in) and debit hold provisions of this proposal pursuant to its authority under Sections 904(a) and 904(c) of the EFTA (15 U.S.C. 1693b). Section 904(a) of the EFTA authorizes the Board to prescribe regulations necessary to carry out the purposes of the title. The express purposes of the EFTA are to establish “the rights, liabilities, and responsibilities of participants in electronic fund transfer systems” and to provide “individual consumer rights.”
The legislative history of the EFTA makes clear that the Board has broad regulatory authority. The Senate Report states that section 904 of the EFTA “authorizes the Federal Reserve Board to promulgate regulations to carry out the act's purposes” and notes that the Senate Committee on Banking, Housing, and Urban Affairs “regards regulations as essential to the act's effectiveness.”
The proposed opt-out (and opt-in) rules are intended to carry out the express purposes of the EFTA by: (a) Establishing notice requirements to help consumers better understand the cost of overdraft services for certain EFTs; and (b) providing consumers with a choice as to whether they want overdraft services for ATM withdrawals and one-time debit card transactions in light of the costs associated with those services. The proposed opt-out (and opt-in) rules include provisions designed to prevent circumvention or evasion of the requirement to provide the consumer with choice regarding these overdraft services. These rules also include provisions, including exceptions, designed to facilitate compliance by financial institutions in light of certain operational constraints.
The proposed debit hold rule is intended to carry out the express purposes of the EFTA by ensuring that consumers generally are not assessed fees for overdrafts that would not have occurred but for the placement of the hold. The proposed debit hold rule contains classifications, differentiations, and other provisions, including adjustments and exceptions, designed to facilitate compliance by financial institutions in light of certain operational constraints.
The proposed disclosures that would implement the proposed opt-out (and opt-in) requirements are issued pursuant to the Board's authority under Sections 904, 905 and 906(b) of the EFTA. 15 U.S.C. 1693b, 1693c and 1693d(c).
Section 205.12(a) explains the relationship between Regulation E and Regulation Z when an access device permits a consumer to obtain an extension of credit incident to an EFT. In general, Regulation E governs the issuance of access devices and the addition of an EFT service to an accepted credit card, and Regulation Z governs the issuance of a combined credit card and access device and the addition of a credit feature to an accepted credit card.
Currently, § 205.12(a)(1)(ii) states that the EFTA and Regulation E govern the “issuance of an access device that permits credit extensions (under a preexisting agreement between a consumer and a financial institution) only when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account.” As the Board stated in the original March 1979 final rule, this provision was intended to clarify that Regulation E, rather than Regulation Z, applies to the issuance of “access devices that are also credit cards solely by virtue of their capacity to access an existing overdraft credit line attached to the consumer's account.” 61 FR 18468, 18472, March 28, 1979 (adopting § 205.4(c) where this provision originally appeared).
When the rule was originally adopted, the primary means of covering overdrafts incurred in connection with EFTs was through an overdraft line of credit linked to a debit card or other access device. Today, however, consumers are more likely to have these overdrafts covered by their institution's overdraft service, rather than by a separate overdraft line of credit. In both cases, the Board believes that Regulation E should apply to ensure consistent treatment.
Accordingly, the Board is proposing to amend § 205.12(a)(1)(ii) to provide that Regulation E governs the issuance of an access device that permits extensions of funds under an overdraft service (as defined below under proposed § 205.17) when the consumer's account is overdrawn. Proposed § 205.12(a)(1)(iii) provides that Regulation E also covers the addition of an overdraft service to a previously accepted access device.
In addition, the Board is also proposing to amend § 205.12(a)(1)(i) to conform the regulation to reflect the redesignation of the definition of the term “accepted credit card” under Regulation Z, adopted elsewhere in today's
In the February 2005 Joint Guidance on overdraft protection services, the federal banking agencies recommended as a best practice that institutions obtain a consumer's affirmative consent to receive overdraft protection. Alternatively, the Joint Guidance stated that where overdraft protection is automatically provided, institutions should provide consumers the opportunity to “opt out” of the overdraft program and provide consumers with a clear disclosure of this option. 70 FR at 9132.
Although it appears that most institutions provide consumers the right to opt out of overdraft services, this practice is not uniform across all institutions.
Based on the comments received in response to the May 2008 FTC Act and Regulation DD Proposals, the results of limited consumer testing, and its own analysis, the Board believes that concerns about overdraft services can be appropriately addressed under its rulemaking authority under the EFTA
First, the Board has considered the benefits to consumers of covering check transactions under an overdraft service. In particular, while a consumer will generally be charged the same fee by the financial institution whether or not a check is paid, if the institution covers an overdrawn check, the consumer may avoid other adverse consequences, such as the imposition of additional merchant returned item fees.
Second, the Board has considered the cost impact to consumers from overdraft fees assessed in connection with ATM and debit card overdrafts.
Third, the Board notes that addressing overdrafts under its authority under the EFTA and Regulation E would ensure that if finalized, the rule would apply to all depository institutions, including state-chartered credit unions which would not have been covered by the NCUA's FTC Act authority.
Thus, for the reasons discussed above, the Board is proposing to prohibit account-holding financial institutions from assessing overdraft fees or charges on a consumer's account for paying an overdraft on an ATM withdrawal or one-time debit card transaction (whether at POS, online or by telephone), unless the consumer is given notice and a reasonable opportunity to opt out of the institution's overdraft service in connection with those transactions, and the consumer does not opt out. As discussed below, the Board is also proposing an alternative approach that would prohibit an account-holding financial institution from assessing any fees on a consumer's account for paying an ATM withdrawal or one-time debit card transaction that overdraws the account, unless the consumer opts in, or affirmatively consents, to the service.
Proposed § 205.17(a) defines “overdraft service” to mean a service under which a financial institution assesses a fee or charge on a consumer's account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account. The term is intended to cover circumstances when an institution assesses a fee for paying an overdraft pursuant to any automated program or service, whether promoted or not, or as a non-automated, ad hoc accommodation. The term does not include an institution's payment of overdrafts pursuant to a line of credit subject to the Board's Regulation Z, including transfers from a credit card account, a home equity line of credit, or an overdraft line of credit. The term also does not include any overdrafts paid pursuant to a service that transfers funds from another account of the consumer (including any account that may be jointly held by the consumer and another person) held at the institution. The Board is not proposing to include these methods of covering overdrafts under this proposal because they require the express agreement of the consumer.
Proposed comment 17(b)-1 clarifies that a consumer's election to opt out of a financial institution's overdraft service does not prohibit the institution from paying any overdrafts for ATM withdrawals or one-time debit card transactions. If the institution pays an overdraft for these transactions, however, it would generally be prohibited from assessing an overdraft fee or charge, except as permitted under the exceptions set forth in proposed § 205.17(b)(5), discussed below. The rule would not, however, limit the institution's ability to debit the consumer's account for the amount of the overdraft, if the institution is permitted to do so under applicable law.
The proposed opt-out would not apply to other types of transactions, including check transactions and preauthorized EFTs.
The opt-out also generally would not apply to ACH transactions. For example, if the consumer provides his or her checking account number to authorize an ACH transfer online or by telephone, the institution would be permitted to pay the item if it overdraws the consumer's account and assess a fee for doing so. The Board notes that in many cases, ACH transactions serve as a replacement for check transactions, such as where a check is converted to a one-time ACH debit to the consumer's account.
Notwithstanding the programming changes that would be required by the proposed rule, the benefits of enabling consumers to have a choice regarding the payment of overdrafts for ATM withdrawals and one-time debit card transactions may outweigh the associated reprogramming costs. From a consumer's perspective, any benefits from overdrawing the consumer's account for ATM withdrawals and one-time debit card transactions may be substantially outweighed by the costs associated with the overdraft. Unlike for check and ACH transactions where the consumer could be assessed fees by both the institution and the merchant or other payee, the consequence of not having overdraft services for ATM and one-time debit card transactions is to have a transaction denied with no fees assessed. If a one-time debit card transaction is denied, the consumer can provide another form of payment, such as cash or a credit card. For ATM transactions, consumers may reasonably expect that their withdrawal request will be denied if they do not have sufficient funds in their accounts.
For these reasons, the Board is proposing to limit the scope of the opt-out to ATM withdrawals and one-time debit card transactions. To minimize the cost impact on institutions, however, the Board anticipates allowing substantial lead time for institutions to implement the necessary programming changes. Comment is requested on whether the proposed opt-out should also apply to recurring debit card transactions and ACH transactions. Comment is also solicited on an appropriate implementation period for the proposed rule.
The first three examples provide a generally applicable safe harbor for opt-out periods of 30 days after the consumer is provided an initial notice informing the consumer of the opt-out right. During this period, an institution generally would be prohibited from assessing any fees or charges for paying an overdraft for an ATM withdrawal or a one-time debit card transaction. Although 30 days would be a safe harbor, an institution may decide that a shorter waiting period could be adequate depending on the circumstances. Comment is requested regarding whether a shorter time frame, such as 15 or 20 days, may be more appropriate.
Proposed comment 17(b)-2.i contains an example of a reasonable method of opting out when the institution provides a written form that the consumer can fill out and mail to opt out.
The fourth example provides that an institution may provide an opt-out notice prior to or at account-opening and require the consumer to decide whether to opt out as a necessary step to opening the account.
Comment is requested whether the Board should require institutions to provide a toll-free telephone number to ensure that consumers can easily opt out. Participants in the Board's consumer testing indicated that even if the institution provided a form with a check-off box for the consumer's convenience, participants would still prefer to call their institution to opt out. Comment is also requested regarding whether the Board should add examples of methods of opting out that would not satisfy the requirement to provide a reasonable opportunity to opt out, such as requiring the consumer to write a letter to opt out.
To prevent circumvention of the opt-out right, the proposed rule also would prohibit an institution from declining to pay checks, ACH transactions, or other types of transactions that overdraw the consumer's account because the consumer has opted out of the institution's overdraft service for ATM and one-time debit card transactions. Although the payment of overdrafts is generally at the discretion of the institution, the Board is concerned that some institutions may exercise that discretion in a manner that effectively prevents consumers from exercising a meaningful choice regarding overdraft services. Thus, the proposed rule generally would require an institution to apply the same criteria for deciding whether to pay overdrafts on checks, ACH transactions, or other types of transactions regardless of the consumer's opt-out choice with respect to ATM and one-time debit card overdrafts. For example, if an institution's internal criteria would lead the institution to pay a check overdraft if the consumer had not opted out of the institution's overdraft service, it must also apply that same criteria in a consistent manner in determining to pay the check overdraft if the consumer has opted out.
This provision is not intended to create a contractual requirement for the institution to pay overdrafts on checks, ACH transactions, or other types of transactions. Comment is requested on whether there are other, more effective means of ensuring that consumers are not discouraged from opting out of an institution's overdraft service for ATM withdrawals and one-time debit card transactions.
Notwithstanding the Board's concerns about potential chilling effects, the Board is also proposing a modified version of proposed § 205.17(b)(2) that would expressly permit institutions to condition the consumer's ability to opt out of an institution's overdraft service for ATM withdrawals and one-time debit card transactions on the consumer also opting out of the institution's overdraft service for checks and other transaction types. Under this alternative approach, an institution could also decline checks, ACH transactions, and other types of transactions because the consumer has opted out of the service for ATM withdrawals and one-time debit card transactions. This alternative would address the potential operational issues associated with implementing a partial opt-out rule.
The Board solicits comment on the merits of both alternatives. The Board also seeks comment on other approaches that may sufficiently balance concerns about the potential chilling effects from institutions declining to pay overdrafts for checks and other transactions if a consumer opts out of the payment of overdrafts for ATM withdrawals and one-time debit card transactions against the operational difficulties of implementing a partial opt-out rule.
This provision would not, however, permit an institution to discourage, or chill, a reasonable consumer's exercise of the right to opt out. The Board is concerned that institutions may circumvent the proposed opt-out requirement and discourage consumers from opting out by, for example, imposing higher fees, paying lower interest rates, or limiting the features of the opt-out account. Thus, the proposal sets forth two alternative approaches to address this concern.
Under the first alternative, if the institution is providing an opt-out account that does not permit the payment of ATM and one-time debit card overdrafts, the account must have the same terms, conditions, and features, including interest rates paid and fees assessed, as an account that permits the payment of such overdrafts, except for features that limit the institution's payment of such overdrafts.
Under the second alternative, an institution may alter some of the terms, conditions, or features of an account that does not permit the payment of overdrafts on ATM withdrawals and one-time debit card transactions. For example, the institution may wish to price some account services differently for the opt-out account. In light of the Board's concern about possible chilling effects, however, the second alternative permits an institution to vary the terms, conditions, or features of the opt-out account, provided that the differences in the terms, conditions, or features are not so substantial that they would discourage a reasonable consumer from exercising his or her right to opt out of the payment of overdrafts on ATM withdrawals and one-time debit card transactions.
The Board requests comment on both approaches. Specifically, the Board requests comment on whether institutions that currently offer an opt-out implement an opt-out at the account level (
In addition, some institutions may have a policy and practice of declining any ATM withdrawals or debit card transactions when the institution has a reasonable belief that the consumer does not have sufficient funds available in his or her account to cover the requested transaction at the time of authorization. An opt-out requirement would serve little purpose in these circumstances, and could lead to potential consumer confusion.
The Board is proposing to create exceptions to the notice and opt-out requirements in the circumstances described above. Proposed § 205.17(b)(4) contains the two proposed exceptions. First, institutions that have a policy and practice of declining to pay ATM withdrawals or one-time debit card transactions for which authorization is requested if the institution has a reasonable belief that the consumer does not have sufficient funds available to cover the transaction at the time of the authorization request would not have to provide consumers with notice and the right to opt out of overdraft services. Second, institutions that require the consumer's affirmative consent, or opt-in, before assessing any fees or charges for paying an ATM or one-time debit card overdraft also would not be subject to § 205.17.
Proposed comment 17(b)(4)-1 states that institutions that qualify for either of the exceptions in § 205.17(b)(4) would not be required to provide consumers notice and a reasonable opportunity to opt out of the institution's payment of overdrafts for ATM withdrawals and one-time debit card transactions. Proposed comment 17(b)(4)-2 clarifies that an institution is not required to obtain the consumer's affirmative consent prior to each transaction that may overdraw the consumer's account to qualify for the opt-in exception in § 205.17(b)(4)(ii).
In the supplementary information accompanying the May 2008 FTC Act Proposal, the Agencies stated that they had considered, but did not propose, an exception that would allow an institution to impose an overdraft fee despite a consumer's opt-out election as long as the institution did not “knowingly” authorize a transaction that resulted in an overdraft. The Agencies expressed concern that given the difficulty in determining a consumer's real-time account balance, such an exception could undercut the protections provided by a consumer's election to opt out. Nonetheless, the Agencies sought comment on other circumstances in which an exception may be appropriate to allow an institution to impose a fee or charge for paying an overdraft even if the consumer has opted out of the institution's overdraft service.
Industry commenters urged the Board to consider additional exceptions. Some industry commenters urged the Board to adopt a broad principles-based exception allowing fees to be charged when overdrafts are paid despite a consumer's decision to opt out. These commenters suggested the following principles-based exceptions: if an institution does not “knowingly” authorize the transaction that would overdraw the consumer's account; or if the institution authorizes a transaction on the “good faith belief” that there are sufficient funds in the consumer's account.
Other industry commenters listed specific exceptions that the Agencies should consider. Several commenters urged the Agencies to allow fees to be assessed if an overdraft was paid when the institution used a stand-in processor to authorize the transaction because the card network was temporarily off-line. Industry commenters also stated that the rule should permit fees to be assessed for “force-post” or “must pay” debit card transactions where an institution authorizes payment at the time of the transaction based on a determination that the consumer had sufficient funds. Under these circumstances, card network rules require institutions to honor or pay the transaction even if intervening transactions (for example, checks that are presented for payment or ATM withdrawals) causes the consumer to have insufficient funds when the transaction is presented for settlement. In addition, industry commenters supported exceptions permitting fees to be charged where a consumer subsequently has a deposited item returned, and where the transaction is not submitted for authorization by the merchant.
This could occur, for instance, where an authorization balance is not updated in real-time. For example, some institutions use a daily batch balance method for authorizing transactions and authorization decisions may be based upon a balance which is not updated during the day to reflect other account activity that occurred before the authorization request. In such cases, the institution may authorize a debit card transaction even though prior transactions that have posted or otherwise taken place during the day may cause the consumer's account to have insufficient funds for the debit card transaction. The proposed exception would permit the institution to pay the debit card transaction and assess an overdraft fee on the consumer's account because the institution authorized the transaction on the reasonable belief that there were sufficient available funds in the account to cover the transaction.
An institution could also assess an overdraft fee if it authorizes a
The proposed exception would also apply where the settlement amount exceeds the amount submitted for pre-authorization. For example, a consumer may use his or her debit card at a pay-at-the-pump fuel dispenser to purchase $50 of fuel. At the time of authorization, the gas station may request a pre-authorization hold of $1 to verify the validity of the card. Assuming the card-issuing financial institution does not increase the amount of the hold, if the consumer has less than $50 in his or her account when the transaction is presented for settlement, the institution would be permitted to pay the transaction and assess a fee, even if the consumer has opted out of the institution's overdraft service.
Finally, an institution could assess an overdraft fee or charge in connection with force-post, or must-pay, debit card transactions that the institution is required to honor even if, at settlement, intervening transactions by the consumer have reduced the consumer's available balance below the authorized amount of the transaction. For example, a consumer may use his debit card to make a $50 purchase, which the institution authorizes based on the consumer's available balance at the time of authorization. However, because settlement may not occur for some period of time after completion of the transaction, intervening transactions may post to the consumer's account before the $50 transaction is presented for settlement. If there are insufficient funds in the consumer's account at the time of settlement, this exception would allow the institution to assess a fee to the consumer's account for paying the overdraft even if the consumer has opted out of the institution's overdraft service. Proposed comment 17(b)(5)-1 sets forth examples illustrating this exception.
The proposed exception in § 205.17(b)(5)(i) is not intended to permit an institution to assess an overdraft fee where a merchant has not submitted the transaction to the institution for authorization. A transaction may not be submitted for authorization, for example, because it is below the floor limits established by card network rules requiring authorization. Similarly, a merchant may decide not to submit the transaction for authorization because the small dollar amount of the transaction does not pose significant payment risk to the merchant. In either case, the consumer's financial institution would be unable to decline the transaction if the consumer did not have sufficient funds in the consumer's account. Nevertheless, the Board believes that institutions should not be permitted to assess a fee on the consumer's account in these cases when the consumer has opted out. From the perspective of a consumer who has opted out, it is reasonable to expect that the transaction would be declined if he or she did not have sufficient funds in the account. The merchant's decision not to seek authorization for small dollar transactions generally is not transparent to the consumer. In addition, because small-dollar transactions are those most frequently not submitted for authorization, prohibiting institutions from assessing overdraft fees in these circumstances would reduce the possibility that the consumer will incur overdraft fees that exceed the amount of the overdraft. An institution may, however, debit the consumer's account for the amount of the overdraft if permitted to do so under applicable law.
Similarly, the proposal would not permit the institution to assess a fee if the institution uses a stand-in processor to authorize the transaction and an overdraft was paid as a result. A stand-in processor may be used by an institution when the debit card network is temporarily unavailable. In such cases, the authorization decision may be made by the processor based on the institution's pre-determined amount, rather than the consumer's account balance. The Board is concerned about the appropriateness of permitting an institution to assess an overdraft fee on the consumer's account in these rare circumstances because a consumer who has opted out would reasonably expect the transaction to be declined if he or she did not have sufficient funds in the account. The institution may, however, debit the consumer's account for the amount of the overdraft if permitted to do so under applicable law. Proposed comment 17(b)(5)-2 provides examples of circumstances where an institution would not be permitted to assess a fee for paying an overdraft if the consumer has opted out because a transaction was never submitted to the institution for authorization.
The Board believes this circumstance is analogous to a check transaction that is later returned for insufficient funds. In this case, the institution cannot authorize the transaction because of the way in which the transaction is processed. The consumer should be aware that the merchant is not obtaining authorization from the financial institution when the merchant takes an imprint of the consumer's card. Thus, the consumer could reasonably expect that he or she would be charged a fee if there are not sufficient available funds to pay for the transaction. In contrast, where a merchant swipes a consumer's card to capture the card information, but chooses not to submit the transaction for authorization, the merchant's decision not to seek authorization is not transparent to the consumer. Therefore, in the latter circumstance, the consumer may reasonably expect that if he or she did not have sufficient funds in his or her account that the transaction would be declined. Proposed comment 17(b)(5)-3 illustrates this exception.
The May 2008 FTC Act and Regulation DD Proposals would have required institutions to provide notice of the opt-out both before the institution's assessment of any fees or charges for paying an overdraft, and subsequently after the consumer has incurred any such fees or charges. The subsequent notice could be given on each periodic statement reflecting any fees or charges imposed in connection with an overdraft service, or at least once per statement cycle on any notice sent promptly after the institution's payment of an overdraft under an overdraft service. Proposed § 205.17(c)
In response to the May 2008 FTC Act and Regulation DD Proposals, the majority of industry commenters stated that the rule should only require notices to be provided at account opening. These commenters argued that the subsequent notice requirement would impose unnecessary costs on institutions based on the expense of producing and mailing the additional notices. In the alternative, industry commenters recommended that the Board permit institutions to provide a shorter opt-out notice on periodic statements to limit statement costs.
Consumer groups urged the Board to require institutions to provide initial opt-out notices at account opening, segregated from other account documents, to ensure that the notice would be noticeable. In addition, consumer groups urged the Board to require institutions to provide subsequent notice of the opt-out right both on the periodic statement as well as on any notices the institution may send immediately after an overdraft so that if the consumer failed to read the opt-out language on the notice sent after an overdraft, it would also appear on the periodic statement.
Proposed § 205.17(c)(1) would require an institution to provide an opt-out notice before the institution assesses a fee or charge for paying an ATM withdrawal or one-time debit card transaction pursuant to the institution's overdraft service for accounts opened after the effective date of the final rule. For example, notice may be given at account opening, either within the deposit account agreement or in a stand-alone document. Institutions may also choose to provide the opt-out notice closer to the time the overdraft service is available, so long as the notice is provided before the institution assesses any fees or charges for paying an ATM withdrawal or one-time debit card transaction that overdraws the consumer's account. Proposed § 205.17(c)(1) also provides that the consumer must be given a reasonable opportunity to exercise the opt-out right after receiving the notice before such fees or charges may be assessed to the consumer's account.
Under the proposal, initial opt-out notices would not have to be provided to accounts that are opened prior to the effective date of the final rule. In response to the May 2008 Regulation DD proposal, consumer groups urged the Board to require institutions to provide initial opt-out notices to existing accountholders. The Board is concerned, however, that the costs of mailing initial opt-out notices to the millions of existing accountholders may exceed any consumer benefit. As further discussed below, existing consumers will still be alerted to their right to opt out of the overdraft service because they will receive an opt-out notice if and when they are assessed a fee or charge by their financial institution for paying an ATM or debit card overdraft.
If a consumer has not opted out (in the case of a joint account, where no joint account holder has opted out) or the consumer has revoked a prior opt-out election, proposed § 205.17(c)(2) would require institutions to provide an opt-out notice following the assessment of any overdraft fees or charges for paying an ATM withdrawal or one-time debit card transaction. The subsequent notice requirement would apply to all accounts, including existing accounts as of the effective date of the final rule.
The requirement to provide an opt-out notice following the assessment of an overdraft fee or charge is designed to ensure that consumers are given notice of their right to opt out at a time that may be most relevant to them, that is, after they have been assessed fees or other charges for the service. Consumers receiving an opt-out notice only at account opening may not focus on the significance of the information at that time because they may assume that they will not overdraw the account. Or, consumers may not notice the opt-out information provided with other account-opening documents.
Under the proposal, institutions would have the option of placing an opt-out notice on the periodic statement reflecting an overdraft fee or charge assessed to the consumer's account or on any notice sent promptly after the ATM or debit card overdraft. If the subsequent notice is included on the periodic statement, proposed § 205.17(c)(2)(i) would require the notice to be placed in close proximity to any aggregate totals for overdraft and returned item fees required to be disclosed by 12 CFR 230.11(a), as adopted under the Board's final rules under Regulation DD, published elsewhere in today's
The requirement to provide subsequent notice of the opt-out terminates once the consumer has opted out. That is, once the consumer has opted out, an institution need not provide notice of the opt-out right following the assessment of any overdraft fees or charges to the consumer's account (for example, under one of the exceptions in § 205.17(b)(5)). Of course, if the consumer opts out after having incurred an overdraft fee, the opt-out applies only to subsequent transactions and the institution could permissibly assess an overdraft fee without violating the general rule in § 205.17(b). Similarly, if the consumer has opted out but incurs an overdraft before the opt-out has been implemented, the institution would be permitted to assess a fee for paying the overdraft.
Comment is requested as to whether the rule should permit institutions to include the opt-out notice on periodic statements in any cycle in which the consumer has been assessed an overdraft fee or charge, even if that fee or charge was not incurred in connection with an ATM withdrawal or a one-time debit card transaction. For example, the rule could permit institutions to provide an opt-out notice on a periodic statement if the consumer incurred an overdraft fee in connection with a check transaction. Comment is also requested as to whether institutions should be permitted to include the opt-out notice on the periodic statement if the consumer did not incur any overdraft fees or charges during the statement cycle. Prohibiting institutions from including the opt-out notice on each periodic statement where no fee has been assessed could impose additional costs on institutions because it would require a dynamic statement process that only permits the opt-out notice to appear on statements that reflect an overdraft fee. The Board is concerned, however, that consumers may dismiss the opt-out notice as boilerplate language if the opt-out notice were included on every periodic statement.
Proposed comment 17(c)(1)-1 contains guidance regarding the applicability of the notice requirements
Proposed § 205.17(d) specifies the information that an institution would be required to include in its opt-out notices. In general, the proposal includes information similar to what would have been required under the May 2008 Regulation DD proposal, with certain revisions to reflect industry and consumer group comments, as well as the Board's consumer testing.
Two different notices are set forth in the proposal. First, the proposal contains a detailed notice about the institution's overdraft service and the consumer's opt-out right that would be provided before an institution can assess any fees or charges for paying an ATM or one-time debit card transaction that overdraws the consumer's account. Second, the proposal includes a shorter notice which could be provided to the consumer after an overdraft fee has been assessed (for example, on a periodic statement) that generally informs the consumer of his or her opt-out right and instructs the consumer to contact the institution for more information.
Proposed § 205.17(d)(1)(i) would require the institution to provide a general description of the financial institution's overdraft services and the types of EFTs for which an overdraft fee may be imposed, including ATM withdrawals and one-time debit card transactions.
Proposed § 205.17(d)(1)(ii) would require the initial notice to include information about the dollar amount of any fees or charges assessed on the consumer's account for paying an ATM withdrawal or a one-time debit card transaction pursuant to the institution's overdraft service. Some institutions may vary the fee amount that may be imposed based upon the number of times the consumer has overdrawn his or her account, the amount of the overdraft, or other factors. Under these circumstances, the institution must disclose the maximum fee that may be imposed or a range of fees. Proposed comment 17(d)(1)-1 provides that the institution may indicate that the consumer may be assessed a fee “up to” the maximum fee or provide the range of fees. Comment is requested whether additional guidance is necessary if an overdraft fee is determined by other means, such as a percentage of the overdraft or the transaction that caused the overdraft.
Proposed § 205.17(d)(1)(iii) would require institutions to disclose any daily dollar limits on the amount of overdraft fees or charges that may be assessed. If the institution does not limit the amount of fees that can be imposed, it must disclose this fact. The May 2008 Regulation DD Proposal contained a similar disclosure, but also would have required institutions to state any dollar limits on the amount of fees that may be imposed in a statement period. Upon further analysis, however, a requirement to state any limits on the amount of fees that may be imposed in a statement cycle is not included in this proposal because the Board believes that this information is unlikely to be relevant or helpful to consumers.
Proposed § 205.17(d)(1)(iv) would require institutions to inform consumers of the right to opt out of the institution's payment of overdrafts for ATM and one-time debit card transactions, including the method(s) that the consumer may use to exercise the opt-out right and how to contact the institution for more information.
Several industry commenters in response to the Regulation DD proposed model forms urged the Board to add language to the forms stating that the payment of overdrafts is discretionary even if the consumer does not opt out. In addition, industry commenters urged the Board to include language stating that the consumer's decision to opt out would not ensure that overdrafts would not be paid. The proposed model form does not include specific language regarding the discretionary nature of overdraft services. However, institutions would be permitted to include in their opt-out notices language indicating that the payment of overdrafts is at their discretion.
Proposed § 205.17(d)(1)(v) provides that institutions must state whether they offer any alternatives for the payment of overdrafts. Specifically, if an institution offers an overdraft line of credit or a service that transfers funds from another account of the consumer held at the institution to cover the overdraft (including an account held jointly with another consumer), the institution must state that fact and how to obtain more information about these alternatives. Institutions may also, but are not required to, list any additional alternatives they may offer to overdraft services. This provision incorporates a recommendation from the February 2005 Joint Guidance that institutions should inform consumers generally of other overdraft services and credit products, if any, that are available when describing an overdraft protection program.
In some cases, these alternatives for paying overdrafts may be less costly than the overdraft service offered by the institution.
Some institutions may wish to explain to consumers the consequences of opting out of overdraft services. Proposed comment 17(d)(1)-2 provides that institutions may briefly describe these consequences. For example, the institution may state that if a consumer opts out of the institution's overdraft service for ATM withdrawals and one-time debit card transactions, the
The May 2008 Regulation DD Proposal would have required both the initial notice and subsequent notice of the opt-out right to contain the same content. Industry commenters urged that the Board to eliminate the subsequent notice requirement to reduce compliance burdens and costs. Alternatively, industry commenters urged the Board to permit institutions to provide an abbreviated notice on periodic statements that would generally remind consumers of their opt-out right and instruct them to contact the institution for additional information. Consumer group commenters supported the Board's proposal to require the same content on all notices informing consumers of their opt-out right to ensure that consumers can make an informed decision at the time they review the opt-out notice.
Upon further analysis, the Board believes that permitting institutions to provide a short-form opt-out notice may strike an appropriate balance between including sufficient information to inform consumers of their options regarding overdraft services and keeping such notices short, simple, and cost-effective. The Board recognizes that requiring institutions to provide the same amount of detail in the subsequent notice as provided in the initial notice could impose significant statement production and mailing costs. In addition, participants during consumer testing indicated that it was sufficient for them to receive all of the required information about the institution's overdraft service at account opening. Nevertheless, test participants indicated that it would be helpful to receive a concise reminder of their right to opt out after they were assessed an overdraft fee or charge.
Thus, proposed § 205.17(d)(2) provides institutions with the flexibility to provide either a notice containing the same content as the initial opt-out notice or an abbreviated notice that is substantially similar to Model Form A-9(B) in Appendix A. The proposed abbreviated model notice generally states the consumer's right to opt out, the availability of alternatives to the institution's overdraft service, and how to contact the institution for more information.
The Board requests comment on all aspects of the opt-out proposal, including the various alternatives set forth in the proposal. Comment is also requested on the costs and benefits of the proposed opt-out rule to consumers and financial institutions.
The Board is also soliciting comment on an alternative—an opt-in approach. An opt-in requirement may be appropriate where the rule is limited to the payment of overdrafts for ATM withdrawals and one-time debit card transactions, and would not apply to the payment of overdrafts for other types of transactions, including checks and ACH transactions. While a check or ACH transaction that is returned for insufficient funds may cause the consumer to incur possible merchant fee(s) for the returned item or late payment penalties, as well as an insufficient funds fee assessed by the consumer's financial institution, a declined ATM or debit card transaction does not result in the same adverse consequences.
Under an opt-out approach, consumers who may prefer to have ATM and debit card transactions declined if they would result in an
However, for consumers who rarely, if ever, overdraw their accounts, the occasional coverage of overdrafts by their institutions may be a positive benefit.
Thus, while an opt-in approach may benefit some consumers, it may not be the optimal outcome for others. In addition, an opt-in rule could result in greater inefficiency for processing systems due to the potential increase in transactions that are declined. Accordingly, because there are both benefits and costs associated with the opt-in and opt-out approaches, the Board is soliciting comment on both approaches.
The proposed definition of “overdraft service” is the same under both the opt-out and the opt-in approaches, and means a service under which a financial institution assesses a fee or charge on a consumer's account held by the institution for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account.
The proposed opt-in would apply to any ATM withdrawal, including withdrawals made at proprietary or foreign ATMs. The proposed opt-in would also apply to any one-time debit card transaction, regardless of whether the consumer uses a debit card at a point-of-sale (for example, at a merchant or a store), in an online transaction, or in a telephone transaction.
Proposed comment 17(b)-1 clarifies that a financial institution may pay overdrafts for ATM withdrawals and one-time debit card transactions even if a consumer has not affirmatively consented or opted in to the institution's overdraft service. If an institution pays an overdraft for these transactions and the consumer has not opted in to the service, however, the financial institution would generally be prohibited from assessing a fee or charge for doing so, except as permitted under the exceptions set forth in proposed § 205.17(b)(5). The rule would not, however, limit the institution's ability to debit the consumer's account for the amount of the overdraft, provided that the institution is permitted to do so by applicable law.
Proposed comment 17(b)-2 clarifies that § 205.17 does not require an institution to pay or honor any overdrafts on an ATM withdrawal or a one-time debit card transaction even if a consumer affirmatively consents to the institution's overdraft service for such transactions.
Similar to the opt-out approach, the proposed rule requiring consumer opt-in would not apply to other types of transactions, such as checks, ACH transactions or preauthorized EFTs. In many of these cases, the institution would assess the same fee amount whether the item is paid or returned, but payment pursuant to the overdraft service would enable the consumer to avoid other adverse consequences, such as merchant returned item fees. In contrast, if a consumer does not opt in to the payment of overdrafts for ATM withdrawals or one-time debit card transactions, the transaction would generally be declined and the consumer would not be assessed any fees either by the financial institution or the merchant.
To enable consumers to make an informed choice about an institution's overdraft service, proposed § 205.17(b)(1)(i) would require the institution to provide a consumer a notice explaining the institution's overdraft service for ATM withdrawals and one-time debit card transactions that is segregated from everything else,
Proposed comment 17(b)-3.i contains an example of a reasonable method of opting in when the institution provides a written form that the consumer can fill out and mail to opt in.
Proposed comment 17(b)-3.ii illustrates that an institution could also provide a toll-free telephone number that the consumer may call to provide affirmative consent. Proposed 17(b)-3.iii illustrates that an institution may provide an electronic means for the consumer to affirmatively consent, such as a form that can be accessed and processed at an Internet Web site, provided that the institution directs the consumer to the specific Web site address where the form is located, rather than solely referring to the institution's home page.
Proposed comment 205.17(b)-4 states that an institution may provide an opt-in notice prior to or at account opening and require the consumer to decide whether to opt in to the payment of ATM withdrawals or one-time debit card transactions pursuant to the institution's overdraft service as a necessary step to opening an account. For example, the institution could require the consumer prior to or at account opening to choose between an account that does not permit the payment of ATM withdrawals or one-time debit card transactions pursuant to the institution's overdraft service or an account that permits the payment of such overdrafts.
To prevent circumvention of the opt-out right, the proposed rule also would prohibit an institution from declining to pay checks, ACH transactions, or other types of transactions because the consumer has not also affirmatively consented to the institution's overdraft service for ATM and one-time debit card transactions. The proposed provision is designed to ensure that institutions do not exercise their discretion regarding the payment of overdrafts in such a manner as to prevent consumers from exercising a meaningful choice regarding overdraft services. Thus, the proposed rule generally would require an institution to apply the same criteria for deciding when to pay overdrafts for checks, ACH transactions, and other types of transactions, whether or not the consumer has affirmatively consented to the institution's overdraft service with respect to ATM and one-time debit card overdrafts. For example, if an institution's internal criteria would lead the institution to pay a check overdraft if the consumer had affirmatively consented to the institution's overdraft service, it must also apply that same criteria in a consistent manner in determining to pay the check overdraft if the consumer has not opted in. This provision is not intended to create a contractual requirement for the institution to pay overdrafts on checks, ACH transactions, or other types of transactions in any circumstances.
Notwithstanding the Board's concerns about potential consumer compulsion to opt in, the Board is proposing a modified version of proposed § 205.17(b)(2) that would expressly permit institutions to condition the payment of any overdrafts for checks, ACH transactions, and other types of transactions on the consumer also affirmatively consenting to the institution's payment of ATM withdrawals and one-time debit card transactions pursuant to the institution's overdraft service. Under the alternative approach, an institution could also decline checks, ACH transactions, and other types of transactions because the consumer has not affirmatively consented to the institution's overdraft service for ATM withdrawals and one-time debit card transactions.
The Board solicits comment on the merits of both alternatives. The Board also seeks comment on other approaches that may sufficiently balance concerns about consumers being effectively compelled to opt in to an institution's overdraft service for ATM withdrawals and one-time debit card transactions in order to have overdrafts paid for checks and other transactions against the operational difficulties of implementing a rule that enables consumers to decide whether to have overdrafts paid for some but not all types of transactions.
The Board is concerned, however, that institutions could circumvent the proposed opt-in right and effectively compel the consumer to affirmatively consent to the institution's payment of overdrafts for ATM withdrawals and one-time debit card transactions by providing a “no opt-in” account with significantly less favorable terms, conditions, or features compared to the opt-in account. Thus, the proposal sets forth two alternative approaches to address this concern.
Under the first alternative, an institution must provide to consumers who do not affirmatively consent to the institution's overdraft service for ATM withdrawals and one-time debit card transactions an account with the same terms, conditions, and features, including interest rates paid and fees assessed, as it provides to consumers who do affirmatively consent, except for the features that limit the institution's payment of such overdrafts.
Under the second alternative, an institution may wish to alter some of the terms, conditions, or features of the account that does not permit the payment of overdrafts on ATM withdrawals and one-time debit card transactions. For example, the institution may wish to price some account services differently for the “no opt-in” account. In light of the Board's concern about possible chilling effects, however, the second alternative permits an institution to vary the terms, conditions, or features of the “no opt-in” account only if the differences in the terms, conditions, or features are not so substantial as to effectively compel a reasonable consumer to affirmatively consent to the institution's payment of overdrafts on ATM withdrawals and one-time debit card transactions. For example, an institution may not decline to provide ATM and debit card services altogether if the consumer has not affirmatively consented to the institution's overdraft service for ATM withdrawals and one-time debit card transactions.
The Board requests comment on both approaches. For institutions that require consumers to opt in to the institution's overdraft service, the Board requests comment on whether the consumer's choice is implemented at the account level (
Under the first exception, an institution would be permitted to assess an overdraft fee or charge for paying an ATM withdrawal or one-time debit card transaction, notwithstanding the absence of the consumer's affirmative consent, if the institution has a reasonable belief that there are sufficient funds available in the consumer's account at the time it authorizes a transaction.
Proposed § 205.17(c) would generally require that a financial institution provide an opt-in notice to the consumer about the institution's overdraft service before the institution assesses any fee or charge on the consumer's account for paying an ATM withdrawal or one-time debit card transaction pursuant to the institution's overdraft service. However, once a consumer has opted in, financial institutions would not be required to provide a notice regarding the institution's overdraft service following the assessment of any overdraft fees or charges to the consumer's account. The Board believes such a requirement is not necessary when the consumer has affirmatively elected to enroll in the overdraft service.
The proposed provision would apply differently depending on when the account is opened. For new accounts opened on or after the effective date of the final rule, the opt-in notice must be provided prior to the assessment of any fee or charge on the consumer's account for paying an ATM withdrawal or one-time debit card transaction pursuant to the institution's overdraft service.
In contrast to the opt-out approach, the opt-in rule would not require institutions to provide a notice after a consumer has been assessed an overdraft fee or charge. Thus, existing
For existing accounts, that is, accounts opened prior to the effective date of the final rule, an institution may elect to provide an opt-in notice to all of its account holders on or with the first periodic statement sent after the effective date of the final rule. Alternatively, the institution may provide an opt-out notice to existing consumers following the first assessment of an overdraft fee or charge to the consumer's account on or after the effective date of the final rule.
The notice requirements for existing accounts would apply only for accounts for which overdraft services are provided as of the effective date of the final rule. Thus, institutions would not be required to provide notices to consumers that have previously opted out of, or, for those institutions that require an opt-in, to consumers that have not affirmatively consented to, the service. Institutions that elect to provide notices to consumers prior to the effective date of the final rule also would not be required to provide new notices once the rule becomes effective for consumers that have not affirmatively consented to the service (provided that the consumer was given a reasonable amount of time to opt in).
As discussed below under proposed § 205.17(g), if an existing consumer has not opted in within 60 days of receiving the opt-in notice, the institution must cease assessing any fees or charges to existing consumer accounts for paying an ATM withdrawal or one-time debit card transaction pursuant to the institution's overdraft service, except for fees that are permitted by the exceptions in § 205.17(b)(5).
The Board solicits comment on whether another approach may be more appropriate for existing customers. Specifically, the Board requests comment on whether it should adopt a hybrid approach consisting of an opt-out rule for existing accounts and an opt-in rule for new accounts. Under this approach, an institution could continue to pay overdrafts (and assess fees) for ATM withdrawals and one-time debit card transactions for existing consumers who have not opted out, but would be prohibited from paying such overdrafts and assessing an overdraft fee or charge on new consumers who have not affirmatively consented to the institution's overdraft service.
Proposed § 205.17(d) sets forth content requirements for the notice that must be provided to the consumer before the consumer may affirmatively consent to the institution's overdraft service. In addition, proposed § 205.17(d) requires that the opt-in notice be in a form substantially similar to Model Form A-9 in Appendix A. The content requirements are discussed in greater detail in the section regarding the proposed opt-out approach. However, the Board has modified these content requirements (and the accompanying proposed commentary) from the proposed opt-out approach to reflect the requirement to obtain the consumer's affirmative consent.
The Board expects to conduct consumer testing of this proposed model form (and the proposed model forms for the opt-out) following issuance of this proposal.
The 60-day period is intended to provide sufficient time for the consumer to respond to the opt-in notice, and for the institution to implement the consumer's decision. During this time, an institution may continue to assess overdraft fees for paying ATM withdrawals and one-time debit card transactions. Comment is requested on the 60-day period, and whether the period should be longer or shorter.
The Board requests comment on all aspects of the opt-in proposal, including the various alternatives set forth in the proposal. Comment is requested on the costs and benefits of the proposed opt-in rule to consumers and financial institutions. Comment is also solicited on which approach (opt-out or opt-in) may be optimal for both consumers, and whether one approach may present unique operational or cost issues that would not be associated with the other approach.
When a consumer uses a debit card to make a purchase, a block, or hold, may be placed on funds in the consumer's account to ensure that the consumer has sufficient funds in his or her account when the transaction is presented for settlement. This type of block or hold is commonly referred to as a “debit hold.” During the time the debit hold remains
In some cases, the actual purchase amount is not known at the time the transaction is authorized, such as when a consumer uses a debit card to pay for gas at the pump, check into a hotel room, or pay for a meal at a restaurant. Consequently, the debit hold may be placed for an estimated amount that exceeds the actual transaction amount. The consumer may engage in subsequent transactions reasonably assuming that his or her account has only been debited for the actual transaction amount. Or, prior transactions may be presented for settlement after the hold is placed. Because of the excess hold, however, the consumer may incur overdraft fees for those transactions.
For example, a consumer with $100 in a deposit account may swipe his or her debit card at a pay-at-the-pump dispenser to purchase $20 worth of fuel. When this transaction is authorized, the consumer's financial institution may increase the merchant's $1 pre-authorization hold
Several industry commenters asserted the rule would require banks to monitor retroactively, and manually adjust, transactions and fees that have posted to the account. A few of these commenters believed that the proposal would have a disproportionate cost impact on smaller institutions that do not have the systems or staff to handle the research and manual adjustments necessary to correct the consumer's account. Alternatively, institutions would have to stop placing debit holds altogether which, industry commenters argued, would raise potential safety and soundness concerns. Nonetheless, a few financial institution commenters stated that they either do not currently place holds on authorizations from gas stations, hotels, or rental car companies, or do not increase the $1 merchant pre-authorization amount in connection with fuel purchases.
Rather than adopting a substantive FTC Act rule, industry commenters urged the Agencies to use other existing regulatory authority. For example, industry commenters recommended that the Board exercise its authority under Regulation E to require merchants to disclose at the point-of-sale when holds may be placed on debit card transactions. Many industry commenters also stated that the Agencies' concerns were already largely addressed by recent card network initiatives intended to reduce the length of the hold time for debit holds. For example, one payment card network has recently implemented changes intended to reduce the hold times for pay-at-the-pump fuel dispensers. Under these new rules, fuel merchants would be encouraged to transmit a transaction for settlement within two hours of authorization. If the merchant does so, the card-issuing institution will be required to drop the hold within the two-hour time frame, thus reducing the hold times to a matter of hours, instead of days.
After reviewing the comments received on the May 2008 FTC Act Proposal and based on its own analysis, the Board is proposing to address debit holds under the EFTA and Regulation E. Proposed § 205.19(a) generally would prohibit financial institutions from assessing a fee or charge for paying an overdraft pursuant to the institution's overdraft service if the overdraft would not have occurred but for a debit hold placed in a consumer's account if the amount of the hold exceeds the actual transaction amount. The proposed rule would not apply to transactions in which the amount of the hold equals or is less than the actual amount of the transaction. Similarly, the proposed rule would not apply if the actual amount of the transaction would also have caused the overdraft to occur.
Under the proposal, the scope of the debit hold provision would be limited to debit card transactions in which the actual transaction amount generally can be determined by the merchant or other payee within a short period of time after the institution authorizes the transaction. For example, in pay-at-the-pump fuel purchases, the actual transaction amount can be calculated once the consumer has finished pumping fuel. Similarly, when a consumer uses a debit card to pay a restaurant bill, the actual transaction amount can be determined once the consumer has signed the receipt and added a service tip. According to data submitted by one card network on the Board's May 2008 FTC Act Proposal, restaurant and fuel purchases comprise over 95 percent of all transactions in which the settlement amount typically does not match the authorization amount.
The proposed rule would not apply, however, to debit holds in other retail environments where the actual transaction amount generally cannot be determined for a considerable period of time after the merchant has submitted a transaction for authorization. For example, when a consumer provides his or her debit card at check-in for a multi-night hotel stay, the transaction will not be submitted for settlement until the end of the consumer's stay. In this case, a hold may be placed on funds in the consumer's account at check-in, but will not be released until the consumer completes his or her stay (or when the hold is required to be released under card network rules, whichever comes first). Similarly, if a consumer uses his
Moreover, the Board believes that overdraft fees are less likely to occur for hotel and car rental transactions because consumers tend to use credit cards for these transactions. In addition, data provided by one commenter indicates that even where debit cards are used in hotel and car rental transactions, they comprise a very small proportion of transactions overall involving a debit hold. The Board has received few complaints regarding overdraft fees incurred as a result of debit holds placed in connection with hotel and car rental transactions.
For these reasons, the Board is proposing a targeted rule for debit holds that would apply only in circumstances when the actual transaction amount can be determined within a short period of time after the institution authorizes the transaction. As stated above, the proposed rule would appear to cover approximately 95 percent of all transactions (pay-at-the-pump and restaurants) in which the actual transaction amount and the authorization amount do not match. Thus, the proposed rule would cover the areas of greatest concern regarding overdraft fees incurred because of a debit hold. Proposed comment 19(a)-1 provides examples of transactions covered by the proposed rule.
The prohibition against assessing an overdraft fee in connection with a debit hold applies only if the overdraft is caused solely by the existence of the hold. Proposed comment 19(a)-2 provides that an institution may assess an overdraft fee or charge if the consumer's account is overdrawn for other reasons. These reasons may include prior debit card transactions that may have been authorized but not yet presented for settlement, or when a deposited check in the consumer's account is returned.
Proposed comment 19(a)-3 clarifies that a financial institution does not violate the prohibition in § 205.19 if it promptly waives or refunds any overdraft fees assessed on a consumer's account caused by a debit hold placed on funds in the consumer's account that is in excess of the actual amount of the transaction. However, the institution may not require the consumer to provide notice or other information that an overdraft fee was caused by a debit hold on funds in the consumer's account before waiving or refunding the fee. Proposed comment 19(a)-3 includes an example illustrating this provision.
Proposed comments 19(a)-4 through -7 set forth examples to illustrate application of the rule.
The proposed rule provides a safe harbor that would allow a financial institution to assess a fee or charge for paying an overdraft that is caused solely by a debit hold in certain cases. Specifically, proposed § 205.19(b) permits an institution to assess an overdraft fee or charge to the consumer's account in connection with a debit hold if the institution has adopted procedures and practices designed to remove the hold within a reasonable period of time. This safe harbor is intended to mitigate the potential compliance burden on institutions. Thus, an institution would not be required to recalculate each transaction which may appear to be overdrawn due to an excess hold to determine whether an overdraft fee was properly assessed if the hold is removed within a reasonable period of time following authorization. Proposed § 205.19(b) provides that an institution has procedures and practices designed to release the hold within a reasonable period of time if the institution releases debit holds for the transactions covered by the proposed rule within two hours of authorization.
The two-hour time period for removing a hold is consistent with industry efforts to minimize current hold times in certain retail environments. As discussed above, one payment card network has recently implemented changes designed to significantly reduce the hold times at pay-at-the-pump fuel dispensers. This industry initiative, however, is voluntary and, by itself, may not be sufficient to protect consumers from being assessed overdraft fees caused by an excess hold. In addition, this initiative is currently limited to pay-at-the-pump debit card transactions, and would not apply in other circumstances in which the actual transaction amount can be determined within a short period of time after authorization was obtained, such as at restaurants. Nonetheless, the introduction of a two-hour hold period, even on a voluntary basis, suggests that such a standard is feasible.
The Board recognizes that the proposed safe harbor in § 205.19(b) would not prevent in all cases the assessment of overdraft fees caused by a debit hold even though the consumer had sufficient funds in the account. For example, a consumer may use his or her debit card to purchase groceries an hour after completing a fuel purchase. The proposed safe harbor would not preclude the consumer's financial institution from assessing an overdraft fee or charge for the grocery purchase where an excess hold placed in connection with the fuel purchase causes the consumer to have insufficient funds at the time of authorization for the grocery purchase. (However, if the consumer has opted out under § 205.17 (or not opted in), the institution would not be permitted to assess a fee or charge for paying the debit card overdraft.
Proposed comment 19(b)-2 illustrates the interaction between the debit hold provision in § 205.19 and the opt-out (or opt-in) requirements in § 205.17. Specifically, if a consumer is not enrolled in the institution's overdraft service for ATM withdrawals and one-time debit card transactions (because the consumer has opted out or not opted in), the institution may not assess any overdraft fees incurred in connection with a debit hold even if the institution otherwise is not prohibited from doing so by the debit hold provision. For example, assume a consumer has $100 in his or her deposit account and has opted out of the institution's overdraft service. The consumer uses his or her debit card to purchase $30 of fuel at a pay-at-the-pump fuel dispenser. At the time of authorization, the financial institution increased the gas station's $1 preauthorization hold to $75. One hour after completing the fuel purchase, the consumer makes a $60 debit card purchase at a grocery store. Notwithstanding the fact that the consumer made the purchase within the two-hour safe harbor, the institution would not be permitted to assess an
The proposal does not require merchants to disclose debit holds as a substitute for a substantive rule, as some industry commenters had suggested. The Board does not believe that a disclosure-based approach would be effective in pay-at-the-pump and restaurant transactions. For example, a notice posted at a gas pump or in a restaurant is unlikely to be noticed by the consumer. Even if the consumer were to notice a point-of-sale disclosure about debit holds, the consumer would not know how long the hold will remain in place. Moreover, for signature-based pay-at-the-pump debit card purchases, the merchant does not know whether the financial institution will increase the $1 pre-authorization hold. Therefore, merchant disclosures at point-of-sale regarding debit holds do not appear to provide a workable solution in most circumstances.
The Board requests comment on all aspects of the debit hold proposal, including whether additional guidance is necessary regarding transactions in which the actual purchase amount is determined within “a short period of time.” Comment is also requested on the costs and benefits of the proposed rule to consumers and financial institutions.
Comment is requested on the appropriateness of the proposed safe harbor, including whether other time periods may be more appropriate in light of operational constraints at smaller institutions which may only receive authorization and settlement information periodically during the day.
In addition, comment is requested whether the Board should exercise its authority under Section 904 of the EFTA to also require merchants (or their acquirers or processors) to promptly submit transactions covered by this rule for settlement. Specifically, the Board seeks comment on whether the final rule should also require merchants (or their acquirers or processors) to submit such transactions for settlement within the safe harbor period.
The Regulatory Flexibility Act (5 U.S.C. 601
However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if an agency certifies, along with a statement providing the factual basis for such certification, that the rule will not have a significant economic impact on a substantial number of small entities. Based on its analysis and for the reasons stated below, the Board believes that this proposed rule is likely to have a significant economic impact on a substantial number of small entities. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period.
1.
The EFTA was enacted to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. The primary objective of the EFTA is the provision of individual consumer rights. 15 U.S.C. 1693. The EFTA authorizes the Board to prescribe regulations to carry out the purpose and provisions of the statute. 15 U.S.C. 1693b(a). The Act expressly states that the Board's regulations may contain “such classifications, differentiations, or other provisions, . . . as, in the judgment of the Board, are necessary or proper to effectuate the purposes of [the Act], to prevent circumvention or evasion [of the Act], or to facilitate compliance [with the Act].” 15 U.S.C. 1693b(c). The Board believes that the revisions to Regulation E discussed above are within Congress's broad grant of authority to the Board to adopt provisions that carry out the purposes of the statute. These revisions facilitate a consumer's ability to avoid overdrawing his or her account in connection with an electronic fund transfer the consumer has requested.
2.
The Board is aware that some small institutions do not pay overdrafts at ATMs or for one-time debit card transactions.
In addition, financial institutions would be prohibited from assessing a fee or charge for certain debit card transactions that overdraw the consumer's account if the overdraft would not have occurred but for a hold placed on funds in the consumer's account in excess of the actual transaction, unless they have adopted procedures designed to release the hold within a reasonable period of time. A safe harbor is provided if an institution has adopted procedures to release the hold within two hours after the institution authorized the transaction. The Board believes the proposed safe harbor will significantly decrease the burden of compliance with the rule.
3.
4.
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 rule under the authority delegated to the Board by the Office of Management and Budget (OMB). The collection of information that is subject to the PRA by this proposed rule is found in 12 CFR part 205. 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 7100-0200.
This information collection is required to provide benefits for consumers and is mandatory (15 U.S.C. 1693
The EFTA and Regulation E are designed to ensure adequate disclosure of basic terms, costs, and rights relating to electronic fund transfer (EFT) services debiting or crediting a consumer's account. The disclosures required by the EFTA and Regulation E are triggered by certain specified events. The disclosures inform consumers about the terms of the electronic fund transfer service, activity on the account, potential liability for unauthorized transfers, and the process for resolving errors. To ease institutions' burden and cost of complying with the disclosure requirements of Regulation E (particularly for small entities), the Board publishes model forms and disclosure clauses.
Regulation E applies to all financial institutions, not just state member banks (SMBs). In addition, certain provisions in Regulation E apply to entities that are not financial institutions, including those that act as service providers or ATM operators, as well as merchants and other payees that engage in electronic check conversion transactions, the electronic collection of returned item fees, or preauthorized transfers. The Federal Reserve accounts for the paperwork burden associated with Regulation E only for the financial institutions it supervises
As mentioned in the
Under alternative 1 the Federal Reserve estimates that, to comply with the proposed opt-out notice requirement, 1,205 respondents regulated by the Federal Reserve would take, on average, 16 hours (two business days) to revise and update initial disclosures (§ 205.7(b)) for new customers and that 327 respondents
The Federal Reserve estimates the total annual one-time burden for respondents to be 24,512 hours and believes that, on a continuing basis, there would be no additional increase in burden as the disclosures would be sufficiently accounted for once incorporated into the current initial account disclosure (§ 205.7(b)) and periodic statements (§ 205.9(b)). This would increase the total annual burden to 84,414 hours for Federal Reserve-regulated financial institutions that are required to comply with Regulation E. To ease the burden of compliance model forms that institutions may use are available in Appendix A (
Under alternative 2 the Federal Reserve estimates that, to comply with the proposed opt-in notice requirement, 1,205 respondents regulated by the Federal Reserve would again take, on average, 16 hours (two business days) to revise and update initial disclosures (§ 205.7(b)) for new customers. The Federal Reserve estimates that 1,205 respondents regulated by the Federal Reserve would take, on average, 16 hours (two business days) to prepare and send new opt-in notices for existing customers.
The Federal Reserve estimates the total annual one-time burden for respondents to be 38,560 hours and believes that, on a continuing basis, there would be no additional increase in burden as the disclosure would be sufficiently accounted for once incorporated into the current initial account disclosure (§ 205.7(b)). This would increase the total annual burden to 98,462 hours for Federal Reserve-regulated financial institutions that are required to comply with Regulation E. To ease the burden of compliance a
The Federal Reserve estimates that on average 5,136,693 consumers would spend as much as 5 minutes reviewing and responding to an opt-in or opt-out notice. This would increase the total annual burden for this information collection by 428,058 hours.
Overall, the burden could increase, depending on the alternative implemented, between 452,570 hours for alternative 1 and 466,618 hours for alternative 2 (for 512,472 hours or 526,520 hours total, respectively).
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 estimation methodology. Using the Federal Reserve's method, the total estimated annual burden for all financial institutions subject to Regulation E, including Federal Reserve-supervised institutions, would be approximately 1,041,011 hours.
Comments are invited on: a. whether the proposed collection of information is necessary for the proper performance of the Federal Reserve's functions including (a) Whether the information has practical utility; (b) the accuracy of the Federal Reserve's estimate of the burden of the proposed information collection, including the cost of compliance; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) 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 (7100-0200), Washington, DC 20503.
Certain conventions have been used to highlight the proposed changes to the text of the regulation and staff commentary. New language is shown inside bold-faced arrows, while language that would be deleted is set off with bold-faced brackets.
Consumer protection, Electronic fund transfers, Federal Reserve System, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board proposes to amend 12 CFR part 205 and the Official Staff Commentary, as follows:
1. The authority citation for part 205 continues to read as follows:
15 U.S.C. 1693b.
2. Section 205.12 is amended by revising paragraph (a) to read as follows:
(a)
(i) The addition to an accepted credit card as defined in Regulation Z (12 CFR 226.12[(a)(2), footnote 21]▸, comment 12-2◂), of the capability to initiate electronic fund transfers;
(ii) The issuance of an access device that permits credit extensions (under a preexisting agreement between a consumer and a financial institution ▸ or an overdraft service, as defined in § 205.17(a)◂) only when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account; [and]
▸(iii) The addition of an overdraft service, as defined in § 205.17(a), to an accepted access device; and◂
[(iii)]▸(iv)◂ A consumer's liability for an unauthorized electronic fund transfer and the investigation of errors involving an extension of credit that occurs under an agreement between the consumer and a financial institution to extend credit ▸or an overdraft service, as defined in § 205.17(a),◂ when the consumer's account is overdrawn or to maintain a specified minimum balance in the consumer's account.
(2) The Truth in Lending Act and Regulation Z (12 CFR ▸part◂ 226), which prohibit the unsolicited issuance of credit cards, govern—
(i) The addition of a credit feature to an accepted access device; and
(ii) Except as provided in paragraph (a)(1)(ii) of this section, the issuance of a credit card that is also an access device.
3. Section 205.17 is added to read as follows:
(a)
(1) A line of credit subject to the Federal Reserve Board's Regulation Z (12 CFR part 226), including transfers from a credit card account, home equity line of credit, or overdraft line of credit; or
(2) A service that transfers funds from another account held individually or jointly by a consumer.
(b)
(i) The institution provides notice to the consumer explaining that it may pay overdrafts on such transactions pursuant to the institution's overdraft service and assess a fee or charge on the consumer's account for doing so;
(ii) The consumer is given a reasonable opportunity to opt out of the institution's overdraft service for such transactions; and
(iii) The consumer has not opted out.
(2)
(i) Condition the consumer's right to opt out of the institution's overdraft service for ATM withdrawals and one-time debit card transactions on the consumer also opting out of the institution's overdraft service with respect to the payment of checks, ACH transactions, and other types of transactions; or
(ii) Decline to pay checks, ACH transactions, or other types of transactions that overdraw the consumer's account because the consumer has opted out of the institution's overdraft service for ATM withdrawals and one-time debit card transactions.
(3)
(3)
(4)
(i) Has a policy and practice of declining to pay any ATM withdrawals or one-time debit card transactions for which authorization is requested if the institution has a reasonable belief that the consumer's account does not have sufficient funds available to cover the transaction at the time of the authorization request; or
(ii) Requires consumers to affirmatively consent to the institution's overdraft service for the payment of any ATM withdrawals or one-time debit card transactions before the institution assesses any fees or charges to the consumer's account for paying such overdrafts.
(5)
(i) The institution has a reasonable belief that there are sufficient funds available in the consumer's account at the time the institution authorizes the transaction; or
(ii) In the case of a debit card transaction, the transaction is presented for payment by the merchant through paper-based means, rather than electronically through a card terminal, and the institution has not previously authorized the transaction.
(c)
(1) For accounts opened on or after [the effective date of the final rule], prior to the financial institution's assessment of any fee or charge on the consumer's account for paying an ATM withdrawal or a one-time debit card transaction pursuant to the institution's overdraft service, so long as the consumer has a reasonable opportunity to exercise the opt-out right before the assessment of any such fee or charge; and
(2) For any account for which an opt-out has not been exercised or for which a prior opt-out has been revoked, following the assessment of any fee or charge assessed on the consumer's account for paying an ATM withdrawal or a one-time debit card transaction pursuant to the institution's overdraft service:
(i) On each periodic statement that reflects any such fee or charge, in close proximity to the disclosures required to be disclosed by 12 CFR 230.11(a); or
(ii) At least once per statement cycle on any notice sent promptly after the institution's payment of an overdraft for an ATM withdrawal or a one-time debit card transaction during that statement cycle.
(d)
(i)
(ii)
(iii)
(iv)
(v)
(2)
(e)
(f)
(g)
(h)
(a)
(1) A line of credit subject to the Federal Reserve Board's Regulation Z (12 CFR part 226), including transfers from a credit card account, home equity line of credit, or overdraft line of credit; or
(2) A service that transfers funds from another account held individually or jointly by a consumer.
(b)
(i) Provides the consumer with a notice explaining the institution's overdraft service for such transactions that is segregated from everything else, and does not contain any information not specified in or otherwise permitted by paragraph (d) of this section;
(ii) Provides a reasonable opportunity for the consumer to affirmatively consent, or opt in, to the service for such transactions; and
(iii) Obtains the consumer's affirmative consent, or opt-in, to the institution's payment of ATM withdrawals or one-time debit card transactions pursuant to the institution's overdraft service, and provides the consumer with written confirmation of the consumer's consent.
(2)
(i) Condition the payment of any overdrafts for checks, ACH transactions, and other types of transactions on the consumer also affirmatively consenting to the institution's payment of ATM withdrawals and one-time debit card transactions pursuant to the institution's overdraft service; or
(ii) Decline to pay checks, ACH transactions, and other types of transactions that overdraw the consumer's account because the consumer has not affirmatively consented to the institution's overdraft service for ATM withdrawals and one-time debit card transactions.
(3)
(3)
(4)
(5)
(i) The institution has a reasonable belief that there are sufficient funds available in the consumer's account at the time the institution authorizes the transaction; or
(ii) In the case of a debit card transaction, the transaction is presented for payment by the merchant through paper-based means, rather than electronically through a card terminal, and the institution has not previously authorized the transaction.
(c)
(1) For accounts opened and for which an overdraft service is provided prior to [the effective date of the final rule], at the institution's option—
(i) On or with the first periodic statement sent on or after [the effective date of the final rule]; or
(ii) Following the first assessment on or after [the effective date of the final rule] of any fee or charge on the consumer's account for paying an ATM withdrawal or a one-time debit card transaction pursuant to the institution's overdraft service; or
(2) For accounts opened on or after [the effective date of the final rule], before the financial institution assesses any fee or charge on the consumer's account for paying an ATM withdrawal or a one-time debit card transaction pursuant to the institution's overdraft service.
(d)
(1)
(2)
(3)
(4)
(5)
(e)
(f)
(g)
(h)
4. Section 205.19 is added to read as follows:
(a)
(b)
5. In Appendix A to Part 205, Appendix A-9 Model Forms for Overdraft Services (§ 205.17) is added to read as follows:
6. In Supplement I to part 205,
a. Under Section 205.12 Relation to other laws, under
b. Section 205.17—Requirements for Overdraft Services is added.
c. Section 205.19—Debit Holds is added.
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i. A fuel purchase at a pay-at-the-pump dispenser.
ii. The payment of a restaurant bill where an estimated amount is added to the amount of the requested authorization to account for service tips.
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By order of the Board of Governors of the Federal Reserve System, December 18, 2008.
Board of Governors of the Federal Reserve System.
Final rule.
The Board is amending Regulation Z, which implements the Truth in Lending Act (TILA), and the staff commentary to the regulation, following a comprehensive review of TILA's rules for open-end (revolving) credit that is not home-secured. Consumer testing was conducted as a part of the review.
Except as otherwise noted, the changes apply solely to open-end credit. Disclosures accompanying credit card applications and solicitations must highlight fees and reasons penalty rates might be applied, such as for paying late. Creditors are required to summarize key terms at account opening and when terms are changed. Specific fees are identified that must be disclosed to consumers in writing before an account is opened, and creditors are given flexibility regarding how and when to disclose other fees imposed as part of the open-end plan. Costs for interest and fees are separately identified for the cycle and year to date. Creditors are required to give 45 days' advance notice prior to certain changes in terms and before the rate applicable to a consumer's account is increased as a penalty. Rules of general applicability such as the definition of open-end credit, dispute resolution procedures, and payment processing limitations apply to all open-end plans, including home-equity lines of credit. Rules regarding the disclosure of debt cancellation and debt suspension agreements are revised for both closed-end and open-end credit transactions. Loans taken against employer-sponsored retirement plans are exempt from TILA coverage.
The rule is effective July 1, 2010.
Benjamin K. Olson, Attorney, Amy Burke or Vivian Wong, Senior Attorneys, or Krista Ayoub, Ky Tran-Trong, or John Wood, Counsels, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 452-3667 or 452-2412; for users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869.
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.
The goal of the amendments to Regulation Z 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 changes are the result of the Board's review of the provisions that apply to open-end (not home-secured) credit. The Board is adopting changes to 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-terms notices; and (5) advertising provisions. The Board is also adopting additional protections that complement rules issued by the Board and other federal banking agencies published elsewhere in today's
• Adopting new format requirements for the summary table, including rules regarding: type size and use of boldface type for certain key terms, and placement of information.
• Revising content, including: a requirement that creditors disclose the duration that penalty rates may be in effect, a shorter disclosure about variable rates, new descriptions when a grace period is offered on purchases or when no grace period is offered, and a reference to consumer education materials on the Board's Web site.
• Disclosing certain key terms in a summary table at account opening, in order to summarize for consumers key information that is most important to informed decision-making. The table is substantially similar to the table required for credit and charge card applications and solicitations.
• Adopting a different approach to disclosing fees, to provide greater clarity for identifying fees that must be disclosed. In addition, creditors would have flexibility to disclose charges (other than those in the summary table) in writing or orally.
• Itemizing interest charges for different types of transactions, such as purchases and cash advances, grouping interest charges and fees separately, and providing separate totals of fees and interest for the month and year-to-date.
• Eliminating the requirement to disclose an “effective APR.”
• Requiring disclosure of the effect of making only the minimum required payment on the time to repay balances, as required by the Bankruptcy Act.
• Increasing advance notice before a changed term can be imposed from 15 to 45 days, to better allow consumers to obtain alternative financing or change their account usage.
• Requiring creditors to provide 45 days' prior notice before the creditor increases a rate either due to a change in the terms applicable to the consumer's account or due to the consumer's delinquency or default or as a penalty.
• When a change-in-terms notice accompanies a periodic statement, requiring
• Requiring advertisements that state a periodic payment amount on a plan offered to finance the purchase of goods or services to state, in equal prominence to the periodic payment amount, the time period required to pay the balance and the total of payments if only periodic payments are made.
• Permitting advertisements to refer to a rate as “fixed” only if the advertisement specifies a time period for which the rate is fixed and the rate will not increase for any reason during that time, or if a time period is not specified, if the rate will not increase for any reason while the plan is open.
• In setting reasonable cut-off hours for mailed payments to be received on the due date and be considered timely, deeming 5 p.m. to be a reasonable time.
• Requiring creditors that do not accept mailed payments on the due date, such as on weekends or holidays, to treat a mailed payment received on the next business day as timely.
• Clarifying that advances that are separately underwritten are generally not open-end credit, but closed-end credit for which closed-end disclosures must be given.
In October 2005, the Board published a second ANPR to solicit comment on implementing the Bankruptcy Act amendments (October 2005 ANPR). 70 FR 60235, October 17, 2005. 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. A summary of the comments received in response to the October 2005 ANPR also is contained in the supplementary information to the June 2007 Proposal. 72 FR 32948, 32950, June 14, 2007.
For credit and charge card application and solicitation disclosures, the June 2007 Proposal included new format requirements for the summary table, such as rules regarding type size and use of boldface type for certain key terms, placement of information, and the use of cross-references. Content revisions included requiring creditors to disclose the duration that penalty rates may be in effect and a shorter disclosure about variable rates.
For disclosures provided at account opening, the June 2007 Proposal called for creditors to disclose certain key terms in a summary table that is substantially similar to the table required for credit and charge card applications and solicitations. A different approach to disclosing fees was proposed, to provide greater clarity for identifying fees that must be disclosed, and to provide creditors with flexibility to disclose charges (other than those in the summary table) in writing or orally.
The June 2007 Proposal also included changes to the format requirements for periodic statements, such as by grouping fees, interest charges, and transactions together and providing separate totals of fees and interest for the month and year-to-date. The proposal also modified the provisions for disclosing the “effective APR,” including format and terminology requirements to make it more understandable. Because of concerns about the disclosure's effectiveness, however, the Board also solicited comment on whether this rate should be required to be disclosed. The proposal required card issuers to disclose the effect of making only the minimum required payment on repayment of balances, as required by the Bankruptcy Act.
For changes in consumer's interest rate and other account terms, the June 2007 Proposal expanded the circumstances under which consumers receive written notice of changes in the terms (e.g., an increase in the interest rate) applicable to their accounts to include increases of a rate due to the consumer's delinquency or default, and increased the amount of time (from 15 to 45 days) these notices must be sent before the change becomes effective.
For advertisements that state a minimum monthly payment on a plan offered to finance the purchase of goods or services, the June 2007 Proposal required additional information about
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. Of the approximately 15% of comment letters received 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 mainly concerned a proposed revision to the definition of open-end credit that could affect how many credit unions currently structure their consumer loan products.
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 or as a penalty. Consumer groups opposed the Board's proposed alternative that would eliminate the effective annual percentage rate (effective APR) as a periodic statement disclosure. Consumers and consumer groups also believed the Board's proposal was too limited in scope and urged the Board to provide more substantive protections and prohibit certain card issuer practices. Comments on specific proposed revisions are discussed in VI. Section-by-Section Analysis, below.
The May 2008 Proposal would have, among other things, required changes for the summary table provided on or with application and solicitations for credit and charge cards. Specifically, it would have required different terminology than the term “grace period” as a heading that describes whether the card issuer offers a grace period on purchases, and added a de minimis dollar amount trigger of more than $1.00 for disclosing minimum interest or finance charges.
Under the May 2008 Proposal, creditors assessing fees at account opening that are 25% or more of the minimum credit limit would have been required to provide in the account-opening summary table 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).
Currently, creditors may require consumers to comply with reasonable payment instructions. The May 2008 Proposal would have deemed a cut-off hour for receiving mailed payments before 5 p.m. on the due date to be an unreasonable instruction. The proposal also would have prohibited creditors that set due dates on a weekend or holiday but do not accept mailed payments on those days from considering a payment received on the next business day as late for any reason.
For deferred interest plans that advertise “no interest” or similar terms, the May 2008 Proposal would have added 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.
The Board received over 450 comments on the May 2008 Proposal. About 88% of these were from consumers and consumer groups, and of those, nearly all (98%) were from individuals. Six comments (1%) were from government officials or organizations, and the remaining 11% represented industry, such as financial institutions or their trade associations and payment system networks.
Commenters generally supported the May 2008 Proposal, although like the June 2007 Proposal, some commenters opposed aspects of the proposal. For example, operational concerns and costs for system changes were cited by industry representatives that opposed limitations on when creditors may consider mailed payments to be untimely. Regarding revised disclosure requirements, some industry and consumer group commenters opposed proposed heading descriptions for accounts offering a grace period, although these commenters were split between those that favor retaining the current term (“grace period”) and those that suggested other heading descriptions. Consumer groups opposed the May 2008 proposal to permit card issuers and creditors to omit charges in lieu of interest that are $1.00 or less from the table provided with credit or charge card applications and solicitations and the table provided at account opening. Some retailers opposed the proposed advertising rules for deferred interest offers. Comments on specific proposed revisions are discussed in VI. Section-by-Section Analysis, below.
• 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 terms are changed, and notices on checks provided to access credit card accounts.
Working closely with the Board, Macro International conducted several tests. Each round of testing was conducted in a different city throughout the United States. In addition, the consumer testing groups contained participants with a range of ethnicities, ages, educational levels, and credit card behavior. The consumer testing groups also contained participants likely to have subprime credit cards as well as those likely to have prime credit cards.
Several of the model forms contained in the June 2007 Proposal were developed through the testing. A report summarizing the results of the testing is available on the Board's public Web site:
• Testing participants generally read the summary table provided in direct-mail credit card solicitations and applications and ignored information presented outside of the table. The June 2007 Proposal would have required that information about events that trigger penalty rates and about important fees (late-payment fees, over-the-credit-limit fees, balance transfer fees, and cash advance fees) be placed in the table. Currently, this information may be placed outside the table.
• With respect to the account-opening disclosures, consumer testing indicates that consumers commonly do not review their account agreements, which currently are often in small print and dense prose. The June 2007 Proposal would have required creditors to include a table summarizing the key terms applicable to the account, similar to the table required for credit card applications and solicitations. The goal of setting apart the most important terms in this way is to better ensure that consumers are apprised of those terms.
• With respect to periodic statement disclosures, many consumers more easily noticed the number and amount of fees when the fees were itemized and grouped together with interest charges. Consumers also noticed fees and interest charges more readily when they were located near the disclosure of the transactions on the account. The June 2007 Proposal would have required creditors to group all fees together and describe them in a manner consistent with consumers' general understanding of costs (“interest charge” or “fee”), without regard to whether the fees would be considered “finance charges,” “other charges” or neither under the regulation.
• With respect to change-in-terms notices, creditors commonly provide notices about changes to terms or rates in the same envelope with periodic statements. Consumer testing indicates that consumers may not typically look at the notices if they are provided as separate inserts given with periodic statements. In such cases under the June 2007 Proposal, a table summarizing the change would have been required on the periodic statement directly above the transaction list, where consumers are more likely to notice the changes.
With respect to the summary table provided in direct-mail credit card solicitations and applications, participants who read the heading “How to Avoid Paying Interest on Purchases” on the row describing a grace period generally understood what the phrase meant. The May 2008 Proposal would have required issuers to use that phrase, or a substantially similar phrase, as the row heading to describe an account with a grace period for purchases, and the phrase “Paying Interest,” or a substantially similar phrase, if no grace period is offered. (The same row headings were also proposed for tables provided at account-opening and with checks that access credit card accounts.)
Prior to the May 2008 Proposal, the Board also tested a disclosure of a use-by date applicable to checks that access a credit card account. 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 saw and read the tested language understood that a standard cash advance rate, not the promotional rate, would apply if the check was used after the date disclosed. Thus, in May 2008 the Board proposed to require that creditors disclose any use-by date applicable to an offer of a promotional rate for access checks.
For example, these rounds of interviews examined, among other things, whether consumers understand the meaning of a minimum interest charge disclosed in the summary table provided in direct-mail credit card solicitations and applications. Most participants could correctly explain the meaning of a minimum interest charge, and most participants indicated that a minimum interest charge would not be important to them because it is a relatively small sum of money ($1.50 on the forms tested). The final rule accordingly establishes a threshold of $1.00; if the minimum interest charge is $1.00 or less it is not required to be disclosed in the table.
Consumers also were asked to review periodic statements that disclosed an impending rate increase, with a tabular summary of the change appearing on statement, as proposed by the Board in
The quantitative consumer testing conducted for the Board consisted of mall-intercept interviews of a total of 1,022 participants in seven cities: Dallas, TX; Detroit, MI; Los Angeles, CA; Seattle, WA; Springfield, IL; St. Louis, MO; and Tallahassee, FL. Each interview lasted approximately fifteen minutes and consisted of showing the participant models of the summary table provided in direct-mail credit card solicitations and applications and the periodic statement and asking a series of questions designed to assess the effectiveness of certain formatting and content requirements proposed by the Board or suggested by commenters.
With regard to the summary table provided in direct-mail credit card solicitations and applications, consumers were asked questions intended to gauge the impact of (i) combining rows for APRs applicable to different transaction types, (ii) the inclusion of cross-references in the table, and (iii) the impact of splitting the table onto two pages instead of presenting the table entirely on a single page. More details about the specific forms used in the testing as well as the questions asked are available in the December 2008 Macro Report on Quantitative Testing.
The results of the testing demonstrated that combining the rows for APRs applicable to different transaction types that have the same applicable rate did not have a statistically significant impact on consumers' ability to identify those rates. Thus, the final rule permits creditors to combine rows disclosing the rates for different transaction types to which the same rate applies.
Similarly, the testing indicated that the inclusion of cross-references in the table did not have a statistically significant impact on consumers' ability to identify fees and rates applicable to their accounts. As a result, the Board has not adopted the proposed requirement that certain cross-references between certain rates and fees be included in the table.
Finally, the testing demonstrated that consumers have more difficulty locating fees applicable to their accounts when the table is split on two pages and the fee appears on the second page of the table. As discussed further in VI. Section-by-Section Analysis, the Board is not requiring that creditors use a certain paper size or present the entire table on a single page, but is requiring creditors that split the table onto two or more pages to include a reference indicating that additional important information regarding the account is presented on a separate page.
The Board also tested whether consumers' understanding of payment allocation practices could be improved through disclosure. The testing showed that a disclosure, even of the relatively simple payment allocation practice of applying payments to lower-interest balances before higher-interest balances,
With regard to periodic statements, the Board's testing consultant examined (i) the effectiveness of grouping transactions and fees on the periodic statement, (ii) consumers' understanding of the effective APR disclosure, (iii) the formatting and location of change-in-terms notices included with periodic statements, and (iv) the formatting and grouping of various payment information, including warnings about the effect of late payments and making only the minimum payment.
The testing demonstrated that grouping of fees and transactions, by type, separately on the periodic statement improved consumers' ability to find fees that were charged to the account and also moderately improved consumers' ability to locate transactions. Grouping fees separately from transactions made it more difficult for some consumers to match a transaction fee to the relevant transaction, although most consumers could successfully match the transaction and fee regardless of how the transaction list was presented. As discussed in more detail in VI. Section-by-Section Analysis, the final rule requires grouping of fees and interest separate from transactions on the periodic statement, but the Board has provided flexibility for issuers to disclose transactions on the periodic statement.
With regard to the effective APR, testing overwhelmingly showed that few consumers understood the disclosure and that some consumers were less able to locate the interest rate applicable to cash advances when the effective APR also was disclosed on the periodic statement. Accordingly, and for the additional reasons discussed in more detail in VI. Section-by-Section Analysis, the final rule eliminates the requirement to disclose an effective APR for open-end (not home-secured) credit.
When a change-in-terms notice for the APR for purchases was included with the periodic statement, disclosure of a tabular summary of the change on the front of the statement moderately improved consumers' ability to identify the rate that would apply when the changes take effect. However, whether the tabular summary was presented on page one or page two of the statement did not have an effect on the ability of participants to notice or comprehend the disclosure. Thus, the final rule requires a tabular summary of key changes on the periodic statement, when a change-in-terms notice is included with the periodic statement, but permits creditors to disclose that summary on the front of any page of the statement.
The formatting of certain grouped information regarding payments, including the amount of the minimum payment, due date, and warnings regarding the effect of making late or minimum payments did not have an effect on consumers' ability to notice or comprehend these disclosures. Thus, while the final rule requires that this
Throughout the Board's review of Regulation Z's rules affecting open-end (not home-secured) plans, the Board solicited input from members of the Board's Consumer Advisory Council on various issues. During 2005 and 2006, for example, the Council discussed the feasibility and advisability of reviewing Regulation Z in stages, ways to improve the summary table provided on or with credit card applications and solicitations, issues related to TILA's substantive protections (including dispute resolution procedures), and issues related to the Bankruptcy Act amendments. In 2007 and 2008, the Council discussed the June 2007 and May 2008 Proposals, respectively, and comments received by the Board in response to the proposals. In addition, Board met or conducted conference calls with various industry and consumer group representatives throughout the review process leading to the June 2007 and May 2008 Proposals. Consistent with the Bankruptcy Act, the Board also met with the other federal banking agencies, the National Credit Union Administration (NCUA), and the Federal Trade Commission (FTC) regarding the clear and conspicuous disclosure of certain information required by the Bankruptcy Act. The Board also reviewed disclosures currently provided by creditors, consumer complaints received by the federal banking agencies, and surveys on credit card usage to help inform the June 2007 Proposal.
The Board is proceeding with a review of Regulation Z in stages. This final rule largely contains revisions to rules affecting open-end plans other than home-equity lines of credit (HELOCs) subject to § 226.5b. Possible revisions to rules affecting HELOCs will be considered in the Board's review of home-secured credit, currently underway. To minimize compliance burden for creditors offering HELOCs as well as other open-end credit, many of the open-end rules have been reorganized to delineate clearly the requirements for HELOCs and other forms of open-end credit. Although this reorganization increases the size of the regulation and commentary, the Board believes a clear delineation of rules for HELOCs and other forms of open-end credit pending the review of HELOC rules provides a clear compliance benefit to creditors.
In addition, as discussed elsewhere in this section and in VI. Section-by-Section Analysis, the Board has eliminated the requirement to disclose an effective annual percentage rate for open-end (not home-secured) credit. For a home-equity plan subject to § 226.5b, under the final rule a creditor has the option to disclose an effective APR (according to the current rules in Regulation Z for computing and disclosing the effective APR), or not to disclose an effective APR. The Board notes that the rules for computing and disclosing the effective APR for HELOCs could be the subject of comment during the review of rules affecting HELOCs.
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.
In adopting this final rule, the Board has considered the information collected from comment letters submitted in response to its ANPRs and the June 2007 and May 2008 Proposals, its experience in implementing and enforcing Regulation Z, and the results obtained from testing various disclosure options in controlled consumer tests. For the reasons discussed in this notice, the Board believes this final rule is appropriate to effectuate the purposes of TILA, to prevent the circumvention or evasion of TILA, and to facilitate compliance with the act.
Also as explained in this notice, the Board believes that the specific exemptions adopted are appropriate because the existing requirements do not provide a meaningful benefit to consumers in the form of useful information or protection. In reaching this conclusion, the Board considered (1) the amount of the loan and whether the disclosure provides a benefit to consumers who are parties to the transaction involving a loan of such amount; (2) the extent to which the requirement complicates, hinders, or makes more expensive the credit process; (3) the status of the borrower, including any related financial arrangements of the borrower, the financial sophistication of the borrower relative to the type of transaction, and the importance to the borrower of the credit, related supporting property, and coverage under TILA; (4) whether the loan is secured by the principal residence of the borrower; and (5) whether the exemption would undermine the goal of consumer protection. The rationales for these exemptions are explained in VI. Section-by-Section Analysis, below.
The goal of the revisions adopted in this final rule is to improve the effectiveness of the Regulation Z disclosures that must be provided to consumers for open-end accounts. A summary of the key account terms must accompany applications and solicitations for credit card accounts. For all open-end credit plans, creditors must disclose costs and terms at account opening, generally before the first transaction. Consumers must receive periodic statements of account activity, and creditors must provide notice before certain changes in the account terms may become effective.
To shop for and understand the cost of credit, consumers must be able to identify and understand the key terms of open-end accounts. However, the terms and conditions that impact credit card account pricing can be complex. The revisions to Regulation Z are intended to provide the most essential information to consumers when the information would be most useful to them, with content and formats that are clear and conspicuous. The revisions are expected to improve consumers' ability to make informed credit decisions and enhance competition among credit card issuers. Many of the changes are based on the consumer testing that was conducted in
In considering whether to adopt the revisions, the Board has also sought to balance the potential benefits for consumers with the compliance burdens imposed on creditors. For example, the revisions seek to provide greater certainty to creditors in identifying what costs must be disclosed for open-end plans, and when those costs must be disclosed. The Board has adopted the proposal that fees must be grouped on periodic statements, but has withdrawn from the final rule proposed requirements that would have required additional formatting changes to the periodic statement, such as the grouping of transactions, for which the burden to creditors may exceed the benefit to consumers. More effective disclosures may also reduce customer confusion and misunderstanding, which may also ease creditors' costs relating to consumer complaints and inquiries.
Under Regulation Z, credit and charge card issuers are required to provide information about key costs and terms with their applications and solicitations.
The application and solicitation disclosures are considered among the most effective TILA disclosures principally because they must be presented in a standardized table with headings, content, and format substantially similar to the model forms published by the Board. In 2001, the Board revised Regulation Z to enhance the application and solicitation disclosures by adding rules and guidance concerning the minimum type size and requiring additional fee disclosures.
Consumer testing indicated that many consumers did not notice the information about penalty pricing when it was disclosed outside the table. Under the final rule, card issuers are required to include in the table the specific actions that trigger penalty APRs (such as a late payment), the rate that will apply and the circumstances under which the penalty rate will expire or, if true, the fact that the penalty rate could apply indefinitely. The regulation requires card issuers to use the term “penalty APR” because the testing demonstrated that some consumers are confused by the term “default rate.”
Similarly, the final rule requires card issuers to disclose inside (rather than outside) the table the fees for paying late, exceeding a credit limit, or making a payment that is returned. Cash advance fees and balance transfer fees also must be disclosed inside the table. This change is also based on consumer testing results; fees disclosed outside the table were often not noticed. Requiring card issuers to disclose returned-payment fees, required credit insurance, debt suspension, or debt cancellation coverage fees, and foreign transaction fees are new disclosures.
The final rule requires additional disclosures if the card issuer requires fees or a security deposit to issue the card that are 15 percent or more of the minimum credit limit offered for the account. In such cases, the card issuer is required to include an example in the table of the amount of available credit the consumer would have after paying the fees or security deposit, assuming the consumer receives the minimum credit limit.
Regulation Z requires creditors to disclose costs and terms before the first transaction is made on the account. The disclosures must specify the
The new table provided at account opening is substantially similar to the table provided with direct-mail credit card applications and solicitations. Consumer testing indicates that consumers generally are aware of the table on applications and solicitations. Consumer testing also indicates that consumers may not typically read their account agreements, which are often in small print and dense prose. Thus, setting apart the most important terms in a summary table will better ensure that consumers are aware of those terms.
The table required at account opening includes more information than the table required at application. For example, it includes a disclosure whether or not there is a grace period for all features of an account. For subprime credit cards, to give consumers the opportunity to avoid fees, the final rule also requires issuers to provide consumers at account opening, a notice about the right to reject a plan when fees have been charged but the consumer has not used the plan. However, to reduce compliance burden for creditors that provide account-opening disclosures at application, the final rule allows creditors to provide the more specific and inclusive account-opening table at application in lieu of the table otherwise required at application.
The fee disclosure rules also have been criticized as being outdated. These rules require creditors to provide fee disclosures at account opening, which may be months, and possibly years, before a particular disclosure is relevant to the consumer, such as when the consumer calls the creditor to request a service for which a fee is imposed. In addition, an account-related transaction may occur by telephone, when a written disclosure is not feasible.
The final rule is intended to respond to these criticisms while still giving full effect to TILA's requirement to disclose credit charges before they are imposed. Accordingly, the rules are revised to (1) specify precisely the charges that creditors must disclose in writing at account opening (interest, minimum charges, transaction fees, annual fees, and penalty fees such as for paying late), which must be listed in the summary table, and; (2) permit creditors to disclose other less critical charges orally or in writing before the consumer agrees to or becomes obligated to pay the charge. Although the final rule permits creditors to disclose certain costs orally for purposes of TILA, the Board anticipates that creditors will continue to identify fees in the account agreement for contract or other reasons.
Under the final rule, some charges are covered by TILA that the current regulation, as interpreted by the staff commentary, excludes from TILA coverage, such as fees for expedited payment and expedited delivery. It may not have been useful to consumers to cover such charges under TILA when such coverage would have meant only that the charges were disclosed long before they became relevant to the consumer. The Board believes it will be useful to consumers to cover such charges under TILA as part of a rule that permits their disclosure at a time and in a manner that consumers would be likely to notice the disclosure of the charge. Further, as new services (and associated charges) are developed, the proposal minimizes risk of civil liability as well as inconsistency among creditors associated with the determination as to whether a fee is a finance charge or an other charge, or is not covered by TILA at all.
Creditors are required to provide periodic statements reflecting the account activity for the billing cycle (typically, about one month). In addition to identifying each transaction on the account, creditors must identify each “finance charge” using that term, and each “other charge” assessed against the account during the statement period. When a periodic interest rate is applied to an outstanding balance to compute the finance charge, creditors must disclose the periodic rate and its corresponding APR. Creditors must also disclose an “effective” or “historical”
Consumer testing indicated that consumers generally understand that “interest” is the cost that results from applying a rate to a balance over time and distinguish “interest” from other fees, such as a cash advance fee or a late payment fee. Consumer testing also indicated that many consumers more easily determine the number and amount of fees when the fees are itemized and grouped together.
Thus, under the final rule, creditors are required to group all fees together and to separately itemize interest charges by transaction type, and describe them in a manner consistent with consumers' general understanding of costs (“interest charge” or “fee”), without regard to whether the charges are considered “finance charges,” “other charges,” or neither. Interest charges must be identified by type (for example, interest on purchases or interest on balance transfers) as must fees (for example, cash advance fee or late-payment fee).
Consumer testing also indicated that many consumers more quickly and accurately determined the total dollar cost of credit for the billing cycle when a total dollar amount of fees for the cycle was disclosed. Thus, the final rule requires creditors to disclose the (1) total fees and (2) total interest imposed for the cycle. Creditors must also disclose year-to-date totals for interest charges and fees. For many consumers, costs disclosed in dollars are more readily understood than costs disclosed as percentage rates. The year-to-date figures are intended to assist consumers in better understanding the overall cost of their credit account and are an important disclosure and an effective aid in understanding annualized costs. The Board believes these figures will better ensure consumers understand the cost of credit than the effective APR currently provided on periodic statements.
For the reasons discussed below, the Board is eliminating the requirement to disclose the effective APR.
Consumer testing conducted prior to the June 2007 Proposal, in March 2008, and after the May 2008 Proposal demonstrates that consumers find the current disclosure of an APR that combines rates and fees to be confusing. The June 2007 Proposal would have required disclosure of the nominal interest rate and fees in a manner that is more readily understandable and comparable across institutions. The Board believes that this approach can better inform consumers and further the goals of consumer protection and the informed use of credit for all types of open-end credit.
The Board also considered whether there were potentially competing considerations that would suggest retention of the requirement to disclose an effective APR. First, the Board considered the extent to which “sticker shock” from the effective APR benefits consumers, even if the disclosure may not enable consumers to meaningfully compare costs from month to month or between different credit products. A second consideration is whether the effective APR may be a hedge against fee-intensive pricing by creditors, and if so, the extent to which it promotes transparency. On balance, however, the Board believes that the benefits of eliminating the requirement to disclose the effective APR outweigh these considerations.
The consumer testing conducted for the Board strongly supports this determination. Although in one round of testing conducted prior to the June 2007 Proposal a majority of participants evidenced some understanding of the effective APR, the overall results of the testing show that most consumers do not correctly understand the effective APR. Some consumers in the testing offered no explanation of the difference between the corresponding and effective APR, and others appeared to have an incorrect understanding. The results were similar in the consumer testing conducted in March 2008 and after the May 2008 proposal; in all rounds of the testing, a majority of participants did not offer a correct explanation of the effective APR. In quantitative testing conducted for the Board in the fall of 2008, only 7% of consumers answered a question correctly that was designed to test their understanding of the effective APR. In addition, including the effective APR on the statement had an adverse effect on some consumers' ability to identify the interest rate applicable to the account.
Even if some consumers have some understanding of the effective APR, the Board believes sound reasons support eliminating the requirement for its disclosure. Disclosure of the effective APR on periodic statements does not assist consumers in credit shopping, because the effective APR disclosed on a statement on one credit card account cannot be compared to the nominal APR disclosed on a solicitation or application for another credit card account. In addition, even for the same account, the effective APR for a given cycle is unlikely to accurately indicate the cost of credit in a future cycle, because if any of several factors (such as timing of transactions and payments) is different in the future cycle, the effective APR will be different even if the amount of the transaction is the same. As to suggestions that the effective APR for a particular billing cycle provides the consumer a rough indication that it is costly to engage in transactions that trigger transaction fees, the Board believes the requirements adopted in the final rule to disclose
Under the final rule, creditors are required to disclose the payment due date on the front side of the periodic statement. Creditors also are required to disclose, in close proximity to the due date, the amount of the late-payment fee and the penalty APR that could be triggered by a late payment, to alert consumers to the consequence of paying late.
Pursuant to the Bankruptcy Act amendments, the final rule also allows a card issuer to establish a toll-free telephone number to provide customers with the actual number of months that it will take consumers to repay their outstanding balance (“actual repayment disclosure”) instead of providing an estimate based on the Board-created table. A card issuer that does so need not include a hypothetical example on its periodic statements, but must disclose the warning statement and the toll-free telephone number.
The final rule also allows card issuers to provide the actual repayment disclosure on their periodic statements. Card issuers are encouraged to use this approach. Participants in consumer testing who typically carry credit card balances (revolvers) found an estimated repayment period based on terms that apply to their own account more useful than a hypothetical example. To encourage card issuers to provide the actual repayment disclosure on their periodic statements, the final rule provides that if card issuers do so, they need not disclose the warning, the hypothetical example and a toll-free telephone number on the periodic statement, nor need they maintain a toll-free telephone number to provide the actual repayment disclosure.
As described above, the Bankruptcy Act also requires the Board to develop a “table” that creditors, the Board and the FTC must use to create generic repayment estimates. Instead of creating a table, the final rule contains guidance for how to calculate generic repayment estimates. Consumers that call the toll-free telephone number may be prompted to input information about their outstanding balance and the APR applicable to their account. Although issuers have the ability to program their systems to obtain consumers' account information from their account management systems, for the reasons discussed in the section-by-section analysis to Appendix M1 to part 226, the final rule does not require issuers to do so.
Regulation Z requires creditors to provide advance written notice of some changes to the terms of an open-end plan. The proposal included several revisions to Regulation Z's requirements for notifying consumers about such changes.
Currently, Regulation Z requires creditors to send, in most cases, notices 15 days before the effective date of certain changes in the account terms. However, creditors need not inform consumers in advance if the rate applicable to their account increases due to default or delinquency. Thus, consumers may not realize until they receive their monthly statement for a billing cycle that their late payment triggered application of the higher penalty rate, effective the first day of the month's statement.
The final rule generally requires creditors to provide 45 days' advance notice before rate increases due to the consumer's delinquency or default or as a penalty, as proposed. Permitting creditors to apply the penalty rate immediately upon the consumer triggering the rate may lead to undue surprise and insufficient time for a consumer to consider alternative options regarding use of the card. Even though the final rule contain provisions intended to improve disclosure of penalty pricing at account opening, the Board believes that consumers will be more likely to notice and be motivated to act if they receive a specific notice alerting them of an imminent rate increase, rather than a general disclosure stating the circumstances when a rate might increase.
When asked which terms were the most important to them when shopping for an account, participants in consumer testing seldom mentioned the penalty rate or penalty rate triggers. Some consumers may not find this information relevant when shopping for or opening an account because they do not anticipate that they will trigger penalty pricing. As a result, they may not recall this information later, after they have begun using the account, and may be surprised when penalty pricing is subsequently imposed.
In addition, the Board believes that the notice required by § 226.9(g) is the most effective time to inform consumers of the circumstances under which penalty rates can be applied to their existing balances for the reasons discussed above and in VI. Section-by-Section Analysis.
Under the final rule, creditors may continue to notify consumers about changes to terms required to be disclosed by Regulation Z, together with other changes to the account agreement. However, if a changed term is one that must be provided in the account-opening summary table, creditors must provide that change in a summary table to enhance the effectiveness of the change-in-terms notice. Consumer testing conducted for the Board suggests that consumer understanding of change in terms notices is improved by presentation of that information in a tabular format.
Creditors commonly enclose notices about changes to terms or rates with periodic statements. Under the final rule, if a notice enclosed with a periodic statement discusses a change to a term that must be disclosed in the account-opening summary table, or announces that a penalty rate will be imposed on the account, a table summarizing the impending change must appear on the periodic statement. The table must appear on the front of the periodic statement, although it is not required to appear on the first page. Consumers who participated in testing often set aside change-in-terms pamphlets that accompanied periodic statements, while participants uniformly looked at the front side of periodic statements.
Currently, creditors that disclose certain terms in advertisements must disclose additional information, to help ensure consumers understand the terms of credit being offered.
Currently, creditors need not disclose costs associated with using the checks if the finance charges that would apply (that is, the interest rate and transaction fees) have been previously disclosed, such as in the account agreement. If the check is sent 30 days or more after the account is opened, creditors must refer consumers to their account agreements for more information about how the rate and fees are determined.
Consumers may receive these checks throughout the life of the credit card account. Thus, significant time may elapse between the time account-opening disclosures are provided and the time a consumer considers using the check. In addition, consumer testing indicates that consumers may not notice references to other documents such as the account-opening disclosures or periodic statements for rate information because they tend to look for rates and dollar figures when reviewing the information accompanying access checks.
The final rule requires that the tabular disclosure accompanying checks that access a credit card account include a disclosure of the actual rate or rates applicable to the checks. While the actual post-promotional rate disclosed at the time the checks are sent to a consumer may differ from the rate disclosed by the time it becomes applicable to the consumer's account (if it is a variable rate tied to an index), disclosure of the actual post-promotional rate in effect at the time that the checks are sent to the consumer is an important piece of information for the consumer to use in making an informed decision about whether to use the checks. Consumer testing suggests that a disclosure of the actual rate, rather than a toll-free number, also will help to enhance consumer understanding regarding the rate that will apply when the promotional rate expires.
Under the current rules, charges for credit insurance and debt cancellation coverage are deemed not to be finance charges if a consumer requests coverage after an open-end credit account is opened or after a closed-end credit
In reviewing the rules affecting open-end credit, the Board proposed in June 2007 to reorganize some provisions to make the regulation easier to use. Rules affecting home-equity lines of credit (HELOCs) subject to § 226.5b would have been separately delineated in § 226.6 (account-opening disclosures), § 226.7 (periodic statements), and § 226.9 (subsequent disclosures). Rules contained in footnotes would have been moved to the text of the regulation or commentary, as appropriate, and the footnotes designated as reserved. Commenters generally supported this approach. One commenter questioned retaining the footnotes as reserved and suggested deleting references to the footnotes entirely. The final rule is organized, and rules currently stated in footnotes have been moved, as proposed. These revisions are identified in a table below.
The official staff commentary to Regulation Z begins with an Introduction. Comment I-6 discusses reference materials published at the end of each section of the commentary adopted in 1981. 46 FR 50288, Oct. 9, 1981. The references were intended as a compliance aid during the transition to the 1981 revisions to Regulation Z. In June 2007, the Board proposed to delete provisions addressing references and transition rules applicable to 1981 revisions to Regulation Z. No comments were received. Thus, the Board deletes the references and comments I-3, I-4(b), I-6, and I-7, as obsolete and renumbers the remaining comments accordingly.
Section 226.1(c) generally outlines the persons and transactions covered by Regulation Z. Comment 1(c)-1 provides, in part, that the regulation applies to consumer credit extended to residents (including resident aliens) of a state. In June 2007, technical revisions were proposed for clarity, and comment was requested if further guidance on the scope of coverage would be helpful. No comments were received and the comment is adopted with technical revisions for clarity.
Section 226.1(d)(2), which summarizes the organization of the regulation's open-end credit rules (Subpart B), is amended to reinsert text inadvertently deleted in a previous rulemaking, as proposed.
In July 2008, the Board revised Subpart E to address certain mortgage practices and disclosures. These changes are reflected in § 226.1(d)(5), as amended in the July 2008 Final HOEPA Rule. In addition, transition rules for the July 2008 rulemaking are added as comment 1(d)(5)-1. 73 FR 44522, July 30, 2008.
In the June 2007 Proposal, the Board proposed technical revisions to the commentary to § 226.2(a)(2), with no intended change in substance or meaning. No changes were proposed for the regulatory text. The Board received no comments on the proposed changes, and the changes are adopted as proposed.
Section 226.2(a)(4) defines “billing cycle” as the interval between the days or dates of regular periodic statements, and requires that billing cycles be equal (with a permitted variance of up to four days from the regular day or date) and no longer than a quarter of a year. Comment 2(a)(4)-3 states that the requirement for equal cycles does not apply to transitional billing cycles that occur when a creditor occasionally changes its billing cycles to establish a new statement day or date. The Board proposed in June 2007 to revise comment 2(a)(4)-3 to clarify that this exception also applies to the first billing cycle that occurs when a consumer opens an open-end credit account.
Few commenters addressed this provision. One creditor requested that the Board clarify that the proposed revision applies to the time period between the opening of the account and the generation of the first periodic statement (as opposed to the period between the generation of the first statement and the generation of the second statement). The comment has been revised to provide the requested clarification.
The same commenter also requested clarification that the same exception would apply when a previously closed account is reopened. The reopening of a previously closed account is no different, for purposes of comment 2(a)(4)-3, from the original opening of an account; therefore, this clarification is unnecessary. A consumer group suggested that an irregular first billing cycle should be limited to no longer than twice the length of a regular billing cycle, and that irregular billing cycles should permitted no more than once per year. The Board believes that these limitations might unduly restrict creditors' operations. Although it would be unlikely for a creditor to utilize a billing cycle more than twice the length of the regular cycle, or an irregular billing cycle more often than once per year, such cycles might need to be used on rare occasions for operational reasons.
Section 226.2(a)(6) and comment 2(a)(6)-2, as reprinted, reflect revisions adopted in the Board's July 2008 Final HOEPA Rule to address certain
TILA defines “credit card” as “any card, plate, coupon book or other credit device existing for the purpose of obtaining money, property, labor, or services on credit.” TILA Section 103(k); 15 U.S.C. 1602(k). In addition, Regulation Z currently provides that a credit card is a “card, plate, coupon book, or other single credit device that may be used from time to time to obtain credit.”
Historically, checks that access credit card accounts have not been treated as “credit cards” under TILA because each check can be used only once and not “from time to time.”
While industry commenters generally supported the Board's approach, consumer groups asserted that excluding access checks from treatment as credit cards does not adequately protect consumers, particularly insofar as consumers would not be able to assert unauthorized use claims under § 226.12(b). Consumer groups thus observed that the current rules lead to an anomalous result where a consumer would be protected from unauthorized use under § 226.12(b) if a thief used the consumer's credit card number to initiate a credit card transaction by telephone or on-line, but would not be similarly protected if the thief used the consumer's access check to complete the same transaction. Consumer groups also observed that consumers would be unable to assert a merchant claim or defense under § 226.12(c) in connection with a good or service purchased with an access check, nor would they be protected by the unsolicited issuance provisions in § 226.12(a).
As stated in the proposal, the Board believes that existing provisions under state law governing checks, specifically the Uniform Commercial Code (UCC), coupled with the billing error provisions under § 226.13, provide consumers with appropriate protections from the unauthorized use of access checks. For example, a consumer generally would not have any liability for a forged access check under the UCC, provided that the consumer complies with certain timing requirements in reporting the forgery. In addition, in the event the consumer asserts a timely notice of error for an unauthorized transaction involving an access check under § 226.13, the consumer would not have any liability if the creditor's investigation determines that the transaction was in fact unauthorized. Lastly, the Board understands that, in most instances, consumers may ask their creditor to stop sending access checks altogether, and these opt-out requests will be honored by the creditor.
Consumer groups opposed the Board's proposal, citing the statutory reference in TILA Section 103(k) to a “coupon book,” and noting that even if such products were not currently being offered, the proposed deletion could provide issuers an incentive to develop such products and in that event, consumers would be unable to avail themselves of the protections against unauthorized use and unsolicited issuance.
The final rule removes the reference to “coupon book” in the definition of “credit card,” as proposed. Commenters did not cite any examples of products that could potentially qualify as a “coupon book.” Thus, in light of the confusion today regarding whether access checks are “credit cards” as a result of the existing reference to “coupon books,” the Board believes removal of the term is appropriate in the final rule, and that the removal will not limit the availability of Regulation Z protections overall.
In June 2007, the Board proposed to exempt from TILA coverage credit extended under employee-sponsored retirement plans. For reasons explained in the section-by-section analysis to § 226.3, this provision is adopted with modifications, as discussed below. Comment 2(a)(17)(i)-8, which provides guidance on whether such a plan is a
In addition, the substance of footnote 3 is moved to a new § 226.2(a)(17)(v), and references revised, accordingly, as proposed. The dates used to illustrate numerical tests for determining whether a creditor “regularly” extends consumer credit are updated in comments 2(a)(17)(i)-3 through -6, as proposed. References in § 226.2(a)(17)(iv) to provisions in § 226.6 and § 226.7 are renumbered consistent with this final rule.
Under TILA Section 103(i), as implemented by § 226.2(a)(20) of Regulation Z, “open-end credit” is consumer credit extended by a creditor under a plan in which (1) the creditor reasonably contemplates repeated transactions, (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance, and (3) the amount of credit that may be extended to the consumer during the term of the plan, up to any limit set by the creditor, generally is made available to the extent that any outstanding balance is repaid.
For example, under certain so-called multifeatured open-end plans, creditors may offer loans to be used for the purchase of an automobile. These automobile loan transactions are approved and underwritten separately from other credit made available on the plan. (In addition, the consumer typically has no right to borrow additional amounts on the automobile loan “feature” as the loan is repaid.) If the consumer repays the entire automobile loan, he or she may have no right to take further advances on that “feature,” and must separately reapply if he or she wishes to obtain another automobile loan, or use that aspect of the plan for similar purchases. Typically, while the consumer may be able to obtain additional advances under the plan as a whole, the creditor separately evaluates each request.
In the June 2007 Proposal, the Board proposed, among other things, two main substantive revisions to the commentary to § 226.2(a)(20). First, the Board proposed to revise comment 2(a)(20)-2 to clarify that while a consumer's account may contain different sub-accounts, each with different minimum payment or other payment options, each sub-account must meet the self-replenishing criterion. Proposed comment 2(a)(20)-2 would have provided that repayments of an advance for any sub-account must generally replenish a single credit line for that sub-account so that the consumer may continue to borrow and take advances under the plan to the extent that he or she repays outstanding balances without having to obtain separate approval for each subsequent advance.
Second, the Board proposed in June 2007 to clarify in comment 2(a)(20)-5 that in general, a credit line is self-replenishing if a consumer can obtain further advances or funds without being required to separately apply for those additional advances, and without undergoing a separate review by the creditor of that consumer's credit information, in order to obtain approval for each such additional advance. TILA Section 103(i) provides that a plan can be an open-end credit plan even if the creditor verifies credit information from time to time. 15 U.S.C. 1602(i). As stated in the June 2007 Proposal, however, the Board believes this provision is not intended to permit a creditor to separately underwrite each advance made to a consumer under an open-end plan or account. Such a process could result in closed-end credit being deemed open-end credit.
Consumer groups and one credit union supported the proposed changes. The credit union commenter noted that it currently uses a multifeatured open-end lending program, but that it believes the changes would be beneficial to consumers and financial institutions, and that the benefit to consumers would outweigh any inconvenience and cost imposed on the credit union. This commenter noted that under a multifeatured open-end lending program, a consumer signs a master loan agreement but does not receive meaningful disclosures with each additional extension of credit. This commenter believes that consumers often do not realize that subsequent extensions of credit are subject to the terms of the master loan agreement.
Consumer groups stated that there is no meaningful difference between a customer who obtains a conventional car loan from a bank versus one who receives an advance to purchase a car via a sub-account from an open-end plan. Consumer groups further noted that to the extent a sub-account has fixed payments, fixed terms, and no replenishing line, it is functionally indistinguishable from any other closed-end loan for which closed-end disclosures must be given. The consumer groups' comments stated that there is no legitimate basis on which to continue to classify these plans as open-end credit.
Most comment letters opposed the proposed changes to the definition of “open-end credit.” Many credit union commenters questioned the need for the proposed changes, and stated that the Board had not identified a specific harm arising out of multifeatured open-end lending. These commenters stated that there is no evidence of harm to consumers associated with these plans, such as complaints, information about credit union members paying higher rates or purchasing unnecessary products, or evidence of higher default rates. These commenters noted that such plans have been offered by credit unions for more than 25 years. These commenters also stated that open-end credit disclosures are adequate and provide members with the information they need on a timely basis, and that open-end lending members receive frequent reminders, via periodic statements, of key financial terms such as the APR. Also, commenters stated that to the extent credit unions do not charge fees for advances with fixed repayment periods, the APR disclosed for purposes of the open-end credit disclosures is the same as the APR that would be disclosed if the transaction were characterized as closed-end.
The National Credit Union Administration (NCUA) commented that there are no problems that appear to be generated by or inherent to the multifeatured aspect of credit unions' multifeatured open-end plans. This agency urged the Board not to ignore the identity of the creditor in considering
Credit union commenters and the NCUA also stated that the proposed revisions would result in a loss of convenience to consumers because credit unions generally would not be able to continue to offer multifeatured open-end lending programs, and consumers would have to sign additional paperwork in order to obtain closed-end advances. Several of these commenters specifically noted that loss of convenience would be a concern with respect to military personnel and other customers they serve in geographically remote locations. Credit union commenters stated that the proposed revisions, if adopted, would result in increased costs of borrowing for consumers. Some comment letters noted that credit unions' rates would become less competitive and that consumers would be more likely to obtain financing from more expensive sources, such as auto dealers, check cashing shops, or payday lenders.
Several credit union commenters discussed the likely cost associated with providing closed-end disclosures instead of open-end disclosures. The commenters indicated that such costs would include re-training personnel, changing lending documents and data-processing systems, purchasing new lending forms, potentially increased staffing requirements, updating systems, and additional paperwork. Several commenters offered estimates of the probable cost to credit unions of converting multifeatured open-end plans to closed-end credit. Those comments with regard to small entities are discussed in more detail below in VIII. Final Regulatory Flexibility Analysis. One major service provider to credit unions estimated that the conversion in loan products would cost a credit union approximately $100,000, with total expenses of at least $350 million for all credit unions and their members. This commenter further noted that there would be annual ongoing costs totaling millions of dollars, largely due to additional staff costs that would arise because more business would take place in person at the credit union.
One commenter indicated that the proposed changes to the commentary could give rise to litigation risk, and may create more confusion and unintended consequences than currently exist under the existing commentary to Regulation Z. This commenter stated that changing the definition of open-end credit would jeopardize many legitimate open-end credit plans.
The Board is not adopting this hybrid disclosure approach. The Board believes that the statutory framework clearly provides for two distinct types of credit, open-end and closed-end, for which different types of disclosures are deemed to be appropriate. Such a hybrid disclosure regime would be premised on the fact that the closed-end disclosures are beneficial to consumers in connection with certain types of advances made under these plans. If this is the case, the Board believes that consumers should receive the closed-end disclosures prior to consummation of the transaction, when a consumer is shopping for credit.
Several industry commenters specifically objected to the new requirement in proposed comment 2(a)(20)-2 that open-end credit replenish on a sub-account by sub-account basis. Some commenters expressed concern about the applicability of proposed comment 2(a)(20)-2 to promotional rate offers. The commenters noted that a creditor may make a balance transfer offer or send out convenience checks at a promotional APR. As the balance subject to the promotional APR is repaid, the available credit on the account will be replenished, although the available credit for the original promotional rate offer is not replenished. These commenters stated that unless the Board can define sub-accounts in a manner that excludes balances subject to special terms, the Board should withdraw the proposed revision to comment 2(a)(20)-2. Other commenters indicated that the critical requirement should be that repayment of balances in any sub-account replenishes the overall account, not that each sub-account itself must be replenishing.
Similarly, the Board received several industry comment letters indicating that the proposed changes to comment 2(a)(20)-2 would have adverse consequences for certain HELOCs. The comments noted that many creditors use multiple features or sub-accounts in order to provide consumers with flexibility and choices regarding the terms applicable to certain portions of an open-end credit balance. They noted as an example a feature on a HELOC that permits a consumer to convert a portion of the balance into a fixed-rate, fixed-term sub-account; the sub-account is never replenished but payments on the sub-account replenish the master open-end account.
In addition, the Board received a comment from an association of state regulators of credit unions raising concerns that proposed comment 2(a)(20)-2 would present a safety and soundness concern for institutions. These comments noted that a self-replenishing sub-account for an auto loan, for example, would be a safety and soundness concern because the value of the collateral would decline and eventually be less than the credit limit.
In light of the comments received and upon further analysis, the Board has withdrawn the proposed changes to comment 2(a)(20)-2 from the final rule. The Board believes that one unintended consequence of the proposed requirement that payments on each sub-account replenish is that some sub-accounts (like HELOCs) would be re-characterized as closed-end credit when they are properly treated as open-end credit. Generally, the proposed changes to comment 2(a)(20)-2 were intended to ensure that repayments of advances on an open-end credit plan generally would replenish the credit available to the consumer. The Board believes that replenishment of an open-end plan on an overall basis achieves this purpose and that, as discussed below, the best way to address loans that are more properly characterized as closed-end credit being treated as features of open-end plans is through clarifications
Notwithstanding this proposed change, the Board noted that a creditor would be permitted to
The NCUA agreed with the Board that the statutory provision regarding verification is not intended to permit separate underwriting and applications for each sub-account. The agency encouraged the Board to focus any commentary changes regarding the definition of open-end credit on the distinctions between verification versus a credit evaluation as a more appropriate and less burdensome response to its concerns than the proposed revisions regarding replenishment.
Several industry commenters indicated that proposed comment 2(a)(20)-5 could have unintended adverse consequences for legitimate open-end products. One industry trade association and several industry commenters stated creditors finance purchases that may utilize a substantial portion of available credit or even exceed the credit line under pre-established credit criteria. According to these commenters, creditors may have over-the-limit buffers or strategies in place that contemplate such purchases, and these transactions should not be considered a separate underwriting. The commenters further stated that any legitimate authorization procedures or consideration of a credit line increase should not exclude a transaction from open-end credit.
One credit card association and one large credit card issuer commented that some credit cards have no preset spending limits, and issuers may need to review a cardholder's credit history in connection with certain transactions on such accounts. These commenters stated that regardless of how an issuer handles individual transactions on such accounts, they should be characterized as open-end.
One other industry commenter stated that a creditor should be able to verify the consumer's creditworthiness in connection with a request for an advance on an open-end credit account. This creditor noted that the statute does not impose any limitation on the frequency with which verification is made, nor does it indicate that verification can be made only as part of an account review, and not also when a consumer requests an advance. The commenter stated that the most important time to conduct verification is when an advance is requested.
This commenter further suggested that the concept of “verification” is, by itself, distinguishable from a de novo credit decision on an application for a new loan. This commenter posited that comment 2(a)(20)-5 recognizes this insofar as it contemplates a determination of whether the consumer continues to meet the lender's credit standards and provides that the consumer should have a reasonable expectation of obtaining additional credit as long as the consumer continues to meet those credit standards. An application for a new extension of credit contemplates a de novo credit determination, while verification involves a determination of whether a borrower continues to meet the lender's credit standards.
The changes to comment 2(a)(20)-5 are adopted as proposed, with one revision discussed below in the subsection titled
The revisions to comment 2(a)(20)-5 are intended only to have prospective application to advances made after the effective date of the final rule. A creditor may continue to give open-end disclosures in connection with an advance that met the definition of “open-end credit” under current § 226.2(a)(20) and the associated commentary, if that advance was made prior to the effective date of the final rule. However, a creditor that makes a new advance under an existing credit plan after the effective date of the final rule will need to determine whether that advance is properly characterized as open-end or closed-end credit under the revised definition, and give the appropriate disclosures.
One commenter asked the Board to clarify the “reasonable expectation” language in comment 2(a)(20)-5. This commenter noted that a consumer should not expect to obtain additional advances if the consumer is in default in any provision of the loan agreement (it is not enough to merely be “current” in their payments), and otherwise does not comply with the requirements for advances in the loan agreement (such as minimum advance requirements or the method for requesting advances). The Board believes that under the current rule a creditor may suspend a consumer's credit privileges or reduce a consumer's credit limit if the consumer is in default under his or her loan agreement. Thus, the Board does not believe that this clarification is necessary and has not adopted it in the final rule.
In response to commenters' concerns, new comment 2(a)(20)-(6) is added to clarify that creditors that otherwise meet the requirements of § 226.2(a)(20) extend open-end credit notwithstanding the fact that the creditor must verify collateral values to comply with federal, state, or other applicable laws or verifies the value of collateral in connection with a particular advance under the plan. Current comment 2(a)(20)-6 is renumbered as comment 2(a)(20)-7.
As discussed above, several industry commenters noted other circumstances in which proposed comment 2(a)(20)-5 could have adverse consequences for credit cards. Several commenters stated that creditors may have over-the-limit buffers or strategies in place that contemplate purchases utilizing a substantial portion of, or even exceed, the credit line, and these transactions should not be considered a separate underwriting. Commenters also stated that any legitimate authorization procedures or consideration of a credit line increase should not exclude a transaction from open-end credit. Finally, one credit card association and one large credit card issuer commented that some credit cards have no preset spending limits, and issuers may need to review a cardholder's credit history in connection with certain transactions on such accounts. These commenters stated that regardless of how an issuer handles individual transactions on such accounts, they should be characterized as open-end.
The Board has addressed credit card issuers' concerns about emergency underwriting and underwriting of amounts that may exceed the consumer's credit limit by expressly providing in comment 2(a)(20)-5 that a credit card account where the plan as a whole replenishes meets the self-replenishing criterion, notwithstanding the fact that a credit card issuer may verify credit information from time to time in connection with specific transactions. The Board did not intend in the June 2007 Proposal and does not intend in the final rule to exclude credit cards from the definition of open-end credit and believes that the revised final rule gives certainty to creditors offering credit cards. The Board believes that the strategies identified by commenters, such as over-the-limit buffers, treatment of certain advances for cards without preset spending limits, and consideration of credit line increases generally do not constitute separate underwriting of advances, and that open-end disclosures are appropriate for credit cards for which the plan as a whole replenishes. The Board also believes that this clarification will help to promote uniformity in credit card disclosures by clarifying that all credit cards are subject to the open-end disclosure rules. The Board notes that charge card accounts may not meet the definition of open-end credit but pursuant to § 226.2(a)(17)(iii) are subject to the rules that apply to open-end credit.
Comment 2(a)(20)-5.ii. currently notes that a creditor may reduce a credit limit or refuse to extend new credit due to changes in the economy, the creditor's financial condition, or the consumer's creditworthiness. The Board's proposal would have deleted the reference to changes in the economy to simplify this provision. No comments were received on this change, which is adopted as proposed.
Comment 2(a)(24)-1, which identifies key provisions affected by the term “residential mortgage transaction,” and comment 2(a)(24)-5.ii., which provides guidance on transactions financing the acquisition of a consumer's principal dwelling, are revised from the June 2007 Proposal to conform to changes adopted by the Board in the July 2008 Final HOEPA Rule to address certain mortgage practices and disclosures. 73 FR 44522, 44605, July 30, 2008.
Section 226.3 implements TILA Section 104 and provides exemptions for certain classes of transactions specified in the statute. 15 U.S.C. 1603.
In June 2007, the Board proposed several substantive and technical revisions to § 226.3 as described below. The Board also proposed to move the substance of footnote 4 to the commentary.
Section 226.3(a) provides, in part, that the regulation does not apply to extensions of credit primarily for business, commercial or agricultural purposes. As the Board noted in the supplementary information to the June 2007 Proposal, questions have arisen from time to time regarding whether transactions made for business purposes on a consumer-purpose credit card are exempt from TILA. The Board proposed to add a new comment 3(a)-2 to clarify transactions made for business purposes on a consumer-purpose credit card are covered by TILA (and, conversely, that purchases made for consumer purposes on a business-purpose credit card are exempt from TILA). The Board received several comments on proposed comment 3(a)-2. One consumer group and one large financial institution commented in support of the change. One industry trade association stated that the proposed clarification was anomalous given the general exclusion of business credit from TILA coverage. The Board acknowledges that this clarification will result in certain business purpose transactions being subject to TILA, and certain consumer purpose transactions being exempt from TILA. However, the Board believes that the determination as to whether a credit card account is primarily for consumer purposes or business purposes is best made when an account is opened (or when an account is reclassified as a business-purpose or consumer-purpose account) and that comment 3(a)-2 provides important clarification and certainty to consumers and creditors. In addition, determining whether specific transactions charged to the credit card account are for consumer or business purposes could be operationally difficult and burdensome for issuers. Accordingly, the Board adopts new comment 3(a)-2 as proposed with several technical revisions described below. Other sections of the commentary regarding § 226.3(a) are renumbered accordingly. The Board also adopts new comment 3(a)-7, which provides guidance on credit card renewals consistent with new comment 3(a)-2, as proposed.
The examples in proposed comment 3(a)-2 contained several references to credit plans, which are deleted from the final rule as unnecessary because comment 3(a)-2 was intended to address only credit cards. Credit plans are addressed by the examples in redesignated comment 3(a)-3, which is unaffected by this rulemaking.
The Board has received questions from time to time regarding the applicability of TILA to loans taken against employer-sponsored retirement plans. Pursuant to TILA Section 104(5), the Board has the authority to exempt transactions for which it determines that coverage is not necessary in order to carry out the purposes of TILA. 15 U.S.C. 1603(5). The Board also has the authority pursuant to TILA Section 105(a) to provide adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of TILA. 15 U.S.C. 1604(a).
The June 2007 Proposal included a new § 226.3(g), which would have exempted loans taken by employees against their employer-sponsored retirement plans qualified under Section 401(a) of the Internal Revenue Code and tax-sheltered annuities under Section 403(b) of the Internal Revenue Code, provided that the extension of credit is comprised of fully-vested funds from such participant's account and is made in compliance with the Internal Revenue Code. 26 U.S.C. 1
The Board received several comments regarding proposed § 226.3(g), which generally supported the proposed exemption for loans taken by employees against their employer-sponsored retirement plans. Two commenters asked the Board to expand the proposed exemption to include loans taken against governmental 457(b) plans, which are a type of retirement plan offered by certain state and local government employers. 26 U.S.C. 457(b). The comments noted that governmental 457(b) plans may permit participant loans, subject to the requirements of section 72(p) of the Internal Revenue Code (26 U.S.C. 1
In addition to the rationales stated above, another reason given for the proposed exception in the June 2007 Proposal was a statement that plan administration fees must be disclosed under applicable Department of Labor regulations. One commenter noted that the Department of Labor regulations cited in the supplementary information to the June 2007 Proposal do not apply to governmental 403(b) plans, governmental 457(b) plans, and certain other 403(b) programs that are not subject to the Employee Retirement Income Security Act of 1974 (ERISA). 29 U.S.C. 1001
Various provisions of TILA and Regulation Z specify how and when the cost of consumer credit expressed as a dollar amount, the “finance charge,” is to be disclosed. The rules for determining which charges make up the finance charge are set forth in TILA Section 106 and Regulation Z § 226.4. 15 U.S.C. 1605. Some rules apply only to open-end credit and others apply only to closed-end credit, while some apply to both. With limited exceptions, the Board did not propose in June 2007 to change § 226.4 for either closed-end credit or open-end credit. The areas in which the Board did propose to revise § 226.4 and related commentary relate to (1) transaction charges imposed by credit card issuers, such as charges for obtaining cash advances from automated teller machines (ATMs) and for making purchases in foreign currencies or foreign countries, and (2) charges for credit insurance, debt cancellation coverage, and debt suspension coverage.
In the June 2007 Proposal, the Board proposed new comment 4(a)-4 to address questions that have been raised about the scope and application of the existing comment. For example, assume the issuer assesses an ATM fee for one kind of deposit account (for example, an account with a low minimum balance) but not for another. The existing comment does not indicate which account is the proper basis for comparison, nor is it clear in all cases which account should be the appropriate one to use.
Questions have also been raised about whether disclosure of an ATM cash advance fee pursuant to comments 4(a)-4 and 6(b)-1.vi. is meaningful to consumers. Under the comments, the disclosure a consumer receives after incurring a fee for taking a cash advance through an ATM depends on whether the credit card issuer provides asset accounts and offers debit cards on those accounts and whether the fee for using the ATM for the cash advance exceeds the fee for using the ATM for a cash withdrawal from an asset account. It is not clear that these distinctions are meaningful to consumers.
In addition, questions have arisen about the proper disclosure of fees that cardholders are assessed for making purchases in a foreign currency or outside the United States—for example, when the cardholder travels abroad. The question has arisen in litigation between consumers and major card issuers.
The uncertainty about proper disclosure of charges for foreign transactions and for cash advances from ATMs reflects the inherent complexity of seeking to distinguish transactions that are “comparable cash transactions” to credit card transactions from transactions that are not. In June 2007, the Board proposed to replace comment 4(a)-4 with a new comment of the same number stating a simple interpretive rule that any transaction fee on a credit card plan is a finance charge, regardless of whether the issuer imposes the same or lesser charge on withdrawals of funds from an asset account, such as a checking or savings account. The proposed comment would have provided as examples of such finance charges a fee imposed by the issuer for taking a cash advance at an ATM,
Few commenters addressed proposed comment 4(a)-4. Some commenters supported the proposed comment, including a financial institution (although the commenter noted that its support of the proposal was predicated on the effective APR disclosure requirements being eliminated, as the Board proposed under one alternative). Other commenters opposed the proposed comment, some expressing concern that including all transaction fees as finance charges might cause the effective APR to exceed statutory interest rate limits contained in other laws (for example, the 18 percent statutory interest rate ceiling applicable to federal credit unions).
One commenter stated particular concerns about the proposed inclusion of foreign transaction fees as finance charges. The commenter stated that the settlements in the litigation referenced above have already resolved the issues involved and that adopting the proposal would cause disruption to disclosure practices established under the settlements. A consumer group that supported including all transaction fees in the finance charge noted its concern that the positive effect of the proposal would be nullified by specifying a limited list of fees that must be disclosed in writing at account opening (
The Board is adopting proposed comment 4(a)-4 with some changes for clarification. As adopted in final form, comment 4(a)-4 includes language clarifying that foreign transaction fees include charges imposed when transactions are made in foreign currencies and converted to U.S. dollars, as well as charges imposed when transactions are made in U.S. dollars outside the United States and charges imposed when transactions are made (whether in a foreign currency or
However, the comment also clarifies that charges imposed by a third party are included only if they are directly passed on to the consumer. For example, if a credit card network imposes a 1 percent fee on the card issuer, but the card issuer absorbs the fee as a cost of doing business (and only passes it on to consumers in the general sense that the interest and fees are imposed on all its customers to recover its costs), then the fee is not a foreign transaction fee that must be disclosed. In another example, if the credit card network imposes a 1 percent fee for a foreign transaction on the card issuer, and the card issuer imposes this same fee on the consumer who engaged in the foreign transaction, then the fee is a foreign transaction fee and must be included in finance charges to be disclosed. The comment also makes clear that a card issuer is not required to disclose a charge imposed by a merchant. For example, if the merchant itself performs the currency conversion and adds a fee, this would be not be a foreign transaction fee that card issuers must disclose. Under § 226.9(d), the card issuer is not required to disclose finance charges imposed by a party honoring a credit card, such as a merchant, although the merchant itself is required to disclose such a finance charge (assuming the merchant is covered by TILA and Regulation Z generally).
The foreign transaction fee is determined by first calculating the dollar amount of the transaction, using a currency conversion rate outside the card issuer's and third party's control. Any amount in excess of that dollar amount is a foreign transaction fee. The comment provides examples of conversion rates outside the card issuer's and third party's control. (Such a rate is deemed to be outside the card issuer's and third party's control, even if the card issuer or third party could arguably in fact have some degree of control over the rate used, by selecting the rate from among a number of rates available.)
With regard to the conversion rate, the comment also clarifies that the rate used for a particular transaction need not be the same rate that the card issuer (or third party) itself obtains in its currency conversion operations. The card issuer or third party may convert currency in bulk amounts, as opposed to performing a conversion for each individual transaction. The comment also clarifies that the rate used for a particular transaction need not be the rate in effect on the date of the transaction (purchase or cash advance), because the conversion calculation may take place on a later date.
Concerns of some commenters that inclusion of all transaction charges in the finance charge would cause the effective APR to exceed permissible ceilings are moot due to the fact that the final rule eliminates the effective APR requirements as to open-end (not home-secured) credit, as discussed in the general discussion on the effective APR in the section-by-section analysis to § 226.7(b). As to the consumer group comment that eliminating the effective APR would negate the beneficial impact of the proposed comment for consumers, the Board believes that adoption of the comment will nevertheless result in better and more meaningful disclosures to consumers. Transaction fees such as ATM cash advance fees and foreign transaction fees will be disclosed more consistently. The Board also believes that the comment will provide clearer guidance to card issuers, as discussed above.
With regard to foreign transaction fees, the Board believes that although the settlements in the litigation mentioned above may have led to some standardization of disclosure practices, the proposed comment is appropriate because it will bring a uniform disclosure approach to foreign transaction fees (as opposed to possibly differing approaches under the different settlement terms), and will be a continuing federal regulatory requirement (whereas settlements can be modified or expire).
Existing comment 4(b)(2)-1 (which is not revised in the final rule) states that if a checking or transaction account charge imposed on an account with a credit feature does not exceed the charge for an account without a credit feature, the charge is not a finance charge. Comment 4(b)(2)-1 and revised comment 4(a)-4 address different situations.
In June 2007, the Board proposed a number of revisions to these rules:
(1) The same rules that apply to debt cancellation coverage would have been applied explicitly to debt suspension coverage. However, to exclude the cost of debt suspension coverage from the finance charge, creditors would have been required to inform consumers, as
(2) Creditors could exclude from the finance charge the cost of debt cancellation and suspension coverage for events in addition to those permitted today, namely, life, accident, health, or loss-of-income. This proposed revision would also have applied to all open-end plans and closed-end credit transactions.
(3) The meaning of insurance or coverage “written in connection with” an open-end plan would have been expanded to cover sales made throughout the life of an open-end (not home-secured) plan. Under the proposal, for example, consumers solicited for the purchase of optional insurance or debt cancellation or suspension coverage for existing credit card accounts would have received disclosures about the cost and optional nature of the product at the time of the consumer's request to purchase the insurance or coverage. HELOCs subject to § 226.5b and closed-end transactions would not have been affected by this proposed revision.
(4) For telephone sales, creditors offering open-end (not home-secured) plans would have been provided with flexibility in evidencing consumers' requests for optional insurance or debt cancellation or suspension coverage, consistent with rules published by federal banking agencies to implement Section 305 of the Gramm-Leach-Bliley Act regarding the sale of insurance products by depository institutions and guidance published by the Office of the Comptroller of the Currency (OCC) regarding the sale of debt cancellation and suspension products.
All of these products serve similar functions but some are considered insurance under state law and others are not. Taken together, the proposed revisions were intended to provide consistency in how creditors deliver, and consumers receive, information about the cost and optional nature of similar products. The revisions are discussed in detail below.
Premiums or other charges for insurance for credit life, accident, health, or loss-of-income, loss of or damage to property or against liability arising out of the ownership or use of property are finance charges if the insurance or coverage is written in connection with a credit transaction. 15 U.S.C. 1605(b) and (c); § 226.4(b)(7) and (b)(8). Comment 4(b)(7) and (8)-2 provides that insurance is not written in connection with a credit transaction if the insurance is sold after consummation on a closed-end transaction or after an open-end plan is opened and the consumer requests the insurance. As stated in the June 2007 Proposal, the Board believes this approach remains sound for closed-end transactions, which typically consist of a single transaction with a single advance of funds. Consumers with open-end plans, however, retain the ability to obtain advances of funds long after account opening, so long as they pay down the principal balance. That is, a consumer can engage in credit transactions throughout the life of a plan.
Accordingly, in June 2007 the Board proposed revisions to comment 4(b)(7) and (8)-2, to state that insurance purchased after an open-end (not home-secured) plan was opened would be considered to be written “in connection with a credit transaction.” Proposed new comment 4(b)(10)-2 would have given the same treatment to purchases of debt cancellation or suspension coverage. As proposed, therefore, purchases of voluntary insurance or debt cancellation or suspension coverage after account opening would trigger disclosure and consent requirements.
Few commenters addressed this issue. One financial institution trade association supported the proposed revisions to comments 4(b)(7) and (8)-2 and 4(b)(10)-2, while two other commenters (a financial institution and a trade association) opposed them, arguing that the rules for open-end (not home-secured) plans should remain consistent with the rules for home-equity and closed-end credit, that there is no demonstrable harm to consumers from the existing rule, and that other state and federal law provides adequate protection.
The revisions to comments 4(b)(7) and (8)-2 and 4(b)(10)-2 are adopted as proposed. In an open-end plan, where consumers can engage in credit transactions after the opening of the plan, a creditor may have a greater opportunity to influence a consumer's decision whether or not to purchase credit insurance or debt cancellation or suspension coverage than in the case of closed-end credit. Accordingly, the disclosure and consent requirements are important in open-end plans, even after the opening of the plan, to ensure that the consumer is fully informed about the offer of insurance or coverage and that the decision to purchase it is voluntary. In addition, under the final rule, creditors will be permitted to provide disclosures and obtain consent by telephone (provided they mail written disclosures to the consumer after the purchase), so long as they meet requirements intended to ensure the purchase is voluntary.
Comment 4(b)(9)-2, which addresses cash discounts to induce consumers to use cash or other payment means instead of credit cards or other open-end plans is revised for clarity, as proposed in June 2007. No substantive change is intended. No comments were received on this change.
As discussed above, premiums or other charges for credit life, accident, health, or loss-of-income insurance are finance charges if the insurance or coverage is written in connection with a credit transaction. This same rule applies to charges for debt cancellation coverage.
The Board proposed in June 2007 to revise the regulation to provide the same treatment to debt suspension coverage as to credit insurance and debt cancellation coverage. Thus, under proposed § 226.4(b)(10), charges for debt suspension coverage would be finance charges. (The conditions under which debt suspension charges may be excluded from the finance charge are discussed in the section-by-section
In the June 2007 Proposal, debt suspension coverage would have been defined as coverage that suspends the consumer's obligation to make one or more payments on the date(s) otherwise required by the credit agreement, when a specified event occurs.
This aspect of the proposal would have applied to closed-end as well as open-end credit transactions. As discussed in the supplementary information to the June 2007 Proposal, it appears appropriate to consider charges for debt suspension products to be finance charges, because these products operate in a similar manner to debt cancellation, and reallocate the risk of nonpayment between the borrower and the creditor.
Industry commenters supported the proposed approach of including charges for debt suspension coverage as finance charges generally, but permitting exclusion of such charges if the coverage is voluntary and meets the other conditions contained in the proposal. Consumer group commenters did not address this issue. Comment 4(b)(10)-1 is adopted as proposed with some minor changes for clarification. Exclusion of charges for debt suspension coverage from the definition of finance charge is discussed in the section-by-section analysis to § 226.4(d)(3) below.
As explained in the section-by-section analysis to § 226.4(b)(10), debt cancellation fees and, as clarified in the final rule, debt suspension fees meet the definition of “finance charge.” Under current § 226.4(d)(3), debt cancellation fees may be excluded from the finance charge on the same conditions as credit insurance premiums. These conditions are: the coverage is not required and this fact is disclosed in writing, and the consumer affirmatively indicates in writing a desire to obtain the coverage after the consumer receives written disclosure of the cost. Debt cancellation coverage that may be excluded from the finance charge is limited to coverage that provides for cancellation of all or part of a debtor's liability (1) in case of accident or loss of life, health, or income; or (2) for amounts exceeding the value of collateral securing the debt (commonly referred to as “gap” coverage, frequently sold in connection with motor vehicle loans).
Debt cancellation coverage and debt suspension coverage are fundamentally similar to the extent they offer a consumer the ability to pay in advance for the right to reduce the consumer's obligations under the plan on the occurrence of specified events that could impair the consumer's ability to satisfy those obligations. The two types of coverage are, however, different in a key respect. One cancels debt, at least up to a certain agreed limit, while the other merely suspends the payment obligation while the debt remains constant or increases, depending on coverage terms.
In June 2007, the Board proposed to revise § 226.4(d)(3) to expressly permit creditors to exclude charges for
In addition, the Board proposed in the June 2007 Proposal to continue to limit the exclusion permitted by § 226.4(d)(3) to charges for coverage for accident or loss of life, health, or income or for gap coverage. The Board also proposed, however, to add comment 4(d)(3)-3 to clarify that, if debt cancellation or debt suspension coverage for two or more events is sold at a single charge, the entire charge may be excluded from the finance charge if at least one of the events is accident or loss of life, health, or income. The proposal is adopted in the final rule, with a few modifications discussed below.
A few industry commenters suggested that the exclusion of debt cancellation or debt suspension coverage from the finance charge should not be limited to instances where one of the triggering events is accident or loss of life, health, or income. The commenters contended that such a rule would lead to an inconsistent result; for example, if debt cancellation or suspension coverage has only divorce as a triggering event, the charge could not be excluded from the finance charge, while if the coverage applied to divorce and loss of income, the charge could be excluded. The proposal is adopted without change in this regard. The identification of accident or loss of life, health, or income in current § 226.4(d)(3)(ii) (renumbered § 226.4(d)(3) in the final rule) with respect to debt cancellation coverage is based on TILA Section 106(b), which addresses credit insurance for accident or loss of life or health. 15 U.S.C. 1605(b). That statutory provision reflects the regulation of credit insurance by the states, which may limit the types of insurance that insurers may sell. The approach in the final rule is consistent with the purpose of Section 106(b), but also recognizes that debt cancellation and suspension coverage often are not limited by applicable law to the events allowed for insurance.
A few commenters addressed the proposed disclosure for debt suspension programs that the obligation to pay loan principal and interest is only suspended, and that interest will continue to accrue during the period of suspension. A commenter suggested that in programs combining elements of debt cancellation and debt suspension, the disclosure should not be required. The final rule retains the disclosure requirement in § 226.4(d)(3)(iii). However, comment 4(d)(3)-4 has been added stating that if the debt can be cancelled under certain circumstances, the disclosure may be modified to reflect that fact. The disclosure could, for example, state (in addition to the language required by § 226.4(d)(3)(iii)) that “in some circumstances, my debt may be cancelled.” However, the disclosure would not be permitted to list the specific events that would result in debt cancellation, to avoid “information overload.”
Another commenter noted that the model disclosures proposed at Appendix G-16(A), G-16(B), H-17(A),
A commenter noted that proposed model and sample forms G-16(A) and G-16(B), for open-end credit, and H-17(A) and H-17(B), for closed-end credit are virtually identical, but that the model language regarding cost of coverage is more appropriate for open-end credit. Model Clause H-17(A) and Sample H-17(B) have been revised in the final rule to include language regarding cost of coverage that is appropriate for closed-end credit.
A consumer group suggested that in debt suspension programs where interest continues to accrue during the suspension period, periodic statements should be required to include a disclosure of the amount of the accrued interest. The Board believes that the requirement under § 226.7, as adopted in the final rule, for each periodic statement to disclose total interest for the billing cycle as well as total year-to-date interest on the account adequately addresses this concern.
The Board noted in the June 2007 Proposal that the regulation provides guidance on how to disclose the cost of debt cancellation coverage (in proposed § 226.4(d)(3)(ii)), and sought comment on whether additional guidance was needed for debt suspension coverage, particularly for closed-end loans. No commenters addressed this issue except for one industry commenter that responded that no additional guidance was needed.
In a technical revision, as proposed in June 2007, the substance of footnotes 5 and 6 is moved to the text of § 226.4(d)(3).
Under § 226.4(d)(1) and (d)(3), creditors may exclude from the finance charge premiums for credit insurance and debt cancellation or (as provided in revisions in the final rule) debt suspension coverage if, among other conditions, the consumer signs or initials an affirmative written request for the insurance or coverage. In the June 2007 Proposal, the Board proposed an exception to the requirement to obtain a written signature or initials for telephone purchases of credit insurance or debt cancellation and debt suspension coverage on an open-end (not home-secured) plan. Under proposed new § 226.4(d)(4), for telephone purchases, the creditor would have been permitted to make the disclosures orally and the consumer could affirmatively request the insurance or coverage orally, provided that the creditor (1) maintained reasonable procedures to provide the consumer with the oral disclosures and maintains evidence that demonstrates the consumer then affirmatively elected to purchase the insurance or coverage; and (2) mailed the disclosures under § 226.4(d)(1) or (d)(3) within three business days after the telephone purchase. Comment 4(d)(4)-1 would have provided that a creditor does not satisfy the requirement to obtain an affirmative request if the creditor uses a script with leading questions or negative consent.
Commenters supported proposed § 226.4(d)(4), with some suggested modifications, and it is adopted in final form with a few modifications discussed below. A few commenters requested that the Board expand the proposed telephone purchase rule to home-equity plans and closed-end credit for consistency. HELOCs and closed-end credit are largely separate product lines from credit card and other open-end (not home-secured) plans, and the Board anticipates reviewing the rules applying to these types of credit separately; the issue of telephone sales of credit insurance and debt cancellation or suspension coverage can better be addressed in the course of those reviews. In addition, as discussed above, comment 4(b)(7) and (8)-2, as amended in the final rule, provides that insurance is not written in connection with a credit transaction if the insurance is sold after consummation of a closed-end transaction, or after a home-equity plan is opened, and the consumer requests the insurance. Accordingly, the requirements for disclosure and affirmative written consent to purchase the insurance or coverage do not apply in these situations, and thus the relief that would be afforded by the telephone purchase rule appears less necessary.
A commenter stated that the requirement (in § 226.4(d)(4)(ii)) to mail the disclosures under § 226.4(d)(1) or (d)(3) within three business days after the telephone purchase would be difficult operationally, and recommended that the rule allow five business days instead of three. The Board believes that three business days should provide adequate time to creditors to mail the written disclosures. In addition, the three-business-day period for mailing written disclosures is consistent with the rules published by the federal banking agencies to implement Section 305 of the Gramm-Leach-Bliley Act regarding the sale of insurance products by depository institutions, as well as with the OCC rules regarding the sale of debt cancellation and suspension products.
A few commenters expressed concern about proposed comment 4(d)(4)-1, prohibiting the use of leading questions or negative consent in telephone sales. The commenters stated that the leading questions rule would be difficult to comply with, because the distinction between a leading question and routine marketing language may not be apparent in many cases. The commenters were particularly concerned about being able to ensure that the enrollment question itself not be considered leading. The final comment includes an example of an enrollment question (“Do you want to enroll in this optional debt cancellation plan?”) that would not be considered leading.
Section 226.4(d)(4)(i) in the June 2007 Proposal would have required that the creditor must, in addition to providing the required disclosures orally and maintaining evidence that the consumer affirmatively elected to purchase the insurance or coverage, also maintain reasonable procedures to provide the disclosures orally. The final rule does not contain the requirement to maintain procedures to provide the disclosures orally; this requirement is unnecessary because creditors must actually provide the disclosures orally in each case.
The Board proposed this approach pursuant to its exception and exemption authorities under TILA Section 105. Section 105(a) authorizes the Board to make exceptions to TILA to effectuate the statute's purposes, which include facilitating consumers' ability to compare credit terms and helping consumers avoid the uniformed use of credit. 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to exempt any class of transactions (with an exception not relevant here) from coverage under any part of TILA if the Board determines that coverage under that part does not provide a meaningful benefit to consumers in the form of useful information or protection. 15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to make this determination in light of specific factors. 15 U.S.C. 1604(f)(2). These factors are (1) the amount of the loan and whether the disclosure provides a benefit to consumers who are parties to the transaction involving a loan of such amount; (2) the extent to which the requirement complicates, hinders, or
As stated in the June 2007 Proposal, the Board has considered each of these factors carefully, and based on that review, believes it is appropriate to exempt, for open-end (not home-secured) plans, telephone sales of credit insurance or debt cancellation or debt suspension plans from the requirement to obtain a written signature or initials from the consumer. Requiring a consumer's written signature or initials is intended to evidence that the consumer is purchasing the product voluntarily; the proposal contained safeguards intended to insure that oral purchases are voluntary. Under the proposal and as adopted in the final rule, creditors must maintain tapes or other evidence that the consumer received required disclosures orally and affirmatively requested the product. Comment 4(d)(4)-1 indicates that a creditor does not satisfy the requirement to obtain an affirmative request if the creditor uses a script with leading questions or negative consent. In addition to oral disclosures, under the proposal consumers will receive written disclosures shortly after the transaction.
The fee for the credit insurance or debt cancellation or debt suspension coverage will also appear on the first monthly periodic statement after the purchase, and, as applicable, thereafter. Consumer testing conducted for the Board suggests that consumers review the transactions on their statements carefully. Moreover, as discussed in the section-by-section analysis under § 226.7, under the final rule fees, including insurance and debt cancellation or suspension coverage charges, will be better highlighted on statements. Consumers who are billed for insurance or coverage they did not purchase may dispute the charge as a billing error. These safeguards are expected to ensure that purchases of credit insurance or debt cancellation or suspension coverage by telephone are voluntary.
At the same time, the amendments should facilitate the convenience to both consumers and creditors of conducting transactions by telephone. The amendments, therefore, have the potential to better inform consumers and further the goals of consumer protection and the informed use of credit for open-end (not home-secured) credit.
Section 226.5 contains format and timing requirements for open-end credit disclosures. In the June 2007 Proposal, the Board proposed, among other changes to § 226.5, to reform the rules governing the disclosure of charges before they are imposed in open-end (not home-secured) credit. Under the proposal, all charges imposed as part of the plan would have had to be disclosed before they were imposed; however, while certain specified charges would have continued to be disclosed in writing in the account-opening disclosures, other charges imposed as part of the plan could have been disclosed orally or in writing at any time before the consumer becomes obligated to pay the charge.
In the June 2007 Proposal, the Board proposed changes to § 226.5(a) and the associated commentary regarding the standard to provide “clear and conspicuous” disclosures. In addition, in both the June 2007 Proposal and the May 2008 Proposal, the Board proposed changes to § 226.5(a) and the associated commentary with respect to terminology. To improve clarity, the Board also proposed technical revisions to § 226.5(a) in the June 2007 Proposal.
As discussed in further detail in the section-by-section analysis to §§ 226.6(b), 226.9(b), 226.9(c), and 226.9(g), many commenters supported the Board's proposal to require certain information to be presented in a tabular format, and consumer testing showed that tabular presentation of disclosures improved consumer attention to, and understanding of, the disclosures. As a result, the Board adopts the proposal to require a tabular format for certain information required by these sections as well as the proposal to amend comment 5(a)(1)-1. Technical amendments proposed under the June 2007 Proposal, including moving the guidance on the meaning of “reasonably understandable form” to comment 5(a)(1)-2, and moving guidance on what constitutes an “integrated document” to comment 5(a)(1)-4, are also adopted.
In the June 2007 Proposal, the Board also proposed to add comment 5(a)(1)-3 to provide guidance on the meaning of the readily noticeable standard. Specifically, the Board proposed that to meet the readily noticeable standard, the following disclosures must be given in a minimum of 10-point font: Disclosures for credit card applications and solicitations under § 226.5a, highlighted account-opening disclosures under § 226.6(b)(4) (adopted as § 226.6(b)(1) below), highlighted disclosures accompanying checks that access a credit card account under
The Board received numerous consumer comments that credit card disclosures are in fine print and that disclosures should be given in a larger font. Many consumer and consumer group commenters suggested that disclosures should be given in a minimum 12-point font. Several of these comments also suggested that the 12-point font minimum be applied to disclosures other than the highlighted disclosures proposed to be subjected to the readily noticeable standard as proposed in comment 5(a)(1)-1. Industry commenters suggested that there be no minimum font size or that the minimum should be 9-point font. One industry commenter stated that the 10-point font minimum should not apply to any disclosures on a periodic statement.
The Board adopts comment 5(a)(1)-3 as proposed. As discussed in the June 2007 Proposal, the Board believes that for certain disclosures, special formatting requirements, such as a tabular format and font size requirements, are needed to highlight for consumers the importance and significance of the disclosures. The Board does not believe, however, that all TILA-required disclosures should be subject to this same standard. For certain disclosures, such as periodic statements, requiring all TILA-required disclosures to be highlighted in the same way could be burdensome for creditors because it would cause the disclosures to be longer and more expensive to provide to consumers. In addition, the benefits to consumers would not outweigh such costs. The Board believes that a more balanced approach is to require such highlighting only for certain important disclosures. The Board, thus, declines to extend the minimum font size requirement to disclosures other than those listed in proposed comment 5(a)(1)-3. Similarly, for disclosures that may appear on periodic statements, such as the highlighted change-in-terms disclosures under § 226.9(c)(2)(iii)(B) and highlighted disclosures when a rate is increased due to delinquency, default or as a penalty under § 226.9(g)(3)(ii), the Board believes that the minimum 10-point font size for these disclosures is appropriate because these are disclosures that consumers do not expect to see each billing cycle. Therefore, the Board believes that it is especially important to highlight these disclosures.
As discussed in the June 2007 Proposal, the Board proposed a minimum of 10-point font for these disclosures to be consistent with the approach taken by eight federal agencies (including the Board) in issuing a proposed model form that financial institutions may use to comply with the privacy notice requirements under Section 503 of the Gramm-Leach-Bliley Act. 15 U.S.C. 6803(e); 72 FR 14940, Mar. 29, 2007. Furthermore, in consumer testing conducted for the Board, participants were able to read and notice information in a 10-point font. Therefore, the Board adopts the comment as proposed.
Section 226.5(a)(1)(ii) provides that in general, disclosures for open-end plans must be provided in writing and in a retainable form.
As the Board discussed in the June 2007 Proposal, in proposing to permit certain charges to be disclosed after account opening, the Board's goal was to better ensure that consumers receive disclosures at a time and in a manner that they would be likely to notice them. As discussed in the June 2007 Proposal, at account opening, written disclosure has obvious merit because it is a time when a consumer must assimilate information that may influence major decisions by the consumer about how, or even whether, to use the account. During the life of an account, however, a consumer will sometimes need to decide whether to purchase a single service from the creditor that may not be central to the consumer's use of the account (for example, the service of providing documentary evidence of transactions). The consumer may become accustomed to purchasing such services by telephone, and will, accordingly, expect to receive an oral disclosure of the charge for the service during the same telephone call. Permitting oral disclosure of charges that are not central to the consumer's use of the account would be consistent with consumer expectations and with the business practices of creditors. For these reasons, the Board adopts its proposal to permit creditors to disclose orally charges not specifically identified in the account-opening table in § 226.6(b)(2) (proposed as § 226.6(b)(4)). Further, the Board adopts its proposal that creditors be provided with the same flexibility when the cost of such a charge changes or is newly introduced, as discussed in the section-by-section analysis to § 226.9(c).
One industry commenter stated its concerns that oral disclosure may make it difficult for creditors to demonstrate compliance with TILA. As the Board discussed in the June 2007 Proposal, creditors may continue to comply with
In technical revisions, as proposed in the June 2007 Proposal, the final rule moves to § 226.5(a)(1)(ii)(A) the current exemption in footnote 7 under § 226.5(a)(1) that disclosures required by § 226.9(d) need not be in writing. Section 226.9(d) requires disclosure when a finance charge is imposed by a person other than the card issuer at the time of a transaction. Specific wording in § 226.5(a)(1)(ii)(A) also has been amended from the proposal in order to provide greater clarity, with no intended substantive change from the June 2007 Proposal. In another technical revision, the substance of footnote 8, regarding disclosures that do not need to be in a retainable form the consumer may keep, is moved to § 226.5(a)(1)(ii)(B) as proposed.
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. Accordingly because the disclosures under § 226.5(a)(1)(ii)(A) are not required to be provided in writing, the Board proposed to add comment 5(a)(1)(ii)(A)-1 in May 2008 to clarify that disclosures not required to be in writing may be provided in writing, orally, or in electronic form without regard to the consumer consent or other provisions of the E-Sign Act.
Most commenters supported the Board's proposal. Some consumer group commenters, however, suggested that the Board require that any electronic disclosure be in a format that can be printed and retained. The Board declines to impose such a requirement. Disclosures that the Board permits to be made orally are not required to be in written or retainable form. The Board believes that the same standard should apply if such disclosures are made electronically. In order to clarify this point, the Board has amended § 226.5(a)(1)(ii)(B) to specify that disclosures that need not be in writing also do not need to be in retainable form. This would encompass both oral and electronic disclosures.
In a final rule addressing electronic disclosures published in November 2007 (November 2007 Final Electronic Disclosure Rule), the Board adopted amendments to § 226.5(a)(1) to clarify that creditors may provide open-end disclosures to consumers in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act. 72 FR 63462, Nov. 9, 2007; 72 FR 71058, Dec. 14, 2007. These amendments also provide that the disclosures required by §§ 226.5a, 226.5b, and 226.16 may be provided to the consumer in electronic form, under the circumstances set forth in those sections, without regard to the consumer consent or other provisions in the E-Sign Act. These amendments have been moved to § 226.5(a)(1)(iii) for organizational purposes.
Furthermore, in May 2008, the Board proposed comment 5(a)(1)(iii)-1 to clarify that the disclosures specified in § 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. Consistent with the Board's decision to adopt comment 5(a)(1)(ii)(A)-1, as discussed above, the Board adopts comment 5(a)(1)(iii)-1.
The Board received no comments objecting to this proposal. Accordingly, the Board adopts § 226.5(a)(2)(i) and comment 5(a)(2)-4 as proposed. The Board, however, received one comment requesting clarification on the implementation of this provision. Specifically, the commenter pointed out that creditors will likely phase in changes during a transitional period, and as a result, may not be able to align terminology in all their disclosures to consumers during this transitional period. The Board agrees; thus, some disclosures may contain existing terminology required currently under Regulation Z while other disclosures may contain new terminology required in this final rule or the final rules issued by the Board and other federal banking agencies published elsewhere in today's
As discussed in the June 2007 Proposal, the Board agreed with the GAO's assessment that overemphasis of these terms may make disclosures more difficult for consumers to read. One approach the Board had considered to remedy this problem was to prohibit the terms “finance charge” and “annual percentage rate” from being disclosed more conspicuously than other required disclosures except when the regulation so requires. However, the Board acknowledged in the June 2007 Proposal that this approach could produce unintended consequences. Commenters agreed with the Board.
Many industry commenters suggested that in light of the Board's requirement to disclose APRs and certain other finance charges at account-opening and at other times in the life of the account in a tabular format with a minimum 10-point font size pursuant to comment 5(a)(1)-3 (or 16-point font size as required for the APR for purchases under §§ 226.5a(b)(1) and 226.6(b)(2)), requiring the terms “annual percentage rate” and “finance charge” to be more conspicuous than other disclosures to draw attention to the terms was not necessary. Furthermore, commenters pointed out that the Board is no longer requiring use of the term “finance charge” in TILA disclosures to consumers for open-end (not home-secured) plans, and in fact, is requiring creditors to disclose finance charges as either “fees” or “interest” on periodic statements. As a result, creditors would, in many cases, no longer have the term “finance charge” to make more conspicuous than other terms.
For the reasons discussed above, the Board is eliminating for open-end (not home-secured) plans the requirement to disclose “annual percentage rate” and “finance charge” more conspicuously, using its authority under Section 105(a) of TILA to make “such adjustments and exceptions for any class of transaction as in the judgment of the Board are necessary or proper to effectuate the purposes of the title, to prevent circumvention or evasion thereof, or to facilitate compliance therewith.” 15 U.S.C. 1604(a). Therefore, the requirement in § 226.5(a)(2)(ii) that “annual percentage rate” and “finance charge” be disclosed more conspicuously than any other required disclosures when disclosed with a corresponding amount or percentage rate applies only to home-equity plans subject to § 226.5b. As is currently the case, even for home-equity plans subject to § 226.5b, these terms need not be more conspicuous when used under § 226.7(a)(4) on periodic statements and under section § 226.16 in advertisements. Other exceptions currently in footnote 9 to § 226.5(a)(2), which reference §§ 226.5a and 226.9(e), have been deleted as unnecessary since these disclosures do not apply to home-equity plans subject to § 226.5b. The requirement, as it applies to home-equity plans subject to § 226.5b, may be re-evaluated when the Board conducts its review of the regulations related to home-equity plans.
As discussed in the section-by-section analysis to § 226.5a(b)(5), the Board is exercising 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 § 226.5a. 15 U.S.C. 1604(a) and (f), 1637(c)(5). The purpose of the proposed requirement was to provide consistency for headings in a tabular summary. Accordingly, the Board withdraws the requirement to use the term “grace period” in proposed § 226.5(a)(2)(iii).
Commenters were generally supportive of the Board's efforts to develop some common terminology and the Board's proposal to require use of the term “penalty APR” to describe an increased rate resulting from the occurrence of one or more specific events. Some industry commenters, however, urged the Board to reconsider requiring use of the term “penalty APR,” especially when used to describe the loss of an introductory rate or promotional rate. As discussed in the June 2007 Proposal, the term “penalty APR” proved the most successful of the terms tested with participants in the Board's consumer testing efforts. In the interest of uniformity, the Board adopts the provision as proposed, with one exception for promotional rates. To prevent consumer confusion over use of the term “penalty rate” to describe the loss of a promotional rate where the rate applied is the same or is calculated in the same way as the rate that would have applied at the end of the promotional period, the Board is amending proposed § 226.5(a)(2)(iii) to provide that the term “penalty APR” need not be used in reference to the APR that applies with the loss of a promotional rate, provided the APR that applies is no greater than the APR that would have applied at the end of the promotional period; or if the APR that applies is a variable rate, the APR is calculated using the same index and margin as would have been used to calculate the APR that would have applied at the end of the promotional period. In addition, the Board is also modifying the required disclosure related to the loss of an introductory rate as discussed below in the section-by-section analysis to § 226.5a, which should also address these concerns.
Under the June 2007 Proposal, proposed § 226.5(a)(2)(iii) also would have provided that if credit insurance or debt cancellation or debt suspension coverage is required as part of the plan and information about that coverage is required to be disclosed in a tabular format, the term “required” shall be used in describing the coverage and the program shall be identified by its name. No comments were received on this provision, and the provision is adopted as proposed.
Consistent with the Board's proposal under the advertising rules in the June 2007 Proposal, proposed § 226.5(a)(2)(iii), would have provided that if required to be disclosed in a tabular format, an APR may be described as “fixed,” or using any similar term, only if that rate will remain in effect unconditionally until the expiration of a specified time period. If no time period is specified, then the term “fixed,” or any similar term, may not be used to describe the rate unless the rate remains in effect unconditionally until the plan is closed. The final rule adopts § 226.5(a)(2)(iii) as proposed, consistent with the Board's decision with respect to use of the term “fixed” in describing an APR stated in an advertisement, as further discussed in the section-by-section analysis to § 226.16(f) below.
As proposed in June 2007, for clarity, the special rules regarding the specific format for disclosures under § 226.5a for credit and charge card applications and solicitations and § 226.5b for home-equity plans have been consolidated in § 226.5(a)(3) as proposed. In addition, as discussed below, the Board is requiring certain account-opening disclosures, periodic statement disclosures and subsequent disclosures, such as change-in-terms disclosures, to be provided in specific formats under § 226.6(b)(1); § 226.7(b)(6) and (b)(13); and § 226.9(b), (c) and (g). The final rule includes these special format rules in § 226.5(a)(3), as proposed in the June 2007 Proposal, with one exception. Because the Board is not requiring disclosure of the effective APR pursuant to § 226.7(b)(7), as discussed further in the general discussion on the effective APR in the section-by-section analysis to § 226.7(b), the proposed special format rule relating to the effective APR is not contained in the final rule.
Creditors are required to make certain disclosures to consumers “before opening any account.” TILA Section 127(a) (15 U.S.C. 1637(a)). Under § 226.5(b)(1), these disclosures, as identified in § 226.6, must be furnished “before the first transaction is made under the plan,” which the Board has interpreted as “before the consumer becomes obligated on the plan.” Comment 5(b)(1)-1. There are limited circumstances under which creditors may provide the disclosures required by § 226.6 after the first transaction, and the Board proposed in the June 2007 Proposal to move this guidance from comment 5(b)(1)-1 to proposed § 226.5(b)(1)(iii)-(v). In the May 2008 Proposal, the Board proposed additional revisions to § 226.5(b)(1)(iv) regarding membership fees.
The Board also proposed revisions in the June 2007 Proposal to the timing rules for disclosing certain costs imposed on an open-end (not home-secured) plan and in connection with certain transactions conducted by telephone. Furthermore, the Board proposed additional guidance on providing timely disclosures when the first transaction is a balance transfer. Finally, technical revisions were proposed to change references from “initial” disclosures required by § 226.6 to “account-opening” disclosures, without any intended substantive change.
Creditors generally must provide the account-opening disclosures before the first transaction is made under the plan. The renumbering of this rule as § 226.5(b)(1)(i) is adopted as proposed in the June 2007 Proposal.
Industry commenters indicated that following the Board's guidance would cause delays in making transfers, which would be contrary to consumer expectations that these transfers be effected quickly. A consumer group commenter suggested that requiring the APR that will apply, as opposed to allowing a range, to be disclosed on the application or solicitation would be simpler. The Board notes that creditors may, at their option, provide account-opening disclosures, including the specific APRs, along with the balance transfer offer and account application to avoid delaying the transfer.
The Board believes that, consistent with the general rule, consumers should receive account-opening information, including the APR that will apply, before the first transaction, which is the balance transfer. Comment 5(b)(1)(i)-5 is adopted as proposed, and states that a creditor must provide the consumer with the annual percentage rate (along with the fees and other required disclosures) that would apply to the balance transfer in time for the consumer to contact the creditor and withdraw the request. The Board has made one revision to comment 5(b)(1)(i)-5 as adopted. In response to commenters' requests for additional guidance, comment 5(b)(1)(i)-5 provides a safe harbor that may be used by creditors that permit a consumer to decline the balance transfer by telephone. In such cases, a creditor has provided sufficient time to the consumer to contact the creditor and withdraw the request if the creditor does not effect the balance transfer until 10 days after the creditor has sent out information, assuming the consumer has not canceled the transaction.
The Board did not receive comment on the proposed reorganization but received many comments on the guidance that was amended and moved to proposed § 226.5(b)(1)(iv). These comments are discussed below in the section-by-section analysis to § 226.5(b)(1)(iv). Some consumer group commenters noted that the Board's reorganization of this comment made them realize that they opposed current guidance on cash advances in comment 5(b)(1)-1 (now renumbered as comment 5(b)(1)(i)-1), which permits creditors to
Under the June 2007 Proposal, the Board proposed in new § 226.5(b)(1)(ii) and comment 5(b)(1)(ii)-1 to except charges imposed as part of an open-end (not home-secured) plan, other than those specified in proposed § 226.6(b)(4)(iii) (adopted as § 226.6(b)(2)), from the requirement to disclose charges before the first transaction. Creditors would have been permitted, at their option, to disclose those charges either before the first transaction or later, so long as they were disclosed before the cost was imposed. The current rule requiring the disclosure of costs before the first transaction (in writing and in a retainable form) would have continued to apply to certain specified costs. These costs are fees of which consumers should be aware before using the account, such as annual or late payment fees, or fees that the creditor would not otherwise have an opportunity to disclose before the fee is triggered, such as a fee for using a cash advance check during the first billing cycle.
Numerous industry commenters supported the Board's proposal. Consumer group commenters, on the other hand, opposed the Board's proposal, arguing that all charges should be required to be disclosed at account opening before the first transaction. While consumer group commenters acknowledged that disclosure of the amount of the fee at a time when the consumer is about to incur it is a good business practice, the commenters indicated that the Board's proposal would encourage creditors to create new fees that are not specified to be given in writing at account-opening. The final rule adopts § 226.5(b)(1)(ii) and comment 5(b)(1)(ii)-1 largely as proposed with some clarifying amendments and additional illustrative examples.
As the Board discussed in the June 2007 Proposal, the charges covered by the proposed exception from disclosure at account opening are triggered by events or transactions that may take place months, or even years, into the life of the account, when the consumer may not reasonably be expected to recall the amount of the charge from the account-opening disclosure, nor readily to find or obtain a copy of the account-opening disclosure or most recent change-in-terms notice. Requiring such charges to be disclosed before account opening may not provide a meaningful benefit to consumers in the form of useful information or protection. The rule would allow flexibility in the timing of certain cost disclosures by permitting creditors to disclose such charges—orally or in writing—before the fee is imposed. As a result, creditors would be disclosing the charge when the consumer is deciding whether to take the action that would trigger the charge, such as purchasing a service, which is a time at which consumers would likely notice the charge. The Board intends to continue monitoring credit card fees and practices, and could add additional fees to the specified costs that must be disclosed in the account-opening table before the first transaction, as appropriate.
In addition, as discussed in the June 2007 Proposal, the Board believes the exception may facilitate compliance by creditors. Determining whether charges are a finance charge or an other charge or not covered by TILA (and thus whether advance notice is required) can be challenging, and the rule reduces these uncertainties and risks. The creditor will not have to determine whether a charge is a finance charge or other charge or not covered by TILA, so long as the creditor discloses the charge, orally or in writing, before the consumer becomes obligated to pay it, which creditors, in general, already do for business and other legal reasons.
In the June 2007 Proposal, the Board proposed § 226.5(b)(1)(iii) to address situations where a consumer calls a merchant to order goods by telephone and concurrently establishes a new open-end credit plan to finance that purchase. Because TILA account-opening disclosures must be provided before the first transaction under the current timing rule, merchants must delay the shipment of goods until a consumer has received the disclosures. Consumers who want goods shipped immediately may use another method to finance the purchase, but they may lose any incentives the merchant may offer with opening a new plan, such as discounted purchase prices or promotional payment plans. The Board's proposal was meant to provide additional flexibility to merchants and consumers in such cases.
Under proposed § 226.5(b)(1)(iii), merchants that established an open-end plan in connection with a telephone purchase of goods initiated by the consumer would have been able to provide account-opening disclosures as soon as reasonably practicable after the first transaction if the merchant (1) permits consumers to return any goods financed under the plan at the time the plan is opened and provides the consumer sufficient time to reject the plan and return the items free of cost after receiving the written disclosures required by § 226.6, and (2) informs the consumer about the return policy as a part of the offer to finance the purchase. Alternatively, the merchant would have been able to delay shipping the goods until after the account disclosures have been provided.
The Board also proposed comment 5(b)(1)(iii)-1 to provide that a return policy is of sufficient duration if the consumer is likely to receive the disclosures and have sufficient time to decide about the financing plan. A return policy includes returns via the United States Postal Service for goods delivered by private couriers. The proposed commentary also clarified that retailers' policies regarding the return of merchandise need not provide a right to return goods if the consumer consumes or damages the goods. As discussed in
Consumer group commenters opposed the proposal arguing that providing a right to cancel is much less protective of consumers' rights than requiring that a consumer receive disclosures before goods are shipped. As discussed above and in the June 2007 Proposal, the Board believes proposed § 226.5(b)(1)(iii) would provide consumers with greater flexibility. Consumers may have their goods shipped immediately, and in some cases, take advantage of merchant incentives, such as discounted purchase prices or promotional payment plans, but still retain the right to reject the plan, without cost, after receiving account-opening disclosures.
Industry commenters were supportive of the Board's proposal, but several commenters asked for additional extensions or clarifications to the policy. First, commenters requested clarification that the exception is available for third-party creditors that are not retailers, arguing that few merchants are themselves creditors and that the same flexibility should be available to creditors offering private label or co-brand credit arrangements in connection with the purchase of a merchant's goods. The Board agrees, and revisions have been made to § 226.5(b)(1)(iii) accordingly. Industry commenters also suggested that the provision in § 226.5(b)(1)(iii) be available not only for telephone purchases “initiated by the consumer,” but also telephone purchases where the merchant contacts the consumer. Outbound calls to a consumer may raise many telemarketing issues and concerns about questionable marketing tactics. As a result, the Board declines to extend § 226.5(b)(1)(iii) to telephone purchases that have not been initiated by the consumer.
A few industry commenters also suggested that this exception be available for all creditors opening an account by telephone, regardless of whether it is in connection with the purchase of goods or not. These commenters stated that for certain consumers, such as active duty military members, immediate use of the account after it is opened may be necessary to take care of personal or family needs. The Board notes that the exception under § 226.5(b)(1)(iii) turns on the ability of consumers to return any goods financed under the plan free of cost after receiving the written disclosures required by § 226.6. In the case of an account opened by telephone that is not in connection with the purchase of goods from the creditor or an affiliated third party, a creditor would likely have no way to reverse any purchases or other transactions made before the disclosures required by § 226.6 are received by the consumer should the consumer wish to reject the plan if the purchase was made with an unaffiliated third party. Thus, the Board declines to extend § 226.5(b)(1)(iii) to accounts opened by telephone that are not in connection with the contemporaneous purchase of goods.
The Board also received comments requesting that § 226.5(b)(1)(iii) be made applicable to the on-line purchase of goods or that merchants have the option to refer consumers purchasing by telephone to a Web site to obtain disclosures required by § 226.6. This issue has been addressed in the November 2007 Final Electronic Disclosure Rule. The E-Sign Act clearly states that any consumer to whom written disclosures are required to be given must affirmatively consent to the use of electronic disclosures before such disclosures can be used in place of paper disclosures. The November 2007 Final Electronic Disclosure Rule created certain instances where E-Sign consent does not need to be obtained before disclosures may be provided electronically. Specifically, open-end credit disclosures required by §§ 226.5a (credit card applications and solicitations), 226.5b (HELOC applications), and 226.16 (open-end credit advertising) may be provided to the consumer in electronic form, under the circumstances set forth in those sections, without regard to the consumer consent or other provisions of the E-Sign Act. Disclosures required by § 226.6, however, may only be provided electronically if the creditor obtains consumer consent consistent with the E-Sign Act. 72 FR 63462, Nov. 9, 2007; 72 FR 71058, Dec. 14, 2007.
The Board also received comments requesting clarification of the return policy; in particular, whether this would cause creditors to provide those consumers who open a new credit plan concurrently with the purchase of goods over the telephone with a different return policy from other customers. For example, assume a merchant's customers are normally charged a restocking fee for returning goods, and the merchant does not wish to wait until the disclosures under § 226.6 are sent out before shipping the goods. A commenter asked whether this means that a customer opening a new credit plan concurrently with the purchase of goods over the telephone is exempted from paying that restocking fee if the goods are returned. As proposed in the June 2007 Proposal, the final rule requires that in order to use the exception from providing disclosures under § 226.6 before the consumer becomes obligated on the account, the consumer must have sufficient time to reject the plan and return the items free of cost after receiving the written disclosures required by § 226.6. This means that there can be no cost to the consumer for returning the goods even if for the merchant's other customers, a fee is normally charged. As the Board discussed in the June 2007 Proposal, merchants always have the option to delay shipping of the goods until after the disclosures are given if the merchant does not want to maintain a potentially different return policy for consumers opening a new credit plan concurrently with the purchase of goods over the telephone.
Commenters also requested guidance on what would be considered “sufficient time” for the consumer to reject the plan and return the goods. Because the amount of time that would be deemed to be sufficient would depend on the nature of the goods and the transaction, and the locations of the various parties to the transaction, the Board does not believe that it is appropriate to specify a particular time period applicable to all transactions.
The Board also received requests for other clarifications. One commenter suggested that the Board expressly acknowledge that if the consumer rejects the credit plan, the consumer may substitute another reasonable form of payment acceptable to the merchant other than the credit plan to pay for the goods in full. This clarification has been included in comment 5(b)(1)(iii)-1. Furthermore, this commenter also suggested that the exception in comment 5(b)(1)(iii)-1 allowing for no return policy for consumed or damaged goods should be revised to expressly cover installed appliances or fixtures, provided a reasonable repair or replacement policy covers defective goods or installations. The Board concurs and changes have been made to comment 5(b)(1)(iii)-1 accordingly.
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 § 226.6) to be furnished before the first transaction is made under the plan. Currently and under the June 2007 and
In the June 2007 and May 2008 Proposals, the Board proposed clarifications to the consumer's right not to pay membership 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 account-opening disclosures. In the May 2008 Proposal, the Board proposed in revised § 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 § 226.5a(b)(2), including annual or other periodic fees, or “start-up” fees, such as account-opening fees. The Board also proposed in the May 2008 Proposal under revised § 226.5(b)(1)(iv) to clarify that if a consumer rejects an open-end (not home-secured) plan as permitted under that provision, 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).
Some consumer group commenters opposed the Board's clarification on the term “membership fee” and argued that the definition could expand the ability of creditors to charge additional types of fees prior to sending out account-opening disclosures. These consumer group commenters, however, supported that the Board's clarification could allow for a greater number of fees that consumers would not be obligated to pay should they reject the plan. One industry commenter opposed the Board's reference to annual fees as “membership fees.” The Board notes that the term “membership fee” is not currently defined, and, therefore, there is little guidance as to what fees would be covered by that term. As discussed in the May 2008 Proposal, the Board proposed that “membership fee” have the same meaning as fees for issuance or availability under § 226.5a(b)(2) for consistency and ease of compliance. The Board continues to believe this clarification is warranted, and § 226.5(b)(1)(iv) is adopted generally as proposed, with one change discussed below.
The final rule expands the types of fees for which consumers must not be obligated if they reject an open-end (not home-secured) plan as permitted under § 226.5(b)(1)(iv) to include application fees charged to all applicants. The Board believes that it is important that consumers have the opportunity, after receiving the account-opening disclosures which set forth the fees and other charges that will be applicable to the account, to reject the plan without being obligated for any charges. It is the Board's understanding that some creditors may debit application fees to the account, and thus these fees should be treated in the same manner as other fees debited at account opening. Conforming changes have been made to § 226.5a(d)(2).
Furthermore, in May 2008, the Board proposed to revise and move to comment 5(b)(1)(iv)-2, guidance in current comment 5(b)(1)-1 (renumbered as comment 5(b)(1)(i)-1 in the June 2007 Proposal) regarding instances when a creditor may consider an account not rejected. In the May 2008 Proposal, the Board proposed to revise the guidance to provide that 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. In the May 2008 Proposal, the Board also proposed to provide a “safe harbor” that 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 received mixed comments on the 60 day “safe harbor” proposal. Some industry commenters opposed the “safe harbor” citing operational complexity and uncertainty in account administration procedures. Some consumer group commenters and an industry trade group commenter supported the Board's proposal. These commenters also suggested that the Board either require or encourage as a “best practice” a notice to be given to consumers stating that inactivity for 60 days will cause an account to be closed. After considering comments on the proposal, the Board is amending comment 5(b)(1)(iv)-2 to delete the 60 day “safe harbor” because the Board believes the potential confusion this guidance may cause and the operational difficulties the guidance could impose outweigh the benefits of the guidance.
In the June 2007 Proposal, the Board proposed to provide guidance in comment 5(b)(1)(i)-1 on what it means to “use” the account. The June 2007 proposed clarification was intended to address concerns about some subprime card accounts that assess a large number of fees at account opening. In the May 2008 Proposal, this provision was moved to new proposed comment 5(b)(1)(iv)-3 and revised to clarify that a consumer does not “use” an account when the creditor assesses fees to the account (such as start-up fees or fees associated with credit insurance or debt cancellation or suspension programs agreed to as a part of the application and before the consumer receives account-opening disclosures). The May 2008 Proposal also clarified in comment 5(b)(1)(iv)-3 that 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. In the May 2008 Proposal, the Board also proposed 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.
The Board received several comments regarding the guidance on whether activation of the card constitutes “use” of the account. Some commenters supported the Board's proposed guidance. Other commenters opposed the proposal noting that a consumer will have received account-opening disclosures at the time the consumer activates the card. These commenters also stated that when a consumer affirmatively activates a card, it should constitute acceptance of the account. Some consumer group commenters suggested that the Board also include guidance that payment of fees on the first billing statement should not constitute acceptance of the account and that consumers should only be considered to have used an account by affirmatively using the credit, such as by making a purchase or obtaining a cash advance.
The Board is adopting comment 5(b)(1)(iv)-3 as proposed with one modification. The Board believes that what constitutes “use” of the account should be consistent with consumer understanding of the term. A consumer is likely to think he or she has not “used” the account if the only action he or she has taken is to activate the account. Conversely, a consumer who has made a purchase or a payment on the account would likely believe that he
In technical revisions, comment 5(b)(1)-1, renumbered as comment 5(b)(1)(i)-1 in the June 2007 Proposal, currently addresses a creditor's general duty to provide account-opening disclosures “before the first transaction” and provides that 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.
TILA Sections 127(b) and 163 set forth the timing requirements for providing periodic statements for open-end credit accounts. 15 U.S.C. 1637(b) and 1666b. In the June 2007 Proposal, the Board proposed to retain the existing regulation and commentary related to the timing requirements for providing periodic statements for open-end credit accounts, with a few changes and clarifications as discussed below.
TILA Section 127(b) establishes that creditors generally must send periodic statements at the end of billing cycles in which there is an outstanding balance or a finance charge is imposed. 15 U.S.C. 1637(b). Section 226.5(b)(2)(i) provides for a number of exceptions to a creditor's duty to send periodic statements.
Commenters to the June 2007 Proposal stated that guidance would be helpful but differed on what that guidance should be. Several consumer group commenters suggested that an account should be deemed “uncollectible” only when a creditor has ceased collection efforts, either directly or through a third party. These commenters stated that for a consumer whose account is delinquent but still subject to collection, a periodic statement is important to show the consumer when and how much interest is accruing and whether the consumer's payments have been credited. Industry commenters suggested instead that an account should be deemed “uncollectible” once the account is charged off in accordance with loan-loss provisions.
Based on the plain language of the term “uncollectible” and the importance of periodic statements to show consumers when interest accrues or fees are assessed on the account, the Board is adopting new comment 5(b)(2)(i)-3 (accordingly, as discussed below comment 5(b)(2)(i)-3 as proposed in the June 2007 Proposal is adopted as 5(b)(2)(i)-4). The comment clarifies that an account is “uncollectible” when a creditor has ceased collection efforts, either directly or through a third party.
In addition, if an account has been charged off in accordance with loan-loss provisions and the creditor no longer accrues new interest or charges new fees on the account, the Board believes that the value of a periodic statement does not justify the cost of providing the disclosure because the amount of a consumer's obligation will not be increasing. As a result, the Board is modifying § 226.5(b)(2)(i) to state that in such cases, the creditor also need not provide a periodic statement. However, this provision does not apply if a creditor has charged off the account but continues to accrue new interest or charge new fees.
The Board believes that clarifying that a collection proceeding entails the filing of a court action or other adjudicatory process with a third party provides clear and uniform guidance to creditors as to when periodic statements are no longer required. Accordingly, the Board adopts the comment as proposed, though for organizational purposes, the comment is renumbered as comment 5(b)(2)(i)-4.
To provide flexibility and reduce burden and uncertainty, the Board proposed to clarify in the June 2007 Proposal that creditors entering into workout agreements for delinquent open-end plans without converting the debt to a closed-end transaction comply with the regulation if creditors continue to comply with the open-end provisions for the work-out period. The Board received only one comment concerning workout arrangements, which supported the Board's proposal. Therefore, amendments to comment 5(b)(2)(i)-2 are adopted as proposed.
TILA Section 163(a) requires creditors that provide a grace period to send statements at least 14 days before the
The Board received numerous comments on this issue. Consumer and consumer group commenters complained that the time period from when consumers received their statements to the payment due date was too short, causing consumers often to incur late fees and lose the benefit of the grace period, and creditors to raise consumers' rates to the penalty rate. Industry commenters, on the other hand, stated that the 14-day period under TILA Section 163(a) was appropriate and that the Board should not recommend a longer time frame to Congress.
Based in part on these comments, the Board and other federal banking agencies proposed in May 2008 to prohibit institutions from treating a payment as late for any purpose unless the consumer has been provided a reasonable amount of time to make that payment. Treating a payment as late for any purpose includes increasing the APR as a penalty, reporting the consumer as delinquent to a credit reporting agency, or assessing a late or any other fee based on the consumer's failure to make payment within the amount of time provided. 73 FR 28904, May 19, 2008. The Board is opting not to address the 14-day period under TILA Section 163(a) and is retaining § 226.5(b)(2)(ii) as currently written. Consumer comment letters mainly focused on the due date with respect to having their payments credited in time to avoid a late fee and an increase in their APR to the penalty rate and not with the loss of a grace period. Therefore, the Board has chosen to address these concerns in final rules issued by the Board and other federal banking agencies published elsewhere in today's
As proposed in the June 2007 Proposal, the substance of footnote 10 is moved to the regulatory text.
Sections 226.5(c), (d), and (e) address, respectively: The basis of disclosures and the use of estimates; multiple creditors and multiple consumers; and the effect of subsequent events.
In the June 2007 Proposal, the Board did not propose any changes to these provisions, except the addition of new comment 5(d)-3, referencing the statutory provisions pertaining to charge cards with plans that allow access to an open-end credit plan maintained by a person other than the charge card issuer. TILA 127(c)(4)(D); 15 U.S.C. 1637(c)(4)(D). (
TILA Section 127(c), implemented by § 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.
In response to the June 2007 Proposal, several commenters suggested changes to the formatting of the proposed model and sample forms in Appendix G-10 to part 226. These comments are discussed in the section-by-section analysis to Appendix G.
In the June 2007 Proposal, the Board proposed to amend § 226.5a(a)(2)(i) to require that these fees be disclosed in the table. In addition, the Board proposed to delete current § 226.5a(a)(2)(ii) and comment 5a(a)(2)-5, which currently allow issuers to place the fees outside the table.
The Board adopts § 226.5a(a)(2)(i) and deletes current § 226.5a(a)(2)(ii) and comment 5a(a)(2)-5 as proposed. The final rule amends § 226.5a(a)(2)(i) to require these fees to be disclosed in the table, so that consumers can easily identify them. In the consumer testing conducted for the Board prior to the June 2007 Proposal, participants consistently identified these fees as among the most important pieces of information they consider as part of the credit card offer. With respect to the disclosure of these fees, the Board tested placement of these fees in the table and immediately below the table. Participants who were shown forms where the fees were disclosed below the table tended not to notice these fees compared to participants who were shown forms where the fees were presented in the table. These final revisions are adopted in part pursuant to TILA Section 127(c)(5), which authorizes the Board to add or modify § 226.5a disclosures as necessary to carry out the purposes of TILA. 15 U.S.C. 1637(c)(5).
The final rule adopts § 226.5a(a)(2)(iv) and comment 5a(a)(2)-5 with several technical revisions. Section 226.5a(a)(2)(iv) is amended to provide that maximum limits on fee amounts disclosed in the table that do not relate to fees that vary by state must not be disclosed in bold text. Comment 5a(a)(2)-5 provides guidance on when maximum limits must be disclosed in bold text. For example, assume an issuer will charge a cash advance fee of $5 or 3 percent of the cash advance transaction amount, whichever is greater, but the fee will not exceed $100. The maximum limit of $100 for the cash advance fee must not be highlighted in bold text. In contrast, assume that the amount of the late fee varies by state, and the range of amount of late fees disclosed is $15-$25. In this case, the maximum limit of $25 on the late fee amount must be highlighted in bold text. In both cases, the minimum fee amount (e.g., $5 or $15) must be disclosed in bold text.
Comment 5a(a)(2)-5 also provides guidance on highlighting periodic fees. Section 226.5a(a)(2)(iv) provides that any periodic fee disclosed pursuant to § 226.5a(b)(2) that is not an annualized amount must not be disclosed in bold. For example, if an issuer imposes a $10 monthly maintenance fee for a card account, the issuer must disclose in the table that there is a $10 monthly maintenance fee, and that the fee is $120 on an annual basis. In this example, the $10 fee disclosure would not be disclosed in bold, but the $120 annualized amount must be disclosed in bold. In addition, if an issuer must disclose any annual fee in the table, the amount of the annual fee must be disclosed in bold.
Section 226.5a(a)(2)(iv) is amended to refer to discounted initial rates as “introductory” rates, as that term is defined in § 226.16(g)(2)(ii), for consistency, and to clarify that introductory rates that are disclosed in the table under new § 226.5a(b)(1)(vii) must be in bold text. Similarly, rates that apply after a premium initial rate expires that are disclosed in the table must also be in bold text.
In September 2000, the Board revised § 226.5a, and as part of these revisions, provided guidance on how card issuers using electronic disclosures may comply with the § 226.5a requirement that certain disclosures be “prominently located” on or with the application or solicitation. 65 FR 58903, Oct. 3, 2000. In March 2001, the Board issued interim final rules containing additional guidance for the electronic delivery of disclosures under Regulation Z. 66 FR 17329, Mar. 30, 2001. In November 2007, the Board adopted the November 2007 Final Electronic Disclosure Rule, which withdrew portions of the 2001 interim final rules and issued final rules containing additional guidance for the electronic delivery of disclosures under Regulation Z. 72 FR 63462, Nov. 9, 2007; 72 FR 71058, Dec. 14, 2007.
The Bankruptcy Act provision applies to solicitations to open a card account “using the Internet or other interactive computer service.” The term “Internet” is defined as the international computer network of both Federal and non-Federal interoperable packet-switched data networks. The term “interactive computer service” is defined as any information service, system or access software provider that provides or enables computer access by multiple users to a computer server, including specifically a service or system that provides access to the Internet and such systems operated or services offered by libraries or educational institutions. 15 U.S.C. 1637(c)(7). Based on the definitions of “Internet” and “interactive computer service,” the Board believes that Congress intended to cover all card offers that are provided to consumers in electronic form, such as via e-mail or a Web site.
In addition, although this Bankruptcy Act provision refers to credit card solicitations (where no application is required), in the June 2007 Proposal, the Board proposed to apply the Bankruptcy Act provision relating to electronic offers to both electronic solicitations and applications pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1601(a), 1604(a). Specifically, the Board proposed to amend § 226.5a(c) to require that applications and solicitations that are provided in electronic form contain the same disclosures as applications and solicitations sent by direct mail. With respect to both electronic applications and solicitations, it is important for consumers who are shopping for credit to receive accurate cost information before submitting an electronic application or responding to an electronic solicitation. The final rule adopts this change to § 226.5a(c), as proposed.
With respect to the form of disclosures required under § 226.5a, in the June 2007 Proposal, the Board proposed to amend § 226.5a(a)(2) by adding a new paragraph (v) to provide that if a consumer accesses an application or solicitation for a credit card in electronic form, the disclosures required on or with an application or solicitation for a credit card must be provided to the consumer in electronic form on or with the application or solicitation. The Board also proposed to add comment 5a(a)(2)-6 to clarify this point and also to make clear that if a consumer is provided with a paper application or solicitation, the required disclosures must be provided in paper form on or with the application or solicitation (and not, for example, by including a reference in the paper application or solicitation to the Web site where the disclosures are located).
In the November 2007 Final Electronic Disclosure Rule, the Board adopted the proposed changes to § 226.5a(a)(2)(v) and comment 5a(a)(2)-6 with several revisions. 72 FR 63462, Nov. 9, 2007; 72 FR 71058, Dec. 14, 2007. In the November 2007 Final Electronic Disclosure Rule, the guidance in proposed comment 5a(a)(2)-6 was contained in comment 5a(a)(2)-9. In this final rule, the guidance in comment 5a(a)(2)-9 added by the November 2007 Final Electronic Disclosure Rule is moved to comment 5a(a)(2)-6.
In the June 2007 Proposal, the Board also proposed to revise existing comment 5a(a)(2)-8 added by the 2001 interim final rule on electronic disclosures, which states that a consumer must be able to access the electronic disclosures at the time the application form or solicitation reply form is made available by electronic communication. The Board proposed to revise this comment to describe alternative methods for presenting electronic disclosures. This comment was intended to provide examples of the methods rather than an exhaustive list. In the November 2007 Final Electronic Disclosure Rule, the Board adopted the proposed changes to comment 5a(a)(2)-8 with several revisions. 72 FR 63462, Nov. 9, 2007; 72 FR 71058, Dec. 14, 2007.
In the June 2007 Proposal, the Board proposed to incorporate the “close proximity” standard for electronic applications and solicitations in § 226.5a(a)(2)(vi)(B), and the guidance regarding the location of the § 226.5a disclosures in electronic applications and solicitations in comment 5a(a)(2)-1.ii. This guidance, contained in proposed comment 5a(a)(2)-1.ii, was consistent with proposed changes to comment 5a(a)(2)-8, that provides guidance to issuers on providing access to electronic disclosures at the time the application form or solicitation reply form is made available in electronic form.
The final rule adopts § 226.5a(a)(2)(vi)(B) and comment 5a(a)(2)-1.ii as proposed, with several revisions. Specifically, comment 5a(a)(2)-1.ii is revised to be consistent with the revisions to comment 5a(a)(2)-8 made in the November 2007 Final Electronic Disclosure Rule. Comment 5a(a)(2)-1.ii provides that if the table required by § 226.5a is provided electronically, the table must be provided in close proximity to the application or solicitation. Card issuers have flexibility in satisfying this requirement. Methods card issuers could use to satisfy the requirement include, but are not limited to, the following examples: (1) The disclosures could automatically appear on the screen when the application or reply form appears; (2) the disclosures could be located on the same Web page as the application or reply form (whether or not they appear on the initial screen), if the application or reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable; (3) card issuers could provide a link to the electronic disclosures on or with the application (or reply form) as long as consumers cannot bypass the disclosures before submitting the application or reply form. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or (4) the disclosures could be located on the same Web page as the application or reply form without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application or reply. Whatever method is used, a card issuer need not confirm that the consumer has read the disclosures. Comment 5a(a)(2)-8 is deleted as unnecessary.
As discussed in the June 2007 Proposal, the Board believes that the “close proximity” standard is designed to ensure that the disclosures are easily noticeable to consumers, and this standard is not met when consumers are only given a link to the disclosures on the Web page containing the application (or reply form), but not the disclosures themselves. Thus, the Board retains the requirement that if an electronic link to the disclosures is used, the consumer must not be able to bypass the link before submitting an application or a reply form.
Currently, under § 226.5a, if the amount of a late-payment fee, over-the-limit fee, cash advance fee or balance transfer fee varies by state, a card issuer may either disclose in the table (1) the amount of the fee for all states; or (2) a range of fees and a statement that the amount of the fee varies by state.
The final rule adopts proposed § 226.5a(a)(4) with several modifications. The Board is revising proposed § 226.5a(a)(4) to provide that card issuers that impose a late-payment fee, over-the-limit fee, cash advance fee, balance transfer fee or returned-payment fee where the amount of those fees vary by state may, at the issuer's option, disclose in the table required by § 226.5a either (1) the specific fee applicable to the consumer's account, or (2) the range of the fees, if the disclosure includes a statement that the amount of the fee varies by state and refers the consumer to a disclosure provided with the § 226.5a table where the amount of the fee applicable to the consumer's account is disclosed, for example in a list of fees for all states. Listing fees for multiple states in the table is not permissible. For example, a card issuer may not list fees for all states in the table. Similarly, a card issuer that does business in six states may not list fees for all six of those states in the table. (Conforming changes are also made to comment 5a(a)(4)-1.)
As discussed in the section-by-section analysis to § 226.6(b)(1)(iii), the Board is adopting a similar rule for account-opening disclosures, with one notable exception discussed below. In general, a creditor must disclose the fee applicable to the consumer's account; listing all fees for all states in the account-opening summary table is not permissible. The Board is concerned in each case that an approach of listing all fees for all states would detract from the purpose of the table: to provide key information in a simplified way.
One difference between the fee disclosure requirement in § 226.5a(a)(4) and the similar requirement in § 226.6(b)(1)(iii) is that § 226.6(b)(1)(iii) limits use of the range of fees to point-of-sale situations while § 226.5a contains no similar limitation. As discussed further in the section-by-section analysis to § 226.6(b)(1)(iii), for creditors with retail stores in a number of states, it is not practicable to require fee-specific disclosures to be provided when an open-end (not home-secured) plan is established in person in connection with the purchase of goods or services. Thus, the final rule in § 226.6(b)(1)(iii) provides that creditors imposing fees such as late-payment fees
As with the account-opening table, the Board is concerned that including all fees for all states in the table required by § 226.5a would detract from the purpose of the table: to provide key information in a simplified way. Nonetheless, unlike with the account-opening table, the final rule does not limit the use of the range of fees for the table required by § 226.5a only to point-of-sale situations. With respect to the application and solicitation disclosures, there may be many situations in which it is impractical to provide the fee-specific disclosures with the application or solicitation, such as when the application is provided on the Internet or in “take-one” materials. For Internet or “take-one” applications or solicitations, a creditor will in most cases not be aware in which state the consumer resides and, consequently, will not be able to determine the amount of fees that would be charged to that consumer under applicable state law. The changes to § 226.5a(a)(4) are adopted in part pursuant to TILA Section 127(c)(5), which authorizes the Board to add or modify § 226.5a disclosures as necessary to carry out the purposes of TILA. 15 U.S.C. 1637(c)(5).
Section 226.5a currently contains several exceptions to the disclosure requirements. Some of these exceptions are in the regulation itself, while others are contained in the commentary. For clarity, in the June 2007 Proposal, the Board proposed to place all exceptions in new § 226.5a(a)(5). The final rule adopts new § 226.5a(a)(5) as proposed.
Section 226.5a(b) specifies the disclosures that are required to be included on or with certain credit card applications and solicitations.
Section 226.5a requires card issuers to disclose the rates applicable to the account, for purchases, cash advances, and balance transfers. 15 U.S.C. 1637(c)(1)(A)(i)(I).
The final rule adopts the 16-point font requirement in § 226.5a(b)(1) as proposed, with several revisions as described below. The purchase rate is one of the most important terms disclosed in the table, and it is essential that consumers be able to identify that rate easily. A 16-point font size requirement for the purchase APR appears to be sufficient to highlight the purchase APR. In consumer testing conducted for the Board prior to June 2007, versions of the table in which the purchase rate was the same font as other rates included in the table were reviewed. In other versions, the purchase rate was in 16-point type while other disclosures were in 10-point type. Participants tended to notice the purchase rate more often when it was in a font larger than the font used for other rates. Nonetheless, there was no evidence from consumer testing that it was necessary to use a font size of 18-point in order for the purchase APR to be noticeable to participants. Given that the Board is requiring a minimum of 10-point type for the disclosure of other terms in the table, based on document design principles, the Board believes that a 16-point font size for the purchase APR is effective in highlighting the purchase APR in the table.
The final rule requires that discounted initial rates for purchases must be in 16-point font. Section 226.5a(b)(1), as proposed, did not specifically prohibit disclosing any discounted initial rate in 16-point font but did not require such formatting. New § 226.5a(b)(1)(vii), discussed below, requires disclosure of the discounted initial rate in the table for issuers subject to final rules issued by the Board and other federal banking agencies published elsewhere in today's
The final rule in § 226.5a(b)(1) has also been revised to refer to discounted initial rates as “introductory” rates, as that term is defined in § 226.16(g)(2)(ii), for consistency.
1.
Accordingly, in the June 2007 Proposal, the Board proposed to amend § 226.5a(b)(1)(i) to specify that issuers may not disclose the amount of the index or margins in the table. Specifically, card issuers would not have been allowed to disclose in the table the current value of the index (for example, that the prime rate currently is 7.5 percent) or the amount of the margin that is used to calculate the variable rate. Card issuers would have been allowed to indicate only that the rate varies and the type of index used to determine the rate (such as the “prime rate,” for example). In describing the type of index, the issuer would have been precluded from including details about the index in the table. For example, if the issuer uses a prime rate, the issuer would have been allowed to describe the rate as tied to a “prime rate” and would not have been allowed to disclose in the table that the prime rate used is the highest prime rate published in the Wall Street Journal two business days before the closing date of the statement for each billing period.
Commenters generally supported the Board's proposal to amend § 226.5a(b)(1)(i) to specify that issuers may not disclose the amount of the index or margins in the table. Several commenters asked the Board to clarify that issuers may include the index and margin outside of the table, given that some consumers are interested in knowing the index and margin. One commenter suggested that issuers be allowed to disclose in the table additional information about the index used, such as the publication source of the index used to calculate the rate (
The final rule amends § 226.5a(b)(1)(i) as proposed to specify that issuers may not disclose the amount of the index or margins in the table. Section 226.5a(b)(1)(i) is not amended to allow issuers to disclose in the table additional information about the index used, such as the publication source of the index.
In addition, the Board did not amend the rule to provide that issuers only be allowed to refer to an index as a “prime rate” if it is a bank prime loan rate posted by the majority of the top 25 U.S. chartered commercial banks, as published by the Board. The Board believes that this rule is unnecessary at this time. Credit card issuers typically use a prime rate that is published in the Wall Street Journal, where that published prime rate is based on prime rates offered by the 30 largest U.S. banks, and is a widely accepted measure of prime rate.
2.
Several consumer group commenters suggested that the Board require floors and ceilings to be disclosed in the table because such information has a significant effect on consumers' economic risk. Several industry commenters suggested that the Board permit (but not require) issuers to include the floors and ceiling of the variable rate in the table so that consumers are aware of the potential variations in the rate. Section 226.5a(b)(1)(i) is revised to prohibit explicitly the disclosure of the rate floors and ceilings in the table, as proposed.
In addition, under TILA Sections 127(c)(6)(A) and 127(c)(7), as added by Sections 1303(a) and 1304 of the Bankruptcy Act, the term “introductory” must be used in immediate proximity to each listing of a discounted initial rate in a direct mail or electronic application or solicitation; or promotional materials accompanying such application or solicitation. In the June 2007 Proposal, the Board proposed to expand the requirement to other applications or solicitations where a table under § 226.5a is given, to promote the informed use of credit by consumers, pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). Thus, the Board proposed to add new § 226.5a(b)(1)(ii) to specify that if an issuer provides a discounted initial rate in the table along with the rate required to be disclosed, the card issuer must use the term “introductory” in immediate proximity to the listing of the initial discounted rate. Because “intro” is a commonly understood abbreviation of the term “introductory,” and consumer testing indicates that consumers understand this term, the Board proposed to allow creditors to use “intro” as an alternative to the requirement to use the term “introductory” and proposed to clarify this approach in new § 226.5a(b)(1)(ii). Also, to give card issuers guidance on the meaning of “immediate proximity,” the Board proposed to provide a safe harbor for card issuers that place the word “introductory” or “intro” within the same phrase as each listing of the discounted initial rate. This guidance was set forth in proposed comment 5a(b)(1)-3.
The Board adopts new § 226.5a(b)(1)(ii) and comment 5a(b)(1)-3, as proposed, with several modifications. Discounted initial rates are referred to as “introductory” rates, as that term is defined in § 226.16(g)(2)(ii), for consistency. In addition, as discussed below with respect to disclosing penalty rates, an issuer is required to disclose directly beneath the table the circumstances under which any discounted initial rate may be revoked and the rate that will apply after the discounted initial rate is revoked, if the issuer discloses the discounted initial rate in the table or in any written or electronic promotional materials accompanying a direct mail, electronic or take-one application or solicitation.
Comment 5a(b)(1)-3 has been amended to provide additional clarifications on discounted initial rates. Comment 5a(b)(1)-3.ii. has been added to clarify that an issuer's reservation of the right to change a rate after account opening, subject to the requirements of § 226.9(c), does not by itself make that rate an introductory rate, even if the issuer subsequently increases the rate after providing a change-in-terms notice. The comment notes, however, that issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
Section 226.5a(b)(1)(ii) in the final rule has been revised, and a new § 226.5a(b)(1)(vii) has been added as discussed below, to provide that certain issuers must disclose any introductory rate applicable to the account in the table. Creditors that are subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
Consistent with those final rules, for such issuers, the Board believes that disclosure of introductory rates should be as prominent as other rates disclosed in the tabular summary given at account opening. Therefore, as discussed in the section-by-section analysis to § 226.6(b)(2)(i), the Board is requiring that a creditor subject to those rules must disclose any introductory rate in the account-opening table provided pursuant to § 226.6.
For consistency, the Board also is requiring in the final rule that such issuers also disclose any introductory rate in the table provided with applications and solicitations. The Board believes that this will promote consistency throughout the life of an account and will enable consumers to better compare the terms that the consumer receives at account opening with the terms that were offered. Thus, § 226.5a(b)(1)(vii) has been added to the final rule to clarify that an issuer subject to 12 CFR 227.24 or similar law must disclose in the tabular disclosures given pursuant to § 226.5a any introductory rate that will apply to a consumer's account. The Board believes that it is important that any issuer required to disclose an introductory rate applicable to a consumer's account highlights that introductory rate or rates by disclosing it in the § 226.5a table.
Similarly, and for the same reasons stated above, § 226.5a(b)(1)(vii) also requires that card issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
Currently, the specific event or events must be described outside the table with a reference (an asterisk or other means) included with the penalty APR in the table to direct the consumer to the additional information. At its option, the issuer may include outside the table an explanation of the period for which the increased rate will remain in effect, such as “until you make three timely payments.” The issuer need not disclose an increased rate that is imposed if credit privileges are permanently terminated.
In the consumer testing conducted for the Board prior to June 2007, when reviewing forms in which the specific events that trigger the penalty rate were disclosed outside the table, many participants did not readily notice the penalty rate triggers when they initially read through the document or when asked follow-up questions. In addition, many participants did not readily notice the penalty rate when it was included in the “Other APRs” row along with other rates. The GAO also found that consumers had difficulty identifying the default rate and circumstances that would trigger rate increases.
As a result of this testing, in the June 2007 Proposal, the Board proposed to add § 226.5a(b)(1)(iv) and amend new comment 5a(b)(1)-4 (previously comment 5a(b)(1)-7) to require card issuers to briefly disclose in the table the specific event or events that may result in the imposition of a 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.
The Board also proposed to specify in new § 226.5a(b)(1)(iv) that in disclosing a penalty rate, a card issuer also must specify the balances to which the increased rate will apply. This proposal was based on the Board's understanding that, currently, card issuers typically apply the increased rate to all balances on the account. The Board believed that this information would help consumers better understand the consequences of triggering the penalty rate.
In addition, the Board proposed to specify in new § 226.5a(b)(1)(iv) that in disclosing the penalty rate, a card issuer must describe how long the increased rate will apply. The Board proposed to amend proposed comment 5a(b)(1)-4 to provide that in describing how long the increased rate will remain in effect, the description should be brief, and referred issuers to Samples G-10(B) and G-10(C) for guidance on the level of detail that issuer should use to describe how long the increased rate will remain in effect. Also, proposed comment 5a(b)(1)-4 would have provided that if a card issuer reserves the right to apply the increased rate indefinitely, that fact should be stated. The Board stated its belief that this information may help consumers better understand the consequences of triggering the penalty rate.
Also, the Board proposed to add language to new § 226.5a(b)(1)(iv) to specify that in disclosing a penalty rate, card issuers must include a brief description of the circumstances under which any discounted initial rates may be revoked and the rate that will apply after the discounted initial rate is revoked. Sections 1303(a) and 1304 of the Bankruptcy Act require that for a direct mail or electronic credit card application or solicitation, a clear and conspicuous description of the circumstances that may result in revocation of a discounted initial rate offered with the card and the rate that will apply after the discounted initial rate is revoked must be disclosed in a prominent location on or with the application or solicitation. 15 U.S.C. 1637(c)(6)(C). The Board proposed that this information be disclosed in the table along with other penalty rate information for all applications and solicitations where a table under § 226.5a is given, to promote the informed use of credit by consumers, pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a).
In response to the June 2007 Proposal, some consumer group commenters 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.
In the May 2008 Proposal, the Board proposed to delete the current provision that an issuer need not disclose in the table an increased rate that would be imposed if credit privileges are permanently terminated. Most consumer groups and industry commenters supported this aspect of the proposal.
The final rule adopts new § 226.5a(b)(1)(iv) and comment 5a(b)(1)-5 (proposed as comment 5a(b)(1)-4) as proposed in the May 2008 Proposal with several revisions. Section 226.5a(b)(1)(iv)(A) sets forth the disclosures that are required when rates that are not introductory rates may be increased as a penalty for one or more events specified in the account agreement. The final rule specifies that for rates that are not introductory rates, if a rate may increase as a penalty for one or more events specified in the account agreement, such as a late payment or an extension of credit that exceeds the credit limit, the card issuer must disclose the increased rate that would apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect. Samples G-10(B) and G-10(C) (in the row labeled “Penalty APR and When it Applies”) provide guidance to card issuers on how to meet the requirements in § 226.5a(b)(1)(iv)(A) and accompanying comment 5a(b)(1)-5. An issuer may use phrasing similar to either Sample G-10(B) or G-10(C) to disclose how long the increased rate will remain in effect, modified as appropriate to accurately reflect the terms offered by that issuer.
The proposed requirement that issuers must disclose a description of the types of balances to which the
Similarly, issuers that apply penalty pricing only to some balances on the account, specifically issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
The Board has amended comment 5a(b)(1)-5.i. (proposed as comment 5a(b)(1)-4) to provide specific guidance to issuers that are subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
In addition, as proposed in May 2008, the final rule deletes the current provision that an issuer need not disclose an increased rate that would be imposed if credit privileges were permanently terminated.
A commenter in response to the May 2008 Proposal asked for clarification of the interplay between the requirement to disclose an increased rate when credit privileges are permanently terminated and the restriction on issuers' ability to apply increased rates to existing balances, proposed by the Board and other federal banking agencies.
Section 226.5a(b)(1)(iv)(B) sets forth the disclosures that are required when discounted initial rates may be increased as a penalty for one or more events specified in the account agreement. (In § 226.5a(b)(1)(iv)(B), discounted initial rates are referred to as “introductory” rates, as that term is defined in § 226.16(g)(2)(ii), for consistency.) Specifically, § 226.5a(b)(1)(iv)(B) of the final rule states that an issuer is required to disclose directly beneath the table the circumstances under which any discounted initial rate may be revoked and the rate that will apply after the discounted initial rate is revoked only if the issuer discloses the discounted initial rate in the table, or in any written or electronic promotional materials accompanying a direct mail, electronic or take-one application or solicitation. As revised, this provision is consistent with the Bankruptcy Act requirement that a credit card application or solicitation must clearly and conspicuously disclose in a prominent location on or with the application or solicitation a general description of the circumstances that may result in revocation of a discounted initial rate offered with the card. Therefore, to the extent that an issuer is promoting the discounted initial rate in the disclosure table provided with the application or solicitation or in the promotional materials accompanying the application or solicitation, the issuer must also disclose directly beneath the table the circumstances that may result in revocation of the discounted initial rate, and the rate that will apply after the discounted initial rate is revoked. Requiring issuers to disclose that information directly beneath the table will help consumers better understand the terms under which the discounted initial rate is being offered on the account.
The final rule requires that the circumstances under which a discounted initial rate may be revoked be disclosed directly beneath the table, rather than in the table. Credit card issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
Comment 5a(b)(1)-5 (proposed as comment 5a(b)(1)-4) is restructured to be consistent with new § 226.5a(b)(1)(iv). In addition, comment 5a(b)(1)-5.ii. is revised to clarify that the information about revocation of a discounted initial rate and the rate that will apply after revocation must be provided even if the rate that will apply after the discounted initial rate is revoked is the rate that would have applied at the end of the promotional period, and not a higher “penalty rate.” Also, comment 5a(b)(1)-5.ii. clarifies that in describing the rate that will apply after revocation of the discounted initial rate, if the rate that will apply after revocation of the discounted initial rate is already disclosed in the table, the issuer is not required to repeat the rate, but may refer to that rate in a clear and conspicuous manner. For example, if the rate that will apply after revocation of a discounted initial rate is the standard rate that applies to that type of transaction (such as a purchase or balance transfer transaction), and the standard rates are labeled in the table as “standard APRs,” the issuer may refer to the “standard APR” when describing the rate that will apply after revocation of a discounted initial rate.
In addition, comment 5a(b)(1)-5.ii. is revised to specify that the description of the circumstances in which a discounted initial rate could be revoked should be brief. For example, if an issuer may increase a discounted initial rate because the consumer does not make the minimum payment within 30 days of the due date, the issuer should describe this circumstance directly beneath the table as “make a late payment.” In addition, if the circumstances in which a discounted initial rate could be revoked are already listed elsewhere in the table, the issuer is not required to repeat the circumstances again, but may refer to those circumstances in a clear and conspicuous manner. For example, if the circumstances in which an initial discounted rate could be revoked are the same as the event or events that may trigger a “penalty rate” as described in § 226.5a(b)(1)(iv)(A), the issuer may refer to the actions listed in the Penalty APR row, in describing the circumstances in which the introductory rate could be revoked. Sample G-10(C) sets forth a disclosure labeled “Loss of Introductory APR” directly below the table to provide guidance to card issuers on how to meet the requirements in § 226.5a(b)(1)(iv)(B) and accompanying comment 5a(b)(1)-5.
Comment 5a(b)(1)-5.iii. also has been included in the final rule to expressly note that issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
In the June 2007 Proposal, the Board proposed to add § 226.5(b)(1)(v) and comment 5a(b)(1)-5 to address the circumstances in which an issuer is not required to state a single specific rate being offered at the time disclosures are given because the rate will depend on a later determination of the consumer's creditworthiness. In this situation, issuers would have been required to disclose the possible rates that might apply, and a statement that the rate for which the consumer may qualify at account opening depends on the consumer's creditworthiness. Under the proposal, a card issuer would have been allowed to disclose the possible rates as either specific rates or a range of rates. For example, if there are three possible rates that may apply (
In response to the June 2007 Proposal, several consumer group commenters suggested that the Board should not allow issuers to disclose a range of possible rates. Instead, issuers should be required to disclose the actual APR that the issuer is offering the consumer, because otherwise, consumers do not know the rate for which they are applying. Industry commenters generally supported the proposal clarifying that issuers may disclose the specific rates or range of possible rates, with an explanation that the rate obtained by the consumer is based on the consumer's creditworthiness. Several commenters suggested that the Board also allow issuers to disclose the highest APR that may apply instead of a range of rates, because they believed that this approach might be less confusing to consumers than seeing a range of rates. For example, a consumer may focus on the lowest rate in a range and be surprised when the final rate is higher than this lowest rate. Also, if the highest rate was the only rate disclosed, a consumer would not be upset by obtaining a lower rate than the rate initially disclosed. Other commenters indicated that disclosing only the highest APR should not be allowed, because consumers may believe this would be the APR that applied to them even though the highest APR may apply only to a small group of consumers solicited.
In addition, one commenter indicated that for some issuers, especially in the private label market, the actual rate for which a consumer qualifies may be determined using multiple factors, including the consumer's creditworthiness, whether the consumer is contemplating a purchase with the retailer named on the private label card, and other factors.
The Board adopts § 226.5a(b)(1)(v) and comment 5a(b)(1)-6 (proposed as comment 5a(b)(1)-5) with several revisions. Consistent with the proposal, § 226.5a(b)(1)(v) specifies that if a rate cannot be determined at the time disclosures are given because the rate
Nonetheless, if the rate is a penalty rate, the card issuer at its option may disclose the highest rate that could apply, instead of disclosing the specific rates or the range of rates that could apply.
Comment 5a(b)(1)-6 (proposed as comment 5a(b)(1)-5) also is revised to clarify that § 226.5a(b)(1)(v) applies even if other factors are used in combination with a consumer's creditworthiness to determine the rate for which a consumer may qualify at account opening. For example, § 226.5a(b)(1)(v) would apply if the issuer considers the type of purchase the consumer is making at the time the consumer opens the account, in combination with the consumer's creditworthiness, to determine the rate for which the consumer may qualify at account opening. If other factors are considered, the issuer must amend the statement about creditworthiness, to indicate that the rate for which the consumer may qualify at account opening will depend on the consumer's creditworthiness and other factors. Nonetheless, if a consumer's creditworthiness is not one of the factors that will determine the rate for which the consumer may qualify at account opening (for example, if the rate is based solely on the type of purchase that the consumer is making at the time the consumer opens the account, or is based solely on whether the consumer has other banking relationships with the card issuer), § 226.5a(b)(1)(v) does not apply.
The Board is not requiring an issuer to provide the actual rate that the issuer is offering the consumer if that rate is not known. As explained above, issuers that use risk-based pricing may not be able to disclose the specific rate that would apply to a consumer because issuers may not have sufficient information about a consumer's creditworthiness at the time the application is given.
Proposed Samples G-10(B) and G-10(C) would have provided guidance for issuers on how to meet the requirements to provide the specific rates or the range of rates that could apply and a statement that the rate for which the consumer may qualify at account opening will depend on the consumer's creditworthiness. Specifically, proposed Samples G-10(B) and G-10(C) would have provided that issuers may meet these requirements by providing the specific rates or the range of rates and stating that the rate for which the consumer qualifies would be “based on your creditworthiness.” As discussed above, in response to the June 2007 Proposal, one commenter indicated that for some issuers, especially in the private label market, the actual rate for which a consumer qualifies may be determined using multiple factors, including the consumer's creditworthiness, whether the consumer is contemplating a purchase with the retailer named on the private label card and other factors. Samples G-10(B) and G-10(C) as adopted contain the phrase “based on your creditworthiness,” but pursuant to § 226.5a(b)(1)(v) discussed above, a creditor that considers other factors in addition to a consumer's creditworthiness in determining the APR applicable to a consumer's account would use language such as “based on your creditworthiness and other factors.”
In response to the June 2007 Proposal, several industry commenters suggested that the cross reference be eliminated, as unnecessary and leading to “information overload.” In addition, one industry commenter suggested that the Board also require a cross reference from the purchase APR to any transaction fee on purchases. One industry commenter suggested that issuers be allowed to modify the cross reference to state when the cash advance fee or balance transfer fee will not apply, such as “Cash advance fees will apply to cash advances except for convenience checks and fund transfers to other accounts with us.” In addition, one industry commenter asked the Board for clarification on whether a 0 percent APR required the cross reference between the rate and the fee.
In quantitative consumer testing conducted for the Board after the May 2008 Proposal, the Board investigated whether the presence of a cross reference from the balance transfer APR to the balance transfer fee improved consumers' awareness of and ability to identify the balance transfer fee. The results of the testing indicate that there was no statistically significant improvement in consumers' ability to identify the balance transfer fee if the cross reference was present. Given the results of the consumer testing and concerns about “information overload,” the Board has withdrawn proposed § 226.5a(b)(1)(vi). Proposed comment 5a(b)(1)-6, which would have given guidance on how to present a cross reference between a rate and fee, also is withdrawn.
The Board is concerned that such an approach of disclosing the rates for all states in the table (or having a table for each state) would detract from the purpose of the table: To provide key information in a simplified way. Thus, consistent with the reasons discussed in the section-by-section analysis to § 226.5a(a)(4) with respect to fees that vary by state, the final rule adds § 226.5a(b)(1)(vi) to provide that card issuers imposing APRs that vary by state may, at the issuer's option, disclose in the table required by § 226.5a either (1) the specific APR applicable to the consumer's account, or (2) the range of APRs, if the disclosure includes a statement that the APR varies by state and refers the consumer to a disclosure provided with the § 226.5a table where the APR applicable to the consumer's account is disclosed, for example in a list of APRs for all states. Listing APRs for multiple states in the table (or having a table for each state) is not permissible. In addition, as discussed above, comment 5a(a)(2)-2 currently provides, in relevant part, that if rates or other terms vary by state, card issuers may list the states and the various disclosures in a single table or in a separate table. Because under the final rule, an issuer would no longer be allowed to list fees or rates for multiple states in the table (or have a table for each state), this provision in comment 5a(a)(2)-2 is deleted as obsolete. These changes to § 226.5a and comment 5a(a)(2)-2 are adopted in part pursuant to TILA Section 127(c)(5), which authorizes the Board to add or modify § 226.5a disclosures as necessary to carry out the purposes of TILA. 15 U.S.C. 1637(c)(5).
In the June 2007 Proposal, the Board did not propose that card issuers disclose the “typical rate” as part of the § 226.5a disclosures because the Board did not believe that the proposed typical APR would be helpful to consumers that seek credit cards. There are many different ways consumers may use their credit cards, such as the features they use, what fees they incur, and whether a balance is carried from month to month. For example, some consumers use their cards only for purchases, always pay off the bill in full, and never incur fees. Other consumers may use their cards for purchases, balance transfers or cash advances, but never incur late-payment fees, over-the-limit fees or other penalty fees. Still others may incur penalty fees and penalty rates. A “typical rate,” however, would be based on average fees and average balances that may not be typical for many consumers. Moreover, such a rate may confuse consumers about the actual rate that may apply to their account.
In response to the June 2007 Proposal, several consumers groups again suggested that the Board reconsider the issue of disclosing a “typical rate” in the table required by § 226.5a. The Board continues to believe that the proposed typical APR would not be helpful to consumers that seek credit cards for the reasons stated above. Thus, a requirement to disclose a “typical rate” is not included in the final rule.
Section 226.5a(b)(2), which implements TILA Section 127(c)(1)(A)(ii)(I), requires card issuers to disclose any annual or other periodic fee, expressed as an annualized amount, that is imposed for the issuance or availability of a credit card, including any fee based on account activity or inactivity. 15 U.S.C. 1637(c)(1)(A)(ii)(I). In 1989, the Board used its authority under TILA Section 127(c)(5) to require that issuers also disclose non-periodic fees related to opening the account, such as one-time membership or participation fees. 15 U.S.C. 1637(c)(5); 54 FR 13855, Apr. 6, 1989.
In the June 2007 Proposal, the Board proposed to amend § 226.5a(b)(2) to require additional information about periodic fees. 15 U.S.C. 1637(c)(5). Currently, issuers are required to disclose only the annualized amount of the fee. The Board proposed to amend § 226.5a(b)(2) to require issuers also to disclose the amount of the periodic fee, and how frequently it will be imposed. For example, if an issuer imposes a $10 monthly maintenance fee for a card account, the issuer must disclose in the table that there is a $10 monthly maintenance fee, and that the fee is $120 on an annual basis.
In addition, the Board proposed to amend § 226.5a(b)(2) to require additional information about non-periodic fees related to opening the account. Currently, issuers are required to disclose the amount of the non-periodic fee, but not that it is a one-time fee. The Board proposed to amend § 226.5a(b)(2) to require card issuers to disclose the amount of the fee and that it is a one-time fee. The final rule adopts § 226.5a(b)(2) as proposed. The Board believes that this additional information
In addition, application fees that are charged regardless of whether the consumer receives credit currently are not considered fees as imposed for the issuance or availability of a credit card, and thus are not disclosed in the table.
Currently, and under the June 2007 and May 2008 Proposals, comment 5a(b)(2)-2 provides that fees for optional services in addition to basic membership privileges in a credit or charge card account (for example, travel insurance or card-registration services) shall not be disclosed in the table if the basic account may be opened without paying such fees. The Board is aware that some subprime cards may charge a fee for an additional card on the account, beyond the first card on the account. For example, if there were two primary cardholders listed on the account, only one card on the account would be issued, and the cardholders would be charged a fee for another card if the cardholders request an additional card, so that each cardholder would have his or her own card. The Board is amending comment 5a(b)(2)-2 to clarify that issuing a card to each primary cardholder (not authorized users) is considered a basic membership privilege and fees for additional cards, beyond the first card on the account, must be disclosed as a fee for issuance or availability. Thus, a fee to obtain an additional card on the account beyond the first card (so that each primary cardholder would have his or her own card) must be disclosed in the table as a fee for issuance or availability under § 226.5a(b)(2). This fee must be disclosed even if the fee is optional in that the fee is charged only if the cardholder requests one or more additional cards.
Currently, § 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 (
In the June 2007 Proposal, the Board proposed to retain the minimum finance charge disclosure in the table but refer to the charge as a “minimum interest charge” or “minimum charge” in the table, as discussed in the section-by-section analysis to Appendix G. 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 were 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 and consumers would not receive important information about the cost of the credit card. The Board also did not propose a de minimis minimum finance charge threshold. 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 § 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.
In response to the June 2007 Proposal, several industry commenters 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 finance 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. Consumer groups agreed with the Board's proposal to require the disclosure of the minimum finance charge in all cases and not to allow issuers to exclude the minimum finance charge from the table if the charge was under a certain specific amount.
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 finance charge, labeled as a “minimum interest charge,” was disclosed. In the other disclosure table, no minimum finance charge was disclosed. None of the participants indicated that the small minimum finance charge on one card but not on the other would impact their decision to choose one card over the other.
Based on this consumer testing, the Board proposed in May 2008 to revise proposed § 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 the Board's authority under TILA Section 127(c)(5) which authorizes the Board to add or modify § 226.5a disclosures as necessary to carry out the purposes of TILA. 15 U.S.C. 1637(c)(5). The proposed rule would have continued to require disclosure in the table if any minimum or fixed finance charge was over this de minimis amount to ensure that consumers are aware of larger minimum or fixed finance charges that might impact them. Under the proposal, the $1.00 amount would have been adjusted to the next whole dollar amount when the sum of annual percentage changes in the Consumer Price Index in effect on June 1 of previous years equals or exceeds $1.00.
In response to the May 2008 Proposal, industry commenters generally supported this aspect of the proposal. One industry commenter suggested a
The minimum interest charge was also tested in the Board's qualitative consumer testing. In the two rounds of consumer testing conducted by the Board after the May 2008 Proposal, participants were asked to compare disclosure tables for two credit card accounts. In one of the disclosure tables, a small minimum interest charge was disclosed. In the other disclosure table, no minimum interest charge was disclosed. Participants were specifically asked whether the minimum interest charge would influence which card they would choose. Of the participants who understood what a minimum interest charge was, almost all said that the minimum interest charge would not play a significant role in their decision whether or not to apply for the card that disclosed the minimum interest charge because of the small amount of the fee.
The final rule retains the $1.00 threshold, as proposed, in § 226.5a(b)(3) with several modifications. Pursuant to the Board's authority under TILA Section 127(c)(5), the final rule retains the $1.00 threshold for minimum interest charges because the Board believes that when the minimum interest charge is a de minimis amount (
In addition, in a technical edit, the final rule is amended to specify that the $1.00 amount would be adjusted periodically by the Board to reflect changes in the Consumer Price Index. The final rule specifies that the Board shall calculate each year a price level adjusted minimum interest charge using the Consumer Price Index in effect on the June 1 of that year. When the cumulative change in the adjusted minimum value derived from applying the annual Consumer Price level to the current minimum interest charge threshold has risen by a whole dollar, the minimum interest charge will be increased by $1.00. Comments 5a(b)(3)-1 and -2 are also adopted with technical modifications.
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 § 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. 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 prior to the June 2007 Proposal, participants did not 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, in the June 2007 Proposal, the Board proposed to except foreign transaction fees from disclosure of transaction fees in an application or solicitation, but to include such fees in the proposed account-opening summary table to ensure that interested consumers can learn of the fees before using the card.
In response to the June 2007 Proposal, some consumer group commenters recommended that the Board mandate disclosure of foreign transaction fees in the table required under § 226.5a. They questioned the utility of the Board requiring foreign transaction fees in the account-opening table required under § 226.6, but prohibiting those fees to be disclosed in the table under § 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 § 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.
In the May 2008 Proposal, the Board proposed to require that foreign transaction fees imposed by the card issuer must be disclosed in the table required under § 226.5a. Specifically, the Board proposed to withdraw proposed § 226.5a(b)(4)(ii), which would have precluded a card issuer from disclosing a foreign transaction fee in the table required by § 226.5a. In addition, the Board proposed 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 § 226.5a.
In the May 2008 Proposal, the Board noted its concern about the inconsistency in requiring foreign transaction fees in the account-opening table required by § 226.6, but prohibiting that fee in the table required by § 226.5a. In the June 2007 Proposal, the Board proposed that issuers may substitute the account-opening table for the table required by § 226.5a.
In response to the May 2008 Proposal, most consumer group and industry commenters supported the Board's proposal to require issuers to disclose foreign transaction fees in the table required by § 226.5a. Nonetheless, some industry commenters opposed the proposal because they believed that consumers would not shop on these fees. One industry commenter indicated that disclosing the foreign transaction fee in the table only in connection with purchases may be misleading to consumers as some issuers also charge this fee on cash advances in foreign currencies or in foreign countries. This commenter noted that in the June 2007 Proposal, the Board identified this fee in proposed § 226.5a(b)(4)(ii) as “a fee imposed by the issuer for transactions made in a foreign currency or that take place in a foreign country.” This commenter encouraged the Board to adopt similar “transaction” language in the final rule for § 226.5a(b)(4).
Comment 5a(b)(4)-2 is adopted as proposed in the May 2008 Proposal with several modifications. As discussed above, the final rule requires issuers to disclose foreign transaction fees in the table required by § 226.5a, to be consistent with the requirement to disclose that fee in the account-opening table required by § 226.6. In addition, foreign transaction fees could be relevant to consumers who travel in other countries or conduct transactions in foreign currencies, and the ability to choose a credit card based on the presence of the fee may be important to those consumers.
The Board notes that § 226.5a(b)(4) requires issuers to disclose any transaction charge imposed by the card issuer for the use of the card for purchases. Thus, comment 5a(b)(4)-2 clarifies that a transaction charge imposed by the card issuer for the use of the card for purchases includes any fee imposed by the issuer for purchases in a foreign currency or that take place outside the United States or with a foreign merchant. As noted by one commenter on the May 2008 Proposal, some issuers also charge a foreign transaction fee on cash advances in foreign currencies or in foreign countries. Issuers that charge a foreign transaction fee on cash advances in foreign currencies or in foreign countries are required to disclose that fee under § 226.5a(b)(8), which requires the issuer to disclose in the table any fee imposed for an extension of credit in the form of cash or its equivalent. Comment 5a(b)(8)-2 is added to clarify that cash advance fees include any charge imposed by the card issuer for cash advances in a foreign currency or that take place in a foreign country. In addition, both comments 5a(b)(4)-2 and 5a(b)(8)-2 clarify that if an issuer charges the same foreign transaction fee for purchases and cash advances in a foreign currency or in a foreign country, the issuer may disclose this foreign transaction fee as shown in Samples G-10(B) and G-10(C). Otherwise, the issuer will need to revise the foreign transaction fee language shown in Samples G-10(B) and G-10(C) to disclose clearly and conspicuously the amount of the foreign transaction fee that applies to purchases and the amount of the foreign transaction fee that applies to cash advances. Moreover, both comments 5a(b)(4)-2 and 5a(b)(8)-2 include a cross reference to comment 4(a)-4 for guidance on when a foreign transaction fee is considered charged by the card issuer.
Currently, § 226.5a(b)(5), which implements TILA Section 127(c)(A)(iii)(I), requires that card issuers disclose in the § 226.5a table 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)(iii), which implements TILA Section 122(c)(2)(C), requires credit card applications and solicitations under § 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 § 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.
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” in the § 226.5a table, 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 its research as well as that conducted by the Board and the GAO had 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.”
In the May 2008 Proposal, the Board proposed to use its exemption authority to delete the requirement to use the term “grace period” in the table required by § 226.5a. 15 U.S.C. 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 the June 2007 Proposal indicated that some participants misunderstood the term “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
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 participants in its testing, 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
In consumer testing conducted by the Board prior to the June 2007 Proposal, the Board tested the phrase “interest-free period.” The Board found that some consumers believed the phase “interest-free period” referred to the period of time that a zero percent introductory rate would be in effect, instead of the grace period. Subsequently, 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. Participants seemed to understand this phrase to mean that no grace period was being offered on the use of the access check. Thus, in the May 2008 Proposal the Board proposed to revise proposed § 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 would have been required to use the phrase “Paying Interest,” or a substantially similar phrase, as the heading for the row describing that no grace period is offered.
Comments on this aspect of the May 2008 Proposal were mixed. Some consumer group and industry commenters supported the new headings. Some of these commenters suggested that the new headings be mandated, that is, the Board should not allow “substantially similar” phrases to be used. Other industry and consumer group commenters suggested that the Board retain the use of the term “grace period” because they claimed that consumers generally understand the “grace period” phrase. In addition, other industry commenters suggested that the Board mandate one row heading (regardless of whether there is a grace period or not) and that heading should be “interest-free period.” These commenters believed that the phrase “interest-free period” would help consumers better understand the “grace period” concept generally and would reinforce for consumers that they pay interest from the date of the transaction for transactions other than purchases.
In one of the rounds of consumer testing conducted by the Board after the May 2008 Proposal, the following three headings were tested for describing the “grace period” concept: “How to Avoid Paying Interest on Purchases,” “Grace Period” and “Interest-free Period.” Participants in this round of testing were asked which of the three headings most clearly communicates the information contained in that row of the table. Most of the participants selected the heading “How to Avoid Paying Interest on Purchases.” A few of the participants selected the heading “Interest-Free Period.” None of the participants selected “Grace Period” as the best heading. A few participants commented that the term “grace period” was misleading because some people might think of a “grace period” as a period of time after the due date that a consumer could pay without being considered late. In addition, the Board believes that the heading “How to Avoid Paying Interest on Purchases” communicates in plain language the concept of the “grace period,” without requiring consumers to understand a specific phrase like “grace period” or “interest-free period” to represent that concept.
In addition, in the consumer testing conducted after the May 2008 Proposal, the Board continued to test the phrase “Paying Interest” as a disclosure heading in the context of a check that accesses a credit card account, where no grace period was offered on this access check. When asked whether there was any way to avoid paying interest on transactions made with the access check, most participants in these rounds of testing understood the “Paying Interest” phrase to mean that no grace period was being offered on the use of the access check. Thus, the final rule in § 226.5a(b)(5) adopts the new headings as proposed in May 2008, pursuant to the Board's authority in TILA Section 105(a) to provide exceptions necessary or proper to effectuate the purposes of TILA. 15 U.S.C. 1604(a).
Although the heading of the row will change depending on whether or not a grace period for all purchases is offered on the account, the Board does not believe that different headings will significantly undercut a consumer's ability to compare terms of credit card accounts. Most issuers offer a grace period on all purchases; thus, most issuers will use the term “How to Avoid Paying Interest on Purchases.” Nonetheless, in those cases where a consumer is reviewing the tables for two credit card offers—one which has a row with the heading “How to Avoid Paying Interest on Purchases” and one with a row “Paying Interest”—the Board believes that consumers will recognize that the information in those two rows relate to the same concept of when consumers will pay interest on the account.
As discussed above, some commenters suggested that the new headings be mandated to promote uniformity of the table, that is, the Board should not allow “substantially similar” phrases to be used. The Board agrees that consistent headings are important to enable consumers to better compare grace periods for different offers. Section 226.5a(b)(5) specifies that in disclosing a grace period that applies to all types of purchases in the table, the phrase “How to Avoid Paying Interest on Purchases” must be used as the heading for the row describing the grace period. If a grace period is not offered on all types of purchases or is not offered on any purchases, in describing this fact in the table, the phrase “Paying Interest” must be used as the heading for the row describing this fact.
As discussed above, § 226.5a(b)(5) currently requires that card issuers disclose in the § 226.5a table 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 § 226.5a(b)(5) to require card issuers to disclose briefly any conditions on the applicability of the grace period. The Board also proposed to amend comment 5a(b)(5)-1 to provide guidance for how issuers may meet the requirements in proposed § 226.5a(b)(5). Specifically, proposed comment 5a(b)(5)-1 would have 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 to disclose conditions on the applicability of the grace period by providing the
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 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.
Two industry commenters to the June 2007 Proposal noted that the “grace period” description in proposed sample forms was conditioned on “if you pay your entire balance in full each month.” One commenter suggested deleting the phrase as unnecessary; another asked the Board to provide flexibility in the description for creditors that offer a grace period on purchases if the purchase (not the entire) balance is paid in full.
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. That is, they understood that they could avoid paying interest on purchases is they paid their bill by the due date each month. Thus, in May 2008, the Board proposed to amend comment 5a(b)(5)-1 to provide this language as guidance to issuers on how to disclose a grace period. The Board noted that currently issuers typically require consumers to pay their entire balance in full each month to qualify for a grace period on purchases. However, in May 2008, the Board and other federal banking agencies proposed to prohibit most issuers from requiring consumers to pay off promotional balances in order to receive any grace period offered on non-promotional 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 for which a grace period was not offered, 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 they could not avoid paying interest on this check transaction, and therefore, that no grace period was being offered on this check transaction. Thus, in May 2008, the Board proposed 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 have provided 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.”
In response to the May 2008 Proposal, several industry commenters urged the Board to provide flexibility for card issuers to amend the “grace period” language to allow for a more accurate description of the grace period as may be appropriate or necessary. For example, these commenters indicated that this flexibility is needed since promotional balances may be described with more particularity (or using different terminology) on billing statements and elsewhere, and also since there may be circumstances in which the grace period could be conditioned on additional factors, aside from payment of a balance in full. In addition, several industry commenters noted that if the interagency proposal to prohibit most issuers from treating a payment as late unless consumers have been provided a reasonable amount of time to make that payment is adopted, issuers may have two due dates each month—one for the grace period end date and one for when payments will be considered late. Issuers would need flexibility to amend the grace period language to reference clearly the grace period end date. Also, several consumer group commenters suggested that the Board not adopt the proposed model language when a grace period is not offered on purchases, namely “We will begin charging interest on purchases on the transaction date.” These commenters suggested instead that the Board mandate the following language: “No grace period.”
In consumer testing conducted by the Board after the May 2008 Proposal, the Board tested the following language describing the 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 outstanding balance (excluding promotional balances) by the due date each month.” When asked whether there was any way not to pay interest on purchase, most participants noticed the language describing the grace period and appeared generally to understand that they could avoid paying interest on purchases by paying their balance in full each month. Nonetheless, most participants did not understand the phrase “(excluding promotional balances).” In the context of testing a disclosure related to an access check for which a grace period was not offered, the Board tested the following language: “We will begin charging interest on these check transactions on the transaction date.” When asked where there was any way to avoid paying interest on these check transactions, most participants saw the above language and understood that there was no grace period for these check transactions.
Based on this testing, the Board adopts in comment 5a(b)(5)-1 the model language proposed in May 2008 for describing a grace period that is offered on all types of purchases, with one modification. Specifically, the phrase “(excluding promotional balances)” is deleted from the model language. Thus, the model language is revised to read: “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 by the due date each month.” As discussed in supplemental information to final rules issued by the Board and other federal banking agencies published elsewhere in today's
The final rule adopts in comment 5a(b)(5)-2 the following model language proposed in May 2008 to describe that no grace period on any purchases is
The Board's language in 5a(b)(5)-1 for describing a grace period on all purchases, and in 5a(b)(5)-2 for describing that no grace period exists on any purchases is not mandatory. This model language is meant as a safe harbor for issuers. Credit card issuers may amend this language as necessary or appropriate to describe accurately the grace period (or lack of grace period) offered on purchases on the account.
TILA Section 127(c)(1)(A)(iv) requires the Board to name not more than five of the most common balance computation methods used by credit card issuers to calculate the balance for purchases 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, § 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 § 226.5a, but 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, however, the issuer must disclose a detailed explanation of the balance computation method.
Commenters generally supported the proposal. Many consumers urged the Board to ban the use of a computation method commonly called “two-cycle” as unfair. A federal banking agency urged the Board to require “cautionary disclosures” where technical explanations were insufficient, such as a for a description of two-cycle billing. Two commenters suggested expanding the list of commonly-used methods in § 226.5a(g) to include the daily balance method. One industry commenter suggested eliminating the requirement to provide the name of the balance computation method, and requiring a toll-free telephone number or an optional reference to the creditor's Web site instead.
Currently, the Board in § 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.
In May 2008, the Board and other federal banking agencies proposed to prohibit most issuers from using a balance computation method commonly referred to as the “two-cycle” balance method.
In response to the May 2008 Proposal, several consumer groups suggested that the Board consider requiring issuers that use the two-cycle method to disclose that “this method is the most expensive balance computation method and is prohibited for most credit card issuers,” assuming that the banking agencies' proposed rules prohibiting most issuers from using the “two cycle” method goes forward. In addition, these consumer groups continued to advocate use of an “Energy Star” approach in describing the balance calculation methods, where each balance computation method would be rated on how expensive it is, and that rating would be disclosed.
The Board is adopting the requirement to disclose the name of the balance computation method used by the creditor beneath the table, as proposed. In consumer testing conducted for the Board prior to the June 2007 Proposal, virtually no participants understood the two balance computation methods used by most card issuers—the average daily balance method and the two-cycle average daily balance method—when those methods were just described by name. The GAO found similar results in its consumer testing.
In consumer testing conducted for the Board in March 2008, a version of the table was used which attempted to explain in more detail the “average daily balance method” and the “two-cycle average daily balance method” and the situation in which the two-cycle method results in higher interest charges—namely, in those months where a consumer paid his or her entire outstanding balance in full in one billing cycle but then does not pay the entire balance in full the following cycle. While participants that saw the table understood that under two-cycle billing, interest would be charged on balances during both the current and previous billing cycles, most participants did not understand that they would only be charged interest in the previous billing cycle if they had paid the outstanding balance in full for the previous cycle but not for the current cycle. Thus, most participants did not understand that two-cycle billing would not lead to higher interest charges than the “average daily balance method” if a consumer never paid in full.
TILA Section 122(c)(2) states that for certain disclosures set forth in Section TILA 127(c)(1)(A), including the balance computation method, the Board shall require that the disclosure of such information, to the extent the Board determines to be practicable and appropriate, be in the form of a table. 15 U.S.C. 1632(c)(2). The Board believes that it is no longer appropriate to continue to require issuers to disclose the balance computation method in the table, because the name of the balance computation method used by issuers does not appear to be meaningful to consumers and may distract from more important information contained in the table. Thus, the final rule retains a brief reference to the balance computation method, but moves the disclosure from the table to directly below the table.
The final rule continues to require that issuers disclose the name of the balance computation method beneath the table because this disclosure is required by TILA Section 127(c)(1)(A)(iv). Consumers and others will have access to information about the balance calculation method used on the credit card account if they find it useful. Under final rules issued by the Board and other federal banking agencies published elsewhere in today's
The Board is not requiring issuers that are permitted to and choose to use the two-cycle method to disclose that “this method is the most expensive balance computation method and is prohibited for most credit card issuers.” As discussed above, a statement that the two-cycle method is the most expensive balance computation method would be accurate only for those consumers who sometimes pay their bill in full and sometime do not. For consumers that never pay their bill in full, or always pay their bill in full, the interest paid under the two-cycle method is the same as paid under the one-cycle average daily balance method. For the same reasons, the Board is not requiring an “Energy Star” approach in describing the balance calculation methods, which would require each balance computation method to be rated on how expensive it is, and require that rating to be disclosed. Whether one balance computation method is more expensive than another would depend on how a consumer uses his or her account.
Currently, comment 5a(b)(8)-1 provides that a card issuer must disclose only those fees it imposes for a cash advance that are finance charges under § 226.4. For example, a charge for a cash advance at an ATM would be disclosed under § 226.5a(b)(8) unless a similar charge is imposed for ATM transactions not involving an extension of credit. In the June 2007 Proposal, the Board proposed to provide that all transaction fees on credit cards would be considered finance charges. Thus, the Board proposed to delete the current guidance discussed in comment 5a(b)(8)-1 as obsolete. As discussed in the section-by-section analysis to § 226.4, the final rule adopts the proposal that all transaction fees imposed by a card issuer on a cardholder are considered finance charges. Thus, the Board also deletes current comment 5a(b)(8)-1 as proposed.
A new comment 5a(b)(8)-1 is added to refer issuers to Samples G-10(B) and G-10(C) for guidance on how to disclose clearly and conspicuously the cash advance fee. In addition, as discussed in the section-by-section analysis to § 226.5a(b)(4), new comment 5a(b)(8)-2 is added to clarify that cash advance fees includes any charge imposed by the card issuer for cash advances in a foreign currency or that take place outside the United States or with a foreign merchant. In addition, comment 5a(b)(8)-2 clarifies that if an issuer charges the same foreign transaction fee for purchases and cash advances in a foreign currency or that take place outside the United States or with a foreign merchant, the issuer may disclose this foreign transaction fee as shown in Samples G-10(B) and (C). Otherwise, the issuer will need to revise the foreign transaction fee shown in Samples G-10(B) and (C) to disclose clearly and conspicuously the amount of the foreign transaction fee that applies to purchases and the amount of the foreign transaction fee that applies to cash advances. Moreover, comment 5a(b)(8)-2 provides a cross reference to comment 4(a)-4 for guidance on when a foreign transaction fee is considered charged by the card issuer.
In addition, consistent with the account-opening disclosures required in § 226.6, comment 5a(b)(8)-3 is added to clarify that any charge imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system is not a cash advance fee that must be disclosed in the table pursuant to § 226.5a(b)(8).
Currently, § 226.5a does not require a card issuer to disclose a fee imposed when a payment is returned. In the June 2007 Proposal, the Board proposed to add § 226.5a(b)(12) to require issuers to disclose this fee in the table. Typically, card issuers will impose a fee and a penalty rate if a cardholder's payment is returned. As discussed above, the final rule adopts the Board's proposal to require card issuers to disclose in the table the reasons that a penalty rate may be imposed.
Card issuers often impose both a fee and penalty rate for the same behavior—such as a consumer paying late, exceeding the credit limit, or having a payment returned. In consumer testing conducted for the Board prior to the June 2007 Proposal, participants tended to associate paying penalty fees with certain behaviors (such as paying late or going over the credit limit), but they did not tend to associate rate increases with these same behaviors. By linking the penalty fees with the penalty rate, participants more easily understood that if they engage in certain behaviors, such as paying late, their rates may increase in addition to incurring a fee. Thus, in the June 2007 Proposal, the Board proposed to add § 226.5a(b)(13) to provide that if a card issuer may impose a penalty rate for any of the reasons that a penalty fee would be imposed (such as a late payment, going over the credit limit, or a returned payment), the issuer in disclosing the fee also must disclose that the penalty rate may apply, and must provide a cross reference to the penalty rate. Proposed Samples G-10(B) and G-10(C) would have provided guidance on how to provide these disclosures.
In response to the June 2007 Proposal, several industry commenters suggested that the cross reference be eliminated, as unnecessary and leading to “information overload.” In addition, one commenter suggested that the cross reference not be required if one late payment cannot cause the APR to increase. Alternatively, this commenter suggested that the conditions be disclosed with the cross reference, for example, “If two consecutive payments are late, your APRs may also be increased;
In quantitative consumer testing conducted for the Board after the May 2008 Proposal, the Board investigated whether the presence of a cross reference from a penalty fee, specifically the over-the-limit fee, to the penalty APR improved consumers' awareness of the fact that a penalty rate could be applied to their accounts if they went over the credit limit. The results of the testing indicate that there was no statistically significant improvement in consumers' awareness that going over the limit could trigger penalty pricing when a cross reference was included. Because the testing suggests that cross-references from penalty fees to the
Credit card issuers often offer optional insurance or debt cancellation or suspension coverage with the credit card. Under the current rules, costs associated with the insurance or debt cancellation or suspension coverage are not considered “finance charges” if the coverage is optional, the issuer provides certain disclosures to the consumer about the coverage, and the issuer obtains an affirmative written request for coverage after the consumer has received the required disclosures. Card issuers frequently provide the disclosures discussed above on the application form with a space to sign or initial an affirmative written request for the coverage. Currently, issuers are not required to provide any information about the insurance or debt cancellation or suspension coverage in the table that contains the § 226.5a disclosures.
In the event that a card issuer requires the insurance or debt cancellation or debt suspension coverage (to the extent permitted by state or other applicable law), the Board proposed new § 226.5a(b)(14) in the June 2007 Proposal to require that the issuer disclose any fee for this coverage in the table. In addition, proposed § 226.5a(b)(14) would have required that the card issuer also disclose a cross reference to where the consumer may find more information about the insurance or debt cancellation or debt suspension coverage, if additional information is included on or with the application or solicitation. Proposed Sample G-10(B) would have provided guidance on how to provide the fee information and the cross reference in the table. The final rule adopts new § 226.5a(b)(13) (renumbered from § 226.5a(b)(14)) as proposed. If insurance or debt cancellation or suspension coverage is required in order to obtain a credit card, the Board believes that fees required for this coverage should be highlighted in the table so that consumers are aware of these fees when considering an offer, because they will be required to pay the fee for this coverage every month in order to have the credit card.
Subprime credit cards often have substantial fees assessed when the account is opened. Those fees will be billed to the consumer as part of the first statement, and will substantially reduce the amount of credit that the consumer initially has available with which to make purchases or other transactions on the account. For example, for cards where a consumer is given a minimum credit line of $250, after the start-up fees have been billed to the account, the consumer may have less than $100 of available credit with which to make purchases or other transactions in the first month. In addition, consumers will pay interest on these fees until they are paid in full.
The federal banking agencies have received a number of complaints from consumers with respect to cards of this type. Complainants often claim that they were not aware of how little available credit they would have after all the fees were assessed. Thus, in the June 2007 Proposal, the Board proposed to add § 226.5a(b)(16) to inform consumers about the impact of these fees on their initial available credit. Specifically, proposed § 226.5a(b)(16) would have provided 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, a card issuer must disclose in the table an example of the amount of the available credit that a consumer would have remaining after these fees or security deposit are debited to the account, assuming that the consumer receives the minimum credit limit offered on the relevant account. In determining whether the 25 percent threshold test is met, the issuer would have been required to consider only fees for issuance or availability of credit, or a security deposit, that are required. If certain fees for issuance or availability are optional, these fees would not have been required to be considered in determining whether the disclosure must be given. Nonetheless, if the 25 percent threshold test is met in connection with the required fees or security deposit, the issuer would have been required to disclose two figures—the available credit after excluding any optional fees from the amounts debited to the account, and the available credit after including any optional fees in the amounts debited to the account.
In addition, the Board proposed comment 5a(b)(16)-1 to clarify that in calculating the amount of available credit that must be disclosed in the table, an issuer must consider all fees for the issuance or availability of credit described in § 226.5a(b)(2), and any security deposit, that will be imposed and charged to the account when the account is opened, such as one-time issuance and set-up fees. For example, in calculating the available credit, issuers would have been required to consider the first year's annual fee and the first month's maintenance fee (if applicable) if they are charged to the account immediately at account opening. Proposed Sample G-10(C) would have provided guidance to issuers on how to provide this disclosure. (
As described above, a card issuer would have been required to consider only required fees for issuance or availability of credit, or a security deposit, that will be charged against the card when the account is opened in determining whether the 25 percent threshold test is met. A card issuer would not have been required to consider other kinds of fees, such as late fees or over-the-limit fees when evaluating whether the 25 percent threshold test is met. The Board solicited comment on whether there are other fees (other than fees required for issuance or availability of credit) that are typically imposed on these types of accounts when the account is opened, and should be included in determining whether the 25 percent threshold test is met.
In response to the June 2007 Proposal, several commenters suggested start-up fees should be banned in some instances. Several consumer groups and one member of Congress suggested that start-up fees that equal 25 percent or more of the available credit line be banned. Another consumer group suggested that start-up fees exceeding 5 percent of the available credit line be banned. In addition, several consumer groups suggested that the Board should prohibit security deposits from being charged to the account as an unfair practice.
Assuming the Board did not ban start-up fees, several consumer groups suggested that the threshold for the available credit disclosure be lowered to 5 percent instead of 25 percent. In contrast, several industry commenters suggested that the threshold be lowered to 10 percent or 15 percent. In addition, while some commenters supported the Board's proposal to consider only required start-up fees (and not optional
In May 2008, the Board and other federal banking agencies proposed 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 in excess of 25 percent of the credit limit in effect on the consumer's account when opened.
In response to the May 2008 Regulation Z Proposal, several commenters again suggested that the threshold for the available credit disclosure be reduced to 5 percent or 10 percent. Another consumer group commenter suggested that the Board always require the available credit disclosure if there are start-up fees on the account, including annual fees. In addition, several consumer group commenters reiterated their comments on the June 2007 Proposal that the threshold test for when the available credit disclosure must be given should be based on required and optional fees.
Under final rules issued by the Board and other federal banking agencies published elsewhere in today's
The final rule adopts § 226.5a(b)(16) with several modifications, and renumbers the provision as § 226.5a(b)(14). Specifically, the final rule amends the proposal to provide that fees or security deposits that are not charged to the account are not subject to the disclosure requirements in § 226.5a(b)(14). In addition, comment 5a(b)(14)-1 (proposed as comment 5a(b)(16)-1) is revised from the proposal to clarify that in calculating the amount of the available credit including optional fees, if optional fees could be charged multiple times, the issuer shall assume that the optional fee is only imposed once. For example, if an issuer charges a fee for each additional card issued on the account, the issuer in calculating the amount of the available credit including optional fees must assume that the cardholder requests only one additional card. Also, comment 5a(b)(14)-1 is revised to specify that in disclosing the available credit, an issuer must round down the available credit amount to the nearest whole dollar.
The final rule also differs from the proposal in that it contains a 15 percent threshold for when the credit availability disclosure must be given, namely, when required fees for issuance or availability of credit, or a security deposit, that will be charged against the card when the account is opened equal 15 percent or more of the minimum credit limit applicable to the card. The Board lowered the threshold to 15 percent to address commenters' concerns that a lower threshold would better inform consumers about offers of credit where large portions of the available credit on a new account are taken up by fees before the consumer has the opportunity to use the account. The Board has not lowered the threshold to 5 percent or 10 percent as suggested by some other commenters. The Board believes that a 15 percent threshold will ensure that consumers will receive the disclosure in connection with subprime credit card products, but that the disclosure will generally not be required in connection with a prime credit card account, for which credit limits are higher and less fees are charged when the account is opened. The Board believes that the disclosure is most useful to consumers when a substantial portion of the minimum credit line is not available because required start-up fees (or a required security deposit) are charged to the account. The available credit disclosure may not be as meaningful to consumers, when those consumers are receiving 90 to 95 percent of the minimum credit line in available credit at account opening.
In addition, the Board retained in the final rule that the available credit disclosure must be given if required start-up fees (or a required security deposit) charged against the account at account-opening equal 15 percent or more of the minimum credit line. Optional start-up fees are not considered when determining whether the 15 percent threshold is met. Nonetheless, if the 15 percent threshold is met in connection with the required fees or security deposit, the issuer must disclose two figures—the available credit after excluding any optional fees from the amounts debited to the account, and the available credit after including any optional fees in the amounts debited to the account (assuming that each optional fee is only charged once). The Board believes that it is appropriate not to consider optional fees when determining whether the 15 percent threshold is initially met because consumers are not required to incur these fees to obtain the credit card account. Consistent with the proposal, the final rule also requires an issuer to consider only fees for the issuance or availability of credit when determining whether the 15 percent threshold is met; other types of fees such as late-payment fees or over-the-limit fees are not required to be considered.
Moreover, the final rule does not adopt the language for the available credit disclosure suggested by several consumer groups. The Board believes that including percentages in the disclosure, as suggested by those consumer groups, would be confusing to consumers. The final rule also does not require that issuers provide the available credit disclosure in the solicitation letter for direct mail and Internet applications and solicitations, as suggested by several consumer group commenters. In consumer testing conducted by the Board, participants generally noticed and understood the available credit disclosure in the table required by § 226.5a. Thus, the Board does not believe that repeating that disclosure in the solicitation letter for direct mail and Internet applications and solicitations is needed. Sample
In June 2007, the Board proposed to revise § 226.5a to require that credit card issuers must disclose in the table a reference to a Board Web site and a statement that consumers can find on this Web site educational materials on shopping for and using credit card accounts.
In response to the June 2007 Proposal, several industry commenters questioned whether consumers would use the Web site resource, and suggested that the Board either not require the Web site disclosure or place the disclosure outside of the table to avoid “information overload.” Consumer groups generally supported placing the Web site disclosure in the table, and requested that the Board provide an alternative information source for those consumers who lack Internet access, such as a toll-free telephone number at which consumers can obtain a free copy of similar information.
The final rule adopts § 226.5a(b)(15) (proposed as § 226.5a(b)(17)). As part of consumer testing, participants were asked whether they would use a Board Web site to obtain additional information about credit cards generally. Some participants indicated they might use the Web site, while others indicated that it was unlikely they would use such a Web site. Although it is hard to predict from the results of the testing how many consumers might use the Board's Web site, and recognizing that not all consumers have access to the Internet, the Board believes that this Web site may be helpful to some consumers as they shop for a credit card and manage their account once they obtain a credit card. Thus, the final rule requires a reference to a Board Web site to be included in the table because this is a cost-effective way to provide consumers with additional information on credit cards. The Board is not requiring creditors to also disclose a toll-free telephone number at which consumers can obtain a free copy of similar information from the Board. The Board anticipates that consumers are not likely to use a toll-free telephone number to request educational materials in these instances because they will not want to delay applying for a credit card until the materials are delivered. Thus, such a requirement would not significantly benefit consumers on the whole.
In the consumer testing conducted for the Board prior to the June 2007 Proposal, many participants did not understand how payments would be allocated and 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 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 could 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 § 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 were offered on balance transfers or cash advances but not purchases. The Board proposed that issuers must disclose to consumers (1) that 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 purchase balance until the entire balance is paid, including the transferred balance or cash advance balance, as applicable.
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
In May 2008, the Board and other federal banking agencies proposed substantive provisions on how issuers may allocate payments. 73 FR 28904, May 19, 2008. Specifically, under that proposal, when different annual percentage rates apply to different balances, most issuers would have been required to allocate amounts paid in excess of the minimum payment using one of three specified methods or a method that is no less beneficial to consumers. Furthermore, when an account has a discounted promotional rate balance or a balance on which interest is deferred, most issuers would have been required to give consumers the full benefit of that discounted rate or deferred interest plan by allocating amounts in excess of the minimum payment first to balances on which the rate is not discounted or interest is not deferred (except, in the case of a deferred interest plan, for the last two billing cycles during which interest is deferred). Most issuers also would have been prohibited from denying consumers a grace period on non-promotional purchases (if one is offered) solely because they have not paid off a balance at a promotional rate or a balance on which interest is deferred.
In the supplementary information to the May 2008 Regulation Z Proposal, the Board indicated it would withdraw the proposal to require a card issuer to explain payment allocation to consumers in the table, if the substantive provisions on payment allocation proposed by the Board and other federal banking agencies in May 2008 were adopted.
In response to the May 2008 Regulation Z Proposal, several consumer group commenters suggested that the Board retain a payment allocation disclosure, even if the substantive provisions on payment allocation were adopted. Specifically, these commenters suggested that the Board require issuers to disclose which of the three proposed payment allocation methods they will use when there is no promotional rate on the account. Also, these commenters indicated that issuers should be required to disclose how they apply the minimum payment. These commenters suggested that the payment allocation disclosures could appear outside the table required by § 226.5a. Furthermore, these commenters suggested that some consumers might understand these disclosures and use them. In addition, these commenters indicated that disclosure of the payment allocation method would allow consumer groups to know which method an issuer is using and the consumer groups could rate the methods, to help consumers understand which card is better for the consumer.
In consumer testing conducted for the Board after May 2008, different versions of disclosures explaining payment allocation were tested, including language adapted from current credit card disclosures. Before participants were shown any disclosures explaining payment allocation, they were asked a series of questions designed to determine whether they had prior knowledge of payment allocation methods. This portion of the testing consisted of showing a hypothetical example to participants and asking them, based on their prior experience, (i) how they believed the card issuer would allocate the payment and (ii) how the participant would want the payment allocated. Participants were then shown language explaining how a hypothetical card issuer would allocate payments. Each disclosure that was used in testing indicated that the issuer would apply payments to balances with lower APRs before balances with higher APRs. Consumers were then shown the same hypothetical example and asked the same series of questions. More information about the specific disclosures tested and the results of the testing are available in the December 2008 Macro Report on Quantitative Testing.
Most participants who answered both questions correctly before being shown the disclosure, suggesting that they had prior knowledge of payment allocation, answered the questions correctly after reviewing the disclosure. Some of these participants, however, gave incorrect responses to questions that they had answered correctly before reviewing the disclosures, suggesting that the disclosure was detrimental to these participants' understanding of payment allocation practices. Only a small percentage of consumers who did not understand payment allocation prior to reviewing the disclosure, gave the correct responses after reviewing the disclosure. None of the versions of the disclosure that were tested performed significantly better than any of the others.
The final rule does not require a disclosure regarding payment allocation in the table. As described above, the consumer testing conducted on behalf of the Board suggests that disclosures of payment allocation practices have only a minor positive impact on consumer comprehension. In addition, the Board and other federal banking agencies are substantively addressing payment allocation practices in rules published elsewhere in today's
1.
2.
In response to the June 2007 Proposal, several consumer group commenters suggested that the Board require issuers to disclose the credit limit in the table required by § 226.5a. Several consumer groups suggested that the Board include the credit limit in the table because it is a key factor for many consumers in shopping for a credit card. These groups also suggested that the Board require issuers to state a specific credit limit, and not an “up to” amount. One industry commenter also suggested that the Board require issuers to disclose in the table the range of credit limits that are being offered. This commenter pointed out that currently credit card issuers generally have a range of credit limits in mind when marketing a card, and while the range is often disclosed in the marketing materials, the maximum and minimum credit lines are not necessarily found in the same place in the marketing materials or disclosed with the same prominence.
In May 2008, the Board and other federal banking agencies proposed that financial institutions that make “firm offers of credit” as defined in the FCRA and that advertise multiple APRs or “up to” credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest APR and highest credit limit advertised.
Similarly, the Board has not included in the final rule a requirement that issuers disclose the credit limit in either the table required by § 226.5a or the solicitation. The Board's consumer testing indicates that consumers generally understand from prior experience that their credit limits will depend on their credit histories. Thus, the final rule does not require a disclosure of the credit limit in the § 226.5a table or the solicitation.
3.
The final rule does not require issuers to disclose in the table any required security interest. Credit card-issuing merchants may include in their account agreements a security interest in the goods that are purchased with the card. Any such security interest must be disclosed at account-opening pursuant to § 226.6(b)(5), as discussed below. It is not apparent that consumers would shop on whether a retail card has this type of security interest. Requiring or allowing this type of security interest to be disclosed in the table may distract from important information in the table, and contribute to “information overload.” Thus, in an effort to streamline the information that may appear in the table, the final rule does not include this disclosure in the table.
With respect to security deposits, if a consumer is required to pay a security deposit prior to obtaining a credit card and that security deposit is not charged to the account but is paid by the consumer from separate funds, a card issuer must necessarily disclose to the consumer that a security deposit is required, so that the consumer knows to submit the deposit in order to obtain the card. A security deposit in these instances is likely to be sufficiently highlighted in the materials accompanying the application or solicitation, and does need to appear in the table. Nonetheless, the Board recognizes that a security deposit may need to be highlighted when the deposit is not paid from separate funds but is charged to the account when the account is opened, particularly when the security deposit may significantly decrease consumers' available credit when the account is opened. Thus, as described above, the final rule provides that if (1) a card agreement requires payment of a fee for issuance or availability of credit, or a security deposit, (2) the fee or security deposit will be charged to the account when it is opened, and (3) the total of those fees and security deposit equal 15 percent or more of the minimum credit limit offered with 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 fees or security deposit are debited to the account, assuming that the consumer receives the minimum credit limit offered on the card.
4.
The Board is not requiring in the table a disclosure of the reasons issuers may change terms on the account. In consumer testing conducted by the Board in March 2008, participants were asked to compare two credit card offers where the offers contained different account terms, such as APRs and fees. In addition, one of these offers included a disclosure in the table that the card issuer could change APRs “at any time for any reason,” while the other offer did not include this disclosure. While about half of the participants indicated they considered it a positive factor that one of the offers did not include a disclosure that APRs could change at any time for any reason, this fact did not
Thus, it does not appear consumers would shop for a credit card based on this disclosure, and allowing this disclosure in the table may distract from more important information in the table, and contribute to “information overload.” Nonetheless, the Board believes that it is important for consumers to be properly informed when terms on their accounts are changing, and the final rule contains provisions relating to change-in-terms notices and penalty rate notices that are designed to achieve this goal.
5.
As described above, under the final rule, issuers will be required to disclose certain transaction fees and penalty fees, such as cash advance fees, balance transfer fees, late-payment fees, and over-the-limit fees, in the table because these fees are frequently paid by consumers, and consumers in testing and comment letters have indicated these fees are important for shopping purposes. The Board is not requiring issuers to disclose other fees in the table, such as fees to pay by phone or on the Internet, because these fees tend to be imposed less frequently and are not fees on which consumers tend to shop. In consumer testing conducted for the Board prior to the June 2007 Proposal, participants tended to mention cash advance fees, balance transfer fees, late-payment fees, and over-the-limit fees as the most important fees they would want to know when shopping for a credit card. In addition, most participants understood that issuers were allowed to impose additional fees, beyond those disclosed in the table. Thus, the Board believes it is important to highlight in the table the fees that most consumers want to know when shopping for a card, rather than including infrequently-paid fees, to avoid creating “information overload” such that consumers could not easily identify the fees that are most important to them. In addition, the Board is not imposing a requirement that issuers disclose in the table any fee that the issuer charges to more than 5 percent of the cardholders for the card. This would undercut the uniformity of the table. For example, although most issuers may charge a certain fee, such as a fee to pay by phone, requiring issuers to disclose a fee if the issuer charges it to more than 5 percent of the cardholders for the card, could mean that some issuers would disclose the fee to pay by phone and some would not, even though most issuers charge this fee. The Board recognizes that fees can change over time, and the Board plans to monitor the market and update the fees required to be disclosed in the table as necessary.
In addition, in response to the June 2007 Proposal, one federal banking agency suggested that the Board include a disclosure in the table when an issuer may impose an over-the-limit or other penalty fee based on circumstances that result solely from the imposition of other fees or finance charges, or if the contract permits it to impose penalty fees in consecutive cycles based on a single failure by the consumer to abide by the terms of the account. The Board is not requiring this disclosure in the table. The Board believes that consumers are not likely to consider this information in shopping for a credit card. Requiring this disclosure in the table may distract from important information in the table, and contribute to “information overload.”
The Bankruptcy Act also requires that the disclosures for electronic offers must be “updated regularly to reflect the current policies, terms, and fee amounts.” In the June 2007 Proposal, the Board proposed to revise § 226.5a(c) to implement the “updated regularly” standard in the Bankruptcy Act with regard to the accuracy of variable rates. As proposed, a new § 226.5a(c)(2) would have been added to address the accuracy of variable rates in direct mail and electronic applications and solicitations. This new section would have required issuers to update variable rates disclosed on mailed applications and solicitations every 60 days and variable rates disclosed on applications and solicitations provided in electronic form every 30 days, and to update other terms when they change. As proposed, § 226.5a(c)(2) consisted of two subsections.
Section 226.5a(c)(2)(i) would have provided that § 226.5a disclosures mailed to a consumer must be accurate as of the time the disclosures are mailed. This section also would have provided that an accurate variable APR is one that is in effect within 60 days before mailing. Section 226.5a(c)(2)(ii) would have provided that § 226.5a disclosures provided in electronic form (except for a variable APR) must be accurate as of the time they are sent to a consumer's e-mail address, or as of the time they are viewed by the public on a Web site. As proposed, this section would have provided that a variable APR is accurate if it is in effect within 30 days before it is sent, or viewed by the public. Many of the provisions included in proposed § 226.5a(c)(2) were incorporated from current § 226.5a(b)(1). To eliminate redundancy, the Board proposed to revise § 226.5a(b)(1) by deleting § 226.5a(b)(1)(ii), (b)(1)(iii), and comment 5a(c)-1.
In response to the June 2007 Proposal, one commenter suggested that all variable APR accuracy standards should be simplified to allow for disclosures to be modified every 60 days. This commenter suggested that issuers should be able to follow a 60-day standard for accuracy for APR disclosures no matter how they are delivered to ease the burden of compliance. This commenter also indicated that issuers often mail a solicitation for a credit card to a consumer and post the same offer on a Web site or e-mail it to the consumer. The disclosures for the same offer could be different, if the rate mailed is 60 days old and the offer on the Web site is 30
The Board adds § 226.5a(c)(2) and deletes § 226.5a(b)(1)(ii), (b)(1)(iii), and comment 5a(c)-1 as proposed. The Board believes the 30-day and 60-day accuracy requirements for variable rates strike an appropriate balance between seeking to ensure consumers receive updated information and avoiding imposing undue burdens on creditors. The Board believes it is unnecessary for creditors to disclose to consumers the exact variable APR in effect on the date the application or solicitation is accessed by the consumer, because consumers generally understand that variable rates are subject to change. Moreover, it would be costly and operationally burdensome for creditors to comply with a requirement to disclose the exact variable APR in effect at the time the application or solicitation is accessed. The obligation to update the other terms when they change ensures that consumers receive information that is accurate and current, and should not impose significant burdens on issuers. These terms generally do not fluctuate with the market like variable rates. In addition, the Board understands that issuers typically change other terms infrequently, perhaps once or twice a year.
Section 226.5a(d) specifies rules for providing cost disclosures in oral applications and solicitations initiated by a card issuer. Pursuant to TILA Section 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 § 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).
In the June 2007 Proposal, the Board did not propose to revise § 226.5a(d)(1). In response to the June 2007 Proposal, some consumer group commenters urged the Board to revise § 226.5a(d)(1) to require issuers that are marketing credit cards by telephone to disclose certain additional information to consumers at the time of the phone call, such as the cash advance fee, the late-payment fee, the over-the-limit fee, the balance transfer fee, information about penalty rates, any fees for required insurance, and the disclosure about available credit in proposed § 226.5a(b)(16).
In the May 2008 Proposal, the Board proposed to amend § 226.5a(d)(1) to require that if an issuer provides the oral disclosures, the issuer must also disclose orally, if applicable, the information about available credit in proposed § 226.5a(b)(16) pursuant to the Board's authority under TILA Section 127(c)(5) to add or modify § 226.5a disclosures as necessary to carry out the purposes of TILA. 15 U.S.C. 1637(c)(5). In response to the May 2008 Proposal, commenters generally supported this aspect of the proposal.
The final rule amends § 226.5a(d)(1), as proposed. 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.
Section 226.5a(d) specifies rules for providing cost disclosures in oral applications and solicitations initiated by a card issuer. Card issuers generally must provide certain cost disclosures orally during the conversation in which the application or solicitation is communicated to the consumer. Alternatively, an issuer is not required to give the oral disclosures if the card
The Board expects that issuers will provide the account-opening table described in § 226.6(b)(1) in lieu of the alternative written disclosures described in § 226.5a(d)(2). The final rule revises comment 5a(d)-2 to specify that the right to reject the plan referenced in § 226.5a(d)(2) with respect to the alternative written disclosures is the same as the right to reject the plan described in § 226.5(b)(1)(iv) with respect to account-opening disclosures. An issuer may substitute the account-opening summary table described in § 226.6(b)(1) in lieu of the written alternative disclosures specified in § 226.5a(d)(2)(ii). In that case, the disclosure about the right to reject specified in § 226.5a(d)(2)(ii)(B) must appear in the table, if the issuer is required to do so pursuant to § 226.6(b)(2)(xiii). Otherwise, the disclosure specified in § 226.5a(d)(2)(ii)(B) may appear either in or outside the table containing the required credit disclosures.
As proposed in June 2007 Proposal, § 226.5a(d)(3) would have provided guidance on the accuracy of telephone disclosures. Current comment 5a(b)(1)-3 specifies that for variable-rate disclosures in telephone applications and solicitations, the card issuer must provide the rates currently applicable when oral disclosures are provided. For the alternative disclosures under § 226.5a(d)(2), an accurate variable APR is one that is: (1) In effect at the time the disclosures are mailed or delivered; (2) in effect as of a specified date (which rate is then updated from time to time, for example, each calendar month); or (3) an estimate in accordance with § 226.5(c). Current comment 5a(b)(1)-3 was proposed to be moved to § 226.5a(d)(3) under the June 2007 Proposal, except that the option of estimating a variable APR would have been eliminated as the least meaningful of the three options. Proposed § 226.5a(d)(3) also would have specified that if an issuer discloses a variable APR as of a specified date, the issuer must update the rate on at least a monthly basis, the frequency with which variable rates on most credit card products are adjusted. The Board also proposed to amend § 226.5a(d)(3) to specify that oral disclosures under § 226.5a(d)(1) must be accurate when given, consistent with the requirement in § 226.5(c) that disclosures must reflect the terms of the legal obligation between the parties. For the alternative disclosures, the proposal would have specified that terms other than variable APRs must be accurate as of the time they are mailed or delivered.
In response to the June 2007 Proposal, one commenter indicated that the accuracy standard for oral disclosures could potentially require an issuer to update rates on a daily basis. This commenter believed that this proposed rule would create unnecessary burden
TILA Section 127(c)(3) and § 226.5a(e) specify rules for providing disclosures in applications and solicitations made available to the general public such as “take-one” applications and applications in catalogs or magazines. 15 U.S.C. 1637(c)(3). These applications and solicitations must either contain: (1) The disclosures required for direct mail applications and solicitations, presented in a table; (2) a narrative that describes 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.
For applications or solicitations that are made available to the general public, if a creditor chooses to provide the cost disclosures on the application or solicitation, § 226.5a(b)(1)(ii) currently requires that any variable APR disclosed must be accurate within 30 days before printing. In the June 2007 Proposal, the Board proposed to move this provision to § 226.5a(e)(4). In addition, proposed § 226.5a(e)(4) also would have specified that other disclosures must be accurate as of the date of printing. The final rule adopts § 226.5a(e)(4) and accompanying commentary as proposed.
For in-person solicitations, a card issuer makes an in-person offer to a consumer to open an account that does not require an application. For example, in-person solicitations include instances where a bank employee offers a preapproved credit card to a consumer who came into the bank to open a checking account.
Currently, in-person applications in response to an invitation to apply are exempted from § 226.5a because they are considered applications initiated by consumers. (
In the June 2007 Proposal, the Board proposed to cover in-person applications and solicitations under § 226.5a, pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). In the June 2007 Proposal, existing comment 5a(a)(3)-2 (which would be moved to comment 5a(a)(5)-1) and comment 5a(e)-2 would have been revised to be consistent with § 226.5a(f). No comments were received on these proposed changes.
Thus, the Board adopts these changes as proposed pursuant to its TILA Section 105(a) authority. 15 U.S.C. 1604(a). Requiring in-person applications and solicitations to include credit terms under § 226.5a would help serve TILA's purpose to provide meaningful disclosure of credit terms so that a consumer will be able to compare more readily the various credit terms available to him or her, and avoid the uninformed use of credit. 15 U.S.C. 1601(a). Also, the Board understands that card issuers routinely provide § 226.5a disclosures in these circumstances; therefore, any additional compliance burden would be minimal.
Card issuers must provide the disclosures required by § 226.5a in the form of a table, and those disclosures
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 for purchases 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, the issuer must disclose that name of the balance computation method as part of the disclosures required by § 226.5a and is 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.
In response to the June 2007 Proposal, several industry commenters suggested that the Board add the “daily balance method” to the list of balance computation methods listed in the regulation. These commenters indicated that the “daily balance method” is one of the most common balance computation methods used by card issuers. Currently, comment 5a(g)-1 provides that card issuers using the daily balance method may disclose it using the
In addition, in response to the May 2008 Proposal, several industry commenters requested that if the proposal by the Board and other federal banking agencies to prohibit certain issuers from using the two-cycle balance computation method was adopted, the Board should include a cross reference in § 226.5a(g) indicating that some issuers are not allowed to use the two-cycle balance computation method described in § 226.5a(g). Under rules issued by the Board and other federal banking agencies published elsewhere in today's
TILA Section 127(a), implemented in § 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).
Account-opening disclosure and format requirements for HELOCs subject to § 226.5b were unaffected by the June 2007 Proposal, consistent with the Board's plan to review Regulation Z's disclosure rules for home-secured credit in a separate rulemaking. To facilitate compliance, the substantively unrevised rules applicable only to HELOCs are grouped together in § 226.6(a), as discussed in this section-by-section analysis to § 226.6(a). (
Commenters supported the proposed organizational changes to ease compliance. All disclosure requirements applying exclusively to HELOCs subject to § 226.5b are set forth in § 226.6(a), as proposed. Rules relating to the disclosure of finance charges currently in § 226.6(a)(1) through (a)(4) are moved to § 226.6(a)(1)(i) through (a)(1)(iv); those rules and accompanying official staff interpretations are substantively unchanged. Rules relating to the disclosure of other charges are moved from current § 226.6(b) to § 226.6(a)(2), and specific HELOC-related disclosure requirements are moved from current § 226.6(e) to § 226.6(a)(3). Rules of general applicability to open-end credit plans relating to security interests and billing error disclosure requirements are moved without substantive change from current § 226.6(c) and (d) (proposed as § 226.6(c)(1) and (c)(2) in the June 2007 Proposal) to § 226.6(a)(4) and (a)(5), to ease compliance.
Several technical revisions to commentary provisions described in the June 2007 Proposal are adopted for clarity and in some cases for consistency with corresponding comments to § 226.6(b)(4), which addresses rate disclosures for open-end (not home-secured) plans; these revisions are not intended to be substantive.
Also, commentary provisions that currently apply to open-end plans generally but are inapplicable to HELOCs are not included in the commentary provisions related to § 226.6(a), as proposed. For example, guidance in current 6(a)(2)-2 regarding a creditor's general reservation of the right to change terms is not included in comment 6(a)(1)(ii)-2, because § 226.5b(f)(1) prohibits “rate-reservation” clauses for HELOCs.
For the reasons set forth in the May 2008 Proposal, the Board is adopting the revisions to Appendix G-1 to part 226, retitled as Balance Computation Methods Model Clauses (Home-equity Plans) to ease compliance, as proposed. Comment App. G-1 is revised to clarify that a creditor offering HELOCs may use the model clauses in Appendix G-1 or G-1(A), at the creditor's option.
In addition, for the reasons discussed in the section-by-section analysis to §§ 226.12 and 226.13, model language has been added to Model Clause G-2 (Liability for Unauthorized Use Model Clause), Model Form G-3 (Long-form Billing-error Rights Model Form Home-equity Plans) and Model Form G-4 (Alternative Billing-error Rights Model Form Home-equity Plans) regarding consumers' use of electronic communication relating to unauthorized transactions or billing disputes. Like with Model Clauses G-1 and G-1(A), the Board is adding new forms G-3(A) and G-4(A) for creditors offering open-end (not home-secured) plans, which a creditor offering HELOCs may use, at the creditor's option. See comment app. G-3.
All account-opening disclosure requirements applying to open-end (not home-secured) plans are set forth in § 226.6(b). The Board is adopting two significant revisions to account-opening disclosures for open-end (not home-secured) plans, which are set forth in § 226.6(b), as proposed. The revisions (1) require a tabular summary of key terms to be provided before an account is opened (
In response to comments received on the June 2007 Proposal, § 226.6(b) has been reorganized in the final rule for clarity. Rules relating to the account-opening tabular summary are set forth in § 226.6(b)(1) and (b)(2) and mirror, to the extent applicable, the organization and text of disclosure requirements for the tabular summary required to accompany credit or charge card applications or solicitations in § 226.5a. General disclosure requirements about costs imposed as part of the plan are set forth in § 226.6(b)(3), and additional requirements for disclosing rates are at § 226.6(b)(4). Rules about disclosures for optional credit insurance or debt cancellation or suspension coverage are set forth at § 226.6(b)(5). Rules of general applicability to open-end credit plans relating to security interests and billing error disclosure requirements, also are moved to § 226.6(b)(5) without substantive change from current § 226.6(c) and (d) (proposed as § 226.6(c)(1) and (c)(2) in the June 2007 Proposal), to ease compliance.
As provided by Regulation Z, creditors may, and typically do, include account-opening disclosures as a part of an account agreement document that also contains other contract terms and state law disclosures. The agreement is typically lengthy and in small print. The June 2007 Proposal would have introduced format requirements for account-opening disclosures for open-end (not home-secured) plans at § 226.6(b)(4), based on proposed format and content requirements for the tabular disclosures provided with direct mail applications for credit and charge cards under § 226.5a. Proposed forms under G-17 in Appendix G would have illustrated the account-opening tables. The proposal sought to summarize key information most important to informed decision-making in a table similar to that required on or with credit and charge card applications and solicitations. TILA disclosures that are typically lengthy or complex and less often utilized in determining how to use an account, such as how variable rates are determined, could continue to be integrated with the account agreement terms but could not be placed in the table. Uniformity in the presentation of key information promotes consumers' ability to compare account terms.
Commenters generally supported format rules that focus on presenting essential information in a simplified way. Consumer groups supported the use of a tabular format similar to the summary table required under § 226.5a, to ease consumers' ability to find important information in a uniform format, and as a means for consumers to compare terms that are offered with terms they actually receive. A state consumer protection body urged the Board to develop a glossary and, along with some consumer groups, to mandate use of uniform terms so that creditors use the same term to identify fees.
Industry commenters voiced a number of concerns about the account-opening summary table. Some suggested the purposes of TILA disclosures are different at application and account-opening, and a table at account-opening is redundant since consumers have already made their credit decisions. Some suggested that other techniques to summarize information, such as an index or table of contents, should be permitted. In particular, industry commenters asked for additional flexibility to disclose risk-based APRs outside the summary table, such as in a welcome letter or documents accompanying the account agreement, or on a sales receipt when an open-end plan is established at a retail store in connection with the purchase of goods or services. Others believed the information was too simple and could be misleading to consumers and in any event would quickly become outdated. To combat out-of-date disclosures, one creditor suggested requiring a “real time” version of account terms on-line, with a paper copy available upon request.
For the reasons stated in this section-by-section analysis to § 226.6, the Board is adopting the formatting requirements generally as proposed, with revisions noted below. In response to commenters' suggestions, the regulatory text (moved from proposed § 226.6(b)(4) to § 226.6(b)(1) and (b)(2)) more closely tracks the regulatory text in § 226.5a, to ease compliance.
The Board's revisions to rules affecting open-end (not home-secured) plans contain a limited number of specific words or phrases that creditors are required to use. The Board, however, has not adopted a glossary of terms nor mandated use of terms as defined in such a glossary, to provide flexibility to creditors. Although the Board is supportive of creditors that provide real-time account agreements on their Web sites, the Board believes requiring all creditors to do so would be overly burdensome at this time, and has not adopted such a requirement.
In response to the June 2007 Proposal, 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
The Board believes that the benefits to consumers from receiving a concise and uniform summary of rates and important fees for these other types of open-end plans outweigh the costs, such as developing the new disclosures and revising them as needed. In the May 2008 Proposal, the Board proposed Sample Form 17(D), which would have illustrated disclosures for an open-end (not home-secured) plan not involving a credit card, to address commenters' requests for guidance.
Some consumer groups supported the requirement for a summary table for open-end (not home-secured) plans that are not credit card accounts. They believe the summary table will help consumers understand the terms of their credit agreements. An industry commenter also supported a model form for creditors' use but suggested adding additional terms to the form such as a fee for returned payment, or variable-rate disclosures. One industry commenter strongly objected to the requirement for a summary table. This commenter believes creditors will incur substantial costs to comply with the requirement and the commenter was not convinced that a tabular format is the only way creditors may provide accurate and meaningful disclosures.
For the reasons set forth above, the final rule, pursuant to the Board's TILA Section 105(a) authority, applies the tabular summary requirement to all open-end credit products, except HELOCs, as proposed. Sample Form 17(D) is adopted, with some revisions. The name of the balance calculation method and billing error summary were inadvertently omitted in the May 2008 Proposal below the table in the proposed sample form, and they properly appear in the final form. The Board notes that § 226.6(b)(2) requires creditors to disclose in the account-opening table the items in that section, to the extent applicable. Thus, for example, if a creditor offered an overdraft protection line of credit with a variable rate, the creditor must provide the applicable variable-rate disclosures, even though such disclosures do not appear in Sample Form 17(D).
In response to the June 2007 Proposal, some commenters urged the Board to require identical disclosure requirements under § 226.6 and § 226.5a. Others supported greater flexibility. As discussed below, the disclosure requirements for the two summary tables remain very similar but are not identical in all respects. The final rule includes comment 6(b)(1)-1, adopted substantially as proposed as comment 6(b)(4)-1, which provides guidance on how the summary table for § 226.5a differs from the table for § 226.6. For clarity, rules under § 226.5a that do not apply to account-opening disclosures are specifically noted.
For disclosures required to be provided with credit card applications and solicitations, if the amount of a fee such as a late-payment fee or returned-payment fee varies by state, card issuers currently may disclose a range of fees and a statement that the amount of the fee varies by state.
One commenter discussed operational issues for creditors that are licensed to do business under state law and must vary late-payment fees, for example, according to state law. Although the letter focused on late-payment fee disclosures on the periodic statement, one alternative suggested to stating fees applicable to the consumer's account was to permit such creditors to refer to a disclosure where fees arranged by applicable states would be identified.
Upon further consideration of the issues related to disclosing fees in the account-opening table fees that vary by state, the Board is adopting a rule that requires creditors to disclose specific fees applicable to the consumer's account in the account-opening table, with a limited exception. In general, a creditor must disclose the fee applicable to the consumer's account; listing all fees for multiple states in the account-opening summary table is not permissible. The Board is concerned that such an approach would detract from the purpose of the table: To provide key information in a simplified way.
Currently, creditors licensed to do business under state laws commonly disclose at account opening as part of the account agreement or disclosure statement a matrix of fees applicable to residents of various states. Creditors that provide account-opening disclosures by mail can more easily generate account-opening summaries with rates and specific fees that apply to the consumer. However, for creditors with retail stores in a number of states, it is not practicable to require fee-specific disclosures to be provided when an open-end (not home-secured) plan is established in person in connection with the purchase of goods or services. If the Board were to impose such a requirement, retail stores may need to keep on hand copies of disclosures for all states, because consumers from one state can, and commonly do, shop and obtain credit cards at retail locations in other states. In addition, a retail store creditor would need to rely on its employees to determine at the point of sale which state's disclosures should be provided to each consumer who opens an open-end (not home-secured) plan.
Thus, the final rule provides in § 226.6(b)(1)(iii) that creditors imposing fees such as late-payment fees or returned-payment fees that vary by state and providing the disclosures required by § 226.6(b) in person at the time the open-end (not home-secured) plan is established in connection with financing the purchase of goods or services may, at the creditor's option, disclose in the account-opening table either (1) the specific fee applicable to the consumer's account, or (2) the range of the fees, if the disclosure includes a statement that the amount of the fee varies by state and refers the consumer to the account agreement or other disclosure provided with the account-opening summary table where the amount of the fee applicable to the consumer's account is disclosed, for example in a list of fees for all states. Currently, creditors that establish open-end plans at point of sale provide account-opening disclosures at point of sale before the first transaction, and commonly provide an additional set of account-opening disclosures when, for example, a credit card is sent to the
Industry commenters generally supported the proposal. Some consumer groups believe it would be a mistake to adopt a static list of fees to be disclosed in the account-opening table. They stated the credit card market is dynamic, and a static list would encourage creditors to establish new fees that would not be disclosed as prominently as those in the table. These commenters suggested the Board also require creditors to disclose in the account-opening table any fee that a creditor charges to more than 5 percent of its cardholders.
The Board is adopting in § 226.6(b)(2) the list of fees proposed in § 226.4(b)(4)(iii) as the exclusive list of fees and categories of fees that must be disclosed in the table, although § 226.6(b)(2) has been reorganized to more closely track the requirements of § 226.5a. Accordingly, the fees required to be disclosed in the table are those identified in § 226.6(b)(2)(ii) through (b)(2)(iv) and (b)(2)(vii) through (b)(2)(xii); that is, fees for issuance or availability of credit, minimum or fixed finance charges, transaction fees, cash advance fees, late-payment fees, over-the-limit fees, balance transfer fees, returned-payment fees, and fees for required insurance, debt cancellation or debt suspension coverage.
The Board intends this list of fees to be exclusive, for two reasons. An exclusive list eases compliance and reduces the risk of litigation; creditors have the certainty of knowing that as new services (and associated fees) develop, fees not required to be disclosed in the summary table under the final rule need not be highlighted in the account-opening summary unless and until the Board requires their disclosure after notice and public comment. And as discussed in the section-by-section analysis to § 226.5(a)(1) and (b)(1), charges required to be highlighted in the account-opening table must be provided in a written and retainable form before the first transaction and before being increased or newly introduced. Creditors have more flexibility regarding disclosure of other charges imposed as part of an open-end (not home-secured) plan.
The exclusive list of fees also benefits consumers. The list focuses on fees consumer testing conducted for the Board showed to be most important to consumers. The list is manageable and focuses on key information rather than attempting to be comprehensive. Since consumers must be informed of all fees imposed as part of the plan before the cost is incurred, not all fees need to be included in the account-opening table provided at account opening.
In May 2008, the Board and other federal banking agencies proposed limitations on how creditors may allocate payments on outstanding credit card balances.
Section 226.6(b)(2)(i) (proposed at § 226.6(b)(4)(ii)) sets forth disclosure requirements for rates that would apply to accounts. Except as noted below, the disclosure requirements for APRs in the account-opening table are adopted for the same reasons underlying, and consistent with, the disclosure requirements adopted for APRs in the table provided with credit card applications and solicitations.
Periodic rates and index and margin values are not permitted to be disclosed in the table, for the same reasons underlying, and consistent with, the proposed requirements for the table provided with credit card applications and solicitations.
The rate disclosures required for the account-opening table differ from those required for the table provided with credit card applications and solicitations. For applications and solicitations, creditors may provide a range of APRs or specific APRs that may apply, where the APR is based at least in part on a later determination of the consumer's creditworthiness. At account opening, creditors must disclose the specific APRs that will apply to the account as proposed, with a limited exception.
Similar to the discussion in the section-by-section analysis to § 226.6(b)(1)(iii), the APR that some creditors may charge vary by state. In general, a creditor must disclose the APR applicable to the consumer's account. Listing all APRs for multiple states in the account-opening summary box is not permissible. The Board is concerned that such an approach would detract from the purpose of the table: to provide key information in a simplified way. However, for creditors with retail stores in a number of states, it is not practicable to require APR-specific disclosures to be provided when an open-end (not home-secured) plan is established in person in connection with the purchase of goods or services. Thus, the Board provides in § 226.6(b)(2)(i)(E) that creditors
This limited exception does not extend to rates that vary due to creditors' pricing policies. Creditors that offer risk-based APRs commonly offer one or two rates, or perhaps three or four, as opposed to retail creditors that may offer a dozen or more rates, based on varying state laws. The multiplicity of rates and the training required for retail sales staff to identify correctly which state law governs the potential account holder increases these creditors' risk of inadvertent noncompliance. Creditors that choose to offer risk-based pricing, however, are better able to manage their potential risk of noncompliance. The exception is intended to have a limited scope because the Board believes consumers benefit by knowing, at account-opening, the actual rates that will apply to their accounts.
The final rule regarding the disclosure of temporary initial rates differs from the proposal in several ways, two of which are technical. As discussed above, the text of the disclosure requirements has been revised to more closely track the regulatory text under § 226.5a. Therefore, § 226.6(b)(2)(i)(B) and (b)(2)(i)(C), which set forth disclosure requirements for discounted initial rates and premium initial rates, replace proposed text in § 226.6(b)(4)(ii)(B) regarding initial temporary rates and are consistent with § 226.5a(b)(1)(ii) and (b)(1)(iii). For consistency, discounted initial rates are referred to as “introductory” rates as that term in defined in § 226.16(g)(2)(ii).
Under § 226.6(b)(2)(i)(B) and consistent with § 226.5a, creditors that offer a temporary discounted initial rate must disclose in the account-opening table the rate that otherwise would apply after the temporary rate expires. Also, to be consistent with § 226.5a, creditors under the final rule may, but generally are not required to (except as discussed below), disclose discounted initial rates in the account-opening table. Creditors that choose to include such a rate must also disclose the time period during which the discounted initial rate will remain in effect. Under § 226.6(b)(2)(i)(D)(
As discussed in the section-by-section analysis to § 226.5a(b)(1), § 226.6(b)(2)(i) of the final rule has been revised to provide that issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
Similarly, and for the same reasons stated above, § 226.6(b)(2)(i)(F) also requires that card issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
If a creditor that is not subject to 12 CFR 227.24 or similar law does not disclose a discounted initial rate (and thus also does not disclose the reasons the rate may be revoked and the rate that will apply after revocation) in the account-opening table, the creditor must provide these disclosures at any time before the consumer agrees to pay or becomes obligated to pay for a charge based on the rate, pursuant to the disclosure timing requirements of § 226.5(b)(1)(ii). Creditors may provide disclosures of these charges in writing but creditors are not required to do so; only those charges identified in § 226.6(b)(2) that must appear in the account-opening table must be provided in writing. The Board expects, however, that for contract law or other reasons, most creditors as a practical matter will disclose the discounted initial rate in writing at account-opening.
The Board believes aligning the disclosure requirements for the account-opening summary table with the requirements for the application summary table will ease compliance without lessening consumer protections. Many creditors will continue to disclose discounted initial rates, including issuers subject to the final rules issued by the Board and other federal banking agencies published elsewhere in today's
TILA Section 127(a)(3), which is currently implemented in § 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 would have required creditors to disclose in account-opening disclosures the amount of any finance charges in § 226.6(b)(1)(i)(A), and further required creditors to disclose any minimum finance charge in the account-opening table in § 226.6(b)(4)(iii)(D). In May 2008, the Board proposed to require
For the reasons discussed in the section-by-section analysis to § 226.5a(b)(3), § 226.6(b)(2)(iii) is revised and new comment 6(b)(2)(iii)-1 is added, consistent with § 226.5a(b)(3). As noted in the section-by-section analysis to § 226.5a(b)(3), under the June 2007 Proposal, card issuers may substitute the account-opening table for the table required by § 226.5a. Conforming the fixed finance charge and minimum interest charge disclosure requirement for the two tables promotes consistency and uniformity. Because minimum interest charges of $1.00 or less would no longer be required to be disclosed in the account-opening table, these charges could be disclosed at any time before the consumer agrees to pay or becomes obligated to pay for the charge, pursuant to the disclosure timing requirements of § 226.5(b)(1)(ii). Creditors may provide disclosures of these charges in writing but are not required to do so.
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 would have 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.
In May 2008, as discussed in the section-by-section analysis to § 226.5(a)(2) and to § 226.5a(b)(5), the Board proposed to revise provisions relating to the description of grace periods. Under the proposal, § 226.6(b)(4)(iv) would have been revised and comment 6(b)(4)(iv)-1 added, consistent with the proposed revisions to § 226.5a(b)(5) and commentary. The heading “How to Avoid Paying Interest [on a particular feature]” would have been used where a grace period exists for that feature. The heading “Paying Interest” would have been used if there is no grace period on any feature of the account. A reference to required use of the phrase “grace period” in comment 6(b)(4)-3 of the June 2007 Proposal was proposed to be withdrawn.
Comments received on the proposed text of headings and the results of consumer testing are discussed in the section-by-section analysis to § 226.5a(b)(5). For the reasons stated in the section-by-section analysis to and consistent with § 226.5a(b)(5), the final rule (moved to § 226.6(b)(2)(v)) requires the heading “How to Avoid Paying Interest” to be used for the row that describes a grace period, and the heading “Paying Interest” to be used for the row that describes no grace period.
The final rule differs from the proposal in that the heading “Paying Interest” must be used for the heading in the account-opening table if any one feature on the account does not have a grace period. Comments 6(b)(2)(v)-1 through -3 provide language creditors may use to describe features that have grace periods and features that do not, and guidance on complying with § 226.6(b)(2)(v) when some features on an account have a grace period but others do not.
As stated above under TILA, card issuers must disclose any grace period for purchases, which most credit cards currently offer, in the table provided on or with credit card applications or solicitations, and creditors must disclose at account opening whether or not grace periods exist for all features of an account. Cash advance and balance transfer features on credit card accounts typically do not offer grace periods. Under the final rule, the row heading describing grace periods in the account-opening table will likely be uniform among creditors, “Paying Interest.” The Board recognizes that this row heading may not be consistent with the row heading describing grace periods for purchases in the table provided on or with credit card applications and solicitations. However, the Board does not believe that different headings will significantly undercut a consumer's ability to compare the terms of a credit card account to the terms that were offered in the solicitation. Currently most issuers offer a grace period on all purchase balances; thus, most issuers will use the term “How to Avoid Paying Interest on Purchases” in the table provided on or with credit card applications and solicitations. Nonetheless, when a consumer is reviewing the application and account-opening tables for a credit card account—the former having a row with the heading “How to Avoid Paying Interest on Purchases” and the latter having a row “Paying Interest” because no grace period is offered on balance transfers and cash advances—the Board believes that consumers will recognize that the information in those two rows relate to the same concept of when consumers will pay interest on the account.
TILA requires creditors to explain as part of the account-opening disclosures the method used to determine the balance to which rates are applied. 15 U.S.C. 1637(a)(2). In June 2007, the Board proposed § 226.6(b)(4)(ix), which would have required that the name of the balance computation method used by the creditor be disclosed beneath the table, along with a statement that an explanation of the method is provided in the account agreement or disclosure statement. To determine the name of the balance computation method to be disclosed, the June 2007 Proposal would have required creditors to refer to § 226.5a(g) for a list of commonly-used methods; if the method used was not among those identified, creditors would be required to provide a brief explanation in place of the name.
Commenters generally supported the proposal.
Under the June 2007 Proposal, creditors were required to disclose penalty fees such as late-payment fees in the account-opening summary table. If the APR may increase due to a late payment, the proposal required creditors to disclose that fact. Cross references were proposed to aid consumer understanding.
In response to the proposal, one federal banking agency suggested that in addition to the amount of the fee, the Board should consider additional cautionary disclosures to aid in consumer understanding, such as that late fees imposed on an account may cause the consumer to exceed the credit limit on the account. To keep the table manageable in size, the Board is not adopting a requirement to include cautionary information about the consequences of paying late beyond the requirement to provide information about penalty rates.
For the reasons stated in the supplementary information regarding proposed § 226.5a(b)(13), the Board has withdrawn a requirement in proposed § 226.6(b)(4)(iii)(C) which provided that if a creditor may impose a penalty rate for one or more of the circumstances for which a late-payment fee, over-the-limit fee, or returned-payment fee is charged, the creditor must disclose the fact that the penalty rate also may apply and a cross reference to the penalty rate.
For the reasons discussed in the section-by-section analysis to § 226.5a(b)(13), as permitted by applicable law, creditors that require credit insurance, or debt cancellation or debt suspension coverage, as part of the plan are required to disclose the cost of the product and a reference to the location where more information about the product can be found with the account-opening materials, as applicable.
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 § 226.6(b)(4)(vii) would have applied to creditors that require fees for the availability or issuance of credit, or a security deposit, that in the aggregate equal 25 percent or more of the minimum credit limit offered on the account. If that threshold is met, a creditor would have been required to 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. The account-opening disclosures regarding available credit also would have been required for credit and charge card applications or solicitations.
Commenters generally supported the proposal, which is generally adopted as proposed with several revisions noted below.
Both industry and consumer group commenters that addressed the provision generally supported the proposed notice.
The final rule adopts the requirement to provide a notice disclosure in the account-opening table to inform consumers about their right to reject a plan until the consumer has used the account or made a payment on the account after receiving a billing statement, when set-up fees have been charged before the consumer receives account-opening disclosures. The final rule provides model language creditors may use to comply with the disclosure requirement, as proposed. The final rule does not include a requirement that the creditor provide information about how to contact the creditor to reject the plan; the Board believes such a requirement would add to the length of the disclosure and is readily available to consumers in other account-opening materials. The Board also declines to require the notice on or with an application or solicitation or on the first billing statement; the Board believes the most effective time for the notice to be given is after the consumer has chosen to apply for the card account and before the consumer has used or had the opportunity to use the card.
The final rule, consistent with the proposal, bases the threshold for whether the available disclosure is required to be given on the minimum credit limit offered on the plan. Specifically, the final rule requires that the available credit disclosure be given in the account-opening table if the creditor requires fees for the availability or issuance of credit, or a security deposit, that in the aggregate equal 15 percent or more of the minimum credit limit offered on the plan. The Board believes that it is important that a consumer receive consistent disclosures in the table provided with an application or solicitation and in the account-opening table, regardless of the actual credit limit for which the consumer is approved. For example, if a creditor offers an open-end plan with a minimum credit limit of $300 and imposes start-up fees of $45, that creditor would be required to include the available credit disclosure in the table provided with applications and solicitations. If a consumer applies for that account and receives an initial credit limit of $400, the $45 in start-up fees would be less than 15% of the consumer's line. However, the Board believes that the consumer still should receive the available credit disclosure at account-opening so that the consumer is better able to compare the terms of the account he or she received with the terms of the offer.
Although, as discussed above, a creditor must determine whether the 15 percent threshold is met with reference to the minimum credit limit offered on the plan, the final rule requires creditors to base the available credit disclosure for the account-opening summary table, if required, on the actual credit limit received. The Board believes a disclosure of available credit based on the actual credit limit provides consumers with accurate information that is helpful in understanding the available credit remaining. Creditors typically state the credit limit for the account with account-opening materials, and permitting creditors to disclose in the table the minimum credit limit offered on the account—likely a different dollar amount than the actual credit limit—could result in confusion. The Board understands that creditors offering accounts that would be subject to the available credit disclosure typically establish a limited number of credit limits on such accounts. Therefore, for creditors that use pre-printed forms, the requirement should not be overly burdensome.
For the reasons stated under § 226.5a(b)(15), the Board adopts § 226.6(b)(2)(xiv) (proposed at § 226.6(b)(4)(viii)), which requires card issuers to provide a reference to the Board's Web site for additional information about shopping for and using credit card accounts.
All creditors offering open-end plans must provide notices of billing rights at account opening.
Currently, the rules for disclosing costs related to open-end plans create two categories of charges covered by TILA: Finance charges (§ 226.6(a)) and “other charges” (§ 226.6(b)). According to TILA, a charge is a finance charge if it is payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor “as an incident to the extension of credit.” The Board implemented the definition by including as a finance charge under Regulation Z, any charge imposed “as an incident to or a condition of the extension of credit.” TILA also requires a creditor to disclose, before opening an account, “other charges which may be imposed as part of the plan * * * in accordance with regulations of the Board.” The Board implemented the provision virtually verbatim, and the staff commentary interprets the provision to cover “significant charges related to the plan.” 15 U.S.C. 1605(a), § 226.4; 15 U.S.C. 1637(a)(5), § 226.6(b), current comment 6(b)-1.
The terms “finance charge” and “other charge” are given broad and flexible meanings in the current regulation and commentary. This ensures that TILA adapts to changing conditions, but it also creates uncertainty. The distinctions among finance charges, other charges, and charges that do not fall into either category are not always clear. As creditors develop new kinds of services, some creditors find it difficult to determine if associated charges for the new services meet the standard for a “finance charge” or “other charge” or are not covered by TILA at all. This uncertainty can pose legal risks for creditors that act in good faith to classify fees. Examples of charges that are included or excluded charges are in the regulation and commentary, but they cannot provide definitive guidance in all cases.
The June 2007 Proposal would have created a single category of “charges imposed as part of an open-end (not home-secured) plan” as identified in proposed § 226.6(b)(1)(i). These charges include finance charges under § 226.4(a) and (b), penalty charges, taxes, and charges for voluntary credit insurance, debt cancellation or debt suspension coverage.
Under the June 2007 Proposal, charges to be disclosed also would have included any charge the payment or nonpayment of which affects the consumer's access to the plan, duration of the plan, the amount of credit extended, the period for which credit is extended, or the timing or method of billing or payment. Proposed commentary provided examples of charges covered by the provision, such as application fees and participation fees (which affect access to the plan), fees to expedite card delivery (which also affect access to the plan), and fees to expedite payment (which affect the timing and method of payment).
Three examples of types of charges that are not imposed as part of the plan were listed in proposed § 226.6(b)(1)(ii). These examples would have included charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM; and charges for a package of services that includes an open-end credit feature, if the fee is required whether or not the open-end credit feature is included and the non-credit services are not merely incidental to the credit feature. Proposed comment 6(b)(1)(ii)-1 provided examples of fees for packages of services that would have been considered to be imposed as part of the plan and fees for packages of services that would not. This comment is substantively identical to current comment 6(b)-1.v.
Commenters generally supported deemphasizing the distinction between finance charges and other charges. One trade association urged the Board to identify costs as “interest” or “fees,” the labels proposed to describe costs on
Some industry commenters urged the Board to provide a specific and finite list of fees that must be disclosed, to avoid litigation risk. They stated the proposed categories of charges considered to be part of the plan were not sufficiently precise. They asked for additional guidance on what fees might be captured as fees for failure to use the card as agreed (except amounts payable for collection activity after default), or that affect the consumer's access to the plan, for example. One industry trade association asked the Board to clarify that creditors would be deemed to be in compliance with the regulation if the creditor disclosed a fee that was later deemed to be not a part of the plan.
The Board is adopting the requirement to disclose costs imposed as part of the plan as proposed, but renumbered for organizational clarity. General rules are set forth in § 226.6(b)(3)(i), charges imposed as part of the plan are identified in § 226.6(b)(3)(ii), and charges imposed that are not part of the plan are identified in § 226.6(b)(3)(iii). The final rule continues to use the term “charges.” Although the Board's consumer testing indicates that consumers' understanding of costs incurred during a statement period improves when labeled as “fees” or “interest” on periodic statements, the Board believes the general term “charges,” which encompasses interest and fees, is an efficient description of the requirement, and eases compliance by not requiring creditors to recite “fees and interest” wherever the term “charges” otherwise would appear.
As the Board acknowledged in the June 2007 Proposal, the disclosure requirements do not completely eliminate ambiguity about what are TILA charges. The commentary provides examples to ease compliance. To further mitigate ambiguity the rule provides a complete list in new § 226.6(b)(2) of which charges and categories of charges must be disclosed in writing at account opening (or before they are increased or newly introduced).
Moreover, compared to the approach reflected in the current regulation, the broad application of the statutory standard of fees “imposed as part of the plan” should make it easier for a creditor to determine whether a fee is a charge covered by TILA, and reduce litigation and liability risks. Comment 6(b)(3)(ii)-3 is added to provide that if a creditor is unsure whether a particular charge is a cost imposed as part of the plan, the creditor may, at its option, consider such charges as a cost imposed as part of the plan for Truth in Lending purposes. In addition, this approach will help ensure that consumers receive the information they need when it would be most helpful to them.
Comment 6(b)(3)(ii)-2 has been revised from the June 2007 Proposal. The comment, as proposed in June 2007 as comment 6(b)(1)(i)-2, included a fee to receive paper statements as an example of a fee that affects the plan. This example is not included in the final rule. Creditors are required to provide periodic statements in writing in connection with open-end plans, and the Board did not intend with the inclusion of this example to express a view on the permissibility of charging consumers a fee to receive paper statements.
Section 226.6(b)(3) applies to all open-end plans except HELOCs subject to § 226.5b. It retains TILA's general requirements for disclosing costs for open-end plans: Creditors are required to continue to disclose the circumstances under which charges are imposed as part of the plan, including the amount of the charge (
Rules for disclosing rates that affect the amount of interest that will be imposed are consolidated in § 226.6(b)(4) (proposed at § 226.6(b)(2)). (
Currently, creditors must disclose finance charges attributable to periodic rates. These costs are typically interest charges but may include other costs such as premiums for required credit insurance. For clarity, the text of § 226.6(b)(4)(i) uses the term “interest” rather than “finance charge” and is adopted as proposed.
Section § 226.6(b)(4)(i) sets forth rules relating to the disclosure of rates. Section § 226.6(b)(4)(i)(D) (currently § 226.6(a)(3) and proposed in June 2007 as § 226.6(b)(2)(i)(D)) requires creditors to explain the method used to determine the balance to which rates apply. 15 U.S.C. 1637(a)(2).
The June 2007 Proposal would have required creditors to continue to explain the balance computation methods in the account-opening agreement or other disclosure statement. The name of the balance computation method and a reference to where the explanation can be found would have been required along with the account-opening summary table. Commenters generally supported the Board's approach, and the Board is adopting the requirement to provide an explanation of balance computation methods in the account agreement or other disclosure statement, as proposed.
One trade association asked that all model clauses be retained. In response to other comments received on the June 2007 Proposal, the Board proposed in May 2008 to add a new model clause to Model Clauses G-1 for the “daily balance” method. In addition, the Board proposed new Model Clauses G-1(A) for open-end (not home-secured) plans. The clauses in G-1(A) differ from the clauses in G-1 by referring to “interest charges” rather than “finance charges” to explain balance computation methods. Commenters did not specifically address this aspect of the May 2008 Proposal.
Based on the comments received on both proposals, the Board is adopting Model Clauses G-1(A).
Current comment 6(a)(3)-2 clarifies that creditors may, but need not, explain how payments and other credits are allocated to outstanding balances as part of explaining a balance computation method. Two examples are deleted from the comment (renumbered in this final rule as 6(b)(4)(i)(D)-2), to avoid any unintended confusion or conflict with rules limiting how creditors may allocate payments on outstanding credit balances, published elsewhere in today's
New § 226.6(b)(4)(ii) sets forth the rules for variable-rate disclosures now contained in footnote 12. In addition, guidance on the accuracy of variable rates provided at account opening is moved from the commentary to the regulation and revised, as proposed. Currently, comment 6(a)(2)-3 provides that creditors may provide the current rate, a rate as of a specified date if the rate is updated from time to time, or an estimated rate under § 226.5(c). In June 2007, the Board proposed an accuracy standard for variable rates disclosed at account opening; the rate disclosed would have been accurate if it was in effect as of a specified date within 30 days before the disclosures are provided. Creditors' option to provide an estimated rate as the rate in effect for a variable-rate account would have been eliminated under the proposal. Current comment 6(a)(2)-10, which addresses discounted variable-rate plans, was proposed as comment 6(b)(2)(ii)-5, with technical revisions but no substantive changes.
The June 2007 Proposal also would have required that, in describing how a variable rate is determined, creditors must disclose the applicable margin, if any.
The Board is adopting the rules for variable-rate disclosures provided at account-opening, as proposed. As to accuracy requirements, the Board believes 30 days provides sufficient flexibility to creditors and reasonably current information to consumers. The Board believes creditors are provided with sufficient flexibility under the proposal to provide a rate as of a specified date, so the use of an estimate would not be appropriate.
Comment 6(b)(4)(ii)-5 (proposed as 6(b)(2)(ii)-5) is adopted, with revisions consistent with the rule adopted under § 226.6(b)(2)(i)(B), which permits but does not require creditors, except those subject to 12 CFR § 227.24 or similar law, to disclose temporary initial rates in the account-opening summary table. However, creditors must comply with the general requirement to disclose charges imposed as part of the plan before the charge is imposed. The Board believes creditors not subject to 12 CFR § 227.24 or similar law will continue to disclose initial rates as part of the account agreement for contract and other reasons.
Pursuant to its TILA Section 105(a) authority, the Board is also adopting in § 226.6(b)(4)(ii)(B) the requirement to disclose any applicable margin when describing how a variable rate is determined. The Board believes creditors already state the margin for purposes of contract or other law and are currently required to disclose margins related to penalty rates, if applicable. No particular format requirements apply. Thus, the Board does not expect the revision will add burden.
The June 2007 Proposal would have consolidated existing rules for rate changes that are specifically set forth in the account agreement but are not due to changes in an index or formula, such as rules for disclosing introductory and penalty rates.
Comment 6(b)(4)(iii)-1 (proposed as comment 6(b)(2)(iii)-1) is adopted with revisions consistent with the rule adopted under § 226.6(b)(2)(i)(B), which permits but does not require creditors to disclose temporary initial rates in the account-opening summary table, except as provided in § 226.6(b)(2)(i)(F). The effect of making the disclosure permissive is that creditors may disclose initial rates at any time before those rates are applied. However, the Board believes creditors will continue to disclose initial rates as part of the account agreement for contract and other reasons and to comply with the general requirement to disclose charges imposed as part of the plan before the charge is imposed.
For the reasons stated in the section-by-section analysis to § 226.5a(b)(1), the Board is eliminating the exception:
As discussed in the section-by-section analysis to § 226.4, the Board is adopting revisions to the requirements to exclude charges for voluntary credit insurance or debt cancellation or debt suspension coverage from the finance charge.
In June 2007, the Board proposed § 226.6(b)(3) to require creditors to provide the disclosures required under § 226.4(d) to exclude voluntary credit insurance or debt cancellation or debt suspension coverage from the finance charge. One commenter asked the Board to clarify that the disclosures are required to be provided only to those consumers that purchase the product and not to all consumers to whom the product was made available.
Section 226.6(b)(5)(i) (proposed as § 226.6(b)(3)) is adopted as proposed, with technical revisions for clarity in response to commenters' concerns. Comment 6(b)(5)(i)-1 is added to provide that creditors comply with § 226.6(b)(5)(i) if they provide disclosures required to exclude the cost of voluntary credit insurance or debt cancellation or debt suspension coverage from the finance charge in accordance with § 226.4(d). For example, if the § 226.4(d) disclosures are given at application, creditors need not repeat those disclosures when providing other disclosures required to be given at account opening.
Regulatory text regarding the disclosure of security interests (currently at § 226.6(c) and proposed at § 226.6(c)(1)) is retained without change. Comments to § 226.6(b)(5)(ii) (currently at § 226.6(c) and proposed as § 226.6(c)(1)) are revised for clarity, without any substantive change.
Creditors offering open-end plans must provide information to consumers at account opening about consumers' billing rights under TILA, in the form prescribed by the Board. 15 U.S.C. 1637(a)(7). This requirement is implemented in the Board's Model Form G-3. In June 2007, the Board revised Model Form G-3 to improve its readability, proposed as Model Form G-3(A). The proposed revisions were not based on consumer testing, although design techniques and changes in terminology were used to facilitate improved consumer understanding of TILA's billing rights. Under the June 2007 Proposal, creditors offering HELOCs subject to § 226.5b could continue to use current Model Form G-3 or G-3(A), at the creditor's option.
Model Form G-3 is retained and Model Form G-3(A) is adopted, with some revisions. As discussed in the section-by-section analysis to §§ 226.12(b) and 226.13(b), the Board clarified that creditors may choose to permit a consumer, at the consumer's option, to communicate with the creditor electronically when notifying the creditor about possible unauthorized transactions or other billing disputes. The use of electronic communication in these circumstances applies to all open-end credit plans; thus, additional text that provides instructions for a consumer, at the consumer's option, to communicate with the creditor electronically has been added to Model Forms G-3 and G-3(A). In addition, technical changes have also been made to Model Form G-3(A) for clarity without intended substantive change, in response to comments received.
In other technical revisions, as proposed, comments 6-1 and 6-2 are deleted. The substance of comment 6-1, which requires consistent terminology, is discussed more generally in § 226.5(a)(2). Comment 6-2 addresses certain open-end plans involving more than one creditor, and is deleted as obsolete.
TILA Section 127(b), implemented in § 226.7, identifies information about an open-end account that must be disclosed when a creditor is required to provide periodic statements. 15 U.S.C. 1637(b). For a discussion about periodic statement disclosure rules and format requirements,
Periodic statement disclosure and format requirements for HELOCs subject to § 226.5b were unaffected by the June 2007 Proposal, consistent with the Board's plan to review Regulation Z's disclosure rules for home-secured credit in a future rulemaking. To facilitate compliance, the substantively unrevised requirements applicable only to HELOCs are grouped together in § 226.7(a). (
For HELOCs, creditors are required to comply with the disclosure requirements under § 226.7(a)(1) through (a)(10). Except for the addition of an exception that HELOC creditors may utilize at their option (further discussed below), these rules and accompanying commentary are substantively unchanged from current § 226.7(a) through (k) and the June 2007 Proposal. As proposed, § 226.7(a) also provides that at their option, creditors offering HELOCs may comply with the requirements of § 226.7(b). The Board understands that some creditors may use a single processing system to generate periodic statements for all open-end products they offer, including HELOCs. These creditors would have the option to generate statements according to a single set of rules.
In technical revisions, the substance of footnotes referenced in current § 226.7(d) is moved to § 226.7(a)(4) and comment 7(a)(4)-6, as proposed.
TILA Section 127(b)(5) and current § 226.7(d) require creditors to disclose all periodic rates that may be used to compute the finance charge, and an APR that corresponds to the periodic rate multiplied by the number of periods in a year. 15 U.S.C. 1637(b)(5); § 226.14(b). Currently, comment 7(d)-1 interprets the requirement to disclose all periodic rates that “may be used” to mean “whether or not [the rate] is applied
For the reasons discussed in the section-by-section analysis to § 226.7(b)(4)(ii), under the June 2007 Proposal, creditors would have been required to disclose promotional rates only if the rate actually applied during the billing period. The Board noted that interpreting TILA to require the disclosure of all promotional rates would be operationally burdensome for creditors and result in information overload for consumers. The proposed exception did not apply to HELOCs covered by § 226.5b, and the Board requested comment on whether the class of transactions under the proposed exceptions should apply more broadly to include HELOCs subject to § 226.5b, and if so, why.
Commenters generally supported the proposal under § 226.7(b)(4). Although few commenters addressed the issue of whether the exception should also apply to HELOCs subject to § 226.5b, these commenters favored extending the exception to HELOCs because concerns about information overload on consumers and operational burdens on creditors apply equally in the context of HELOC disclosures. The Board is adopting the exception as it applies to open-end (not home-secured) plans as proposed, with minor changes to the description of the time period to which the promotional rate applies. For the reasons stated above and in the section-by-section analysis to § 226.7(b)(4), the Board also extends the exception to HELOCs subject to § 226.5b. Section 226.7(a)(4) and comment 7(a)(4)-1 are revised accordingly. Extending this exception to HELOCs does not require creditors offering HELOCs to revise any forms or procedures. Therefore, no additional burden is associated with revising the rules governing HELOC disclosures. Comment 7(a)(4)-5, which provides guidance when the corresponding APR and effective APR are the same, is revised to be consistent with a creditor's option, rather than a requirement, to disclose an effective APR, as discussed below.
The June 2007 Proposal included two alternative approaches to address concerns about the effective APR. The section-by-section analysis to § 226.7(b) discusses in detail the proposed approaches and the reasons for the Board's determination to adopt the proposed approach that eliminates the requirement to disclose the effective APR. Thus, under this approach, the effective APR is optional for creditors offering HELOCs. Section 226.7(a) expressly provides, however, that a HELOC creditor must provide disclosures of fee and interest in accordance with § 226.7(b)(6) if the creditor chooses not to disclose an effective APR. Comment 7(a)(7)-1 is revised to provide that creditors stating an annualized rate on periodic statements in addition to the corresponding APR required by § 226.7(a)(4) must calculate that additional rate in accordance with § 226.14(c), to avoid the disclosure of rates that may be calculated in different ways.
Currently and under the June 2007 Proposal, HELOC creditors disclosing the effective APR must label it as “annual percentage rate.” The final rule adds comment 7(a)(7)-2 to provide HELOC creditors with additional guidance in labeling the APR as calculated under § 226.14(c) and the periodic rate expressed as an annualized rate. HELOC creditors that choose to disclose an effective APR may continue to label the figure as “annual percentage rate,” and label the periodic rate expressed as an annualized rate as the “corresponding APR,” “nominal APR,” or a similar term, as is currently the practice. Comment 7(a)(7)-2 further provides that it is permissible to label the APR calculated under § 226.14(c) as the “effective APR” or a similar term. For those creditors, the periodic rate expressed as an annualized rate could be labeled “annual percentage rate,” consistent with the requirement under § 226.7(b)(4). If the two rates are different values, creditors must label the rates differently to comply with the regulation's standard to provide clear disclosures.
The June 2007 Proposal contained a number of significant revisions to periodic statement disclosures for open-end (not home-secured) plans, grouped together in proposed § 226.7(b). The Board proposed for comment two alternative approaches to disclose the effective APR: The first approach attempted to improve consumer understanding of this rate and reduce creditor uncertainty about its computation. The second approach eliminated the requirement altogether. In addition, the Board proposed to add new paragraphs § 226.7(b)(11) and (b)(12) to implement disclosures regarding late-payment fees and the effects of making minimum payments in Section 1305(a) and 1301(a) of the Bankruptcy Act. TILA Section 127(b)(11) and (12); 15 U.S.C. 1637(b)(11) and (12).
The effective APR and corresponding APR for any given plan feature are the same when the finance charge in a period arises only from application of the periodic rate to the applicable balance (the balance calculated according to the creditor's chosen method, such as average daily balance method). When the two APRs are the same, Regulation Z requires that the APR be stated just once. The effective and corresponding APRs diverge when the finance charge in a period arises (at least in part) from a charge not determined by application of a periodic rate and the total finance charge exceeds 50 cents. When they diverge, Regulation Z currently requires that both be stated.
The statutory requirement of an effective APR is intended to provide the consumer with an annual rate that reflects the total finance charge, including both the finance charge due to application of a periodic rate (interest) and finance charges that take the form of fees. This rate, like other APRs required by TILA, presumably was intended to provide consumers information about the cost of credit that would help consumers compare credit
As discussed in greater detail in the Board's June 2007 Proposal, industry and consumer groups disagree as to whether the effective APR conveys meaningful information. Creditors argue that the cost of a transaction is rarely, if ever, as high as the effective APR makes it appear, and that this tendency of the rate to exaggerate the cost of credit makes this APR misleading. Consumer groups contend that the information the rate provides about the cost of credit, even if limited, is meaningful. The effective APR for a specific transaction or set of transactions in a given cycle may provide the consumer a rough indication that the cost of repeating such transactions is high in some sense or, at least, higher than the corresponding APR alone conveys. Consumer advocates and industry representatives also disagree as to whether the effective APR promotes credit shopping. Industry and consumer group representatives find some common ground in their observations that consumers do not understand the effective APR well.
Industry representatives also claim that the effective APR imposes direct costs on creditors that consumers pay indirectly. They represent that the effective APR raises compliance costs when they introduce new services, including costs of: (1) Conducting legal analysis of Regulation Z to determine whether the fee for the new service is a finance charge and must be included in the effective APR; (2) reprogramming software if the fee must be included; and (3) responding to telephone inquiries from confused customers and accommodating them (
In most of the rounds, a minority of participants correctly explained that the effective APR for cash advances was higher than the corresponding APR for cash advances because a cash advance fee had been imposed. A smaller minority correctly explained that the effective APR for purchases was the same as the corresponding APR for purchases because no transaction fee had been imposed on purchases. A majority offered incorrect explanations or did not offer any explanation. Results changed at the final testing site, however, when a majority of participants evidenced an understanding that the effective APR for cash advances would be elevated for the statement period when a cash advance fee was imposed during that period, that the effective APR would not be as elevated for periods where a cash advance balance remained outstanding but no fee had been imposed, and that the effective APR for purchases was the same as the corresponding APR for purchases because no transaction fee had been imposed on purchases.
The form in the final round of testing prior to the June 2007 Proposal labeled the rate “Fee-Inclusive APR” and placed it in a table separate from the corresponding APR. The “Fee-Inclusive APR” table included the amount of interest and the amount of transaction fees. An adjacent sentence stated that the “Fee-Inclusive APR” represented the cost of transaction fees as well as interest. Similar approaches had been tried in some of the earlier rounds, except that the effective APR had been labeled “Effective APR.”
1.
Under proposed § 226.7(b)(7)(i) and Sample G-18(B), creditors would have disclosed an effective APR for each feature, such as purchases and cash advances, in a table with the heading “Fee-Inclusive APR.” Creditors would also have indicated that the Fee-Inclusive APRs are “APRs that you paid this period when transactions or fixed fees are taken into account as well as interest.” A composite effective APR for two or more features would no longer have been permitted, as it is more difficult to explain to consumers. In addition to the effective APR(s) for each feature, the table would have included, by feature, the total of interest, labeled as “interest charges,” and the total of the fees included in the effective APR, labeled as “transaction and fixed charges.” To facilitate understanding, proposed § 226.7(b)(6)(iii) would have required creditors to label the specific fees used to calculate the effective APR either as “transaction” or “fixed” fees, depending on whether the fee relates to a specific transaction. Such fees would also have been disclosed in the list of transactions. If the only finance charges in a billing cycle are interest charges, the corresponding and effective APRs are identical. In those cases, creditors would have disclosed only the corresponding APRs and would not have been required to label fees as “transaction” or “fixed” fees since there would be no fees that are finance charges in such cases. These requirements would have been illustrated in forms under G-18 in Appendix G to part 226, and creditors would have been required to use the model form or a substantially similar form.
The proposal also sought to simplify computation of the effective APR, both to increase consumer understanding of the disclosure and facilitate creditor compliance. Proposed § 226.14(e) would have included a specific and exclusive list of finance charges that would be included in calculating the effective APR.
2.
Under the second alternative proposal, disclosure of an effective APR would have been optional for creditors offering HELOCs, as discussed above in the section-by-section analysis to § 226.7(a)(7). For creditors offering open-end (not home-secured) plans, the regulation would have included no effective APR provision, and § 226.7(b)(7) would have been reserved.
Another argument commenters made in support of eliminating the effective APR was that the disclosure would be unnecessary, in light of the Board's proposal for disclosure of interest and fees totaled by period and year to date (
Industry commenters also expressed concern about the Board's proposal to specify precisely the fees that are to be included in the effective APR calculation (in proposed § 226.14(e), as discussed above). One commenter said that if the effective APR requirement were to be retained, the Board would need to better clarify in § 226.14(e) which fees must be included. Another commenter stated that the proposed approach would not solve the problem of creditor uncertainty about which fees are to be included in the effective APR, because new types of fees will arise and create further uncertainty.
Other commenters, including consumer groups and government agencies, supported the Board's first alternative proposal to retain the effective APR requirement. Commenters supporting this alternative believe that consumers need the effective APR in order to be able to properly evaluate and compare costs of card programs; commenters also contended that if the effective APR were eliminated, creditors could impose additional fees that would escape effective disclosure. Many of these commenters urged not only that the effective APR requirement should be retained, but in addition that all fees, or at least more fees than under the current regulation (for example, late-payment fees and over-the-limit fees) should be included in its calculation.
Some commenters noted that even if the effective APR were retained, if the proposed approach (in proposed § 226.14(e)) of specifying the fees to be included in the effective APR were followed, creditors could introduce new fees that might qualify as finance charges, but might not be included in the effective APR. One commenter supporting retention suggested that the Board try further consumer testing of an improved disclosure format for the effective APR, but that if the testing showed that consumers still did not understand the effective APR, then it should be eliminated.
Consumer group commenters also expressed concern about the proposal to require disclosure of separate effective APRs for each feature on a credit card account. Commenters stated that such an approach would understate the true cost of credit, and would “dilute” the effect of multiple fees, because the fees would be shared among several different APRs. One creditor commenter also expressed concern about this proposal, stating that it would increase programming costs.
In addition, in September 2008 the Board conducted additional consumer research using quantitative methods for the purpose of validating the qualitative research (one-on-one interviews) conducted previously. The quantitative consumer research involved surveys of 1,022 consumers at shopping malls in seven locations around the country. Two research questions were investigated; the first was designed to determine what percentage of consumers understand the significance of the effective APR. The interviewer pointed out the effective APR disclosure for a month in which a cash advance occurred, triggering a transaction fee and thus making the effective APR higher than the nominal APR (interest rate). The interviewer then asked what the effective APR would be in the next month, in which the cash advance balance was not paid off but no new cash advances occurred. A very small percentage of respondents gave the correct answer (that the effective APR would be the same as the nominal APR). Some consumers stated that the effective APR would be the same in the
The second research question was designed to determine whether the disclosure of the effective APR adversely affects consumers' ability to correctly identify the current nominal APR on cash advances. Some consumers were shown a periodic statement disclosing an effective APR, while other consumers were shown a statement without an effective APR disclosure. Consumers were then asked to identify the nominal APR on cash advances. A greater percentage of consumers who were shown a statement without an effective APR than of those shown a statement with an effective APR correctly identified the rate on cash advances. This finding was statistically significant, as discussed in the December 2008 Macro Report on Quantitative Testing. Some of the consumers who did not correctly identify the rate on cash advances instead identified the effective APR as that rate.
The quantitative consumer research conducted by the Board validated the results of the qualitative testing conducted both before and after the June 2007 proposal; it indicates that most consumers do not understand the effective APR, and that for some consumers the effective APR is confusing and detracts from the effectiveness of other disclosures.
Section 105(f) directs the Board to make an exemption determination in light of specific factors. 15 U.S.C. 1604(f)(2). These factors are: (1) The amount of the loan and whether the disclosure provides a benefit to consumers who are parties to the transaction involving a loan of such amount; (2) the extent to which the requirement complicates, hinders, or makes more expensive the credit process; (3) the status of the borrower, including any related financial arrangements of the borrower, the financial sophistication of the borrower relative to the type of transaction, and the importance to the borrower of the credit, related supporting property, and coverage under TILA; (4) whether the loan is secured by the principal residence of the borrower; and (5) whether the exemption would undermine the goal of consumer protection.
The Board has considered each of these factors carefully, and based on that review, has concluded that it has satisfied the criteria for the exemption determination. Consumer testing conducted prior to the June 2007 Proposal, in March 2008, and after the May 2008 Proposal indicates that consumers find the current disclosure of an APR that combines rates and fees to be confusing. The June 2007 Proposal would have required disclosure of the nominal interest rate and fees in a manner that is more readily understandable and comparable across institutions. The Board believes that this approach can better inform consumers and further the goals of consumer protection and the informed use of credit for all types of open-end credit.
The Board also considered whether there were potentially competing considerations that would suggest retention of the requirement to disclose an effective APR. First, the Board considered the extent to which “sticker shock” from the effective APR benefits consumers, even if the disclosure does not enable consumers to meaningfully compare costs from month to month or for different products. A second consideration is whether the effective APR may be a hedge against fee-intensive pricing by creditors, and if so, the extent to which it promotes transparency. On balance, however, the Board believes that the benefits of eliminating the requirement to disclose the effective APR outweigh these considerations.
The consumer testing conducted for the Board supports this determination. With the exception of one round of testing conducted prior to the June 2007 Proposal, the overall results of the testing demonstrated that most consumers do not correctly understand the effective APR. Some consumers in the testing offered no explanation of the difference between the corresponding and effective APR, and others appeared to have an incorrect understanding. The results were similar in the consumer testing conducted in March 2008 and in the qualitative and quantitative testing conducted after the May 2008 proposal; in all rounds of the testing, a majority of participants did not offer a correct explanation of the effective APR.
Even if some consumers have some understanding of the effective APR, the Board believes sound reasons support eliminating the requirement for its disclosure. Disclosure of the effective APR on periodic statements does not significantly assist consumers in credit shopping, because the effective APR disclosed on a statement on one credit card account cannot be compared to the nominal APR disclosed on a solicitation or application for another credit card account. In addition, even within the same account, the effective APR for a given cycle is unlikely to accurately indicate the cost of credit in a future cycle, because if any of several factors (such as the timing of transactions and payments and the amount carried over from the prior cycle) is different in the future cycle, the effective APR will be different even if the amounts of the transaction and the fee are the same in both cycles. As to contentions that the effective APR for a particular billing cycle provides the consumer a rough indication that the cost of repeating transactions triggering transaction fees is high in some sense, the Board believes the requirements adopted in the final rule to disclose interest and fee totals for the cycle and year-to-date will serve the same purpose. In addition, the interest and fee total disclosure requirements should address concerns that elimination of the effective APR would remove disincentives for creditors to introduce new fees.
The Board is adopting its second alternative proposal under which disclosure of an effective APR is not required. Under the second alternative proposal, § 226.7(b)(7) would have been reserved. In the final rule, proposed § 226.7(b)(14) (change-in-terms and increased penalty rate summary) is renumbered as § 226.7(b)(7). In addition, Sample G-18(B), as proposed in June 2007 as part of the first alternative proposal, is not adopted.
Model clauses were proposed to illustrate the revisions, to facilitate compliance. The Board published for the first time proposed forms illustrating front sides of a periodic statement, as a compliance aid. The Board published Forms G-18(G) and G-18(H) to illustrate how a periodic statement might be designed to comply with the requirements of § 226.7. Proposed Forms G-18(G) and G-18(H) would have contained some additional disclosures that are not required by Regulation Z. The forms also would have presented information in some additional formats that are not required by Regulation Z.
Some consumer groups applauded the Board's prescriptive approach for periodic statement disclosures, to give effect to the Board's findings about presenting information in a manner that makes it easier for consumers to understand. A federal banking agency noted that standardized periodic statement disclosures may reduce consumer confusion that may result from variations among creditors.
Most industry commenters strongly opposed the Board's approach as being overly prescriptive and costly to implement. They strongly urged the Board to permit additional flexibility, or simply to retain the current requirement to provide “clear and conspicuous” disclosures. For example, these commenters asked the Board to eliminate any requirement that dictated the order or proximity of disclosures, along with any requirement that creditors' disclosures be substantially similar to model forms or samples. Although the Board's testing suggested certain formatting may be helpful to consumers, many commenters believe other formats might be as helpful. They stated that not all consumers place the same value on a certain piece of information, and creditors should be free to tailor periodic statements to the needs of their customers. Further, although participants in the Board's consumer testing may have indicated they preferred one format over another, commenters believe consumers are not confused by other formats, and the cost to reformat paper-based and electronic statements is not justified by the possible benefits. For example, commenters said the proposed requirements will require lengthier periodic statements, which is an additional ongoing expense independent of the significant one-time cost to redesign statements.
The final rule retains many of the formatting changes the Board proposed. In response to further consumer testing results and comments, however, the Board is providing flexibility to creditors where the changes proposed by the Board have not demonstrated consumer benefit sufficient to justify the expense to creditors of reformatting the periodic statement. For example, while the Board is adopting the proposal to group interest and fees, the Board is not adopting the requirement to group transactions (including credits) by transaction type.
Some industry commenters asked the Board to provide additional guidance about how and where this optional information may be disclosed if the Board adopts proposed formatting requirements for periodic statements. Some consumer commenters urged the Board to require creditors to disclose on each periodic statement the date when any promotional offer ends.
Comment 7(b)-1 is adopted as proposed, with technical revisions for clarity without any intended substantive change. For example, the transactions described in the comment are now referred to as “deferred interest” rather than “deferred-payment.” The comment also has been revised to note that it does not apply to card issuers that are subject to 12 CFR 227.24 or similar law which does not permit the assessment of deferred interest.
The Board believes the formatting requirements for periodic statements do not interfere with creditors' ability to provide information about deferred interest transactions or other promotions. Comment 7(b)-1, retained as proposed, clarifies that creditors are permitted, but not required, to disclose on each periodic statement the date in a future cycle when the balance on the deferred interest transaction must be paid in full to avoid interest charges. Similarly, subject to the requirement to provide clear and conspicuous disclosures, creditors may, but are not required to, disclose when promotional offers end. The final rule does not require creditors to disclose on each periodic statement the date when any promotional offer ends. The Board believes that many creditors currently provide such information prior to the end of the promotional period.
Under the June 2007 Proposal, § 226.7(b)(2) would have required creditors to identify transactions in accordance with rules set forth in § 226.8. This provision implements TILA Section 127(b)(2), currently at § 226.7(b). The section-by-section analysis to § 226.8 discusses the Board's proposal to revise and significantly simplify the rules for identifying transactions, which the Board adopts as proposed.
Under the June 2007 Proposal, the Board introduced a format requirement to group transactions by type, such as purchases and cash advances, based on consumer testing conducted for the Board. In consumer testing conducted prior to the June 2007 Proposal, participants in the Board's consumer testing found such groupings helpful. Moreover, participants noticed fees and interest charges more readily when transactions were grouped together, the fees imposed for the statement period were not interspersed among the transactions, and the interest and fees were disclosed in proximity to the transactions. Proposed Sample G-18(A) would have illustrated the proposal.
Most industry commenters opposed the proposed requirement to group
In quantitative consumer testing conducted in the fall of 2008, the Board tested consumers' ability to identify specific transactions and fees on periodic statements that grouped transactions by transaction type versus those that listed transactions in chronological order. After they were shown either a grouped periodic statement or a chronological periodic statement, consumer testing participants were asked to identify the dollar amount of the first cash advance in the statement period. In order to test the effect of grouping fees, participants also were asked to identify the number of fees charged during the statement period. While testing evidence showed that the grouped periodic statement performed better among participants with respect to both questions, the improved performance of the grouped periodic statement was more significant with regard to consumers' ability to identify fees.
Based on these testing results and comments the Board received on the proposal to require transactions to be grouped by transaction type on periodic statements, the final rule requires creditors to group fees and interest together into a separate category but permits flexibility in how transactions may be listed. The Board believes that it is especially important for consumers to be able to identify fees and interest in order to assess the overall cost of credit. As further discussed below in the section-by-section analysis to § 226.7(b)(6), because testing evidence suggests that consumers can more easily find fees when they are grouped together under a separate heading rather than when they are combined with a consumer's transactions in a chronological list, the Board is adopting the proposal that would require the grouping of fees and interest on the statement.
With respect to grouping of transactions, such as purchases and cash advances, the Board believes that the modest improvement in consumers' ability to identify specific transactions in a grouped periodic statement may not justify the high cost to many creditors of reformatting periodic statements and coding transactions in order to group transactions by type. Furthermore, providing flexibility in how transactions may be presented would allow creditors to disclose transactions grouped by authorized user or by other sub-accounts, which consumers may find useful. In addition, in consumer testing conducted for the Board prior to the fall of 2008, most consumers indicated that they already review the transactions on their periodic statements. The Board expects that consumers will continue to review their transactions, and that consumers generally are aware of the transactions in which they have engaged during the billing period.
Accordingly, the Board has withdrawn the requirement to group transactions by type in proposed § 226.7(b)(2). Comment 7(b)(2)-1 has been revised from the proposal to permit, but not require, creditors to group transactions by type. Therefore, creditors may list transactions chronologically, group transactions by type, or organize transactions in any other way that would be clear and conspicuous to consumers. However, consistent with § 226.7(b)(6), all fees and interest must be grouped together under a separate heading and may not be interspersed with transactions.
Creditors are required to disclose any credits to the account during the billing cycle. Creditors typically disclose credits among other transactions. The Board did not propose substantive changes to the disclosure requirements for credits in June 2007. However, consistent with the format requirements proposed in § 226.7(b)(2), the June 2007 Proposal would have required credits and payments to be grouped together. Proposed Sample G-18(A) would have illustrated the proposal.
Few commenters directly addressed issues related to disclosing credits on periodic statements, although many industry commenters opposed format requirements to group transactions (thus, credits) by type rather than in a chronological listing. In response to a request for guidance on the issue, comment 7(b)(3)-1 is modified from the proposal to clarify that credits may be distinguished from transactions in any way that is clear and conspicuous, for example, by use of debit and credit columns or by use of plus signs and/or minus signs.
As discussed in the section-by-section analysis to § 226.7(b)(2) above, the Board is not requiring creditors to group transactions by type. For the reasons discussed in that section and in the section-by-section analysis to § 226.7(b)(6) below, the Board is only requiring creditors to group fees and interest into a separate category, while credits, like transactions, may be presented in any manner that is clear and conspicuous to consumers.
As discussed above in the section-by-section analysis to § 226.7(b)(2) above, the Board is not requiring creditors to segregate transactions and credits. Therefore, formatting alternatives for combined deposit account and credit account statements are no longer necessary. Comment 7(b)(3)-3, as renumbered in the June 2007 Proposal, is revised for clarity and is adopted as proposed.
Most industry commenters supported the proposal, believing that periodic rates are not important to consumers. Some consumer groups opposed eliminating the periodic rate as a disclosure requirement, stating that it is easier for consumers to check the calculation of their interest charges when the rate appears on the statement. One industry commenter asked the Board to clarify that the rule would not prohibit creditors from providing, at their option, the periodic rate close to the APR and balance to which the rates relate.
The final rule eliminates the requirement to disclose periodic rates on periodic statements, as proposed, pursuant to the Board's exception and exemption authorities under TILA Section 105. Section 105(a) authorizes the Board to make exceptions to TILA to effectuate the statute's purposes, which include facilitating consumers' ability to compare credit terms and helping consumers avoid the uninformed use of credit. 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to exempt any class of transactions (with an exception not relevant here) from coverage under any part of TILA if the Board determines that coverage under that part does not provide a meaningful benefit to consumers in the form of useful information or protection. 15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to make this determination in light of specific factors. 15 U.S.C. 1604(f)(2). These factors are (1) the amount of the loan and whether the disclosure provides a benefit to consumers who are parties to the transaction involving a loan of such amount; (2) the extent to which the requirement complicates, hinders, or makes more expensive the credit process; (3) the status of the borrower, including any related financial arrangements of the borrower, the financial sophistication of the borrower relative to the type of transaction, and the importance to the borrower of the credit, related supporting property, and coverage under TILA; (4) whether the loan is secured by the principal residence of the borrower; and (5) whether the exemption would undermine the goal of consumer protection.
The Board considered each of these factors carefully, and based on that review and the comments received, determined that the exemption is appropriate. In consumer testing conducted for the Board prior to the June 2007 Proposal, consumers indicated they do not use periodic rates to verify interest charges. Consistent with the Board's June 2007 Proposal not to allow periodic rates to be disclosed in the tabular summary on or with credit card applications and disclosures, requiring periodic rates to be disclosed on periodic statements may detract from more important information on the statement, and contribute to information overload. Eliminating periodic rates from the periodic statement has the potential to better inform consumers and further the goals of consumer protection and the informed use of credit for open-end (not home-secured) credit.
The Board notes that under the final rule, creditors may continue to disclose the periodic rate, so long as the additional information is presented in a way that is consistent with creditors' duty to provide required disclosures clearly and conspicuously.
Commenters generally supported the proposal, and the labeling requirement is adopted as proposed. Forms G-18(F) and G-18(G) illustrate periodic statements that disclose an APR but no periodic rates.
Under § 226.7(b)(4)(ii) of the June 2007 Proposal, creditors would have been required to disclose promotional rates only if the rate actually applied during the billing period. For example, a card issuer may impose a 22 percent APR for cash advances but offer for a limited time a 1.99 percent promotional APR for advances obtained through the use of a check accessing a credit card account. Creditors are currently required to disclose, in this example, the 22 percent cash advance APR on periodic statements whether or not the consumer obtains a cash advance during the previous statement period. The proposal clarified that creditors are not required to disclose the 1.99 percent promotional APR unless the consumer used the check during the statement period. In the June 2007 Proposal, the Board noted its belief that interpreting TILA to require the disclosure of all promotional rates would be operationally burdensome for creditors and result in information overload for consumers. The proposed exception did not apply to HELOCs covered by § 226.5b.
Industry and consumer group commenters generally supported the proposal that requires promotional rates to be disclosed only if the rate actually applied during the billing period. Some consumer groups urged the Board to go further and prohibit creditors from disclosing a promotional rate that has not actually been applied, to avoid possible consumer confusion over a multiplicity of rates. For the reasons stated in the June 2007 Proposal and discussed above, the Board is adopting § 226.7(b)(4)(ii) as proposed, with minor changes to the description of the rate and time period, consistent with § 226.16(g).
Few comments were received on this aspect of the proposal. Some consumer groups strongly opposed the proposal if the Board determined to eliminate the effective APR, as proposed under one alternative in the June 2007 Proposal. They believe that because the required credit insurance premium is calculated as a percentage of the outstanding balance, creditors could understate the percentage consumers must pay for carrying a balance, which would conceal the true cost of credit.
The final rule provides that creditors offering open-end (not home-secured) plans that impose finance charges attributable to periodic rates (other than interest) must disclose the amount in dollars, as a fee, as proposed.
In addition, a new comment 7(b)(4)-4 (proposed in June 2007 as comment 7(b)(4)-7) is added to provide guidance to creditors when a fee is imposed, remains unpaid, and interest accrues on the unpaid balance. The comment, adopted as proposed, provides that creditors disclosing fees in accordance with the format requirements of § 226.7(b)(6) need not separately disclose which periodic rate applies to the unpaid fee balance.
In technical revisions, the substance of footnotes referenced in § 226.7(d) is moved to the regulation and comment 7(b)(4)-5, as proposed.
Creditors must disclose the amount of the balance to which a periodic rate was applied and an explanation of how the balance was determined. The Board provides model clauses creditors may use to explain common balance computation methods. 15 U.S.C. 1637(b)(7); current § 226.7(e); and Model Clauses G-1. The staff commentary to current § 226.7(e) interprets how creditors may comply with TILA in disclosing the “balance,” which typically changes in amount throughout the cycle, on periodic statements.
The June 2007 Proposal would have required creditors to refer to the balance as “balances subject to interest rate,” to complement proposed revisions intended to further consumers' understanding of interest charges, as distinguished from fees. The final rule adopts the required description as proposed.
Calculating balances on open-end plans can be complex, and requires an understanding of how creditors allocate payments, assess fees, and record transactions as they occur during the cycle. Currently, neither TILA nor Regulation Z requires creditors to disclose on periodic statements all the information necessary to compute a balance, and requiring that level of detail appears not to be warranted. Although the Board's model clauses are intended to assist creditors in explaining common methods, consumers continue to find these explanations lengthy and complex. As stated earlier, consumer testing conducted prior to the June 2007 Proposal indicated that consumers call the creditor for assistance when they attempt without success to calculate balances and verify interest charges.
Providing the name of the balance computation method (or a brief explanation, if the name is not identified in § 226.5a(g)), along with a reference to where additional information may be obtained provides important information in a simplified way, and in a manner consistent with how consumers obtain further balance computation information.
Some consumer groups urged the Board to continue to require creditors to disclose the balance computation method on the periodic statement. They believe that the information is important for consumers that check creditors' interest calculations. Consumers, a federal banking agency and a member of Congress were among those who suggested banning a computation method commonly called “two-cycle.” As an alternative, the agency suggested requiring a cautionary disclosure on the periodic statement about the two-cycle balance computation method for those creditors that use the method.
Industry commenters generally favored the proposal, although one commenter would eliminate identifying the name of the balance computation method. Some commenters urged the Board to add “daily balance” method to § 226.5a(g), to enable creditors that use that balance computation method to take advantage of the alternative disclosure.
Some consumer groups further urged the Board to require creditors, when responding to a consumer who has called the creditor's toll-free number established pursuant to the proposed rules, to offer to mail consumers a
As discussed in the section-by-section analysis to § 226.6, the Board proposed in June 2007 to reform cost disclosure rules for open-end (not home-secured) plans, in part, to ensure that all charges assessed as part of an open-end (not home-secured) plan are disclosed before they are imposed and to simplify the rules for creditors to identify such charges. Consistent with the proposed revisions at account opening, the proposed revisions to cost disclosures on periodic statements were intended to simplify how creditors identify the dollar amount of charges imposed during the statement period.
Consumer testing conducted for the Board prior to the June 2007 Proposal indicated that most participants reviewing mock periodic statements could not correctly explain the term “finance charge.” The revisions proposed in June 2007 were intended to conform labels of charges more closely to common understanding, “interest” and “fees.” Format requirements were intended to help ensure that consumers notice charges imposed during the statement period.
Two alternatives were proposed: One addressed interest and fees in the context of an effective APR disclosure, the second assumed no effective APR is required to be disclosed.
TILA Section 127(b)(4) requires creditors to disclose on periodic statements the amount of any finance charge added to the account during the period, itemized to show amounts due to the application of periodic rates and the amount imposed as a fixed or minimum charge. 15 U.S.C. 1637(b)(4). This requirement is currently implemented in § 226.7(f), and creditors are given considerable flexibility regarding totaling or subtotaling finance charges attributable to periodic rates and other fees.
Because the Board believes that consumers benefit when interest charges are itemized by transaction type, which many creditors do currently, the Board is adopting § 226.6(b)(6)(ii) as generally proposed, with one clarification that all interest charges be grouped together. As a result, all interest charges on an account, whether they are attributable to different authorized users or sub-accounts, must be disclosed together.
Under the June 2007 Proposal, finance charges attributable to periodic rates other than interest charges, such as required credit insurance premiums, would have been required to be identified as fees and would not have been permitted to be combined with interest costs.
Current § 226.7(h) requires the disclosure of “other charges” parallel to the requirement in TILA Section 127(a)(5) and current § 226.6(b) to disclose such charges at account opening. 15 U.S.C. 1637(a)(5). Consistent with current rules to disclose “other charges,” proposed § 226.7(b)(6)(iii) required that other costs be identified consistent with the feature or type, and itemized. The
To highlight the overall cost of the credit account to consumers, under the June 2007 Proposal, creditors would have been required to disclose the total amount of interest charges and fees for the statement period and calendar year to date. Comment 7(b)(6)-3 would have provided guidance on how creditors may disclose the year-to-date totals at the end of a calendar year. This aspect of the proposal was based on consumer testing that indicated that participants noticed year-to-date cost figures and would find the numbers helpful in making future financial decisions. The proposal was intended to provide consumers with information about the cumulative cost of their credit plans over a significant period of time. This requirement is discussed further below.
For the reasons stated above, the requirement in § 226.7(b)(6) to label costs imposed as part of the plan as either fees or interest charge is adopted as proposed. Because the Board is adopting the alternative to eliminate the requirement to disclose an effective APR, the proposed requirement to label fees as “transaction” or “fixed” fees as a part of the proposed alternative to improve consumers' understanding of the effective APR is not included in the final rule.
Most industry commenters opposed this aspect of the proposal, as overly prescriptive. As discussed in the section-by-section analysis to § 226.7(b)(2) regarding the requirement to group transactions together, many commenters believe the proposal would hinder rather than help consumer understanding if transaction-related fees are disclosed in a separate location from the transaction itself. They assert that consumers prefer a chronological listing of debits and credits to the account, and even if consumers prefer groupings, chronological listings are not confusing and consumer preference does not justify the cost to the industry to redesign periodic statements.
Other industry commenters stated that currently they separately display account activity in a variety of ways, such as by user, feature, or promotion. They believe consumers find these distinctions to be helpful in managing their accounts, and urged the Board to allow creditors to continue to display information in this manner.
As discussed in the section-by-section analysis to § 226.7(b)(2) above, in the fall of 2008, the Board tested consumers' ability to identify specific transactions and fees on periodic statements where transactions were grouped by transaction type and on periodic statements that listed transactions in chronological order. Testing evidence showed that the grouped periodic statement performed better among participants with respect to identifying specific transactions and fees, though the improved performance of the grouped periodic statement was more significant with regard to the identification of fees.
Moreover, consumers' ability to match a transaction fee to the transaction giving rise to the fee was also tested. Among participants who correctly identified the transaction to which they were asked to find the corresponding fee, a larger percentage of consumers who saw a statement on which account activity was arranged chronologically were able to match the fee to the transaction than when the statement was grouped. However, out of the participants who were able to identify the transaction to which they were asked to find the corresponding fee, the percentage of participants able to find the corresponding fee was very high for both types of listings.
The Board believes that the ability to identify all fees is important for consumers to assess their cost of credit. As discussed above, since the vast majority of consumers do not appear to comprehend the effective APR, the Board believes highlighting fees and interest for consumers will more effectively inform consumers of their costs of credit. Because consumer testing results indicate that grouping fees together helped consumers find them more easily, the Board is adopting the proposal under § 226.7(b)(6)(iii) to require creditors to group fees together. All fees assessed on the account must be grouped together under one heading even if fees may be attributable to different users of the account or to different sub-accounts.
In general, industry commenters opposed the requirement for year-to-date totals as unnecessary and costly to implement. Some trade associations urged the Board to discuss with data processors potential costs to implement the year-to-date totals, and to provide sufficient implementation time if the requirement is adopted. Suggested alternatives to the proposal included providing the information on the first or last statement of the year, at the end of the year to consumers who request it, or to provide access to year-to-date information on-line.
The Board believes that providing consumers with the total of interest and fee costs, expressed in dollars, for the statement period and year to date is a significant enhancement to consumers' ability to understand the overall cost of credit for the account, and has adopted the requirement as proposed. The Board's testing indicates consumers notice and understand credit costs expressed in dollars. Aggregated cost information enables consumers to evaluate how the use of an account may impact the amount of interest and fees charged over the year and thus promotes the informed use of credit. Discussions with processors indicated that programming costs to capture year-to-date information are not material.
Comment 7(b)(6)-3 has been added to provide additional flexibility to creditors in providing year-to-date totals, in response to a commenter's request. Under the revised comment, creditors sending monthly statements may comply with the requirement to provide a year-to date total using a January 1 through December 31 time period, or the period representing 12 monthly cycles beginning in November and ending in December of the following year or beginning in December and ending in January of the following year. This guidance also applies when creditors send quarterly statements.
Some commenters asked the Board to provide guidance on creditors' duty to reflect refunded fees or interest in year-to-date totals. Comment 7(b)(6)-5 has been added to reflect that creditors may, but are not required to, reflect the adjustment in the year-to-date totals, nor, if an adjustment is made, to provide an explanation about the reason for the adjustment, to ease compliance. Such adjustments should not affect the total fees or interest charges imposed for the current statement period.
A major goal of the Board's review of Regulation Z's open-end credit rules is to address consumers' surprise at increased rates (and/or fees). In the June 2007 Proposal, the Board sought to address the issue in § 226.9(c)(2) and (g) to give more time before new rates and changes to significant costs become effective. The Board and other federal banking agencies further proposed in May 2008, subject to certain exceptions, a prohibition on 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.
As part of the June 2007 Proposal, the Board also proposed new § 226.7(b)(14), which would have required a summary of key changes to precede transactions when a change-in-terms notice or a notice of a rate increase due to delinquency or default or as a penalty is provided on or with a periodic statement. Samples G-20 and G-21 in Appendix G to part 226 illustrated the proposed format requirement under § 226.7(b)(14) and the level of detail required for the notice under § 226.9(c)(2)(iii) and (g)(3). Proposed Sample Forms G-18(G) and G-18(H) would have illustrated the placement of these notices on a periodic statement. The summary would have been required to be displayed in a table, in no less than 10-point font.
Consumer groups supported the proposed format requirements, as being more readable and pertinent than current change-in-term notices provided with periodic statements. Industry commenters opposed the proposal for a number of reasons. Many commenters stated that creditors use pre-printed forms and have limited space to place non-recurring messages on the front of the statement. These commenters asserted that the proposed requirement to place a change-in-term notice or a penalty rate increase notice preceding the transactions would be costly to implement. Some commenters asked the Board to permit creditors to refer consumers to an insert where the change-in-term or penalty increase could be described, if the requirement for a summary table was adopted. Others asked for more flexibility, such as by requiring the disclosures to precede transactions, without a further requirement to provide disclosures in a form substantially similar to proposed Forms G-18(G) and G-18(H), and Samples G-20 and G-21. One commenter urged the Board to require that the summary table be printed in a font size that is consistent with TILA's general “clear and conspicuous” standard, rather than require a 10-point font. Others noted that proposed Forms G-18(G) and G-18(H) were designed in a portrait format, with the summary table directly above the transactions, and asked that the Board clarify whether creditors could provide the table in a landscape format, with the summary table to the right or left of the transactions. One commenter asked the Board to provide guidance in the event both a change-in-terms notice and a penalty rate increase notice are included in a periodic statement. One commenter suggested the effect of the proposal will be to drive creditors to use separate mailings, to reduce redesign costs.
As discussed in more detail in the section-by-section analysis to § 226.9(c) and 226.9(g), the final rule requires that a creditor include on the front of the periodic statement a tabular summary of changes to certain key terms, when a change-in-terms notice or notice of the imposition of a penalty rate is included with the periodic statement. However, consistent with the results of the consumer testing conducted on behalf of the Board, this tabular summary is not required to appear on the front of the first page of the statement prior to the list of transactions, but rather may appear anywhere on the front of the periodic statement. Conforming changes have been made to § 226.7(b)(7) in the final rule. The summary table on the model forms continues to be disclosed on the front of the first page of the periodic statement; however, this is not required under the final rule.
Consumers who allege billing errors must do so in writing. 15 U.S.C. 1666; § 226.13(b). Creditors must provide on or with periodic statements an address for this purpose.
In June 2007, the Board proposed to update comment 7(k)-2, renumbered as comment 7(b)(9)-2, to address notification by e-mail or via a Web site. The proposed comment would have provided that the address is deemed to be clear and conspicuous if a precautionary instruction is included that telephoning or notifying the creditor by e-mail or via a Web site will not preserve the consumer's billing rights, unless the creditor has agreed to treat billing error notices provided by electronic means as written notices, in which case the precautionary instruction is required only for telephoning.
Creditors must disclose the closing date of the billing cycle and the account balance outstanding on that date. As a part of the June 2007 Proposal to implement TILA amendments in the Bankruptcy Act regarding late payments and the effect of making minimum payments, the Board proposed to require creditors to group together, as applicable, disclosures of related information about due dates and payment amounts, including the new balance. The comments received on these proposed formatting requirements are discussed in the section-by-section analysis to § 226.7(b)(11) and (b)(13) below.
Some consumer commenters urged the Board to require credit card issuers to disclose the amount required to pay off the account in full (the “payoff balance”) on each periodic statement and pursuant to a consumer's request by telephone or through the issuer's Web site. The Board's final rule does not contain such a requirement. At the time the payoff balance would be disclosed, the issuer may not be aware of some transactions that are still being processed and that have not yet been posted to the account. In addition, finance charges can continue to accrue after the payoff balance is disclosed. If a consumer relies on the disclosure to submit a payment for that amount, the account still may not be paid off in full.
TILA Section 127(b)(12), added by Section 1305(a) of the Bankruptcy Act, requires 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 June 2007 Proposal would have implemented those requirements in § 226.7(b)(11) by requiring creditors to disclose the payment due date on the front side of the first page of the periodic statement and, closely proximate to the due date, any cut-off time if the time is before 5 p.m. Further, the amount of any late-payment fee and any penalty APR that could be triggered by a late payment would have been required to be in close proximity to the due date.
The Board proposed in June 2007 that the late payment disclosure requirements contained in the Bankruptcy Act and to be implemented in new § 226.7(b)(11) would not apply to charge card issuers because the new requirement is not specifically enumerated to apply to charge card issuers. The Board noted that for some charge card issuers, payments are not considered “late” for purposes of imposing a fee until a consumer fails to make payments in two consecutive billing cycles. It would be undesirable to encourage consumers who in January receive a statement with the balance due upon receipt, for example, to avoid paying the balance when due because a late-payment fee may not be assessed until mid-February; if consumers routinely avoided paying a charge card balance by the due date, it could cause issuers to change their practice with respect to charge cards.
One industry commenter that offers a charge card account with a revolving feature supported the proposal. The commenter further asked the Board to clarify how card issuers with such products may comply with the late payment disclosure requirement.
Creditors are required to provide the disclosures set forth in § 226.7 as applicable. Section § 226.7(b)(11)(ii) has been revised to make clear the exemption is for periodic statements provided solely for charge card accounts; periodic statements provided for accounts with charge card and revolving features must comply with the late fee disclosure provision as to the revolving feature. Comment app. G-9 has been added to provide that creditors offering card accounts with a charge card feature and a revolving feature may revise the late payment (and minimum payment) disclosure to make clear the feature to which the disclosures apply. For creditors subject to § 226.7(b)(11), the late payment disclosure is not required to be made on a statement where no payment is due (and no late payment could be triggered), because the disclosure would not apply.
Commenters generally supported this aspect of the proposal, which is adopted as proposed.
The Board considered additional disclosures on the periodic statement that would more fully explain the consequences of paying after the due date and before the date triggering the late-payment fee, but such an approach appeared cumbersome and overly complicated. For those reasons, under the June 2007 Proposal, creditors would have been required to disclose the due date under the terms of the legal obligation, and not a later date, such as when creditors are required by state or other law to delay imposing a late-payment fee for a specified period when a payment is received after the due date. Consumers' rights under state laws to avoid the imposition of late-payment fees during a specified period following a due date were unaffected by the proposal; that is, in the above example, the creditor would disclose March 10 as the due date for purposes of § 226.7(b)(11), but could not, under state law, assess a late-payment fee before March 21.
Commenters supported the Board's interpretation, and for the reasons stated above, the proposal is adopted. In response to a request for guidance, the substance of the above discussion regarding the due date disclosure when state or other laws affect the assessment of a late-payment fee is added in a new comment 7(b)(11)-2.
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 by which time zone the cut-off hour should be measured.
As discussed in the section-by-section analysis to § 226.10(b) to the May 2008 Proposal, the Board proposed that to comply with the requirement in § 226.10 to provide reasonable payment instructions, a creditor's cut-off hour for receiving payments
Consumer groups suggested the Board should require a cut-off hour no earlier than 5 p.m. for all methods of payment. They stated that different cut-off hours are confusing for consumers. Moreover, they argue that consumers have no control over the time electronic payments are posted. They suggested having a uniform cut-off hour would not require creditors to process and post payments on the same day or to change processing systems; such a rule would merely prohibit the creditor from imposing a late fee.
Industry commenters generally opposed a requirement to disclose any cut-off hour for receiving payments made other than by mail closely proximate to each reference of the due date. They stated that such a disclosure is unnecessary because creditors disclose cut-off times with other payment channels, such as the telephone or Internet. If a cut-off hour were to be required on the front side of periodic statements, one trade association suggested permitting a reference to cut-off hours on the back of the statement, to avoid cluttering the statement with information that, in their view, would not be helpful to many consumers in any event. Others suggested moving the timing and location of cut-off hour disclosures to account-opening, below the account-opening box, or disclosing the cut-off time for each payment channel on the periodic statement. One service provider suggested as an alternative to a cut-off hour disclosure, a substantive rule requiring a one-day period following the due date before the payment could be considered late.
In the two rounds of testing following the May 2008 Proposal, the Board conducted additional testing on cut-off hour disclosures for receiving payments other than by mail. Consumers were shown mock periodic statements which disclosed near the due date a 2 p.m. cut-off time for electronic payments and a reference to the back of the statement for cut-off times for other payment methods. The disclosure on the back of the statement stated that mailed payments must be received by 5 p.m. on the due date. When asked what time a mailed payment would be due, about two-thirds of the participants incorrectly named 2 p.m., the cut-off hour identified for electronic payments. Although the mock statement referred the reader to the back of the statement for more information about cut-off hours, only one participant in each round was able to locate the
Based on the comments received and on the Board's consumer testing, the Board is not adopting an additional requirement to disclose any cut-off hour for receiving payments made other than by mail closely proximate to each reference of the due date. Testing showed that abbreviated disclosures were not effective. The Board believes that fully explaining each cut-off hour is too cumbersome for the front of the first side of the periodic statement. Creditors currently disclose relevant cut-off hours when consumers use the Internet or telephone to make a payment, and the Board expects creditors will continue to do so.
In addition, the Board proposed to require creditors to disclose any increased rate that may apply if consumers' payments are received after the due date. The proposal was intended to address the Board's concern about a potential increase in APRs as a consequence of paying late. If, under the terms of the account agreement, a late payment could result in the loss of a promotional rate, the imposition of a penalty rate, or both, the proposal would have required the creditor to disclose the highest rate that could apply, to avoid information overload. The June 2007 Proposal would have required creditors to disclose the increased APR closely proximate to the fee and due date to fulfill Congress's intent to warn consumers about the effects of paying late.
Some consumer groups and a member of Congress generally supported the Board's proposal to require creditors to disclose any penalty rate, as well as a late payment fee, that could be imposed if a consumer makes an untimely payment. One trade association and a number of industry commenters noted that under the proposal, consumers are warned about the consequences of paying late on or with the application or solicitation for a credit or charge card and at account-opening, and thus repeating disclosures each month was unnecessary. As an alternative, the trade association suggested requiring an annual reminder about triggers for penalty pricing or a preprinted statement on the back of the periodic statement. Some industry commenters opposed the proposal as overly burdensome.
The Board continues to believe that the late-payment warning should include a disclosure of any penalty rate that may apply if the consumer makes a late payment. For some consumers, the increase in rate associated with a late payment may be more costly than the imposition of a fee. Disclosing only the fee to these consumers would not inform them of one of the primary costs of making late payment. Accordingly, the Board believes that disclosure of both the penalty rate and fee should be required. For the reasons stated above, the proposal is adopted.
Many consumers, consumer groups, and others also urged the Board to ban “excessive” late fees and penalty rates. Elsewhere in today's
Some creditors are subject to state law limitations on the amount of late-payment fees or interest rates that may be assessed. Currently, where disclosures are required but the amount is determined by state law, such creditors typically disclose a matrix disclosing which rates and fees are applicable to residents of various states. Under the June 2007 Proposal, creditors would have been required to disclose the late-payment fee applicable to the consumer's account. To ease burden, one commenter urged the Board to permit these creditors to disclose the highest late-payment fee (or penalty rate) that could apply in any state. The Board is mindful of compliance costs associated with customizing the disclosure to reflect disclosure requirements of various states; however, the Board believes the purposes of TILA
The Bankruptcy Act amends TILA Section 127(b) to require creditors that extend open-end credit to provide a disclosure on the front of each periodic statement in a prominent location about the effects of making only minimum payments. 15 U.S.C. 1637(b)(11). This disclosure must include: (1) A “warning” statement indicating that making only the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer's balance; (2) a hypothetical example of how long it would take to pay off a specified balance if only minimum payments are made; and (3) a toll-free telephone number that the consumer may call to obtain an estimate of the time it would take to repay his or her actual account balance.
Under the Bankruptcy Act, depository institutions may establish and maintain their own toll-free telephone numbers or use a third party. In order to standardize the information provided to consumers through the toll-free telephone numbers, the Bankruptcy Act directs the Board to prepare a “table” illustrating the approximate number of months it would take to repay an outstanding balance if the consumer pays only the required minimum monthly payments and if no other advances are made. The Board is directed to create the table by assuming a significant number of different APRs, account balances, and minimum payment amounts; instructional guidance must be provided on how the information contained in the table should be used to respond to consumers' requests. The Board is also required to establish and maintain, for two years, a toll-free telephone number for use by customers of creditors that are depository institutions having assets of $250 million or less.
The Bankruptcy Act provides that creditors, the Board and the FTC may use a toll-free telephone number that connects consumers to an automated device through which they can obtain repayment information by providing information using a touch-tone telephone or similar device. The Bankruptcy Act also provides that consumers who are unable to use the automated device must have the opportunity to speak with an individual from whom the repayment information may be obtained. Creditors, the Board and the FTC may not use the toll-free telephone number to provide consumers with repayment information other than the repayment information set forth in the “table” issued by the Board. 15 U.S.C. 1637(b)(11)(F)-(H).
Alternatively, a creditor may use a toll-free telephone number to provide the actual number of months that it will take consumers to repay their outstanding balance instead of providing an estimate based on the Board-created table. A creditor that does so need not include a hypothetical example on its periodic statements, but must disclose the warning statement and the toll-free telephone number on its periodic statements. 15 U.S.C. 1637(b)(11)(J)-(K).
For ease of reference, this supplementary information will refer to the above disclosures about the effects of making only the minimum payment as “the minimum payment disclosures.”
In the June 2007 Proposal, the Board proposed to exempt open-end credit plans other than credit card accounts from the minimum payment disclosure requirements. This would have exempted, for example, HELOCs (including open-end reverse mortgages), overdraft lines of credit and other general purpose personal lines of credit. In response to the June 2007 Proposal, industry commenters generally supported exempting open-end credit plans other than credit card accounts from the minimum payment disclosure requirements. Several consumer group commenters urged the Board to require the minimum payment disclosures for HELOCs, as well as credit card accounts.
The final rule limits the minimum payment disclosures to credit card accounts, as proposed pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). The Congressional debate on the minimum payment disclosures indicates that the principal concern of Congress was that consumers may not be fully aware of the length of time it takes to pay off their credit card accounts if only minimum monthly payments are made. For example, Senator Grassley, a primary sponsor of the Bankruptcy Act, in discussing the minimum payment disclosures, stated:
[The Bankruptcy Act] contains significant new disclosures for consumers, mandating that credit card companies provide key information about how much [consumers] owe and how long it will take to pay off their credit card debts by only making the minimum payment. That is very important consumer education for every one of us.
Consumers will also be given a toll-free number to call where they can get information about how long it will take to pay off their own credit card balances if they only pay the minimum payment. This will educate consumers and improve consumers'
With respect to HELOCs, the Board understands that most HELOCs have a fixed repayment period. Thus, for those HELOCs, consumers could learn from the current disclosures the length of the draw period and the repayment period.
As proposed, the final rule also exempts overdraft lines of credit and other general purpose credit lines from the minimum payment disclosure requirements for several reasons. First, these lines of credit are not in wide use. The 2004 Survey of Consumer Finances data indicates that few families—1.6 percent—had a balance on lines of credit other than a home-equity line or credit card at the time of the interview. (In terms of comparison, 74.9 percent of families had a credit card, and 58 percent of these families had a credit card balance at the time of the interview.)
In response to the June 2007 Proposal, several commenters suggested revisions to the structure of the regulatory text in § 226.7(b)(12) to make the regulatory text in this section easier to read and understand. In the final rule, § 226.7(b)(12) is restructured to accomplish these goals. The final rule in § 226.7(b)(12)(i) clarifies that issuers can choose one of three ways to comply with the minimum payment disclosure requirements: (1) Provide on the periodic statement a warning about making only minimum payments, a hypothetical example, and a toll-free telephone number where consumers may obtain generic repayment estimates as described in Appendix M1 to part 226; (2) provide on the periodic statement a warning about making only minimum payments, and a toll-free telephone number where consumers may obtain actual repayment disclosures as described in Appendix M2 to part 226; or (3) provide on the periodic statement the actual repayment disclosure as described in Appendix M2 to part 226.
The final rule in § 226.7(b)(12)(ii) sets forth requirements that credit card issuers must follow if they choose to comply with the minimum payment disclosure provisions by providing on the periodic statement a warning about making only minimum payments, a hypothetical example, and a toll-free telephone number where consumers may obtain generic repayment estimates. Under the Bankruptcy Act, the hypothetical example that creditors must disclose on periodic statements varies depending on the creditor's minimum payment requirement. Generally, creditors that require minimum payments equal to 4 percent or less of the account balance must disclose on each statement that it takes 88 months to pay off a $1000 balance at an interest rate of 17 percent if the consumer makes a “typical” 2 percent minimum monthly payment. Creditors that require minimum payments exceeding 4 percent of the account balance must disclose that it takes 24 months to pay off a balance of $300 at an interest rate of 17 percent if the consumer makes a “typical” 5 percent minimum monthly payment (but a creditor may opt instead to disclose the statutory example for 2 percent minimum payments). The 5 percent minimum payment example must be disclosed by creditors for which the FTC has the authority under TILA to enforce the act and this regulation. Creditors also have the option to substitute an example based on an APR that is greater than 17 percent. The Bankruptcy Act authorizes the Board to periodically adjust the APR used in the hypothetical example and to recalculate the repayment period accordingly. 15 U.S.C. 1637(b)(11)(A)-(E).
Second, the statute requires that issuers disclose in the examples the minimum payment formula used to calculate the payoff period. In the $1,000 example above, the statute would require issuers to indicate that a “typical” 2 percent minimum monthly payment was used to calculate the repayment period. In the $300 example above, the statute would require issuers to indicate that a 5 percent minimum monthly payment was used to calculate the repayment period. In June 2007, the Board proposed to eliminate the specific minimum payment formulas from the
In response to the June 2007 Proposal, several consumer group commenters suggested that the Board include in the example the statutory reference to the “typical” minimum payment formula (either 2 percent or 5 percent as described above), because without this reference, the example implies that minimum payment formulas do not vary from creditor to creditor.
Like the proposal, the final rule does not include in the examples a reference to the minimum payment formula used to calculate the repayment period given in the examples. The Board believes that including the entire minimum payment formula, including the floor amount, in the disclosure could make the example too complicated. Also, the Board did not revise the disclosures to indicate that the repayment period in the $1,000 balance was calculated based on a $20 payment, and the repayment period in the $300 balance was calculated based on a $15 payment. The Board believes that revising the statutory requirement in this way would change the disclosure to focus consumers on the effects of making a fixed payment each month as opposed to the effects of making minimum payments. Moreover, disclosing the minimum payment formula is not necessary for consumers to understand the essential point of the examples—that it can take a significant amount of time to pay off a balance if only minimum payments are made. In testing conducted for the Board, the $1,000 balance example was tested without including the 2 percent minimum payment disclosure required by the statute. Consumers appeared to understand the purpose of the disclosure—that it would take a significant amount of time to repay a $1,000 balance if only minimum payments were made. For these reasons, the final rule requires the hypothetical examples without specifying the minimum payment formulas used to calculate repayment periods in the examples. The Board believes that the modification of the examples will further TILA's purpose to assure a meaningful disclosure of credit terms. 15 U.S.C. 1601(a).
In response to the June 2007 Proposal, one industry commenter suggested that if an issuer already includes on the first page of the periodic statement a toll-free customer service telephone number, the Board should permit the issuer to reference that telephone number within the minimum payment disclosure, rather than having to repeat that number again in the minimum payment disclosure. The final rule requires issuers to state the toll-free telephone number in the minimum payment disclosure itself, even if the same toll-free telephone number is listed in other places on the first page of the periodic statement. The Board believes that listing the toll-free telephone number in the minimum payment disclosure itself makes the disclosure easier for consumers to use.
The final regulatory language for the examples is set forth in new § 226.7(b)(12)(ii). As proposed in June 2007, in addition to the revisions mentioned above, the final rule also adopts several stylistic revisions to the statutory language, based on plain language principles, in an attempt to make the language of the examples more understandable to consumers. Furthermore, the language has been revised to reflect comments from the Board's consultation with the other federal banking agencies, the NCUA, and the FTC, pursuant to Section 1309 of the Bankruptcy Act, as discussed immediately below.
The other federal banking agencies, the NCUA, and the FTC generally agreed with the Board's approach. These agencies, however, suggested that the heading be changed from “Notice about Minimum Payments” to “Minimum Payment Warning,” consistent with the heading provided in the Bankruptcy Act. The agencies the Board consulted were concerned that without the term “warning” in the heading, the Board's proposed heading would not sufficiently call attention to the nature and significance of the information contained in the notice. The Board agrees with the agencies, and the final rule adopts the “Minimum Payment Warning” heading.
One of the agencies the Board consulted also suggested that the wording in the examples be modified to refer to the example balance amount a second time in order to clarify to which balance the time period to repay refers. Thus, in the example under § 226.7(b)(12)(ii)(A)(
New § 226.7(b)(12)(ii)(A)(
The Bankruptcy Act also provides that creditors, the Board and the FTC may use a toll-free telephone number that connects consumers to an automated device through which they can obtain repayment information by providing information using a touch-tone telephone or similar device, but consumers who are unable to use the automated device must have the opportunity to speak with an individual from whom the repayment information may be obtained. Unless the issuer is providing an actual repayment disclosure, the issuer may not provide through the toll-free telephone number a repayment estimate other than estimates based on the “table” issued by the Board. 15 U.S.C. 1637(b)(11)(F). These same provisions apply to the FTC's and the Board's toll-free telephone numbers as well.
In the June 2007 Proposal, the Board proposed to add new § 226.7(b)(12)(iv) and accompanying commentary to implement the above statutory provisions related to the toll-free telephone numbers. In addition, proposed comment 7(b)(12)(iv)-3 would have provided that once a consumer has indicated that he or she is requesting the generic repayment estimate or the actual repayment disclosure, as applicable, card issuers may not provide advertisements or marketing information to the consumer prior to providing the repayment information required or permitted by Appendix M1 or M2 to part 226, as applicable.
The final rule moves these provisions to § 226.7(b)(12)(ii) and comments 7(b)(12)-1, 2 and 5, with several revisions. In addition, comment 7(b)(12)-3 is added to clarify that an issuer may provide as part of the minimum payment disclosure a toll-free telephone number that is designed to handle customer service calls generally, so long as the option to select to receive the generic repayment estimate or actual repayment disclosure, as applicable, through that toll-free telephone number is prominently disclosed to the consumer. For automated systems, the option to select to receive the generic repayment estimate or actual repayment disclosure is prominently disclosed if it is listed as one of the options in the first menu of options given to the consumer, such as “Press or say `3' if you would like an estimate of how long it will take you to repay your balance if you make only the minimum payment each month.” If the automated system permits callers to select the language in which the call is conducted and in which information is provided, the Board has amended comment 7(b)(12)-3 to state that the menu to select the language may precede the menu with the option to receive the repayment disclosure.
In addition, proposed comment 7(b)(12)(iv)-3 dealing with advertisements and marketing information has been moved to comment 7(b)(12)-5. This comment is revised to specify that once a consumer has indicated that he or she is requesting the generic repayment estimate or the actual repayment disclosure, as applicable, card issuers may not provide advertisements or marketing information (except for providing the name of the issuer) to the consumer prior to providing the repayment information required or permitted by Appendix M1 or M2 to part 226, as applicable. Furthermore, new comment 7(b)(12)-5 clarifies that educational materials that do not solicit business are not considered advertisements or marketing materials for purposes of § 226.7(b)(12). Also, comment 7(b)(12)-5 contains examples of how the prohibition on providing advertisements and marketing information applies in two contexts. In particular, comment 7(b)(12)-5 provides an example where the issuer is using a toll-free telephone number that is designed to handle customer service calls generally and the option to select to receive the generic repayment estimate or actual repayment disclosure is given as one of the options in the first
In response to the June 2007 Proposal, several consumer groups suggested that the Board prohibit issuers from providing advertisements or marketing materials even after the repayment information has been given, if the issuer is providing generic repayment estimates through the toll-free telephone number. Nonetheless, if the issuer is providing actual repayment disclosures through the toll-free telephone number, these commenters suggested that the Board allow the issuer to provide advertisements or marketing materials after the repayment information is given, to encourage creditors to provide actual repayment disclosures instead of generic repayment estimates. The final rule does not adopt this approach. The Board believes that allowing advertisements or marketing materials after the repayment information is given is appropriate regardless of whether the repayment information provided are generic repayment estimates or actual repayment disclosures, because consumers could end the telephone call (or exit the Web page) if they were not interested in listening to or reviewing the advertisements or marketing materials given.
Under the Bankruptcy Act, a creditor may use a toll-free telephone number to provide consumers with the actual number of months that it will take consumers to repay their outstanding balance instead of providing an estimate based on the Board-created table. Creditors that choose to give the actual number via the telephone number need not include a hypothetical example on their periodic statements. Instead, they must disclose on periodic statements a warning statement that making the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer's balance, along with a toll-free telephone number that consumers may use to obtain the actual repayment disclosure. 15 U.S.C. 1637(b)(11)(I) and (K). In the June 2007 Proposal, the Board proposed to implement this statutory provision in new § 226.7(b)(12)(ii)(A). The final rule moves this provision to § 226.7(b)(12)(iii), with one revision described below.
In the June 2007 Proposal, the Board proposed to provide that if card issuers provide the actual repayment disclosure on the periodic statement, they need not disclose the warning, the hypothetical example or a toll-free telephone number on the periodic statement, nor need they maintain a toll-free telephone number to provide the actual repayment disclosure.
In response to the June 2007 Proposal, several consumer group commenters suggested that the Board should require issuers to disclose the actual repayment disclosure on the periodic statement in all cases. Industry commenters generally supported the option to provide the actual repayment disclosure on the periodic statement.
As proposed in June 2007, the final rule in new § 226.7(b)(12)(iv) provides that an issuer may comply with the minimum payment requirements by providing the actual repayment disclosure on the periodic statement. Consistent with the statutory requirements, the Board is not requiring that issuers provide the actual repayment disclosure on the periodic statement.
The Board is adopting an exemption from the requirement to provide on periodic statements a warning about the effects of making minimum payments, a hypothetical example, and a toll-free telephone number consumers may call to obtain repayment periods, and to maintain a toll-free telephone number for responding to consumers' requests, if the card issuer instead provides the actual repayment disclosure on the periodic statement.
The Board adopts this approach pursuant to its exception and exemption authorities under TILA Section 105. Section 105(a) authorizes the Board to make exceptions to TILA to effectuate the statute's purposes, which include facilitating consumers' ability to compare credit terms and helping consumers avoid the uniformed use of credit. 15 U.S.C. 1601(a), 1604(a). Section 105(f) authorizes the Board to exempt any class of transactions (with an exception not relevant here) from coverage under any part of TILA if the Board determines that coverage under that part does not provide a meaningful benefit to consumers in the form of useful information or protection. 15 U.S.C. 1604(f)(1). Section 105(f) directs the Board to make this determination in light of specific factors. 15 U.S.C. 1604(f)(2). These factors are (1) the amount of the loan and whether the disclosure provides a benefit to consumers who are parties to the transaction involving a loan of such amount; (2) the extent to which the requirement complicates, hinders, or makes more expensive the credit process; (3) the status of the borrower,
As discussed in the supplementary information to the June 2007 Proposal, the Board believes that certain cardholders would find the actual repayment disclosures more helpful than the generic repayment estimates, as suggested by a recent study conducted by the GAO on minimum payments. For this study, the GAO interviewed 112 consumers and collected data on whether these consumers preferred to receive on the periodic statement (1) customized minimum payment disclosures that are based on the consumers' actual account terms (such as the actual repayment disclosure), (2) generic disclosures such as the warning statement and the hypothetical example required by the Bankruptcy Act; or (3) no disclosure.
In addition, the Board believes that disclosing the actual repayment disclosure on the periodic statement would simplify the process for consumers and creditors. Consumers would not need to take the extra step to call the toll-free telephone number to receive the actual repayment disclosure, but instead would have that disclosure each month on their periodic statements. Card issuers (other than issuers that may use the Board or the FTC toll-free telephone number) would not have the operational burden of establishing a toll-free telephone number to receive requests for the actual repayment disclosure and the operational burden of linking the toll-free telephone number to consumer account data in order to calculate the actual repayment disclosure. Thus, the final rule has the potential to better inform consumers and further the goals of consumer protection and the informed use of credit for credit card accounts.
As explained above, the final rule requires the minimum payment disclosures only for credit card accounts.
In response to the June 2007 Proposal, several consumer group commenters urged the Board not to provide an exemption for credit with a defined fixed repayment period. These commenters believed that the Board should develop a special warning for these types of loans, indicating that paying more than the required minimum payment will result in paying off the loan earlier than the date of final payment and will save the consumer interest charges. Industry commenters generally supported the exemption for credit card accounts with a specific repayment period.
The final rule in § 226.7(b)(12)(v)(E) adopts the exemption for credit card accounts with a specific repayment period as proposed, with several technical edits, pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). The minimum payment disclosure does not appear to provide additional information to consumers that they do not already have in their account agreements. In addition, as discussed below, this exemption will typically be used with respect to accounts that have been closed due to delinquency and the required monthly payment has been reduced or the balance decreased to accommodate a fixed payment for a fixed period of time designed to pay off the outstanding balance. In these cases, consumers will likely be aware of the fixed period of time to repay because it has been specifically negotiated with the card issuer.
In order for this proposed exemption to apply, a fixed repayment period must be specified in the account agreement. As discussed above, this exemption would be applicable to, for example, accounts that have been closed due to delinquency and the required monthly payment has been reduced or the balance decreased to accommodate a fixed payment for a fixed period of time designed to pay off the outstanding balance.
In response to the June 2007 Proposal, several consumer groups suggested that the Board not adopt this exemption and not provide any exemption based on consumers' payment habits. Several industry commenters suggested that the Board broaden this exemption. Some industry commenters suggested that issuers should only be required to comply with minimum payment disclosure requirements for a particular billing cycle if the consumer has made minimum payments for the past three consecutive billing cycles. Other industry commenters suggested that issuers should only by required to comply with the minimum payment disclosure requirements for a particular billing cycle if the consumer has made at least three minimum payments in the past 12 months. Another industry commenter suggested that there should be an exemption for any consumer who has paid his or her account in full during the past 12 months, or has promotional balances that equal 50 percent or more of his or her total account balance.
The final rule adopts in § 226.7(b)(12)(v)(G) the exemption as proposed, with one technical edit, pursuant to the Board's authority under TILA Section 105(a) to make adjustments that are necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). The final rule exempts card issuers from the requirement to provide the minimum payment disclosures in the periodic statement for a particular billing cycle immediately following two consecutive billing cycles in which the consumer paid the entire balance in full, had a zero balance or had a credit balance. The Board believes this approach strikes an appropriate balance between benefits to consumers of the disclosures, and compliance burdens on issuers in providing the disclosures. Consumers who might benefit from the disclosures will receive them. Consumers who carry a balance each month will always receive the disclosure, and consumers who pay in full each month will not. Consumers who sometimes pay their bill in full and sometimes do not will receive the minimum payment disclosures if they do not pay in full two consecutive months (cycles). Also, if a consumer's typical payment behavior changes from paying in full to revolving, the consumer will begin receiving the minimum payment disclosures after not paying in full one billing cycle, when the disclosures would appear to be useful to the consumer. In addition, creditors typically provide a grace period on new purchases to consumers (that is, creditors do not charge interest to consumers on new purchases) if consumers paid both the current balance and the previous balance in full. Thus, creditors already currently capture payment history for consumers for two consecutive months (or cycles).
The Board notes that card issuers are not required to use this exemption. A card issuer may provide the minimum payment disclosures to all of its cardholders, even to those cardholders that fall within this exemption. If issuers choose to provide voluntarily the minimum payment disclosures to those cardholders that fall within this exemption, the Board encourages issuers to follow the disclosures rules set forth in § 226.7(b)(12), the accompanying commentary, and Appendices M1-M3 to part 226 (as appropriate) for those cardholders.
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Under the June 2007 Proposal, creditors would have been required to group together disclosures regarding when a payment is due (due date and cut-off time if before 5 p.m.), how much is owed (minimum payment and ending balance), the potential costs for paying late (late-payment fee, and penalty APR if triggered by a late payment), and the potential costs for making only minimum payments. Proposed Samples G-18(E) and G-18(F) in Appendix G to part 226 would have illustrated the proposed requirements. The proposed format requirements were intended to fulfill Congress's intent to have the new late payment and minimum payment disclosures enhance consumer understanding of the consequences of paying late or making only minimum payments, and were based on consumer testing conducted for the Board that indicated improved understanding when related information is grouped together.
Consumer group commenters, a member of Congress and one trade association supported the format requirements, as being helpful to consumers.
Industry commenters generally opposed the requirements as being overly prescriptive. They urged the Board to permit additional flexibility, or instead to retain the current requirement to provide “clear and conspicuous” disclosures. They asked the Board to require a “closely proximate” standard that would allow additional flexibility in how creditors design their statements, and to eliminate any requirement that creditors' disclosures be substantially similar to model forms or samples. They stated that there is no evidence that under the current “clear and conspicuous” standard consumers are unable to locate or understand the due date, balances, and minimum payment amount.
Some industry commenters opposed the requirement to place the late payment disclosures on the front of the first page. Some commenters asserted that locating that disclosure on the top of the first page places a disproportionate emphasis on the disclosure.
The Board tested the formatting of information regarding payments in two rounds of consumer testing conducted after May 2008. Participants were presented with two different versions of the periodic statement, in which the information was grouped, but the formatting was varied. These changes had no noticeable impact on how easily participants could locate the warning regarding the potential costs for paying late and the potential costs for making only minimum payments.
The Board also tested different formats for the grouped information in the quantitative testing conducted in September and October 2008. Participants were shown versions of the periodic statement in which the information was grouped, but formatted in three different ways. In order to assess whether formatting had an impact on consumers' ability to locate these disclosures, the Board's testing consultant focused on whether the format in which payment information was provided impacted consumer awareness of the late payment warning. Participants were asked whether there was any information on the statement about what would happen if they made a late payment. Participants who noticed the late payment warning were then asked a series of questions about what would happen if they made a late payment. Consistent with the prior rounds of consumer testing, the results of the quantitative testing demonstrated that the formatting of the grouped payment information does not have a statistically significant impact on consumers' ability to locate or understand the late payment warning.
Because the Board's consumer testing demonstrated that formatting of the information about payments does not have an impact on consumer awareness
In response to a request for guidance, comment app. G-10 is added to clarify that although the payment disclosures appear in the upper right-hand corner of Forms G-18(F) and G-18(G) (proposed as Forms G-18(G) and G-18(H)), the disclosures may be located elsewhere, as long as they appear on the front side of the first page.
TILA Section 127(b)(2) requires creditors to identify on periodic statements credit extensions that occurred during a billing cycle. 15 U.S.C. 1637(b)(2). The statute calls for the Board to implement requirements that are sufficient to identify the transaction or to relate the credit extension to sales vouchers or similar instruments previously furnished. The rules for identifying transactions are implemented in § 226.8, and vary depending on whether: (1) The sales receipt or similar credit document is included with the periodic statement, (2) the transaction is sale credit (purchases) or nonsale credit (cash advances, for example), and (3) the creditor and seller are the “same or related.” TILA's billing error protections include consumers' requests for additional clarification about transactions listed on a periodic statement. 15 U.S.C. 1666(b)(2); § 226.13(a)(6).
The June 2007 Proposal would have permitted all creditors to identify sales transactions (in addition to the amount and date) by the seller's name and location. Thus, creditors and sellers that are the same or related could, at their option, identify transactions by a brief identification of goods or services, which they are currently required to do in all cases, or they could provide the seller's name and location for each transaction. Guidance on the level of detail required to describe amounts, dates, the identification of goods, or the seller's name and location would have remained unchanged under the proposal.
Commenters addressing this aspect of the June 2007 Proposal generally supported the proposed revisions. For the reasons stated below, the final rule provides additional flexibility to creditors that use descriptive billing to identify transactions on periodic statements.
The Board's revisions are guided by several factors. The standard set forth by TILA for identifying transactions on periodic statements is quite broad. 15 U.S.C. 1637(b)(2). Whether a general description such as “sporting goods” or the store name and location would be more helpful to a consumer can depend on the situation. Many retailers permit consumers to purchase in a single transaction items from a number of departments; in that case, the seller's name and location may be as helpful as the description of a single department from which several dissimilar items were purchased. Also, the seller's name and location has become the more common means of identifying transactions, as the use of general purpose cards increases and the number of store-only cards decreases. Thus, retailers that commonly accept general purpose credit cards but also offer a credit card account or other open-end plan for use only at their store would not be required to maintain separate systems that enable different descriptions to be provided, depending on the type of card used. Moreover, consumers are likely to carefully review transactions on periodic statements and inquire about transactions they do not recognize, such as when a retailer is identified by its parent company on sales slips which the consumer may not have noticed at the time of the transaction. Moreover, consumers are protected under TILA with the ability to assert a billing error to seek clarification about transactions listed on periodic statements, and are not required to pay the disputed amount while the card issuer obtains the necessary clarification. Maintaining rules that require more standardization and detail would be costly, and likely without significant corresponding consumer benefit. Thus, the revisions are intended to provide flexibility for card issuers without reducing consumer protection.
The Board notes, however, that some retailers offering their own open-end credit plans tie their inventory control systems to their systems for generating sales receipts and periodic statements. In these cases, purchases listed on periodic statements may be described item by item, for example, to indicate brand names such as “XYZ Sweater.” This item-by-item description, while not required under current or revised rules, remains permissible.
To implement the approach described above, § 226.8 is revised, as proposed, as follows. Section 226.8(a)(1) sets forth the rule providing flexibility in identifying sales transactions, as discussed above as well as the content of footnote 19. Section 226.8(a)(2) contains the existing rules for identifying transactions when sales receipts or similar documents accompany the periodic statement. Section 226.8(b) is revised for clarity. A new § 226.8(c) is added to set forth rules now contained in footnote 16; and, without references to “same or related” parties, footnotes 17 and 20. The substance of footnote 18, based on a statutory exception where the creditor and seller are the same person, is deleted as unnecessary. The title of the section is revised for clarity.
The commentary to § 226.8 is reorganized and consolidated but is not substantively changed, as proposed. Comments 8-1, 8(a)(1)-1, and 8(a)(2)-4 are deleted as duplicative. Similarly, comments 8-6 through 8-8, which provide creditors with flexibility in describing certain specific classes of transactions regardless of whether they are “related” or “nonrelated” sellers or creditors, are deleted as unnecessary. Revised § 226.8(a)(1)(ii) and comments 8(a)-3 and 8(a)-7, which provide guidance for identifying mail or telephone transactions, are updated to refer to Internet transactions.
The requirements of § 226.8 are limited to how creditors must identify transactions on periodic statements and do not impact how creditors may otherwise characterize transactions, such as for purposes of pricing. The Board believes a consumer's purchase of a funds transfer service from a third party is properly characterized as sales credit for purposes of identifying transactions on a card issuer's periodic statement. Consumers are likely to recognize the name of the funds transfer merchant, as would be the typical case where the card issuer and funds transfer merchant are not the same or related. Thus, the example is retained although a more current illustration (wire transfer) replaces the existing illustration (telegram).
Additional guidance is added to comment 8(a)-1 regarding permissible identification of creditors' services that are purchased by the consumer and are “costs imposed as part of the plan,” in response to the commenter's concerns. The comment provides that for the purchase of such services (for example, a fee to expedite a payment), card issuers and creditors comply with the requirements for identifying transactions under § 226.8 by disclosing the fees in accordance with the requirements of § 226.7(b)(6)(iii). The example of voluntary credit insurance premiums as “sale credit” is deleted, because such premiums are costs imposed as part of the plan under § 226.6(b)(3)(ii)(F). To ease compliance, the comment further provides that for purchases of services that are not costs imposed as part of the plan, card issuers and creditors may, at their option, identify transactions under this section or in accordance with the requirements of § 226.7(b)(6)(iii). This flexibility is intended to avoid technical compliance violations.
The Board believes further study is desirable to consider the potential ramifications of permitting card issuers to aggregate small dollar transactions on periodic statements. Furthermore, consistent rules should be considered under Regulation E (Electronic Fund Transfer). 12 CFR part 205. Thus, the final revisions do not include rules permitting aggregation of small dollar purchases.
Section 226.9 currently sets forth a number of disclosure requirements that apply after an account is opened, including a requirement to provide billing rights statements annually, a requirement to provide at least 15 days' advance notice whenever a term required to be disclosed in the account-opening disclosures is changed, and a requirement to provide finance charge disclosures whenever credit devices or features are added on terms different from those previously disclosed.
Section 226.9(a) requires creditors to mail or deliver a billing error rights statement annually, either to all consumers or to each consumer entitled to receive a periodic statement.
The June 2007 Proposal would have revised both the regulation and commentary under § 226.9(a) to conform to other changes elsewhere in the proposal, but otherwise would have left the provision unchanged substantively. In addition, the Board proposed new Model Forms G-3(A) (long form billing rights notice) and G-4(A) (short form alternative billing rights notice) in the June 2007 Proposal to improve the readability of the current notices. For HELOCs subject to the requirements of § 226.5b, the June 2007 Proposal would have given creditors the option of using the current Model Forms G-3 and G-4, or the revised forms.
One industry commenter opposed the proposed changes in Model Forms G-3(A) and G-4(A), largely due to the increased compliance burden from having separate forms for HELOCs and for other open-end plans. This commenter further noted that the Board did not conduct consumer research on the readability of the proposed notices. Another industry commenter opposed
The final rule retains Model Forms G-3(A) and G-4(A), largely as proposed. To address concerns about potential compliance burdens from using multiple forms, the final rule permits creditors to use Model Forms G-3(A) and G-4(A) in all cases to comply with their disclosure obligations for all open-end products. Thus, for open-end (not home-secured) plans, creditors may use Model Forms G-3(A) and G-4(A). For HELOCs subject to the requirements of § 226.5b, creditors may use the revised forms, or continue to use Model Forms G-3 and G-4. In addition, while the new model forms were not tested with individual consumers, the forms were reviewed by the Board's testing consultant which enabled the Board to draw upon the consultant's experience, both from the insights obtained through the testing of other notices in connection with this rulemaking, as well as from working with plain language disclosures in other contexts.
To address consumer group concerns, language has been added to Model Form G-4(A) (the short form alternative billing rights notice for open-end (not home-secured) plans) to inform the consumer that he or she need not pay any interest if the error is resolved in the consumer's favor, consistent with identical language used in the long form (Model Form G-3(A)). In addition, each of the model forms has been revised to include optional language a creditor may use if it permits a cardholder to provide billing error notices electronically. As discussed below in the section-by-section analysis to § 226.13, if a creditor indicates that it will accept notices submitted electronically, it must treat notices received in such manner as preserving billing error rights.
Section 226.9(b) currently requires certain disclosures when a creditor adds a credit device or feature to an existing 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 § 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 under § 226.6(a), then the disclosures required by § 226.6(a) that are applicable to the added feature or device must be given before the consumer uses the new feature or device.
In June 2007, the Board proposed to retain the current rules set forth in §§ 226.9(b)(1) and (b)(2) for all credit devices and credit features except checks that access a credit card account. With respect to checks that access a credit card account, the Board proposed to create a new § 226.9(b)(3) that would require certain information to be disclosed each time checks that access a credit card account are mailed to a consumer, for checks mailed more than 30 days following the delivery of the account-opening disclosures.
The June 2007 Proposal would have required the following key terms to 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, that interest will be charged immediately. The disclosures would have been required to be accurate as of the time the disclosures are given. The June 2007 Proposal provided that a variable APR is accurate if it was in effect within 30 days of when the disclosures are given. Proposed § 226.9(b)(3) would have required that these key terms be disclosed in a tabular format substantially similar to Sample G-19 in Appendix G to part 226. The Board solicited comment on the operational burden associated with customizing the checks to disclose the actual APR, and on alternatives, such as whether providing a reference to the type of rate that will apply, accompanied by a toll-free telephone number that a consumer could call to receive additional information, would provide sufficient benefit to consumers while limiting the burden on creditors.
In the May 2008 Proposal, the Board proposed to add to the summary table in § 226.9(b)(3) another disclosure that would have required additional information regarding the expiration date of any offer of a discounted initial rate. The additional disclosure was set forth in proposed § 226.9(b)(3)(i)(C), pursuant to the Board's authority under TILA Section 105(a). 15 U.S.C. 1604(a). Specifically, the disclosure would have been required to include any date by which the consumer must use the checks in order to receive the discounted initial rate. Furthermore, if the creditor will honor the checks if they are used after the disclosed date but will apply to the advance a rate other than the discounted rate, proposed § 226.9(b)(3)(i)(C) would have required the creditor to disclose that fact and the type of rate that will apply under those circumstances. The Board also proposed to revise proposed § 226.9(b)(3)(i)(E) (proposed in June 2007 as § 226.9(b)(3)(i)(D)) regarding disclosure of any grace period applicable to the checks and to add a new comment 9(b)(3)(i)(E)-1 which set forth language that creditors could have used to describe in the tabular disclosure any grace period (or lack of a grace period) offered on check transactions.
Consumer groups, a trade association for community banks, and a credit union trade association supported the disclosure of the actual rate applicable to the checks. These commenters stated that it is important that consumers be aware of the costs associated with using checks that access a credit card account and that consumers should not have to use a toll-free number to receive the information. One commenter pointed out that the testing conducted on behalf of the Board indicated that consumers generally did not notice or pay attention to a cross reference contained in the convenience check disclosure.
The final rule requires that the tabular disclosure accompanying checks that access a credit card account include a disclosure of the actual rate or rates applicable to the checks, consistent with the June 2007 Proposal. The Board believes that disclosing the actual rate that will apply to checks once any promotional rate expires is a crucial piece of information necessary to assist consumers in deciding whether, and in what manner, to use the checks. While the actual post-promotional rate disclosed at the time the checks are sent to a consumer may be inaccurate by the time the promotional offer expires, due, for example, to fluctuations in the index used to determine a variable rate, the Board notes that this is not materially different from the situation where a post-promotional rate is disclosed in the disclosures provided to a consumer with an application or solicitation under § 226.5a or with the account-opening disclosures given pursuant to § 226.6. In either case, the exact post-promotional rate may differ from the rate disclosed by the time it becomes applicable to the consumer's account; however, the Board believes that disclosure of the actual post-promotional rate in effect at the time that the checks are sent to the consumer is an important piece of information for the consumer to use in making an informed decision about whether to use the checks.
The requirement to disclose the actual rate applicable to the checks also is consistent with the policy considerations underlying TILA Section 127(c)(6)(A), as added by Section 1303(a) of the Bankruptcy Act. 15 U.S.C. 1637(c)(6)(A). As discussed in the supplementary information to § 226.16(g), TILA Section 127(c)(6)(A) requires in connection with credit card direct mail applications and solicitations or accompanying promotional materials that a creditor disclose the time period in which the introductory period will end and the APR that will apply after the end of the introductory period. The requirements in TILA Section 127(c)(6)(A) do not apply to checks that access a credit card account because such checks are generally provided in connection with an existing account, not in connection with an application or solicitation for a new credit card account. However, the Board believes, consistent with the intent of TILA Section 127(c)(6)(A), that requiring creditors to disclose with access checks the actual rate that will apply upon expiration of any promotional rate will ensure that consumers to whom an initial discounted rate is being promoted also receive, with the materials promoting the initial discounted rate, a disclosure of the actual rate that will apply after that promotional rate expires.
Testing conducted on behalf of the Board also suggests that a disclosure of the actual rate, rather than a toll-free telephone number, will help to enhance consumer understanding of the rate that will apply when the promotional rate expires. Consumer testing conducted after the June 2007 Proposal supports the notion that consumers tend to look for a rate rather than a narrative disclosure when identifying the APR applicable to the checks. In March 2008, the form of access check disclosures tested contained a disclosure of the actual APR that would apply upon expiration of the promotional rate. All of the participants who noticed the disclosures
Finally, the Board also has reduced the operational burden associated with printing the disclosure of the actual rate applicable to the checks by adopting a 60-day accuracy requirement for the disclosure of a variable rate rather than the 30-day accuracy requirement that was proposed in June 2007. The June 2007 Proposal would have provided in § 226.9(b)(3)(ii) that a variable APR disclosed pursuant to § 226.9(b)(3)(i) is accurate if it was in effect within 30 days of when the disclosures are given. Several commenters stated that mailed convenience checks should be subject to the same 60-day accuracy requirement that applies to other mailed offers as contemplated in § 226.5a(c)(2)(i) for direct mail applications and solicitations. The commenters stated that card issuers may have trouble complying with the 30-day requirement, because the APR applicable to transactions in a given billing cycle sometimes is not determined until the end of a billing cycle, for example, if an issuer defines its index as of the last day of the cycle. Consequently, for those issuers, if the checks are printed several days before the checks are mailed, the APR obtained from the issuer's system may not be one in effect within 30 days of the mail date for some subset of that issuer's customers. The final rule in § 226.9(b)(3)(ii) incorporates the 60-day accuracy provisions requested by these commenters. The Board believes that it
One commenter noted that the proposed wording in § 226.9(b)(3)(ii) that refers to when the account-opening disclosures “are given” creates confusion in the context of mailed disclosures, because it is unclear when a mailed disclosure is “given” even though it may be known when it is mailed. Sections 226.9(b)(3)(i) and (ii) of the final rule refer to when the account-opening disclosures “are mailed or delivered.” The Board believes that this will provide useful clarification to issuers, and is consistent with the existing provision for other supplemental credit access devices, which is retained in the final rule as § 226.9(b)(1) and (b)(2).
Proposed § 226.9(b)(3) stated that the disclosures were required on the front of the page containing the checks. Consumer testing conducted on behalf of the Board prior to the issuance of the June 2007 Proposal showed that consumers were more aware of the information included in the tabular disclosure when it was located on the front of the page containing the checks rather than on the back. In addition, approximately half of the participants in a round of testing conducted in March 2008 failed to notice the tabular disclosure when it was included as an insert with the periodic statement rather than on the page containing the checks. With several clarifications discussed below for multiple-page check offers, the final rule retains the location requirement as proposed because testing has shown that consumers are more likely to notice and pay attention to the disclosures when they are located on the front of the page containing the checks.
Several commenters asked the Board to clarify how the location requirement would apply in situations where checks are printed on multiple pages rather than a single page. For example, one commenter asked the Board to clarify that redundant disclosures are not required when the offer contains checks on multiple pages. A second commenter asked the Board to provide flexibility for checks printed in a mini-book or accordion-fold multi-panel booklet containing checks. New comment 9(b)(3)(i)-1 is adopted to clarify that for an offer with checks on multiple pages, the tabular disclosure need only be provided on the front of the first page containing checks. Similarly, for a mini-book or accordion-fold multi-panel booklet, comment 9(b)(3)(i)-1 clarifies that the tabular disclosures need only be provided on the front of the mini-book or accordion-fold booklet. The proposed requirement that disclosures be provided on the front of the page containing the checks was intended to draw a consumer's attention to the disclosures. The Board believes that the clarifications for multiple-page offers and mini-books included in the commentary will achieve the goal of attracting consumer attention while mitigating burden on creditors that would be associated with providing the disclosures on each page containing checks.
One commenter requested clarification that the tabular disclosure could be printed on the solicitation letter if the checks were on the same page as the letter, separated only by perforations. Comment 9(b)(3)(i)-1 provides the requested clarification.
Another commenter stated that a creditor should be permitted to disclose the required terms within the same table with respect to multiple APRs applying to different checks within the same offer. Such a situation would arise, for example, where a consumer receives a single offer that gives the consumer a choice between checks with a higher APR for a longer promotional period or a lower APR for a shorter promotional period. The Board believes that § 226.9(b)(3) as proposed would have permitted a single tabular disclosure of multiple APRs applicable to checks within the same offer, provided that the disclosure is provided on the front of the page containing the checks; therefore, such a single disclosure as described by the commenter also is permitted by the final rule. The Board believes that no additional clarification is necessary in the regulation or the commentary.
One industry commenter stated that its checks often are offered through a seasonal program, and that checks are pre-printed with a disclosure that the checks are “good for only 90 days” rather than with a disclosure of a date certain by which the checks must be used to qualify for a promotional rate. The commenter indicated that the proposed changes could increase the costs associated with check printing. New § 226.9(b)(3)(i)(A)(
One consumer group commenter suggested that the Board require creditors to disclose on each check that accesses a credit card account the following statement: “The use of this check will trigger immediate interest and fees.” The final rule does not require this disclosure on the checks. The Board believes that the final rule already addresses fees and the possible lack of a grace period by means of the disclosures under § 226.9(b)(3)(i)(C) and (b)(3)(i)(D). In consumer testing conducted for the Board, most consumers saw these disclosures presented on the front of the page containing the checks and understood them.
A federal banking agency stated that the Board should require a disclosure with checks that access a credit card account that certain substantive protections that apply to credit cards do not apply to the checks. The final rule does not require such a disclosure. As discussed above with regard to § 226.2(a)(15), the Board believes that existing provisions under state UCC law governing checks, coupled with the billing error provisions under § 226.13, provide consumers with sufficient protections from the unauthorized use of access checks. Thus, the Board has declined to extend TILA's protections for credit cards to such checks. Similarly, the Board believes that a disclosure that certain substantive protections applicable to credit cards do not apply to the checks is not necessary and may contribute to “information overload.”
Other industry commenters requested exceptions to the disclosure requirements when checks are sent within a certain period of time after full disclosures are provided, such as full disclosures sent upon automatic card renewal, or when checks accompanied by the required disclosures were sent previously within a given time frame. The Board has not included either of these exceptions in the final rule. The Board believes that the tabular disclosures accompanying the checks are important to enable consumers to make informed decisions regarding check usage. For example, a consumer may receive a set of checks in the mail and may discard them because, at that time, he or she has no intention of using the checks. If that consumer receives a second set of checks, even a short time later, the consumer should receive a disclosure of the terms applicable to the second set of checks, which he or she may have interest in using, without having to retain and refer back to the disclosure accompanying the first set of checks. The Board believes that consumers generally will benefit from receiving the required disclosures each time they receive checks that access a credit card account, but has retained, for consistency with existing language in § 226.9(b)(1), an exception for checks provided during the first 30 days after the account-opening disclosures are mailed or delivered to that consumer.
In the June 2007 Proposal, the Board sought comment as to whether there are other credit devices or additional features that creditors add to consumers' accounts to which this proposed rule should apply. The Board received no comments advocating that the new
The June 2007 Proposal included several revisions to the regulation and commentary designed to improve consumers' awareness about changes in their account terms or increased rates due to delinquency or default or as a penalty. The proposed revisions generally would have applied when a creditor changes terms that must be disclosed in the account-opening summary table under proposed § 226.6(b)(4), or increases a rate due to delinquency or default or as a penalty. First, the Board proposed to give consumers earlier notice of a change in terms, or for increased rates due to delinquency or default or as a penalty. Second, the Board proposed to expand the circumstances under which consumers receive advance notice of changed terms, or increased rates due to delinquency, or for default or as a penalty. Third, the Board proposed to introduce format requirements to make the disclosures about changes in terms or for increased rates due to delinquency, default or as a penalty more effective.
In response to the June 2007 Proposal, individual consumers and consumer group commenters were generally supportive of the extension of the notice period for a change in terms to 45 days. These commenters agreed with the Board's observation that an extended notice period would give consumers the opportunity to transfer or pay off their balances, in order to potentially avoid or mitigate the cost associated with the change in terms. Some consumer and consumer group commenters urged the Board to consider extending the notice period even further, to as many as 90 or 180 days.
A federal banking agency that commented on the June 2007 Proposal supported the proposed 45-day change-in-terms notice period. This commenter suggested, however, that the notice requirement should be supplemented with a consumer right to opt out of certain changes, including changes that are made unilaterally by the creditor or changes in the consumer's rate under a universal default clause.
A number of industry commenters indicated that 45 days is too long and would not provide financial institutions with the ability to respond promptly to changes in market conditions. Some commenters suggested that the increased period of advanced notice would undermine the effectiveness of risk-based pricing and would lead to higher pricing at the outset to hedge for the risk associated with more risky borrowers. Some industry commenters stated that a 45-day advance notice requirement would, in practice, result in many consumers receiving 60 to 90 days advance notice, particularly when a change-in-terms notice is included with a periodic statement that is sent out on a monthly cycle. Some industry commenters stated that the notice period should remain at 15 days, while others advocated a 30-day or one billing cycle notice period. These commenters indicated that 15 or 30 days is ample time for consumers to act to transfer or pay off balances in advance of the effective date of any changed term. Finally, some commenters stated that a 45-day requirement might create an incentive for issuers to send change-in-terms notices separately from the periodic statement, which these commenters believe consumers are less likely to read.
Consistent with the proposal, the final rule requires 45 days' advance notice for changes to terms required to be disclosed pursuant to § 226.9(c)(2)(i). The Board believes that the shorter notice periods suggested by some commenters, such as 30 days or one billing cycle, would not provide consumers with sufficient time to shop for and possibly obtain alternative financing. The 45-day advance notice requirement refers to when the change-in-terms notice must be sent, but as discussed in the June 2007 Proposal it may take several days for the consumer to receive the notice. As a result, the Board believes that the 45-day advance notice requirement will give consumers, in most cases, at least one calendar month after receiving a change-in-terms notice to seek alternative financing or otherwise to mitigate the impact of an unexpected change in terms.
As discussed above, some commenters raised concerns about whether creditors would be able to respond promptly to changes in market conditions in light of the proposed 45-day notice period. Notwithstanding the 45-day advance notice requirement, the Board believes that creditors still have the ability to respond appropriately to changes in market conditions. First, a creditor may choose to offer products with variable rates, which vary with the market in accordance with a designated index. If the annual percentage rate applicable to a consumer's account changes due to fluctuations in an index value as set forth in the consumer's credit agreement, such changes can take effect immediately without any notice required under § 226.9(c)(2). If a creditor chooses to offer a product with a rate that does not vary in accordance with an index, that creditor will be required to wait 30 days longer than the current rule requiring 15 days' notice before imposing a new, increased rate to a consumer's account.
The Board has declined to adopt a longer period, such as 90 or 180 days, as suggested by some commenters. The Board believes that such an extended advance notice period would inappropriately restrict creditors' ability to respond to market or other conditions and is not necessary for consumers to have a reasonable opportunity to seek alternative financing. The intent of extending the advance notice period to 45 days is for consumers to have time to avoid costly surprises; the Board believes that a consumer having at least one calendar month to seek alternate financing appropriately balances burden on creditors against benefit to consumers. In addition, the Board notes that final rules issued by the Board and other federal banking agencies published elsewhere in today's
The Board is aware that operational issues associated with including change-in-terms notices with periodic statements may lead to certain consumers receiving more than 45 days' notice. As noted above, some industry commenters specifically indicated that a 45 day notice requirement could in practice result in consumers receiving 60 or 90 days' notice, if the notice is included with the periodic statement. While the Board encourages creditors to
As discussed in the supplementary information to § 226.9(g), the Board has adopted examples in comment 9(g)-1 to illustrate the interaction between the requirements of the final rules issued by the Board and other federal banking agencies published elsewhere in today's
As discussed in the June 2007 Proposal, the 45-day notice period was only proposed for those changes in terms that affect charges required to be disclosed as a part of the account-opening table under proposed § 226.6(b)(4) or for increases in the required minimum periodic payment. A different disclosure requirement would have applied when a creditor increases any component of a charge, or introduces a new charge, that is imposed as part of the plan under proposed § 226.6(b)(1) but is not required to be disclosed as part of the account-opening summary table under proposed § 226.6(b)(4). Under those circumstances, the proposal would have required the creditor to either, at its option (1) provide at least 45 days' written advance notice before the change becomes effective, or (2) provide notice orally or in writing of the amount of the charge to an affected consumer at a relevant time before the consumer agrees to or becomes obligated to pay the charge.
Consumer groups expressed concern that allowing any oral notice may provide insufficient information or time for a consumer's consideration and that even written notice with no advance disclosure would be insufficient. The comments also suggested that the proposed disclosure regime, which limits the 45-day advance written notice of a change in terms to a specific, finite list of terms, presents the possibility that card issuers could generate new fees or terms not in the list that will not be subject to the advance notice requirement.
Consistent with the proposal, and as discussed in the supplementary information for § 226.5, the final rule permits notice of the amount of a charge that is not required to be disclosed under § 226.6(b)(1) and (b)(2) (proposed as § 226.6(b)(4)) to be given orally or in writing at a relevant time before the consumer agrees to or becomes obligated to pay the charge, at a time and in a manner that a consumer would be likely to notice the disclosure of the charge. As discussed above, the Board intends to continue monitoring credit card products for the introduction of new types of fees and costs on those accounts. If new costs are introduced that the Board believes are fees of which consumers should be aware when the account is opened, the Board would likely add such fees to the specified costs in § 226.6(b)(2). The Board notes that a change-in-terms notice would be required, however, in connection with a change in any fee of a type that must be disclosed in the account-opening table.
The Board notes that an issuer that is subject to final rules issued by the Board and other federal banking agencies published elsewhere in today's
Several commenters asked the Board to reduce or eliminate the advance notice requirement for prospective changes to fees, such as late-payment fees or over-the-limit fees, and for other changes in terms that do not affect an existing balance (such as a change in interest rates that will apply only prospectively to new transactions). These commenters indicated that transaction-based fees, which are based on account usage, and the assessment of additional interest charges or fees based on changes in terms that do not affect an existing balance, are in the control of the consumer and should not be afforded a lengthy prior notice period. Notwithstanding these comments, the final rule requires 45 days' advance notice of a change in terms, even if that change is a prospective change to fees, or otherwise does not affect an existing balance. The Board believes that a consumer still may want to seek an alternative form of financing in anticipation of a change in terms, even if that change only affects fees or does not affect existing balances. Accordingly, the final rule is designed to give a consumer enough notice so that the consumer has the opportunity to avoid incurring additional interest
The Board believes that an increase in rate due to the termination of a consumer's employment with a particular company or due to the consumer's account balance falling below a certain level is a type of rate increase as a penalty that must be disclosed in advance under § 226.9(g), even if the circumstances under which the change may occur are set forth in the account agreement. Accordingly, the Board believes that retaining these examples in comment 9(c)(2)-1 could be inconsistent with the rules for penalty rate increases set forth in § 226.9(g). A creditor may, by contract, designate many types of consumer behavior, or changes in a consumer's circumstances, as events upon the occurrence of which the consumer's rate may increase as a penalty. Some of these events, such as the termination of an employment contract, may not be typically considered events of delinquency or default; nonetheless, in each case the creditor reserves the contractual right to increase the rate applicable to the consumer's account, and that rate increase is triggered by certain actions by, or changes in the circumstances of, the consumer. The Board believes that the changes to comment 9(c)(2)-1 are consistent with the requirements of § 226.9(g) As a result, and for the reasons stated in the section-by-section analysis to § 226.9(g) below, the final rule provides that a consumer must receive advance notice prior to the imposition of such rate increases so that a consumer may seek alternative financing or otherwise respond to the change.
In addition, as noted below in the section-by-section analysis to § 226.9(g), one commenter on the proposal asked for clarification regarding the difference between a consumer's “default or delinquency” and a “penalty.” The Board believes that the revisions to proposed comment 9(c)(2)-1 will help to eliminate ambiguity as to when a rate is increased as a “penalty.”
The June 2007 Proposal would have required that creditors provide specific information in the change-in-terms notice, namely (1) a statement that changes are being made to the account; (2) 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; (3) the date the changes described in the summary table will become effective; (4) if applicable, an indication that the consumer may find additional information about the summarized changes, and other changes to the account, in the notice; and (5) 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 does not apply to the consumer's account until the consumer's account balances are no longer subject to the penalty rate. The June 2007 Proposal specified that this information must be placed directly above the summary of key changes described above. The minimum font size requirements in proposed comment 5(a)(1)-3 also would have applied to any tabular disclosure required to be given pursuant to proposed § 226.9(c)(2)(iii)(B).
In May 2008, the Board proposed to add an additional disclosure requirement to the summary table described above. For consistency with the substantive restrictions regarding the application of increased APRs to preexisting balances proposed by the Board and other federal banking agencies in May 2008, the Board would have required the change-in-terms notice to disclose the balances to which the increased rate will be applied. If the rate increase will not apply to all balances, the creditor would have been required to identify the balances to which the current rate will continue to apply.
In response to the June 2007 Proposal, consumers and consumer groups suggested a number of new formatting requirements, as well as additional content for the summary box. For example, some consumers requested that changes in terms be specifically highlighted, such as by printing the original contract term in black and the new term in red. Other consumers requested that change-in-terms notices always include a complete, updated account agreement. Some comments focused on the mode of delivery of the notice, with one commenter requesting that change-in-terms notices always be mailed as a first-class letter and others urging that notices of changes in terms should be delivered both by regular mail and electronic mail. The Board has not incorporated any of these formatting suggestions as requirements in the final rule. The Board believes that some of these suggestions, such as sending a complete, updated account agreement with each change in terms or highlighting the changed term in a different color than the original text, would impose operational burdens and/or significant costs on creditors that would not be outweighed by a benefit to consumers. Consumer testing conducted on behalf of the Board has indicated that including a summary table either on the first page of the periodic statement or the first page of the change-in-terms notice (if the notice is sent separately from the statement) is an effective way to enhance consumer attention regarding, and comprehension of, change-in-terms notices, which is the
Several consumers who commented on the June 2007 Proposal said that the change-in-terms notice should state the reasons for the change in terms and should state what, if anything, the consumer can do to reverse the increase to the penalty rate and have the standard rate reinstated. For several reasons, the final rule does not include a requirement that a change in terms notice state the reasons for the change. In some circumstances, the reasons may have nothing to do with consumer behavior, and there may be no mechanism for the consumer to reverse the increase. For example, if a creditor raises interest rates generally due to a change in market conditions, such action is independent of the consumer's behavior on the account and the consumer can only mitigate the cost of the increase by reducing use of the card, transferring a balance, or paying off the balance. Under these circumstances, the Board believes the burden for issuers to customize the notice to refer to the reason for the increase may exceed the potential benefit of such a disclosure to consumers. In addition, if the increase in rate is due to the imposition of a penalty rate, the consumer will receive a disclosure indicating that the penalty rate has been triggered, and the circumstances, if any, under which the delinquency or default rate or penalty rate will cease to apply to the consumer's account, as discussed below with regard to § 226.9(g).
Consumer group commenters on the May 2008 Proposal stated that a change-in-terms notice given in connection with a rate increase should be required to state the current rate so that consumers will have an indication of the magnitude of the change in terms. The final rule does not require a creditor to disclose the current rate. The main purpose of the change-in-terms notice is to inform consumers of the new rates that will apply to their accounts. If several rates are being changed and are being disclosed in a single change-in-terms notice, the Board is concerned that disclosure of each of the current rates in the change-in-terms notice could contribute to information overload.
Finally, several consumer commenters urged that issuers be required to disclose the effect or magnitude of a change in terms in dollar terms. The Board has not included this disclosure in the final rule, because it would be difficult and likely misleading to try to estimate in advance how a changed term will affect the cost of credit for any individual consumer. For some types of changes in terms, such as a change in a transaction fee or penalty fee, whether or not the fee will be assessed with respect to a particular consumer's account depends to some extent on that consumer's behavior on the account. For example, if the change in terms being disclosed is an increase in the late fee, it will never be assessed if a consumer does not make a late payment. However, for a consumer who makes multiple late payments, the fee could be assessed multiple times. Therefore, it is difficult to predict in advance the dollar cost of the change for any given consumer. Similarly, the dollar cost of an increased interest rate depends on the extent to which the consumer engages in transactions to which that increased interest rate applies, as well as whether the consumer is able to take advantage of a grace period and avoid interest on those transactions.
In response to the June 2007 Proposal, many industry commenters asked for more flexibility in the formatting requirements for the summary table regarding a change in terms. Some commenters stated that an issuer should be able to include a clear and conspicuous change-in-terms notice on or with a periodic statement without a requirement to summarize it in a box on the front of the statement. Other commenters asked the Board to allow issuers to include with the periodic statement a separate change-in-terms notice as a statement stuffer or insert, rather than including the tabular disclosure on the front of the first page of the statement. These commenters stated that the requirement to include a tabular disclosure on the front of the first page of a periodic statement would substantially increase the cost of providing change-in-terms notices. Other commenters stated that if the final rule contained an alert on the front of the statement, it should at most be a simplified cross reference stating that the statement includes important information regarding a change in terms and referring the consumer to the end of the statement. One commenter asked that the strict front-of-the-first page location requirement be replaced by a more general requirement that the change-in-terms disclosure appear before the transaction details. Finally, one credit union asked that the Board permit institutions to provide the tabular disclosure of changed terms on a newsletter mailed with the periodic statement.
One credit union trade association that commented on the May 2008 Proposal stated that it supported the tabular requirement for disclosure of changes in terms. This commenter noted that while the requirement would impose a burden on credit unions, a consumer's need for clarity outweighs this inconvenience or expense.
The final rule requires that the tabular summary appear on the front of the periodic statement, consistent with the proposal. Consumer testing conducted on behalf of the Board suggests that consumers tend to set aside change-in-terms notices when they are presented as a separate pamphlet inserted in the periodic statement. In addition, testing prior to the June 2007 Proposal also revealed that consumers are more likely to correctly identify the changes to their account if the changes in terms are summarized in a tabular format. Quantitative consumer testing conducted in the fall of 2008 demonstrated that disclosing a change in terms in a tabular summary on the statement led to a small improvement in the percentage of consumers who were able to correctly identify the new rate that would apply to the account following the change, versus a disclosure on the statement indicating that changes were being made to the account and referring to a separate change-in-terms insert. The Board believes that as consumers become more familiar with the new format for the change-in-terms summary, which was new to all testing participants, they may become better able to recognize and understand the information presented. It is the Board's understanding, which was supported by observations in consumer testing prior to the June 2007 Proposal, that consumers are familiar with the tabular formatting for the disclosures given with applications and solicitations under § 226.5a and that they find this consistent formatting to be useful. Presentation of key information regarding changes in terms in a tabular format also is consistent with the Board's approach to disclosure of terms applicable to open-end (not home-secured) accounts, where important information is provided to consumers throughout the life of an account in a consistent tabular format.
The Board also believes that as consumers become more familiar generally with all new disclosures and formatting changes to the periodic statement required by the final rule, consumers will become better able to distinguish between information presented in a change-in-terms summary table and other terms regularly disclosed on each statement. The Board's consumer testing in the fall of 2008 indicated that when a change-in-terms summary disclosing a change in an APR is included on the periodic
The Board recognizes that there will be operational costs associated with printing the change-in-terms summary on the front of the periodic statement, but believes that the location requirements are warranted to facilitate consumer attention to, and understanding of, the disclosures. As discussed above, under the final rule the minimum font size requirements of 10-point font set forth in comment 5(a)(1)-3 also apply to any tabular disclosure given under § 226.9(c)(2)(iii)(B).
The Board has not, however, adopted the requirement that a change-in-terms summary appear on the first page of the periodic statement. Quantitative consumer testing conducted for the Board in the fall of 2008 indicated that consumers were as likely to notice a change-in-terms summary or reference if it was presented on the second page of the statement as they were to notice it on the first page. Given that many industry commenters noted that there would be substantial cost and burden associated with reformatting the statement to include the summary on the first page, and consumer testing did not show that locating the notice on the first page of the statement improved its noticeability, the Board believes that such a formatting requirement is not warranted.
One industry commenter on the June 2007 Proposal asked for clarification whether it would be permissible to move the table disclosing the changes in terms to the top right corner of the periodic statement instead of the center, as it is presented in Model Form G-18(F) (proposed as Form G-18(G)). The Board believes that this would have been permissible pursuant to the proposed rules, and that it also is permissible under the final rule, particularly given that creditors are not required to include the change-in-terms summary on the first page of the statement. Form G-18(F) as adopted in the final rule presents the change-in-terms summary on the front of the first page of the periodic statement prior to the transactions list, consistent with the proposal. However, there is no requirement that a creditor's periodic statement must be “substantially similar” to Form G-18(F), and provided that the periodic statement complies with other applicable formatting requirements, relocating the change-in-terms tabular disclosure to other locations on the front of the statement would be permissible.
One industry commenter on the June 2007 Proposal stated that the change-in-terms formatting requirements would force creditors to send statements to consumers even if there is a zero balance, when terms are changed on their accounts. The final rule, like the June 2007 Proposal, does not require a creditor to send a change-in-terms notice with the periodic statement. Therefore, for a consumer with a zero or a positive balance, it is permissible to send a standalone change-in-terms notice that meets the requirements of § 226.9(c)(2)(iii)(B)(
For creditors that choose to send change-in-terms notices separately from the periodic statement, consistent with the proposal the final rule requires that the change-in-terms summary appear on the front of the first page of the notice. The Board believes that locating the summary on the first page of such a standalone notice does not impose the same level of burden and cost as would formatting changes to the periodic statement. The results of the Board's quantitative consumer testing do not directly bear on the formatting of separate notices, but the Board believes based on testing conducted prior to the June 2007 Proposal that including the tabular summary on the first page of a standalone notice is important to improve consumer understanding of, and attention to, the disclosure. Participants indicated in focus groups and interviews conducted for the Board prior to June 2007 that they often do not carefully read change-in-terms notices that they receive from their bank in the mail, in part because the text is dense prose and they have difficulty identifying the information in the document that they consider important. The Board believes that including a tabular summary of key changes on the first page of a standalone notice may make consumers more likely to read the notice and to understand what terms are being changed.
Several industry commenters remarked that change-in-terms notices required pursuant to § 226.9(c) would be confusing to consumers in light of the complexity of the interaction between the requirements of § 226.9(c) and additional substantive requirements regarding rate increases proposed by the Board and other federal banking agencies in May 2008.
The Board acknowledges that the substantive restrictions on rate increases set forth in final rules adopted by the Board and other federal banking agencies published elsewhere in this
In the first of these two rounds, about half of participants understood that the new rate on purchases would apply only to transactions made after the specified date shown. In addition, about half of participants also understood that if the penalty rate was already applicable to the account, the new rate
Based on the results of this consumer testing, changes were made to the form which were tested in a subsequent round of testing. These formatting changes generally improved consumer understanding of the impending changes. In this second round, all but one participant understood that the new APR on purchases would only apply to transactions made after the date specified, and that the current APR would continue to apply to transactions made before that date. In addition, all but one participant also understood that if the penalty rate was in effect, the new APR on purchases would not immediately apply. Consumers still had the most difficulty identifying the effective date of the changes. Approximately half of participants correctly identified the effective date of the changes, while the other participants mistakenly thought that the changes would apply as of the earliest date disclosed in the notice, which was the cut-off date for determining which transactions would be impacted by the changes disclosed.
Form G-18(F) (proposed as Form G-18(G)) and Sample G-20 have accordingly been revised to reflect the formatting changes introduced in this second round of testing, because they improved consumer comprehension of the notice.
The Board also proposed in May 2008 a clarification to comment 9(c)(2)(ii)-1 (which applies to changes in fees not required to be disclosed in the summary table) to clarify 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 (for example, requests the service on-line via the creditor's Web site). The Board received no comments addressing the changes to comment 9(c)(2)(ii)-1, which are adopted as proposed.
The final rule adopts § 226.9(c)(2)(v) as proposed. One industry commenter on the June 2007 Proposal asked the Board to clarify whether an adverse action letter under Regulation B would constitute sufficient notice to the consumer, or whether the reduced credit limit appearing on the periodic statement would be sufficient notice. The new § 226.9(c)(2)(v) does not contain any format requirements for the notice informing the consumer that his or her credit limit has or will be decreased. Any written or oral notification that contains the content specified in § 226.9(c)(2)(v) would be permissible. A creditor could combine a notice required pursuant to § 226.9(c)(2)(v) with an adverse action notice under Regulation B provided that the requirements of both rules are met. Simply showing a reduced credit limit on the periodic statement, however, without a statement that the credit limit has been or will be decreased, would not meet the requirements of § 226.9(c)(2)(v).
The same commenter asked the Board to consider permitting written notice on one statement and permitting the imposition of over-the-limit fees after the next account cycle. The final rule, consistent with the proposal, continues to require 45 days advance notice. The Board believes that 45 days is the appropriate length of time, for the same reasons discussed above in connection with change-in-terms notices more generally. Sending the notice 45 days in advance gives a consumer, in most cases, at least one month to bring his or her balance under the new, reduced credit limit, either by paying down the balance or by transferring all or a portion of it to another card.
In addition, as discussed in the supplementary information to § 226.9(g)(4)(ii), the Board is adopting additional guidance to clarify how to comply with § 226.9(g) when a creditor also is providing a notice pursuant to § 226.9(c)(2)(v).
The Board proposed in June 2007 to make several deletions in proposed § 226.9(c)(1) and the related commentary with respect to HELOCs in order to promote consistency between § 226.9(c)(1) and the substantive restrictions imposed by § 226.5b. The Board solicited comment on whether there were any remaining references in § 226.9(c)(1) and the related commentary to changes in terms that would be impermissible for open-end (home-secured) credit pursuant to § 226.5b. The Board received no comment on the proposed deletions or on any additional references that should be deleted; accordingly, the changes to § 226.9(c)(1) are adopted as proposed.
TILA Section 127(d), which is implemented in § 226.9(e), requires card issuers that assess an annual or other periodic fee, including a fee based on activity or inactivity, on a credit card account of the type subject to § 226.5a to provide a renewal notice before the fee is imposed. 15 U.S.C. 1637(d). The creditor must provide disclosures required for credit card applications and solicitations (although not in a tabular format) and must inform the consumer that the renewal fee can be avoided by terminating the account by a certain date. The notice must generally be provided at least 30 days or one billing cycle, whichever is less, before the renewal fee is assessed on the account. However, there is an alternative delayed notice procedure where the fee can be assessed provided the fee is reversed if the consumer is given notice and chooses to terminate the account.
Creditors are given considerable flexibility in the placement of the disclosures required under § 226.9(e). For example, the notice can be preprinted on the periodic statement, such as on the back of the statement.
The Board also proposed in June 2007 comment 9(e)-4, which addresses accuracy standards for disclosing rates on variable rate plans. The comment provides that if the card issuer cannot determine the rate that will be in effect if the cardholder chooses to renew a variable-rate account, the card issuer may disclose the rate in effect at the time of mailing or delivery of the renewal notice or may use the rate as of a specified date within the last 30 days before the disclosure is provided. The final rule adopts this comment as proposed, for the same reasons and consistent with the accuracy standard for account-opening disclosures.
Comment 9(e)(3)-1 contains guidance that if a single disclosure is used to comply with both §§ 226.9(e) and 226.7, the periodic statement must comply with the rules in §§ 226.5a and 226.7. One example listed in the comment is the current requirement to use the words “grace period.” That guidance is revised in the final rule to conform to the Board's new terminology requirements with respect to any grace period (or lack of grace period) in connection with disclosures required under § 226.5a.
Section 226.9(f) requires card issuers to provide notices if the issuer changes the provider of insurance (such as credit life insurance) for a credit card account. The June 2007 Proposal did not include any changes to § 226.9(f). A commenter suggested that the Board provide, by amending either the regulation or the commentary to § 226.9(f), that a conversion of credit insurance coverage to debt cancellation coverage or debt suspension coverage may be treated the same as a change from one credit insurance provider to another. The result would be that the card issuer would not be required to comply with § 226.4(d)(3) (in particular, the requirement that the consumer sign or initial an affirmative written request for the debt cancellation or debt suspension coverage), provided the issuer notified the consumer of the conversion following the procedures set forth in § 226.9(f). The commenter stated that credit insurance and debt cancellation coverage are essentially functionally equivalent from the consumer's perspective, and that if an affirmative written request from the consumer were required, many consumers might unintentionally lose coverage because they might neglect to sign and return the request form.
The final rule does not include any amendments to § 226.9(f) (other than minor technical changes to correct grammatical errors). The Board believes that the current rule provides better consumer protection than would be afforded under the approach suggested by the commenter, in that consumers are given an opportunity to decide whether they wish to have credit insurance converted to debt cancellation or debt suspension coverage, rather than having the conversion occur automatically unless the consumer takes affirmative action to reject it. In addition, under the new provision in § 226.4(d)(4) permitting telephone sales of credit insurance and debt cancellation or debt suspension coverage, creditors would not have to obtain an affirmative written request from the consumer for debt cancellation or suspension coverage to replace credit insurance, but could instead obtain an affirmative oral request by telephone. (
In the June 2007 Proposal, the Board proposed that disclosures be provided prior to the imposition of penalty pricing on a consumer's account balances. With respect to open-end (not home-secured) plans, the Board proposed a new § 226.9(g)(1) to require creditors to provide 45 days' advance notice when a rate is increased due to a 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. This notice would be required even if, as is currently the case, the creditor specifies the penalty rate and the specific events that may trigger the penalty rate in the account-opening disclosures.
In the supplementary information to its June 2007 Proposal, the Board expressed concern that the imposition of penalty pricing may come as a costly surprise to consumers who are not aware of, or do not understand, what behavior constitutes a “default” under their agreement. One way in which the June 2007 Proposal addressed penalty pricing was through improved disclosures regarding the conditions under which penalty pricing may be imposed. The Board proposed, in connection with the disclosures given with credit card applications and solicitations and at account opening, to enhance disclosures about penalty pricing and revise terminology to address consumer confusion regarding the meaning of “default.” In addition, in light of the fact that rates may be increased for relatively minor contractual breaches, such as a payment late by one day, the Board also proposed to require advance notice of such rate increases, which consumers otherwise may not expect. The Board proposed that the notice be provided at least 45 days before the increase takes effect.
In response to the June 2007 Proposal, some credit card issuers advocated a shorter notice period, such as 30 or 15
Industry commenters, however, opposed more generally any additional prior notice before imposition of a penalty rate, when the penalty APR has already been disclosed to the consumer at account-opening and constitutes part of the consumer's account terms. These commenters indicated that consumers will not forget about the penalty APR and the circumstances under which the penalty rate might be imposed, because they will be reminded of it each month by the new late payment warning required to be included on the periodic statement pursuant to § 226.7(b)(11). In addition, these comments noted that the penalty APR will be disclosed in the revised application and solicitation table and new account-opening table more clearly than it is currently. Other comments indicated that the proposed advance notice was effectively a price control that goes beyond TILA's main purpose of assuring meaningful disclosure of credit terms.
Some commenters suggested that a requirement to give advance notice before raising a consumer's rate to the penalty rate would cause issuers to change their pricing practices in ways that might be detrimental to consumers. First, the commenters indicated that creditors will have an incentive to remove penalty APRs from advertising, account-opening disclosures, and billing statement disclosures, because they will in effect be required to treat the imposition of penalty pricing as a change in terms anyway. Second, commenters indicated that if creditors are prevented from promptly imposing penalty pricing, they may be forced to consider other means to price for risk such as setting a higher penalty APR, reducing credit limits, charging higher fees, closing accounts, imposing tighter underwriting standards, or raising non-penalty APRs for lower-risk customers to compensate for the delay in changing rates for higher-risk customers.
Some commenters distinguished between “on us” defaults, where the consumer's act of default under the contract pertains directly to the account being repriced (
Several commenters suggested that the Board introduce a disclosure on each periodic statement reminding the consumer of the circumstances in which penalty pricing may be applied, rather than requiring 45 days' advance notice of a rate increase. One issuer suggested an exception for issuers with penalty APRs and triggers that meet five conditions, namely: (1) Triggers are limited to actions on the specific credit card account; (2) triggers are within the consumer's knowledge and control; (3) triggers are specifically disclosed in the application and solicitation and account-opening disclosure tables; (4) triggers are clearly and conspicuously disclosed on each periodic statement; and (5) the penalty APR is specifically disclosed, along with the index and margin used to calculate the penalty APR. This issuer stated that this exception will avoid costly surprise to consumers arising from the imposition of penalty APRs by encouraging issuers to use sharply-defined, “on us” penalty rate triggers. The commenter also indicated that the monthly disclosure would be more effective in enhancing awareness of penalty APRs and their triggers than the proposed after-the-fact penalty APR notice.
Consumers and consumer groups were supportive of the proposal's requirement to give 45 days' advance notice of the imposition of a penalty rate, noting that the proposal represented a substantial improvement over the current rule. Some, however, urged the Board to increase the notice period to 60 days or 90 days. The Board also received comments from individual consumers, consumer groups, another federal banking agency, and a member of Congress stating that notice alone was not sufficient to protect consumers from the expense caused by rate increases.
The final rule adopts § 226.9(g)(1) generally as proposed, although as discussed below the Board has created several exceptions to the notice requirement in § 226.9(g) to address concerns raised by commenters and to clarify the relationship between § 226.9(g) and final rules adopted by the Board and other federal banking agencies published elsewhere in today's
The final rule generally requires creditors to provide 45 days' advance notice before rate increases due to the consumer's delinquency or default or as a penalty, as proposed. Notwithstanding the fact that final rules adopted by the Board and other federal banking agencies published elsewhere in today's
The final rule elsewhere enhances the disclosure of the circumstances under which the penalty rate may apply in the solicitation and application table as well as at account opening. Such improved up-front disclosure of the circumstances in which penalty pricing may be imposed on a consumer's account may enable some consumers to avoid engaging in certain behavior that would give rise to penalty pricing. However, the Board believes generally that consumers will be the most likely to notice and be motivated to act if they receive a specific notice alerting them of an imminent rate increase, rather than a general disclosure stating the circumstances when a rate might increase.
In focus groups conducted for the Board prior to the June 2007 Proposal, consumers were asked to identify the terms that they looked for when shopping for a credit card or at account-opening. The terms most often identified by consumers were the interest rate on purchases, interest rate on balance transfers, credit limit, fees, and incentives or rewards such as frequent flier miles or cash back.
For similar reasons, the Board also believes that a notice appearing on each monthly statement informing a consumer of the “on us” behaviors that can trigger a penalty rate would not be as effective as a more specific notice provided after a rate increase has been triggered but before it has been imposed. Consumers already will receive a notice under new § 226.7(b)(11) on the periodic statement generally informing them that they may be subject to a late fee and/or penalty rate if they make a late payment. This will alert consumers generally that making a late payment may have adverse consequences, but that Board does not believe that a general notice about the circumstances in which penalty pricing may be applied is as effective as a more specific notice that a penalty rate is in fact about to be imposed.
In addition, the Board believes that the notice required by § 226.9(g) is the most effective time to inform consumers of the circumstances under which penalty rates can be applied to their existing balances consistent with final rules adopted by the Board and other federal banking agencies published elsewhere in today's
As discussed elsewhere in the section-by-section analysis to § 226.5a, due to concerns about “information overload,” the final rule does not require a creditor to distinguish, in the disclosures given with an application or solicitation or at account-opening, between those penalty rate triggers that apply to existing balances and more general contractual penalty triggers that may apply only to new balances. While the Board anticipates that creditors will disclose in the account agreement for contractual reasons the distinction between triggers applicable to existing balances and new balances, those disclosures will not be highlighted in a tabular format. The notice given under § 226.9(g) will, therefore, be for many consumers, the best opportunity for disclosure that penalty pricing may apply only to new balances and that, if the consumer pays late once by more than 30 days, the penalty rate may be applied to all of his or her balances.
If the notice regarding increases in rates due to delinquency, default or penalty pricing were included on or with a periodic statement, the June 2007 Proposal would have required the notice to be in a tabular format. Under the proposal, the notice also would have been required to appear on the front of the first page of the periodic statement, directly above the list of transactions for the period. If the notice were not included on or with a periodic statement, the information described above would have been required to be disclosed on the front of the first page of the notice. As discussed above, the minimum font size requirements of 10-point font set forth in proposed comment 5(a)(1)-3 also would have applied to any tabular disclosure given under § 226.9(g)(3).
One consumer group commenter on the May 2008 Proposal supported the requirements in proposed § 226.9(g)(3)(i)(D) and (g)(3)(i)(E), which were added for consistency with the proposal by the Board and other federal banking agencies published in May 2008 (
Commenters on the content and formatting of penalty rate notices generally raised the same or similar issues as commenters on the content and formatting of change-in-terms notices required under § 226.9(c).
The final rule also contains a technical amendment to clarify that a notice given under § 226.9(g)(1) may be combined with a notice given pursuant to new § 226.9(g)(4)(ii), described below.
Form G-18(G) (proposed as Form G-18(H)) and Sample G-21 have been revised to reflect formatting changes designed to make these notices more understandable to consumers. Similar to the testing conducted for change-in-terms notices described above in the section-by-section analysis to § 226.9(c), the Board also conducted two rounds of consumer testing of notices of penalty rate increases. Consumers generally understood the key dates disclosed in these notices. Specifically, of participants who saw statements that indicated that the penalty rate would be applied to the account, all participants in both rounds of testing understood
Sample G-21 also has been revised to conform with substantive restrictions on rate increases applicable to promotional rate balances included in final rules issued by the Board and other federal banking agencies published elsewhere in today's
The Board has adopted a set of revised examples in comment 9(g)-1 that have been modified to conform with the final rules adopted by the Board and other federal banking agencies published elsewhere in today's
In addition to amending the examples, the Board also has clarified in new § 226.9(g)(4)(iii), discussed below, that a creditor need not send a second notice pursuant to § 226.9(g) prior to increasing the rate applicable to outstanding balances, in the limited circumstances where the creditor has already sent a notice disclosing a rate increase applicable to new transactions and during the period between when that notice is sent and the effective date of the change, if the consumer pays more than 30 days late. This exception is consistent with the examples described above.
Some commenters also suggested that creditors should be permitted to include on each periodic statement after the first triggering event a notice informing the consumer of the circumstances under which penalty pricing will be imposed. If the consumer engages in the behavior disclosed on the periodic statement, these creditors suggested that a creditor should be permitted to impose penalty pricing immediately, without additional advance notice given to the consumer.
For penalty pricing with multiple triggering events, the final rule continues to require 45 days' notice after the occurrence of the final triggering event. The Board believes that a notice of an impending rate increase may have the most utility to a consumer immediately prior to when the rate is increased. Depending on the particular triggers used by a creditor, the period of time between the first triggering event and the final triggering event could be
The Board also believes that a notice included on each periodic statement after the first triggering event informing the consumer of the circumstances under which penalty pricing will be imposed would not be as effective as a notice informing the consumer of a specific impending rate increase. An institution may choose to provide a statement on each periodic informing the consumer of the circumstances under which penalty pricing will be imposed, but the institution still would be required to provide a notice prior to actually imposing the penalty rate pursuant to § 226.9(g).
The final rule does not contain an exception to the 45-day advance notice requirement for repricing from a promotional rate to any higher rate upon an event of default by the consumer. The Board believes that the rationales discussed above for the 45-day advance notice apply equally when a consumer's account is repriced from a promotional rate to a higher rate, prior to the end of the term for which the promotional rate was offered. The loss of a promotional rate before the end of a promotional period can be a costly surprise to the consumer, and in some cases even more costly than other types of interest rate increases. A consumer may have an expectation that a zero percent or other promotional rate will apply to transactions made for a certain fixed period, for example one year, and may purchase large ticket items or transfer a significant balance to that account during the period in reliance on the promotional rate. Under these circumstances, the Board believes that the consumer should have the opportunity to seek alternative sources of financing before the account is repriced to the higher rate. This outcome is consistent with final rules issued by the Board and other federal banking agencies and published elsewhere in this
There is no obligation to provide a notice under § 226.9(g) if the increase from a promotional rate to the standard rate occurs at the end of the term for which the promotional rate was offered, not based on any event of default by the consumer. One industry commenter asked for guidance as to what a creditor must do under § 226.9(g) when the promotional rate is set to expire in less than 45 days and the consumer triggers penalty pricing. Under those circumstances, the Board anticipates that a creditor would not send a notice under § 226.9(g), but rather would let the promotional rate expire under its original terms. At the end of the promotional period, the rate would revert to the standard rate and no notice need be given to the consumer because a rate increase from the promotional rate to the standard rate upon the expiration of the period set forth in the original agreement would not constitute a change in terms or penalty repricing.
The final rule contains a new § 226.9(g)(4)(i), which generally provides that a creditor is not required to give advance notice pursuant to § 226.9(g)(1) if a rate applicable to a consumer's account is increased as a result of the consumer's default, delinquency, or as a penalty, in each case for failure to comply with the terms of a workout arrangement between the creditor and the consumer. The exception is only applicable if the new rate being applied to the category of transactions does not exceed the rate that applied to that category of transactions prior to commencement of the workout arrangement, or is a variable rate determined by the same formula (index and margin) that applied to the category of transactions prior to commencement of the workout arrangement. The Board believes that workout arrangements provide a clear benefit to consumers who are otherwise having difficulty making payments and that the rule should not limit the continued availability of such arrangements. A consumer who is otherwise in default on his or her
As discussed above, § 226.9(c)(2)(v) requires that a creditor give advance notice of a decrease in a consumer's credit limit in writing or orally at least 45 days before an over-the-limit fee or penalty rate can be imposed solely as a result of the consumer exceeding the newly decreased credit limit. The purpose of this provision is to give the consumer an opportunity to reduce outstanding balances to below the newly-decreased credit limit before penalty fees or rates can be imposed. In addition, § 226.9(g)(1)(ii) requires a creditor to give 45 days' advance written notice prior to increasing a rate as a penalty for one or more events specified in the account agreement, including for obtaining an extension of credit that exceeds the credit limit.
Without clarification, the Board is concerned that § 226.9(c)(2)(v) and (g)(1)(ii) could be read together to require 90 days' notice prior to imposing a penalty rate for a consumer exceeding a newly-decreased credit limit (
In order to clarify the relationship between § 226.9(c)(2)(v) and (g)(1)(ii), the final rule contains new § 226.9(g)(4)(ii), which permits a creditor to send, at the time that the creditor decreases the consumer's credit limit, a single notice (in writing) that would satisfy both the requirements of §§ 226.9(c)(2)(v) and (g)(1). The combined notice would be required to be sent at least 45 days in advance of imposing the penalty rate and would be required to contain the content set forth in § 226.9(c)(2)(v), as well as additional content that generally tracks the requirements in § 226.9(g)(3)(i). The content of the notice would differ from the requirements in § 226.9(g)(3)(i) in order to accurately reflect the fact that a consumer may avoid imposition of the penalty rate by reducing his or her balance below the newly decreased credit limit by the date specified in the notice.
Consistent with the intent of § 226.9(c)(2)(v), new § 226.9(g)(4)(ii) provides that a creditor is not permitted to impose the penalty rate if the consumer's balance does not exceed the newly decreased credit limit on the date set forth in the notice for the imposition of the penalty rate (which date must be at least 45 days from when the notice is sent). However, if the consumer's balance does exceed the credit limit on the date specified in the notice, the creditor would be permitted to impose the penalty rate on that date, with no additional advance notice required. For example, assume that a creditor decreased the credit limit applicable to a consumer's account and sent a notice pursuant to § 226.9(g)(4)(ii) on January 1, stating among other things that the penalty rate would apply if the consumer's balance exceeded the new credit limit as of February 16. If the consumer's balance exceeded the credit limit on February 16, the creditor could impose the penalty rate on that date. However, a creditor could not apply the penalty rate if the consumer's balance did not exceed the new credit limit on February 16, even if the consumer's balance had exceeded the new credit limit on several dates between January 1 and February 15. If the consumer's balance did not exceed the new credit limit on February 16 but the consumer conducted a transaction on February 17 that caused the balance to exceed the new credit limit, the general rule in § 226.9(g)(1)(ii) would apply and the creditor would be required to give an additional 45 days' notice prior to imposition of the penalty rate (but under these circumstances the consumer would have no ability to cure the over-the-limit balance in order to avoid penalty pricing).
New § 226.9(g)(4)(ii)(C) sets forth the formatting requirements for notices given pursuant to § 226.9(g)(4)(ii), which conform with the formatting requirements for notices provided under § 226.9(g)(1).
This exception is meant to conform the requirements of the rule to the examples set forth in comment 9(g)-1, which clarify the interaction between the notice requirements of § 226.9(g) and rules regarding the application of rate increases to outstanding balances issued by the Board and other federal banking agencies published elsewhere in today's
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; § 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.
Although some consumer commenters on the June 2007 Proposal 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. 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.
Industry commenters expressed concern that the proposed disclosure would be 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 were to adopt 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 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 comments received on the June 2007 Proposal, the Board proposed in May 2008 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 payments received by mail. In part, the Board proposed to move guidance currently contained in the commentary to the regulation. Current comment 10(b)-1 provides examples of specific payment requirements creditors may impose and current 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 proposed in May 2008 to move the substance of comments 10(b)-1 and 10(b)-2 to § 226.10(b)(1) and (b)(2) of the regulation. Under the May 2008 Proposal, § 226.10(b)(1) would have stated the general rule, namely that a creditor may specify reasonable requirements that enable most consumers to make conforming payments. The Board would have expanded upon the example in comment 10(b)-1.i.B as proposed in June 2007 in new proposed § 226.10(b)(2)(ii), which would have stated that it would not be reasonable for a creditor to set a cut-off time for payments by mail that is earlier than 5:00 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 have been included in the regulatory text under the May 2008 Proposal. As noted in the May 2008 Proposal, the Board believes that this language is in substance duplicative of the requirement that any payment requirements be reasonable and enable most consumers to make conforming payments.
The Board did not propose a postmark rule as suggested by consumer group commenters on the June 2007 Proposal. In part, this is because the Board and other federal banking agencies proposed in May 2008 a rule that would have required a creditor to provide consumers with a reasonable time to make payments. As discussed in the May 2008 Proposal, 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. 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.
Consumer groups, one state treasurer, one federal banking agency, several industry commenters and several industry trade associations supported the proposal that it would not be reasonable to set a cut-off time for payments received by mail prior to 5 p.m. on the due date at the location specified by the creditor for the receipt of mailed payments. Several consumer groups, credit unions, and two members of Congress suggested that the Board expand the proposed rule to apply to all forms of payment, including payments made by telephone and on-line. Several consumer groups urged that the rule should be dependent on the local time of the consumer's billing address, not the local time of the issuer's payment facility. Several consumer groups suggested that the Board establish a
One industry commenter that supported the 5 p.m. rule stated that it should only apply to mailed payments. This commenter stated that a consumer who makes payments on-line, by telephone, or at a bank branch controls and is aware of the exact time a payment is made. An industry trade association noted that its support of the 5 p.m. cut-off time was conditioned on the understanding that there would be no requirement for creditors to process payments within certain time frames. This commenter indicated its understanding that the May 2008 Proposal would only prohibit assessing a late fee, or otherwise considering the payment late, if it is received on or before the due date, and would not dictate when the payment actually needed to be processed.
The majority of industry commenters opposed the proposed rule that would have provided that cut-off times prior to 5 p.m. for mailed payments are not reasonable. Many of these commenters raised operational issues with the proposed rule. One industry trade association stated that banks need sufficient time after retrieving mail to update accounts and produce accurate periodic statements. This commenter indicated that remittance processing requires time to confirm transactions and detect and remedy errors. This commenter noted that if a bank is unable to complete any necessary updates prior to generation of the consumer's statement, the payment may be subsequently revised and backdated, but the payment will not be reflected in the statement sent to the consumer, which would make the statement inaccurate. Other industry commenters noted that they use a lockbox to process payments. These commenters indicated that currently their lockbox personnel cannot open, process, and credit payments on the date received unless they are received by a time certain that may be in the morning, or at the latest, midday.
Several industry commenters stated that the proposed 5 p.m. cut-off time rule in effect would impose a requirement for all open-end creditors to adopt a 5 p.m. post office run or to do a “last mail call” at 4:59 p.m. One commenter noted that 5 p.m. is rush hour, which could lead to significant delays in delivering the payments in metropolitan areas. Several industry commenters further noted that some post offices may officially close prior to 5 p.m. but continue to process mail and insert mail into mail boxes.
One trade association for credit unions noted that some smaller credit unions may only be open several days a week and may have limited business hours, for example, a faith-based credit union chartered to serve the members of a church congregation that is only open on Sundays or weekends for several hours. This commenter indicated that for such a creditor, it should be reasonable to impose a cut-off time that is consistent with that particular institution's closing time.
One large bank and one industry trade association suggested that a deadline of 2 p.m. for mailed payments should be considered reasonable, due to operational and logistical challenges that make a 5 p.m. cut-off time too early. Several industry commenters noted that Regulation CC (Availability of Funds and Collections of Checks) permits earlier cut-offs for access to deposits of 2 p.m. or later, or 12 p.m. or later if the deposit is received at an ATM. 12 CFR 229.19(a)(5)(ii) Several other industry commenters stated that the Board had not articulated its reasons for selecting a 5 p.m. cut-off time, and that there is no evidence that consumers expect a 5 p.m. deadline.
Other industry commenters stated that it is consistent with consumer expectations that a customer needs to provide the bank with a reasonable time to process a transaction. These commenters noted that it is especially important that open-end creditors have a reasonable time to process payments received by mail in light of the fact that such creditors are required to credit a borrower's account as of the day the payment is received, even if the creditor does not receive funds after depositing the check for one or more days.
Finally, two industry commenters expressed concern about the proposal's classification of cut-off times prior to 5 p.m. as “unreasonable.” These commenters indicated that the characterization of certain cut-off times as “unreasonable” might give rise to litigation risk for creditors that used earlier cut-off times prior to this rule that were permissible under the Regulation Z requirements at that time.
In light of comments received, the Board is adopting in the final rule a modified version of proposed § 226.10(b)(2)(ii), which describes a 5 p.m. cut-off time for mailed payments as an example of a reasonable requirement for payments, but does not state that earlier cut-off times would be unreasonable in all circumstances. The Board believes that the establishment of a safe harbor for a 5 p.m. cut-off time for mailed payments, rather than declaring earlier cut-off times to be
The Board notes that if a creditor adopts a 5 p.m. cut-off time for payments received by mail, neither the current rule nor the revised rule would mandate that the creditor pick up its mail at 5 p.m. on the payment due date. Section 10(a) addresses only the date as of which a creditor is required to credit a payment to a consumer's account, but does not impose any requirements as to when the creditor actually must process or post the payment. It would be permissible under the final rule for a creditor that has a 5 p.m. cut-off time on the due date for payments by mail to, for example, backdate and credit payments received in its first pick-up of the following morning as of the due date, assuming that its previous pick-up was not made at or after 5 p.m. on the due date. The Board understands that backdating of payments is relatively common and that some servicers have platforms that provide for automated backdating. A creditor that prefers not to backdate its payments for operational reasons could, however, arrange for a 5 p.m. mail pick-up.
The final rule adopts the 5 p.m. safe harbor only for mailed payments and does not address other payment channels. Payments made by other methods, such as electronic payments or payments by telephone, are however subject to the general rule that requirements for payments must be reasonable. The Board will continue to monitor cut-off times for non-mailed payments in the future in order to determine whether a safe harbor or similar guidance for such payments is necessary. The Board believes that a safe harbor for payments by mail is important because it is the payment mechanism over which consumers have the least direct control. A consumer is more aware of, and better able to control, the time at which he or she makes an electronic, telephone, or in-person payment, but is not able to
The safe harbor, consistent with the proposal, refers to the time zone of the location specified by the creditor for the receipt of payments. The Board believes that this clarification is necessary to provide creditors with certainty regarding compliance with the safe harbor, and that a rule requiring a creditor to process payments differently based on the time zone at the consumer's billing address could impose significant operational burdens on creditors. The safe harbor also refers to 5 p.m., consistent with the proposal. The Board believes that many consumers expect that payments received by the creditor by 5 p.m., which corresponds to the end of a standard business day, will be credited on that day. This also is consistent with the results of consumer testing conducted prior to the June 2007 Proposal, which showed that most consumers assume payment is due by midnight or by the close of business on the due date.
Under the June 2007 Proposal, § 226.10(b) contained a cross reference to § 226.7(b)(11), regarding the disclosure of cut-off hours on periodic statements. In the May 2008 Proposal, the Board solicited 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. As discussed in the section-by-section analysis to § 226.7(b)(11), the final rule does not adopt the formatting requirements for disclosing the cut-off time on the periodic statement that were proposed in the June 2007 Proposal. A creditor must, however, continue to specify on or with the periodic statement any applicable cut-off times pursuant to § 226.10(b)(3) (formerly § 226.10(b)), as renumbered in the final rule.
Two industry commenters supported the proposed changes to comments 10(a)-2 and 10(b)-1.i.B regarding electronic payments made via the creditor's Web site. One of these commenters noted that the proposed changes were consistent with consumer expectations, and stated that it was appropriate that the changes were limited to electronic payments made at the creditor's own Web site, over which the creditor has control, rather than being expanded to include all types of electronic payments. Several individual consumers also commented that electronic payments should be credited on the day on which they are authorized. Comment 10(a)-2 is adopted as proposed. The clarification to comment 10(b)-1.i.B proposed in June 2007 has been adopted in § 226.10(b)(2)(ii).
One industry commenter noted that there could be operational issues associated with treating payments made via the creditor's Web site as conforming, because most banks use third-party processors to process their electronic payments. This commenter stated that an issuer may not be in control of its processing system and may not be able to credit its payments on the same day they are authorized. This commenter further stated that a creditor may have one Web site that offers several different means of making payments, for example a portal solely for making credit card payments as well as a portal for making bill payments through a third-party bill payment processor, and that payments could be sent either way by the consumer. This commenter noted that there may be additional delay in processing the payment depending on which electronic payment mechanism the consumer uses.
The Board believes that consumer expectation is that a payment made via the creditor's Web site is a conforming payment, and that a creditor that promotes and accepts payment via its Web site should treat such payment as conforming. As noted above, individual consumers who commented on the June 2007 Proposal stated that electronic payments should receive same-day crediting. The Board notes that creditors may use third-party processors not just for electronic payments, but also for mailed payments that are treated as conforming. Thus, the use of a third-party processor may give rise to delays in processing payments regardless of the payment mechanism used. The Board notes that a creditor need not post a payment made via its Web site on the same day for which the consumer authorized payment, but need only credit the payment as of that date. Comment 10(b)-2 is adopted as proposed.
In response to these comments, the Board proposed in May 2008 a new § 226.10(d) that would have required 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 as a day on which the U.S. Postal Service does not deliver mail. Thus, if a due date falls on a Sunday on which a creditor does not receive or accept payment by mail, the payment could not have been subjected to late payment fees or increases in the interest rate applicable to the account due to late payment if the payment were received by mail on the next day that the creditor does receive or accept payment by mail. The Board proposed 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 proposed rule in § 226.10(d) was limited to payments made by mail. The Board noted its particular concern 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 solicited comment in the May 2008 Proposal as to whether this rule also should address payments made by other means, such as telephone payments or payments made via the Internet.
Consumer groups, several industry commenters, one industry trade group, a state treasurer, several credit union trade associations, and several state consumer protection agencies supported the Board's proposed rule regarding weekend or holiday due dates. Several industry commenters indicated that they were already in compliance with the proposed rule. Consumer groups stated that the proposed rule should be expanded to all forms of payment, including payments made electronically, by personal delivery, and by telephone.
Several other industry trade groups and industry commenters objected to the proposed rule regarding weekend or holiday due dates, stating that it would impose operational challenges and costs for banks, including additional systems processing. These commenters questioned the necessity of the proposed rule, in light of the proposal by the Board and other federal banking agencies in May 2008, which would have prohibited institutions from treating a payment as late for any purpose unless the consumer has been provided a reasonable amount of time to make payment.
Several commenters commented on the example offered by the Board, “for example if the U.S. Postal Service does not deliver mail on that date,” to describe a day on which the creditor does not receive or accept payments by mail. One industry commenter indicated that it accepts and receives mail from the U.S. Postal Service every hour, 365 days a year, and indicated that the example may be misleading in light of its actual practices. Another industry commenter commented more generally that issuers who receive and process mail on Sundays and holidays should be permitted to rely on payment due dates that fall on those days.
The final rule adopts § 226.10(d) as proposed, with one minor clarification discussed below. The Board believes that it is important for consumers to have adequate time to make payment on their accounts, and that it is reasonable for consumers to expect that their mailed payments actually can be received and processed on the due date. Consumers should not be required to account for the fact that the due date for a mailed payment in practice is in effect one day earlier than the due date disclosed due to a weekend or holiday. While the rule may impose operational burden on some issuers, the Board believes that this burden is outweighed by the benefit to consumers of having their payments posted in accordance with their expectations that payments need not be delivered prior to the due date in order to be timely. The Board also notes that several industry commenters indicated that they were already in compliance with the rule and that it would impose no additional operational burden on those institutions.
The example in proposed § 226.10(d) regarding a date on which the U.S. Postal Service does not deliver mail has been moved to a new comment 10(d)-1, to emphasize that it is an example only. A creditor that accepts and receives mail on weekends and holidays may rely on payment due dates that fall on those days.
The final rule adopts the rule regarding weekend or holiday due dates only for mailed payments and does not address other payment mechanisms. The Board will continue to monitor due dates for non-mailed payments in the future in order to determine whether a similar rule for such payments is necessary.
One commenter stated that § 226.10(d) should refer to dates on which a creditor does not “receive or process” payments rather than dates on which a creditor does not “receive or accept” payments. The creditor stated that receipt or acceptance, absent actual processing, could create the appearance of prompt crediting of payments where there is none. The final rule does not adopt this change. The rules in § 226.10 do not address when a creditor must process payments, only the date as of which a creditor must credit the payment to a consumer's account.
The Board believes that its final rule under Regulation Z regarding weekend or holiday due dates will complement the final rule issued by the Board and other federal banking agencies published elsewhere in today's
TILA Section 165, implemented in § 226.11, sets forth specific steps that a creditor must take to return any credit balance in excess of $1 on a credit account, including refunding any remaining credit balance within seven business days after receiving a written request from the consumer or making a good faith effort to refund any credit balance that remains in the consumer's account for more than six months. 15 U.S.C. 1666d. Although the substance of these provisions remains unchanged, the final rule implements a number of amendments proposed in June 2007.
In June 2007, the Board proposed moving the provisions in § 226.11 regarding credit balances to a new paragraph (a) and renumbering the commentary accordingly. The Board also proposed adding a new paragraph (b) implementing the prohibition in Section 1306 of the Bankruptcy Act on terminating accounts under certain circumstances (further discussed below).
In response to proposed comment 11(a)-1, some consumer groups requested that creditors be required to inform consumers that, unlike compliance with a written refund request under § 226.11(a)(2), compliance with an oral or electronic refund request is not mandatory. The Board believes that this disclosure is not necessary. A creditor that requires requests for refund of a credit balance to be in writing is unlikely to accept an oral or electronic request for such a refund of a credit balance and then refuse to comply without notifying the consumer that a written request is required. Furthermore, § 226.11(a)(3) requires creditors to refund credit balances in excess of $1 after six months even if no request is made.
The Board is amending the credit balance provisions in § 226.11 as proposed in June 2007, with minor technical and clarifying revisions.
TILA Section 127(h), added by the Bankruptcy Act, prohibits creditors that offer open-end consumer credit plans from terminating an account prior to its expiration date solely because the consumer has not incurred finance charges on the account. 15 U.S.C. 1637(h). A creditor is not, however, prohibited from terminating an account for inactivity in three or more consecutive months.
In June 2007, the Board proposed to implement TILA Section 127(h) in the new § 226.11(b). The general prohibition in TILA Section 127(h) was stated in proposed § 226.11(b)(1). The proposed commentary to § 226.11(b)(1) would have clarified that the underlying credit agreement, not the credit card, determines if there is a stated expiration (maturity) date. Thus, creditors offering accounts without a stated expiration date would not be permitted to terminate those accounts solely because the consumer uses the account and does not incur a finance charge.
Proposed § 226.11(b)(2) provided that, consistent with TILA Section 127(h), the prohibition in proposed § 226.11(b)(1) would not have prevented creditors from terminating an account that is inactive for three consecutive months. Under proposed § 226.11(b)(2), an account would have been inactive if there had been no extension of credit (such as by purchase, cash advance, or balance transfer) and if the account had no outstanding balance.
One comment on proposed comment 11(b)(1)-1 requested that the phrase “uses the account” be removed because it does not appear in TILA Section 127(h) or proposed § 226.11(b). The June 2007 Proposal included this phrase because, under proposed § 226.11(b)(2), a creditor would be permitted to terminate an account for inactivity. To clarify this point, the Board has revised comment 226.11(b)(1)-1 to reference § 226.11(b)(2) explicitly. Otherwise, § 226.11(b) is adopted as proposed in June 2007, with minor technical and clarifying revisions.
Section 226.12 contains special rules applicable to credit cards and credit card accounts, including conditions under which a credit card may be issued, liability of cardholders for unauthorized use, and cardholder rights to assert merchant claims and defenses against the card issuer.
TILA Section 132, which is implemented by § 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. While the June 2007 Proposal did not propose changes to the current renewal and substitution rules, the May 2008 Proposal set forth certain limitations on a card issuer's ability to issue a new card as a substitute for an accepted card for card accounts that have been inactive for a significant period of time. Specifically, a card issuer would not have been permitted to substitute a new card for a previously accepted card if the merchant base would be changed (for example, from a card that is honored by a single merchant to a general purpose card) and if the account has been inactive for a 24-month period preceding the issuance of the substitute card.
Consumer groups supported the proposal but urged the Board to expand the scope of the proposed revision, to prohibit any replacement of a retail card by a general-purpose credit card if the substitution was not specifically requested by the consumer. In contrast, the majority of industry commenters commenting on the issue stated that the proposed revision would inappropriately restrict an issuer's ability to upgrade cards for consumers who want a product that provides greater merchant acceptance than their existing retail card. These commenters also generally believed that any potential concerns about cardholder security or identity theft are already adequately addressed through market practices designed to prevent fraud (such as card activation requirements) and other regulatory requirements (for example, change-in-terms notice requirements under Regulation Z and identity theft “Red Flag” requirements
Industry commenters also urged the Board to extend the time period for inactivity from 24 to 36 months after which a general purpose credit card could no longer be substituted for a retail card on an unsolicited basis. These industry commenters stated that private label credit cards, particularly those used to make major purchases, tend to have long life-cycles and sporadic usage patterns. One industry commenter also noted that 36 months aligned with current card expiration and renewal time frames. Consumer groups in contrast believed that 24 months was excessive, because a consumer may no longer remember having the particular retail card, or may have moved during that time period. Instead, consumer groups urged the Board to adopt a time frame of 180 days. Alternatively, consumer groups suggested that the Board could permit substitutions only if the creditor has sent a periodic statement within the prior three-month period.
The final rule adopts the revisions to comment 12(a)(2)-2.v, as proposed. While some consumers may benefit from receiving a card that could be used at a wider number of merchants compared to their current retail card, other consumers may have only signed up for the retail card to receive a benefit unique to that retailer or group of retailers, such as an initial purchase discount, and may not want a card with greater merchant acceptance. Although consumers in some cases can elect not to activate the substitute card and to destroy the unwanted device, others may have moved in the interim period, leading to potential card fraud and identity theft concerns as the cards will be sent to an invalid address. Some consumers may not remember having opened the retail card account in the first place, leading to possible consumer confusion when the new card arrives in the mail.
Accordingly, the Board believes that the revised comment as adopted, including the 24-month period, strikes a reasonable balance between the potential benefits to consumers of using an accepted card at a wider number of merchants and consumer concerns arising from an unsolicited card being sent for an account that has been inactive for a significant period of time, particularly when the card is issued by a creditor with whom the consumer may have no prior relationship. The final comment also deletes as unnecessary the reference to situations where “the consumer has not obtained credit with the existing merchant base within 24 months prior to the issuance of the new card” because, as noted by one commenter, this concept is already incorporated into the definition of “inactive account” in the comment.
In light of the revised comment's narrow scope, the Board also believes it is unnecessary to add any exceptions to the provision as adopted. The final rule does not affect creditors' ability to send a general-purpose card to replace a retail card that has been inactive for more than 24 months if the consumer specifically requests or applies for the general-purpose card.
TILA and Regulation Z provide protections to consumers against losses due to unauthorized transactions on an open-end plan.
Comment 12(b)(1)(ii)-3, as proposed, would have clarified that if a cardholder furnishes a credit card to another person and that person exceeds the authority given, the cardholder is liable for that credit transaction unless the cardholder has notified the creditor (in writing, orally, or otherwise) that use of the credit card by that person is no longer authorized.
The Board adopts the comment as proposed. The Board believes that limiting the comment to authorized users would be too narrow as it would potentially allow cardholders to avoid liability for certain transactions simply because the cardholder did not undertake the procedural steps necessary to add an authorized user. In addition, as noted by one commenter in support of the proposed comment, the cardholder is in the best position to control the persons to whom they have provided a card for use. Lastly, the Board believes that to the extent feasible, it is appropriate to have consistent rules under Regulation Z and Regulation E, particularly where the underlying statutory requirements are similar.
The June 2007 Proposal also would have added comment 12(b)(1)(ii)-4 to provide that unauthorized use includes circumstances where a person has obtained a credit card, or otherwise has initiated a credit card transaction, through robbery or fraud (for example, if the person holds the consumer at gunpoint and forces the consumer to initiate a transaction).
As discussed previously under § 226.2(a)(15), the term “credit card” does not include a check that accesses a credit card account. Thus, in June 2007, the Board proposed to add comment 12(b)-4 to provide that the liability limits established in § 226.12(b) do not apply to unauthorized transactions involving the use of these checks. Consumer groups in response asserted that even if the Board declined to expand the definition of “credit card” to include access checks, it should not necessarily follow that any unauthorized transactions involving the use of these checks should be exempt from the protections afforded by § 226.12(b). In particular, consumer groups observed that this outcome would lead to the anomalous result that the consumer's use of the credit card number alone would receive the protections of § 226.12(b), but the consumer's use of an access check would not, even though in both cases, the transaction is ultimately charged to the consumer's credit card account.
The Board adopts comment 12(b)-4 as proposed, and thus does not extend application of § 226.12(b) to access checks in light of the statutory language in TILA Section 133 requiring that the unauthorized use involve the use of a credit card. Nonetheless, as noted in the June 2007 Proposal, the consumer may still assert the billing error protections under § 226.13 with respect to any unauthorized transaction using an access check. Comment 12(b)-4 in the final rule contains this clarification as proposed.
Some industry commenters urged the Board to adopt a time period within which consumers must make claims for unauthorized transactions made through use of a credit card. The Board declines to adopt such a time period. As noted in the June 2007 Proposal, in contrast to TILA Section 161 which requires consumers to assert a billing error claim within 60 days after a periodic statement reflecting the error has been sent, TILA Section 133 does not prescribe a time frame for asserting an unauthorized use claim.
In addition, the June 2007 Proposal would have revised comment 12(b)(2)(iii)-3 to clarify that a card issuer may not impose liability for an unauthorized use when merchandise is ordered by telephone or Internet if the person using the card without the cardholder's authority provides the credit card number by itself or with other information that appears on the card. For example, in many instances, a credit card will bear a separate 3- or 4-digit number, which is typically printed on the back of the card on the signature block or in some cases on the front of the card above the card number. Other information on the card that may be provided is the card expiration date. While the provision of such information may suggest that the person providing the number is in possession of the card, it does not enable the issuer to determine that the person providing the number is in fact the cardholder or the authorized user. Consumer groups supported this proposal, and no commenter opposed the proposed revision. Accordingly, comment 12(b)(2)(iii)-3 is adopted as proposed.
As noted above, a creditor must provide adequate notice of the consumer's maximum liability before it may impose liability for an unauthorized use of a credit card. In the June 2007 Proposal, the Board proposed Model Clause G-2(A), which can be used to explain the consumer's liability for unauthorized use. No commenters addressed the proposed model clause. The final rule revises the language of Model Clause G-2(A) to incorporate optional language that an issuer may provide in the event it allows a consumer to provide notice of the unauthorized use electronically. For HELOCs subject to § 226.5b, at the creditor's option, the creditor may use either Model Clause G-2 or G-2(A).
While a few industry commenters supported the proposal, most industry commenters asserted that card issuer requirements for affidavits or police reports served a useful purpose in deterring false or fraudulent assertions of unauthorized use. In addition, industry commenters also noted that such documentation may be necessary to help validate and appropriately resolve a dispute, as well as to convince local authorities to prosecute the person responsible for the unauthorized transaction. At a minimum, industry commenters asked the Board to permit card issuers to require cardholders to provide a signed statement regarding the unauthorized use.
Consumer groups strongly supported the proposed provision, stating that paperwork requirements and notary fees could deter consumers from filing legitimate unauthorized use claims. In addition, consumer groups noted that
The final rule adopts the comment, generally as proposed. As stated in prior rulemakings and in the May 2008 Proposal, the Board is concerned that certain card issuer requests could cause a chilling effect on a cardholder's ability to assert his or her right to avoid liability for an unauthorized transaction. However, the Board recognizes that in some cases, a card issuer may need to provide some form of certification indicating that the cardholder's claim is legitimate, for example, to obtain documentation from a merchant relevant to the claim or to pursue chargeback rights. Accordingly, the Board is revising the final comment to clarify that a card issuer may require the cardholder to provide a signed statement supporting the asserted claim, provided that the act of providing the signed statement would not subject the cardholder to potential criminal penalty. For example, the card issuer may include a signature line on the billing error rights form that the cardholder may send in to provide notice of the claim, so long as the signature is not accompanied by a statement that the cardholder is providing the notice under penalty of perjury (or the equivalent).
One commenter in response to the June 2007 Proposal urged the Board to clarify the meaning of the term “employee” to include temporary employees, independent contractors, and any other individuals permitted by an organization to participate in its corporate card program, in addition to traditional employees. The final rule leaves § 226.12(b)(5) unchanged. The Board notes that to the extent such persons meet the definition of “employee” under state law, they could be permissibly included in determining whether an organization meets the 10 or more employee threshold for imposing additional liability.
Under TILA Section 170, as implemented in § 226.12(c) of Regulation Z, a cardholder may assert against the card issuer a claim or defense for defective goods or services purchased with a credit card. The claim or defense applies only as to unpaid balances for the goods or services, and if the merchant honoring the card fails to resolve the dispute. The right is further limited to disputes exceeding $50 for purchases made in the consumer's home state or within 100 miles of the cardholder's address.
In order to assert a claim under § 226.12(c), a cardholder must have used a credit card to purchase the goods or services associated with the dispute. In the June 2007 Proposal, the Board proposed to update the examples in comment 12(c)(1)-1 of circumstances that are covered by § 226.12(c) to include Internet transactions charged to the credit card account. No commenters opposed this revision, which is adopted as proposed.
Comment 12(c)(1)-1 also provides examples of circumstances for which the protections under § 226.12(c) do not apply. In the June 2007 Proposal, the Board proposed to delete the reference to “paper-based debit cards” in comment 12(c)(1)-1.iv. However, the final rule retains this example of a type of transaction excluded from § 226.12(c) to address circumstances in which a debit card transaction is submitted by paper-based means, such as when a merchant takes an imprint of a debit card and submits the sales slip in paper to obtain payment.
Currently, footnote 24 and comment 12(c)(1)-1 provide that purchases effected by a debit card when used to draw upon an overdraft credit line are exempt from coverage under § 226.12(c). In the June 2007 Proposal, the Board proposed to move the substance of footnote 24 to comment 12(c)-3 and to make a technical revision to comment 12(c)(1)-1. Consumer groups opposed the substance of these provisions, asserting that any debit card transaction that accesses some form of credit should be accorded the protections under Regulation Z, whether the debit card transaction accesses a traditional overdraft line of credit covered by Regulation Z or an overdraft service covered instead by Regulation DD (Truth in Savings). In their view, the protections under Regulation Z are stronger than those provided under Regulation E (Electronic Funds Transfer), which generally governs rights and responsibilities for debit card transactions.
As stated above, a disputed transaction must meet certain requirements before the consumer may assert a claim or defense under § 226.12(c), including that the cardholder first make a good faith attempt to seek resolution with the person honoring the credit card, and that the transaction has occurred in the same state as the cardholder's current designated address, or, if different, within 100 miles from that address.
Because many telephone and Internet transactions may involve merchants that are based far from a cardholder's residence, consumer groups urged the Board to amend the regulation to explicitly provide that telephone and Internet transactions are deemed to have been made in the consumer's home state for purposes of the 100-mile geographic limitation. The Board believes, however, that the location where a telephone or Internet transaction takes place remains a matter best left to state law. Moreover, the Board is not aware of widespread incidences in which a merchant claim asserted under § 226.12(c) has been denied due to the merchant's location. Thus, if applicable state law provides that a mail, telephone, or Internet transaction occurs at the cardholder's address, such transactions would be covered under § 226.12(c), even if the merchant is physically located more than 100 miles from the cardholder's address.
Guidance regarding how to calculate the amount of the claim or defense that may be asserted by the cardholder under § 226.12(c), formerly found in footnote 25, is moved to the commentary in comment 12(c)-4 as proposed in the June 2007 Proposal.
TILA Section 169 prohibits card issuers from taking any action to offset a cardholder's credit card indebtedness against funds of the cardholder held on deposit with the card issuer. 15 U.S.C. 1666h. The statutory provision is implemented by § 226.12(d) of the regulation. Section 226.12(d)(2) currently provides that card issuers are permitted to “obtain or enforce a consensual security interest in the funds” held on deposit. Comment 12(d)(2)-1 provides guidance on the security interest provision. For example, the security interest must be affirmatively agreed to by the consumer, and must be disclosed as part of the account-opening disclosures under § 226.6. In addition, the comment provides that the security interest must not be “the functional equivalent of a right of offset.” The comment states that the consumer “must be aware that granting a security interest is a condition for the credit card account (or for more favorable account terms) and must specifically intend to grant a security interest in a deposit account.” The comment gives some examples of how this requirement can be met, such as use of separate signature or initials to authorize the security interest, placement of the security agreement on a separate page, or reference to a specific amount or account number for the deposit account. The comment also states that the security interest must be “obtainable and enforceable by creditors generally. If other creditors could not obtain a security interest in the consumer's deposit accounts to the same extent as the card issuer, the security interest is prohibited by § 226.12(d)(2).”
In the June 2007 Proposal, the Board requested comment on whether additional guidance was needed and, if so, the specific issues the guidance should address. Several consumer groups commented that any guidance should explicitly require strong measures to manifest a consumer's consent to grant a security interest, specifically a separate written document that must be independently signed by the consumer and that references a specific account. These commenters also suggested that issuers should be required to show that they are not routinely taking security interests in deposit accounts as the functional equivalent of an offset, for example, by either falling under a numerical threshold (only a small percentage of accounts have a security interest) or by establishing a special program for accounts with a security interest.
The Board is not aware of evidence that would suggest that creditors are routinely taking security interests in deposit accounts as the functional equivalent of offsets, and therefore believes that it is unnecessary to require measures such as numerical thresholds or special programs. However, comment 12(d)(2)-1 is amended to state that indicia of the consumer's intent to grant a security interest in a deposit account include at least one of the procedures listed in the comment (
No other changes to § 226.12(d) and associated commentary were proposed, and no other comments were received. Therefore, other than the change to comment 12(d)(2)-1 discussed above, § 226.12(d) and the associated commentary remain unchanged in the final rule.
Sections § 226.12(e), (f), and (g) address, respectively: The prompt notification of returns and crediting of refunds; discounts and tie-in arrangements; and guidance on the applicable regulation (Regulation Z or Regulation E) in instances involving both credit and electronic fund transfer aspects. The Board did not propose any changes to these provisions or the associated commentary, and no comments were received on them. These provisions and the associated commentary remain unchanged in the final rule.
TILA Section 161, as implemented in § 226.13 of the regulation, sets forth error resolution procedures for billing errors, and requires a consumer to provide written notice of an error within 60 days after the first periodic statement reflecting the alleged error is sent. 15 U.S.C. 1666. The written notice triggers a creditor's duty to investigate the claim within prescribed time limits. In contrast to the consumer protections in § 226.12 of the regulation, which are limited to transactions involving the use of a credit card, the billing error procedures apply to
Section 226.13(a) defines a “billing error” for purposes of the error resolution procedures. Under § 226.13(a)(3), the term “billing error” includes disputes about property or services that are not delivered to the consumer as agreed.
In some cases, a consumer might pay for merchandise purchased through an Internet site using an Internet payment service, with the funds being provided through an extension of credit from the consumer's credit card or other open-end account. For example, the consumer may purchase an item from an Internet auction site and use the payment service to fund the transaction, designating the consumer's credit card account as the funding source. As in the case of purchases made using a check that accesses a consumer's credit card
Consumer groups strongly supported the Board's proposal, stating that it would help to resolve a number of problems involving transactions processed by third-party intermediary payment services in which goods are not received. Industry commenters largely opposed the proposed comment, however, urging the Board to treat extensions of credit involving third-party payment intermediaries similarly to transactions in which a consumer uses an access check or credit card to obtain a cash advance, and then uses that cash to pay for a good or service. Under such circumstances, a consumer would be able to assert a billing error if the wrong amount was funded, but not if the good purchased with the funds was not delivered as agreed.
Industry commenters also stated that the proposed comment inappropriately puts the burden of investigating billing errors involving third-party payment services on the card issuer, rather than on the third-party payment intermediary itself, even though the intermediary will have more direct access to information about the transaction. Industry commenters were particularly concerned about the lack of privity between the card issuer and the end merchant because in many cases the merchant in a third-party intermediary arrangement will not have agreed to meet the requirements of participating in the credit card network. Thus, a card issuer would be unable to contact the merchant or to charge back a transaction in the event the consumer asserts a billing error, thereby exposing the issuer to considerably more risk for the transaction. In this regard, some industry commenters drew a contrast between the use of third-party payment services and the use of access checks, noting that creditors are able to control for risks for access check transactions by either pricing those transactions differently or by restricting the checks that may be issued to the cardholder.
Industry commenters also raised a number of operational considerations. For example, commenters stated that some consumers may use their credit cards to fund their third-party intermediary accounts, but then not use those funds for some time. In those circumstances, issuers would be unable to trace a disputed transaction back to the purchased good or service because the issuer would not receive any information about that subsequent transaction. Consequently, while they opposed the proposed comment in principle, a few industry commenters suggested that the proposed comment might be workable only if it were limited to circumstances in which the credit card account is used specifically for a particular purchase that can be identified (for example, where funds from the card are used contemporaneously, the amount of the purchase and “funding” are the same, and they can be traced and tracked). Another industry commenter asked for guidance on how the proposed comment would apply where the purchase of a good or service results from the commingling of funds, only a portion of which can be attributed to an extension of credit from a credit card account.
The Board continues to believe that it is appropriate to apply the billing error provisions to transactions made through a third-party intermediary using a credit card account
From the consumer's perspective, there is likely to be little difference between his or her use of a credit card to make a payment directly to the merchant on a merchant's Internet Web site or to make a payment to the merchant through a third-party intermediary. Indeed, in some cases, the merchant may not otherwise accept credit cards, making the use of the third-party intermediary service the consumer's most viable option of paying for the good or service. In other cases, the consumer may not want to provide his or her credit card number or other information to the merchant for security reasons. Nonetheless, the consumer may reasonably expect that transactions made using his or her credit card account would be afforded the billing error protections just as if the consumer used an access check to purchase the good or service. To the extent that such transactions may pose additional risk to the creditor due to the lack of privity between the creditor and the merchant, nothing in the rule would prohibit the creditor from pricing the transaction differently, just as access check transactions are often priced differently from other purchases made using a credit card.
As noted above, comment 13(a)(3)-2 is limited to extensions of credit that are obtained in connection with the consumer's purchase of a good or service using the third-party payment intermediary and where the purchase amount of the transaction including any ancillary taxes and fees (such as shipping and handling costs and/or taxes) matches the amount of the extension of credit. In those circumstances, the Board understands that credit card network rules generally require that specific information about the extension of credit, including the name of the merchant from whom the consumer has purchased the good or service and the purchase amount, be passed through to the creditor, which would allow the creditor to identify the particular purchase. The final rule does not extend billing error rights to extensions of credit that are made to fund an account held by a third-party payment intermediary if the consumer does not contemporaneously use those funds to purchase a good or service at that time. For example, a consumer may use his or her credit card to fund the consumer's account held at a third-party payment intermediary for $100, but then some time later purchase a good or service using some or all of the $100 in funds in that account. Under those circumstances, the creditor would not have any information about subsequent transactions made using the funds from the $100 extension of credit to enable the creditor to investigate the claim. The Board considers the $100 extension of credit in that scenario to be equivalent to a cash advance, which would allow the consumer to assert a billing error if the wrong amount is funded, but any problems with the delivery of that good or service would not be considered a billing error for purposes of § 226.13(a)(3).
The revised comment also does not cover extensions of credit that are made to fund only a portion of the purchase amount, where the consumer may use
The Board's adoption of a final rule providing consumers error resolution rights when they use their credit card account in connection with third-party payment intermediary services in some circumstances does not preclude a future possible change to the regulation extending these rights to additional circumstances in which purchases made through a third-party payment intermediary service are funded in whole or in part using a credit card account. The Board intends to continue to study this issue, and other issues related to third-party payment intermediaries more generally, and may consider in the future whether additional protections under Regulation Z and other consumer financial services regulations are necessary with respect to consumer usage of these services.
The June 2007 Proposal also proposed a new comment 13(a)(3)-3 to clarify that prior notice to the merchant is not required before the consumer can assert a billing error that the good or service was not accepted or delivered as agreed. One industry commenter urged the Board to reconsider the proposed comment, stating that in many cases, such as in the event of non-delivery, a dispute might be more efficiently resolved if the consumer contacted the merchant first before asserting a billing error claim with the creditor. Consumer groups supported the proposed comment. In adopting the comment as proposed, the Board notes that in contrast to claims or defenses asserted under TILA Section 170 and § 226.12(c) of the regulation, which require that the cardholder first make a good faith attempt to resolve a disagreement or problem with the person honoring the credit card, the billing error provisions under TILA do not require the consumer to first notify and attempt to resolve the dispute with the person honoring the credit card before asserting a billing error directly with the creditor.
To assert a billing error, a consumer must provide a written notice of the error to the creditor no later than 60 days after the creditor transmitted the first periodic statement that reflects the alleged error.
No commenters opposed the proposed revisions to the commentary under § 226.13(b), and these comments are adopted as proposed. In addition, the Board is revising Model Forms G-2, G-2(A), G-3, G-3(A), G-4 and G-4(A) to add optional language creditors can use if they elect to accept billing error notices (or notices of loss or theft of credit cards) electronically.
Section 226.13(c) generally requires a creditor to mail or deliver written acknowledgement to the consumer within 30 days of receiving a billing error notice, and to complete the billing error investigation procedures within two billing cycles (but no later than 90 days) after receiving a billing error notice. To ensure that creditors complete their investigations in the time period set forth under TILA, in June 2007 the Board proposed to add new comment 13(c)(2)-2 which would have provided that a creditor must complete its investigation and conclusively determine whether an error occurred within the error resolution timeframes. Once this period has expired, the proposed comment further provided that the creditor may not reverse any corrections it has made related to the asserted billing error, including any previously credited amounts, even if the creditor subsequently obtains evidence indicating that the billing error did not occur as asserted.
In response to the June 2007 Proposal, consumer groups urged the Board to adopt the comment to prevent unwelcome consumer surprise when a creditor reverses an error finding months later. Industry commenters in contrast asserted that the proposed comment unreasonably prevented creditors from considering evidence that is presented after the error timeframes. Industry commenters noted, moreover, that disputes today are much more numerous and complex to investigate and resolve, thus supporting the case for a longer, rather than shorter, timeframe. In this regard, industry commenters urged the Board, at a minimum, to provide exceptions for instances of consumer fraud or bad faith in asserting a billing error.
Industry commenters also stated that the proposed comment would effectively nullify the statutory forfeiture penalty provision under TILA Section 161(e) which, they stated, caps the amount that may be forfeited by a creditor for failure to comply with the billing error provisions at $50. 15 U.S.C. 1666(e). In their view, TILA Section 161(e) reflects the intent of Congress to balance the need for timely investigations against potential unjust enrichment to consumers. Thus, commenters stated that if a creditor receives information about a disputed transaction after the two-billing-cycle investigation period which indicates that an error did not occur as alleged, TILA Section 161(e) would permit the creditor to reverse the credit, minus the statutory $50 penalty.
Comment 13(c)(2)-2 as adopted states that the creditor must comply with the error resolution procedures and complete its error investigation within the time period under § 226.13(c)(2). For example, if the creditor determines that an error did not occur as asserted after the error resolution time frame has expired, it generally may not reverse funds that were previously credited to the consumer's account. Similarly, if a creditor fails to comply with a billing error requirement, such as mailing or delivering a written explanation stating why an error did not occur as asserted, within the billing error period, the creditor generally must credit the consumer's account in the amount of
The purpose of the billing error resolution time frame set forth in TILA Section 161 is to enable consumers to have their error claims investigated and resolved promptly. In short, TILA Section 161, as implemented by § 226.13, is intended to bring finality to the billing error resolution process, and avoid the potential of undue surprise for consumers caused by the reversal of previously credited funds when a creditor fails to complete their investigation in a timely manner. Thus, the Board does not interpret the statutory forfeiture penalty under TILA Section 161(e) as being intended to override Section 161's overall protections. In this regard, the Board notes that TILA's administrative and civil liability provisions in TILA Sections 108 and 130, respectively, support this reading of Section 161. That is, if a creditor does not comply with the substantive requirements of TILA Section 161 and complete their investigation in the established timeframe (i.e., two complete billing cycles), the creditor also may be subject to administrative or civil penalties. These provisions serve to facilitate finality in the billing error process by ensuring that the investigation is closed within the time period set forth in the statute.
The final comment is also revised to clarify that creditors have two
Once a consumer asserts a billing error, the creditor is prohibited under § 226.13(d) from taking certain actions with respect to the dispute in order to ensure that the consumer is not otherwise discouraged from exercising his or her billing error rights. For example, the creditor may not take action to collect any disputed amounts, including related finance or other charges, or make or threaten to make an adverse report, including reporting that the amount or account is delinquent, to any person about the consumer's credit standing arising from the consumer's failure to pay the disputed amount or related finance or other charges.
Currently, § 226.13(d) prohibits a card issuer from deducting through an automated payment plan, any part of the disputed amount or related charges from a cardholder's deposit account if the deposit account is also held by the card issuer, provided that the cardholder has provided a billing error notice at least three business days before the scheduled payment date. To reflect current payment processing practices, the Board proposed in June 2007 to extend the prohibition to all automatic deductions from
In response to the June 2007 Proposal, some industry commenters stated that the proposal reflected a reasonable balance. Other industry commenters stated that the proposal introduced operational challenges which could result in significant inconvenience for the customer and the creditor. For example, once a dispute related to a transaction is received, a creditor would have to recalculate the required payment amount to exclude the disputed charges and cause the next automatic debit of the customer's deposit account to include only that recalculated payment amount. Industry commenters stated that the process of analyzing the dispute and communicating this information to the area which manages payments could delay the receipt of the payment to the detriment of the consumer. Consumer groups supported the proposal, stating that the change would ensure that all consumers who use automatic payment plans offered by their card issuer to pay their credit card bills have a meaningful ability to invoke their billing error rights.
The revisions to § 226.13(d)(1) are adopted, as proposed. Although a few industry commenters raised certain operational issues, these concerns would also appear to apply to automatic debits from accounts held by the card issuer itself. Accordingly, the Board is not persuaded there is a need to distinguish automatic payment plans that debit a cardholder's deposit account held at the card issuer from plans that debit a cardholder's deposit account held at a different financial institution. Cardholders should not have different billing error rights as a consequence of enrolling in an automated payment plan offered by the card issuer based on where their deposit accounts are held. Section 226.13(d)(1) as revised applies whether the card issuer operates the automatic payment plan itself or outsources the service to a third-party service provider, but would not apply where the cardholder has enrolled in a third-party bill payment service that is not offered by the card issuer. Thus, for example, the revised rule does not apply where the consumer uses his or her deposit account-holding institution's bill-payment service to pay his or her credit card bill (unless the deposit account-holding institution has also issued the credit card). Comment 13(d)(1)-4 is also revised to reflect the adopted change as proposed.
Section 226.13(d)(3) is adopted as proposed in the June 2007 Proposal to incorporate the text of footnote 27 prohibiting a creditor from accelerating a consumer's debt or restricting or closing the account because the consumer has exercised billing error rights. In addition, the Board is retaining portions of comment 13-1, which it had proposed to delete, to retain the reference to the statutory forfeiture penalty under TILA Section 161(e) in the event a creditor fails to comply with any of the billing error requirements under § 226.13. Accordingly, comment 13-2, which was proposed to be redesignated as comment 13-1, is retained in place in the commentary. No comments were received on these provisions.
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 a creditor may deny a consumer's claim or conclude that the billing error occurred differently than as asserted by the consumer.
The June 2007 Proposal proposed to delete footnote 31 as unnecessary in light of the general creditor obligation under § 226.13(f) to conduct a reasonable investigation. Consumer advocates, however, urged the Board to retain the substance of the footnote, noting that it requires issuers to take concrete steps for resolving claims of non-delivery such as obtaining delivery records or contacting merchants. Without this guidance, advocates expressed concern that issuers would conduct more perfunctory investigations, which, in their view, has been the case with respect to some creditors applying the same “reasonable investigation” standard in investigations into allegations of errors on credit reports under the FCRA. 15 U.S.C. 1681
In light of these concerns, the Board proposed in May 2008 to add comment 13(f)-3 which would have contained the substance of footnote 31. The proposed comment also would have included guidance on conducting a reasonable investigation of a claim of an unauthorized transaction to harmonize the standards under both § 226.12(b) and § 226.13(a)(1). Specifically, the Board proposed to include applicable guidance currently provided for unauthorized transaction claims under § 226.12(b) in proposed comment 13(f)-3.
Both industry and consumer group commenters generally supported the proposed comment. Consumer groups stated that retaining the text of footnote 31 in the proposed comment would help to ensure that creditors conduct substantive investigations of billing disputes, and urged the Board to provide guidance for all types of billing error disputes, including specified steps that a creditor should take to conduct a reasonable investigation. One trade association urged the Board to revise the commentary language requiring creditors to confirm that services or property were actually delivered when there is a claim of non-performance because the merchant, and not the creditor, is in the best place to make this determination. This commenter also urged the Board to provide additional guidance to outline the parameters of what constitutes a “reasonable investigation” to avoid potential disputes between issuers, consumers, and examiners.
Industry commenters opposing the proposed comment primarily raised the same concerns they had previously raised with respect to the proposed commentary revisions to § 226.12(b) which explicitly stated that a card issuer could not require a consumer to provide an affidavit or file a police report as a condition of investigating a claim of unauthorized use.
The final rule adopts comment 13(f)-3 generally as proposed, with revisions to conform to the parallel comment adopted under § 226.12(b) with respect to unauthorized use, which would prohibit a card issuer from requiring an affidavit or the filing of a police report.
Section 226.13(g) specifies the creditor's rights and duties once it has determined, after a reasonable investigation under § 226.13(f), that a consumer owes all or a portion of the disputed amount and related finance or other charges. In the June 2007 Proposal, the Board proposed guidance to clarify the length of time the consumer would have to repay the amount determined still to be owed without incurring additional finance charges (
Section 226.13(i) is designed to facilitate compliance when financial institutions extend credit incident to electronic fund transfers that are subject to the Board's Regulation E, for example, when the credit card account is used to advance funds to prevent a consumer's deposit account from becoming overdrawn or to maintain a specified minimum balance in the consumer's account.
No industry commenters addressed this provision. However, consumer groups asserted that the Board should reconsider its prior determination not to cover overdraft loan products under Regulation Z and remove the example entirely. The Board has determined that it remains appropriate to exclude overdraft services under Regulation Z,
In the June 2007 Proposal, the Board also solicited comment as to whether it should include any additional examples of incidental credit that should be addressed under the error resolution procedures of Regulation E, rather than those of Regulation Z.
As discussed in the section-by-section analysis to § 226.7 above, Regulation Z currently requires disclosure on periodic statements of both the effective APR and the corresponding APR. The regulation also requires disclosure of the corresponding APR in account-opening disclosures, change-in-terms notices, advertisements, and other documents. The computation methods for both the corresponding APR and the effective APR are implemented in § 226.14 of Regulation Z. Section 226.14 also provides tolerances for accuracy in APR disclosures.
As also discussed in the section-by-section analysis to § 226.7, the June 2007 Proposal contained two alternative approaches regarding the computation and disclosure of the effective APR. Under the first alternative, the Board proposed to retain the requirement that the effective APR be disclosed on periodic statements, with modifications to the rules for computing and disclosing the effective APR to reflect an approach tested with consumers.
The second alternative proposed by the Board was to eliminate the requirement to disclose the effective APR on the periodic statement. Under the second alternative, for a home-equity plan subject to § 226.5b, the Board proposed that a creditor would have the option to disclose the effective APR according to current rules or not to disclose an effective APR. The Board's proposed alternative versions of § 226.14 reflected these two proposed alternatives.
Under either alternative, the Board did not propose to revise substantively the current provisions in § 226.14(a) (dealing with APR tolerances) and (b) (guidance on calculating the APR for certain disclosures other than the periodic statement), but minor technical changes were proposed to reflect changes in terminology and to eliminate footnotes, moving their substance into the text of the regulation. No comments were received on these changes, and they are adopted in the final rule as proposed.
For the reasons discussed in the section-by-section analysis to § 226.7, the Board is eliminating the requirement to disclose the effective APR on periodic statements. Consistent with the proposal, for a home-equity plan subject to § 226.5b, a creditor has the option to disclose an effective APR (according to the current rules in Regulation Z for computing and disclosing the effective APR, set forth in § 226.14(c)), or not to disclose an effective APR. The option to continue to disclose the effective APR allows creditors offering home-equity plans to avoid making changes in their periodic statement systems at this time. As discussed earlier, the Board is undertaking a review of home-secured credit, including HELOCs; the rules for computing and disclosing the APR for HELOCs could be the subject of comment during the review of rules affecting HELOCs.
As stated in the June 2007 Proposal, no guidance is given for disclosing the effective APR on open-end (not home-secured) plans, since the requirement to provide the effective APR on such plans is eliminated. Proposed §§ 226.14(d) and (e), which would have set forth the revised rules for calculating an effective APR for open-end (not home-secured) credit, are withdrawn. Section 226.14(d) is retained in its current form, rather than being redesignated as § 226.14(c)(5) as proposed. Minor technical changes are made to § 226.14(c) and the accompanying commentary as proposed, including redesignation of comments to assist users in locating comments relevant to the applicable regulatory provisions.
TILA Section 143, implemented by the Board in § 226.16, governs advertisements of open-end credit plans. 15 U.S.C. 1663. The statutory provisions apply to the advertisement itself, and therefore, the statutory and regulatory requirements apply to any person advertising an open-end credit plan, whether or not such person meets the definition of creditor.
In May 2008, the Board proposed to use its authority under TILA Section 143(3) to add a new § 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). Specifically, the Board proposed to require that the deferred interest period be disclosed in immediate proximity to each statement regarding interest or payments during the deferred interest period. The Board also proposed that certain information about the terms of the deferred interest offer be disclosed in close proximity to the first statement regarding interest or payments during the deferred interest period.
The final rules adopted by the Board and other federal banking agencies published elsewhere in today's
The Board proposed in the June 2007 Proposal that creditors clearly and conspicuously disclose when the introductory period will end and the rate that will apply after the end of the introductory period if the information is equally prominent to the first listing of the introductory rate to which it relates. The Board also proposed in comment 16-2 that if these disclosures are the same type size as the first listing of the introductory rate, they will be deemed to be equally prominent.
As discussed more fully below in the section-by-section analysis to § 226.16(g), the Board amended proposed comment 16-2 in the May 2008 Proposal to apply the standard to “promotional rates.” Furthermore, in the May 2008 Proposal, the Board proposed additional requirements for deferred interest offers. As part of these requirements, the Board proposed to apply the same clear and conspicuous standard for certain disclosures related to deferred interest offers as the Board proposed to require for promotional rate advertisements.
The Board received a few comments on the June 2007 proposed comment 16-2. In addition, the Board consulted with the other federal banking agencies, the NCUA, and the FTC, consistent with Section 1309 of the Bankruptcy Act. Consumer group commenters and one of the federal banking agencies the Board consulted suggested that the safe harbor for complying with the “equally prominent” requirement be amended to require terms to have the same “highlighting.” The consumer group commenters further suggested that the equal prominence safe harbor be a requirement that applied to all advertising terms and not just promotional rate information. Presumably, the commenters believed that the equal prominence standard should be applied to all requirements in § 226.16 where a term triggers some additional disclosures; that is, the additional disclosures would be required to be equally prominent to the term that triggered such disclosures.
The Board is adopting proposed comment 16-2, renumbered as comment 16-2.ii., as proposed in May 2008, except references to provisions related to deferred interest offers have been deleted due to the Board's decision to withdraw the advertising disclosure requirements related to deferred interest plans. As discussed in the June 2007 Proposal, the Board believes that requiring equal prominence for certain information calls attention to the nature and significance of such information by ensuring that the information is at least as significant as the terms to which it relates. In the June 2007 Proposal, the Board noted that an equally prominent standard currently applies to advertisements for HELOCs under § 226.16(d)(2) with respect to certain information related to an initial APR. Consequently, the Board believes this is the appropriate standard for information related to promotional rates and deferred interest offers as well. In terms of the safe harbor, the Board believes that type size provides a bright line standard to determine whether terms are equally prominent. To require similar “highlighting” would be an ambiguous standard. Furthermore, requiring the text of the terms to be identical may be overly prescriptive and may not provide sufficient flexibility to advertisers. For example, if an advertiser presented a promotional rate in 16-point font in green text and disclosed a promotional period in 16-point font in blue text closely proximate to the rate, the terms would not be identical, but the promotional period may be equally prominent to the promotional rate.
Furthermore, comment 16-2.ii. (proposed as comment 16-2 in the May 2008 Proposal) clarifies that the equally prominent standard will apply only to written and electronic advertisements. As discussed in more detail in the section-by-section analysis to § 226.16(g)(1) below, the Board is expanding the types of advertisements to which the requirements of § 226.16(g) would apply to include non-written, non-electronic advertisements, such as telephone marketing, radio and television advertisements. However, because equal prominence is a difficult standard to measure outside the context of written and electronic advertisements, the Board believes that the guidance on clear and conspicuous disclosures, as set forth in comment 16-2.ii. (proposed as comment 16-2 in the May 2008 Proposal), should apply solely to written and electronic advertisements. Disclosures required under § 226.16(g)(4) for non-written, non-electronic advertisements, while not required to meet the clear and conspicuous standard in comment 16-2.ii. (proposed as comment 16-2 in the May 2008 Proposal), are required to meet the general clear and conspicuous standard as set forth in comment 16-1.
Under § 226.16(b), certain terms stated in an advertisement require additional disclosures. In the June 2007 Proposal, the Board proposed to move the substance currently in § 226.16(b) to § 226.16(b)(1), with some amendments, and proposed a new requirement for additional disclosures when a minimum
The Board received few comments on the proposal. Consumer groups supported the Board's proposal. One industry commenter opposed the proposal stating that advertisements of “no annual fee” should not trigger additional disclosures. As discussed in the June 2007 Proposal, the Board believes that including negative terms as triggering terms for open-end (not home-secured) plans is necessary in order to provide consumers with a more accurate picture of possible costs that may apply to plans that advertise negative terms, such as “no interest” or “no annual fee.” In addition, the requirement ensures similar treatment of advertisements of all open-end plans. For these reasons and pursuant to its authority under TILA Section 143(3), the Board adopts proposed comment 16(b)-1 as proposed, and renumbers the comment as comment 16(b)(1)-1. As proposed, current comment 16(b)-7 is consolidated in the new comment for organizational purposes and for clarity, without substantive change.
The Board proposed in June 2007 to require additional disclosures for advertisements that state a minimum monthly payment for an open-end credit plan that would be established to finance the purchase of goods or services. Under the Board's proposal, if a minimum monthly payment is advertised, the advertisement would be required to state, in equal prominence to the minimum payment, the time period required to pay the balance and the total dollar amount of payments assuming only minimum payments are made.
Consumer group and consumer commenters, a state regulatory association commenter, and a member of Congress were supportive of the proposal. Several industry commenters opposed the Board's proposal regarding minimum payment advertising and suggested that the Board not adopt the provision. Industry commenters indicated that the disclosure is inherently speculative because determining how long it would take a consumer to pay off the balance and the total dollar amount of payments would depend on a particular consumer's other purchases and use of the account in general as well as other external factors that may affect the account. To illustrate their point, some industry commenters gave examples of promotional programs in which a minimum payment amount advertised relates to a promotional rate that is in effect for a certain period of time (
Other industry commenters offered suggestions to address these concerns with minimum payment advertising. One industry commenter suggested that a table be disclosed with sample payments and repayment periods. That commenter also suggested an alternative of providing a telephone number for consumers to call to obtain that information. A few other industry commenters suggested that the Board specify a set of assumptions that advertisers may make in providing the disclosure. One of these industry commenters also suggested that the Board provide model language to include in the advertisement to disclose these assumptions to consumers.
As the Board stated in the June 2007 Proposal, the Board believes that for advertisements stating a minimum monthly payment, requiring the advertisement to disclose the total dollar amount of payments the consumer would make and the amount of time needed to pay the balance if only the minimum payments are made will provide consumers with a clearer picture of the costs of financing the purchase of a good or service than if only the minimum monthly payment amount is advertised. While the Board acknowledges that a disclosure of the total of payments and time period to repay the purchase cannot be calculated with certainty without knowing how a particular consumer may use the account in the future or what other changes may affect the account, the Board believes the additional information would be helpful to consumers. Even if the disclosure may not reflect the actual total costs and time period to repay for a particular consumer, the disclosure provides useful information to the consumer in evaluating the offer. This will help ensure that consumers are not surprised later by the amount of time it may take to pay the debt and how much the credit could cost them over that time period by only making the payments advertised.
Therefore, the Board is adopting § 226.16(b)(2) as proposed with minor modifications, as discussed below. In response to industry concerns, the Board is also adopting comment
Industry commenters also pointed out that the minimum monthly payment advertised may not always be the same as the minimum payment amount on a consumer's billing statement. Furthermore, a consumer group commenter stated that the word “minimum” should be deleted so that any time a payment amount is advertised, the disclosure should be provided. In response to these concerns, the Board is replacing the term “minimum monthly payment” with “periodic payment amount.” Therefore, an advertisement that states any periodic payment amount (
Several industry commenters also suggested that advertisements of “no payment” for a specified period of time should be excluded from the requirements of § 226.16(b)(2). The Board agrees, assuming there is no other periodic payment amount advertised. Because advertisers would not know the periodic payment amount a consumer would pay after the “no payment” period passes (and are not otherwise suggesting a specific periodic payment amount by advertising one), they would be unable to determine the total of payments and time period to repay the obligation. To address this concern, the final rule adds comment 16(b)(2)-2 to provide that a periodic payment amount must be a positive number to trigger the disclosure requirements under § 226.16(b)(2).
Technical amendments to § 226.16(c) and comments 16(c)(1)-1 and 16(c)(1)-2 were previously adopted in the November 2007 Final Electronic Disclosure Rule, and are republished as a part of this final rule. 72 FR 63462, Nov. 9, 2007; 72 FR 71058, Dec. 14, 2007.
Revisions to the advertising rules under § 226.16(d) were adopted in the July 2008 Final HOEPA Rule, and are republished as a part of this final rule. 73 FR 44522, 44599, July 30, 2008. Technical amendments to comments 16(d)-1 and 16(d)-8 to conform citations and other descriptions to revisions being adopted today have been made, without intended substantive change.
For radio and television advertisements, the June 2007 Proposal would have allowed alternative disclosures to those required by § 226.16(b) if a triggering term is stated in the advertisement. Radio and television advertisements would still have been required to disclose any APR applicable to the plan; however, instead of requiring creditors also to describe minimum or fixed payments, and annual or membership fees, an advertisement would have been able to provide a toll-free telephone number that the consumer may call to receive more information.
Industry commenters were supportive of this proposal. Consumer groups opposed the proposal arguing that consumers tend to miss cross references and that creditors may use the toll-free number to engage in “hard-sell” marketing tactics. As the Board discussed in the June 2007 Proposal, given the space and time constraints on radio and television advertisements, disclosing information such as minimum or fixed payments may go unnoticed by consumers or be difficult for them to retain and would therefore not provide a meaningful benefit to consumers. In the Board's view, given the nature of television and radio media, an alternative means of disclosure may be more effective in many cases than requiring all the information currently required to be included in the advertisement. As noted in the June 2007 Proposal, this approach is consistent with the approach taken in the advertising rules for Regulation M.
A similar rule to the one proposed by the Board in the June 2007 Proposal to provide alternative disclosures for television and radio advertisements was adopted in the July 2008 Final HOEPA Rule for home-equity plans as § 226.16(e). 73 FR 44522, July 30, 2008. Therefore, the Board amends § 226.16(e), as adopted under the July 2008 HOEPA Rule, to apply to all other open-end plans. Comments 16(e)-1 and 16(e)-2, as adopted in the July 2008 Final HOEPA Rule, have remained unchanged.
In order to avoid consumer confusion and the uninformed use of credit, the Board proposed § 226.16(g) in June 2007 to restrict use of the term “fixed” in advertisements to instances where the rate will not change for any reason. 15 U.S.C. 1601(a), 1604(a). Under the proposal, advertisements would have been prohibited from using the term “fixed” or any similar term to describe an APR unless that rate will remain in effect unconditionally until the expiration of any advertised time period. If no time period was advertised, then the term “fixed” or any similar term would not have been able to be used unless the rate would remain in effect unconditionally until the plan is closed.
Consumer and consumer group commenters overwhelmingly supported the Board's proposal. Industry commenters that addressed the issue opposed the Board's proposal stating that using the word “fixed” when a rate
The Board has found through consumer testing conducted prior to the June 2007 Proposal that consumers generally believe a “fixed” rate does not change, such as with “fixed-rate” mortgage loans. Numerous consumer commenters have also supported this finding. In the consumer testing conducted for the Board prior to the June 2007 Proposal, a significant number of participants did not appear to understand that creditors often reserve the right to increase a “fixed” rate upon the occurrence of certain events (such as when a consumer pays late or goes over the credit limit) or for other reasons. Therefore, although creditors often use the term “fixed” to describe an APR that is not tied to an index, consumers do not understand the term in this manner. For these reasons, the Board adopts the provision as proposed; however, for organizational purposes, the provision is adopted as § 226.16(f).
One retail industry commenter requested that the restriction on the term “fixed” under § 226.16(f) not apply to oral disclosures. The commenter indicated that in a retail environment, a sales associate could, in response to a consumer inquiry about whether a rate is variable, respond that a rate is “fixed,” despite the retailer's efforts to train the sales associate not to use the word. The Board declines to provide an exception for oral disclosures to the restriction on the use of the term “fixed.” The Board notes, however, that in the situation described by the retail industry commenter above, the sales associate's conversation with the consumer is likely not considered an “advertisement” subject to the provisions of § 226.16. Under existing comment 2(a)(2)-1.ii.A., the term “advertisement” does not include “direct personal contacts, * * * or oral or written communication relating to the negotiation of a specific transaction.”
In the June 2007 Proposal, the Board proposed to implement TILA Sections 127(c)(6) and 127(c)(7), as added by Sections 1303(a) and 1304(a) of the Bankruptcy Act, respectively, in § 226.16(e) (which the Board is moving to § 226.16(g) in the final rule for organizational purposes). TILA Section 127(c)(6) requires that if a credit card issuer states an introductory rate in a direct mail credit card application, solicitation, or any of the 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). The Board proposed in the June 2007 Proposal to expand the types of disclosures to which these rules would apply. Among other things, the Board 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 home-equity plans subject to § 226.5b, which were addressed in the Board's July 2008 Final HOEPA Rule;
In response to concerns from industry commenters 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, the Board proposed in the May 2008 Proposal to revise § 226.16(e)(2) to define “promotional” and “introductory” rates separately. Conforming revisions to § 226.16(e)(4) and to commentary provisions to § 226.16(e) were also proposed in the May 2008 Proposal. The Board adopts proposed § 226.16(e), with revisions discussed below, and renumbers this paragraph as § 226.16(g) for organizational purposes.
The Bankruptcy Act amendments regarding “introductory” rates apply to direct mail credit card applications and solicitations, and accompanying promotional materials. 15 U.S.C. 1637(c)(6). The Board proposed to expand these requirements to applications or solicitations to open a credit card account, and all accompanying promotional materials, that are publicly available (“take-ones”). 15 U.S.C. 1601(a); 15 U.S.C. 1604(a); 15 U.S.C. 1637(c)(3)(A). In the June 2007 Proposal, the Board proposed to expand the requirements to electronic applications even though the Bankruptcy Act amendments applied these requirements only to electronic solicitations. 15 U.S.C. 1637(c)(7). Pursuant to its authority under TILA Section 143, the Board also proposed in the June 2007 Proposal to extend some of the introductory rate requirements in Section 1303 of the Bankruptcy Act to other written advertisements for open-end credit plans that may not accompany an application or solicitation, other than advertisements of home-equity plans subject to § 226.5b, in order to promote the informed use of credit. Therefore, the Board proposed that the requirements under § 226.16(g) (proposed as § 226.16(e)) apply to all written or electronic advertisements.
The Board received few comments on expanding the scope of the rules regarding promotional rates in the manner proposed in the June 2007 Proposal, and the comments received supported the proposal. As discussed in the June 2007 Proposal, the Board believes consumers will benefit from these enhanced disclosures and advertisers will benefit from the consistent application of promotional rate requirements for all written and electronic open-end advertisements.
In the May 2008 Proposal, the Board solicited comment on whether all or any of the information required under § 226.16(g) (proposed as § 226.16(e)) to be provided with the disclosure of a promotional rate would be helpful in a non-written, non-electronic context, such as telephone marketing, or radio or television advertisements. The guidance originally proposed in June 2007 on complying with § 226.16(g) (proposed as § 226.16(e)) had addressed written and electronic advertisements.
Consumer group commenters urged the Board to apply the requirements under § 226.16(g) (proposed as § 226.16(e)) to non-written, non-electronic advertisements. Many industry commenters opposed expanding the requirements to non-written, non-electronic advertisements citing the space and time constraints of such media and concern that there would be information overload. Nevertheless, several industry commenters suggested that if the Board did decide to expand the requirements to non-written, non-electronic advertisements, the Board should provide flexibility in how the required disclosures may be made. Some industry commenters recommended that the alternative method of disclosure available to television and radio advertisements for disclosing triggered terms under § 226.16(b)(1), as would be permitted under § 226.16(e), should be
Current comment 16(b)-6, which the Board had proposed to delete in the June 2007 Proposal as duplicative of the requirements under § 226.16(g) (proposed as § 226.16(e)), requires advertisements that state a “discounted variable rate” to include “the initial rate (with the statement of how long it will remain in effect) and the current indexed rate (with the statement that this second rate may vary).” The requirement applies to all advertisements, regardless of media. Because current comment 16(b)-6 imposes requirements similar, though not identical, to those required in § 226.16(g) (proposed as § 226.16(e)) to non-written, non-electronic advertisements, the Board believes that the requirements of § 226.16(g) (proposed as § 226.16(e)) should also apply to such advertisements. Therefore, § 226.16(g)(1) has been amended to apply to any advertisement, and current comment 16(b)-6 has been deleted as proposed. However, as further discussed in the section-by-section analysis to comment 16-2.ii above and § 226.16(g)(4) below, the Board is providing flexibility in how the required information may be presented in a non-written, non-electronic context.
Finally, one industry commenter noted that the term “consumer credit card account,” as used in § 226.16(g), is not defined. The commenter suggested that the Board either define “consumer credit card account” specifically to exclude home equity lines of credit subject to § 226.5b or replace the term with the phrase “open-end plan not subject to § 226.5b.” To address this concern, the Board is clarifying in § 226.16(g)(1) that the requirements of § 226.16(g) apply to any “open-end (not home-secured) plan,” as proposed in June 2007. A similar change has been made to the definition of “promotional rate” in § 226.16(g)(2). As discussed in the June 2007 Proposal, the Board did not intend to cover advertisements of open-end, home-secured plans subject to § 226.5b, but did intend to cover advertisements of all open-end plans that are not home-secured under these requirements.
In the June 2007 Proposal, the Board proposed to define the term “introductory rate” as any rate of 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. In addition, the Board defined an “introductory period” as “the maximum time period for which the introductory rate may be applicable.” In response to the June 2007 Proposal, several industry commenters were critical of the use of these terms as applied to special rates offered to consumers with an existing account. Commenters noted that the phrase “introductory rate” commonly refers to promotional rates offered in connection with the opening of a new account only. Commenters also noted the use of the term “advertised” in the definition of “introductory rate” might imply that the APR in effect after the introductory period would have to be “advertised” before the requirements under § 226.16(e)(3) and (e)(4) in the June 2007 Proposal would apply.
Since the Board's June 2007 proposed definition for “introductory rate” would have encompassed special rates that may be offered to consumers with existing accounts, the Board proposed in May 2008 to refer to these rates more broadly as “promotional rates.” The May 2008 Proposal would have defined the term “promotional rates” to include 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, consistent with definitions proposed by the Board and other federal banking agencies in May 2008, the proposed definition under § 226.16(g) (proposed as § 226.16(e)) also would have included any rate of interest 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 was 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. Proposed comment 16(e)-2) would have provided an illustrative example of a “life of balance” offer similar to a comment proposed by the Board and other federal banking agencies in May 2008. 73 FR 28904, May 19, 2008.
Furthermore, the definition proposed in May 2008 would have removed the term “advertised” from the definition, as commenters asserted this would imply that the APR in effect after the introductory period had to have been “advertised” before the requirements under § 226.16(g)(3) and (g)(4) (proposed as § 226.16(e)(3) and (e)(4)) would have applied. This was not the Board's intention. The use of the term “advertised” in the June 2007 proposed definition was intended to refer to the advertising requirements regarding variable rates and the accuracy requirements for such rates. The May 2008 Proposal would have addressed these requirements in a new comment 16(e)-1.
Comment 16(e)-1, as proposed in May 2008, provided that if a variable rate will apply at the end of the promotional period, the post-promotional rate is the rate that would have applied at the time the promotional rate was advertised if the promotional rate had not been offered. 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 § 226.5a(c)(2)(i) (and currently under § 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 § 226.5a(c)(2)(ii) (and currently under § 226.5a(b)(1)(iii)).
The Board also proposed a new definition for “introductory rate” to conform more closely to how the term is most commonly used. Section 226.16(e)(2)(ii) in the May 2008 Proposal defined “introductory rate” as a promotional rate that is offered in connection with the opening of an account. As a result of the proposal, only “introductory rates” (and not other promotional rates) would have been subject to the requirement in § 226.16(e)(3) to state the term “introductory” in immediate proximity to the rate.
Commenters were generally supportive of providing separate definitions for “promotional” rates as distinguished from “introductory” rates. Several industry commenters, however, suggested that the Board's definition for “promotional rate” may be overbroad and cause certain rates that are not traditionally categorized as “promotional rates” to be considered “promotional rates.” These commenters provided similar comments to rules proposed by the Board and other federal banking agencies in May 2008, in which a similar definition was proposed for “promotional rate.” Some of these commenters also suggested specific language changes to the Board's proposed definition.
Based on these comments, the Board is adopting the definition of “introductory rate” as proposed in the May 2008 Proposal, renumbered as § 226.16(g)(2)(ii), and amending the definition of “promotional rate,” which
In addition, the Board is deleting the provision in the definition of “promotional rate” that was meant to capture life-of-balance offers, as well as proposed comment 16(e)-2 from the May 2008 Proposal, which would have provided an illustrative example of a life-of-balance offer. The Board had included the provision in the May 2008 Proposal in order to be consistent with the definition of “promotional rate” in rules proposed by the Board and other federal banking agencies in May 2008. Since the advertising disclosure requirements the Board had proposed relating to promotional rates would generally not apply for life-of-balance offers, the Board had proposed in May 2008 to exempt life-of-balance offers from many of these requirements. See proposed § 226.16(e)(2)(i)(B) and (e)(4) in the May 2008 Proposal. As a result, the only requirement under the advertising rules for promotional rates to which life-of-balance offers were subject under the proposal was the requirement to state the term “introductory” within immediate proximity of the rate. The Board believes this requirement would not be especially helpful to consumers for offers where the rate would not change for the life of the balance except on default. Since the minimal benefit to consumers does not seem to warrant the burden on advertisers of distinguishing what types of offers fit the definition, the Board has decided instead to eliminate life-of-balance offers from the definition of “promotional rate” for ease of compliance.
Moreover, the Board believes that further amendments suggested by commenters to the definition of “promotional rate” are unnecessary. In particular, some industry commenters recommended adding the concept of a “standard” rate in the definition. The Board believes that inserting this concept in the definition may generate further confusion instead of providing clarity since there may not be consensus on what would be considered a “standard” rate among all issuers. Furthermore, with respect to some of the examples commenters provided to illustrate why they thought the May 2008 proposed definition was overbroad, the definition of “promotional rate” as proposed would likely not cover these examples. For example, one industry commenter stated that a standard rate could be considered a “promotional rate” when the rate that will be “in effect” is a penalty rate. Pursuant to the definition of “promotional rate,” that standard rate would have to be in effect for a specified period of time before the penalty rate applies in order to be considered a “promotional rate.” Typically, penalty rates are applied upon the occurrence of a specific event or action by the consumer rather than the passage of a specified time period. As a result, this type of standard rate would not have been considered a “promotional rate” under the proposal, and similarly is not a “promotional rate” under the final rule.
The Board also proposed to define “promotional period” in § 226.16(e)(2)(iii) in the May 2008 Proposal. The definition proposed in May 2008 was similar to one previously proposed for “introductory period” in the June 2007 Proposal, consistent with the definition in TILA Section 127(c)(6)(D)(ii). No comments were received on this definition, and § 226.16(e)(2)(iii) is adopted as proposed and renumbered as § 226.16(g)(2)(iii).
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 § 226.16(e)(3) (which the Board moves to § 226.16(g)(3) for organizational purposes). 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).
Some industry commenters also requested that the Board clarify that the term “introductory” be used only in relation to rates that are available
The Board proposed § 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. 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).
The Board received few comments on this proposal. Consumer groups strongly opposed the Board's safe harbor. Instead, the commenters suggested that if the Board used a safe harbor approach, the safe harbor should be either “side-by-side with or immediately under or above the rate.” One industry commenter suggested that it would be sufficient to disclose the promotional period and the post-promotional rate in the text of the offer.
As the Board reasoned in the June 2007 Proposal, Congress's use of the term “closely proximate” may be distinguished from its use of the term “immediate proximity.” Therefore, the Board believes that guidance on the meaning of “prominent location closely proximate” should be more flexible than the guidance given for the meaning of “immediate proximity” in comment 16(g)-2 (proposed as comment 16(e)-2 in the June 2007 Proposal and comment 16(e)-3 in the May 2008 Proposal) discussed above. In the Board's view, “side-by-side with or immediately under or above the rate” is little different from the guidance the Board has in place for “immediate proximity.” Requiring terms to be in the same paragraph, on the other hand, gives advertisers flexibility but ensures that the terms are fairly close to the promotional rate. The Board believes that concerns that paragraphs will be so long as to bury the information may be misplaced. Above all, advertisements are intended to capture consumers' interest in the advertised product or service, and long, dense paragraphs are often eschewed in the advertising context. As a result, the Board adopts the safe harbor in comment 16(g)-3 (proposed as comment 16(e)-3 in the June 2007 Proposal and comment 16(e)-4 in the May 2008 Proposal), as proposed, with minor technical amendments.
The Board received few comments on the proposal. Consumer group commenters supported the Board's proposal but suggested that the requirements should apply to each document in a mailing regardless of whether or not the promotional rate appears on the principal promotional document. As the Board noted in the June 2007 Proposal, the Board's consumer testing efforts suggest that consumers are most likely to read the principal promotional document. The Board believes that applying the requirement to each document in a mailing/package would be overly burdensome and unnecessary if the consumer will already have seen the promotional rate in the principal promotional document. As provided in the comment, however, if the promotional rate does not appear in the principal promotional document or there is no principal promotional document, the requirements apply to the first listing of the promotional rate in each document in the package containing the promotional rate as it is not clear which document the consumer will read first in such circumstances.
One industry commenter also suggested that there may be times when a promotional rate is not listed on the front of the first page of a document. In those cases, the Board believes that the first listing should be the most prominent listing in the subsequent pages of the document. Therefore, the Board adopts comment 16(g)-4 (previously proposed as comment 16(e)-4 in the June 2007 Proposal and comment 16(e)-5 in the May 2008 Proposal), largely as proposed with modifications to account for instances when a promotional rate may not appear on the front of the first page of a principal promotional document or other document. Technical changes are also made to clarify that the comment applies solely to written or electronic advertisements.
Most of the comments the Board received regarding the permissibility of disclosing a range of rates were focused on the proposed rule under § 226.5a(b)(1)(v) rather than the
TILA Section 127(c)(6)(B), as added by Section 1303(a) of the Bankruptcy Act, 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). 15 U.S.C. 1637(c)(6)(B). In the June 2007 Proposal, the Board set forth this provision in proposed § 226.16(e)(5). Furthermore, the Board proposed also to exclude banner advertisements and pop-up advertisements that are linked to an electronic application or solicitation.
Consumer group commenters disagreed with the Board's proposal to extend the exception to banner advertisements and pop-up advertisements that are linked to an electronic application or solicitation. As discussed in the June 2007 Proposal, the Board extended the exception because of the similarity of these approaches to envelopes or other enclosures in the direct mail context. One industry commenter agreed with the Board's proposal to exclude banner advertisements and pop-up advertisements that are linked to an electronic application or solicitation, but also suggested that the Board provide flexibility for other marketing channels where an initial summary advertisement is used to alert customers to an offer or prompt further inquiry about the details of an offer, such as transportation and terminal posters, roadside and merchant billboards or signs, and take-one application display stands. The Board declines to extend the exception in the manner suggested. Unlike envelopes and banner advertisements and pop-up advertisements that are linked to an electronic application or solicitation, these other approaches are stand-alone in nature and are not connected to an advertising piece that contains detailed information on the promotional rate. As a result, the Board adopts § 226.16(g)(5) (proposed as § 226.16(e)(5)) as proposed.
Appendix E to part 226 applies to card programs in which the card issuer and the seller are the same or related persons; no finance charge is imposed; cardholders are billed in full for each use of the card on a transaction-by-transaction basis; and no cumulative account is maintained reflecting transactions during a period of time such as a month. At the time the provisions now constituting Appendix E to part 226 were added to the regulation, they were intended to address card programs offered by automobile rental companies.
Appendix E to part 226 specifies the provisions of Regulation Z that apply to credit card programs covered by the Appendix. For example, for the account-opening disclosures under § 226.6, the required disclosures are limited to penalty charges such as late charges, and to a disclosure of billing error rights and of any security interest. For the periodic statement disclosures under § 226.7, the required disclosures are limited to identification of transactions and an address for notifying the card issuer of billing errors. Further, since under Appendix E to part 226 card issuers do not issue periodic statements of account activity, Appendix E to part 226 provides that these disclosures may be made on the invoice or statement sent to the consumer for each transaction. In general, the disclosures that this category of card issuers need not provide are those that are clearly inapplicable, either because the disclosures relate to finance charges, are based on a system in which periodic statements are generated, or apply to three-party credit cards (such as bank-issued credit cards).
In the June 2007 Proposal, the Board proposed to revise Appendix E to part 226 by inserting material explaining what is meant by “related persons.” In addition, technical changes were proposed, including numbering the paragraphs within the Appendix and changing cross references to conform to the renumbering of other provisions of Regulation Z.
The Board solicited comment on whether Appendix E to part 226 should be revised to specify that the disclosures required under § 226.5a apply to card programs covered by the Appendix, as well as on whether any other provisions of Regulation Z not currently specified in Appendix E to part 226 as applicable to transaction-by-transaction card issuers should be specified as being applicable. Comment was also requested on whether any provisions currently specified as being applicable should be deleted.
No comments were received on Appendix E to part 226. Therefore, the proposed changes are adopted in the final rule (with further technical
Appendix F to part 226 provides guidance regarding the computation of the effective APR in situations where the finance charge imposed during a billing cycle includes a transaction charge, such as a balance transfer fee or a cash advance fee. In the June 2007 Proposal, the Board did not propose changes to Appendix F to part 226 except to move the substance of footnote 1 to Appendix F to the text of the Appendix. In addition, a cross reference to proposed comment 14(d)(3)-3 would have been added to the staff commentary to Appendix F to part 226. The guidance in Appendix F to part 226 would have continued to apply to either proposed § 226.14(c)(3) (covering HELOCs) or proposed § 226.14(d)(3) (covering open-end (not home-secured) credit). As discussed above, since the Board has eliminated the requirement to disclose the effective APR, proposed § 226.14(d)(3) is not being adopted, and compliance with § 226.14(c)(3) is optional for HELOC creditors, under the final rule. The guidance in Appendix F to part 226 therefore applies to HELOC creditors that choose to calculate and disclose an effective APR under § 226.14(c)(3). The Appendix is retitled to reflect more accurately its scope.
No comments were received on Appendix F to part 226. The changes to Appendix F to part 226 are adopted as proposed, except the cross references in the Appendix F commentary are revised to conform to the final changes to § 226.14.
Appendices G and H to part 226 set forth model forms, model clauses and sample forms that creditors may use to comply with the requirements of Regulation Z. Appendix G to part 226 contains model forms, model clauses and sample forms applicable to open-end plans. Appendix H to part 226 contains model forms, model clauses and sample forms applicable to closed-end loans. Although use of the model forms and clauses is not required, creditors using them properly will be deemed to be in compliance with the regulation with regard to those disclosures. As discussed above, the Board proposed in June 2007 and May 2008 to add or revise several model and sample forms to Appendix G to part 226. The new or revised model and samples forms are discussed above in the section-by-section analysis applicable to the regulatory provisions to which the forms relate. See section-by-section analysis to §§ 226.4(d)(3), 226.5a(b), 226.6(a)(5) and (b)(7), 226.6(b)(1), (b)(2) and (b)(5), 226.7(b), 226.9(a), 226.9(b), 226.9(c), 226.9(g), and 226.12(b). In addition, the Board proposed to add a new model clause and sample form relating to debt suspension coverage in Appendix H to part 226. These forms are discussed above in the section-by-section analysis to § 226.4(d)(3).
In Appendix G to part 226, all the existing forms applicable to HELOCs have been retained without revision, with three exceptions, discussed below. These changes are permissive and do not require HELOC creditors to revise any existing form. The Board anticipates considering revisions to HELOC forms when it reviews the home-equity disclosure requirements in Regulation Z.
The Board revises or adds commentary to the model and sample forms in Appendix G to part 226, as discussed below. Furthermore, as discussed in the general discussion on the effective APR in the section-by-section analysis to § 226.7(b), the Board is not adopting proposed Sample G-18(B). Therefore, several forms and samples sequentially following proposed Sample G-18(B) have been renumbered accordingly.
In a technical revision, the Board deletes comment app. G and H-1.vii. as obsolete, as proposed in June 2007. This comment allows a creditor to substitute appropriate references, such as “bank,” “we” or a specific name, for “creditor” in the account-opening disclosures, but none of the model or sample forms applicable to the account-opening disclosures uses the term “creditor.” Current comment app. G and H-1.viii. has been renumbered as comment app. G and H-1.vii.
The Model Clauses at Appendix G-1 to part 226 were republished without change in the June 2007 Proposal. 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. Those that did recommended retaining the existing clauses, and two commenters asked the Board to add a model clause explaining the daily balance method.
In May 2008, the Board proposed to add a new paragraph (f) to describe a daily balance method in Appendix G-1 to part 226. In addition, a new Appendix G-1(A) to part 226 was proposed for open-end (not home-secured) plans. The clauses in Appendix G-1(A) to part 226 refer to “interest charges” rather than “finance charges” to explain balance computation methods. The consumer testing conducted for the Board 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 account-opening samples and to describe costs other than fees on periodic statement samples and forms under the June 2007 Proposal.
As stated above, Model Clause G-2 and Model Forms G-3 and G-4 are adopted without revision, except for optional language creditors may use when instructing consumers on how to contact the creditor by electronic communication, such as via the Internet. The same instructions are contained in Model Clause G-2(A) and Model Forms G-3(A) and G-4(A). Technical changes have also been made for clarity without intended substantive change, in response to comments received.
In addition, the June 2007 Proposal would have added a model form and two sample forms to illustrate, in the tabular format, the disclosures required under § 226.6(b)(2) for account-opening disclosures.
In the June 2007 Proposal, the Board also proposed to revise the existing commentary that provides guidance to creditors on how to use Model Forms and Samples G-10(A)-(E) and G-17(A)-(C). Currently, the commentary indicates that the disclosures required by § 226.5a may be arranged horizontally (where headings are at the top of the page) or vertically (where headings run down the page, as is shown in the Model Forms G-10(A), G-10(D) and G-17(A)) and need not be highlighted aside from being included in the table. The Board proposed to delete this guidance and instead require that the table for credit card application and solicitation disclosures and account-opening disclosures be presented in the format shown in proposed Model Forms G-10(A), G-10(D) and G-17(A), where a vertical format is used. In addition, the Board proposed to delete the provision that disclosures in the tables need not be highlighted aside from being included in the table, as inconsistent with the proposed requirement that creditors must include certain rates and fees in the tables in bold text.
In response to the June 2007 Proposal, several industry commenters requested that the Board continue to allow the horizontal format (where headings are at the top of the page) to allow issuers flexibility in how to design the format of the table. The final rule requires that the table for credit card application and solicitation disclosures and account-opening disclosures be presented in the format shown in proposed Model Forms G-10(A), G-10(D) and G-17(A), where a vertical format is used. The Board continues to believe that horizontal formats would be difficult for consumers to read, given the information that is required to be disclosed in the table.
In addition, Model Form G-10(A), applicable to credit card applications and solicitations, currently uses the heading “Minimum Finance Charge” for disclosing a minimum finance charge under § 226.5a(b)(3). In the June 2007 Proposal, the Board proposed to amend Model Form G-10(A) to provide two alternative headings (“Minimum Interest Charge” and “Minimum Charge”) for disclosing a minimum finance charge under § 226.5a(b)(3). The same two headings were proposed for Model Form G-17(A), the model form for the account-opening table. In the consumer testing conducted for the Board prior to the June 2007 Proposal, many participants did not understand the term “finance charge” in this context. The term “interest” was more familiar to many participants. Under the June 2007 Proposal, 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 would have been required to disclose this charge under the heading “Minimum Interest Charge.” The final rule adopts this guidance as proposed. Under the final rules, other minimum and fixed finance charges are required to be disclosed under the heading “Minimum Charge.”
Also, under the June 2007 Proposal, Model Forms G-10(A), G-10(D) and G-17(A) would have contained two alternative headings (“Annual Fees” and “Set-up and Maintenance Fees”) for disclosing fees for issuance or availability of credit under § 226.5a(b)(2) or § 226.6(b)(4)(iii)(A). The Board proposed to provide guidance on when a creditor would have been required to use each heading. Under the proposal, if the only fee for issuance or availability of credit disclosed under § 226.5a(b)(2) or § 226.6(b)(4)(iii)(A) is an annual fee, a creditor would have been required to use the heading “Annual Fee” to disclose this fee. If a creditor imposes fees for issuance or availability of credit disclosed under § 226.5a(b)(2) or § 226.6(b)(4)(iii)(A) other than, or in addition to, an annual fee, the creditor would have been required to use the heading “Set-up and Maintenance Fees”
In the June 2007 Proposal, the Board also proposed to revise the commentary to provide details about proposed Sample Forms G-10(B), G-10(C), G-17(B) and G-17(C) for credit card application and solicitation disclosures and account-opening disclosures. (The guidance also would apply to Sample Form G-17(D), proposed in May 2008 for open-end (not home-secured) plans not accessed by credit cards.) For example, the proposed commentary indicated that Samples G-10(B), G-10(C), G-17(B) and G-17(C) were designed to be printed on an 8x14 inch sheet of paper. In addition, the following formatting techniques were used in presenting the information in the table to ensure that the information was readable:
1. A readable font style and font size (10-point Arial font style, except for the purchase APR which is shown in 16-point type).
2. Sufficient spacing between lines of the text. That is, words were not compressed to appear smaller than 10-point type.
3. 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: (a) the applicable balance transfer rate, (b) a cross reference to the balance transfer fee, and (c) 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 form discloses two components: (a) the late-payment fee, and (b) 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 table.
4. Standard spacing between words and characters.
5. 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.
6. Sufficient contrast between the text and the background. Black text was used on white paper.
The proposed guidance stated that while the Board is not requiring issuers to use the above formatting techniques in presenting information in the table (except for the 10-point and 16-point font size), the Board encouraged issuers to consider these techniques when disclosing information in the table, to ensure that the information is presented in a readable format.
In response to the June 2007 Proposal, several industry commenters suggested that the Board explicitly state that the table is not required to be presented on a particular size of paper, such as an 8
In quantitative consumer testing conducted for the Board in the fall of 2008, some participants were shown forms of the table required pursuant to § 226.5a on which all required content was presented on one side of a single page; other participants were shown a form in which the table appeared on two pages, specifically where a portion of the row for penalty fees was disclosed on a second page. The testing showed that participants were less able to locate a fee when it was disclosed on the second page than when it was disclosed on the first page. Based on this testing result, the Board considered whether to require creditors to disclose the table on 8
Comment app. G-5.v has been revised to expressly state that if the disclosures required under §§ 226.5a and 226.6 are not provided on a single side of a sheet of paper, the creditor must include a reference or references, such as “SEE BACK OF PAGE for more important information about your account.” to indicate that the table continues onto an additional page or pages. The comment further states that a creditor that splits the table onto two or more pages must disclose the table on consecutive pages and may not include any intervening information between portions of the table.
In addition, in response to the June 2007 Proposal, several industry commenters suggested that the Board allow issuers to disclose the APRs for purchases, cash advances and balance transfers in the same row in the table, if the issuer charges the same APR for each of these types of transactions. Under the proposed rule, issuers would be required to disclose the APR for purchases, cash advances, and balance transfers in three separate rows, even if the APRs for all three of these types of transactions were the same.
In quantitative testing conducted for the Board after May 2008, the effectiveness of combining rows where the APR for two types of transactions are the same was tested. Some participants were shown tables in which the APRs for cash advances and balance transfers were shown in separate rows. Other participants were shown tables in which the APR for both cash advances and balance transfers, which was the same, was disclosed in one row. In each case, participants were then asked to identify the APR for balance transfers. The testing results suggest that there was no statistically significant difference in the ability of participants to identify the APR for balance transfers whether there were separate rows for the APRs for cash advances and balance transfers or one row reflecting the APR for both cash advances and balance transfers. Based on these results, the Board is providing flexibility by permitting issuers to disclose the APRs for purchases, cash advances, and/or balance transfers in the same row in the table, if the issuer charges the same APR for such transactions. The Board has amended final comment app. G-5.ii accordingly.
Also, in response to the June 2007 Proposal, several commenters had suggestions on how transaction and penalty fees should be disclosed in the table. One commenter urged the Board to allow issuers to disclose fees of the same amount on the same row, without a carriage return after each fee. (Proposed Sample Forms G-10(B) and (C) showed the fees listed separately on their own lines.) In addition, proposed Sample Forms G-10(B) and (C) and Sample Forms G-17(B) and (C) (and Sample Form G-17(D) proposed in May 2008) use the headings “Transaction Fees” and “Penalty Fees.” One commenter urged the Board to delete these headings as unnecessary.
As discussed above, based on testing conducted for the Board after May 2008, the Board is permitting issuers to disclose the APRs for purchases, cash
The final Sample Forms G-10(B) and (C) and Sample Forms G-17(B)-(D) continue to use the headings “Transaction Fees” and “Penalty Fees.” The Board believes that these headings are useful to consumers in understanding the types of fees that may be charged on the account. In addition, to describe a grace period (or the lack of a grace period), as applicable, the heading “How to Avoid Paying Interest for Purchases” or “Paying Interest” must be used for Sample Forms G-10(B) and (C). The headings “How to Avoid Paying Interest” or “Paying Interest” must be used for Sample Forms G-17(B)-(D).
In response to the June 2007 Proposal, one industry commenter suggested that the Board explicitly state that the use of color, shading and similar graphic techniques are permitted with respect to the table. Comment app. G-5.vii adds guidance to clarify that the use of color, shading and similar graphic techniques are permitted with respect to the table, so long as the table remains substantially similar to the model and sample forms in Appendix G to part 226.
In addition, one commenter noted that the proposed model and sample forms in Appendix G-10 to part 226 segregated the fee disclosures from the interest rate and interest charge disclosures using two separate tables. This commenter suggested that the Board clarify that using separate tables for the fee disclosures and the interest and interest charges disclosure is required. The Board believes that in order for a table to be substantially similar to the applicable table in Appendix G to part 226, a table for credit card application and solicitation disclosures and account-opening disclosures must contain separate tables for the fee disclosures and the interest and interest charge disclosures, and therefore, additional clarification is not needed.
New comment app. G-9 is added in response to requests for guidance relating to the late payment and minimum payment disclosures. Samples G-18(D) and G-18(E) (proposed as Samples G-18(E) and G-18(F)) illustrate how creditors may comply with proximity requirements for payment information. The comment clarifies that creditors offering card accounts with a charge card feature and a revolving feature may change the disclosure to make clear the feature to which the disclosures apply.
New comment app. G-10 is added to the final rule in response to commenters' requests, to provide guidance on creditors' use of Sample Forms G-18(F) and G-18(G) (proposed as Forms G-18(G) and G-18(H)). The comment clarifies that creditors are not required to print periodic statements on an 8 x 14 inch sheet of paper, although the samples were designed to be printed on that size paper. The comment clarifies that although the payment information disclosures appear in the upper right-hand corner on Sample Forms G-18(F) and G-18(G), the disclosures may be located elsewhere, as long as they appear on the front of the first page of the periodic statement.
The comment also clarifies that the sample forms are published as a compliance aid, and that some information and some formats are not required by the regulation. For example, certain information such as the summary of account activity is not a required disclosure, although some information presented in the summary is required (
As discussed in the section-by-section analysis to § 226.7(b)(12), Section 1301(a) of the Bankruptcy Act requires creditors, the FTC and the Board to establish and maintain toll-free telephone numbers in certain instances in order to provide consumers with an estimate of the time it will take to repay the consumer's outstanding balance, assuming the consumer makes only minimum payments on the account and the consumer does not make any more draws on the account. 15 U.S.C. 1637(b)(11)(F). The Act requires creditors, the FTC and the Board to provide estimates that are based on tables created by the Board that estimate repayment periods for different minimum monthly payment amounts, interest rates, and outstanding balances. In the June 2007 Proposal, the Board proposed that instead of issuing a table,
Under Section 1301(a) of the Bankruptcy Act, a creditor may use a toll-free telephone number to provide the actual number of months that it will take consumers to repay their outstanding balance instead of providing an estimate based on the Board-created table. 15 U.S.C. 1637(b)(11)(I)-(K). In the June 2007 Proposal, the Board proposed new Appendix M2 to part 226 to provide guidance to issuers on how to calculate the actual repayment disclosure.
In proposed Appendix M1 to part 226, the Board set forth guidance for credit card issuers and the FTC in determining the minimum payment formula, the APR, and the outstanding balance to use in calculating the generic repayment estimates. With respect to other terms that could impact the calculation of the generic repayment estimate, the Board proposed to set forth assumptions about these terms that issuers and the FTC must use.
1.
Under the June 2007 Proposal, when calculating the generic repayment estimate for general purpose credit cards, a card issuer would have been required to use the minimum payment formula that applies to most of its general purpose consumer credit card accounts. The issuer would have been required to use this “most common” formula to calculate the generic repayment estimate for all of its general purpose consumer credit card accounts, regardless of whether this formula applies to a particular account. Proposed Appendix M1 to part 226 would have contained additional guidance to issuers of general purpose credit cards in complying with the “most common” formula approach.
In addition, under the June 2007 Proposal, when calculating the generic repayment estimate for retail credit cards, a credit card issuer would have been required to use the minimum payment formula that most commonly applies to its retail consumer credit card accounts. If an issuer offers credit card accounts on behalf of more than one retailer, credit card issuers would have been required to group credit card accounts relating to each retailer separately and determine the minimum formula that is most common to each retailer. For example, if Issuer A issues separate cards for Retailer A and Retailer B, which are under common ownership or control, the proposal would have required Issuer A to determine the most common formula separately for each retailer (A and B). Under the proposal, the issuer would have been required to use the “most common” formula for each retailer to calculate the generic repayment estimate for the retail credit card accounts related to each retailer, regardless of whether this formula applies to a particular account. Proposed Appendix M1 to part 226 would have provided additional guidance to issuers of retail credit cards on how to comply with the “most common” formula approach. The Board solicited comment on whether Issuer A in the example above should be permitted to determine a single “most common” formula for all retailers under common ownership or control, and if so, what the standard of affiliation should be.
In response to the June 2007 Proposal, several consumer group commenters suggested that the Board should require credit card issuers to use the minimum payment formula(s) that applies specifically to a consumer's account to calculate the generic repayment estimate, instead of allowing issuer to use the “most common” minimum payment formula that applies to the issuer's accounts. They suggested that issuers could be required to disclose a code on the periodic statement that represents the minimum payment formula(s) used, and the consumer could be asked to enter that code when requesting the generic repayment estimate. In addition, some industry commenters suggested that the Board not require issuers to use the “most common” minimum payment formula, but instead allow issuers to use the same minimum payment assumptions as used by the Board for its toll-free telephone number. In the June 2007 Proposal, the Board indicated that it would use the following minimum payment formula to calculate the generic repayment estimates for its toll-free telephone number: either 2 percent of the outstanding balance, or $20, whichever is greater. This is the same minimum payment formula used to calculate the repayment estimate for the statutory example related to the $1,000 balance that must be disclosed on periodic statements. See § 226.7(b)(12).
The final rule adopts the “most common” approach as proposed, with several revisions. The Board believes that the “most common” approach properly balances the benefit to consumers of more accurate estimates with the burden to creditors of calculating the generic repayment estimate. It appears that, at least for general purpose credit cards, issuers
The Board recognizes that in some cases the “most common” minimum payment formula will not match the actual formula used on a consumer's account, for example, where a consumer has opted out of a change in the minimum payment formula, and the consumer is paying off the balance under the old minimum payment formula. The Board also recognizes that allowing card issuers to use one minimum payment formula under the “most common” formula approach to calculate the generic repayment estimate even when multiple minimum payment formulas apply to the account yields a less accurate estimate than if the issuer were required to use actual minimum payment formulas applicable to a consumer's account.
Nonetheless, the Board is not requiring credit card issuers to use the actual minimum payment formula(s) that apply to a consumer's account to calculate the generic repayment estimate. The Board does not believe that the potential benefit of more accurate estimates outweighs the burden to issuers in identifying a code for each unique minimum payment formula that might apply to a consumer's account and disclosing that code on the periodic statement. While the “code” approach may provide more accurate estimates in cases where there is only one minimum payment that applies to the account, it is not clear that use of this code would lead to more accurate generic repayment estimates when multiple minimum payment formulas apply to an account. As described below, in those cases, the issuer would still need to assume that the minimum payment formula applicable to the general revolving feature that applies to new transactions would apply to the entire balance on the account, regardless of whether this formula applies to a particular balance on that account. In addition, consumers may be unfamiliar with a new code on their periodic statements and explaining the purpose of the code would lead to a longer and more complex minimum payment disclosure on periodic statements.
In addition, in response to the June 2007 Proposal, several industry commenters requested clarification on calculating the generic repayment estimate where there are multiple features on the account and a different minimum payment formula applies to each feature. The final rule amends Appendix M1 to part 226 to clarify that if more than one minimum payment formula applies to an account, when calculating the generic repayment estimate, the issuer must use the “most common” minimum payment formula applicable to the general revolving feature that applies to new transactions and apply it to the entire balance on the account, regardless of whether this formula applies to a particular balance on that account. For example, assume for all of its accounts, a creditor uses one minimum payment formula to calculate the minimum payment amount for balances existing before January 1, 2008, and uses a different minimum payment formula to calculate the minimum payment amount for balances incurred on or after January 1, 2008. To calculate the minimum payment amount, this creditor must use the minimum payment formula applicable to balances incurred on or after January 1, 2008, and apply that formula to the entire outstanding balance even if the account has not been used for transactions on or after January 1, 2008.
Also, in response to the June 2007 Proposal, one industry commenter suggested that the Board allow a retailer to use the most common formula for all of its retail cards, instead of evaluating each program separately. Although this commenter indicated that terms of retail accounts do not differ more than the terms of general purpose credit cards, the Board understands that with respect to some “private label” programs where a card issuer offers credit cards on behalf of more than one retailer, the minimum payment formula(s) applicable to the credit card accounts can vary substantially depending on the retailer on whose behalf the cards are issued. Thus, the final rule retains the proposed requirement that if an issuer offers credit card accounts on behalf of more than one retailer, credit card issuers must group credit card accounts relating to each retailer (or affiliated group of retailers) separately and determine the minimum formula that is most common to each retailer.
In the June 2007 Proposal, the Board proposed that a card issuer must re-evaluate which minimum payment formula is most common every 12 months. The final rule clarifies that at the issuer's option, the issuer may re-evaluate which minimum payment formula is most common more often than every 12 months.
The final rule also clarifies that in choosing which formula is the “most common,” an issuer may ignore differences among the formulas related to whether past due amounts or over-the-limit amounts are included in the formula for calculating the minimum payment. As described below, the final rule allows issuers to assume that the consumer's account is not past due and the account balance is not over the credit limit. The final rule also clarifies that a creditor may, when considering all of its consumer purpose credit card accounts for purposes of identifying the “most common” minimum payment formula, use a statistical sample of its consumer credit card accounts developed and validated using accepted statistical principles and methodology.
As discussed in the section-by-section analysis to § 226.7(b)(12), the Board is required to establish and maintain, for two years, a toll-free telephone number for use by customers of depository institutions having assets of $250 million or less to obtain generic repayment estimates. In the June 2007 Proposal, the Board proposed to use the following minimum payment formula to calculate the generic repayment estimates: Either 2 percent of the outstanding balance, or $20, whichever is greater. This is the same minimum payment formula used to calculate the repayment estimate for the statutory example related to the $1,000 balance that is required to be disclosed on periodic statements. The final rule adopts this approach. The Board is using the same formula as in the statutory example because the Board is not aware of any “typical” minimum payment formula that applies to general purpose credit cards issued by smaller depository institutions. For the same reasons, the final rule states that the FTC must use the 5 percent minimum payment formula used in the $300 example in the statute to calculate the generic repayment estimates given through the FTC's toll-free telephone number, as proposed in the June 2007 Proposal.
2.
In response to the June 2007 Proposal, one industry commenter suggested that instead of issuers providing a worst case scenario estimate by using the highest APR on which a consumer has an outstanding balance, issuers should be allowed to provide two generic repayment estimates to the consumer, one estimate based on the purchase APR and another estimate based on the cash advance APR. This commenter believed that the two estimates would allow the consumer to determine which estimate best fits the composition of his or her account balance.
The final rule adopts the approach to require credit card issuers and the FTC to use the highest APR on which the consumer has an outstanding balance, as proposed. The Board does not believe that the statute contemplates that issuers be required to use their account management systems to disclose an estimate based on all of the APRs applicable to a consumer's account and the actual balances to which those rates apply. The Board believes that the complexity and effort required to accommodate multiple APRs using a “consumer-input” system would be unduly burdensome for consumers. The Board recognizes that using the highest APR on which a consumer has an outstanding balance will overestimate the repayment period when the consumer has outstanding balances at lower APRs as well. Nonetheless, allowing issuers to use the purchase APR on the account to calculate the repayment period would underestimate the repayment period, if a consumer also has balances subject to higher APRs, such as cash advance balances. The Board believes that an overestimate of the repayment period is a better approach for purposes of this disclosure than an underestimate of the repayment period because it gives consumers the worst-case estimate of how long it may take to pay off their balance. The Board believes that disclosing two estimates—one based on the purchase APR and one based on the cash advance APR—would be confusing to consumers.
3.
1.
In response to the June 2007 Proposal, several consumer group commenters suggested that issuers not be allowed to use the average daily balance method, if the issuer uses a less favorable method such as two-cycle average daily balance. The final rule retains the rule that issuers may assume that the average daily balance calculation method applies, regardless of whether it matches consumers' actual account terms. As discussed below, because the Board is assuming that no grace period exists and the consumer will be “revolving” or carrying a balance each month, there is no difference between the interest charges calculated, and thus, the repayment period calculated, if the average daily balance method is used compared to the two-cycle average daily balance method. The Board also notes that in final rules issued by the Board and other federal banking agencies published elsewhere in today's
In addition, one commenter suggested in response to the June 2007 Proposal that the Board permit issuers to use uniform months of 30 days rather than require the use of 30.41667 days. This commenter indicated that some systems do not easily recognize fractions of days. The final rule amends Appendix M1 to specify that an issuer or the FTC may assume a monthly or daily periodic rate applies to the account. If a daily periodic rate is used, the issuer or the FTC may either assume (1) a year is 365 days long, and all months are 30.41667 days long, or (2) a year is 360 days long, and all months are 30 days long. Both sets of assumptions about the length of the year and months would yield the same repayment estimates.
2.
3.
4.
5.
6.
7.
Other technical edits have been made to the assumptions to conform them to the assumptions used in Appendix M2 to part 226 to calculate the actual repayment disclosure.
The Board also recognizes that both the generic repayment estimates and the actual repayment disclosures, as calculated in Appendices M1 and M2 to part 226 respectively, are estimates. The Board would expect that issuers would not be liable under federal or state unfair or deceptive practices laws for providing inaccurate or misleading information, when issuers provide to consumers the generic repayment estimates or actual repayment disclosures calculated according to guidance provided in Appendices M1 and M2 to part 226 respectively, as required by TILA.
1.
The final rule adopts this approach, as proposed, with two revisions. The final rule amends Appendix M1 to provide
Under the June 2007 Proposal, Appendix M1 to part 226 would have provided that if the generic repayment estimate calculated above is less than 2 years, credit card issuers and the FTC must disclose the estimate in months. Otherwise, the estimate must be disclosed in years. The estimate would have been rounded down to the nearest whole year if the estimate contains a fractional year less than 0.5, and rounded up to the nearest whole year if the estimate contains a fractional year equal to or greater than 0.5. In response to the June 2007 Proposal, one commenter suggested that the Board always require that the generic repayment estimate be disclosed in years, even for repayment periods that are less than 2 years. This commenter indicated that the different rules for disclosing the generic repayment estimate depending on whether the estimate is less than 2 years or not would add unnecessarily to regulatory burden and cause confusion. The final rule retains the rule to disclose the generic repayment estimate in months if the estimate is less than 2 years, and in years if the estimate is 2 years or more. The Board believes that this approach provides more useful information to consumers, and does not impose significant regulatory burden on issuers.
In the June 2007 Proposal, the Board proposed a model clause in Appendix M1 that credit card issuers and the FTC would be allowed to use to comply with the above disclosure requirements. The final rule adopts this model clause, with several stylistic changes. This model clause includes a brief statement identifying the repayment period as an estimate rather than including a list of assumptions used to calculate the estimate, because the Board believes the brief statement is more helpful to consumers. The many assumptions that are necessary to calculate a repayment period are complex and unlikely to be meaningful or useful to most consumers. Nonetheless, the final rule allows issuers and the FTC to disclose through the toll-free telephone number the assumptions used to calculate the generic repayment estimates, so long as this information is disclosed after the required information described above. The Board will follow the same approach in disclosing the generic repayment estimates through its toll-free telephone number.
2.
If issuers use a minimum payment formula that allows for zero or negative amortization, the Board believes that consumers should be told that zero or negative amortization is occurring. The Board recognizes that in some cases because of the assumptions used to calculate the generic repayment estimate, the estimate may indicate that zero or negative amortization is occurring, when in fact, if the estimate was based on the consumer's actual account terms, zero or negative amortization would not occur. The Board strongly encourages issuers to use the actual repayment disclosure provided in Appendix M2 to part 226 in these instances to avoid giving inaccurate information to consumers.
In the June 2007 Proposal, Appendix M1 to part 226 would have contained model language that issuers and the FTC may use to disclose to consumers that zero or negative amortization is occurring. In response to the June 2007 Proposal, several consumer group commenters suggested that the Board require issuers to use the model language to describe that zero or negative amortization is occurring. The final rule retains this language (with stylistic changes) as a model clause that issuers may use. Because the model language provides a safe harbor from liability, the Board expects that most issuers will use this model language to describe that zero or negative amortization is occurring.
3.
The final rule retains these permissible disclosures, with two revisions. As discussed above, the final rule permits issuers to provide as part of the required disclosures the total amount of interest that a consumer may pay if he or she makes minimum payments for the length of time disclosed in the generic repayment estimate. In addition, the final rule adds to the list of permissible disclosures that issuers may disclose the total amount of interest that a consumer would pay under optional repayment periods permitted to be disclosed—such as how much interest the consumer would pay if he or she paid a fixed payment amount each month.
In response to the June 2007 Proposal, one commenter suggested that the Board issue model forms explaining the assumptions used in calculating the
As indicated above, Section 1301(a) of the Bankruptcy Act allows creditors to forego using the toll-free telephone number to provide a generic repayment estimate if the creditor instead provides through the toll-free telephone number the “actual number of months” to repay the consumer's account. In the June 2007 Proposal, the Board proposed to provide in Appendix M2 to part 226 guidance to credit card issuers on how to calculate the actual repayment disclosure to encourage issuers to provide these estimates.
1.
In addition, in the June 2007 Proposal, the Board proposed to allow issuers to disregard promotional terms that may be applicable to a consumer's account when calculating the actual repayment disclosure. The term “promotional terms” was defined in the proposal as “terms of a cardholder's account that will expire in a fixed period of time, as set forth by the card issuer.” The Board noted that allowing issuers to disregard promotional terms on accounts where the promotional terms apply only for a limited amount of time eases compliance burden on issuers, without a significant impact on the accuracy of the repayment estimates for consumers.
In response to the June 2007 Proposal, one industry commenter requested that the Board expand this definition of “promotional terms” to include any offer that involves a special payment arrangement or an APR that is below the contractual payment or APR. They noted that the proposed definition of “promotional terms” would not cover “life of balance” promotions, where an APR is offered on a balance (
2.
3.
4.
The final rule retains this approach, as proposed, with several revisions. As described above with respect to generic repayment estimates, the final rule adds several assumptions related to minimum payments being made each month, APRs not changing on the account, the length of each month, and the account not being past due or account balances not exceeding the
Consistent with the guidance in Appendix M1 to part 226 for generic repayment estimates, the final rule also would amend Appendix M2 to part 226 to provide that an actual repayment disclosure shall be considered accurate if it is not more than 2 months above or below the actual repayment disclosure determined in accordance with the guidance in Appendix M2 to part 226, prior to rounding.
In the June 2007 Proposal, the Board proposed Appendix M3 to part 226 to provide sample calculations for the generic repayment estimate and the actual repayment disclosures discussed in Appendices M1 and M2 to part 226. The final rule adopts these sample calculations with several technical modifications.
The final rule includes a number of technical changes to various commentary provisions that were not the subject of the Board's review of open-end (not home-secured) plans. These changes conform citations and other descriptions to revisions being adopted today, without intended substantive changes, as identified below.
In § 226.30, footnote 50 and accompanying comment 30-13, providing for a transitional compliance rule that has now expired, are deleted as obsolete rather than retained with a conformed citation.
Under TILA Section 105(d), regulatory amendments that require disclosures that differ from the previous requirements are to have an effective date of that October 1 which follows by at least six months the date of promulgation. 15 U.S.C. 1604(d). However, the Board may, at its discretion, lengthen the implementation period for creditors to adjust their forms to accommodate new requirements, or shorten the period where the Board finds that such action is necessary to prevent unfair or deceptive disclosure practices.
In the June 2007 Proposal, the Board requested comment on an appropriate implementation period that would provide creditors sufficient time to implement any revisions that may be adopted. In response to the June 2007 and May 2008 Proposals, industry commenters representing creditors, card issuers, and service providers, suggested implementation periods ranging from at least 12 months to at least 24 months. These commenters stated that the size and complexity of the Board's June 2007 and May 2008 Regulation Z Proposals if adopted, present a significant implementation task. They noted that creditors and service providers affected by the final rule must analyze all aspects of the rule, develop compliance programs, and revise written policies and procedures. They also identified the need to make systems changes to design new forms and to develop, test and implement new software programs, which may require coordination among third-party data processors and creditors' compliance or technical staff. One commenter reported that a vendor reported it would need almost a year to implement changes after the client delivered the business requirements to the vendor. Industry commenters also noted that employees' tasks to implement the new rules would be in addition to employees' ongoing duties to provide day-to-day service to customers. Thus, in industry commenters' views, a significant period of time is necessary to implement the required changes in an orderly manner.
A few commenters suggested staggered mandatory compliance dates. For example, one commenter suggested an 18-month implementation period for application and solicitation disclosures, account-opening disclosures and agreements, and billing error notices; with a 24-month period for periodic statement disclosures, including change-in-terms notices that are provided with statements. Most others requested a single implementation date.
Many industry commenters stated that they contemplated implementing the final rule in stages, and asked the Board to provide a safe harbor for compliance with the regulation's requirement to use consistent terminology if some disclosures are modified earlier than others. For example, a creditor may revise some disclosures to use the term “interest charges” as required by the final rule while other disclosures that comply with existing rules continue to use the term “finance charges” because they have not yet been revised.
Commenters representing credit unions, while opposing the Board's June 2007 Proposal to amend the definition of open-end credit, requested that the Board delay the mandatory compliance date for rules affecting the definition of open-end credit until the Board completes its review of rules affecting closed-end disclosures, so systems would be revised only once.
The Board adopts a mandatory compliance date of July 1, 2010. The mandatory compliance date for this final rule is consistent with the mandatory compliance date for the final rules addressing credit card practices adopted by the Board and other federal banking agencies published elsewhere in today's
For periodic statements mailed on or after July 1, 2010, fees and interest charges must be disclosed for the statement period and year-to-date. For the year-to-date figure, creditors comply with the final rule by aggregating fees and interest charges beginning with the first periodic statement mailed on or after July 1, 2010. The first statement mailed on or after July 1, 2010 need not disclose aggregated fees and interest charges from prior cycles in the year. At the creditor's option, however, the year-to-date figure may reflect amounts computed in accordance with comment 7(b)(6)-3 for prior cycles in the year.
The Board recognizes that a creditor may wish to comply with certain provisions of the final rule for periodic statements that are mailed prior to July 1, 2010. A creditor may phase in disclosures required on the periodic statement under the final rule that are not currently required prior to July 1, 2010. A creditor also may generally omit from the periodic statement any disclosures that are not required under the final rule prior to July 1, 2010. However, a creditor must continue to disclose an effective APR unless and until that creditor provides disclosures of fees and interest that comply with § 226.7(b)(6) of the final rule. Similarly, as provided in § 226.7(a), in connection with a HELOC, a creditor must continue to disclose an effective APR unless and until that creditor provides fee and interest disclosures under § 226.7(b)(6).
In addition, a card issuer increasing an interest rate on or after July 1, 2010 may do so only to the extent permitted by final rules issued by the Board and other federal banking agencies addressing credit card practices published elsewhere in today's
In accordance with Section 3(a) of the Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA), the Board is publishing a final regulatory flexibility analysis for the proposed amendments to Regulation Z. The RFA requires an agency either to provide a final regulatory flexibility analysis with a final rule or certify that the final rule will not have a significant economic impact on a substantial number of small entities. An entity is considered “small” if it has $175 million or less in assets for banks and other depository institutions.
The Board stated in the June 2007 and May 2008 Proposals its belief that the proposals would have a significant economic impact on a substantial number of small entities. Based on comments received, the Board's own analysis, and for the reasons stated below, the Board believes that the final rule will have a significant economic impact on a substantial number of small entities.
1.
The following sections of the
• A high-level summary of the major changes adopted in this final rule is in II. Summary of Major Changes, and a more detailed discussion is in V. Discussion of Major Revisions and VI. Section-by-Section Analysis.
• The Board's major sources of rulemaking authority pursuant to TILA are summarized in IV. The Board's Rulemaking Authority. More detailed information regarding the source of rulemaking authority for each change, as well as the rulemaking authority for certain changes mandated by the Bankruptcy Act, are discussed in VI.
2.
The Board reviewed comments submitted by various entities in order to ascertain the economic impact of the proposals on small entities. Many industry commenters expressed general concern about the compliance burden of the proposed amendments on all creditors offering open-end (not home-secured) plans, including small entities. They expressed concerns that the proposals, if adopted, would be costly to implement, would not provide sufficient flexibility, and could result in
Commenters representing credit unions and credit union trade associations specifically addressed the Board's request for comment on the number of small entities that might be affected. As discussed in VI. Section-by-Section Analysis, many credit union commenters focused their commenters on proposed changes to the definition of open-end credit in § 226.2(a)(20). One commenter contended that the proposal would negatively and adversely affect the viability of small credit unions. This commenter cited data for year-end 2001 to 2006 from the National Credit Union Administration that the number of federally-insured credit unions decreased from 9,688 to 8,326, and stated that anecdotal evidence suggests that regulatory burden and compliance costs contribute significantly to the decision to merge or cease operations. This commenter urged the Board to withdraw all aspects of the June 2007 Proposal not mandated by the Bankruptcy Act. Another commenter that provides insurance and related financial services to credit unions reported that based on internal records, over 1900 credit unions with assets under $50 million and that offer multifeatured plans would incur an average cost of $100,000 per credit union to switch to closed-end disclosures if clarifications in the June 2007 Proposal related to the definition of open-end credit were adopted as proposed. The commenter noted that those conversion costs were in addition to costs associated with conforming the credit unions open-end disclosures to the final rule.
One industry trade group also specifically addressed the costs to small entities of requiring the changes in the periodic statement disclosures for open-end (not home-secured) credit that is not a credit card, such as an overdraft line of credit. According to the trade group, the costs and complications of amending the periodic statements for non-credit card open-end products would discourage small and midsize banks from offering these products. Another bank commenter noted that the costs associated with the periodic statement changes would be substantial and therefore more difficult for smaller institutions to absorb.
3.
4.
The effect of the revisions to Regulation Z on small entities is unknown. Small entities are required to, among other things, conform their open-end credit disclosures, including those in credit card applications or solicitations, account opening materials, periodic statements, change-in-terms notices, and advertisements to the revised rules. The Board has sought to reduce the burden on small entities, where possible, by adopting model forms that can be used to ease compliance with the final rules. Small entities also are required to update their systems to comply with new rules regarding reasonable cut-off times for payments and weekend or holiday payment due dates.
In the May 2008 Proposal, the Board noted that 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. The Board requested information and comment on the effects of the proposed rules on small entities and received few comments regarding the cost impact on small entities specifically. These comments are discussed above in the “Summary of issues raised by comments in response to the initial regulatory flexibility analysis” section.
5.
The steps the Board has taken to minimize the economic impact and compliance burden on small entities, including the factual, policy, and legal reasons for selecting the alternatives adopted and why each one of the other
In response to the results of consumer testing, the Board's final rule provides a number of modifications designed to increase flexibility and thus reduce costs to creditors. Under the final rule, for the summary tables accompanying applications or solicitations and the summary tables provided at account opening, creditors will be permitted to combine rows for different transaction types when the APR for each transaction type is the same. In addition, the final rule removes the requirement that creditors provide certain cross references in the summary tables. Both these changes allow for shorter disclosures, which in turn, could reduce the amount of paper creditors must use and the mailing costs of the disclosures.
The final rule also provides flexibility in the periodic statement disclosure by removing the requirement that the grouping of certain payment information on periodic statements be substantially similar to the model forms provided by the Board. This change provides flexibility to creditors to determine how to fit certain new periodic statement disclosure requirements under the final rule within the format of creditors' current forms instead of requiring creditors to potentially redesign their forms to be substantially similar to the Board's model forms. In addition, under the final rule, creditors are no longer required to provide the effective APR on the periodic statement.
The Board has also amended the rule on setting reasonable cut-off hours for mailed payments to be received on the due date and be considered timely. The May 2008 Proposal stated 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. In response to industry commenters, including a comment from a small credit union with limited hours of operation, the Board has relaxed this standard and amended the final rule to describe a 5 p.m. cut-off time for mailed payment as an example of a reasonable requirement for payments while not stating that earlier cut-off times would be unreasonable in all circumstances.
Furthermore, as proposed in June 2007 and consistent with the Bankruptcy Act, small depository institutions with assets of $250 million or less are not required to maintain their own toll-free telephone number to provide the minimum repayment estimates required under § 226.7(b)(12) for a period of two years after the effective date of the rule. The Board must establish and maintain a toll-free telephone number for use by customers of these institutions.
Also, the Board is providing an implementation period that responds to commenters' concerns about the time needed to comply with the final rule. The Board believes the effective date will decrease costs for small entities by providing them with sufficient time to come into compliance with the final rule's requirements. The implementation date is discussed above in VII. Mandatory Compliance Date.
The Board believes that these changes minimize the significant economic impact on small entities while still meeting the stated objectives of TILA.
6.
In the May 2008 Regulation Z Proposal, the Board also requested comment regarding any duplication, overlap, or conflict between the proposed revisions to Regulation Z in this May 2008 Proposal and the proposal to address certain credit card practices issued by the Board, as well as other federal banking agencies, in May 2008. 73 FR 28904, May 19, 2008. Several commenters raised potential conflicts between the two proposals. As discussed above in VI. Section-by-Section Analysis and in the supplementary information to the final rule adopted by the Board and other federal banking agencies published elsewhere in today's
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the final rule under the authority delegated to the Board by the Office of Management and Budget (OMB). The collection of information that is required by this final rule is found in 12 CFR part 226. The Federal Reserve may not conduct or sponsor, and an organization is not required to respond to, this information collection unless the information collection displays a currently valid OMB control number. The OMB control number is 7100-0199.
This information collection is required to provide benefits for consumers and is mandatory (15 U.S.C. 1601
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 (§ 226.25), but Regulation Z does not
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, state member banks and other creditors supervised by the Federal Reserve 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 entities subject to Regulation Z. 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 III. The Board's Review of Open-end Credit Rules above, two notices of proposed rulemaking were published in the
Based on these adjustments to the estimates published in the May 2008 Proposal, the final rule will impose a one-time increase in the total annual burden by 74,640 hours. The final rule, on a continuing basis, will impose an increase in the total annual burden by 35,120 hours due to the adjustments discussed above, as well as (1) revisions to the rules governing change-in-terms notices in this final rule, which would increase the frequency with which such notices are required and (2) inclusion of the disclosure requirement to cosigners under 12 CFR 227.14(b) (Regulation AA). The title of the Regulation Z information collection will be updated to account for these sections of Regulation AA. In total the final rule will increase the annual burden by 109,760 hours from 578,847 to 688,607 hours. This burden increase will be imposed on all Federal Reserve-regulated institutions that are deemed to be respondents for purposes of the PRA.
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 estimation methodology. 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 11,671,017 hours. In total the final rule will impose an increase to the estimated annual burden for all institutions subject to Regulation Z of 1,926,373 hours to 13,597,390 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 from 12,324,037 to 13,230,534 hours. The estimates above 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 17,200) potentially are affected by this collection of information, and thus are respondents for purposes of the PRA.
The Board has a continuing interest in the public's opinion of our collections of information. At any time, comments regarding the burden estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, may be sent to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551; and to the Office of Management and Budget, Paperwork Reduction Project (7100-0199), Washington, DC 20503.
The Board has adopted organizational revisions that are designed to make the regulation easier to use. The following table indicates the redesignations.
Advertising, Consumer protection, Federal Reserve System, Reporting and recordkeeping requirements, Truth in Lending.
12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).
(a)
(b)
(c)
(2) If a credit card is involved, however, certain provisions apply even if the credit is not subject to a finance charge, or is not payable by a written agreement in more than four installments, or if the credit card is to be used for business purposes.
(3) In addition, certain requirements of § 226.5b apply to persons who are not creditors but who provide applications for home-equity plans to consumers.
(d)
(1) Subpart A contains general information. It sets forth: the authority, purpose, coverage, and organization of the regulation; the definitions of basic terms; the transactions that are exempt from coverage; and the method of determining the finance charge.
(2) Subpart B contains the rules for open-end credit. It requires that account-opening disclosures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and solicitations and for home-equity plans subject to the requirements of § 226.5a and § 226.5b, respectively. It also describes special rules that apply to credit card transactions, treatment of payments and credit balances, procedures for resolving credit billing errors, annual percentage rate calculations, rescission requirements, and advertising.
(3) Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentages rate calculations, rescission requirements, and advertising.
(4) Subpart D contains rules on oral disclosures, disclosures in languages other than English, record retention, effect on state laws, state exemptions, and rate limitations.
(5) Subpart E contains special rules for certain mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions that are subject to § 226.32. Section 226.35 prohibits specific acts and practices in connection with higher-priced mortgage loans, as defined in § 226.35(a). Section 226.36 prohibits specific acts and practices in connection with credit secured by a consumer's principal dwelling.
(6) Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions and total-annual-loan-cost rates for reverse mortgage transactions.
(e)
(a)
(1)
(2)
(3) [Reserved]
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(i) Agrees to pay as compensation for use a sum substantially equivalent to, or in excess of, the total value of the property and service involved; and
(ii) Will become (or has the option to become), for no additional consideration or for nominal consideration, the owner of the property upon compliance with the agreement.
(17)
(i) A person:
(A) Who regularly extends consumer credit
(B) To whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.
(ii) For purposes of §§ 226.4(c)(8) (Discounts), 226.9(d) (Finance charge imposed at time of transaction), and 226.12(e) (Prompt notification of returns and crediting of refunds), a person that honors a credit card.
(iii) For purposes of subpart B of this part, any card issuer that extends either open-end credit or credit that is not subject to a finance charge and is not payable by written agreement in more than four installments.
(iv) For purposes of subpart B of this part (except for the credit and charge card disclosures contained in §§ 226.5a and 226.9(e) and (f), the finance charge disclosures contained in § 226.6(a)(1) and (b)(3)(i) and § 226.7(a)(4) through (7) and (b)(4) through (6) and the right of rescission set forth in § 226.15) and subpart C of this part, any card issuer that extends closed-end credit that is subject to a finance charge or is payable by written agreement in more than four installments.
(v) A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of § 226.32) more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of § 226.32 or one or more such credit extensions through a mortgage broker.
(18)
(19)
(20)
(i) The creditor reasonably contemplates repeated transactions;
(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and
(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.
(21)
(22)
(23)
(24)
(25)
(26)
(b)
(1) Where appropriate, the singular form of a word includes the plural form and plural includes singular.
(2) Where the words
(3) Unless defined in this regulation, the words used have the meanings given to them by state law or contract.
(4) Footnotes have the same legal effect as the text of the regulation.
(5) Where the word
This regulation does not apply to the following:
(a)
(2) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.
(b)
(c)
(d)
(e)
(f)
(g)
(a)
(1)
(i) Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or
(ii) Retains a portion of the third-party charge, to the extent of the portion retained.
(2)
(i) Requires the particular services for which the consumer is charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party charge, to the extent of the portion retained.
(3)
(b)
(1) Interest, time price differential, and any amount payable under an add-on or discount system of additional charges.
(2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.
(3) Points, loan fees, assumption fees, finder's fees, and similar charges.
(4) Appraisal, investigation, and credit report fees.
(5) Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer's default or other credit loss.
(6) Charges imposed on a creditor by another person for purchasing or accepting a consumer's obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.
(7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.
(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.
(9) Discounts for the purpose of inducing payment by a means other than the use of credit.
(10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law.
(c)
(1) Application fees charged to all applicants for credit, whether or not credit is actually extended.
(2) Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence.
(3) Charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing.
(4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis.
(5) Seller's points.
(6) Interest forfeited as a result of an interest reduction required by law on a time deposit used as security for an extension of credit.
(7)
(i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.
(ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.
(iii) Notary and credit-report fees.
(iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations.
(v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.
(8) Discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section 167(b) of the act.
(d)
(i) The insurance coverage is not required by the creditor, and this fact is disclosed in writing.
(ii) The premium for the initial term of insurance coverage is disclosed in writing. If the term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(iii) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph, except as provided in paragraph (d)(4) of this section. Any consumer in the transaction may sign or initial the request.
(2)
(i) The insurance coverage may be obtained from a person of the consumer's choice,
(ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(3)
(i) The debt cancellation or debt suspension agreement or coverage is not required by the creditor, and this fact is disclosed in writing;
(ii) The fee or premium for the initial term of coverage is disclosed in writing. If the term of coverage is less than the term of the credit transaction, the term of coverage also shall be disclosed. The fee or premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under § 226.17(g), and certain closed-end credit transactions involving a debt cancellation agreement that limits the total amount of indebtedness subject to coverage;
(iii) The following are disclosed, as applicable, for debt suspension coverage: That the obligation to pay loan principal and interest is only suspended, and that interest will continue to accrue during the period of suspension.
(iv) The consumer signs or initials an affirmative written request for coverage after receiving the disclosures specified in this paragraph, except as provided in paragraph (d)(4) of this section. Any consumer in the transaction may sign or initial the request.
(4)
(i) Maintain evidence that the consumer, after being provided the disclosures orally, affirmatively elected to purchase the insurance or coverage; and
(ii) Mail the disclosures under paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through (iii) of this section, as applicable, within three business days after the telephone purchase.
(e)
(1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.
(2) The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed the fees described in paragraph (e)(1) of this section that otherwise would be payable.
(3)
(f)
(a)
(ii) The creditor shall make the disclosures required by this subpart in writing,
(A) The following disclosures need not be written: Disclosures under § 226.6(b)(3) of charges that are imposed as part of an open-end (not home-secured) plan that are not required to be disclosed under § 226.6(b)(2) and related disclosures under § 226.9(c)(2)(ii)(B) of charges; disclosures under § 226.9(c)(2)(v); and disclosures under § 226.9(d) when a finance charge is imposed at the time of the transaction.
(B) The following disclosures need not be in a retainable form: Disclosures that need not be written under paragraph (a)(1)(ii)(A) of this section; disclosures for credit and charge card applications and solicitations under § 226.5a; home-equity disclosures under § 226.5b(d); the alternative summary billing-rights statement under § 226.9(a)(2); the credit and charge card renewal disclosures required under § 226.9(e); and the payment requirements under § 226.10(b), except as provided in § 226.7(b)(13).
(iii) The disclosures required by this subpart may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001
(2)
(ii) For home-equity plans subject to § 226.5b, the terms
(iii) If disclosures are required to be presented in a tabular format pursuant to paragraph (a)(3) of this section, the term
(3)
(ii) Certain disclosures for home-equity plans must precede other disclosures and must be given in accordance with the requirements of § 226.5b(a).
(iii) Certain account-opening disclosures must be provided in a tabular format in accordance with the requirements of § 226.6(b)(1).
(iv) Certain disclosures provided on periodic statements must be grouped together in accordance with the requirements of § 226.7(b)(6) and (b)(13).
(v) Certain disclosures accompanying checks that access a credit card account must be provided in a tabular format in accordance with the requirements of § 226.9(b)(3).
(vi) Certain disclosures provided in a change-in-terms notice must be provided in a tabular format in accordance with the requirements of § 226.9(c)(2)(iii)(B).
(vii) Certain disclosures provided when a rate is increased due to delinquency, default or as a penalty must be provided in a tabular format in
(b)
(ii)
(iii)
(A) The first transaction occurs when a consumer contacts a merchant by telephone to purchase goods and at the same time the consumer accepts an offer to finance the purchase by establishing an open-end plan with the merchant or third-party creditor;
(B) The merchant or third-party creditor permits consumers to return any goods financed under the plan and provides consumers with a sufficient time to reject the plan and return the goods free of cost after the merchant or third-party creditor has provided the written disclosures required by § 226.6; and
(C) The consumer's right to reject the plan and return the goods is disclosed to the consumer as a part of the offer to finance the purchase.
(iv)
(B)
(v)
(2)
(ii) The creditor shall mail or deliver the periodic statement at least 14 days prior to any date or the end of any time period required to be disclosed under § 226.7(a)(8) or (b)(8), as applicable, for the consumer to avoid an additional finance or other charge.
(iii) The timing requirement under this paragraph (b)(2) does not apply if the creditor is unable to meet the requirement because of an act of God, war, civil disorder, natural disaster, or strike.
(3)
(4)
(c)
(d)
(e)
(a)
(1)
(2)
(ii) The table described in paragraph (a)(2)(i) of this section shall contain only the information required or permitted by this section. Other information may be presented on or with an application or solicitation, provided such information appears outside the required table.
(iii) Disclosures required by paragraphs (b)(1)(iv)(B) and (b)(6) of this section must be placed directly beneath the table.
(iv) When a tabular format is required, any annual percentage rate required to be disclosed pursuant to paragraph (b)(1) of this section, any introductory rate permitted to be disclosed pursuant to paragraph (b)(1)(ii) or required to be disclosed under paragraph (b)(1)(vii) of this section, any rate that will apply after a premium initial rate expires permitted to be disclosed under paragraph (b)(1)(iii) or required to be disclosed under paragraph (b)(1)(vii), and any fee or percentage amounts required to be disclosed pursuant to paragraphs (b)(2), (b)(4), (b)(8) through (b)(13) of this section must be disclosed in bold text. However, bold text shall not be used for: Any maximum limits on fee amounts disclosed in the table that do not relate to fees that vary by state; the amount of any periodic fee disclosed pursuant to paragraph (b)(2) of this section that is not an annualized amount; and other annual percentage rates or fee amounts disclosed in the table.
(v) For an application or a solicitation that is accessed by the consumer in electronic form, the disclosures required under this section may be provided to the consumer in electronic form on or with the application or solicitation.
(vi)(A) Except as provided in paragraph (a)(2)(vi)(B) of this section, the table described in paragraph (a)(2)(i) of this section must be provided in a prominent location on or with an application or a solicitation.
(B) If the table described in paragraph (a)(2)(i) of this section is provided electronically, it must be provided in close proximity to the application or solicitation.
(3)
(4)
(5)
(i) Home-equity plans accessible by a credit or charge card that are subject to the requirements of § 226.5b;
(ii) Overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards;
(iii) Lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines;
(iv) Lines of credit accessed solely by account numbers;
(v) Additions of a credit or charge card to an existing open-end plan;
(vi) General purpose applications unless the application, or material accompanying it, indicates that it can be used to open a credit or charge card account; or
(vii) Consumer-initiated requests for applications.
(b)
(1)
(i)
(ii)
(iii)
(iv)
(B)
(v)
(vi)
(vii)
(2)
(ii) Any non-periodic fee that relates to opening an account. A card issuer must disclose that the fee is a one-time fee.
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(ii) A cross reference to any additional information provided about the insurance or coverage accompanying the application or solicitation, as applicable.
(14)
(15)
(c)
(2)
(ii) Disclosures provided in electronic form must be accurate as of the time they are sent, in the case of disclosures sent to a consumer's e-mail address, or as of the time they are viewed by the public, in the case of disclosures made available at a location such as a card issuer's Web site. An accurate variable annual percentage rate provided in electronic form is one in effect within 30 days before it is sent to a consumer's e-mail address, or viewed by the public, as applicable.
(d)
(2)
(i)(A) Does not impose a fee described in paragraph (b)(2) of this section; or
(B) Imposes such a fee but provides the consumer with a right to reject the plan consistent with § 226.5(b)(1)(iv); and
(ii) The card issuer discloses in writing within 30 days after the consumer requests the card (but in no event later than the delivery of the card) the following:
(A) The applicable information in paragraph (b) of this section; and
(B) As applicable, the fact that the consumer has the right to reject the plan and not be obligated to pay fees described in paragraph (b)(2) or any other fees or charges until the consumer has used the account or made a payment on the account after receiving a billing statement.
(3)
(ii) The alternative disclosures under paragraph (d)(2) of this section generally must be accurate as of the time they are mailed or delivered. A variable annual percentage rate is one that is accurate if it was:
(A) In effect at the time the disclosures are mailed or delivered; or
(B) In effect as of a specified date (which rate is then updated from time to time, but no less frequently than each calendar month).
(e)
(1)
(i) The applicable information in paragraph (b) of this section;
(ii) The date the required information was printed, including a statement that the required information was accurate as of that date and is subject to change after that date; and
(iii) A statement that the consumer should contact the card issuer for any change in the required information since it was printed, and a toll-free telephone number or a mailing address for that purpose.
(2)
(i) There are costs associated with the use of the card; and
(ii) The consumer may contact the card issuer to request specific information about the costs, along with a toll-free telephone number and a mailing address for that purpose.
(3)
(4)
(f)
(g)
(1)(i)
(ii)
(2)(i)
(ii)
(3)
(4)
(5)
(a)
(1)
(i) A statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists within which any credit extended may be repaid without incurring a finance charge. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge when payment is received after the time period's expiration.
(ii) A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable,
(iii) An explanation of the method used to determine the balance on which the finance charge may be computed.
(iv) An explanation of how the amount of any finance charge will be determined,
(2)
(3)
(i) A statement of the conditions under which the creditor may take certain action, as described in § 226.5b(d)(4)(i), such as terminating the plan or changing the terms.
(ii) The payment information described in § 226.5b(d)(5)(i) and (ii) for both the draw period and any repayment period.
(iii) A statement that negative amortization may occur as described in § 226.5b(d)(9).
(iv) A statement of any transaction requirements as described in § 226.5b(d)(10).
(v) A statement regarding the tax implications as described in § 226.5b(d)(11).
(vi) A statement that the annual percentage rate imposed under the plan does not include costs other than interest as described in § 226.5b(d)(6) and (d)(12)(ii).
(vii) The variable-rate disclosures described in § 226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well as the disclosure described in § 226.5b(d)(5)(iii), unless the disclosures provided with the application were in a form the consumer could keep and included a representative payment example for the category of payment option chosen by the consumer.
(4)
(5)
(b)
(1)
(i)
(ii)
(iii)
(iv)
(2)
(i)
(A)
(B)
(C)
(D)
(
(E)
(F)
(ii)
(B) Any non-periodic fee that relates to opening the plan. A creditor must disclose that the fee is a one-time fee.
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(B) A cross reference to any additional information provided about the insurance or coverage, as applicable.
(xiii)
(xiv)
(xv)
(3)
(i) For charges imposed as part of an open-end (not home-secured) plan, the circumstances under which the charge may be imposed, including the amount of the charge or an explanation of how the charge is determined. For finance charges, a statement of when the charge begins to accrue and an explanation of whether or not any time period exists within which any credit that has been extended may be repaid without incurring the charge. If such a time period is provided, a creditor may, at its option and without disclosure, elect not to impose a finance charge when payment is received after the time period expires.
(ii) Charges imposed as part of the plan are:
(A) Finance charges identified under § 226.4(a) and § 226.4(b).
(B) Charges resulting from the consumer's failure to use the plan as agreed, except amounts payable for collection activity after default, attorney's fees whether or not automatically imposed, and post-judgment interest rates permitted by law.
(C) Taxes imposed on the credit transaction by a state or other governmental body, such as documentary stamp taxes on cash advances.
(D) Charges for which the payment, or nonpayment, affect the consumer's access to the plan, the duration of the plan, the amount of credit extended, the period for which credit is extended, or the timing or method of billing or payment.
(E) Charges imposed for terminating a plan.
(F) Charges for voluntary credit insurance, debt cancellation or debt suspension.
(iii) Charges that are not imposed as part of the plan include:
(A) Charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system.
(B) A charge for a package of services that includes an open-end credit feature, if the fee is required whether or not the open-end credit feature is included and the non-credit services are not merely incidental to the credit feature.
(C) Charges under § 226.4(e) disclosed as specified.
(4)
(i) For each periodic rate that may be used to calculate interest:
(A)
(B)
(C)
(D)
(ii)
(A) The fact that the annual percentage rate may increase.
(B) How the rate is determined, including the margin.
(C) The circumstances under which the rate may increase.
(D) The frequency with which the rate may increase.
(E) Any limitation on the amount the rate may change.
(F) The effect(s) of an increase.
(G) A rate is accurate if it is a rate as of a specified date within the last 30 days before the disclosures are provided.
(iii)
(A) The initial rate (expressed as a periodic rate and a corresponding annual percentage rate) required under paragraph (b)(4)(i)(A) of this section.
(B) How long the initial rate will remain in effect and the specific events that cause the initial rate to change.
(C) The rate (expressed as a periodic rate and a corresponding annual percentage rate) that will apply when the initial rate is no longer in effect and any limitation on the time period the new rate will remain in effect.
(D) The balances to which the new rate will apply.
(E) The balances to which the current rate at the time of the change will apply.
(5)
(i)
(ii)
(iii)
9. Section 226.7 is amended by republishing the introductory text, revising paragraphs (a) and (b), removing paragraphs (c), (d), (e), (f), (g), (h), (i), (j), and (k), and removing and reserving footnotes 14 and 15 to read as follows:
The creditor shall furnish the consumer with a periodic statement that discloses the following items, to the extent applicable:
(a)
(1)
(2)
(3)
(4)
(ii)
(5)
(6)
(i)
(ii)
(7)
(8)
(9)
(10)
(b)
(1)
(2)
(3)
(4)
(ii)
(5)
(6)
(ii)
(iii)
(7)
(8)
(9)
(10)
(11)
(A) The due date for a payment, if a late-payment fee or penalty rate may be imposed.
(B) The amount of the late-payment fee and any increased periodic rate(s) (expressed as an annual percentage rate(s)) that may be imposed on the account as a result of a late payment. If a range of late-payment fees may be assessed, the creditor may state the range of fees, or the highest fee and at the creditor's option with the highest fee an indication that the fee imposed could be lower. If the rate may be increased for more than one feature or balance, the creditor may state the range of rates or the highest rate that could apply and at the creditor's option an indication that the rate imposed could be lower.
(ii)
(12)
(ii)
(A)
(
(
(
(B)
(iii)
(iv)
(v)
(A) Home-equity plans subject to the requirements of § 226.5b;
(B) Overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards;
(C) Lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines;
(D) Charge card accounts that require payment of outstanding balances in full at the end of each billing cycle;
(E) Credit card accounts where a fixed repayment period for the account is disclosed in the account agreement and the required minimum payments will amortize the outstanding balance within the fixed repayment period;
(F) A billing cycle where the entire outstanding balance is subject to a fixed repayment period specified in the account agreement and the required minimum payments applicable to that balance will amortize the outstanding balance within the fixed repayment period;
(G) A billing cycle immediately following two consecutive billing cycles in which the consumer paid the entire balance in full, had a zero outstanding balance or had a credit balance; and
(H) A billing cycle where paying the minimum payment due for that billing cycle will pay the entire outstanding balance on the account for that billing cycle.
(13)
The creditor shall identify credit transactions on or with the first periodic
(a)
(i) A brief identification
(ii) The seller's name; and the city and state or foreign country where the transaction took place.
(2) Creditors need not comply with paragraph (a)(1) of this section if an actual copy of the receipt or other credit document is provided with the first periodic statement reflecting the transaction, and the amount of the transaction and either the date of the transaction to the consumer's account or the date of debiting the transaction are disclosed on the copy or on the periodic statement.
(b)
(c)
(1) Failure to disclose the information required by paragraphs (a) and (b) of this section is not a failure to comply with the regulation, provided that the creditor also maintains procedures reasonably designed to obtain and provide the information. This applies to transactions that take place outside a state, as defined in § 226.2(a)(26), whether or not the creditor maintains procedures reasonably adapted to obtain the required information.
(2) As an alternative to the brief identification for sale or nonsale credit, the creditor may disclose a number or symbol that also appears on the receipt or other credit document given to the consumer, if the number or symbol reasonably identifies that transaction with that creditor.
(a)
(2)
(b)
(2) Except as provided in paragraph (b)(3) of this section, whenever a credit feature is added or a credit access device is mailed or delivered, and the finance charge terms for the feature or device differ from disclosures previously given, the disclosures required by § 226.6(a)(1) or (b)(3)(ii)(A), as applicable, that are applicable to the added feature or device shall be given before the consumer uses the feature or device for the first time.
(3)
(i)
(A) If a promotional rate, as that term is defined in § 226.16(g)(2)(i) applies to the checks:
(
(
(
(B) If no promotional rate applies to the checks:
(
(C) Any transaction fees applicable to the checks disclosed under § 226.6(b)(2)(iv), (b)(2)(vii), or (b)(2)(x); and
(D) Whether or not a grace period is given within which any credit extended by use of the checks may be repaid without incurring a finance charge due to a periodic interest rate. When disclosing whether there is a grace period, the phrase “How to Avoid Paying Interest on Check Transactions” shall be used as the row heading when a grace period applies to credit extended by the use of the checks. When disclosing the fact that no grace period exists for credit extended by use of the checks, the phrase “Paying Interest” shall be used as the row heading.
(ii)
(c)
(ii)
(iii)
(2)
(ii)
(A) Comply with the requirements of paragraph (c)(2)(i) of this section; or
(B) Provide notice of the amount of the charge before the consumer agrees to or becomes obligated to pay the charge, at a time and in a manner that a consumer would be likely to notice the disclosure of the charge. The notice may be provided orally or in writing.
(iii)
(
(
(
(
(
(
(
(B)
(
(
(iv)
(v)
(d)
(2) The card issuer, other than the person honoring the consumer's credit card, shall have no responsibility for the disclosure required by paragraph (d)(1) of this section, and shall not consider any such charge for the purposes of §§ 226.5a, 226.6 and 226.7.
(e)
(i) The disclosures contained in § 226.5a(b)(1) through (b)(7) that would apply if the account were renewed;
(ii) How and when the cardholder may terminate credit availability under the account to avoid paying the renewal fee.
(2)
(i) The cardholder has 30 days from the time the periodic statement is mailed or delivered to avoid paying the fee or to have the fee recredited if the cardholder terminates credit availability under the account; and
(ii) The cardholder may use the card during the interim period without having to pay the fee.
(3)
(f)
(i) Any increase in the rate that will result from the change;
(ii) Any substantial decrease in coverage that will result from the change; and
(iii) A statement that the cardholder may discontinue the insurance.
(2)
(i) The name and address of the new insurance provider;
(ii) A copy of the new policy or group certificate containing the basic terms of the insurance, including the rate to be charged; and
(iii) A statement that the cardholder may discontinue the insurance.
(3)
(i) Type of coverage provided;
(ii) Age at which coverage terminates or becomes more restrictive;
(iii) Maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or other term affecting the dollar amount of coverage or benefits provided;
(iv) Eligibility requirements and number and identity of persons covered;
(v) Definition of a key term of coverage such as disability;
(vi) Exclusions from or limitations on coverage; and
(vii) Waiting periods and whether coverage is retroactive.
(4)
(g)
(i) A rate is increased due to the consumer's delinquency or default; or
(ii) A rate is increased as a penalty for one or more events specified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit.
(2)
(3)(i)
(A) A statement that the delinquency or default rate or penalty rate, as applicable, has been triggered;
(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; 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 minimum periodic payment within 30 days from the due date for that payment.
(ii)
(B) If a notice required by paragraph (g)(1) of this section is not included on or with a periodic statement, the information described in paragraph (g)(3)(i) of this section must be disclosed on the front of the first page of the notice. Only information related to the increase in the rate to a penalty rate may be included with the notice, except that this notice may be combined with a notice described in paragraph (c)(2)(iii)(A) or (g)(4)(ii) of this section.
(4)
(A) The rate following any such increase does not exceed the rate that applied to the category of transactions prior to commencement of the workout arrangement; or
(B) If the rate that applied to a category of transactions prior to the commencement of the workout arrangement was a variable rate, the rate following any such increase is a variable rate determined by the same formula (index and margin) that applied to the category of transactions prior to commencement of the workout arrangement.
(ii)
(A) The creditor provides at least 45 days in advance of imposing the penalty rate a notice, in writing, that includes:
(
(
(
(
(
(
(B) The creditor does not increase the rate applicable to the consumer's account to the penalty rate if the outstanding balance does not exceed the credit limit on the date set forth in the notice and described in paragraph 9(g)(4)(ii)(A)(
(C)(
(
(iii)
(A) The creditor previously provided a notice pursuant to paragraph (g)(1) of this section containing the content specified in paragraph (g)(3) of this section;
(B) After that notice is provided but prior to the effective date of the rate increase or rate increases disclosed in the notice pursuant to paragraph (g)(3)(i)(B) of this section, the consumer fails to make a required minimum periodic payment within 30 days from the due date for that payment; and
(C) The rate increase applicable to outstanding balances takes effect on the effective date set forth in the notice.
(a)
(b)
(2)
(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. For example, it would be reasonable for a creditor to set a cut-off time for payments by mail of 5 p.m. on the payment due date at the location specified by the creditor for the receipt of such payments;
(iii) Specifying that only checks or money orders should be sent by mail;
(iv) Specifying that payment is to be made in U.S. dollars; or
(v) Specifying one particular address for receiving payments, such as a post office box.
(3)
(c)
(d)
(a)
(1) Credit the amount of the credit balance to the consumer's account;
(2) Refund any part of the remaining credit balance within seven business days from receipt of a written request from the consumer;
(3) Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than six months. No further action is required if the consumer's current location is not known to the creditor and cannot be traced through the consumer's last known address or telephone number.
(b)
(2) Nothing in paragraph (b)(1) of this section prohibits a creditor from terminating an account that is inactive for three or more consecutive months. An account is inactive for purposes of this paragraph if no credit has been extended (such as by purchase, cash advance or balance transfer) and if the account has no outstanding balance.
(a)
(1) In response to an oral or written request or application for the card; or
(2) As a renewal of, or substitute for, an accepted credit card.
(b)
(ii)
(2)
(i) The credit card is an accepted credit card;
(ii) The card issuer has provided adequate notice
(iii) The card issuer has provided a means to identify the cardholder on the account or the authorized user of the card.
(3)
(4)
(5)
(c)
(2)
(3)
(A) The cardholder has made a good faith attempt to resolve the dispute with the person honoring the credit card; and
(B) The amount of credit extended to obtain the property or services that result in the assertion of the claim or defense by the cardholder exceeds $50, and the disputed transaction occurred
(ii)
(A) Is the same person as the card issuer;
(B) Is controlled by the card issuer directly or indirectly;
(C) Is under the direct or indirect control of a third person that also directly or indirectly controls the card issuer;
(D) Controls the card issuer directly or indirectly;
(E) Is a franchised dealer in the card issuer's products or services; or
(F) Has obtained the order for the disputed transaction through a mail solicitation made or participated in by the card issuer.
(d)
(2) This paragraph does not alter or affect the right of a card issuer acting under state or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: Obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds.
(3) This paragraph does not prohibit a plan, if authorized in writing by the cardholder, under which the card issuer may periodically deduct all or part of the cardholder's credit card debt from a deposit account held with the card issuer (subject to the limitations in § 226.13(d)(1)).
(e)
(2) The card issuer shall, within 3 business days from receipt of a credit statement, credit the consumer's account with the amount of the refund.
(3) If a creditor other than a card issuer routinely gives cash refunds to consumers paying in cash, the creditor shall also give credit or cash refunds to consumers using credit cards, unless it discloses at the time the transaction is consummated that credit or cash refunds for returns are not given. This section does not require refunds for returns nor does it prohibit refunds in kind.
(f)
(1) Prohibit any person who honors a credit card from offering a discount to a consumer to induce the consumer to pay by cash, check, or similar means rather than by use of a credit card or its underlying account for the purchase of property or services; or
(2) Require any person who honors the card issuer's credit card to open or maintain any account or obtain any other service not essential to the operation of the credit card plan from the card issuer or any other person, as a condition of participation in a credit card plan. If maintenance of an account for clearing purposes is determined to be essential to the operation of the credit card plan, it may be required only if no service charges or minimum balance requirements are imposed.
(g)
(a)
(1) A reflection on or with a periodic statement of an extension of credit that is not made to the consumer or to a person who has actual, implied, or apparent authority to use the consumer's credit card or open-end credit plan.
(2) A reflection on or with a periodic statement of an extension of credit that is not identified in accordance with the requirements of §§ 226.7(a)(2) or (b)(2), as applicable, and 226.8.
(3) A reflection on or with a periodic statement of an extension of credit for property or services not accepted by the consumer or the consumer's designee, or not delivered to the consumer or the consumer's designee as agreed.
(4) A reflection on a periodic statement of the creditor's failure to credit properly a payment or other credit issued to the consumer's account.
(5) A reflection on a periodic statement of a computational or similar error of an accounting nature that is made by the creditor.
(6) A reflection on a periodic statement of an extension of credit for which the consumer requests additional clarification, including documentary evidence.
(7) The creditor's failure to mail or deliver a periodic statement to the consumer's last known address if that address was received by the creditor, in writing, at least 20 days before the end of the billing cycle for which the statement was required.
(b)
(1) Is received by a creditor at the address disclosed under § 226.7(a)(9) or (b)(9), as applicable, no later than 60 days after the creditor transmitted the first periodic statement that reflects the alleged billing error;
(2) Enables the creditor to identify the consumer's name and account number; and
(3) To the extent possible, indicates the consumer's belief and the reasons for the belief that a billing error exists, and the type, date, and amount of the error.
(c)
(2) The creditor shall comply with the appropriate resolution procedures of paragraphs (e) and (f) of this section, as applicable, within 2 complete billing cycles (but in no event later than 90 days) after receiving a billing error notice.
(d)
(1)
(2)
(3)
(4)
(e)
(1) Correct the billing error and credit the consumer's account with any disputed amount and related finance or other charges, as applicable; and
(2) Mail or deliver a correction notice to the consumer.
(f)
(1) Mail or deliver to the consumer an explanation that sets forth the reasons for the creditor's belief that the billing error alleged by the consumer is incorrect in whole or in part;
(2) Furnish copies of documentary evidence of the consumer's indebtedness, if the consumer so requests; and
(3) If a different billing error occurred, correct the billing error and credit the consumer's account with any disputed amount and related finance or other charges, as applicable.
(g)
(1) Shall promptly notify the consumer in writing of the time when payment is due and the portion of the disputed amount and related finance or other charges that the consumer still owes;
(2) Shall allow any time period disclosed under § 226.6(a)(1) or (b)(3), as applicable, and § 226.7(a)(8) or (b)(8), as applicable, during which the consumer can pay the amount due under paragraph (g)(1) of this section without incurring additional finance or other charges;
(3) May report an account or amount as delinquent because the amount due under paragraph (g)(1) of this section remains unpaid after the creditor has allowed any time period disclosed under § 226.6(a)(1) or (b)(3), as applicable, and § 226.7(a)(8) or (b)(8), as applicable or 10 days (whichever is longer) during which the consumer can pay the amount; but
(4) May not report that an amount or account is delinquent because the amount due under paragraph (g)(1) of the section remains unpaid, if the creditor receives (within the time allowed for payment in paragraph (g)(3) of this section) further written notice from the consumer that any portion of the billing error is still in dispute, unless the creditor also:
(i) Promptly reports that the amount or account is in dispute;
(ii) Mails or delivers to the consumer (at the same time the report is made) a written notice of the name and address of each person to whom the creditor makes a report; and
(iii) Promptly reports any subsequent resolution of the reported delinquency to all persons to whom the creditor has made a report.
(h)
(i)
(a)
(1) The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and
(2) Upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes, and notifies the Board in writing of the error in the calculation tool.
(b)
(c)
(1)
(i) By multiplying each periodic rate by the number of periods in a year; or
(ii) By dividing the total finance charge for the billing cycle by the sum of the balances to which the periodic rates were applied and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year.
(2)
(3)
(4) If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate and the total finance charge imposed during the billing cycle does not exceed 50 cents for a monthly or longer billing cycle, or the pro rata part of 50 cents for a billing cycle shorter than monthly, at the creditor's option, by multiplying each applicable periodic rate by the number of periods in a year, notwithstanding the provisions of paragraphs (c)(2) and (c)(3) of this section.
(d)
(1) By dividing the total finance charge by the average of the daily balances and multiplying the quotient by the number of billing cycles in a year; or
(2) By dividing the total finance charge by the sum of the daily balances and multiplying the quotient by 365.
(a)
(b)
(i) Any minimum, fixed, transaction, activity or similar charge that is a finance charge under § 226.4 that could be imposed.
(ii) Any periodic rate that may be applied expressed as an annual percentage rate as determined under § 226.14(b). If the plan provides for a variable periodic rate, that fact shall be disclosed.
(iii) Any membership or participation fee that could be imposed.
(2) If an advertisement for credit to finance the purchase of goods or services specified in the advertisement states a periodic payment amount, the advertisement shall also state the total of payments and the time period to repay the obligation, assuming that the consumer pays only the periodic payment amount advertised. The disclosure of the total of payments and the time period to repay the obligation must be equally prominent to the statement of the periodic payment amount.
(c)
(i) The table or schedule is clearly and conspicuously set forth; and
(ii) Any statement of terms set forth in § 226.6 appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins.
(2) A catalog or other multiple-page advertisement or an electronic advertisement (such as an advertisement appearing on an Internet Web site) complies with this paragraph if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered.
(d)
(i) Any loan fee that is a percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range.
(ii) Any periodic rate used to compute the finance charge, expressed as an annual percentage rate as determined under § 226.14(b).
(iii) The maximum annual percentage rate that may be imposed in a variable-rate plan.
(2)
(i) The period of time such initial rate will be in effect; and
(ii) A reasonably current annual percentage rate that would have been in effect using the index and margin.
(3)
(i) That a balloon payment will result; and
(ii) The amount and timing of the balloon payment that will result if the consumer makes only the minimum payments for the maximum period of time that the consumer is permitted to make such payments.
(4)
(i) The interest on the portion of the Credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and
(ii) The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.
(5)
(6)
(A)
(B)
(
(
(
(
(C)
(ii)
(A) The period of time during which the promotional rate or promotional payment will apply;
(B) In the case of a promotional rate, any annual percentage rate that will apply under the plan. If such rate is variable, the annual percentage rate must be disclosed in accordance with the accuracy standards in §§ 226.5b or 226.16(b)(1)(ii) as applicable; and
(C) In the case of a promotional payment, the amounts and time periods of any payments that will apply under the plan. In variable-rate transactions, payments that will be determined based on application of an index and margin shall be disclosed based on a reasonably current index and margin.
(iii)
(e)
(f)
(g)
(2)
(ii)
(iii)
(3)
(4)
(i) When the promotional rate will end; 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 §§ 226.5a(c)(2), 226.5a(d)(3), 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 at least in part on a later determination of the consumer's creditworthiness, the advertisement must disclose the specific rates or the range of rates that might apply.
(5)
A creditor shall include in any consumer credit contract secured by a dwelling and subject to the act and this regulation the maximum interest rate that may be imposed during the term of the obligation
(a) In the case of closed-end credit, the annual percentage rate may increase after consummation, or
(b) In the case of open-end credit, the annual percentage rate may increase during the plan.
The following provisions of Subpart B apply if credit cards are issued and the card issuer and the seller are the same or related persons; no finance charge is imposed; consumers are billed in full for each use of the card on a transaction-by-transaction basis, by means of an invoice or other statement reflecting each use of the card; and no cumulative account is maintained which reflects the transactions by each consumer during a period of time, such as a month. The term “related person” refers to, for example, a franchised or licensed seller of a creditor's product or service or a seller who assigns or sells sales accounts to a creditor or arranges for credit under a plan that allows the consumer to use the credit only in transactions with that seller. A seller is not related to the creditor merely because the seller and the creditor have an agreement authorizing the seller to honor the creditor's credit card.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
In determining the denominator of the fraction under § 226.14(c)(3), no amount will be used more than once when adding the sum of the balances
1. Previous balance-none.
A specific transaction of $100 occurs on the first day of the billing cycle. The average daily balance is $100. A specific transaction charge of 3 percent is applicable to the specific transaction. The periodic rate is 1
The annual percentage rate is the quotient (which is 4
2. Previous balance—$100.
A specific transaction of $100 occurs at the midpoint of the billing cycle. The average
3. If, in example 2, the periodic rate applies only to the previous balance, the numerator is $4.50 and the denominator is $200 (the amount of the transaction, $100, plus the balance subject only to the periodic rate, the $100 previous balance). As explained in example 1, the annual percentage rate is 2
4. If, in example 2, the periodic rate applies only to an adjusted balance (previous balance less payments and credits) and the consumer made a payment of $50 at the midpoint of the billing cycle, the numerator is $3.75 and the denominator is $150 (the amount of the transaction, $100, plus the balance subject to the periodic rate, the $50 adjusted balance). As explained in example 1, the annual percentage rate is 2
5. Previous balance—$100.
A specific transaction (check) of $100 occurs at the midpoint of the billing cycle. The average daily balance is $150. The specific transaction charge is $.25 per check. The periodic rate is 1
6. Previous balance—none.
A specific transaction of $100 occurs at the midpoint of the billing cycle. The average daily balance is $50. The specific transaction charge is 3 percent of the transaction amount or $3.00. The periodic rate is 1
(a) Adjusted balance method
We figure [a portion of] the finance charge on your account by applying the periodic rate to the “adjusted balance” of your account. We get the “adjusted balance” by taking the balance you owed at the end of the previous billing cycle and subtracting [any unpaid finance charges and] any payments and credits received during the present billing cycle.
(b) Previous balance method
We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the beginning of each billing cycle [minus any unpaid finance charges]. We do not subtract any payments or credits received during the billing cycle. [The amount of payments and credits to your account this billing cycle was $__.]
(c) Average daily balance method (excluding current transactions)
We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (excluding current transactions). To get the “average daily balance” we take the beginning balance of your account each day and subtract any payments or credits [and any unpaid finance charges]. We do not add in any new [purchases/advances/loans]. This gives us the daily balance. Then, we add all the daily balances for the billing cycle together and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.”
(d) Average daily balance method (including current transactions)
We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (including current transactions). To get the “average daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/loans], and subtract any payments or credits, [and unpaid finance charges]. This gives us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the
(e) Ending balance method
We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the end of each billing cycle (including new purchases and deducting payments and credits made during the billing cycle).
(f) Daily balance method (including current transactions)
We figure [a portion of] the finance charge on your account by applying the periodic rate to the “daily balance” of your account for each day in the billing cycle. To get the “daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid finance charges and] any payments or credits. This gives us the daily balance.
(a) Adjusted balance method
We figure the interest charge on your account by applying the periodic rate to the “adjusted balance” of your account. We get the “adjusted balance” by taking the balance you owed at the end of the previous billing cycle and subtracting [any unpaid interest or other finance charges and] any payments and credits received during the present billing cycle.
(b) Previous balance method
We figure the interest charge on your account by applying the periodic rate to the amount you owe at the beginning of each billing cycle. We do not subtract any payments or credits received during the billing cycle.
(c) Average daily balance method (excluding current transactions)
We figure the interest charge on your account by applying the periodic rate to the “average daily balance” of your account. To get the “average daily balance” we take the beginning balance of your account each day and subtract [any unpaid interest or other finance charges and] any payments or credits. We do not add in any new [purchases/advances/fees]. This gives us the daily balance. Then, we add all the daily balances for the billing cycle together and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.”
(d) Average daily balance method (including current transactions)
We figure the interest charge on your account by applying the periodic rate to the “average daily balance” of your account. To get the “average daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid interest or other finance charges and] any payments or credits. This gives us the daily balance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.”
(e) Ending balance method
We figure the interest charge on your account by applying the periodic rate to the amount you owe at the end of each billing cycle (including new [purchases/advances/fees] and deducting payments and credits made during the billing cycle).
(f) Daily balance method (including current transactions)
We figure the interest charge on your account by applying the periodic rate to the “daily balance” of your account for each day in the billing cycle. To get the “daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/fees], and subtract [any unpaid interest or other finance charges and] any payments or credits. This gives us the daily balance.
You may be liable for the unauthorized use of your credit card [or other term that describes the credit card]. You will not be liable for unauthorized use that occurs after you notify [name of card issuer or its designee] at [address], orally or in writing, of the loss, theft, or possible unauthorized use. [You may also contact us on the Web: [Creditor Web or e-mail address]] In any case, your liability will not exceed [insert $50 or any lesser amount under agreement with the cardholder].
If you notice the loss or theft of your credit card or a possible unauthorized use of your card, you should write to us immediately at:
[You may also contact us on the Web: [Creditor Web or e-mail address]]
You will not be liable for any unauthorized use that occurs after you notify us. You may, however, be liable for unauthorized use that occurs before your notice to us. In any case, your liability will not exceed [insert $50 or any lesser amount under agreement with the cardholder].
This notice contains important information about your rights and our responsibilities under the Fair Credit Billing Act.
If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address listed on your bill]. Write to us as soon as possible. We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. [You may also contact us on the Web: [Creditor Web or e-mail address]] You can telephone us, but doing so will not preserve your rights.
In your letter, give us the following information:
• Your name and account number.
• The dollar amount of the suspected error.
• Describe the error and explain, if you can, why you believe there is an error. If you need more information, describe the item you are not sure about.
If you have authorized us to pay your credit card bill automatically from your savings or checking account, you can stop the payment on any amount you think is wrong. To stop the payment your letter must reach us three business days before the automatic payment is scheduled to occur.
We must acknowledge your letter within 30 days, unless we have corrected the error by then. Within 90 days, we must either correct the error or explain why we believe the bill was correct.
After we receive your letter, we cannot try to collect any amount you question, or report you as delinquent. We can continue to bill you for the amount you question, including finance charges, and we can apply any unpaid amount against your credit limit. You do not have to pay any questioned amount while we are investigating, but you are still obligated to pay the parts of your bill that are not in question.
If we find that we made a mistake on your bill, you will not have to pay any finance charges related to any questioned amount. If we didn't make a mistake, you may have to pay finance charges, and you will have to make up any missed payments on the questioned amount. In either case, we will send you a statement of the amount you owe and the date that it is due.
If you fail to pay the amount that we think you owe, we may report you as delinquent. However, if our explanation does not satisfy you and you write to us within ten days telling us that you still refuse to pay, we must tell anyone we report you to that you have a question about your bill. And, we must tell you the name of anyone we reported you to. We must tell anyone we report you to that the matter has been settled between us when it finally is.
If we don't follow these rules, we can't collect the first $50 of the questioned amount, even if your bill was correct.
If you have a problem with the quality of property or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the property or services.
There are two limitations on this right:
(a) You must have made the purchase in your home state or, if not within your home state within 100 miles of your current mailing address; and
(b) The purchase price must have been more than $50.
This notice tells you about your rights and our responsibilities under the Fair Credit Billing Act.
If you think there is an error on your statement, write to us at:
In your letter, give us the following information:
•
•
•
You must contact us:
• Within 60 days after the error appeared on your statement.
• At least 3 business days before an automated payment is scheduled, if you want to stop payment on the amount you think is wrong.
You must notify us of any potential errors
1. Within 30 days of receiving your letter, we must tell you that we received your letter. We will also tell you if we have already corrected the error.
2. Within 90 days of receiving your letter, we must either correct the error or explain to you why we believe the bill is correct.
• We cannot try to collect the amount in question, or report you as delinquent on that amount.
• The charge in question may remain on your statement, and we may continue to charge you interest on that amount.
• While you do not have to pay the amount in question, you are responsible for the remainder of your balance.
• We can apply any unpaid amount against your credit limit.
•
•
If we do not follow all of the rules above, you do not have to pay the first $50 of the amount you question even if your bill is correct.
If you are dissatisfied with the goods or services that you have purchased with your credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the purchase.
To use this right, all of the following must be true:
1. The purchase must have been made in your home state or within 100 miles of your current mailing address, and the purchase price must have been more than $50. (Note: Neither of these are necessary if your purchase was based on an advertisement we mailed to you, or if we own the company that sold you the goods or services.)
2. You must have used your credit card for the purchase. Purchases made with cash advances from an ATM or with a check that accesses your credit card account do not qualify.
3. You must not yet have fully paid for the purchase.
While we investigate, the same rules apply to the disputed amount as discussed above. After we finish our investigation, we will tell you our decision. At that point, if we think you owe an amount and you do not pay, we may report you as delinquent.
If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [address] [the address shown on your bill] as soon as possible. [You may also contact us on the Web: [Creditor Web or e-mail address]] We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. You can telephone us, but doing so will not preserve your rights.
In your letter, give us the following information:
• Your name and account number.
• The dollar amount of the suspected error.
• Describe the error and explain, if you can, why you believe there is an error. If you need more information, describe the item you are unsure about.
If you have a problem with the quality of goods or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may not have to pay the remaining amount due on the goods or services. You have this protection only when the purchase price was more than $50 and the purchase was made in your home state or within 100 miles of your mailing address. (If we own or operate the merchant, or if we mailed you the advertisement for the property or services, all purchases are covered regardless of amount or location of purchase.)
If you think there is an error on your statement, write to us at:
[You may also contact us on the Web: [Creditor Web or e-mail address]]
In your letter, give us the following information:
•
•
•
You must contact us within 60 days after the error appeared on your statement.
You must notify us of any potential errors
While we investigate whether or not there has been an error, the following are true:
• We cannot try to collect the amount in question, or report you as delinquent on that amount.
• The charge in question may remain on your statement, and we may continue to charge you interest on that amount. But, if we determine that we made a mistake, you will not have to pay the amount in question or any interest or other fees related to that amount.
• While you do not have to pay the amount in question, you are responsible for the remainder of your balance.
• We can apply any unpaid amount against your credit limit.
If you are dissatisfied with the goods or services that you have purchased with your credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the purchase.
To use this right, all of the following must be true:
1. The purchase must have been made in your home state or within 100 miles of your current mailing address, and the purchase price must have been more than $50. (Note: Neither of these are necessary if your purchase was based on an advertisement we mailed to you, or if we own the company that sold you the goods or services.)
2. You must have used your credit card for the purchase. Purchases made with cash advances from an ATM or with a check that accesses your credit card account do not qualify.
3. You must not yet have fully paid for the purchase.
(a) Disclosure of Required Credit Information
The information about the costs of the card described in this [application]/[solicitation] is accurate as of (
(b) No Disclosure of Credit Information
There are costs associated with the use of this card. To obtain information about these costs, call us at (
The credit card account you have with us is insured. This is to notify you that we plan to replace your current coverage with insurance coverage from a different insurer. If we obtain insurance for your account from a different insurer, you may cancel the insurance.
[ ] The elimination of a type of coverage previously provided to you. [(explanation)] [See _ of the attached policy for details.]
[ ] A lowering of the age at which your coverage will terminate or will become more restrictive. [(explanation)] [See _ of the attached policy or certificate for details.]
[ ] A decrease in your maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or any other decrease in the dollar amount of your coverage or benefits. [(explanation)] [See _ of the attached policy or certificate for details.]
[ ] A restriction on the eligibility for benefits for you or others. [(explanation)] [See _ of the attached policy or certificate for details.]
[ ] A restriction in the definition of “disability” or other key term of coverage.
[ ] The addition of exclusions or limitations that are broader or other than those under the current coverage. [(explanation)] [See _ of the attached policy or certificate for details.]
[ ] An increase in the elimination (waiting) period or a change to nonretroactive coverage. [(explanation)] [See _ of the attached policy or certificate for details).]
We have changed the insurer providing the coverage for your account. The new insurer's name and address are (name and address). A copy of the new policy or certificate is attached.
You may cancel the insurance for your account.
Please enroll me in the optional [insert name of program], and bill my account the fee of [how cost is determined]. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.
Please enroll me in the optional [name of program], and bill my account the fee of $.83 per $100 of my month-end account balance. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.
Late Payment Warning: If we do not receive your minimum payment by the date listed above, you may have to pay a $35 late fee and your APRs may be increased up to the Penalty APR of 28.99%.
Minimum Payment Warning: If you make only the minimum payment on time each month and no other amounts are added to the balance, we estimate that it will take you approximately 13 months to pay off the balance shown on this statement.
Minimum Payment Warning: You will never pay off the outstanding balance shown on this statement if you only pay the minimum payment.
H-1 Credit Sale Model Form (§ 226.18)
H-2 Loan Model Form (§ 226.18)
H-3 Amount Financed Itemization Model Form (§ 226.18(c))
H-4(A) Variable-Rate Model Clauses (§ 226.18(f)(1))
H-4(B) Variable-Rate Model Clauses (§ 226.18(f)(2))
H-4(C) Variable-Rate Model Clauses (§ 226.19(b))
H-4(D) Variable-Rate Model Clauses (§ 226.20(c))
H-5 Demand Feature Model Clauses (§ 226.18(i))
H-6 Assumption Policy Model Clause (§ 226.18(q))
H-7 Required Deposit Model Clause (§ 226.18(r))
H-8 Rescission Model Form (General) (§ 226.23)
H-9 Rescission Model Form (Refinancing (with Original Creditor)) (§ 226.23)
H-10 Credit Sale Sample
H-11 Installment Loan Sample
H-12 Refinancing Sample
H-13 Mortgage with Demand Feature Sample
H-14 Variable-Rate Mortgage Sample (§ 226.19(b))
H-15 Graduated-Payment Mortgage Sample
H-16 Mortgage Sample
H-17(A) Debt Suspension Model Clause
H-17(B) Debt Suspension Sample
H-17(A) Debt Suspension Model Clause
Please enroll me in the optional [insert name of program], and bill my account the fee of [insert charge for the initial term of coverage]. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.
[To Enroll, Sign Here]/[To Enroll, Initial Here]. X_____
H-17(B) Debt Suspension Sample
Please enroll me in the optional [name of program], and bill my account the fee of $200.00. I understand that enrollment is not required to obtain credit. I also understand that depending on the event, the protection may only temporarily suspend my duty to make minimum payments, not reduce the balance I owe. I understand that my balance will actually grow during the suspension period as interest continues to accumulate.
To Enroll, Initial Here. X_____
(a)
(1)
(ii) “General purpose credit card” means a credit card other than a retail credit card.
(2)
(i)
(A)
(
(
(B)
(
(
(ii)
(3)
(4)
(5)
(i) Only minimum monthly payments are made each month. In addition, minimum monthly payments are made each month—for example, a debt cancellation or suspension agreement, or skip payment feature does not apply to the account.
(ii) No additional extensions of credit are obtained, such as new purchases, transactions, fees, charges or other activity. No refunds or rebates are given.
(iii) The annual percentage rate described in paragraph (a)(3) of this Appendix will not change, through either the operation of a variable rate or the change to a rate. For example, if a penalty annual percentage rate currently applies to a consumer's account, an issuer may assume that the penalty annual percentage rate will apply to the consumer's account indefinitely, even if the consumer may potentially return to a non-penalty annual percentage rate in the future under the account agreement.
(iv) There is no grace period.
(v) The final payment pays the account in full (
(vi) The average daily balance method is used to calculate the balance.
(vii) All months are the same length and leap year is ignored. A monthly or daily periodic rate may be assumed. If a daily periodic rate is assumed, the issuer may either assume a year is 365 days long, and all months are 30.41667 days long, or a year is 360 days long, and all months are 30 days long.
(viii) Payments are credited on the last day of the month.
(ix) The account is not past due and the account balance does not exceed the credit limit.
(x) When calculating the generic repayment estimate, the assumed payments, current balance and interest charges for each month may be rounded to the nearest cent, as shown in Appendix M3 to this part.
(6)
(b)
(1)
(i) The generic repayment estimate. If the generic repayment estimate calculated above is less than 2 years, credit card issuers and the FTC must disclose the estimate in months. Otherwise, the estimate must be disclosed in years. The estimate must be rounded down to the nearest whole year if the estimate contains a fractional year less than 0.5, and rounded up to the nearest whole year if the estimate contains a fractional year equal to or greater than 0.5.
(ii) The beginning balance on which the generic repayment estimate is calculated.
(iii) The annual percentage rate on which the generic repayment estimate is calculated.
(iv) The assumption that only minimum payments are made and no other amounts are added to the balance.
(v) The fact that the repayment period is an estimate, and the actual time it may take to pay off the balance by only making minimum payments will differ based on the consumer's account terms and future account activity.
(vi) At the issuer's or the FTC's option, a description of the minimum payment formula(s) or the minimum payment amounts used to calculate the generic repayment estimate, including a disclosure of the dollar amount of the minimum payment calculated for the first month.
(vii) At the issuer's or the FTC's option, the total amount of interest that a consumer would pay if the consumer makes minimum payments for the length of time disclosed in the generic repayment estimate.
(2)
It will take approximately___[months/years] to pay off a balance of $___ with an APR of ___%, if you make only the minimum payment on time each month and no other amounts are added to the balance. This estimate is based on the information you provided and assumptions about your account. The actual time it may take you to pay off this balance by only making minimum payments will differ based on the terms of your account and future account activity.
(3)
(4)
(i) A description of the assumptions used to calculate the generic repayment estimate as described in paragraph (a)(5) of this Appendix.
(ii) The length of time it would take to repay the beginning balance described in paragraph (b)(1)(ii) of this Appendix if an additional amount was paid each month in addition to the minimum payment amount, allowing the consumer to select the additional amount. In calculating this estimate, card issuers and the FTC must use the same terms described in paragraph (a) of this Appendix, except they must assume the additional amount was paid each month in addition to the minimum payment amount.
(iii) The length of time it would take to repay the beginning balance described in paragraph (b)(1)(ii) of this Appendix if the consumer made a fixed payment amount each month, allowing the consumer to select the amount of the fixed payment. For example, an issuer or the FTC could prompt the consumer to enter in a payment amount in whole dollars (
(iv) The monthly payment amount that would be required to pay off the beginning balance described in paragraph (b)(1)(ii) of this Appendix within a specific number of months or years, allowing the consumer to select the payoff period. For example, an issuer or the FTC could prompt the consumer to enter in the number of years to repay the beginning balance, and disclose to the consumer the monthly payment amount that the consumer would need to pay each month in order to repay the balance in that number of years. In calculating the monthly payment amount, card issuers and the FTC must use the same terms described in paragraph (a) of this Appendix, as appropriate.
(v) Reference to Web-based calculation tools that permit consumers to obtain additional estimates of repayment periods.
(vi) The total amount of interest that a consumer may pay under repayment options described in paragraphs (b)(4)(ii), (iii) or (iv) of this Appendix.
(a)
(1)
(ii) “General purpose credit card” means a credit card other than a retail credit card.
(iii) “Promotional terms” means terms of a cardholder's account that will expire in a fixed period of time, as set forth by the card issuer.
(2)
(3)
(4)
(5)
(i) Only minimum monthly payments are made each month. In addition, minimum monthly payments are made each month—for example, a debt cancellation or suspension agreement, or skip payment feature does not apply to the account.
(ii) No additional extensions of credit are obtained, such as new purchases, transactions, fees, charges or other activity. No refunds or rebates are given.
(iii) The annual percentage rate or rates that apply to a cardholder's account will not change, through either the operation of a variable rate or the change to a rate. For example, if a penalty annual percentage rate currently applies to a consumer's account, an issuer may assume that the penalty annual percentage rate will apply to the consumer's account indefinitely, even if the consumer may potentially return to a non-penalty annual percentage rate in the future under the account agreement.
(iv) There is no grace period.
(v) The final payment pays the account in full (
(vi) The average daily balance method is used to calculate the balance.
(vii) All months are the same length and leap year is ignored. A monthly or daily periodic rate may be assumed. If a daily periodic rate is assumed, the issuer may either assume a year is 365 days long, and all months are 30.41667 days long, or a year is 360 days long, and all months are 30 days long.
(viii) Payments are credited on the last day of the month.
(ix) Payments are allocated to lower annual percentage rate balances before higher annual percentage rate balances.
(x) The account is not past due and the account balance does not exceed the credit limit.
(xi) When calculating the generic repayment estimate, the assumed payments, current balance and interest charges for each month may be rounded to the nearest cent, as shown in Appendix M3 to this part.
(6)
(b)
(1)
(i) The actual repayment disclosure. If the actual repayment disclosure is less than 2 years, credit card issuers must disclose the estimate in months. Otherwise, the estimate must be disclosed in years. The estimate must be rounded down to the nearest whole year if the estimate contains a fractional year less than 0.5, and rounded up to the nearest whole year if the estimate contains a fractional year equal or greater than 0.5. If more than one minimum payment formula applies to an account, when calculating the actual repayment period, the issuer must apply each minimum payment formula to the portion of the balance to which the formula applies. The issuer may either disclose the longest repayment period calculated, or the repayment period calculated for each minimum payment formula. For example, assume that an issuer uses one minimum payment formula to calculate the minimum payment amount for a general revolving feature, and another minimum payment formula to calculate the minimum payment amount for special purchases, such as a “club plan purchase.” Also, assume that based on a consumer's balances in these features and the annual percentage rates that apply to such features, that the repayment period calculated pursuant to this Appendix for the general revolving feature is 5 years, while the repayment period calculated for the special purchase feature is 3 years. This issuer may either disclose 5 years as the repayment period for the entire balance to the consumer, or disclose 5 years as the repayment period for the balance in the general revolving feature and 3 years as the repayment period for the balance in the special purchase feature.
(ii) The beginning balance on which the actual repayment disclosure is calculated.
(iii) The assumption that only minimum payments are made and no other amounts are added to the balance.
(iv) The fact that the repayment period is an estimate, and is based on several assumptions about the consumer's account terms and future activity.
(v) At the issuer's option, a description of the minimum payment formula(s) or the minimum payment amounts used to calculate the actual repayment disclosure, including a disclosure of the dollar amount of the minimum payment calculated for the first month.
(vi) At the issuer's option, the total amount of interest that a consumer would pay if the consumer makes minimum payments for the length of time disclosed in the actual repayment disclosure.
(2)
Your outstanding balance as of the last billing statement was $__. If you make only the minimum payment on time each month and no other amounts are added to your balance, we estimate that it would take approximately __ [months/years] to pay off this balance. This estimate is based on several assumptions about the terms of your account and future account activity.
(3)
(4)
(i) A description of the assumptions used to calculate the actual repayment disclosure as described in paragraph (a)(5) of this Appendix.
(ii) The length of time it would take to repay the beginning balance described in paragraph (b)(1)(ii) of this Appendix if an additional amount was paid each month in addition to the minimum payment amount, allowing the consumer to select the additional amount. In calculating this estimate, credit card issuers must use the same terms described in paragraph (a) of this Appendix used to calculate the actual repayment disclosure, except they must assume the additional amount was paid each month in addition to the minimum payment amount.
(iii) The length of time it would take to repay the beginning balance described in paragraph (b)(1)(ii) of this Appendix if the consumer made a fixed payment amount each month, allowing the consumer to select the amount of the fixed payment. For example, an issuer could prompt the consumer to enter in a payment amount in whole dollars (
(iv) The monthly payment amount that would be required to pay off the beginning balance described in paragraph (b)(1)(ii) of this Appendix within a specific number of months or years, allowing the consumer to select the payoff period. For example, an issuer could prompt the consumer to enter in the number of years to repay the beginning balance, and disclose to the consumer the monthly payment amount that the consumer would need to pay each month in order to repay the balance in that number of years. In calculating the monthly payment amount, card issuers must use the same terms described in paragraph (a) of this Appendix, as appropriate.
(v) Reference to Web-based calculation tools that permit consumers to obtain additional estimates of repayment periods.
(vi) The total amount of interest that a consumer may pay under repayment options described in paragraph (b)(4)(ii), (iii) or (iv) of this Appendix.
(c)
(1)
(i) The actual repayment disclosure. If the actual repayment disclosure is less than 2 years, credit card issuers must disclose the estimate in months. Otherwise, the estimate must be disclosed in years. The estimate must be rounded down to the nearest whole year if the estimate contains a fractional year less than 0.5, and rounded up to the nearest whole year if the estimate contains a fractional year equal to or greater than 0.5.
(ii) The fact that the repayment period is based on the current outstanding balance shown on the periodic statement.
(iii) The assumption that only minimum payments are made and no other amounts are added to the balance.
(iv) At the issuer's option, a description of the minimum payment formula(s) or the minimum payment amounts used to calculate the generic repayment estimate, including a disclosure of the dollar amount of the minimum payment calculated for the first month.
(v) At the issuer's option, the total amount of interest that a consumer would pay if the consumer makes minimum payments for the length of time disclosed in the actual repayment disclosure.
(2)
(3)
(4)
(i) The fact that the repayment period is an estimate, and is based on several assumptions about the consumer's account terms and future activity.
(ii) A reference to another location on the statement where the consumer may find additional information about the actual repayment disclosure.
(iii) A description of the assumptions used to calculate the actual repayment disclosure as described in paragraph (a)(5) of this Appendix.
(iv) The length of time it would take to repay the outstanding balance shown on the statement if an additional amount was paid each month in addition to the minimum payment amount. Card issuers may choose the additional amount. In calculating this estimate, card issuers must use the same terms described in paragraph (a) of this Appendix used to calculate the actual repayment disclosure, except they must assume the additional amount was paid each month in addition to the minimum payment amount.
(v) The length of time it would take to repay the outstanding balance shown on the statement if the consumer made a fixed payment amount each month. Card issuers may choose the amount of the fixed payment. In calculating this estimate, card issuers must use the same terms described in paragraph (a) of this Appendix used to calculate the actual repayment disclosure, except they must assume the consumer made a fixed payment amount each month.
(vi) The monthly payment amount that would be required to pay off the outstanding balance shown on the statement within a specific number of months or years. Card issuers may choose the specific number of months or years used in the calculation. In calculating the monthly payment amount, card issuers must use the same terms described in paragraph (a) of this Appendix, as appropriate.
(vii) Reference to Web-based calculation tools that permit consumers to obtain additional estimates of repayment periods.
(viii) The total amount of interest that a consumer may pay under repayment options described in paragraphs (c)(4)(iv), (v) or (vi) of this Appendix.
1.
2.
3.
(b) Throughout the commentary, reference to “this section” or “this paragraph” means the section or paragraph in the regulation that is the subject of the comment.
4.
1.
1.
i.
ii.
iii.
1.
i. Examples include:
A. Messages in a newspaper, magazine, leaflet, promotional flyer, or catalog.
B. Announcements on radio, television, or public address system.
C. Electronic advertisements, such as on the Internet.
D. Direct mail literature or other printed material on any exterior or interior sign.
E. Point-of-sale displays.
F. Telephone solicitations.
G. Price tags that contain credit information.
H. Letters sent to customers or potential customers as part of an organized solicitation of business.
I. Messages on checking account statements offering auto loans at a stated annual percentage rate.
J. Communications promoting a new open-end plan or closed-end transaction.
ii. The term does not include:
A. Direct personal contacts, such as follow-up letters, cost estimates for individual consumers, or oral or written communication relating to the negotiation of a specific transaction.
B. Informational material, for example, interest-rate and loan-term memos, distributed only to business entities.
C. Notices required by federal or state law, if the law mandates that specific information be displayed and only the information so mandated is included in the notice.
D. News articles the use of which is controlled by the news medium.
E. Market-research or educational materials that do not solicit business.
F. Communications about an existing credit account (for example, a promotion encouraging additional or different uses of an existing credit card account.)
2.
1.
2.
3.
4.
1.
2.
1.
1.
2.
3.
4.
1.
2.
3.
1.
1.
2.
3.
1.
1.
2.
1.
i. Layaway plans, unless the consumer is contractually obligated to continue making payments. Whether the consumer is so obligated is a matter to be determined under applicable law. The fact that the consumer is not entitled to a refund of any amounts paid towards the cash price of the merchandise does not bring layaways within the definition of credit.
ii. Tax liens, tax assessments, court judgments, and court approvals of reaffirmation of debts in bankruptcy. However, third-party financing of such obligations (for example, a bank loan obtained to pay off a tax lien) is credit for purposes of the regulation.
iii. Insurance premium plans that involve payment in installments with each installment representing the payment for insurance coverage for a certain future period of time, unless the consumer is contractually obligated to continue making payments.
iv. Home improvement transactions that involve progress payments, if the consumer pays, as the work progresses, only for work completed and has no contractual obligation to continue making payments.
v. Borrowing against the accrued cash value of an insurance policy or a pension account, if there is no independent obligation to repay.
vi. Letters of credit.
vii. The execution of option contracts. However, there may be an extension of credit when the option is exercised, if there is an agreement at that time to defer payment of a debt.
viii. Investment plans in which the party extending capital to the consumer risks the loss of the capital advanced. This includes, for example, an arrangement with a home purchaser in which the investor pays a portion of the downpayment and of the periodic mortgage payments in return for an ownership interest in the property, and shares in any gain or loss of property value.
ix. Mortgage assistance plans administered by a government agency in which a portion of the consumer's monthly payment amount is paid by the agency. No finance charge is imposed on the subsidy amount, and that amount is due in a lump-sum payment on a set date or upon the occurrence of certain events. (If payment is not made when due, a new note imposing a finance charge may be written, which may then be subject to the regulation.)
2.
1.
2.
A. A card that guarantees checks or similar instruments, if the asset account is also tied to an overdraft line or if the instrument directly accesses a line of credit.
B. A card that accesses both a credit and an asset account (that is, a debit-credit card).
C. An identification card that permits the consumer to defer payment on a purchase.
D. An identification card indicating loan approval that is presented to a merchant or to a lender, whether or not the consumer signs a separate promissory note for each credit extension.
E. A card or device that can be activated upon receipt to access credit, even if the card has a substantive use other than credit, such as a purchase-price discount card. Such a card or device is a credit card notwithstanding the fact that the recipient must first contact the card issuer to access or activate the credit feature.
ii. In contrast, credit card does not include, for example:
A. A check-guarantee or debit card with no credit feature or agreement, even if the creditor occasionally honors an inadvertent overdraft.
B. Any card, key, plate, or other device that is used in order to obtain petroleum products for business purposes from a wholesale distribution facility or to gain access to that facility, and that is required to be used without regard to payment terms.
3.
1.
2.
3.
4.
5.
1.
1.
i.
A. A written (rather than oral) agreement to pay in more than four installments. A letter that merely confirms an oral agreement does not constitute a written agreement for purposes of the definition.
B. A finance charge imposed for the credit. The obligation to pay the finance charge need not be in writing.
ii.
2.
i. An auto dealer and a bank have a business relationship in which the bank supplies the dealer with credit sale contracts that are initially made payable to the dealer and provide for the immediate assignment of the obligation to the bank. The dealer and purchaser execute the contract only after the bank approves the creditworthiness of the purchaser. Because the obligation is initially payable on its face to the dealer, the dealer is the only creditor in the transaction.
3.
4.
5.
6.
7.
i. A bank is the trustee for three trusts. Trust A makes 15 extensions of consumer credit annually; Trust B makes 10 extensions of consumer credit annually; and Trust C makes 30 extensions of consumer credit annually. Only Trust C is a creditor for purposes of the regulation.
1.
1.
1.
2.
A. It is subtracted in arriving at the amount financed under § 226.18(b).
B. It may, but need not, be reflected in the payment schedule under § 226.18(g).
ii. If the pick-up payment does not meet the definition (for example, if it is payable after the second regularly scheduled payment) or if the creditor chooses not to treat it as part of the downpayment:
A. It must be included in the amount financed.
B. It must be shown in the payment schedule.
iii. Whichever way the pick-up payment is treated, the total of payments under § 226.18(h) must equal the sum of the payments disclosed under § 226.18(g).
3.
i.
ii.
A. If the downpayment disclosed is equal to the cash payment, the $2,000 deficit must be reflected as an additional amount financed under § 226.18(b)(2).
B. If the consumer provides $1,500 in cash (which does not extinguish the $2,000 deficit), the creditor may disclose a downpayment of $1,500 or of $0.
C. If the consumer provides $3,000 in cash, the creditor may disclose a downpayment of $3,000 or of $1,000.
1.
2.
3.
1.
2.
3.
4.
5.
i. Under a closed-end commitment, the creditor might agree to lend a total of $10,000 in a series of advances as needed by the consumer. When a consumer has borrowed the full $10,000, no more is advanced under that particular agreement, even if there has been repayment of a portion of the debt. (
ii. This criterion does not mean that the creditor must establish a specific credit limit for the line of credit or that the line of credit must always be replenished to its original amount. The creditor may reduce a credit limit or refuse to extend new credit in a particular case due to changes in the creditor's financial condition or the consumer's creditworthiness. (The rules in § 226.5b(f), however, limit the ability of a creditor to suspend credit advances for home equity plans.) While consumers should have a reasonable expectation of obtaining credit as long as they remain current and within any preset credit limits, further extensions of credit need not be an absolute right in order for the plan to meet the self-replenishing criterion.
6.
7.
1.
i. May disclose a
ii. Would have to apply the rate to the balance to disclose the annual percentage rate with the degree of accuracy required in the regulation (that is, within
2.
1.
2.
3.
1.
2.
A. Buyer's points.
B. Service fees.
C. Loan fees.
D. Finder's fees.
E. Loan-guarantee insurance.
F. Credit-investigation fees.
ii. However, in order for these or any other finance charges to be considered prepaid, they must be either paid separately in cash or check or withheld from the proceeds. Prepaid finance charges include any portion of the finance charge paid prior to or at closing or settlement.
3.
4.
1.
i. Section 226.4(c)(7)—exclusions from the finance charge.
ii. Section 226.15(f)—exemption from the right of rescission.
iii. Section 226.18(q)—whether or not the obligation is assumable.
iv. Section 226.20(b)—disclosure requirements for assumptions.
v. Section 226.23(f)—exemption from the right of rescission.
2.
3.
4.
i. The creditor makes a construction loan to finance the initial construction of the consumer's principal dwelling, and the loan will be disbursed in five advances. The creditor gives six sets of disclosures (five for the construction phase and one for the permanent phase). Each one is a residential mortgage transaction.
ii. One creditor finances the initial construction of the consumer's principal dwelling and another creditor makes a loan to satisfy the construction loan and provide permanent financing. Both transactions are residential mortgage transactions.
5.
ii. Examples of new transactions involving a previously acquired dwelling include the financing of a balloon payment due under a land sale contract and an extension of credit made to a joint owner of property to buy out the other joint owner's interest. In these instances, disclosures are not required under § 226.18(q) (assumability policies). However, the rescission rules of §§ 226.15 and 226.23 do apply to these new transactions.
iii. In other cases, the disclosure and rescission rules do not apply. For example, where a buyer enters into a written agreement with the creditor holding the seller's mortgage, allowing the buyer to assume the mortgage, if the buyer had previously purchased the property and agreed with the seller to make the mortgage payments, § 226.20(b) does not apply (assumptions involving residential mortgages).
6.
7.
1.
2.
3.
A. Assignment of rents.
B. Right to condemnation proceeds.
C. Interests in accessories and replacements.
D. Interests in escrow accounts, such as for taxes and insurance.
E. Waiver of homestead or personal property rights.
ii. The notion of an
4.
5.
6.
1.
2.
1.
1.
2.
i.
ii.
3.
i.
A. The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
B. The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.
C. The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.
D. The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
E. The borrower's statement of purpose for the loan.
ii.
A. A loan to expand a business, even if it is secured by the borrower's residence or personal property.
B. A loan to improve a principal residence by putting in a business office.
C. A business account used occasionally for consumer purposes.
iii.
A. Credit extensions by a company to its employees or agents if the loans are used for personal purposes.
B. A loan secured by a mechanic's tools to pay a child's tuition.
C. A personal account used occasionally for business purposes.
4.
5.
i. Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than 2 housing units.
ii. Credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than 4 housing units. Since the amended statute defines dwelling to include 1 to 4 housing units, this rule preserves the right of rescission for credit extended for purposes other than acquisition. Neither of these rules means that an extension of credit for property containing fewer than the requisite number of units is necessarily consumer credit. In such cases, the determination of whether it is business or consumer credit should be made by considering the factors listed in comment 3(a)-3.
6.
7.
8.
9.
10.
1.
2.
A. The creditor makes a firm commitment to lend over $25,000 with no requirement of additional credit information for any advances (except as permitted from time to time pursuant to § 226.2(a)(20)).
B. The initial extension of credit on the line exceeds $25,000.
ii. If a security interest is taken at a later time in any real property, or in personal property used or expected to be used as the consumer's principal dwelling, the plan would no longer be exempt. The creditor must comply with all of the requirements of the regulation including, for example, providing the consumer with an initial disclosure statement. If the security interest being added is in the consumer's principal dwelling, the creditor must also give the consumer the right to rescind the security interest. (See the commentary to § 226.15 concerning the right of rescission.)
3.
1.
i.
A. Gas, water, or electrical services.
B. Cable television services.
C. Installation of new sewer lines, water lines, conduits, telephone poles, or metering equipment in an area not already serviced by the utility.
ii.
A. To purchase appliances such as gas or electric ranges, grills, or telephones.
B. To finance home improvements such as new heating or air conditioning systems.
1.
1.
1.
1.
i. For example, the following items are not finance charges:
A. Taxes, license fees, or registration fees paid by both cash and credit customers.
B. Discounts that are available to cash and credit customers, such as quantity discounts.
C. Discounts available to a particular group of consumers because they meet certain criteria, such as being members of an organization or having accounts at a particular financial institution. This is the case even if an individual must pay cash to obtain the discount, provided that credit customers who are members of the group and do not qualify for the discount pay no more than the nonmember cash customers.
D. Charges for a service policy, auto club membership, or policy of insurance against latent defects offered to or required of both cash and credit customers for the same price.
ii. In contrast, the following items are finance charges:
A. Inspection and handling fees for the staged disbursement of construction-loan proceeds.
B. Fees for preparing a Truth in Lending disclosure statement, if permitted by law (for example, the Real Estate Settlement Procedures Act prohibits such charges in certain transactions secured by real property).
C. Charges for a required maintenance or service contract imposed only in a credit transaction.
iii. If the charge in a credit transaction exceeds the charge imposed in a comparable cash transaction, only the difference is a finance charge. For example:
A. If an escrow agent is used in both cash and credit sales of real estate and the agent's charge is $100 in a cash transaction and $150 in a credit transaction, only $50 is a finance charge.
2.
i. A discount imposed on a credit obligation when it is assigned by a seller-creditor to another party is not a finance charge as long as the discount is not separately imposed on the consumer. (See § 226.4(b)(6).)
ii. A tax imposed by a state or other governmental body on a creditor is not a finance charge if the creditor absorbs the tax as a cost of doing business and does not separately impose the tax on the consumer. (For additional discussion of the treatment of taxes, see other commentary to § 226.4(a).)
3.
i. A consumer borrows $5,000 for 90 days and secures it with a $10,000 certificate of deposit paying 15% interest. The creditor charges the consumer an interest rate of 6% on the loan and stops paying interest on $5,000 of the $10,000 certificate for the term of the loan. The interest lost is a finance charge and must be reflected in the annual percentage rate on the loan.
ii. However, the consumer must be entitled to the interest that is not paid in order for the lost interest to be a finance charge. For example:
A. A consumer wishes to buy from a financial institution a $10,000 certificate of deposit paying 15% interest but has only $4,000. The financial institution offers to lend the consumer $6,000 at an interest rate of 6% but will pay the 15% interest only on the amount of the consumer's deposit, $4,000. The creditor's failure to pay interest on the $6,000 does not result in an additional finance charge on the extension of credit, provided the consumer is entitled by the deposit agreement with the financial institution to interest only on the amount of the consumer's deposit.
B. A consumer enters into a combined time deposit/credit agreement with a financial institution that establishes a time deposit account and an open-end line of credit. The line of credit may be used to borrow against the funds in the time deposit. The agreement provides for an interest rate on any credit extension of, for example, 1%. In addition, the agreement states that the creditor will pay 0% interest on the amount of the time deposit that corresponds to the amount of the credit extension(s). The interest that is not paid on the time deposit by the financial institution is not a finance charge (and therefore does not affect the annual percentage rate computation).
4.
i. Any charge imposed on a credit cardholder by a card issuer for the use of an automated teller machine (ATM) to obtain a cash advance (whether in a proprietary, shared, interchange, or other system) is a finance charge regardless of whether the card issuer imposes a charge on its debit cardholders for using the ATM to withdraw cash from a consumer asset account, such as a checking or savings account.
ii. Any charge imposed on a credit cardholder for making a purchase or obtaining a cash advance outside the United States, with a foreign merchant, or in a foreign currency is a finance charge, regardless of whether a charge is imposed on debit cardholders for such transactions. The following principles apply in determining what is a foreign transaction fee and the amount of the fee:
A. Included are fees imposed when transactions are made in a foreign currency and converted to U.S. dollars; fees imposed when transactions are made in U.S. dollars outside the U.S.; and fees imposed when transactions are made (whether in a foreign currency or in U.S. dollars) with a foreign merchant, such as via a merchant's Web site. For example, a consumer may use a credit card to make a purchase in Bermuda, in U.S. dollars, and the card issuer may impose a fee because the transaction took place outside the United States.
B. Included are fees imposed by the card issuer and fees imposed by a third party that performs the conversion, such as a credit card network or the card issuer's corporate parent. (For example, in a transaction processed through a credit card network, the network may impose a 1 percent charge and the card-issuing bank may impose an additional 2 percent charge, for a total of a 3 percentage point foreign transaction fee being imposed on the consumer.)
C. Fees imposed by a third party are included only if they are directly passed on to the consumer. For example, if a credit card network imposes a 1 percent fee on the card issuer, but the card issuer absorbs the fee as a cost of doing business (and only passes it on to consumers in the general sense that the interest and fees are imposed on all its customers to recover its costs), then the fee is not a foreign transaction fee and need not be disclosed. In another example, if the credit card network imposes a 1 percent fee for a foreign transaction on the card issuer, and the card issuer imposes this same fee on the consumer who engaged in the foreign transaction, then the fee is a foreign transaction fee and a finance charge.
D. A card issuer is not required to disclose a fee imposed by a merchant. For example, if the merchant itself performs the currency conversion and adds a fee, this fee need not be disclosed by the card issuer. Under § 226.9(d), a card issuer is not obligated to disclose finance charges imposed by a party honoring a credit card, such as a merchant, although the merchant is required to disclose such a finance charge if the merchant is subject to the Truth in Lending Act and Regulation Z.
E. The foreign transaction fee is determined by first calculating the dollar amount of the transaction by using a currency conversion rate outside the card issuer's and third party's control. Any amount in excess of that dollar amount is a foreign transaction fee. Conversion rates outside the card issuer's and third party's control include, for example, a rate selected from the range of rates available in the wholesale currency exchange markets, an average of the highest and lowest rates available in such markets, or a government-mandated or government-managed exchange rate (or a rate selected from a range of such rates).
F. The rate used for a particular transaction need not be the same rate that the card issuer (or third party) itself obtains in its currency conversion operations. In addition, the rate used for a particular transaction need not be the rate in effect on the date of the transaction (purchase or cash advance).
5.
i. Generally, a tax imposed by a state or other governmental body solely on a creditor is a finance charge if the creditor separately imposes the charge on the consumer.
ii. In contrast, a tax is not a finance charge (even if it is collected by the creditor) if applicable law imposes the tax:
A. Solely on the consumer;
B. On the creditor and the consumer jointly;
C. On the credit transaction, without indicating which party is liable for the tax; or
D. On the creditor, if applicable law directs or authorizes the creditor to pass the tax on to the consumer. (For purposes of this section, if applicable law is silent as to passing on the tax, the law is deemed not to authorize passing it on.)
iii. For example, a stamp tax, property tax, intangible tax, or any other state or local tax imposed on the consumer, or on the credit transaction, is not a finance charge even if the tax is collected by the creditor.
iv. In addition, a tax is not a finance charge if it is excluded from the finance charge by another provision of the regulation or commentary (for example, if the tax is imposed uniformly in cash and credit transactions).
1.
2.
i. The credit documents reflect the purchase of an annuity from a specific provider or providers.
ii. The creditor assesses an additional charge on consumers who do not purchase an annuity from a specific provider.
iii. The annuity is intended to replace in whole or in part the creditor's payments to the consumer either immediately or at some future date.
1.
2.
1.
2.
3.
1.
i. Premiums for credit life insurance, shown as an example of a finance charge under § 226.4(b)(7), may be excluded if the requirements of § 226.4(d)(1) are met.
ii. Appraisal fees mentioned in § 226.4(b)(4) are excluded for real property or residential mortgage transactions under § 226.4(c)(7).
1.
i. A $5 service charge is imposed on an account with an overdraft line of credit (where the institution has agreed in writing to pay an overdraft), while a $3 service charge is imposed on an account without a credit feature; the $2 difference is a finance charge. (If the difference is not related to account activity, however, it may be excludable as a participation fee. See the commentary to § 226.4(c)(4).)
ii. A $5 service charge is imposed for each item that results in an overdraft on an account with an overdraft line of credit, while a $25 service charge is imposed for paying or returning each item on a similar account without a credit feature; the $5 charge is not a finance charge.
1.
1.
2.
1.
2.
3.
4.
i. The premium for a hospitalization insurance policy, if it is required to be purchased only in a credit transaction, is a finance charge.
1.
i. The seller of land offers individual tracts for $10,000 each. If the purchaser pays cash, the price is $9,000, but if the purchaser finances the tract with the seller the price is $10,000. The $1,000 difference is a finance charge for those who buy the tracts on credit.
2.
i. Creditors may exclude from the finance charge discounts offered to consumers for using cash or another means of payment instead of using a credit card or an open-end plan. The discount may be in whatever amount the seller desires, either as a percentage of the regular price (as defined in section 103(z) of the act, as amended) or a dollar amount. Pursuant to section 167(b) of the act, this provision applies only to transactions involving an open-end credit plan or a credit card (whether open-end or closed-end credit is extended on the card). The merchant must offer the discount to prospective buyers whether or not they are cardholders or members of the open-end credit plan. The merchant may, however, make other distinctions. For example:
A. The merchant may limit the discount to payment by cash and not offer it for payment by check or by use of a debit card.
B. The merchant may establish a discount plan that allows a 15% discount for payment by cash, a 10% discount for payment by check, and a 5% discount for payment by a particular credit card. None of these discounts is a finance charge.
ii. Pursuant to section 171(c) of the act, discounts excluded from the finance charge under this paragraph are also excluded from treatment as a finance charge or other charge for credit under any state usury or disclosure laws.
3.
i. The
ii. For example, in the sale of motor vehicle fuel, the tagged or posted price is the price displayed at the pump. As a result, the higher price (the open-end credit or credit card price) must be displayed at the pump, either alone or along with the cash price. Service station operators may designate separate pumps or separate islands as being for either cash or credit purchases and display only the appropriate prices at the various pumps. If a pump is capable of displaying on its meter either a cash or a credit price depending upon the consumer's means of payment, both the cash price and the credit price must be displayed at the pump. A service station operator may display the cash price of fuel by itself on a curb sign, as long as the sign clearly indicates that the price is limited to cash purchases.
1.
2.
1.
1.
i. Late-payment charges can be excluded from the finance charge under § 226.4(c)(2) whether or not the person imposing the charge continues to extend credit on the account or continues to provide property or services to the consumer. In determining whether a charge is for actual unanticipated late payment on a 30-day account, for example, factors to be considered include:
A. The terms of the account. For example, is the consumer required by the account terms to pay the account balance in full each month? If not, the charge may be a finance charge.
B. The practices of the creditor in handling the accounts. For example, regardless of the terms of the account, does the creditor allow consumers to pay the accounts over a period of time without demanding payment in full or taking other action to collect? If no effort is made to collect the full amount due, the charge may be a finance charge.
ii. Section 226.4(c)(2) applies to late-payment charges imposed for failure to make payments as agreed, as well as failure to pay an account in full when due.
2.
1.
1.
2.
1.
2.
1.
1.
2.
3.
1.
2.
3.
4.
i.
ii.
5.
6.
7.
8.
9.
i. The insurer waives any right of subrogation.
ii. The other requirements of § 226.4(d)(2) are met. This includes, of course, giving the consumer the option of obtaining the insurance from a person of the consumer's choice. The creditor need not ascertain whether the consumer is able to purchase the insurance from someone else.
10.
11.
i. The initial term of insurance or debt cancellation or debt suspension coverage determines the period for which a premium amount must be disclosed, unless one of the options discussed under comment 4(d)-12 is available. For purposes of § 226.4(d), the initial term is the period for which the insurer or creditor is obligated to provide coverage, even though the consumer may be allowed to cancel the coverage or coverage may end due to nonpayment before that term expires.
ii. For example:
A. The initial term of a property insurance policy on an automobile that is written for one year is one year even though premiums are paid monthly and the term of the credit transaction is four years.
B. The initial term of an insurance policy is the full term of the credit transaction if the consumer pays or finances a single premium in advance.
12.
i.
A. The initial term is indefinite or not clear, or
B. The consumer has agreed to pay a premium or fee that is assessed periodically but the consumer is under no obligation to continue the coverage, whether or not the consumer has made an initial payment.
ii.
iii.
A. A credit life insurance policy providing coverage for a 30-year mortgage loan has an initial term of 30 years, even though premiums are paid monthly and the consumer is not required to continue the coverage. Disclosures may be based on the initial term, but the creditor also has the option of making disclosures on the basis of coverage for an assumed initial term of one year.
13.
1.
2.
3.
4.
1.
1.
i.
ii.
2.
3.
i. The document to be notarized is one used to perfect, release, or continue a security interest.
ii. The document is required by law to be notarized.
iii. A notary is considered a public official under applicable law.
iv. The amount of the fee is set or authorized by law.
4.
i. The fee for perfecting a security interest is $5.00 and the fee for releasing the security interest is $3.00. The creditor charges $10.00 for nonfiling insurance. Only $8.00 of the $10.00 is excludable from the finance charge.
1.
1.
2.
i. Pluralizing required terminology (“finance charge” and “annual percentage rate”).
ii. Adding to the required disclosures such items as contractual provisions, explanations of contract terms, state disclosures, and translations.
iii. Sending promotional material with the required disclosures.
iv. Using commonly accepted or readily understandable abbreviations (such as “mo.” for “month” or “Tx.” for “Texas”) in making any required disclosures.
v. Using codes or symbols such as “APR” (for annual percentage rate), “FC” (for finance charge), or “Cr” (for credit balance), so long as a legend or description of the code or symbol is provided on the disclosure statement.
3.
4.
i. Multiple pages provided in the same envelope that cover related material and are folded together, numbered consecutively, or clearly labeled to show that they relate to one another; or
ii. A brochure that contains disclosures and explanatory material about a range of services the creditor offers, such as credit, checking account, and electronic fund transfer features
5.
1.
1.
1.
i. In disclosing the annual percentage rate as required by § 226.6(a)(1)(ii), the term
ii. In disclosing the amount of the finance charge, required by § 226.7(a)(6)(i), the term
iii. Although neither
2.
i. Capitalizing the words when other disclosures are printed in lower case.
ii. Putting them in bold print or a contrasting color.
iii. Underlining them.
iv. Setting them off with asterisks.
v. Printing them in larger type.
3.
4.
1.
i.
ii.
2.
3.
4.
5.
1.
1.
1.
2.
3.
4.
1.
i. If the creditor adjusts an account balance so that at the end of the cycle the balance is less than $1—so long as no finance charge has been imposed on the account for that cycle.
ii. If a statement was returned as undeliverable. If a new address is provided, however, within a reasonable time before the creditor must send a statement, the creditor must resume sending statements. Receiving the address at least 20 days before the end of a cycle would be a reasonable amount of time to prepare the statement for that cycle. For example, if an address is received 22 days before the end of the June cycle, the creditor must send the periodic statement for the June cycle. (See § 226.13(a)(7).)
2.
3.
4.
1.
i. If current debits retroactively become subject to finance charges when the balance is not paid in full by a specified date.
ii. For open-end plans not subject to 12 CFR part 227, subpart C; 12 CFR part 535, subpart C; or 12 CFR part 706, subpart C, if charges other than finance charges will accrue when the consumer does not make timely payments (for example, late payment charges or charges for exceeding a credit limit). (For consumer credit card accounts subject to 12 CFR part 227, subpart C; 12 CFR part 535, subpart C; or 12 CFR part 706, subpart C, see 12 CFR 227.22, 12 CFR 535.22, or 12 CFR 706.22, as applicable.)
2.
1.
2.
1.
i. The legal obligation is determined by applicable state or other law.
ii. The fact that a term or contract may later be deemed unenforceable by a court on the basis of equity or other grounds does not, by itself, mean that disclosures based on that term or contract did not reflect the legal obligation.
iii. The legal obligation normally is presumed to be contained in the contract that evidences the agreement. But this may be rebutted if another agreement between the parties legally modifies that contract.
2.
3.
1.
i. Creditors must choose which of them will make the disclosures.
ii. A single, complete set of disclosures must be provided, rather than partial disclosures from several creditors.
iii. All disclosures for the open-end credit plan must be given, even if the disclosing creditor would not otherwise have been obligated to make a particular disclosure.
2.
3.
1.
2.
i. Should clearly refer to the disclosure provision it replaces.
ii. Need not be physically attached or affixed to the basic disclosure statement.
iii. May be used only until the supply of outdated forms is exhausted.
1.
2.
3.
1.
1.
ii.
A. The disclosures could automatically appear on the screen when the application or reply form appears;
B. The disclosures could be located on the same Web page as the application or reply form (whether or not they appear on the initial screen), if the application or reply form contains a clear and conspicuous reference to the location of the disclosures and indicates that the disclosures contain rate, fee, and other cost information, as applicable;
C. Card issuers could provide a link to the electronic disclosures on or with the application (or reply form) as long as consumers cannot bypass the disclosures before submitting the application or reply form. The link would take the consumer to the disclosures, but the consumer need not be required to scroll completely through the disclosures; or
D. The disclosures could be located on the same Web page as the application or reply form without necessarily appearing on the initial screen, immediately preceding the button that the consumer will click to submit the application or reply.
Whatever method is used, a card issuer need not confirm that the consumer has read the disclosures.
2.
3.
4.
5.
ii.
iii.
6.
i. If a consumer accesses a credit card application or solicitation electronically (other than as described under ii. below), such as on-line at a home computer, the card issuer must provide the disclosures in electronic form (such as with the application or solicitation on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application or solicitation. If the issuer instead mailed paper disclosures to the consumer, this requirement would not be met.
ii. In contrast, if a consumer is physically present in the card issuer's office, and accesses a credit card application or solicitation electronically, such as via a terminal or kiosk (or if the consumer uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the card issuer to provide applications or solicitations to consumers), the issuer may provide disclosures in either electronic or paper form, provided the issuer complies with the timing and delivery (“on or with”) requirements of the regulation.
7.
1.
1.
1.
2.
1.
2.
3.
ii.
iii.
4.
5.
ii.
iii.
6.
ii.
iii.
7.
8.
1.
2.
3.
i. Fees for reissuing a lost or stolen card.
ii. Statement reproduction fees.
4.
5.
1.
2.
1.
2.
1.
2.
3.
1.
2.
1.
1.
2.
3.
1.
1.
1.
1.
2.
1.
1.
1.
A. A telephone conversation between a card issuer and consumer may result in the issuance of a card as a consequence of an issuer-initiated offer to open an account for
B. The card issuer initiates the contact and at the same time takes application information over the telephone.
ii. This paragraph does not apply to:
A. Telephone applications initiated by the consumer.
B. Situations where no card will be issued—because, for example, the consumer indicates that he or she does not want the card, or the card issuer decides either during the telephone conversation or later not to issue the card.
2.
3.
1.
2.
3.
1.
2.
1.
1.
2.
3.
1.
A. An in-person conversation between a card issuer and a consumer may result in the issuance of a card as a consequence of an issuer-initiated offer to open an account for which the issuer does not require any application (that is, a
B. The card issuer initiates the contact and at the same time takes application information in person. For example, the following are covered:
ii. This paragraph does not apply to:
A. In-person applications initiated by the consumer.
B. Situations where no card will be issued—because, for example, the consumer indicates that he or she does not want the card, or the card issuer decides during the in-person conversation not to issue the card.
1.
i.
ii.
1.
4.
1.
2.
1.
i. If only one periodic rate may be applied to the entire account balance.
ii. If only one periodic rate may be applied to the entire balance for a feature (for example, cash advances), even though the balance for another feature (purchases) may be subject to two rates (a 1.5% monthly periodic rate on purchase balances of $0-$500, and a 1% monthly periodic rate for balances above $500). In this example, the creditor must give a range of balances disclosure for the purchase feature.
2.
i.
A. Rate changes that are tied to the rate the creditor pays on its six-month certificates of deposit.
B. Rate changes that are tied to Treasury bill rates.
C. Rate changes that are tied to changes in the creditor's commercial lending rate.
ii. An open-end credit plan in which the employee receives a lower rate contingent upon employment (that is, with the rate to be increased upon termination of employment) is not a variable-rate plan.
3.
4.
5.
6.
i. Circumstances under which the rate(s) may increase include, for example:
A. An increase in the Treasury bill rate.
B. An increase in the Federal Reserve discount rate.
ii. The creditor must disclose when the increase will take effect; for example:
A. “An increase will take effect on the day that the Treasury bill rate increases,” or
B. “An increase in the Federal Reserve discount rate will take effect on the first day of the creditor's billing cycle.”
7.
i. “The rate on the plan will not exceed 25% annual percentage rate.”
ii. “Not more than
8.
i. Any requirement for additional collateral if the annual percentage rate increases beyond a specified rate.
ii. Any increase in the scheduled minimum periodic payment amount.
9.
10.
i. For example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the current Treasury bill rate is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent, or the creditor may disregard the index or formula and set the initial rate at 9 percent.
ii. When creditors use an initial rate that is not calculated using the index or formula for later rate adjustments, the account-opening disclosure statement should reflect:
A. The initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long the initial rate will remain in effect;
B. The current rate that would have been applied using the index or formula (also expressed as a periodic rate and a corresponding annual percentage rate); and
C. The other variable-rate information required in § 226.6(a)(1)(ii).
iii. In disclosing the current periodic and annual percentage rates that would be applied using the index or formula, the creditor may use any of the disclosure options described in comment 6(a)(1)(ii)-3.
11.
1.
2.
1.
1.
i. Late-payment and over-the-credit-limit charges.
ii. Fees for providing documentary evidence of transactions requested under § 226.13 (billing error resolution).
iii. Charges imposed in connection with residential mortgage transactions or real estate transactions such as title, appraisal, and credit-report fees (see § 226.4(c)(7)).
iv. A tax imposed on the credit transaction by a state or other governmental body, such as a documentary stamp tax on cash advances (See the commentary to § 226.4(a)).
v. A membership or participation fee for a package of services that includes an open-end credit feature, unless the fee is required whether or not the open-end credit feature is included. For example, a membership fee to join a credit union is not an “other charge,” even if membership is required to apply for credit. For example, if the primary benefit of membership in an organization is the opportunity to apply for a credit card, and the other benefits offered (such as a newsletter or a member information hotline) are merely incidental to the credit feature, the membership fee would be disclosed as an “other charge.”
vi. Charges imposed for the termination of an open-end credit plan.
2.
i. Fees charged for documentary evidence of transactions for income tax purposes.
ii. Amounts payable by a consumer for collection activity after default; attorney's fees, whether or not automatically imposed; foreclosure costs; post-judgment interest rates imposed by law; and reinstatement or reissuance fees.
iii. Premiums for voluntary credit life or disability insurance, or for property insurance, that are not part of the finance charge.
iv. Application fees under § 226.4(c)(1).
v. A monthly service charge for a checking account with overdraft protection that is applied to all checking accounts, whether or not a credit feature is attached.
vi. Charges for submitting as payment a check that is later returned unpaid (See commentary to § 226.4(c)(2)).
vii. Charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system. (See also comment 7(a)(2)-2.)
viii. Taxes and filing or notary fees excluded from the finance charge under § 226.4(e).
ix. A fee to expedite delivery of a credit card, either at account opening or during the life of the account, provided delivery of the card is also available by standard mail service (or other means at least as fast) without paying a fee for delivery.
x. A fee charged for arranging a single payment on the credit account, upon the consumer's request (regardless of how frequently the consumer requests the service), if the credit plan provides that the consumer may make payments on the account by another reasonable means, such as by standard mail service, without paying a fee to the creditor.
1.
2.
3.
i. The payment-example disclosure in § 226.5b(d)(5)(iii) and the variable-rate information in § 226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii) need not be provided with the disclosures under § 226.6 if the disclosures under § 226.5b(d) were provided in a form the consumer could keep; and the disclosures of the payment example under § 226.5b(d)(5)(iii), the maximum-payment example under § 226.5b(d)(12)(x) and the historical table under § 226.5b(d)(12)(xi) included a representative payment example for the category of payment options the consumer has chosen.
ii. For example, if a creditor offers three payment options (one for each of the categories described in the commentary to § 226.5b(d)(5)), describes all three options in its early disclosures, and provides all of the disclosures in a retainable form, that creditor need not provide the § 226.5b(d)(5)(iii) or (d)(12) disclosures again when the account is opened. If the creditor showed only one of the three options in the early disclosures (which would be the case with a separate disclosure form rather than a combined form, as discussed under § 226.5b(a)), the disclosures under § 226.5b(d)(5)(iii), (d)(12)(viii), (d)(12)(x), (d)(12)(xi) and (d)(12)(xii) must be given to any consumer who chooses one of the other two options. If the § 226.5b(d)(5)(iii) and (d)(12) disclosures are provided with the second set of disclosures, they need not be transaction-specific, but may be based on a representative example of the category of payment option chosen.
4.
1.
2.
3.
4.
5.
1.
1.
i. Creditors must use the accuracy standard for annual percentage rates in § 226.6(b)(4)(ii)(G).
ii. Generally, creditors must disclose the specific rate for each feature that applies to the account. If the rates on an open-end (not home-secured) plan vary by State and the creditor is providing the account-opening table in person at the time the plan is established in connection with financing the purchase of goods or services the creditor may, at its option, disclose in the account-opening table the rate applicable to the consumer's account, or the range of rates, if the disclosure includes a statement that the rate varies by State and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the rate applicable to the consumer's account is disclosed.
iii. Creditors must explain whether or not a grace period exists for all features on the account. The row heading “Paying Interest” must be used if any one feature on the account does not have a grace period.
iv. Creditors must name the balance computation method used for each feature of the account and state that an explanation of the balance computation method(s) is provided in the account-opening disclosures.
v. Creditors must state that consumers' billing rights are provided in the account-opening disclosures.
vi. If fees on an open-end (not home-secured) plan vary by State and the creditor is providing the account-opening table in person at the time the plan is established in connection with financing the purchase of goods or services the creditor may, at its option, disclose in the account-opening table the specific fee applicable to the consumer's account, or the range of fees, if the disclosure includes a statement that the amount of the fee varies by State and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the fee applicable to the consumer's account is disclosed.
vii. Creditors that must disclose the amount of available credit must state the initial credit limit provided on the account.
viii. Creditors must disclose directly beneath the table the circumstances under which an introductory rate may be revoked and the rate that will apply after the introductory rate is revoked only if the introductory rate is disclosed pursuant to § 226.6(b)(2)(i)(B) in the account-opening table. Creditors subject to 12 CFR 227.24 or similar law are subject to limitations on the circumstances under which an introductory rate may be revoked. (See comment 5a(b)(1)-4 for guidance on how a creditor subject to 12 CFR 227.24 or similar law may disclose the circumstances under which an introductory rate may be revoked.)
ix. The applicable forms providing safe harbors for account-opening tables are under Appendix G-17 to part 226.
2.
3.
1.
1.
2.
3.
1.
1.
1.
2.
3.
1.
2.
i.
ii.
iii.
3.
1.
1.
i. If only one periodic interest rate may be applied to the entire account balance.
ii. If only one periodic interest rate may be applied to the entire balance for a feature (for example, cash advances), even though the balance for another feature (purchases) may be subject to two rates (a 1.5% monthly periodic interest rate on purchase balances of $0—$500, and a 1% periodic interest rate for balances above $500). In this example, the creditor must give a range of balances disclosure for the purchase feature.
1.
2.
1.
i.
A. Rate changes that are tied to the rate the creditor pays on its six-month certificates of deposit.
B. Rate changes that are tied to Treasury bill rates.
C. Rate changes that are tied to changes in the creditor's commercial lending rate.
ii. Examples of open-end plans that permit the rate to change and are not considered variable-rate include:
A. Rate changes that are invoked under a creditor's contract reservation to increase the rate without reference to such an index or formula (for example, a plan that simply provides that the creditor reserves the right to raise its rates).
B. Rate changes that are triggered by a specific event such as an open-end credit plan in which the employee receives a lower rate contingent upon employment, and the rate increases upon termination of employment.
2.
i. The following are examples that comply with the requirement to disclose circumstances under which the rate(s) may increase:
A. “The Treasury bill rate increases.”
B. “The Federal Reserve discount rate increases.”
ii. Disclosing the frequency with which the rate may increase includes disclosing when the increase will take effect; for example:
A. “An increase will take effect on the day that the Treasury bill rate increases.”
B. “An increase in the Federal Reserve discount rate will take effect on the first day of the creditor's billing cycle.”
3.
i. “The rate on the plan will not exceed 25% annual percentage rate.”
ii. “Not more than
4.
i. Any requirement for additional collateral if the annual percentage rate increases beyond a specified rate.
ii. Any increase in the scheduled minimum periodic payment amount.
5.
i. For example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the current Treasury bill rate is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent, or the creditor may disregard the index or formula and set the initial rate at 9 percent.
ii. When creditors disclose in the account-opening disclosures an initial rate that is not calculated using the index or formula for later rate adjustments, the disclosure should reflect:
A. The initial rate (expressed as a periodic rate and a corresponding annual percentage rate), together with a statement of how long the initial rate will remain in effect;
B. The current rate that would have been applied using the index or formula (also expressed as a periodic rate and a corresponding annual percentage rate); and
C. The other variable-rate information required by § 226.6(b)(4)(ii).
1.
i.
ii.
2.
i.
ii.
3.
1.
1.
2.
3.
4.
5.
1. See the commentary to Model Forms G-3(A) and G-4(A).
1.
1.
2.
3.
1.
2.
1.
2.
3.
4.
1.
i. If the consumer's account has both a purchase feature and a cash advance feature, the creditor must disclose the rate for each, even if the consumer only makes purchases on the account during the billing cycle.
ii. If the rate varies (such as when it is tied to a particular index), the creditor must disclose each rate in effect during the cycle for which the statement was issued.
2.
i. If the creditor is changing rates effective during the next billing cycle (because of a variable-rate plan), the rates required to be disclosed under § 226.7(a)(4) are only those in effect during the billing cycle reflected on the periodic statement. For example, if the monthly rate applied during May was 1.5%, but the creditor will increase the rate to 1.8% effective June 1, 1.5% (and its corresponding annual percentage rate) is the only required disclosure under § 226.7(a)(4) for the periodic statement reflecting the May account activity.
ii. If rates applicable to a particular type of transaction changed after a certain date and the old rate is only being applied to transactions that took place prior to that date, the creditor need not continue to disclose the old rate for those consumers that have no outstanding balances to which that rate could be applied.
3.
i. Disclose each periodic rate, the range of balances to which it is applicable, and the corresponding annual percentage rate for each. (For example, 1.5% monthly, 18% annual percentage rate; 0.1% monthly, 1.2% annual percentage rate.)
ii. Disclose one composite periodic rate (that is, 1.6% per month) along with the applicable range of balances and the corresponding annual percentage rate.
4.
5.
6.
1.
2.
3.
4.
5.
ii. If a single daily periodic rate is imposed, the balance to which it is applicable may be stated as:
A. A balance for each day in the billing cycle.
B. A balance for each day in the billing cycle on which the balance in the account changes.
C. The sum of the daily balances during the billing cycle.
D. The average daily balance during the billing cycle, in which case the creditor shall explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of the finance charge.
iii. If two or more daily periodic rates may be imposed, the balances to which the rates are applicable may be stated as:
A. A balance for each day in the billing cycle.
B. A balance for each day in the billing cycle on which the balance in the account changes.
C. Two or more average daily balances, each applicable to the daily periodic rates imposed for the time that those rates were in effect, as long as the creditor explains that the finance charge is or may be determined by (
6.
7.
8.
9.
1.
2.
3.
4.
5.
6.
7.
8.
1.
2.
3.
4.
1.
2.
1.
1.
2.
1.
2.
3.
1.
i.
ii.
iii.
iv.
A. The creditor could include the $500 purchase on the periodic statement reflecting account activity for February and sent on March 1 and identify March 31 as the payment-due date for the $500 purchase. (The creditor could also identify March 31 as the payment-due date for any other amounts that would normally be due on March 25.)
B. The creditor could include the $500 purchase on the periodic statement reflecting activity for March and sent on April 1 and identify April 25 as the payment-due date for the $500 purchase, permitting the consumer to avoid finance charges if the $500 is paid in full by April 25.
C. The creditor could include the $500 purchase and its due date on each periodic statement sent during the deferred interest period (January, February, and March in this example).
D. If the due date for the deferred interest balance is March 7 (instead of March 31), the creditor could include the $500 purchase and its due date on the periodic statement reflecting activity for January and sent on February 1, the most recent statement sent at least 14 days prior to the due date.
7
1.
2.
3.
1.
2.
1.
2.
3.
1.
i. If the consumer's account has both a purchase feature and a cash advance feature, the creditor must disclose the annual percentage rate for each, even if the consumer only makes purchases on the account during the billing cycle.
ii. If the annual percentage rate varies (such as when it is tied to a particular index), the creditor must disclose each annual percentage rate in effect during the cycle for which the statement was issued.
2.
i. If the creditor is changing annual percentage rates effective during the next billing cycle (either because it is changing terms or because of a variable-rate plan), the annual percentage rates required to be disclosed under § 226.7(b)(4) are only those in effect during the billing cycle reflected on the periodic statement. For example, if the annual percentage rate applied during May was 18%, but the creditor will increase the rate to 21% effective June 1, 18% is the only required disclosure under § 226.7(b)(4) for the periodic statement reflecting the May account activity.
ii. If the consumer has an overdraft line that might later be expanded upon the consumer's request to include secured advances, the rates for the secured advance feature need not be given until such time as the consumer has requested and received access to the additional feature.
iii. If annual percentage rates applicable to a particular type of transaction changed after a certain date and the old rate is only being applied to transactions that took place prior to that date, the creditor need not continue to disclose the old rate for those consumers that have no outstanding balances to which that rate could be applied.
3.
4.
5.
6.
1.
2.
3.
4.
ii. If a single daily periodic interest rate is imposed, the balance to which it is applicable may be stated as:
A. A balance for each day in the billing cycle.
B. A balance for each day in the billing cycle on which the balance in the account changes.
C. The sum of the daily balances during the billing cycle.
D. The average daily balance during the billing cycle, in which case the creditor may, at its option, explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of interest.
iii. If two or more daily periodic interest rates may be imposed, the balances to which the rates are applicable may be stated as:
A. A balance for each day in the billing cycle.
B. A balance for each day in the billing cycle on which the balance in the account changes.
C. Two or more average daily balances, each applicable to the daily periodic interest rates imposed for the time that those rates were in effect. The creditor may, at its option, explain that interest is or may be determined by multiplying each of the average balances by the number of days in the billing cycle (or if the daily rate varied during the cycle, by multiplying by the number of days the applicable rate was in effect), multiplying each of the results by the applicable daily periodic rate, and adding these products together.
5.
6.
7.
8.
1.
2.
3.
i.
A. A creditor may disclose a calendar-year-to-date total at the end of the calendar year by aggregating fees for 12 monthly cycles, starting with the period that begins during January and finishing with the period that begins during December. For example, if statement periods begin on the 10th day of each month, the statement covering December 10, 2011 through January 9, 2012, may disclose the year-to-date total for fees imposed from January 10, 2011, through January 9, 2012. Alternatively, the creditor could provide a statement for the cycle ending January 9, 2012, showing the year-to-date total for fees imposed January 1, 2011, through December 31, 2011.
B. A creditor may disclose a calendar-year-to-date total at the end of the calendar year by aggregating fees for 12 monthly cycles, starting with the period that begins during December and finishing with the period that begins during November. For example, if statement periods begin on the 10th day of each month, the statement covering November 10, 2011 through December 9, 2011, may disclose the year-to-date total for fees imposed from December 10, 2010, through December 9, 2011.
ii.
4.
5.
1.
1.
2.
1.
2.
1.
2.
3.
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
i.
ii.
1.
1.
2.
1.
1.
i. The purchase of funds-transfer services (such as a wire transfer) from an intermediary.
ii. The purchase of services from the card issuer or creditor. For the purchase of services that are costs imposed as part of the plan under § 226.6(b)(3), card issuers and creditors comply with the requirements for identifying transactions under this section by disclosing the fees in accordance with the requirements of § 226.7(b)(6). For the purchases of services that are not costs imposed as part of the plan, card issuers and creditors may, at their option, identify transactions under this section or in accordance with the requirements of § 226.7(b)(6).
2.
3.
i. If the consumer conducts the transaction in person, the date of the transaction is the calendar date on which the consumer made the purchase or order, or secured the advance.
ii. For transactions billed to the account on an ongoing basis (other than installments to pay a precomputed amount), the date of the transaction is the date on which the amount is debited to the account. This might include, for example, monthly insurance premiums.
iii. For mail, Internet, or telephone orders, a creditor may disclose as the transaction date either the invoice date, the debiting date, or the date the order was placed by telephone or via the Internet.
iv. In a foreign transaction, the debiting date may be considered the transaction date.
4.
i. If the creditor discloses only the date of the transaction, the creditor need not identify it as the “transaction date.” If the creditor discloses more than one date (for example, the transaction date and the posting date), the creditor must identify each.
ii. The month and day sufficiently identify the transaction date, unless the posting of the transaction is delayed so long that the year is needed for a clear disclosure to the consumer.
5.
A. Franchised or licensed sellers of a creditor's product or service.
B. Sellers who assign or sell open-end sales accounts to a creditor or arrange for such credit under a plan that allows the consumer to use the credit only in transactions with that seller.
ii. A seller is not related to the creditor merely because the seller and the creditor have an agreement authorizing the seller to honor the creditor's credit card.
6.
i. While item-by-item descriptions are not necessary, reasonable precision is required. For example, “merchandise,” “miscellaneous,” “second-hand goods,” or “promotional items” would not suffice.
ii. A reference to a department in a sales establishment that accurately conveys the identification of the types of property or services available in the department is sufficient-for example, “jewelry,” or “sporting goods.”
iii. A number or symbol that is related to an identification list printed elsewhere on the statement that reasonably identifies the transaction with the creditor is sufficient.
7.
i. A more complete spelling of the name that was alphabetically abbreviated on the receipt or other credit document.
ii. An alphabetical abbreviation of the name on the periodic statement even if the name appears in a more complete spelling on the receipt or other credit document. Terms that merely indicate the form of a business entity, such as “Inc.,” “Co.,” or “Ltd.,” may always be omitted.
8.
i. If the seller has multiple stores or branches within a city, the creditor need not identify the specific branch at which the sale occurred.
ii. When no meaningful address is available because the consumer did not make the purchase at any fixed location of the seller, the creditor may omit the address, or may provide some other identifying designation, such as “aboard plane,” “ABC Airways Flight,” “customer's home,” “telephone order,” “Internet order” or “mail order.”
1.
i. A cash advance.
ii. An advance on a credit plan that is accessed by overdrafts on a checking account.
iii. The use of a “supplemental credit device” in the form of a check or draft or the use of the overdraft credit plan accessed by a debit card, even if such use is in connection with a purchase of goods or services.
iv. Miscellaneous debits to remedy mispostings, returned checks, and similar entries.
2.
i. The amount to be disclosed is that of the credit extension, not the face amount of the check or the total amount of the debit/credit transaction.
ii. The creditor may disclose the amount of the credit extensions on a cumulative daily basis, rather than the amount attributable to each check or each use of the debit card that accesses the credit plan.
3.
4.
1.
i. By sending it in one billing period per year to each consumer that gets a periodic statement for that period; or
ii. By sending a copy to all of its accountholders sometime during the calendar year but not necessarily all in one billing period (for example, sending the annual notice in connection with renewal cards or when imposing annual membership fees).
2.
1.
2.
1.
2.
i. The addition of overdraft checking to an existing account (although the regular checks that could trigger the overdraft feature are not themselves “devices”).
ii. The option to use an existing credit card to secure cash advances, when previously the card could only be used for purchases.
1.
1.
i. Providing the tabular disclosure on the front of the first page on which checks appear, for an offer where checks are provided on multiple pages;
ii. Providing the tabular disclosure on the front of a mini-book or accordion booklet containing the checks; or
iii. Providing the tabular disclosure on the front of the solicitation letter, when the checks are printed on the front of the same page as the solicitation letter even if the checks can be separated by the consumer from the solicitation letter using perforations.
1.
1.
2.
i. The types of changes a creditor may make. (But see § 226.5b(f))
ii. How changed terms affect existing balances, such as when a periodic rate is changed and the consumer does not pay off the entire existing balance before the new rate takes effect.
3.
1.
2.
3.
i. If there is an increased periodic rate or any other finance charge attributable to the consumer's delinquency or default.
ii. If the consumer agrees to the particular change. This provision is intended for use in the unusual instance when a consumer substitutes collateral or when the creditor can advance additional credit only if a change relatively unique to that consumer is made, such as the consumer's providing additional security or paying an increased minimum payment amount. Therefore, the following are not “agreements” between the consumer and the creditor for purposes of § 226.9(c)(1)(i): The consumer's general acceptance of the creditor's contract reservation of the right to change terms; the consumer's use of the account (which might imply acceptance of its terms under state law); and the consumer's acceptance of a unilateral term change that is not particular to that consumer, but rather is of general applicability to consumers with that type of account.
4.
5.
6.
i. If the index is changed, the maximum annual percentage rate is increased (to the limited extent permitted by § 226.30), or a variable-rate feature is added to a fixed-rate plan, the creditor must include the disclosures required by § 226.5b(d)(12)(x) and (d)(12)(xi), unless these disclosures are unchanged from those given earlier.
ii. If the minimum payment requirement is changed, the creditor must include the disclosures required by § 226.5b(d)(5)(iii) (and, in variable-rate plans, the disclosures required by § 226.5b(d)(12)(x) and (d)(12)(xi)) unless the disclosures given earlier contained representative examples covering the new minimum payment requirement. (See the commentary to § 226.5b(d)(5)(iii), (d)(12)(x) and (d)(12)(xi) for a discussion of representative examples.)
iii. When the terms are changed pursuant to a written agreement as described in § 226.5b(f)(3)(iii), the advance-notice requirement does not apply.
1.
i. A change in the consumer's credit limit.
ii. A change in the name of the credit card or credit card plan.
iii. The substitution of one insurer for another.
iv. A termination or suspension of credit privileges. (But see § 226.5b(f).)
v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car.
2.
1.
2.
1.
2.
i. The types of changes a creditor may make.
ii. How changed terms affect existing balances, such as when a periodic rate is changed and the consumer does not pay off the entire existing balance before the new rate takes effect.
3.
1.
2.
3.
4.
5.
6.
1.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1.
i. A change in the consumer's credit limit except as otherwise required by § 226.9(c)(2)(v).
ii. A change in the name of the credit card or credit card plan.
iii. The substitution of one insurer for another.
iv. A termination or suspension of credit privileges.
v. Changes arising merely by operation of law; for example, if the creditor's security interest in a consumer's car automatically extends to the proceeds when the consumer sells the car.
2.
3.
4.
1.
1.
2.
3.
4.
5.
6.
7.
8.
9.
1.
2.
1.
2.
3.
4.
5.
1.
1.
i. Assume that, at account opening on January 1 of year one, an issuer discloses, in accordance with the applicable notice requirements of § 226.6, that the annual percentage rate for purchases is a non-variable rate of 15% and will apply for six months. The issuer also discloses that, after six months, the annual percentage rate for purchases will be a variable rate that is currently 18% and will be adjusted quarterly by adding a margin of 8 percentage points to a publicly-available index not under the issuer's control. Finally, the issuer discloses that the annual percentage rate for cash advances is the same variable rate that will apply to purchases after six months. The payment due date for the account is the twenty-fifth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase and cash advance balances.
A. On January 15, the consumer uses the account to make a $2,000 purchase and a $500 cash advance. No other transactions are made on the account. At the start of each quarter, the issuer adjusts the variable rate that applies to the $500 cash advance consistent with changes in the index, as permitted under 12 CFR 227.24 or similar law. All required minimum periodic payments are received on or before the payment due date until May of year one, when the payment due on May 25 is received by the issuer on May 28. The issuer is prohibited by 12 CFR 227.24 or similar law from increasing the rates that apply to the $2,000 purchase, the $500 cash advance, or future purchases and cash advances. Six months after account opening (July 1), the issuer begins accruing interest on the $2,000 purchase at the previously-disclosed variable rate determined using an 8-point margin as permitted by 12 CFR 227.24 or similar law. Because no other increases in rate were disclosed at account opening, the issuer may not under 12 CFR 227.24 or similar law subsequently increase the variable rate that applies to the $2,000 purchase and the $500 cash advance (except due to increases in the index). On November 16, the issuer provides a notice pursuant to § 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two (calculated by using the same index and an increased margin of 12 percentage points). On January 1 of year two, the issuer increases the margin used to determine the variable rate that applies to new purchases to 12 percentage points, as permitted by 12 CFR 227.24 or similar law. On January 15 of year two, the consumer makes a $300 purchase. The issuer applies the variable rate determined using the 12-point margin to the $300 purchase but not the outstanding $2,000 balance for purchases.
B. Same facts as above except that the required minimum periodic payment due on May 25 of year one is not received by the issuer until June 30 of year one. Because the issuer received the required minimum periodic payment more than 30 days after the payment due date, 12 CFR 227.24 or similar law permits the issuer to increase the annual percentage rate applicable to the $2,000 purchase, the $500 cash advance, and future purchases and cash advances. However, the issuer must first comply with the notice requirements in § 226.9(g). Thus, if the issuer provided a notice pursuant to § 226.9(g) on June 25 stating that all rates on the account would be increased to a non-variable penalty rate of 30%, the issuer could apply that 30% rate beginning on August 9 to all outstanding balances and future transactions.
ii. Assume that, at account opening on January 1 of year one, a issuer discloses in accordance with the applicable notice requirements of § 226.6 that the annual percentage rate for purchases will increase as follows: A non-variable rate of 5% for six months; a non-variable rate of 10% for the following six months; and thereafter a variable rate that is currently 15% that will be adjusted monthly by adding a margin of 5 percentage points to a publicly-available index not under the issuer's control. The payment due date for the account is the fifteenth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase balance. On January 15, the consumer uses the account to make a $1,500 purchase. Six months after account opening (July 1), the issuer begins accruing interest on the $1,500 purchase at the previously-disclosed 10% non-variable rate (as permitted under 12 CFR 227.24 or similar law). On September 15, the consumer uses the account to make a $700 purchase. On November 16, the issuer provides a notice pursuant to § 226.9(c) disclosing a new variable rate that will apply on January 1 of year two (calculated by using the same index and an increased margin of 8 percentage points). One year after account opening (January 1 of year two), pursuant to 12 CFR 227.24 or similar law the issuer begins accruing interest on the $2,200 purchase balance at the previously-disclosed variable rate determined using a 5-point margin. Because the variable rate determined using the 8-point margin was not disclosed at account opening, the issuer may not under 12 CFR 227.24 or similar law apply that rate to the $2,200 purchase balance. Furthermore, because no other increases in rate were disclosed at account opening, the issuer may not under 12 CFR 227.24 or similar law subsequently increase the variable rate that applies to the $2,200 purchase balance (except due to increases in the index). The issuer may, however, under 12 CFR 227.24 or similar law apply the variable rate determined using the 8-point margin to purchases made on or after January 1 of year two.
iii. Assume that, at account opening on January 1 of year one, an issuer discloses in accordance with the applicable notice requirements in § 226.6 that the annual percentage rate for purchases is a variable rate determined by adding a margin of 6 percentage points to a publicly-available index outside of the issuer's control. The issuer also discloses that a non-variable penalty rate of 28% may apply if the consumer makes a late payment. The due
A. The payment due on June 15 of year two is received on June 26. On July 16, 12 CFR 227.24 or similar law permits the issuer to apply the variable rate determined using the 8-point margin to the $200 purchase made on June 8 but does not permit the issuer to apply this rate to the $1,500 purchase balance. On August 9, 12 CFR 227.24 or similar law permits the issuer to apply the 28% penalty rate to the $300 purchase made on July 4 but does not permit the issuer to apply this rate to the $1,500 purchase balance (which remains at the variable rate determined using the 6-point margin) or the $200 purchase (which remains at the variable rate determined using the 8-point margin).
B. Same facts as above except the payment due on September 15 of year two is received on October 20. The issuer is permitted under 12 CFR 227.24 or similar law to apply the 28% penalty rate to all balances on the account and to future transactions because it has not received payment within 30 days after the due date. However, in order to apply the 28% penalty rate to the entire $2,000 purchase balance, the issuer must provide an additional notice pursuant to § 226.9(g). This notice must be sent no earlier than October 16, which is the first day the account became more than 30 days delinquent.
C. Same facts as paragraph A. above except the payment due on June 15 of year two is received on July 20. The issuer is permitted under 12 CFR 227.24 or similar law to apply the 28% penalty rate to all balances on the account and to future transactions because it has not received payment within 30 days after the due date. Because the issuer provided a notice pursuant to § 226.9(g) on June 24 disclosing the 28% penalty rate, the issuer may apply the 28% penalty rate to all balances on the account as well as any future transactions on August 9 without providing an additional notice pursuant to § 226.9(g).
2.
3.
4.
5.
6.
The following illustrates the requirements of § 226.9(g)(4)(ii). Assume that a creditor decreased the credit limit applicable to a consumer's account and sent a notice pursuant to § 226.9(g)(4)(ii) on January 1, stating among other things that the penalty rate would apply if the consumer's balance exceeded the new credit limit as of February 16. If the consumer's balance exceeded the credit limit on February 16, the creditor could impose the penalty rate on that date. However, a creditor could not apply the penalty rate if the consumer's balance did not exceed the new credit limit on February 16, even if the consumer's balance had exceeded the new credit limit on several dates between January 1 and February 15. If the consumer's balance did not exceed the new credit limit on February 16 but the consumer conducted a transaction on February 17 that caused the balance to exceed the new credit limit, the general rule in § 226.9(g)(1)(ii) would apply and the creditor would be required to give an additional 45 days' notice prior to imposition of the penalty rate (but under these circumstances the consumer would have no ability to cure the over-the-limit balance in order to avoid penalty pricing).
1.
2.
i. Payment by check is received when the creditor gets it, not when the funds are collected.
ii. In a payroll deduction plan in which funds are deposited to an asset account held by the creditor, and from which payments are made periodically to an open-end credit account, payment is received on the date when it is debited to the asset account (rather than on the date of the deposit), provided the payroll deduction method is voluntary and the consumer retains use of the funds until the contractual payment date.
iii. If the consumer elects to have payment made by a third party payor such as a financial institution, through a preauthorized payment or telephone bill-payment arrangement, payment is received when the creditor gets the third party payor's check or other transfer medium, such as an electronic fund transfer, as long as the payment meets the creditor's requirements as specified under § 226.10(b).
iv. Payment made via the creditor's Web site is received on the date on which the consumer authorizes the creditor to effect the payment, even if the consumer gives the instruction authorizing that payment in advance of the date on which the creditor is authorized to effect the payment. If the consumer authorizes the creditor to effect the payment immediately, but the consumer's instruction is received after any cut-off time specified by the creditor, the date on which the consumer authorizes the creditor to effect the payment is deemed to be the next business day.
1.
2.
3.
4.
i. Payments may be made at any location where the creditor conducts business.
ii. Payments may be made any time during the creditor's normal business hours.
iii. Payment may be by cash, money order, draft, or other similar instrument in properly negotiable form, or by electronic fund transfer if the creditor and consumer have so agreed.
1.
1.
i. Refunding any credit balance to the consumer immediately.
ii. Refunding any credit balance prior to receiving a written request (under § 226.11(a)(2)) from the consumer.
iii. Refunding any credit balance upon the consumer's oral or electronic request.
iv. Making a good faith effort to refund any credit balance before 6 months have passed. If that attempt is unsuccessful, the creditor need not try again to refund the credit balance at the end of the 6-month period.
2.
1.
1.
2.
1.
1.
2.
1.
2.
3.
i. The name of the card requested may be different when issued.
ii. The card may have features in addition to those reflected in the request or application.
4.
5.
6.
i. The additional cards may be imprinted in either A's name or in the names of B and C.
ii. No liability for unauthorized use (by persons other than B and C), not even the $50, may be imposed on B or C since they are merely users and not cardholders as that term is defined in § 226.2 and used in § 226.12(b); of course, liability of up to $50 for unauthorized use of B's and C's cards may be imposed on A.
iii. Whether B and C may be held liable for their own use, or on the account generally, is a matter of state or other applicable law.
7.
i.
ii.
8.
1.
2.
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 (12 CFR part 205), then the Regulation E issuance rules would have to be followed.) The substitution of one card with another on an unsolicited basis is not permissible, however, where in conjunction with the substitution an additional credit card account is opened and the consumer is able to make new purchases or advances under both the original and the new account with the new card. For example, if a retail card issuer replaces its credit card with a combined retailer/bank card, each of the creditors maintains a separate account, and both accounts can be accessed for new transactions by use of the new credit card, the card cannot be provided to a consumer without solicitation.
iv. Substituted a card user's name on the substitute card for the cardholder's name appearing on the original card.
v. Changed the merchant base, provided that the new card is honored by at least one of the persons that honored the original card. However, unless the change in the merchant base is the addition of an affiliate of the existing merchant base, the substitution of a new card for another on an unsolicited basis is not permissible where the account is inactive. A credit card cannot be issued in these circumstances without a request or application. For purposes of § 226.12(a), an account is inactive if no credit has been extended and if the account has no outstanding balance for the prior 24 months. (See § 226.11(b)(2).)
3.
4.
5.
6.
i. Replacing a debit/credit card with a credit card and another card with only debit functions (or debit functions plus an associated overdraft capability), since the latter card could be issued on an unsolicited basis under Regulation E.
ii. Replacing an accepted card with more than one renewal or substitute card, provided that:
A. No replacement card accesses any account not accessed by the accepted card;
B. For terms and conditions required to be disclosed under § 226.6, all replacement cards are issued subject to the same terms and conditions, except that a creditor may vary terms for which no change in terms notice is required under § 226.9(c); and
C. Under the account's terms the consumer's total liability for unauthorized use with respect to the account does not increase.
7.
i. The issuer includes with the new card a notification that the existing card is no longer valid and should be destroyed immediately.
ii. The original card contained an expiration date.
iii. The card issuer, in order to preclude use of the card, reprograms computers or issues instructions to authorization centers.
8.
9.
1.
2.
3.
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. For example, the creditor may include a signature line on a billing rights form that the cardholder may send in to provide notice of the claim. However, a creditor may not require the cardholder to provide an affidavit or signed statement under penalty of perjury as part of a reasonable investigation.
vii. Requesting a copy of a police report, if one was filed.
viii. Requesting information regarding the cardholder's knowledge of the person who allegedly used the card or of that person's authority to do so.
4.
1.
2.
3.
4.
1.
1.
2.
1.
2.
3.
1.
2.
3.
1.
2.
1.
2.
3.
4.
1.
i. Use of a credit card to obtain a cash advance, even if the consumer then uses the money to purchase goods or services. Such a transaction would not involve “property or services purchased with the credit card.”
ii. The purchase of goods or services by use of a check accessing an overdraft account and a credit card used solely for identification of the consumer. (On the other hand, if the credit card is used to make partial payment for the purchase and not merely for identification, the right to assert claims or defenses would apply to credit extended via the credit card, although not to the credit extended on the overdraft line.)
iii. Purchases made by use of a check guarantee card in conjunction with a cash advance check (or by cash advance checks alone). (
iv. Purchases effected by use of either a check guarantee card or a debit card when used to draw on overdraft credit plans. (
1.
i. That amount may be reported as disputed.
ii. Nothing in this provision prohibits the card issuer from undertaking its normal collection activities for the delinquent and undisputed portion of the account.
2.
1.
1.
1.
1.
2.
3.
4.
1.
i. The consumer must be aware that granting a security interest is a condition for the credit card account (or for more favorable account terms) and must specifically intend to grant a security interest in a deposit account. Indicia of the consumer's awareness and intent include at least one of the following (or a substantially similar procedure that evidences the consumer's awareness and intent):
A. Separate signature or initials on the agreement indicating that a security interest is being given.
B. Placement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions.
C. Reference to a specific amount of deposited funds or to a specific deposit account number.
ii. The security interest must be obtainable and enforceable by creditors generally. If other creditors could not obtain a security interest in the consumer's deposit accounts to the same extent as the card issuer, the security interest is prohibited by § 226.12(d)(2).
2.
3.
1.
i. The cardholder's authorization must be in writing and signed or initialed by the cardholder.
ii. The authorizing language need not appear directly above or next to the cardholder's signature or initials, provided it appears on the same document and that it clearly spells out the terms of the automatic debit plan.
iii. If the cardholder has the option to accept or reject the automatic debit feature (such option may be required under section 913 of the Electronic Fund Transfer Act), the fact that the option exists should be clearly indicated.
2.
i. Automatically deducting charges for participation in a program of banking services (one aspect of which may be a credit card plan).
ii. Debiting the cardholder's deposit account on the cardholder's specific request rather than on an automatic periodic basis (for example, a cardholder might check a box on the credit card bill stub, requesting the issuer to debit the cardholder's account to pay that bill).
1.
1.
1.
2.
1.
1.
A. The appearance on a periodic statement of a purchase, when the consumer refused to take delivery of goods because they did not comply with the contract.
B. Delivery of property or services different from that agreed upon.
C. Delivery of the wrong quantity.
D. Late delivery.
E. Delivery to the wrong location.
ii. Section 226.13(a)(3) does not apply to a dispute relating to the quality of property or services that the consumer accepts. Whether acceptance occurred is determined by state or other applicable law.
2.
i. The extension of credit is made to fund the third-party payment intermediary “account,” but the consumer does not contemporaneously use those funds to purchase a good or service at that time.
ii. The extension of credit is made to fund only a portion of the purchase amount, and the consumer uses other sources to fund the remaining amount.
3.
1.
1.
1.
2.
1.
2.
3.
1.
1.
2.
3.
1.
2.
1.
1.
2.
3.
4.
5.
1.
2.
3.
1.
2.
3.
1.
i. Differences in the amount of an error (for example, the customer asserts a $55.00 error but the error was only $53.00).
ii. Differences in other particulars asserted by the consumer (such as when a consumer asserts that a particular transaction never occurred, but the creditor determines that only the seller's name was disclosed incorrectly).
2.
3.
i.
A. Reviewing the types or amounts of purchases made in relation to the consumer's previous purchasing pattern.
B. Reviewing where the purchases were delivered in relation to the consumer's residence or place of business.
C. Reviewing where the purchases were made in relation to where the consumer resides or has normally shopped.
D. Comparing any signature on credit slips for the purchases to the signature of the consumer (or an authorized user in the case of a credit card account) in the creditor's records, including other credit slips.
E. Requesting documentation to assist in the verification of the claim.
F. Requesting a written, signed statement from the consumer (or authorized user, in the case of a credit card account). For example, the creditor may include a signature line on a billing rights form that the consumer may send in to provide notice of the claim. However, a creditor may not require the consumer to provide an affidavit or signed statement under penalty of perjury as a part of a reasonable investigation.
G. Requesting a copy of a police report, if one was filed.
H. Requesting information regarding the consumer's knowledge of the person who allegedly obtained an extension of credit on the account or of that person's authority to do so.
ii.
iii.
1.
2.
1.
1.
1.
2.
1.
2.
3.
i. An error asserted with respect to the transaction is subject, for error resolution purposes, to the applicable Regulation E provisions (such as timing and notice) for the entire transaction.
ii. The creditor need not provisionally credit the consumer's account, under § 205.11(c)(2)(i) of Regulation E, for any portion of the unpaid extension of credit.
iii. The creditor must credit the consumer's account under § 205.11(c) with any finance or other charges incurred as a result of the alleged error.
iv. The provisions of §§ 226.13(d) and (g) apply only to the credit portion of the transaction.
1.
2.
3.
4.
5.
1.
1.
2.
3.
4.
5.
A. A cash advance occurs on the last day of a billing cycle on an account that uses the
B. An adjustment to the finance charge is made following the resolution of a billing error dispute.
C. A consumer fails to pay the purchase balance under a deferred payment feature by the payment due date, and finance charges are imposed from the date of purchase.
ii. Finance charges relating to activity in prior cycles should be reflected on the periodic statement as follows:
A. If a finance charge imposed in the current billing cycle is attributable to periodic rates applicable to prior billing cycles (such as when a deferred payment balance was not paid in full by the payment due date and finance charges from the date of purchase are now being debited to the account, or when a cash advance occurs on the last day of a billing cycle on an account that uses the transaction date to figure finance charges and it is impracticable to post the transaction until the following cycle), and the creditor uses the quotient method to calculate the annual percentage rate, the numerator would include the amount of any transaction charges plus any other finance charges posted during the billing cycle. At the creditor's option, balances relating to the finance charge adjustment may be included in the denominator if permitted by the legal obligation, if it was impracticable to post the transaction in the previous cycle because of timing, or if the adjustment is covered by comment 14(c)-5.ii.B.
B. If a finance charge that is posted to the account relates to activity for which a finance charge was debited or credited to the account in a previous billing cycle (for example, if the finance charge relates to an adjustment such as the resolution of a billing error dispute, or an unintentional posting error, or a payment by check that was later returned unpaid for insufficient funds or other reasons), the creditor shall at its option:
1.
i. By multiplying each periodic rate by the number of periods in the year; or
ii. By the “quotient” method. This method refers to a composite annual percentage rate when different periodic rates apply to different balances. For example, a particular plan may involve a periodic rate of 1
1.
2.
1.
A. A loan fee of $10 imposed on a particular advance.
B. A charge of 3 percent of the amount of each transaction.
ii. The reference to avoiding duplication in the computation requires that the amounts of transactions on which transaction charges were imposed not be included both in the amount of total balances and in the “other amounts on which a finance charge was imposed” figure. In a multifeatured plan, creditors may consider each bona fide feature separately in the calculation of the denominator. A creditor has considerable flexibility in defining features for open-end plans, as long as the creditor has a reasonable basis for the distinctions. For further explanation and examples of how to determine the components of this formula, see Appendix F to part 226.
2.
1.
2.
1.
2.
i. For purposes of § 226.16(d)(6), a clear and conspicuous disclosure means that the required information in § 226.16(d)(6)(ii)(A)-(C) is disclosed with equal prominence and in close proximity to the promotional rate or payment to which it applies. If the information in § 226.16(d)(6)(ii)(A)-(C) is the same type size and is located immediately next to or directly above or below the promotional rate or payment to which it applies, without any intervening text or graphical displays, the disclosures would be deemed to be equally prominent and in close proximity. Notwithstanding the above, for electronic advertisements that disclose promotional rates or payments, compliance with the requirements of § 226.16(c) is deemed to satisfy the clear and conspicuous standard.
ii. For purposes of § 226.16(g)(4) as it applies to written or electronic advertisements only, a clear and conspicuous disclosure means the required information in § 226.16(g)(4)(i) and (g)(4)(ii) must be equally prominent to the promotional rate to which it applies. If the information in § 226.16(g)(4)(i) and (g)(4)(ii) is the same type size as the promotional rate to which it applies, the disclosures would be deemed to be equally prominent.
3.
4.
5.
6.
7.
1.
2.
1.
i.
ii.
2.
3.
4.
5.
6.
1.
i. Payments are made timely so as not to be considered late by the creditor;
ii. Payments are made each period, and no debt cancellation or suspension agreement, or skip payment feature applies to the account;
iii. No interest rate changes will affect the account;
iv. No other balances are currently carried or will be carried on the account;
v. No taxes or ancillary charges are or will be added to the obligation;
vi. Goods or services are delivered on a single date; and
vii. The consumer is not currently and will not become delinquent on the account.
2.
1.
1.
2.
1.
1.
2.
3.
4.
5.
i.
ii.
iii.
iv.
v.
vi.
6.
i. For direct mail advertisements, it was in effect within 60 days before mailing;
ii. For advertisements in electronic form it was in effect within 30 days before the advertisement is sent to a consumer's e-mail address, or in the case of an advertisement made on an Internet Web site, when viewed by the public; or
iii. For printed advertisements made available to the general public, including ones contained in a catalog, magazine, or other generally available publication, it was in effect within 30 days before printing.
7.
8.
9.
1.
2.
1.
2.
3.
4.
5.
1.
1.
6.
i. A state law that allows the card issuer to offset the consumer's credit-card indebtedness against funds held by the card issuer would be preempted, since § 226.12(d) prohibits such action.
ii. A state law that requires periodic statements to be sent more than 14 days before the end of a free-ride period would not be preempted.
iii. A state law that permits consumers to assert claims and defenses against the card issuer without regard to the $50 and 100-mile limitations of § 226.12(c)(3)(ii) would not be preempted.
iv. In paragraphs ii. and iii. of this comment, compliance with state law would involve no violation of the Federal law.
8.
i. For example, the following statements would be sufficiently specific:
A. The maximum interest rate will not exceed X%.
B. The interest rate will never be higher than X percentage points above the initial rate of Y%.
C. The interest rate will not exceed X%, or X percentage points above [a rate to be determined at some future point in time], whichever is less.
D. The maximum interest rate will not exceed X%, or the state usury ceiling, whichever is less.
ii. The following statements would not comply with this section:
A. The interest rate will never be higher than X percentage points over the prevailing market rate.
B. The interest rate will never be higher than X percentage points above [a rate to be determined at some future point in time].
C. The interest rate will not exceed the state usury ceiling which is currently X%.
iii. A creditor may state the maximum rate in terms of a maximum annual percentage rate that may be imposed. Under an open-end credit plan, this normally would be the corresponding annual percentage rate. (
1.
1.
i. Using the first person, instead of the second person, in referring to the borrower.
ii. Using “borrower” and “creditor” instead of pronouns.
iii. Rearranging the sequences of the disclosures.
iv. Not using bold type for headings.
v. Incorporating certain state “plain English” requirements.
vi. Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” (not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items. (This should permit use of multipurpose standard forms.)
vii. Using a vertical, rather than a horizontal, format for the boxes in the closed-end disclosures.
2.
1.
2.
3.
i. These set out models for the long-form billing-error rights statement (for use with the account-opening disclosures and as an annual disclosure or, at the creditor's option, with each periodic statement) and the alternative billing-error rights statement (for use with each periodic statement), respectively. For home-equity plans subject to the requirements of § 226.5b, at the creditor's option, a creditor either may use G-3 or G-3(A), and for creditors that use the short form, G-4 or G-4(A). For open-end (not home-secured) plans that not subject to the requirements of § 226.5b, creditors properly use G-3(A) and G-4(A). Creditors must provide the billing-error rights statements in a form substantially similar to the models in order to comply with the regulation. The model billing-rights statements may be modified in any of the ways set forth in the first paragraph to the commentary on appendices G and H. The models may, furthermore, be modified by deleting inapplicable information, such as:
A. The paragraph concerning stopping a debit in relation to a disputed amount, if the creditor does not have the ability to debit automatically the consumer's savings or checking account for payment.
B. The rights stated in the special rule for credit card purchases and any limitations on those rights.
ii. The model billing rights statements also contain optional language that creditors may use. For example, the creditor may:
A. Include a statement to the effect that notice of a billing error must be submitted on something other than the payment ticket or other material accompanying the periodic disclosures.
B. Insert its address or refer to the address that appears elsewhere on the bill.
C. Include instructions for consumers, at the consumer's option, to communicate with the creditor electronically or in writing.
iii. Additional information may be included on the statements as long as it does not detract from the required disclosures. For instance, information concerning the reporting of errors in connection with a checking account may be included on a combined statement as long as the disclosures required by the regulation remain clear and conspicuous.
5.
ii. Except as otherwise permitted, disclosures must be substantially similar in sequence and format to Models G-10(A), G-10(D) and G-17(A). While proper use of the model forms will be deemed in compliance with the regulation, card issuers and other creditors offering open-end (not home-secured) plans are permitted to disclose the annual percentage rates for purchases, cash advances, or balance transfers in the same row in the table for any transaction types for which the issuer or creditor charges the same annual percentage rate. Similarly, card issuer and other creditors offering open-end (not home-secured) plans are permitted to disclose fees of the same amount in the same row if the fees are in the same category. Fees in different categories may not be disclosed in the same row. For example, a transaction fee and a penalty fee that are of the same amount may not be disclosed in the same row. Card issuers and other creditors offering open-end (not home-secured) plans are also permitted to use headings other than those in the forms if they are clear and concise and are substantially similar to the headings contained in model forms, with the following exceptions. The heading “penalty APR” must be used when describing rates that may increase due to default or delinquency or as a penalty, and in relation to required insurance, or debt cancellation or suspension coverage, the term “required” and the name of the product must be used. (See also §§ 226.5a(b)(5) and 226.6(b)(2)(v) for guidance on headings that must be used to describe the grace period, or lack of grace period, in the disclosures required under § 226.5a for applications and solicitations for credit cards other than charge cards, and the disclosures required under § 226.6(b)(2) for account-opening disclosures, respectively.)
iii. Models G-10(A) and G-17(A) contain two alternative headings (“Minimum Interest Charge” and “Minimum Charge”) for disclosing a minimum interest or fixed finance charge under §§ 226.5a(b)(3) and 226.6(b)(2)(iii). If a creditor imposes a minimum charge in lieu of interest in those months where a consumer would otherwise incur an interest charge but that interest charge is less than the minimum charge, the creditor should disclose this charge under the heading “Minimum Interest Charge” or a substantially similar heading. Other minimum or fixed finance charges should be disclosed under the heading “Minimum Charge” or a substantially similar heading.
iv. Models G-10(A), G-10(D) and G-17(A) contain two alternative headings (“Annual Fees” and “Set-up and Maintenance Fees”) for disclosing fees for issuance or availability of credit under § 226.5a(b)(2) or § 226.6(b)(2)(ii). If the only fee for issuance or availability of credit disclosed under § 226.5a(b)(2) or § 226.6(b)(2)(ii) is an annual fee, a creditor should use the heading “Annual Fee” or a substantially similar heading to disclose this fee. If a creditor imposes fees for issuance or availability of credit disclosed under § 226.5a(b)(2) or § 226.6(b)(2)(ii) other than, or in addition to, an annual fee, the creditor should use the heading “Set-up and Maintenance Fees” or a substantially similar heading to disclose fees for issuance or availability of credit, including the annual fee.
v. Although creditors are not required to use a certain paper size in disclosing the §§ 226.5a or 226.6(b)(1) and (2) disclosures, samples G-10(B), G-10(C), G-17(B), G-17(C) and G-17(D) are designed to be printed on an 8
A. A readable font style and font size (10-point Arial font style, except for the purchase annual percentage rate which is shown in 16-point type).
B. Sufficient spacing between lines of the text.
C. Adequate spacing between paragraphs when several pieces of information were included in the same row of the table, as appropriate. For example, in the samples in the row of the tables with the heading “APR for Balance Transfers,” the forms disclose two components: the applicable balance transfer rate and a cross reference to the balance transfer fee. The samples show these two components on separate lines with adequate space between each component. On the other hand, in the samples, in the disclosure of the late-payment fee, the forms disclose two components: the late-payment fee, and the cross reference to the penalty rate. Because the disclosure of both these components is short, these components are disclosed on the same line in the tables.
D. Standard spacing between words and characters. In other words, the text was not compressed to appear smaller than 10-point type.
E. Sufficient white space around the text of the information in each row, by providing sufficient margins above, below and to the sides of the text.
F. Sufficient contrast between the text and the background. Generally, black text was used on white paper.
vi. While the Board is not requiring issuers to use the above formatting techniques in presenting information in the table (except for the 10-point and 16-point font requirement), the Board encourages issuers to consider these techniques when deciding how to disclose information in the table, to ensure that the information is presented in a readable format.
vii. Creditors are allowed to use color, shading and similar graphic techniques with respect to the table, so long as the table remains substantially similar to the model and sample forms in Appendix G.
6.
7.
Model G-13(B) illustrates the disclosures required under § 226.9(f)(2) when the insurance provider is changed.
8.
9.
10.
i. Creditors are not required to use a certain paper size in disclosing the § 226.7 disclosures. However, Forms G-18(F) and G-18(G) are designed to be printed on an 8 x 14 inch sheet of paper.
ii. The due date for a payment, if a late-payment fee or penalty rate may be imposed, must appear on the front of the first page of the statement. See Samples G-18(D) and G-18(E) that illustrate how a creditor may comply with proximity requirements for other disclosures. The payment information disclosures appear in the upper right-hand corner on Samples G-18(F) and G-18(G), but may be located elsewhere, as long as they appear on the front of the first page of the periodic statement. The summary of account activity presented on Samples G-18(F) and G-18(G) is not itself a required disclosure, although the previous balance and the new balance, presented in the summary, must be disclosed in a clear and conspicuous manner on periodic statements.
iii. Additional information not required by Regulation Z may be presented on the statement. The information need not be located in any particular place or be segregated from disclosures required by Regulation Z, although the effect of proximity requirements for required disclosures, such as the due date, may cause the additional information to be segregated from those disclosures required to be disclosed in close proximity to one another. Any additional information must be presented consistent with the creditor's obligation to provide required disclosures in a clear and conspicuous manner.
iv. Model Forms G-18(F) and G-18(G) demonstrate two examples of ways in which transactions could be presented on the periodic statement. Model Form G-18(G) presents transactions grouped by type and Model Form G-18(F) presents transactions in a list in chronological order. Neither of these approaches to presenting transactions is required; a creditor may present transactions differently, such as in a list grouped by authorized user or other means.
11.
Board of Governors of the Federal Reserve System (Board); Office of Thrift Supervision, Treasury (OTS); and National Credit Union Administration (NCUA).
Final rule.
The Board, OTS, and NCUA (collectively, the Agencies) are exercising their authority under section 5(a) of the Federal Trade Commission Act to prohibit unfair or deceptive acts or practices. The final rule prohibits institutions from engaging in certain acts or practices in connection with consumer credit card accounts. The final rule relates to other Board rules under the Truth in Lending Act, which are published elsewhere in today's
The Federal Reserve Board (Board), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) (collectively, the Agencies) are adopting several new provisions intended to protect consumers against unfair acts or practices with respect to consumer credit card accounts. These rules are promulgated pursuant to section 18(f)(1) of the Federal Trade Commission Act (FTC Act), which makes the Agencies responsible for prescribing regulations that prevent unfair or deceptive acts or practices in or affecting commerce within the meaning of section 5(a) of the FTC Act.
On June 14, 2007, the Board requested public comment on proposed amendments to the open-end credit (not home-secured) provisions of Regulation Z, which implements the Truth in Lending Act (TILA), as well as proposed amendments to the corresponding staff commentary to Regulation Z. 72 FR 32948 (June 2007 Regulation Z Proposal). The purpose of TILA is to promote the informed use of consumer credit by providing disclosures about its costs and terms.
As part of this effort, the Board retained a research and consulting firm (Macro International) to assist the Board in conducting extensive consumer testing in order to develop improved disclosures that consumers would be more likely to pay attention to, understand, and use in their decisions, while at the same time not creating undue burdens for creditors. Although the testing assisted the Board in developing improved disclosures, the testing also identified the limitations of disclosure, in certain circumstances, as a means of enabling consumers to make decisions effectively.
In response to the June 2007 Regulation Z Proposal, the Board received more than 2,500 comments, including approximately 2,100 comments from individual consumers. Comments from consumers, consumer groups, a member of Congress, other government agencies, and some creditors were generally supportive of the proposed revisions to Regulation Z. A number of commenters, however, urged the Board to take additional action with respect to a variety of credit card practices, including late fees and other penalties resulting from perceived reductions in the amount of time consumers are given to make timely payments, allocation of payments first to balances with the lowest annual percentage rate, application of increased annual percentage rates to pre-existing balances, and the so-called two-cycle method of computing interest.
On August 6, 2007, OTS issued an ANPR requesting comment on its rules under section 5 of the FTC Act.
OTS's ANPR discussed a very broad array of issues including:
• The legal background on OTS's authority under the FTC Act and HOLA;
• OTS's existing Credit Practices Rule;
• Possible principles OTS could use to define unfair and deceptive acts or practices, including looking to standards the Federal Trade Commission (FTC) and states follow;
• Practices that OTS, individually or on an interagency basis, has addressed through guidance;
• Practices that other federal agencies have addressed through rulemaking;
• Practices that states have addressed statutorily;
• Acts or practices OTS might target involving products such as credit cards, residential mortgages, gift cards, and deposit accounts; and
• OTS's existing Advertising Rule (12 CFR 563.27).
OTS received 29 comment letters on its ANPR. These comments were summarized in the Agencies' May 2008 proposed rule.
In contrast, the consumer group commenters urged OTS to move ahead with a rule that would combine the FTC's principles-based standards with prohibitions on specific practices. They urged OTS to ban numerous practices, including several practices addressed in the final rule (such as “universal default” repricing, applying payments first to balances with the lowest interest rate, and credit cards marketed at subprime consumers that provide little available credit at account opening).
In addition to receiving information via comments, the Agencies have conducted outreach regarding credit card practices, including meetings and discussions with consumer group representatives, industry representatives, other federal and state banking agencies, and the FTC. On April 8, 2008, the Board hosted a forum on credit cards in which card issuers and payment network operators, consumer advocates, counseling agencies, and other regulatory agencies met to discuss relevant industry trends and identify areas that may warrant action or further study. In addition, the Agencies reviewed consumer complaints received by each of the federal banking agencies and several studies of the credit card industry.
Finally, the Agencies gathered information from a number of Congressional hearings on consumer protection issues regarding credit cards.
In May 2008, the Agencies proposed rules under the FTC Act addressing unfair or deceptive acts or practices in connection with consumer credit card accounts and overdraft services for deposit accounts.
In order to best ensure that all entities that offer consumer credit card accounts and overdraft services on deposit accounts are treated in a like manner, the Board, OTS, and NCUA joined together to issue the May 2008 Proposal. This interagency approach is consistent with section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994.
In an effort to achieve a level playing field, the May 2008 Proposal focused on unfair and deceptive acts or practices involving credit cards and overdraft services, which are generally provided only by depository institutions such as banks, savings associations, and credit unions. The Agencies recognized that state-chartered credit unions and any entities providing consumer credit card accounts independent of a depository institution fall within the FTC's jurisdiction and therefore would not be subject to the proposed rules. The Agencies noted, however, that FTC-regulated entities appear to represent a small percentage of the market for consumer credit card accounts and overdraft services.
The Agencies proposed to make non-substantive, organizational changes to the Credit Practices Rule. Specifically, in order to avoid repetition, the Agencies proposed to move the statement of authority, purpose, and scope out of the Credit Practices Rule and revise it to apply not only to the Credit Practices Rule but also to the proposed rules regarding consumer credit card accounts and overdraft services. OTS and NCUA proposed additional, non-substantive changes to the organization of their versions of the Credit Practices Rule. OTS also solicited comment on whether to retain the state exemption provision in its Credit Practices Rule.
The Agencies proposed seven provisions under the FTC Act regarding consumer credit card accounts. These provisions were intended to ensure that consumers have the ability to make informed decisions about the use of credit card accounts without being subjected to unfair or deceptive acts or practices.
First, institutions would have been prohibited from treating a payment as late for any purpose unless consumers had been provided a reasonable amount of time to make that payment. The proposed rule would have created a safe harbor for institutions that adopt reasonable procedures designed to ensure that periodic statements (which provide payment information) are mailed or delivered at least 21 days before the payment due date.
Second, when different annual percentage rates apply to different balances, institutions would have been required to allocate amounts paid in excess of the minimum payment using one of three specified methods or a method that is no less beneficial to consumers. Furthermore, when an account has a discounted promotional rate balance or a balance on which interest is deferred, institutions would have been required to allocate amounts in excess of the minimum payment first to balances on which the rate is not discounted or interest is not deferred (except, in the case of a deferred interest plan, for the last two billing cycles during which interest is deferred). Institutions would also have been prohibited from denying consumers a grace period on purchases (if one is offered) solely because they have not paid off a balance at a promotional rate or a balance on which interest is deferred.
Third, institutions would have been prohibited from increasing the annual percentage rate on an outstanding balance. This prohibition would not have applied, however, where a variable rate increases due to the operation of an index, where a promotional rate expired or was lost (provided the rate was not increased to a penalty rate), or where the minimum payment was not received within 30 days after the due date.
Fourth, institutions would have been prohibited from assessing a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit. If, however, the actual amount of the transaction would have exceeded the credit limit, then a fee could have been assessed.
Fifth, institutions would have been prohibited from imposing finance charges based on balances for days in billing cycles that precede the most recent billing cycle. The proposed rule would have prohibited institutions from reaching back to earlier billing cycles when calculating the amount of interest charged in the current cycle, a practice that is sometimes referred to as two- or double-cycle billing.
Sixth, institutions would have been prohibited from financing security deposits or fees for the issuance or availability of credit (such as account-opening fees or membership fees) if those deposits or fees utilized the majority of the available credit on the account. The proposal would also have required security deposits and fees exceeding 25 percent of the credit limit to be spread over the first year, rather than charged as a lump sum during the first billing cycle.
Seventh, institutions making firm offers of credit advertising multiple annual percentage rates or credit limits would have been required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest annual percentage rate and highest credit limit advertised.
The Agencies also proposed two provisions prohibiting unfair acts or practices related to overdraft services in connection with consumer deposit accounts. The proposed provisions were intended to ensure that consumers understand the terms of overdraft services and have the choice to avoid the associated costs where such services do not meet their needs.
The first provision provided that it would be an unfair act or practice for an institution to assess a fee or charge on a consumer's account for paying an overdraft unless the institution provided the consumer with the right to opt out of the institution's payment of overdrafts and a reasonable opportunity to exercise the opt out, and the consumer did not opt out. The proposed opt-out right would have applied to all transactions that overdraw an account regardless of whether the transaction is, for example, a check, an ACH transaction, an ATM withdrawal, a recurring payment, or a debit card purchase at a point of sale.
The second proposal would have prohibited certain acts or practices associated with assessing overdraft fees in connection with debit holds. Specifically, the proposal would have prohibited an institution from assessing an overdraft fee if the overdraft was caused solely by a hold placed on funds that exceeded the actual purchase amount of the transaction, unless this purchase amount would have caused the overdraft.
The comment period for this proposal closed on August 4, 2008. The Board received more than 60,000 comments on the May 2008 Proposal, more than for any other regulatory proposal in its history. OTS received approximately 5,200 comments. NCUA received approximately 1,000 comments. The overwhelming majority of these comments came from individual consumers. A substantial majority of individual consumers expressed support for the proposed rules, and many urged the Agencies to go further in protecting consumers. The remaining comments came from credit card issuers, banks, savings associations, credit unions, trade associations, consumer groups, members of Congress, other federal banking agencies, state and local governments, and others. These commenters expressed varying views on the May 2008 Proposal. In preparing this final rule, the Agencies considered the comments and the accompanying information. To the extent that commenters addressed specific aspects of the proposal, those comments are discussed below.
Section 18(f)(1) of the FTC Act provides that the Board (with respect to banks), OTS (with respect to savings associations), and the NCUA (with
The FTC Act allocates responsibility for enforcing compliance with regulations prescribed under section 18 with respect to banks, savings associations, and federal credit unions among the Board, OTS, and NCUA, as well as the OCC and the FDIC.
In response to the May 2008 Proposal, industry commenters and the OCC noted that the Board has stated in the past that enforcement of the FTC Act's prohibition on unfair and deceptive practices is best handled on a case-by-case basis because determinations of unfairness and deception depend heavily on individual facts and circumstances.
As discussed in greater detail below in section VI of this
Congress has codified standards developed by the FTC for its use in determining whether acts or practices are unfair under section 5(a) of the FTC Act.
In proposing and finalizing rules under section 18(f)(1) of the FTC Act, the Agencies have applied the statutory elements consistent with the standards articulated by the FTC. The Board, FDIC, and OCC have previously issued guidance generally adopting these standards for purposes of enforcing the FTC Act's prohibition on unfair or deceptive acts or practices.
According to the FTC, an unfair act or practice will almost always represent a market failure or imperfection that prevents the forces of supply and demand from maximizing benefits and minimizing costs.
In response to the May 2008 Proposal, several commenters expressed concern that the FTC's interpretation of substantial consumer injury is overbroad and requested that the Agencies introduce a variety of limitations. As noted above, the Agencies have adopted the FTC's standards for determining whether an act or practice is unfair. Accordingly, in the interest of uniform application of the FTC Act, the Agencies decline to read in such limitations where the FTC has not done so.
In response to the May 2008 Proposal, several industry commenters argued that an injury resulting from the operation of a contractual provision is always reasonably avoidable because the consumer could read the contract and decide not to enter into it. These commenters further argued that institutions could not be held responsible for consumers' failure to read or understand the contract or the disclosures provided by the institution. These arguments, however, are inconsistent with the FTC's application of the unfairness analysis in support of its Credit Practices Rule, where the FTC determined that consumers could not reasonably avoid injuries caused by otherwise valid contractual provisions.
Some commenters argued that section 18(f)(1) of the FTC Act prevents the Board from issuing final rules that would seriously conflict with the Board's essential monetary and payments systems policies. The language cited by the commenters, however, does not apply to this rulemaking. Instead, this language creates an exception to the general requirement that the Board promulgate
The FTC has also adopted standards for determining whether an act or practice is deceptive under the FTC Act.
A representation or omission is deceptive if the overall net impression created is likely to mislead consumers.
A representation or omission is material if it is likely to affect the consumer's conduct or decision regarding a product or service.
The Agencies have wide latitude to determine what remedy is necessary to prevent an unfair or deceptive act or practice so long as that remedy has a reasonable relation to the act or practice.
Based on the comments and further analysis, the Agencies have revised the proposed rules substantially. As discussed in greater detail below, the Agencies are not taking action on some aspects of the proposed rule at this time. However, the Agencies note that this rule is not intended to identify all unfair or deceptive acts or practices, even with regard to consumer credit card accounts. Accordingly, the fact that a particular act or practice is not addressed by today's final rule does not limit the ability of any agency to make a determination that it is unfair or deceptive. As noted elsewhere, to the extent that specific practices raise concerns regarding unfairness or deception under the FTC Act, the Agencies plan to continue to address those practices on a case-by-case basis through supervisory and enforcement actions.
The Agencies proposed to make certain non-substantive, organizational changes to their respective versions of the Credit Practices Rule. These changes are adopted as proposed except for one additional nonsubstantive clarification to the scope paragraph of OTS's rule.
OTS also solicited comment on eliminating the section of its rule on state exemptions. 73 FR at 28911. OTS is eliminating that section as discussed in section IV of this
In May 2008, the Agencies proposed several provisions under the FTC Act related to consumer credit card accounts. As discussed below, based on the comments and further analysis, the Agencies have adopted five provisions designed to protect consumers who use credit cards from unfair acts or practices.
First, the Agencies have adopted the proposed rule prohibiting institutions from treating a payment as late for any purpose unless consumers have been provided a reasonable amount of time to make that payment. The Agencies have also adopted the proposed safe harbor providing that institutions may comply with this requirement by adopting reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days before the payment due date. Elsewhere in today's
Second, the Agencies have adopted a revised version of the proposed rule regarding allocation of payments when different annual percentage rates apply to different balances on a consumer credit card account. The final rule requires institutions to allocate amounts paid in excess of the minimum payment either by applying the entire amount
Third, the Agencies have revised the proposed rule regarding increases in annual percentage rates to require institutions to disclose at account opening the rates that will apply to the account and to prohibit institutions from increasing annual percentage rates unless expressly permitted. Institutions are permitted to increase a rate disclosed at account opening at the expiration of a specified period, provided that the increased rate was also disclosed at account opening. After the first year following opening of the account, institutions are also permitted to increase rates for new transactions so long as the institution complies with the 45-day advance notice requirement in Regulation Z (adopted by the Board elsewhere in today's
Fourth, the Agencies have adopted the proposed rule prohibiting institutions from imposing finance charges based on balances for days in billing cycles that precede the most recent billing cycle as a result of the loss of a grace period. This rule generally prohibits institutions from reaching back to earlier billing cycles when calculating the amount of interest charged in the current cycle, a practice that is sometimes referred to as two- or double-cycle billing.
Fifth, the Agencies have adopted a revised version of the proposed rule regarding the financing of security deposits or fees for the issuance or availability of credit (such as account-opening fees or membership fees). The final rule prohibits institutions from financing security deposits or fees for the issuance or availability of credit if, during the first year after account opening, those deposits or fees consume the majority of the available credit on the account. In addition, the Agencies have adopted a requirement that security deposits and fees exceeding 25 percent of the credit limit to be spread over no less than the first six months, rather than charged as a lump sum during the first billing cycle. Furthermore, elsewhere in today's
Finally, the Agencies are not taking action at this time on the proposed rule addressing holds placed on available credit. As discussed below, the Board is proposing to address holds placed on available funds in a deposit account using its authority under Regulation E. In addition, the Agencies are not taking action at this time on the proposed rule regarding firm offers of credit advertising multiple annual percentage rates or credit limits. Concerns about this practice are addressed by amendments to Regulation Z adopted by the Board elsewhere in today's
The Agencies are not taking action on overdraft services on deposit accounts or debit holds at this time. As discussed below, the Board has published a separate proposal addressing these issues under Regulation E elsewhere in today's
On March 1, 1984, the FTC adopted its Credit Practices Rule pursuant to its authority under the FTC Act to promulgate rules that define and prevent unfair or deceptive acts or practices in or affecting commerce.
As part of this rulemaking, the Agencies proposed to reorganize aspects of their respective Credit Practices Rules. Although the Agencies have approached these revisions differently in some respects, the Agencies do not intend to create any substantive difference among their respective rules and believe that these rules remain substantially similar to the FTC's Credit Practices Rule. Except as otherwise stated below, the Agencies did not receive comments on this portion of the proposal.
Subpart A contains general provisions that apply to the entire part. As discussed below, there are some differences among the Agencies' proposals.
The provisions in proposed § _.1 were largely drawn from the current authority, purpose, and scope provisions in the Agencies' respective Credit Practices Rules. As discussed below, § _.1 is generally adopted as proposed.
Proposed § _.1(a) provided that the Agencies issued this part under section 18(f) of the FTC Act. Section _.1(a) is adopted largely as proposed.
One commenter urged that OTS should use safety and soundness authority as the legal basis for this rule, including its authority under HOLA. While OTS disagrees with this commenter to the extent that it argued that OTS should use its safety and soundness authority instead of its FTC Act authority, OTS agrees that HOLA serves as an appropriate secondary basis for OTS's portion of the rule. Accordingly, OTS is inserting express references to HOLA in its rule (including § 535.1(a)) to reflect that HOLA serves as an independent secondary basis for OTS's final rule.
HOLA provides authority for both safety and soundness and consumer protection regulations. Consequently, HOLA serves as a secondary,
With regard to safety and soundness, HOLA section 4(a) (12 U.S.C. 1463(a)) authorizes the Director of OTS to issue regulations governing savings associations that the Director determines to be appropriate to carry out his responsibilities, including providing for the examination, safe and sound operation, and regulation of savings associations. The Director of OTS has used HOLA authority to issue regulations requiring savings associations to operate safely and soundly.
With regard to consumer protection, HOLA section 5(a) (12 U.S.C. 1464(a)) authorizes the Director of OTS to regulate federal savings associations giving primary consideration to the best practices of thrift institution in the United States. As courts have consistently and repeatedly recognized for decades, HOLA empowered OTS and its predecessor agency, the Federal Home Loan Bank Board (FHLBB), to adopt comprehensive rules and regulations governing the operations of federal savings associations.
The [FHLBB], an independent federal regulatory agency, was formed in 1932 and thereafter was vested with plenary authority to administer [HOLA] * * *. Section 5(a) of the HOLA * * * empowers the Board, “under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as `Federal Savings and Loan Associations.' ” Pursuant to this authorization, the [FHLBB] has promulgated regulations governing “the powers and operations of every Federal savings and loan association from its cradle to its corporate grave.”
Proposed § _.1(b) provided that the purpose of the part is to prohibit unfair or deceptive acts or practices in violation of section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1). It further provided that the part contains provisions that define and set forth requirements prescribed for the purpose of preventing specific unfair or deceptive acts or practices. In May 2008, the Agencies noted that these provisions define and prohibit specific unfair or deceptive acts or practices within a single provision, rather than setting forth the definitions and remedies separately. Finally, proposed § _.1(b) clarified that the prohibitions in subparts B, C, and D do not limit the Agencies' authority to enforce the FTC Act with respect to other unfair or deceptive acts or practices.
The Agencies have revised proposed § _.1(b) to reflect their decision not to take action on proposed subpart D at this time. Also, OTS has added an express reference to HOLA in § 535.1(b). Otherwise, this provision is adopted as proposed.
Proposed § _.1(c) described the scope of each agency's rules. The Agencies each tailored this paragraph to describe those entities to which their part applies.
The Board's proposed provision stated that the Board's rules would apply to banks and their subsidiaries, except savings associations as defined in 12 U.S.C. 1813(b). It further explained that enforcement of the Board's rules is allocated among the Board, the OCC, and the FDIC, depending on the type of institution. This provision was updated to reflect intervening changes in law. The Board also proposed to revise its Staff Guidelines to the Credit Practices Rule to remove questions 11(c)-1 and 11(c)-2, to update the substance of its answers to those questions, and to publish those answers as commentary to proposed § 227.1(c).
OTS's proposed provision stated that its rules apply to savings associations and subsidiaries owned in whole or in part by a savings association. OTS also enforces compliance with respect to these institutions. As proposed, the entire OTS part would have the same scope. In May 2008, OTS noted that this scope is somewhat different from the scope of its existing Credit Practices Rule. Prior to today's revisions, OTS's Credit Practices Rule applied to savings associations and service corporations that were wholly owned by one or more savings associations, which engaged in the business of providing credit to consumers. Since the proposed rules would cover more practices than consumer credit, the proposal deleted the reference to engaging in the business of providing credit to consumers. The proposal also updated the reference to wholly owned service corporations to refer instead to subsidiaries in order to reflect the current terminology used in OTS's Subordinate Organizations Rule.
Only one commenter addressed the scope of OTS's proposed rule. It supported applying the rule to savings associations and subsidiaries as proposed. Another commenter requested clarification of which entities the rule refers to as “you.” OTS is finalizing the scope as proposed but clarifying through a parenthetical in § 535.1(c) that the term “you” refers to savings associations and subsidiaries owned in whole or in part by a savings association.
The NCUA's proposed provision stated that its rules would apply to federal credit unions. This provision is adopted as proposed.
Proposed § _.1(d) of the Board's rule would have clarified that, unless
OTS and NCUA did not have a need for a comparable subsection so none was included in their proposed rules.
In order to accommodate the revisions discussed above, the Board proposed to consolidate the consumer complaint provisions previously located in 12 CFR 227.1 and 227.2 in proposed § 227.2. The Board has revised the proposal for clarity and to include an e-mail address and Web site where consumers can submit complaints. Otherwise, this provision is adopted as proposed.
OTS and NCUA do not have and did not propose to add comparable provisions.
Each agency has placed the substantive provisions of their Credit Practices Rule in Subpart B. In order to retain the current numbering in its Credit Practices Rule, the Board has reserved 12 CFR 227.11, which previously contained the Board's statement of authority, purpose, and scope. The other provisions of the Board's Credit Practices Rule (§§ 227.12 through 227.16) have not been revised.
As discussed below, OTS proposed several notable changes to its version of Subpart B. Except as otherwise stated, these sections have been adopted as proposed.
OTS received no comments on its proposed changes to this section and is finalizing it as proposed. OTS has deleted the definitions of “Act,” “creditor,” and “savings association” as unnecessary. It has substituted the term “you” for “savings association” or “creditor” in the definitions of “consumer credit” and “obligation” as applicable. For the convenience of the user, OTS has also incorporated the definition of “consumer credit” into this section, instead of using a cross-reference to a definition contained in a different part of OTS's rules. OTS has moved the definition of “cosigner” to the section on unfair or deceptive cosigner practices. OTS has also merged the definition of “debt” into the definition of “collecting a debt” contained in the section on late charges. Finally, OTS has moved the definition of “household goods” to the section on unfair credit contract provisions.
OTS received no comments on its proposed changes to this section and is finalizing it as proposed. OTS has revised the title of this section to reflect its focus on credit contract provisions. OTS has also deleted the obsolete reference to extensions of credit after January 1, 1986.
OTS received no comments on its proposed changes to this section and is finalizing it as proposed. OTS has deleted the obsolete reference to extensions of credit after January 1, 1986. OTS has substituted the term “substantially similar” for the term “substantially equivalent” in referencing a document that equates to the cosigner notice for consistency with the Board's rule and to avoid confusion with the term of art “substantial equivalency” used in the Board's section on state exemptions. OTS has also clarified that the date that may be stated on the cosigner notice is the date of the transaction. NCUA has made similar amendments to its rule in § 706.13 (previously § 706.3).
OTS received no comments on its proposed changes to this section and is finalizing it as proposed. OTS has revised the title of this section to reflect its focus on unfair late charges. OTS has deleted the obsolete reference to extensions of credit after January 1, 1986. Similarly, NCUA has made similar revisions to § 706.14 (previously § 706.4).
OTS proposed to revise the subsection on delegated authority to update the current title of the OTS official with delegated authority to make determinations under this section. As discussed below, however, OTS has removed § 535.5 from codification and has not replaced it with proposed § 535.15.
The FTC's Credit Practices Rule included a provision allowing states to seek exemptions from the rule if state law affords a greater or substantially similar level of protection.
The Agencies received only a few comments on state exemptions. One consumer advocacy organization urged the Agencies to expand the opportunity for state exemptions to the final rule as a way to ensure a consumer private right of action under state law and to enable states to develop new protections. In contrast, several financial institutions opposed allowing states to seek exemption from practices addressed in the final rule. They argued that allowing such exemptions would provide no meaningful regulatory burden relief and would interfere with consistent implementation of the final rule.
The Agencies have decided not to extend the opportunity for state exemptions to the final rule. First, as noted above, the FTC Act does not require the Agencies to provide such an opportunity. Second, requiring all
OTS received a few comments on whether it should retain the existing state exemption provision in its Credit Practices Rule. The comments on this issue largely tracked those discussed above concerning whether to expand the availability of state exemptions to new practices addressed in the final rule. In addition, one organization representing state banking interests supported preserving state laws that afford more protection to consumers than the federal rule.
A few comments reflect confusion about how the availability or unavailability of state exemptions would affect federal savings associations. Eliminating the availability of exemptions under the OTS Credit Practices Rule will have no direct effect on federal savings associations. Apparently, the only state exemption granted by OTS or its predecessor is to the State of Wisconsin for substantially equivalent provisions of the Wisconsin Consumer Act. That exemption only applied to state-chartered savings associations; it specifically did not extend to federal savings associations.
For the same reasons the Agencies are not extending the opportunity for state exemptions to apply to new practices addressed in the final rule, OTS is removing § 535.5 and eliminating the existing state exemption authority under its rule. Accordingly, the exemption granted to Wisconsin and any other exemptions which may have been granted by OTS or its predecessor with respect to its Credit Practices Rule will cease to be in effect as of this rule's effective date.
Pursuant to their authority under 15 U.S.C. 57a(f)(1), the Agencies adopt rules prohibiting specific unfair acts or practices with respect to consumer credit card accounts. A secondary basis for OTS's rule is HOLA. These rules are located in a new Subpart C to the Agencies' respective regulations under the FTC Act.
Section _.21 defines certain terms used in Subpart C.
Proposed § _.21(a) defined “annual percentage rate” as the product of multiplying each periodic rate for a balance or transaction on a consumer credit card account by the number of periods in a year. This definition corresponded to the definition of “annual percentage rate” in 12 CFR 226.14(b). As discussed in the Board's official staff commentary to 12 CFR 226.14(b), this computation does not reflect any particular finance charge or periodic balance.
The Agencies did not receive any significant comments on this definition. Accordingly, it is adopted as proposed.
Proposed § _.21(b) defined “consumer” as a natural person to whom credit is extended under a consumer credit card account or a natural person who is a co-obligor or guarantor of a consumer credit card account. The Agencies did not receive any significant comments on this definition. Accordingly, it is adopted as proposed.
Proposed § _.21(c) defined “consumer credit card account” as an account provided to a consumer primarily for personal, family, or household purposes under an open-end credit plan that is accessed by a credit or charge card. This definition incorporated the definitions of “open-end credit,” “credit card,” and “charge card” from Regulation Z.
One consumer group requested that this definition be expanded to cover debit cards with a linked credit card feature. The Agencies do not believe any change is necessary because, to the extent such cards meet the definition of “credit card” under 12 CFR 226.2, they are covered. Accordingly, this definition is adopted as proposed.
Proposed § _.21(d) defined “promotional rate.” This definition was similar to the definition of “promotional rate” proposed by the Board in 12 CFR 226.16(e)(2) in the May 2008 Regulation Z Proposal.
In its June 2007 Regulation Z Proposal, the Board noted anecdotal evidence of consumers receiving statements relatively close to the payment due date, with little time remaining to mail their payments in order to avoid having those payments treated as late. The Board observed that it may take several days for a consumer to receive a statement after the close of a billing cycle. The Board also observed that consumers who pay by mail may need to mail their payments several days before the due date to ensure that the payment is received on or before that date. Accordingly, the Board requested comment on whether it should recommend to Congress that the 14-day requirement in section 163(a) of TILA be increased.
In response to the June 2007 Regulation Z Proposal, individual consumers, consumer groups, and a member of Congress stated that consumers were not being provided with a reasonable amount of time to pay their credit card bills. These commenters indicated that, because of the time required for periodic statements to reach consumers by mail and for consumers' payments to reach creditors by mail, consumers had little time in between to review their statements for accuracy before making payment. This situation can be exacerbated if the consumer is traveling unexpectedly or otherwise unable to give the statement immediate attention when it is delivered or if the consumer needs to compare the statement to receipts or other records. In addition, some commenters indicated that consumers are unable to accurately predict when their payment will be received by a creditor due to uncertainties about how quickly mail is delivered. Some commenters argued that, because of these difficulties, consumers' payments were received after the due date, leading to finance charges as a result of loss of the grace period, late fees, rate increases, and other adverse consequences.
Industry commenters, however, generally stated that consumers currently receive ample time to make payments, particularly in light of the increasing number of consumers who receive periodic statements electronically and make payments electronically or by telephone. These commenters also stated that providing additional time for consumers to make payments would be operationally difficult and would reduce interest revenue, which would have to be recovered by raising the cost of credit for all consumers.
Comments on the Agencies' May 2008 Proposal were generally consistent with those on the Board's June 2007 Regulation Z Proposal. Individual consumers, consumer groups, members of Congress, the FDIC, and state attorneys general largely supported the proposed rule. Some of these commenters stated that institutions have reduced the amount of time for consumers to make payment while increasing the late payment fees, penalty rates, and other costs imposed on consumers as a result of late payment.
The Agencies conclude that, based on the comments received and their own analysis, it is an unfair act or practice under 15 U.S.C. 45(n) and the standards articulated by the FTC to treat a payment on a consumer credit card account as late for any purpose (other than expiration of a grace period) unless the consumer has been provided a reasonable amount of time to make that payment.
Several industry commenters stated that consumers are not harmed by the lack of a reasonable amount of time to pay because a significant majority of consumers pay on or before the due date, indicating that they currently receive sufficient time to make payment. Other commenters, however, noted that the GAO Report found that, in 2005, 35 percent of active accounts were assessed at least one late fee and that the average late fee assessment per active account was $30.92.
The Agencies further stated that, in some cases, travel or other circumstances may prevent the consumer from reviewing the statement immediately upon receipt. Finally, as discussed above, the Agencies recognized that, because consumers cannot control when a mailed payment will be received by the institution, a payment mailed well in advance of the due date may nevertheless arrive after that date.
Some industry commenters stated that consumers should know the due date
Furthermore, this argument fails to recognize, as discussed above, that consumers must have a reasonable opportunity to review their statement in order to exercise their dispute rights under TILA and Regulation Z. Finally, travel or other circumstances may prevent the consumer from reviewing the statement immediately. Accordingly, the Agencies conclude the injuries caused by late payment are not reasonably avoidable unless the consumer is provided a reasonable amount of time to make payment.
Some industry commenters stated that, because their practices are already consistent with the proposed safe harbor in § _.22(b), the costs of complying with the proposed rule would be minimal. Other industry commenters indicated that complying with the proposed safe harbor would require significant changes to their processes for generating and delivering periodic statements. As discussed below, the Agencies have adopted the safe harbor as proposed.
Based on the comments received, the Agencies concluded in May 2008 that, because many consumers carry a balance from month to month and therefore do not receive a grace period, a separate rule might be needed to specifically address harms other than loss of the grace period when institutions do not provide a reasonable amount of time for consumers to make payment (such as late fees and rate increases as a penalty for late payment). However, in order to avoid any conflict with the statutory requirement regarding grace periods, proposed § _.22(c) specifically provided that the rule would not affect the requirements of section 163(a) of TILA. Accordingly, because § _.22(c) has been adopted as proposed, the Agencies conclude that § _.22 is not contrary to public policy generally or any established payment systems policy of the Board.
Proposed § _.22(a) would have prohibited institutions from treating a payment as late for any purpose unless the consumer has been provided a reasonable amount of time to make that payment. For the reasons discussed above, the Agencies have adopted § _.22(a) as proposed.
Proposed comment 22(a)-1 clarified that treating a payment as late for any purpose includes increasing the annual percentage rate as a penalty, reporting the consumer as delinquent to a credit reporting agency, or assessing a late fee or any other fee based on the consumer's failure to make a payment within the amount of time provided under this section. One industry commenter stated that the failure to provide a reasonable amount of time to pay is unlikely to cause a consumer to be reported as delinquent to a credit reporting agency, citing the policy of credit reporting agencies to consider an account delinquent only when it is 30 days past due.
Proposed comment 22(a)-2 stated that whether an institution had provided a reasonable amount of time to pay would be evaluated from the perspective of the consumer, not the institution. Some industry commenters requested that the Agencies establish standards for determining whether a particular amount of time is reasonable. The Agencies, however, have adopted a flexible reasonableness analysis rather than a set of fixed standards because whether a particular amount of time is sufficient for consumers to make payment will depend on the facts and circumstances. In addition, in order to remove uncertainty and facilitate compliance, the Agencies have, as discussed below, provided a means for complying with § _.22(a) in § _.22(b)
As proposed, § _.22(b) provided a safe harbor for institutions that have adopted reasonable procedures designed to ensure that periodic statements specifying the payment due date are mailed or delivered to consumers at least 21 days before the payment due date. As explained in the May 2008 Proposal, the 21-day safe harbor was intended to ensure that consumers received at least a week to review their statement and make payment. Compliance with this safe harbor would allow seven days for the periodic statement to reach the consumer by mail, seven days for the consumer to review the statement and make payment, and seven days for that payment to reach the institution by mail. The Agencies noted that, although increasing numbers of consumers are receiving periodic statements and making payments electronically, a significant number still utilize mail. The Agencies further noted that, while first class mail is often delivered within three business days, in some cases it can take significantly longer.
The Agencies requested comment on whether the proposed 21-day safe harbor provided a reasonable amount of time for consumers to review their periodic statements and make payment. Consumer groups and others stated that a longer period of 28 or 30 days was needed. Some industry commenters stated that they currently mail or deliver periodic statements 21 days in advance of the due date. Most industry commenters, however, raised the following objections to the proposed 21-day safe harbor.
First, many industry commenters stated that allowing seven days for receipt of mailed periodic statements was excessive because, in most cases, statements are generally delivered two to four days after mailing. These commenters, however, provided only the average delivery time or the delivery time for the great majority of consumers, not the outer range of delivery times. For example, as one consumer group noted, mailing times are often significantly longer for consumers in sparsely populated rural areas. Thus, while the Agencies agree that seven days may be more time than is needed for most consumers to receive a periodic statement by mail, a safe harbor based solely on average mailing times would not adequately protect the small but significant number of consumers whose delivery times are longer than average. Furthermore, because many institutions use practices that reduce delivery times for periodic statements (such as pre-sorting statements by ZIP code prior to delivery to the U.S. Postal Service), delivery times for periodic statements mailed by institutions to consumers likely are not representative of delivery times for payments mailed by consumers to institutions.
Second, several industry commenters stated that allowing seven days for mailing time was excessive for the additional reason that many consumers receive their statements electronically and make payment electronically or by telephone. These commenters, however, also confirmed that a significant number of consumers receive statements and make payments by mail. While many consumers at larger institutions have the ability to review statements online, it is unclear how many actually do so since most also receive statements by mail. Furthermore, the percentage of consumers paying by mail varied significantly by the type of institution. For example, some larger institutions reported that less than half of their consumers use mail to submit payments, while an industry group reported that 70 to 80 percent of community bank consumers mail their payments. In addition, one consumer group cited a study indicating that internet usage is not evenly distributed among the population.
Third, many industry commenters stated that complying with the 21-day safe harbor would require significant and costly changes to institutions' practices for generating and mailing periodic statements. As discussed above, however, the Agencies have concluded that these costs are outweighed by the benefits to consumers of receiving a reasonable amount of time to pay.
Finally, some commenters stated that adjusting to the 21-day safe harbor could lead to consumer confusion because the institution would not have sufficient time to reflect timely payments on the subsequent periodic statement. This concern, however, depends on a number of variables, including the number of days in the month, whether the institution uses billing cycles that vary with the length of the month (as opposed to a fixed 30-day billing cycle), and whether the institution processes payments on weekends or holidays. Although it is possible that, in some narrow set of circumstances, an institution may not be able to reflect a timely payment on the periodic statement, the Agencies conclude that any resulting confusion does not warrant a reduction in the proposed safe harbor. Accordingly, the 21-day safe harbor is adopted as proposed except that, for the reasons discussed below, this provision has been retitled and, for reasons discussed below, moved to § _.22(b)(2).
In order to minimize burden and facilitate compliance, proposed comment 22(b)-1 clarified that an institution with reasonable procedures in place designed to ensure that statements are mailed or delivered within a certain number of days from the closing date of the billing cycle may utilize the safe harbor by adding that number to the 21-day safe harbor for purposes of determining the payment due date on the periodic statement. Proposed comment 22(b)-1 is adopted as proposed. Accordingly, if, for example, an institution had reasonable procedures in place designed to ensure that statements are mailed or delivered within three days of the closing date of the billing cycle, the institution could comply with the safe harbor by stating a payment due date on its periodic statements that is 24 days from the close of the billing cycle (in other words, 21 days plus three days). Similarly, if an institution's procedures reasonably ensured that payments would be sent within five days of the close of the billing cycle, the institution could comply with the safe harbor by setting the due date 26 days from the close of the billing cycle.
Proposed comment 22(b)-2 further clarified that the payment due date is
The Agencies also received requests from industry for clarification that compliance with the safe harbor is not the only means of complying with the requirement that consumers be provided a reasonable amount of time to make the payment. Accordingly, the Agencies have restructured § .22(b) to provide additional clarity regarding compliance with § _.22(a). The Agencies have added a new § _.22(b)(1), which clarifies that institutions are responsible for establishing that they have complied with § _.22(a). The 21-day safe harbor, which the Agencies have moved to § _.22(b)(2), provides one method of compliance. Finally, the Agencies have added comment 22(b)-3, which provides an example of an alternative compliance method. In this example, because an institution only provides periodic statements and accepts payments electronically, the institution could deliver statements for those accounts less than 21 days before the payment due date and still satisfy the general rule in § _.22(a) because those consumers would need less time to receive their statements or make their payments by mail.
In order to avoid any potential conflict with section 163(a) of TILA, proposed § _.22(c) provided that proposed § _.22(a) would not apply to any time period provided by the institution within which the consumer may repay the new balance or any portion of the new balance without incurring finance charges (in other words, a grace period).
Several industry commenters argued that, notwithstanding proposed § _.22(c), institutions would essentially be required to use a single date for the payment due date and for expiration of the grace period because consumers would be confused by different dates. Consumer groups also raised concerns about the potential for consumer confusion. One consumer group requested that the Board use its authority under section 1604(a) of TILA to require that the expiration of the grace period coincide with the payment due date. Because the mailing or delivery of periodic statements in relation to expiration of the grace period is specifically addressed by section 163(a) of TILA, the Agencies believe that deviating from the statutory requirement would be inappropriate and unnecessary in this case, particularly because Regulation Z would require an institution that elected to use separate dates to disclose both dates on the periodic statement.
Second, the Agencies sought comment on whether to adopt a rule that would require institutions, upon the request of a consumer, to reverse a decision to treat a payment mailed before the due date as late and, if so, what evidence the institution could require the consumer to provide (for example, a receipt from the U.S. Postal Service or other common carrier) and what time frame would be appropriate (for example, payment mailed at least five days before the due date, payment received no more than two business days' late). Although some commenters supported such a requirement, the Agencies also received comments from both industry and a consumer group opposing the requirement on the grounds that it would be burdensome for consumers to obtain proof of mailing and for institutions to establish systems for accepting such proof. Furthermore, the Agencies note that some institutions stated that they will generally waive any late payment fee when a consumer produces proof that a payment was mailed sufficiently in advance of the due date.
As discussed above, HOLA provides authority for both safety and soundness and consumer protection regulations. Section 535.22 supports safety and soundness by reducing reputational risk that would result from providing consumers an unreasonably short period of time to make payment. Section 535.22 also protects consumers by providing sufficient time to make payment. It is somewhat akin to OTS's late charge provision for home loans, which prohibits federal savings associations from imposing a late charge as to any payment received within 15 days of the due date.
In addition, because the Agencies were concerned that existing payment allocation practices were especially harmful when an account had a balance at a discounted promotional rate or a balance on which interest was deferred, proposed § _.23(b) would have placed more stringent requirements on those accounts. Proposed § _.23(b)(1)(i) would have prohibited institutions from allocating excess payments to promotional rate and deferred interest balances unless all other balances had been paid in full. Proposed § _.23(b)(1)(ii), however, created an exception for the existing practice by some institutions of allocating excess payments first to a deferred interest balance during the last two billing cycles of the deferred interest period so that consumers could pay off that balance and avoid assessment of deferred interest. Finally, proposed § _.23(b)(2) would have prohibited institutions from denying consumers a grace period solely because an account had a promotional rate or deferred interest balance.
Based on the comments received and further analysis, the Agencies have revised the general payment allocation rule in proposed § _.23(a) to require institutions either to apply excess payments first to the balance with the highest annual percentage rate or to allocate excess payments pro rata among the balances. The final version of § _.23 prohibits the current practice of applying payments to the lowest rate balance first while also responding to concerns raised by commenters that the number of allocation methods permitted by the proposed rule would have increased the complexity of payment allocation, making the practice and its effects on interest charges even less transparent for consumers.
In addition, the Agencies have not included proposed § _.23(b) in the final rule. First, because current practices regarding assessment of deferred interest are not permitted under the final version of § _.24, the provisions regarding deferred interest plans are no longer necessary. Second, due to concerns that proposed § _.23(b) could significantly reduce or eliminate promotional rate offers that provide substantial benefits to consumers, the Agencies have not included the provisions regarding promotional rate balances. Instead, the Agencies believe that applying the general allocation rule in § _.23 in all circumstances strikes the appropriate balance by preserving promotional rate offers that provide substantial benefits to consumers while prohibiting the most harmful payment allocation practices.
For example, assume that a consumer credit card account charges annual percentage rates of 12% on purchases and 20% on cash advances. Assume also that, in the same billing cycle, the consumer uses the account for purchases totaling $3,000 and cash advances totaling $300. If the consumer makes an $800 excess payment, most creditors would apply the entire payment to the purchase balance and the consumer would incur interest charges on the more costly cash advance balance. Under these circumstances, the consumer is effectively prevented from paying off the balance with the higher interest rate (cash advances) unless the consumer pays the total balance (purchases and cash advances) in full.
This outcome is exacerbated if the consumer uses the card in reliance on a promotional rate or deferred interest offer. For example, assume the same facts as above but that, during the same billing cycle, the consumer also transfers to the account a balance of $3,000 in response to a promotional rate offer of 5% for six months. In this case, most creditors would apply the consumer's $800 excess payment to the promotional rate balance and the consumer would incur interest charges on the more costly purchase and cash advance balances. Under these circumstances, the consumer would effectively be denied the benefit of the 5% promotional rate for six months if the card is used for purchase or cash advance transactions because the consumer must pay off the entire transferred balance in order to avoid paying a higher rate on other transactions. Indeed, the only way for the consumer to receive the full benefit of the 5% promotional rate is not to use the card for purchases, which would effectively require the consumer to use an open-end credit account as a closed-end installment loan.
Deferred interest plans raise similar—but not identical—concerns. Currently, some creditors offer deferred interest plans under which interest accrues on purchases at a specified rate but is not charged to the account for a period of time. If the balance is paid in full by the end of the period, the consumer generally will not be charged any interest. If, however, the balance is not paid in full by the end of the period, all interest accrued during that period will be charged to the account. With respect to payment allocation, a consumer whose payments are applied to a deferred interest balance instead of balances on which interest is not deferred will incur additional finance charges during the deferred interest period.
In addition, creditors typically provide consumers who pay their balance in full each month a grace period for purchases but not for balance transfers or cash advances. Because payments generally will be allocated to the transferred balance first, a consumer typically cannot take advantage of both a promotional rate on balance transfers or cash advances and a grace period on purchases. Under these circumstances, the only way for a consumer to avoid paying interest on purchases would be to pay off the entire balance, including the transferred balance or cash advance balance subject to the promotional rate.
In preparing its June 2007 Regulation Z Proposal, the Board sought to address issues regarding payment allocation by developing disclosures explaining payment allocation methods on accounts with multiple balances at different annual percentage rates so that consumers could make informed decisions about card usage, particularly with regard to promotional rates. For example, if consumers knew that they would not receive the full benefit of a promotional rate on a particular credit card account if they used that account for purchases during the promotional period, they might use a different account for purchases and pay that second account in full every month to take advantage of the grace period. The Board conducted extensive consumer testing in an effort to develop
In the June 2007 Regulation Z Proposal, the Board acknowledged these results and stated that it would conduct further testing to determine whether the disclosure could be improved to communicate more effectively to consumers how payment allocation can affect their interest charges. The Board also solicited comment on a proposed amendment to Regulation Z that would have required creditors to explain payment allocation to consumers. Specifically, the Board proposed that creditors explain how payment allocation would affect consumers' interest charges if an initial discounted rate was offered on balance transfers or cash advances but not purchases. The Board proposed that creditors 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 initial discounted rate is in effect; and (3) that the consumer will incur interest on the purchase balance until the entire balance is paid, including the transferred balance or cash advance balance, as applicable. 72 FR at 33047-33050.
In response to the June 2007 Regulation Z Proposal, several commenters recommended that the Board test a simplified payment allocation disclosure that covered situations other than low rate balance transfers. One credit card issuer, however, stated that, even if an effective disclosure could be developed, consumers could not shop for a better payment allocation method because creditors almost uniformly apply payments to the balance with the lowest annual percentage rate. Furthermore, consumer and consumer group commenters urged the Board to go further and prohibit payment allocation methods that applied payments to the lowest rate balance before other balances.
In consumer testing conducted for the Board prior to the May 2008 Proposal, the Board tested a revised payment allocation disclosure. This disclosure was not effective in improving consumers' understanding. The majority of participants understood from earlier experience that creditors typically will apply payments to lower rate balances first and that this method causes them to incur higher interest charges. However, for those participants that did not know about payment allocation methods from earlier experience, the disclosure tested was not effective in communicating payment allocation methods.
Accordingly, because the Board's testing indicated that disclosure was not effective in allowing consumers to avoid the common practice of allocating payments first to the balance with the lowest rate, the Agencies proposed in May 2008 to address concerns regarding payment allocation in proposed § _.23 by placing limitations on allocation of excess payments.
The Agencies received comments in support of proposed § ._23 from individual consumers, consumer groups, members of Congress, the FDIC, state attorneys general, a state consumer protection agency, and others. Nevertheless, many of these commenters criticized the proposed rule as overly complex, arguing that—if consumers cannot understand the effects of the current low-to-high allocation method on interest charges—increasing the number and complexity of allocation methods would only make the cost of credit less transparent. These commenters urged the Agencies to revise the proposed rule to require that excess payments be applied first to the balance with the highest rate in all circumstances. Some consumer advocates urged the Agencies to ban deferred interest balances rather than create an exception for them.
In contrast, credit card issuers and industry groups strongly opposed the proposal, particularly the special requirements regarding accounts with promotional rate and deferred interest balances. These commenters generally argued that disclosure would enable consumers to avoid any harm caused by payment allocation, that the proposed restrictions regarding promotional rate and deferred interest balances would ultimately harm consumers by reducing or eliminating promotional rate and deferred interest offers, and that complying with the proposed rule would require burdensome systems changes.
To the extent that commenters addressed specific aspects of the proposal or its supporting legal analysis, those comments are discussed below.
When different annual percentage rates apply to different balances on a consumer credit card account, the Agencies conclude that, based on the comments received and their own analysis, it is an unfair act or practice under 15 U.S.C. 45(n) and the standards articulated by the FTC to allocate amounts paid by the consumer in excess of the required minimum periodic payment in a manner that does not apply a significant portion of the amount to the balance with the highest annual percentage rate.
In response, the Agencies received an analysis of credit card data purporting to represent approximately 70 percent of outstanding consumer credit card balances (the Argus Analysis). Although the Agencies are not able to verify the accuracy of the Argus Analysis or the data supporting it, the Agencies note that this analysis estimated that consumers are charged an additional
One industry commenter asserted that allocating payments first to the balance with the lowest interest rate could not cause an injury for purposes of the FTC Act merely because other, less costly allocation methods exist. It is well established, however, that monetary harm constitutes an injury under the FTC Act.
Another industry commenter stated that assessing interest consistent with a contractual provision to which the consumer has agreed cannot constitute an injury under the FTC Act. This argument, however, is inconsistent with the FTC's application of the unfairness analysis in support of its Credit Practices Rule, where the FTC determined that otherwise valid contractual provisions injured consumers.
Accordingly, the Agencies conclude that the failure to allocate a significant portion of an excess payment to the balance with the highest rate causes or is likely to cause substantial monetary injury to consumers.
The Agencies conclude that these factors support a determination that the injury caused by the failure to allocate a significant portion of an excess payment to the highest rate balance is not reasonably avoidable. In particular, the Agencies note that additional consumer testing has further confirmed that disclosure is not an effective alternative to the proposed rule.
Furthermore, although one industry commenter argued that consumers could reasonably avoid the injury by paying their balance in full each month, one of the intended purposes of a credit card (as opposed to a charge card) is to finance purchases over multiple billing cycles. Thus, it is unreasonable to expect consumers to avoid the harm caused by current payment allocation practices by paying their balances in full each month.
Furthermore, the Agencies stated that the proposal would enhance transparency and enable consumers to better assess the costs associated with using their credit card accounts at the time they engage in transactions. The Agencies noted that, to the extent that upfront costs have been artificially reduced because many consumers cannot reasonably avoid paying higher interest charges later, the reduction does not represent a true benefit to consumers as a whole. Finally, the Agencies stated that it appeared the proposal would enhance rather than harm competition because institutions offering rates that reflect the institution's costs (including the cost to the institution of borrowing funds and operational expenses) would no longer be forced to compete with institutions offering rates that are artificially reduced based on the expectation that interest will accrue on higher rate balances until the promotional rate balance is paid in full.
Based on the comments and further analysis, the Agencies conclude that these rationales support a determination that the injury to consumers when institutions do not allocate a significant portion of the excess payment to the balance with the highest annual percentage rate outweighs any benefits of this practice for consumers and competition. Industry commenters generally argued that the restrictions in proposed § _.23 would reduce interest revenue and force institutions to compensate by increasing the interest rates or fees charged to consumers, decreasing the amount of available credit, or using some combination of the two. For example, the Argus Analysis stated that, as a result of proposed § _.23, institutions could lose 0.125 percent of their annual interest revenue on revolving credit card accounts (in other words, accounts where interest is charged because the balance is not paid in full each billing cycle).
The Argus Analysis also stated that more than three quarters of revolving accounts do not carry multiple balances, meaning that the estimated $930 million in interest revenue is currently generated from only one quarter of all revolving accounts.
Some industry commenters also argued that compliance with proposed § _.23 would require extensive changes to payment allocation systems, the cost of which would be passed on to consumers. One systems provider estimated the cost of developing systems to allocate payments among different balances at tens of thousands of dollars per institution. Another systems provider, however, stated that these systems currently exist. Again, because the Agencies have simplified the payment allocation rule by permitting only two payment allocation methods and by omitting the special allocation requirements for promotional rate balances, the burden associated with systems changes should be reduced. Furthermore, if the cost of altering practices to comply with § _.23 is passed on to consumers, that cost will be spread among thousands, hundreds of thousands, or millions of consumers and will not outweigh the benefits to consumers of avoiding additional interest charges and more transparent upfront pricing.
While public policy may be considered as part of the unfairness analysis under the FTC Act, it is not a required element of that analysis and cannot serve as the primary basis for determining that an act or practice is unfair.
As proposed, § _.23(a) would have established a general rule governing payment allocation on accounts that have balances with different annual percentage rates but do not have a promotional rate or deferred interest balance. Proposed § _.23(b) would have established special rules for accounts with balances at different rates that do have a promotional rate or deferred interest balance. As discussed below, however, the final rule eliminates the special rules in proposed § _.23(b) and applies a revised version of the general rule in proposed § _.23(a) to all types of balances.
As an initial matter, industry commenters and a member of Congress criticized proposed § _.23 as overly complex. They stated that, rather than making payment allocation practices easier for consumers to understand, the proposed rule would make payment allocation harder to disclose and increase consumer confusion. The Agencies reemphasize that the Board's consumer testing indicates that, regardless of the complexity of the method, payment allocation methods cannot be effectively disclosed. The proposed restrictions on payment allocation were not intended to ease disclosure but instead to protect consumers from unfair practices that cannot be effectively addressed by disclosure. Nevertheless, as discussed below, the Agencies have greatly simplified the final rule.
When an account has balances with different annual percentage rates, proposed § _.23(a) would have required institutions to allocate any amount paid by the consumer in excess of the required minimum periodic payment among the balances in a manner that is no less beneficial to consumers than one of three listed methods. First, proposed § _.23(a)(1) would have allowed an institution to apply the excess payment first to the balance with the highest annual percentage rate and any remaining portion to the balance with the next highest annual percentage rate and so forth. Second, proposed § _.23(a)(2) would have allowed an institution to allocate equal portions of the excess payment to each balance. Third, proposed § _.23(a)(3) would have allowed an institution to allocate the excess payment among the balances in the same proportion as each balance bears to the total balance (in other words, pro rata).
As discussed above, some consumer group commenters argued that—because the Board's consumer testing indicates that disclosure does not enable consumers to understand the effects of payment allocation on interest charges—providing institutions with the ability to choose between different allocation methods would only make payment allocation more complex and the associated costs less transparent. Because this result would be contrary to the intended purpose of proposed § _.23, the final rule allows only two allocation methods for excess payments: Applying the excess payment first to the balance with the highest annual percentage rate and any remaining amount to the other balances in descending order based on the applicable annual percentage rate; and allocating the excess payment pro rata.
Although consumer groups and others argued that the Agencies should require allocation to the highest rate balance first in all circumstances because this method would minimize interest charges, the Agencies believe that the final version of § _.23 strikes the appropriate balance between institutions and consumers. It prohibits institutions from using the allocation method that maximizes interest charges but does not require use of the method that minimizes interest charges. The Agencies expect that most institutions will use the pro rata method, which will standardize payment allocation practices and focus competition on more transparent costs of credit (such as interest rates). Although permitting a second allocation method creates the potential for increased complexity, the Agencies believe that the allocation of excess payments first to the highest rate balance should be permitted because, even if few institutions will do so, this method minimizes interest charges for consumers.
The Agencies have not included the proposed methods allowing allocation of equal portions of the excess payment to each balance and allowing institutions to allocate excess payments in a manner that is no less beneficial to the consumer than one of the listed methods in order to reduce complexity and promote transparency. In addition, because information received during the comment period indicates that, as a general matter, consumers have approximately 25 percent of their total balance at a discounted promotional rate,
The Agencies note that several industry commenters argued that institutions should be permitted to allocate payments first to the oldest transactions on the account, which would often be transactions on which the institution is prohibited from increasing the annual percentage rate pursuant to proposed § _.24. These commenters stated that this method (which is sometimes referred to as “first in, first out” or “FIFO”) would pay down those transactions faster, thereby reducing the burden to institutions of carrying balances at rates that no longer reflect market rates or the consumer's risk. However, the Agencies believe that concerns related to proposed § _.24 are better addressed through revisions to that proposal (as discussed below), rather than through payment allocation. In addition, permitting FIFO allocation would, in some circumstances, allow institutions to allocate excess payments first to the balance with the lowest rate. For example, if a consumer opened an account by transferring a balance in reliance on a discounted promotional rate, that balance would be the oldest balance on the account. Consequently, FIFO allocation could perpetuate the current practice of using payment allocation to maximize interest charges.
Although some industry commenters stated that their payment allocation systems could allocate excess payments pro rata or in equal portions, others stated that their systems could not and
The Agencies proposed commentary to clarify how proposed § _.23 would be applied. Proposed comment 23-1 clarified that § _.23 would not limit or otherwise address the institution's ability to determine the amount of the required minimum periodic payment or how that payment is allocated. Consumer groups urged the Agencies to apply proposed § _.23 to the entire payment. In contrast, one industry commenter stated that excluding the minimum payment was not helpful because such payments are kept small for competitive reasons. Another industry commenter urged the Agencies to remove the distinction between minimum and excess payments in order to reduce the rule's complexity.
The Agencies, however, believe that proposed § _.23 strikes the appropriate balance by providing institutions flexibility regarding the minimum amount consumers must pay while ensuring that, when consumers voluntarily pay more than the minimum, those payments are not allocated in a manner that maximizes interest charges.
In order to simplify the allocation process and reduce the operational burden on institutions, proposed comment 23-2 permitted institutions to make small adjustments of one dollar or less when allocating payments. One industry commenter requested that institutions also be permitted to make adjustments equal to or less than one percent of the total balance. This is not, however, the type of small adjustment envisioned by the Agencies. For example, one percent of a $5,000 balance would be $50. Accordingly, comment 23-2 is adopted as proposed.
Because proposed § _.23 would have required institutions to allocate payments based on the balances and annual percentage rates on the account, some industry commenters requested guidance regarding the point in time at which the various determinations required by proposed § _.23 would be made. For example, because transactions are commonly made between the close of a billing cycle and the date on which payment for that billing cycle is received, the balances on the account on the day the payment is applied will often be different than the balances on the periodic statement for the billing cycle. Similarly, the annual percentage rates may have changed in the interim. One industry commenter stated that payment allocation should be based on the balances and rates on the preceding periodic statement, while two other industry commenters stated that the balances and rates at the time the payment is credited should be used. The Agencies believe that, because the benefit to consumers of one approach or the other will depend on the consumer's individual circumstances, there is no need to require a particular approach. Accordingly, the Agencies adopt comment 23-3, which clarifies that an institution may allocate based on the balances and annual percentage rates on the date the preceding billing cycle ends (which will typically be the balances and rates reflected on the periodic statement), on the date the payment is credited to the account, or on any day in between those two dates.
Some commenters requested that the Agencies prohibit institutions from varying the allocation method on an account from billing cycle to billing cycle or from account to account, while others requested that this be expressly permitted. The Agencies are not prohibiting institutions from moving from one permissible allocation method to another or from using one permissible method on some accounts and a different permissible method on other accounts. Because, under the final rule, the only alternative to allocating pro rata is allocating to the highest rate balance first, the Agencies do not believe there is a significant danger that institutions will be able to manipulate the payment allocation process to their advantage by switching from one method to another. Accordingly, the Agencies adopt comment 23-4, which acknowledges that § _.23 does not restrict an institution's ability to shift between permissible allocation methods or to use different permissible allocation methods for different accounts.
One industry commenter noted that the commentary to Regulation Z, 12 CFR 226.12(c) sets forth specific payment allocation requirements when a consumer asserts a claim or defense under that section that could be inconsistent with those in proposed § _.23. Because the payment allocation requirements in the commentary to § 226.12(c) are intended to prevent extinguishment of claims or defenses, the Agencies adopt comment 23-5, which clarifies that, when a consumer has made a claim or defense pursuant to 12 CFR 226.12(c), an institution must allocate payments consistent with 12 CFR 226.12 comment 226.12(c)-4, as adopted elsewhere in today's
An industry commenter requested clarification regarding allocation of payments when an account has multiple balances with the same annual percentage rate. As an initial matter, because § _.23 applies only “when different annual percentage rates apply to different balances on a consumer credit card account,” this section does not apply if all balances in the account have the same rate. If, however, an account has multiple balances with the same annual percentage rate and another balance with a different rate, the benefit to the consumer of allocating between the balances with the same rate in a particular manner will depend on the circumstances and the allocation method chosen by the institution. Accordingly, the Agencies have adopted comment 23-6, which clarifies that, in these circumstances, the institution may allocate between balances with the same rate in the manner that the institution determines is appropriate. This comment also clarifies that institutions may treat balances with the same annual percentage rate as separate balances or as a single balance.
The Agencies have also revised the proposed commentary and adopted new commentary in response to comments
With respect to pro rata allocation, some industry commenters requested guidance on how the total balance should be determined. They suggested that amounts paid by the required minimum periodic payment should be included in the total balance because excluding such amounts would be operationally burdensome insofar as it would require institutions to allocate the minimum payment and then recalculate each balance for purposes of allocating pro rata. The Agencies agree that the suggested clarification will reduce burden and assist institutions in allocating payments consistent with § _.23(b). Accordingly, the Agencies have adopted comment 23(b)-1 clarifying that an institution may, but is not required to, deduct amounts paid by the consumer's required minimum periodic payment when calculating the total balance for purposes of § _.23(b). An illustrative example is provided in comment 23(b)-2.iii.
In the May 2008 Proposal, proposed comment 23(a)(3)-1 provided an example of allocating excess payments pro rata among the balances. This comment is redesignated as comment 23(b)-2 for organizational reasons and generally adopted as proposed. In response to requests from commenters, however, the Agencies have added examples illustrating application of this method to accounts with balances on which the annual percentage rate cannot be increased pursuant to § _.24 and, as noted above, the different methods of calculating the total balance consistent with comment 23(b)-1.
As proposed, § _.23(b) contained special rules for accounts with promotional rate and deferred interest balances that were intended to ensure that consumers received the full benefit of the promotional rate or deferred interest plan. Proposed § _.23(b)(1)(i) would have required that excess payments be allocated to promotional rate balances or deferred interest balances only after all other balances had been paid in full. Because, however, the Agencies were concerned that consumers may want to pay off deferred interest balances shortly before the deferred interest period expired, proposed § _.23(b)(1)(ii) would have permitted the existing practice by some institutions of allocating the entire payment first to the deferred interest balance in the last two months of the deferred interest period. Finally, proposed § _.23(b)(2) would have prohibited institutions from requiring consumers who are otherwise eligible for a grace period to repay any portion of a promotional rate balance or deferred interest balance in order to receive the benefit of a grace period on other balances (such as purchases).
Proposed § _.23(b) was strongly opposed by industry commenters on the grounds that, if implemented, it would significantly diminish interest revenue, leading institutions to significantly reduce or eliminate promotional rate and deferred interest offers that provide substantial benefits to consumers. Many of these commenters requested that proposed § _.23(b) be withdrawn and that institutions instead be permitted to apply excess payments first to promotional rate and deferred interest balances. Some industry commenters, however, requested that the general rule in proposed § _.23(a) be applied to all balances. In contrast, some consumer advocates urged the Agencies to ban deferred interest balances rather than create an exception for them.
As an initial matter, the Agencies have not included the special rules regarding deferred interest balances. As discussed below with respect to the § _.24, the final rule does not permit institutions to charge interest retroactively and thus does not permit deferred interest plans.
With respect to promotional rates, the Argus Analysis indicates that 16-19 percent of active accounts have one or more promotional rate balances and that the average promotional rate on those balances is between two and three percent, which is approximately 13 percentage points lower than the average non-promotional rate.
Notwithstanding these benefits, the Agencies continue to believe that, as suggested by other commenters, allocating payments to promotional rate balances before other balances with higher interest rates significantly diminishes the value of promotional rate offers. Furthermore, although the Agencies believe that proposed § _.23 would have had a negative impact on the availability of promotional rates, the commenters provided little data regarding the extent of that impact. Thus, the Agencies believe that application of the general payment allocation rule in § _.23 to promotional rate balances is appropriate. Application of this rule to all balances will limit the extent to which institutions may reduce promotional rate offers while ensuring that payment allocation is not used to significantly undercut the benefits to consumers who act in reliance on such offers. Accordingly, the Agencies have not included proposed § _.23(b)(1)(i) in the final rule. To the extent that specific practices raise concerns regarding unfairness or deception under the FTC Act, the Agencies plan to address those practices on a case-by-case basis through supervisory and enforcement actions.
The Agencies have also omitted proposed § _.23(b)(2), which would have prohibited institutions from denying a grace period solely because a consumer did not repay a promotional rate or deferred interest balance. This proposal was strongly criticized by industry as operationally burdensome and punitive for institutions that voluntarily provide a grace period on purchases. Proposed § _.23(b)(2) was intended to act in combination with proposed § _.23(b)(1)(i) to ensure that consumers receive the full benefit of promotional rate and deferred interest offers. Because the Agencies have concluded that a different approach is appropriate, the Agencies have not included proposed § _.23(b)(2) in the
In consumer testing prior to the May 2008 Proposal, the Board tested whether, given the opportunity, consumers could select how amounts paid in excess of the minimum would be allocated using the payment coupon. Most participants, however, were not able to understand the effects of payment allocation sufficiently to apply payments in a manner that minimized interest charges. Additional testing conducted by the Board after the May 2008 Proposal produced similar results. Accordingly, because it does not appear that consumer choice would be effective, the Agencies have not included such an exception in the final rule.
As discussed above, HOLA provides authority for both safety and soundness and consumer protection regulations. Section 535.23 supports safety and soundness by reducing reputational risk that would result from allocating consumers' payments in an unfair manner. Section 535.23 also protects consumers by providing them with fair allocations of their payments. When a creditor treats a consumer credit card account as having separate balances with separate interest rates and terms, it is essentially treating the card as having separate debts even though the consumer makes only one payment. Were the separate balances actually separate debts being collected by a debt collector, the consumer would have the right under section 810 of the Fair Debt Collection Practices Act (15 U.S.C. 1692h) to have payments applied in accordance with the consumer's directions. As discussed above, that approach did not test well for consumer credit card accounts with multiple balances, and the Agencies are not imposing the same requirement under § _.23. However, ensuring that the consumer's payment will be applied to the highest rate balance first or pro rata will be an important protection for consumers. Consequently, HOLA serves as an independent basis for § 535.23.
Based on the comments received and further analysis, the Agencies have revised proposed § _.24(a) to prohibit institutions from increasing the annual percentage rate for a category of transactions on any consumer credit card account unless specifically permitted by one of the exceptions in § _.24(b). The final rule also requires institutions to disclose at account opening all rates that will apply to each category of transactions on the account. Because consumers rely on the rates stated by the institution when deciding whether to open a credit card account and whether to use the account for transactions, these requirements are intended to ensure that consumers are protected from unfair surprise and to better enable them to comparison shop.
The Agencies have also revised the exceptions in proposed § _.24(b). First, the Agencies have adopted a new § _.24(b)(1), which permits an institution that has disclosed at account opening that an annual percentage rate will increase at a specified time to a specified amount to increase that rate accordingly. Second, the Agencies have adopted the proposed exception for variable rates as § _.24(b)(2). Third, the Agencies have adopted a new § _.24(b)(3), which permits institutions to increase rates for new transactions pursuant to the 45-day advance notice requirement in 12 CFR 226.9 (adopted by the Board elsewhere in today's
In its June 2007 Regulation Z Proposal, the Board expressed concern that the imposition of penalty pricing can come as a costly surprise to consumers who are not aware of, or do not understand, what behavior is considered a “default” under their agreement.
Consumer testing conducted for the Board indicated that interest rates are a primary consideration for consumers when shopping for credit card accounts but that some consumers do not understand that events such as one late payment can cause them to lose the advertised rate and incur penalty pricing. In addition, some testing participants did not appear to understand that penalty rates can apply to all of their balances, including outstanding balances. Some participants also did not appear to understand how long a penalty rate could remain in effect. The Board observed that account-opening disclosures may be provided to the consumer too far in advance for the consumer to recall the circumstances that may cause rates to increase. In addition, the consumer may not have retained a copy of the account-opening disclosures and may not be able to effectively link the information disclosed at account opening to the current repricing of the account.
The Board's June 2007 Regulation Z Proposal included revisions to the regulation and its commentary designed to improve consumers' awareness about changes in their account terms and increased rates, including rate increases imposed as a penalty for delinquency or other acts or omissions constituting default under the account agreement. These revisions were also intended to enhance consumers' ability to shop for alternative financing before such changes in terms or increased rates become effective. Specifically, the Board proposed to give consumers 45 days' advance notice of a change in terms or an increased rate imposed as a penalty and to make the disclosures about changes in terms and increased rates more effective.
When developing the June 2007 Regulation Z Proposal, the Board considered, but did not propose, a prohibition on so-called “universal default clauses” or similar practices under which a creditor raises a consumer's interest rate to the penalty rate if, for example, the consumer makes a late payment on an account with a different creditor. The Board also considered but did not propose a requirement similar to that in some state laws providing consumers with the right to reject a change in terms if the consumer agrees to close the account.
In response to its June 2007 Regulation Z Proposal, individual consumers, consumer groups, another federal banking agency, and a member of Congress stated that notice alone was not sufficient to protect consumers from the harm caused by rate increases. These commenters argued that many consumers would not read or understand the proposed disclosures and, even if they did, many would be unable to transfer the balance to a new credit card account with comparable terms before the increased rate went into effect. Some of these commenters argued that creditors should be prohibited from increasing the rate on an outstanding balance in all instances. Others argued that consumers should be given the right to reject application of an increased rate to an outstanding balance by closing the account, but only if the increase was not triggered by a late payment or other violation of the terms of that account. This approach was also endorsed by some credit card issuers. On the other hand, most industry commenters stated that the 45-day notice requirement would delay issuers from increasing rates to reflect a consumer's increased risk of default, requiring them to account for that risk by, for example, charging higher annual percentage rates at the outset of the account relationship. These commenters also noted that, because rate increases are also used to pass on the cost of funds issuers themselves pay, delays in the imposition of increased rates could result in higher costs of credit or less available credit.
In the May 2008 Proposal, the Agencies expressed concern that disclosure alone may be insufficient to protect consumers from the harm caused by the application of increased rates to outstanding balances. Accordingly, the Agencies proposed § _.24, which would have prohibited this practice except in certain limited circumstances. This aspect of the proposal received strong support from individual consumers, consumer groups, members of Congress, the FDIC, two state attorneys general, and a state consumer protection agency. Many of these commenters urged the Agencies to go further, by eliminating all but the exception for variable rates and by applying the prohibition to rate increases on future transactions. In contrast, however, the proposal received strong opposition from credit card issuers, industry groups, and the OCC. These commenters generally argued that the proposed restrictions undermined institutions' ability to price according to current market conditions and the risk presented by the consumer and would therefore result in higher costs of credit or reduced credit availability for all consumers. They requested that the Agencies adopt additional exceptions to the proposed rule, take a different approach (such as requiring consumers to opt out of rate increases), or withdraw the proposal entirely. To the extent that commenters addressed specific aspects of the proposal or its supporting legal analysis, those comments are discussed below.
The Agencies conclude that, except in certain limited circumstances, increasing the annual percentage rate applicable to an outstanding balance on a consumer credit card account is an unfair practice under 15 U.S.C. 45(n) and the standards articulated by the FTC. In addition, based on these standards, the Agencies conclude that it is also an unfair practice to increase an annual percentage rate that applies to a consumer credit card account during the first year after account opening (except in certain limited circumstances).
Some industry commenters stated that only a minority of accounts are repriced each year and that even consumers who have violated the account terms by, for example, paying late are, as a general matter, not repriced. This does not, however, alter the fact that consumers who are repriced incur substantial monetary injury.
Some industry commenters argued that, to the extent the increased rate reflects the prevailing market rate for consumers with the same risk profile and other relevant characteristics, it cannot constitute an injury under the FTC Act. These commenters did not provide—nor are the Agencies aware of—any legal authority supporting the proposition that increasing the cost of credit is not an injury under the FTC Act so long as the increased rate does not exceed the market rate.
For all of these reasons, the Agencies conclude that applying an increased annual percentage rate to an outstanding balance causes substantial consumer injury. The Agencies further conclude that consumers who rely on advertised interest rates when deciding to open and use a credit card account experience substantial injury in the form of the increased cost of new transactions when rates are increased during the first year after account opening.
First, an institution may increase a rate for reasons that are completely unrelated to the consumer's behavior. For instance, an institution may increase rates to increase revenues or to respond to changes in the cost to the institution of borrowing funds. In May 2008, the Agencies observed that consumers lack any control over these increases and cannot be reasonably expected to predict when such repricings will occur because many institutions reserve the right to change the terms of the consumer's account at any time and for any reason. Accordingly, the Agencies concluded that consumers appeared to be unable to reasonably avoid injury in these circumstances.
Some industry commenters responded that consumers can reasonably avoid injury by transferring the balance to another credit card account, particularly if the consumer receives the 45 days' advance notice required by proposed 12 CFR 226.9. These commenters acknowledged, however, that many consumers will be unable to find another credit card account with a rate comparable to the pre-increase rate. Furthermore, even if a comparable rate could be found, the transfer may carry a cost because many institutions charge a flat fee for transferring a balance or a fee equal to a percentage of the transferred balance. Accordingly, the Agencies conclude that consumers cannot reasonably avoid the injury caused by rate increases on outstanding balances for reasons that are unrelated to their behavior.
Second, an institution may increase an annual percentage rate on a consumer credit card account based on behavior that is unrelated to the consumer's performance on that account. This is sometimes referred to as “off-account” behavior or “universal default.” For example, an institution may increase a rate due to a drop in a consumer's credit score or a default on an account with a different creditor even though the consumer has paid the credit card account with the institution according to the terms of the cardholder agreement.
One industry commenter stated that a consumer has a right under the Fair Credit Reporting Act (FCRA) to dispute any inaccurate information that causes a drop in credit score.
Third, some institutions increase annual percentage rates on consumer credit card accounts based on consumer behavior that is related to the account but does not violate the account terms. For example, an institution may increase the annual percentage rates of consumers who are close to (but not over) the credit limit on the account or who make only the required minimum periodic payment set by the institution for several consecutive months.
Fourth, institutions increase annual percentage rates based on consumer behavior that violates the account terms. Although what violates the account terms can vary from institution to institution and from account to account, the most common violations that result in an increase in rate are exceeding the credit limit, a payment that is returned for insufficient funds, and a late payment.
In response, some industry commenters asserted that, because most consumers pay on time and do not otherwise violate the account terms, these behaviors must be reasonably avoidable. As an initial matter, although the information available is limited, it appears that a significant number of consumers are penalized for violating the account terms.
Another commenter cited as evidence that late payment is reasonably avoidable a study finding that a consumer is 44 percent less likely to pay a late fee in the current month if that consumer paid a late fee the prior month.
Accordingly, the Agencies conclude that, as a general matter, the injury caused by rate increases on outstanding balances due to a violation of the account terms is not reasonably avoidable. For all of the reasons discussed above, the Agencies further conclude that, although the injury resulting from the application of increased annual percentage rates to outstanding balances is avoidable in some individual cases, this injury is not reasonably avoidable by consumers as a general matter.
For these same reasons, the Agencies also conclude that the injury caused by
In response to the May 2008 Proposal, individual consumers, consumer groups, and some members of Congress argued that repricing is inherently unfair and should be prohibited in most if not all circumstances. In contrast, industry commenters generally argued that flexible pricing models that respond to changes in the consumer's risk of default have produced substantial benefits for consumers and competition that outweigh any injury. These commenters noted that, whereas institutions once charged a single rate of around 20 percent on all credit card accounts regardless of the risk presented by the consumer, institutions now vary the interest rate based on the consumer's risk profile with the result that the great majority of consumers receive rates below 20 percent.
The exceptions in proposed § _.24(b) permitted three types of repricing that appeared to produce benefits for consumers and competition that outweighed the injury. These exceptions were designed to provide institutions with flexibility in the repricing of outstanding balances while protecting consumers from unfair surprise. Based on the comments and further analysis, the Agencies have modified these exceptions as well as the general rule. As discussed below, the Agencies believe that the final rule achieves the appropriate balance between providing consumers with increased certainty and transparency regarding the cost of credit and providing institutions with sufficient flexibility to adjust to market conditions and allocate risk efficiently.
Individual consumers, consumer groups, members of Congress, and the FDIC urged the Agencies to apply the proposed restrictions on the repricing of outstanding balances to increases in the rates that apply to future transactions. Some argued that consumers who have opened an account in reliance on the rates stated by the institution should be protected from unexpected increases in those rates for a specified period of time.
As discussed above, the Agencies agree that rate increases during the first year after account opening can cause substantial injury that is not, as a general matter, reasonably avoidable by consumers. In addition, because the Board's consumer testing indicates that interest rates are a primary focus for consumers when reviewing credit card applications and solicitations, the Agencies believe that allowing unlimited rate increases during the first year would be contrary to the purpose of § _.24, which is to prevent surprise increases in the cost of credit. Indeed, as noted below with respect to promotional rates, allowing this type of repricing while restricting others would create an incentive for institutions to offer artificially low interest rates to attract new customers based on the expectation that future repricings will generate sufficient revenues, a practice which distorts competition and undermines consumers' ability to evaluate the true cost of using credit. Accordingly, because consumers who open an account should be able to rely on the interest rate (or rates) stated by the institution, the Agencies have revised § _.24 to prohibit, as a general matter, rate increases during the first year after account opening.
This prohibition, however, is not absolute. The exception in § _.24(b)(1) permits an institution to increase any annual percentage rate disclosed at account opening so long as the institution also disclosed a period of time after which the rate will increase and the increased rate that will apply. In addition, a variable rate may be increased due to an increase in the index pursuant to § _.24(b)(2). Furthermore, after the first year, § _.24(b)(3) permits an institution to increase the rates that apply to new transactions, provided the institution complies with Regulation Z's 45-day advance notice requirement. Finally, § _.24(b)(4) permits an institution to increase rates when the account becomes more than 30 days delinquent.
The Agencies acknowledge that these additional restrictions will reduce interest revenue and therefore have some effect on the cost and availability of credit. Industry commenters, however, generally stated that the amount of interest revenue generated from raising rates on future transactions was relatively small in comparison to the revenue generated from applying increased rates to outstanding balances. Therefore, the Agencies believe that the effect of restricting rate increases during the first year after account opening will be significantly less than that for restricting rate increases on outstanding balances. Accordingly, the Agencies conclude that repricing during the first year after account opening does not produce benefits for consumers or competition that outweigh the injury to consumers.
By requiring institutions to commit in advance to the rates that will ultimately apply to transactions and to disclose those rates to consumers, the final rule will also prevent institutions from relying on the ability to reprice outstanding balances when setting upfront rates, thereby creating additional incentives for institutions to ensure that the rates offered to consumers at the outset fully reflect the risk presented by the consumer as well
The proposed rule provided that the prohibition on applying an increased annual percentage rate to an outstanding balance would not extend to variable rates. This exception was intended to allow institutions to adjust to increases in the cost of funds by utilizing a variable rate that reflects market conditions because, if institutions were not permitted to do so, they would be less willing to extend open-end credit. The Agencies reasoned that, although the injury caused by application of an increased variable rate to an outstanding balance is not reasonably avoidable insofar as the increase is due to market conditions that are beyond the consumer's ability to predict or control, the proposed exception would protect consumers from arbitrary rate increases by requiring that the index for the variable rate be outside the institution's control and available to the general public. This exception was supported by most commenters. Accordingly, because allowing institutions to utilize variable rates provides countervailing benefits sufficient to outweigh the increased interest charges, the Agencies have adopted the proposed exception for variable rates as § _.24(b)(2) with some stylistic changes.
Industry commenters urged the Agencies to revise proposed § _.24 to provide greater flexibility to offer rates that do not vary with an index. Without such an exception, they argued, concerns regarding increases in the cost of funds would force institutions to offer only variable rates, depriving consumers of the reliability of rates that do not fluctuate with the market. Some of these commenters requested that proposed § _.24 be revised to allow repricing of outstanding balances at the end of a specified period (such as six months, one year, or two years).
The Agencies agree that non-variable rates can provide significant benefits to consumers but only if consumers are informed before opening an account or engaging in transactions how long the rate will apply and what rate will be applied thereafter. Accordingly, the final rule provides two ways for institutions to offer non-variable rates. First, at account opening, § _.24(b)(1) permits institutions to offer non-variable rates that apply for a specified period of time and to reprice at the end of that period so long as the institution discloses at account opening the increased rate that will apply. For example, an institution could offer a consumer credit card account with a non-variable rate of 10% for six months after which a variable rate based on a disclosed index and margin will apply to outstanding balances and new transactions. Similarly, following the first year after account opening, § _.24(b)(3) permits institutions to provide non-variable rates that apply for a specified period of time, although these rates can only be applied to new transactions. For example, consistent with the notice requirements in 12 CFR 226.9(c), an institution could apply a non-variable rate of 15% to purchases for one year after which a variable rate will apply.
In either case, a consumer who receives a non-variable rate would be subject to repricing. However, the consumer will know at the time of each purchase not only how long the current rate will apply to that purchase but also the specific rate that will apply thereafter. Thus, the final rule provides institutions with the ability to increase rates to reflect anticipated changes in market conditions while enabling consumers to make informed decisions about the cost of using credit. Accordingly, the Agencies conclude that the benefits of allowing repricing under these circumstances outweigh the injury.
The proposed rule would have allowed institutions to apply an increased rate to an outstanding balance upon expiration or loss of a promotional rate, except that, when a promotional rate was lost, the increased rate could not exceed the rate that would have applied after expiration. Consumer groups opposed this exception, stating that, because it did not limit the circumstances in which a promotional rate could be lost, it would leave in place abusive repricing practices. These commenters argued that this exception would allow institutions to continue to engage in “hair trigger” repricing by, for example, increasing the rate on an outstanding balance from a 0% promotional rate to a 15% standard rate when the consumer's payment was received one day after the due date. They also stated that some institutions impose conditions on retention of a promotional rate that are unrelated to the consumer's risk of default and are instead intended to trap unwary consumers into losing the discounted rate (for example, requiring consumers to make a certain number or dollar amount of purchases each billing cycle). Accordingly, they argued that, because discounted promotional rate offers are used to encourage consumers to engage in transactions they would not otherwise make (such as large purchases or balance transfers), consumers who rely on promotional rate offers need the same protections as consumers who rely on non-promotional rates.
Based on the comments and further analysis, the Agencies agree that this aspect of the proposed rule could allow the very practices that the Agencies intended to prevent. For example, an institution seeking to attract new consumers by offering a promotional rate that is lower than its competitors' rates could offer a rate that would be unprofitable if the institution did not place conditions on retention of the rate that, based on past consumer behavior, it anticipates will result in a sufficient number of repricings to generate sufficient revenues. This type of practice distorts competition and undermines consumers' ability to evaluate the true cost of using credit.
Although the Agencies understand that discounted promotional rates can provide substantial benefits to consumers
The proposed rule would have permitted institutions to increase the annual percentage rate on an outstanding balance if the consumer became more than 30 days delinquent.
In response to the May 2008 Proposal, consumer groups argued that repricing outstanding balances based on violations of the account terms is fundamentally unfair and should be prohibited entirely or, failing that, a delinquency of more than 30 days should be the only circumstance in which institutions are permitted to reprice based on a violation of the account terms. A consumer group explained that a delinquency of more than 30 days was the appropriate period because, under industry guidelines governing credit reporting, an account is not reported as delinquent until it is at least 30 days late, suggesting that paying less than 30 days late is not considered to affect creditworthiness significantly.
The Argus Analysis stated that—as a result of the restrictions in proposed § _.23 (payment allocation), proposed § _.24 (repricing), and proposed 12 CFR 226.9 (45 days advance notice of most rate increases)—institutions could lose 1.639 percent of their annual interest revenue on revolving credit card accounts.
Although the Argus Analysis did not estimate the potential impact on interest rates and credit availability specifically attributable to proposed § _.24, it did state that annual interest revenue on revolving accounts would be reduced by approximately 1.514 percent as a result of proposed § _.24 and proposed 12 CFR 226.9.
As noted above, however, the Agencies are unable to verify the accuracy of the conclusions reached by the Argus Analysis or its supporting data. Furthermore, this analysis assumed that institutions could only respond to the proposed rules by increasing rates, reducing credit limits, or eliminating credit to consumers with FICO scores below 620, ignoring other potential responses such as offsetting lost interest revenue by increasing revenue from fees (including annual fees) or developing improved underwriting techniques in order to reduce losses on accounts that eventually default.
In addition, even if the Agencies were to accept the Argus Analysis and its underlying data at face value, that analysis also indicates that the typical rate increase is approximately eight percentage points and that approximately 22 percent of accounts are repriced over the course of a year.
As with § _.23, even if the shifting of costs from one group of consumers to another, much larger group is viewed as neutral from a cost-benefit perspective, the less quantifiable benefits to consumers and competition of more transparent upfront pricing weigh in favor of § _.24. Upfront annual percentage rates that are artificially reduced based on the expectation of future increases do not represent a true benefit to consumers as a whole. In addition to protecting consumers from unexpected increases in the cost of transactions that have already been completed, § _.24 will enable consumers to more accurately assess the cost of using their credit card accounts at the time they engage in new transactions. Finally, competition will be enhanced because institutions that offer annual percentage rates that more accurately reflect risk and market conditions will no longer be forced to compete with institutions offering artificially reduced rates. Accordingly, the Agencies conclude that limiting rate increases on outstanding balances and during the first year to circumstances where the account is more than 30 days delinquent produces benefits that outweigh the associated costs.
Industry commenters and the OCC urged the Agencies to adopt additional exceptions to proposed § _.24 based on violations of the account terms other than a single late payment (specifically, exceeding the credit limit, making payment with a check that is returned for insufficient funds, and paying late twice in a twelve month period). Many of these commenters provided data indicating that these behaviors are associated with loss rates that are significantly higher than those for consumers who do not violate the account terms (although all of these loss rates were significantly lower than the loss rates associated with delinquencies of more than 30 days). As an initial matter, the Agencies note that the impact on the cost and availability of credit of prohibiting repricing based on these behaviors is subsumed within the impact of prohibiting repricing based on any violation of the account terms other than a delinquency of more than 30 days. Accordingly, for the reasons already stated above, repricing outstanding balances based on these behaviors does not provide benefits to consumers or competition that outweigh the injury to consumers.
Furthermore, with respect to repricing outstanding balances when the credit limit is exceeded or when a payment is returned for insufficient funds, the Agencies have already concluded that these violations of the account terms are not, as a general matter, reasonably avoidable by consumers. Accordingly, allowing repricing in those circumstances would undermine the purpose of § _.24, which is to protect consumers from being unfairly surprised by increases in the cost of completed transactions.
Similarly, the Agencies conclude that allowing repricing based on two late payments in twelve months would not sufficiently protect consumers from unfair surprise. As discussed above, the Agencies have already concluded that consumers cannot, as a general matter, reasonably avoid repricing based on late payments. Furthermore, making a payment that is received one day after the due date twice in a period of twelve months is precisely the type of “hair trigger” repricing that § _.24 is intended to prevent. Even if repricing were allowed only when the late payments were received two, three, or even five days after the due date (as some commenters suggested), these periods would not provide consumers with sufficient time to learn of the delinquency and cure it (unlike a delinquency of 30 days or more).
As noted above, consumer groups stated that the assessment of deferred interest raises many of the same concerns as the repricing of outstanding balances. Deferred interest plans are typically marketed as being “interest free” for a specified period (such as a year) and are often offered to promote large purchases such as furniture or appliances. However, although interest is not charged to the account during that period, interest accrues at a specified rate. If the consumer violates the account terms (which could include a “hair trigger” violation such as paying one day late) or fails to pay the purchase balance in full before expiration of the period, the institution retroactively charges all interest accrued from the date of purchase.
Consumer groups stated that, like discounted promotional rates, deferred interest plans are used to encourage consumers to engage in transactions they would not otherwise make. They argued that, because of “hair trigger” repricing, many consumers lose the benefit of the deferred interest plan earlier than expected and that many other consumers incur deferred interest charges by failing to pay the balance in full prior to expiration either inadvertently or because they lack the resources to do so. In addition, they noted that the injury to the consumer in such cases may be far greater than when a promotional rate is lost because interest is charged retroactively on the outstanding balance. Finally, they stated that deferred interest plans cannot be adequately disclosed to consumers because of their complexity.
Based on the comments and further analysis, the Agencies believe that the assessment of deferred interest under these circumstances is effectively a repricing of an outstanding balance. For example, assume that an institution offers a consumer credit card account that accrues interest on purchases at an annual percentage rate of 15% but interest will not be charged on purchases for one year unless the
The Agencies believe that this is precisely the type of surprise increase in the cost of completed transactions that § _.24 is intended to prevent. As noted by the commenters, the assessment of accrued interest causes substantial injury to consumers. In addition, for the same reasons that consumers cannot, as a general matter, reasonably avoid rate increases as a result of a violation of the account terms, consumers cannot, as a general matter, reasonably avoid assessment of deferred interest as a result of a violation of the account terms or the failure to pay the balance in full prior to expiration of the deferred interest period. For example, just as illness or unemployment may reasonably prevent some consumers from paying on time, these conditions may reasonably prevent some consumers from paying the deferred interest balance in full prior to expiration. In addition, as noted by the commenters, disclosure may not provide an effective means for consumers to avoid the harm caused by these plans.
Finally, although deferred interest plans provide some consumers with substantial benefits in the form of an interest-free advance if the balance is paid in full prior to expiration, the Agencies conclude that these benefits do not outweigh the substantial injury to consumers. As discussed above, deferred interest plans are typically marketed as “interest free” products but many consumers fail to receive that benefit and are instead charged interest retroactively. Accordingly, as with the prohibitions on other repricing practices discussed above, prohibiting the assessment of deferred interest will improve transparency and enable consumers to make more informed decisions regarding the cost of using credit. Accordingly, the Agencies conclude that an exception to the general prohibition on rate increases is not warranted for the assessment of deferred interest.
The Agencies note, however, that the final rule does not preclude institutions from offering consumers interest-free promotional plans. As discussed above, institutions can still offer 0% promotional rates for specified periods so long as they disclose the rate that will apply thereafter. Furthermore, an institution could offer a plan where interest is assessed on purchases at a disclosed rate for a period of time but the interest charges are waived or refunded if the principal is paid in full by the end of the period. For example, assume that an institution offers an account that charges interest on purchases at a 15% non-variable rate but only requires the consumer to repay a portion of the outstanding principal balance each month during the first year after the account is opened. If the principal is paid in full by the end of that year, the institution waives all interest accrued during that year. At account opening on January 1 of year one, the institution discloses these terms (including the 15% rate at which interest will accrue). The consumer uses the account for a $3,000 purchase on January 1. The consumer makes no other purchases and begins making payments. At the end of each billing cycle, the institution charges to the account interest accrued on the principal balance at the 15% rate. On December 15 of year one, the consumer pays the remaining principal balance and the institution waives all accrued interest. This type of product would comply with the final rule.
First, industry commenters and the OCC cited testimony, guidance, reports, and advisory letters from federal banking regulators (including the Board and OTS) stating or suggesting that institutions should actively manage risk on credit card accounts, that one method of managing risk is adjusting interest rates on outstanding balances and new transactions to reflect the consumer's risk of default, and that doing so can be beneficial for consumers insofar as it reduces rates overall.
Second, some industry commenters and the OCC stated that proposed § _.24 conflicts with previous Board policy regarding rate increases. Specifically, these commenters noted that, prior to the revisions to Regulation Z in today's
These commenters first argued that disclosure in solicitations and at account opening of the circumstances in which a penalty rate will be applied to
Industry commenters also argued that disclosure of the rate increase 45 days before that increase goes into effect allows consumers to avoid injury by paying the balance in full or transferring that balance to another credit card account.
Third, industry commenters and the OCC argued that proposed § _.24 conflicts with state laws that, rather than prohibiting repricing of outstanding balances, require consumers to affirmatively reject (or opt out of) such increases by closing the account.
In the May 2008 Proposal, the Agencies considered a similar suggestion raised by some commenters in response to the Board's June 2007 Regulation Z Proposal and concluded that this remedy would not effectively protect consumers.
Finally, some industry commenters argued that the failure to provide an opt-out for rate increases was inconsistent with the provision of an opt-out for payment of overdrafts in proposed § _.32(a). As discussed below, the Agencies are not taking action on proposed § _.32(a) at this time. The Board has proposed a revised opt-out right with respect to overdraft services under Regulation E elsewhere in today's
Accordingly, although § _.24 is broader than the law in some states, the Agencies conclude that provision of a right to opt out of rate increases would not be effective in preventing the harm
Similarly, although there will be circumstances in which some consumers cannot reasonably avoid fees for violating the account terms (for example, a late payment fee when a delay in mail delivery caused the late payment), this injury is not sufficient to outweigh the countervailing benefits to consumers and competition of discouraging violations of the account terms. The application of an increased rate to an outstanding balance increases consumers' costs until the rate is reduced or the balance is paid in full or transferred to an account with more favorable terms. Similarly, an increase in the rate applicable to new transactions increases the costs of using the account indefinitely. The assessment of a fee, however, is generally an isolated cost that will not be repeated unless the account terms are violated again.
As discussed below, § _.24 imposes certain disclosure requirements on institutions. Comment 24-1 clarifies that an institution that complies with the applicable disclosure requirements in Regulation Z, 12 CFR part 226, has complied with the disclosure requirements in § 227.24. This comment further clarifies that nothing in § _.24 alters the 45-day advance notice requirements in 12 CFR 226.9(c) and (g). However, nothing in § _.24, its commentary, or this
Proposed § _.24(a)(1) would have prohibited institutions from increasing the annual percentage rate applicable to any outstanding balance on a consumer credit card account, except in the circumstances set forth in proposed § _.24(b). Proposed § _.24(a)(2) defined “outstanding balance.”
As discussed above, the Agencies have adopted a new § _.24(a), which requires institutions to disclose at account opening the annual percentage rates that will apply to each category of transactions on the consumer credit card account. Section _.24(a) further provides that an institution must not increase the annual percentage rate for a category of transactions on any consumer credit card account except as provided in § _.24(b). As discussed below, the general prohibition on increasing rates in § _.24(b) applies to existing accounts and balances as of the July 1, 2010 effective date.
Comment 24(a)-1 clarifies that an institution cannot satisfy the disclosure requirement in § _.24(a) by disclosing at account opening only a range of rates or that a rate will be “up to” a particular amount. Comment 24(a)-2 provides illustrative examples of the application of the prohibition on increasing rates.
Proposed § _.24(b) set forth exceptions to the general prohibition in proposed § _.24(a) on applying increased rates to outstanding balances. As discussed above, the Agencies have revised § _.24(b) to reflect the changes to § _.24(a) and to ensure that consumers are protected from unfair surprise regarding the cost of credit.
Section _.24(b)(1) permits an increase in the annual percentage rate for a category of transactions to a rate that was disclosed at account opening upon expiration of a period of time that was also disclosed at account opening. For example, an institution could offer a consumer credit card account that applies a 5% non-variable rate during the first six months after account opening, a 15% non-variable rate for an additional six months, and a variable rate thereafter. So long as the institution discloses these terms to the consumer at account opening, § _.24(b)(1) permits the institution to apply the 15% rate to the purchase balance and to new purchases after six months and the variable rate to the purchase balance and new purchases after the first year. However, the institution could not subsequently increase that variable rate unless specifically permitted by one of the other exceptions in § _.24(b).
Comment 24(b)(1)-1 clarifies that § _.24(b)(1) does not permit application of increased rates that are disclosed at account opening but are contingent on a particular event or occurrence or may be applied at the institution's discretion (unless one of the exceptions in § _.24(b) applies). The comment provides several examples, including the retroactive assessment of deferred interest. However, comment 24(b)(1)-2 clarifies that nothing in § _.24 prohibits an institution from assessing interest due to the loss of a grace period as provided in § _.25. In addition, comment 24(b)(1)-3 clarifies that nothing in § _.24 prohibits an institution from applying a rate that is lower than the disclosed rate upon expiration of the period. However, if the lower rate is applied to an existing balance, the institution cannot subsequently increase the rate with respect to that balance unless it has provided the consumer with advance notice pursuant to 12 CFR 226.9(c). An illustrative example is provided.
Proposed § _.24(b)(1) would have permitted an increase in the annual percentage rate due to an increase in an index that is not under the institution's control and is available to the general public. This exception was designed to be similar to the exception for variable rates in 12 CFR 226.5b(f)(1). This aspect of the proposal was supported by comments from both industry and consumer groups. Accordingly, proposed § _.24(b)(1) is adopted as § _.24(b)(2) with stylistic revisions. This provision cannot be used to increase the annual percentage rate based on an index except to the extent disclosed.
The Agencies have adopted a new comment 24(b)(2)-1, which clarifies that § _.24(b)(2) does not permit an institution to increase an annual percentage rate by changing the method used to determine a variable (such as by increasing the margin), even if that change will not result in an immediate increase.
Proposed comment 24(b)(1)-1 clarified that an institution may not increase a variable rate balance based on its own prime rate but may use a published prime rate, such as that in the
One industry commenter requested clarification that institutions were not limited to basing variable rates on prime rates and could also use one or more other publicly available indices, such as the Consumer Price Index. Because the method for determining the variable rate must be disclosed consistent with 12 CFR 226.6, the Agencies believe that the use of multiple indices is appropriate so long as those indices are publicly available. The Agencies have revised proposed comments 24(b)(1)-1 and -2 accordingly and adopted those comments as 24(b)(2)-2 and -3.
Some industry commenters requested that institutions be permitted to change a non-variable rate to a variable rate or to change the method used to determine a variable rate so long as, at the time of the change, the rate would not increase. Because such changes could lead to future increases in a rate during the first year or a rate applicable to an outstanding balance, comment 24(b)(2)-4 clarifies that a non-variable rate may be converted to a variable rate only when specifically permitted by § _.24. For example, under § _.24(b)(1), an institution may convert a non-variable rate to a variable rate if this change was disclosed at account opening.
Because § _.24 applies only to increases in annual percentage rates, the Agencies have adopted comment 24(b)(2)-5, which clarifies that nothing in § _.24 prohibits an institution from changing a variable rate to an equal or lower non-variable rate. Whether the non-variable rate is equal to or lower than the variable rate is determined at the time the institution provides the notice required by 12 CFR 226.9(c). For example, assume that on March 1 a variable rate that is currently 15% applies to a balance of $2,000 and the institution sends a notice pursuant to 12 CFR 226.9(c) informing the consumer that the variable rate will be converted to a non-variable rate of 14% effective April 16. On April 16, the institution may apply the 15% non-variable rate to the $2,000 balance and to new transactions even if the variable rate on April 16 was less than 14%.
Comment 24(b)(2)-6 clarifies that an institution may change the index and margin used to determine a variable rate if the original index becomes unavailable, so long as historical fluctuations in the original and replacement indices were substantially similar and the replacement index and margin will produce a rate similar to the rate that was in effect at the time the original index became unavailable. This comment further clarifies that, if the replacement index is newly established and therefore does not have any rate history, it may be used if it produces a rate substantially similar to the rate in effect when the original index became unavailable. This comment is modeled on comment 226.5b(f)(3)(ii)-1 to 12 CFR 226.5b.
The Agencies have adopted a new § _.24(b)(3), which provides that an annual percentage rate for a category of transactions may be increased pursuant to a notice under 12 CFR 226.9(c) or (g) for transactions that occur more than seven days after provision of the notice. An institution cannot, however, utilize this exception during the first year after account opening.
The prohibition in § _.24(b)(3) on applying an increased rate to transactions that occur more than seven days after provision of the 12 CFR 226.9 notice is modeled on the definition of “outstanding balance” in proposed § _.24(a)(2). Proposed § _.24(a)(2) defined “outstanding balance” as the amount owed on a consumer credit card account at the end of the fourteenth day after the institution provides the notice required by proposed 12 CFR 226.9(c) or (g). This definition was intended to prevent the requirement in proposed 12 CFR 226.9 that creditors provide 45 days' advance notice of rate increases from creating an extended period following receipt of that notice during which new transactions could be made at the prior rate. Although institutions could address this concern by denying additional extensions of credit after sending the 45-day notice, the Agencies believe that this outcome would not be beneficial to consumers who have received the notice and wish to use the account for new transactions. The 14-day period was intended to be consistent with the 21-day safe harbor in proposed § _.22(b) insofar as it would allow seven days for the notice to reach the consumer and seven days for the consumer to review that notice and take appropriate action.
Some industry commenters opposed proposed § _.24(a)(2) entirely, arguing that—because rates are often increased as a result of increases in the consumer's risk of default—delaying imposition of the new rate only increases the risk borne by the institution. Other industry commenters acknowledged that it is reasonable to provide some period of time for consumers to receive and review the notice but that fourteen days is excessive because average mail times are much less than seven days and because a consumer who does not wish to engage in transactions at the new rate need only cease to use the card.
As discussed above with respect to § _.22, while the Agencies believe that seven days will be more than sufficient for the great majority of consumers to receive a periodic statement or notice by mail, relying on average mailing times would not adequately protect the significant number of consumers whose delivery times are longer than average. The Agencies agree, however, that consumers do not require seven days to review the notice and take appropriate action. Indeed, many consumers will not be required to take any action to reasonably avoid transactions to which the increased rate will apply. In addition, because in most cases the notice will be delivered in less than seven days, most consumers will have time to cancel recurring charges to their account (if necessary). The Agencies conclude that, in order to protect consumers from inadvertently engaging in transactions to which an increased rate will apply while minimizing the period during which credit extended by the institution must remain at the pre-increase rate, a rate that is increased pursuant to § _.24(b)(3) should apply only to transactions that occur after the seventh day following provision of the 12 CFR 226.9 notice.
Comment 24(b)(3)-1 clarifies that the limitation in § _.24(b)(3) regarding rate increases during the first year after an account is opened does not apply to accounts opened prior to July 1, 2010.
One industry commenter expressed concern that the “outstanding balance” under proposed § _.24(a)(2) could be construed to include transactions that were authorized before the end of the relevant date but were settled until after that date. The Agencies agree that an institution should not be required to
Proposed § _.24(b)(3) provided that an institution could apply an increased rate if the consumer's minimum payment had not been received within 30 days after the due date. This exception was intended to ensure that consumers would generally have notice and an opportunity to cure the delinquency before becoming more than 30 days' past due. As discussed above, the Agencies have adopted proposed § _.24(b)(3) as § _.24(b)(4) with stylistic changes.
Some commenters requested that, in addition to restricting the circumstances in which institutions could apply high penalty rates to existing balances based on a violation of the account terms, the Agencies also restrict the length of time a penalty rate can be applied to an account. They suggested that, for example, institutions be prohibited from applying a penalty rate to an account for more than six months if the consumer does not violate the account terms during that period. The Agencies, however, are not imposing a substantive prohibition at this time. As discussed above, the Agencies have placed significant limitations on institutions' ability to reprice outstanding balances based on violations of the account terms. Furthermore, because the amendments to Regulation Z adopted by the Board elsewhere in today's
One commenter noted that, as proposed, § _.24 would prohibit institutions that reduced the annual percentage rate on an account pursuant to a workout arrangement from increasing the rate if the consumer failed to comply with the terms of the arrangement. Because workout arrangements can provide important benefits to consumers in serious default, the Agencies have adopted § _.24(b)(5), which provides that, when a consumer fails to comply with the terms of a workout arrangement, the institution may increase the annual percentage rate to a rate that does not exceed the rate that applied prior to the arrangement. For example, assume that, consistent with § _.24(b)(4), the annual percentage rate on a $5,000 balance is increased from 15% to 25%. Assume also that the institution and the consumer subsequently agree to a workout arrangement that reduces the rate to 15% on the condition that the consumer pay a specified amount by the payment due date each month. If the consumer does not pay the agreed-upon amount by the payment due date, § _.24(b)(5) permits the institution to increase the rate on the $5,000 balance to no more than 25%.
Comment 24(b)(5)-1 clarifies that, except as expressly provided, § _.24(b)(5) does not permit an institution to alter any of the requirements in § _.24 pursuant to a workout arrangement between a consumer and the institution. For example, an institution cannot increase a rate pursuant to a workout arrangement unless otherwise permitted by § _.24. In addition, an institution cannot require the consumer to make payments with respect to a protected balance that exceed the payments permitted under § _.24(c).
Comment 24(b)(5)-2 clarifies that, if the rate that applied prior to the workout arrangement was a variable rate, the rate that can be applied if the consumer fails to comply with the terms of the arrangement must be calculated using the same formula as before the arrangement.
Proposed § _.24(c) was intended to ensure that the protections in § _.24 were not undercut. Accordingly, it would have provided that, when an institution increases the annual percentage rate applicable to a category of transactions (for example, purchases), the institution was prohibited from requiring repayment of an outstanding balance in that category using a method that is less beneficial to the consumer than one of the methods listed in § _.24(c)(1) and from assessing fees or charges solely on an outstanding balance. In order to clarify the application of § _.24(c), the Agencies have revised this paragraph to state that it applies only to “protected balances,” which are defined as amounts owed for a category of transactions to which an increased annual percentage rate cannot be applied after the rate for that category of transactions has been increased pursuant to § _.24(b)(3). This definition is similar to the definition of “outstanding balance” in proposed § _.24. In addition, proposed § .24(c) has been revised for consistency with the revisions to § _.24(b) and for stylistic reasons. Otherwise, it has been adopted as proposed.
The Agencies have replaced proposed comments 23(c)-1 and -2 with a new comment 24(c)-1, which clarifies that, because rates cannot be increased pursuant to § _.24(b)(3) during the first year after account opening, the requirements of § _.24(c) do not apply to balances during the first year. Instead, § _.24(c) applies only to “protected balances.” For example, assume that, on March 15 of year two, an account has a purchase balance of $1,000 at a non-variable rate of 12% and that, on March 16, the bank sends a notice pursuant to 12 CFR 226.9(c) informing the consumer that the rate for new purchases will increase to a non-variable rate of 15% on May 2. On March 20, the consumer makes a $100 purchase. On March 24, the consumer makes a $150 purchase. On May 2, § _.24(b)(3) permits the bank to start charging interest at 15% on the $150 purchase made on March 24 but does not permit the bank to apply that 15% rate to the $1,100 purchase balance as of March 23. Accordingly, § _.24(c) applies to the $1,100 purchase balance as of March 23 but not the $150 purchase made on March 24.
In the May 2008 Proposal, the Agencies stated that, while there may be
Proposed § _.24(c)(1)(i) would have allowed an institution to amortize the outstanding balance over a period of no less than five years, starting from the date on which the increased rate went into effect for new transactions. Although some industry commenters criticized the five-year period as excessive and requested that it be reduced or eliminated, the OCC and consumer groups generally supported this repayment period as reasonable. One consumer group argued that, if the amount owed is large, five years may be insufficient.
In May 2008, the Agencies cited as support for the proposed five-year amortization period guidance issued by the Board, OCC, FDIC, and OTS (under the auspices of the Federal Financial Institutions Examination Council) stating that credit card workout arrangements should generally strive to have borrowers repay debt within 60 months.
An industry commenter requested clarification regarding the relationship between § _.24(c)(1) and the payment allocation rules in proposed § _.23. Section .23 addresses only payments in excess of the required minimum periodic payment. Thus, nothing in § _.23 limits an institution's ability to set a required minimum periodic payment consistent with § _.24(c). By the same token, nothing in § _.24(c)(1) alters the requirement regarding allocation of excess payments in § _.23. Thus, if an institution has elected to set a required minimum periodic payment on a protected balance that will amortize that balance over a five-year period consistent with § _.24(c)(1)(i), the institution must apply excess payments consistent with § _.23 even if doing so will cause the protected balance to pay off in less than five years. In order to eliminate any ambiguity, the Agencies have added examples to the commentary to § _.23 illustrating how an excess payment could be applied in this situation.
An industry commenter requested clarification on whether an institution that chose to provide an amortization period of five years for the outstanding balance consistent with proposed § _.24(c)(1)(i) was prohibited from applying some or all of the required minimum periodic payment to the outstanding balance before the effective date of the rate increase if doing so would result in a shorter amortization period. Section _.24(c)(1)(i) provides for “[a]n amortization period for the outstanding balance of no less than five years,
An industry commenter requested clarification regarding how an amortization period would be calculated if the annual percentage rate was variable. Comment 24(c)(1)(i)-2 clarifies that, if the annual percentage rate that applies to the protected balance varies with an index as provided in § _.24(b)(2), the institution may vary the interest charges included in the required minimum periodic payment for that balance accordingly in order to ensure that the protected balance is amortized in five years.
As an alternative to the five-year amortization period, proposed § _.24(c)(1)(ii) would have allowed the percentage of the total balance that was included in the required minimum periodic payment before the rate increase to be doubled with respect to the outstanding balance. For example, if the required minimum periodic payment prior to the rate increase was one percent of the total amount owed plus accrued interest and fees, an institution would be permitted to increase the minimum payment for the outstanding balance up to two percent of that balance plus accrued interest and fees. The Agencies did not receive any significant comment on this aspect of the proposal. Accordingly, § _.24(c)(1)(ii) has been revised for stylistic reasons and adopted as proposed.
Proposed comment 24(c)(1)(ii)-1 clarified that proposed § _.24(c)(1)(ii) did not limit or otherwise address an institution's ability to determine the amount of the minimum payment on other balances (in other words, balances that are not outstanding balances under § _.24(a)(2)). This comment has been revised for stylistic reasons and adopted as proposed.
Proposed comment 24(c)(1)(ii)-2 provided an example of how an institution could adjust the minimum payment on the outstanding balance. This comment has been revised for clarity.
Proposed comment 24(c)(1)-1 clarified that an institution may provide a method of paying the outstanding balance that is different from the methods listed in § _.24(c)(1) so long as the method used is no less beneficial to the consumer than one of the listed methods. It further stated that a method is no less beneficial to the consumer if the method amortizes the outstanding balance in five years or longer or if the method results in a required minimum periodic payment on the outstanding balance that is equal to or less than a minimum payment calculated consistent with § _.24(c)(1)(ii). As requested by the commenters, the Agencies have clarified and expanded the examples provided in the proposed comment. Otherwise, the comment has been revised for stylistic reasons and adopted as proposed.
An industry commenter asked whether, if amortization of the outstanding balance over a five-year period would result in a required minimum periodic payment below the lower limit or “floor” used by the
The protections of proposed § _.24(a) would also be undercut if institutions were permitted to assess fees or other charges as a substitute for an increase in the annual percentage rate. Accordingly, proposed § _.24(c)(2) would have prohibited institutions from assessing any fee or charge based solely on the outstanding balance. As explained in proposed comment 24(c)(2)-1, this proposal would have prohibited, for example, an institution from assessing a monthly maintenance fee on the outstanding balance. The proposal would not, however, have prohibited an institution from assessing fees such as late payment fees or fees for exceeding the credit limit that are based in part on the outstanding balance. Similarly, proposed § _.24(c)(2) would not have prohibited assessment of fees that are unrelated to the outstanding balance, such as fees for providing account documents.
The Agencies did not receive any significant comment on this aspect of the proposal. Accordingly, proposed § _.24(c)(2) and the accompanying commentary have been revised for stylistic reasons and adopted as proposed.
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As discussed above, HOLA provides authority for both safety and soundness and consumer protection regulations. For example, § 535.24 supports safety and soundness by reducing reputation risk that would occur from repricing consumer credit card accounts in an unfair manner. Section 535.24 also protects consumers by providing them with fair terms on which their accounts may be repriced. Consequently, HOLA serves as an independent basis for § 535.24.
In response to the June 2007 Regulation Z Proposal, consumers, consumer groups, and a member of Congress urged the Board to prohibit two-cycle billing. The two-cycle balance computation method has several permutations but, generally speaking, an institution using the two-cycle method assesses interest not only on the balance for the current billing cycle but also on balances on days in the preceding billing cycle. This method generally does not result in additional finance charges for a consumer who consistently carries a balance from month to month (and therefore does not receive a grace period) because interest is always accruing on the balance. Nor does the two-cycle method affect consumers who pay their balance in full within the grace period every month because interest is not imposed on their balances. The two-cycle method does, however, result in greater interest charges for consumers who pay their balance in full one month but not the next month (and therefore lose the grace period).
The following example illustrates how the two-cycle method results in higher costs for these consumers than other balance computation methods: Assume that the billing cycle on a consumer credit card account starts on the first day of the month and ends on the last day of the month. The payment due date for the account is the twenty-fifth day of the month. Under the terms of the account, the consumer will not be charged interest on purchases if the balance at the end of a billing cycle is paid in full by the following payment due date (in other words, if the consumer receives a grace period). The consumer uses the credit card to make a $500 purchase on March 15. The consumer pays the balance for the February billing cycle in full on March 25. At the end of the March billing cycle (March 31), the consumer's balance consists only of the $500 purchase and the consumer will not be charged interest on that balance if it is paid in full by the following due date (April 25). The consumer pays $400 on April 25, leaving a $100 balance. Because the consumer did not pay the balance for the March billing cycle in full on April 25, the consumer would lose the grace period and most institutions would charge interest on the $500 purchase from the start of the April billing cycle (April 1) through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 30). Institutions using the two-cycle method, however, would also charge interest on the $500 purchase from the date of purchase (March 15) to the end of the March billing cycle (March 31).
The proposed ban on two-cycle billing was generally supported by individual consumers, consumer groups, members of Congress, other federal banking regulators, state consumer protection agencies, state attorneys general, and some industry groups and credit card issuers. On the other hand, some credit card issuers and one industry group opposed the proposal on the grounds that two-cycle billing was not sufficiently prevalent to warrant a ban. As discussed below, the Agencies are including a prohibition on the two-cycle method because that method continues to be used by a number of large credit card issuers. To the extent that the commenters addressed specific aspects of the proposal or the supporting legal analysis, those comments are discussed below.
The Agencies conclude that, based on the comments received and their own analysis, it is an unfair act or practice under 15 U.S.C. 45(n) and the standards articulated by the FTC to impose finance charges on consumer credit card accounts based on balances for days in billing cycles that precede the most recent billing cycle as a result of the loss of any time period provided by the institution within which the consumer may repay any portion of the credit extended without incurring a finance charge (in other words, a grace period).
One industry commenter asserted that use of the two-cycle method could not cause an injury for purposes of the FTC Act simply because other, less costly methods exist. As discussed above, however, it is well established that monetary harm constitutes an injury under the FTC Act.
Another industry commenter stated that assessing interest consistent with a contractual provision to which the consumer agreed cannot constitute an injury under the FTC Act. As discussed above, however, this argument is inconsistent with the FTC's application of the unfairness analysis in support of the Credit Practices Rule, where the FTC determined that otherwise valid contractual provisions injured consumers.
Finally, an industry commenter argued that the two-cycle method was not unfair because it only injures consumers who lose the grace period. A practice need not, however, injure all consumers in order to be unfair.
Accordingly, the Agencies conclude that the two-cycle balance computation method causes substantial consumer injury.
One industry commenter argued that consumers could reasonably avoid the injury by paying their balance in full each month. As discussed above, however, because one of the intended purposes of a credit card (as opposed to a charge card) is to finance purchases over multiple billing cycles, it would not be reasonable to expect consumers to avoid the two-cycle method by paying their balance in full each month.
Accordingly, the Agencies conclude that consumers cannot reasonably avoid the injury caused by the two-cycle balance computation method.
One industry commenter stated that, given a preference, consumers would choose lower prices and other purported benefits of the two-cycle method (such as the provision of a grace period) over transparency. As an initial matter, the commenter did not cite any evidence that institutions that use the two-cycle method are more likely to offer lower prices and grace periods than institutions that do not, nor are the Agencies aware of any such evidence. Furthermore, individual consumers overwhelmingly supported the proposed prohibition on the two-cycle method. Finally, the Agencies believe that transparent pricing provides substantial benefits to consumer by enabling them to make informed decisions about the use of credit.
Accordingly, the Agencies conclude that the two-cycle method does not produce benefits that outweigh the injury to consumers.
One industry commenter noted that, more than twenty years ago, a member of the Board expressed concern that the costs of regulating balance computation methods could outweigh the benefits for consumers.
As discussed below, the Agencies are not taking action on credit holds at this time. Accordingly, subject to the revisions discussed below, proposed § _.26 is adopted as § _.25. The proposed commentary has been redesignated to reflect this change.
The proposed rule prohibited institutions from imposing finance charges on balances on consumer credit card accounts based on balances for days in billing cycles preceding the most recent billing cycle. Proposed comment 26(a)-1 cited the two-cycle average daily balance computation method as an example of balance computation methods that would be prohibited by the proposed rule, tracking commentary under Regulation Z.
Industry commenters stated that, as drafted, the proposed rule went further than necessary to protect consumers from the injury caused by the two-cycle balance computation method. Specifically, because the proposed rule was not limited to circumstances in which the two-cycle method results in greater interest charges than other balance computation methods (that is, when a consumer who has been eligible for a grace period does not pay the balance in full on the due date), it would prohibit the assessment of interest from the date of the transaction even when the consumer was not eligible for a grace period. Because the Agencies did not intend this result, § _.25(a) and its commentary have been revised to clarify that an institution is prohibited from imposing finance charges based on balances for days in billing cycles that precede the most
As proposed, § _.26(b) contained two exceptions to the general prohibition in § _.26(a). First, under proposed § _.26(b)(1), institutions would not be prohibited from charging consumers for deferred interest even though that interest may have accrued over multiple billing cycles. Thus, if a consumer did not pay a balance or transaction in full by the specified date under a deferred interest plan, the institution would have been permitted to charge the consumer for interest accrued during the period the plan was in effect. As discussed above, because current practices regarding the assessment of deferred interest are prohibited by § _.24, this exception has not been adopted.
Second, under proposed § _.26(b)(2), institutions would not have been prohibited from adjusting finance charges following resolution of a billing error dispute. For example, if after complying with the requirements of 12 CFR 226.13 an institution determines that a consumer owes all or part of a disputed amount, the institution would be permitted to adjust the finance charge consistent with 12 CFR 226.13, even if that requires computing finance charges based on balances in billing cycles preceding the most recent billing cycle. The Agencies did not receive any significant comment on this exception. Accordingly, the Agencies have revised this exception for clarity and adopted it as § _.25(b)(1).
Industry commenters requested two additional exceptions to the proposed rule. First, they requested an exception when the date of a transaction for which the consumer does not receive a grace period is in a different billing cycle than the date on which that transaction is posted to the account—for example, if a consumer uses a convenience check for a cash advance transaction (which is not typically subject to a grace period) on the last day of a billing cycle, the check may not reach the institution for posting to the account until the first day of the next billing cycle or later. These commenters stated that the proposed rule should not apply in this situation because the institution is entitled to assess interest from the transaction date. Rather than creating an additional exception, the Agencies have addressed this concern by clarifying, as discussed above, that § _.25(a) only applies to interest charges imposed as a result of the consumer losing the grace period. Accordingly, when a consumer is not eligible for a grace period at the time of a transaction, the final rule does not prohibit the institution from assessing interest from the date of the transaction.
Second, industry commenters requested an exception allowing adjustments to finance charges when a consumer's payment is credited to the account in one billing cycle but is returned for insufficient funds in the subsequent billing cycle. This could occur, for example, when a consumer's check is received and credited by the institution near the end of a billing cycle but is returned to the institution for insufficient funds early in the next billing cycle. The Agencies view this situation as analogous to adjusting finance charges following resolution of a billing error or other dispute, which is permitted under § _.25(b)(1). Accordingly, the final rule adopts, in § _.25(b)(2), an exception permitting adjustments to finance charges as a result of the return of a payment for insufficient funds.
The Agencies, however, are not taking action on this issue at this time. As an initial matter, elsewhere in today's
Second, many of the same commenters requested that, when a consumer who has been carrying a balance from month to month—and therefore has not been receiving a grace period—pays the balance stated on the most recent periodic statement by the applicable due date, the institution be prohibited from assessing interest on that balance in the period between mailing or delivery of the statement and receipt of the consumer's payment. This type of interest is sometimes referred to as “trailing interest.” For example, assume that a consumer who is not eligible for a grace period receives a periodic statement reflecting a balance of $1,000 as of March 31 and a due date of April 25. The consumer mails a payment of $1,000, which is credited by the institution on April 25. Ordinarily, because the consumer was not eligible for a grace period, this payment will not be sufficient to pay off the balance in full because interest will have accrued on the $1,000 balance from April 1 through April 24. The commenters, however, would prohibit the assessment
As discussed above, HOLA provides authority for both safety and soundness and consumer protection regulations. Section 535.25 supports safety and soundness by reducing reputation risk that would occur from using unfair balance computation methods. Section 535.25 also protects consumers by providing them with fair balance computation methods on their account so that they do not pay additional interest due to the application of this balance computation method that testing shows few understand. Section 535.25 is consistent with the best practices of thrift institutions nationwide. Few institutions still use the two-cycle balance computation method. Based on OTS supervisory observations and experience, no large savings associations are currently engaged in this practice. Consequently, HOLA serves as an independent basis for § 535.25.
Based on the comments received and further analysis, the Agencies have revised proposed § _.27(a) for clarity and adopted that provision as § _.26(a).
In § _.26(c), the Agencies have adopted a new provision prohibiting institutions from evading §§ _.26(a) and (b) by providing the consumer with additional credit to fund the payment of security deposits and fees for the issuance or availability of credit in excess of the amounts permitted by §§ _.26(a) and (b). The Agencies have also added definitions to proposed § _.27(c) and adopted that provision as § _.26(d).
The federal banking agencies have received many complaints from consumers with respect to subprime credit cards. Consumers often stated that they were not aware of how the high upfront fees would affect their ability to use the card for its intended purpose of engaging in transactions. In an effort to address these concerns, the Board's June 2007 and May 2008 Regulation Z Proposals included several proposed amendments to the disclosure requirements for credit and charge cards (which have been adopted in a revised form elsewhere in today's
The Agencies received comments on the proposed rule from a wide range of interested parties. The proposal received strong support from consumer groups, several members of Congress, the FDIC, the OCC, two state attorneys general, and a state consumer protection agency. These commenters generally argued that high-fee subprime credit cards trap consumers with low incomes or poor credit histories, causing those consumers either to pay off the upfront fees by depleting their limited resources or to default and further damage their credit records. In particular, one consumer group stated that high-fee subprime credit cards are unfair because: (1) The upfront fees impose an overly high price for access to credit and significantly reduce available credit, leading consumers to exceed their credit limit and incur additional fees; (2) disclosures are insufficient because subprime consumers are particularly vulnerable to predatory marketing practices and may have limited educational or literacy skills; and (3) subprime consumers generally have limited incomes and therefore cannot pay the upfront fees within the grace period for the initial billing cycle, causing them to incur interest charges. Many of these commenters urged the Agencies to strengthen the proposed rule by, for example, lowering the thresholds for security deposits and fees, applying those thresholds to all security deposits and fees regardless of whether they are charged to the account, and prohibiting the marketing of subprime credit cards as credit repair products.
Some industry commenters also expressed support for the proposed rule, stating that it was an appropriate use of the Agencies' rulemaking authority under the FTC Act. In contrast, other issuers who specialize in subprime credit cards strongly opposed the proposed rule. According to these commenters, the large upfront fees and
Subprime credit card issuers received support from some state and Congressional representatives. The Agencies also received comments from thousands of individual consumers, who explained that high-fee subprime credit cards were the only option available to them because of their credit problems. These consumers expressed concern that they might have fewer credit alternatives if the proposal were finalized. Finally, two advocacy organizations expressed concern that the proposed rule would result in reduced credit availability for low-income minority consumers.
The Agencies conclude that, based on the comments received and their own analysis, it is an unfair act or practice under 15 U.S.C. 45(n) and the standards articulated by the FTC to charge to a consumer credit card account security deposits or fees for the issuance or availability of credit that exceed the limits in the final rule.
In the May 2008 Proposal, the Agencies noted that high-fee subprime credit cards are typically marketed to vulnerable consumers whose credit histories or other characteristics prevent them from obtaining less expensive credit card products.
In response to the proposed rule, the Agencies received thousands of comments from individual consumers who have used high-fee subprime credit cards. These consumers frequently stated that, due to their credit problems
As discussed in the May 2008 Proposal, this conclusion is further supported by the Agencies' concern that the Regulation Z disclosures could be undermined by deceptive sales practices. In addition to taking enforcement actions against issuers of high-fee subprime credit cards, the OCC has found as a general matter that “solicitations and other marketing materials used for [high-fee subprime] credit card programs have not adequately informed consumers of the costs and other terms, risks, and limitations of the product being offered” and that, “[i]n a number of cases, disclosure problems associated with secured credit cards and related products have constituted deceptive practices under the applicable standards of the FTC Act.”
In response, industry commenters who opposed the rule primarily relied on two arguments. First, they contended that, rather than increasing access to credit, the restrictions in the proposed rule would reduce or eliminate the availability of credit cards for subprime consumers. Specifically, they argued that the cost of extending credit to subprime consumers is substantially higher than the cost of extending credit to prime consumers and that the proposed rule would limit subprime issuers' ability to pass those higher costs on to consumers. In addition, they argued that the proposed restrictions on the amount of security deposits and fees that may be charged to the account in the first billing cycle will actually increase issuer costs because subprime issuers will be forced to make more credit available to consumers, which will increase their cost of funds, their reserve requirements, and their losses. As a result, they argued, subprime credit card issuers will be forced to reduce costs by substantially reducing the amount of credit extended to subprime consumers.
The Agencies have carefully considered the arguments presented by these commenters but have concluded that, while the final rule may result in some subprime consumers who are currently eligible for high-fee subprime credit cards not having access to a credit card, this outcome does not outweigh the benefits to subprime consumers generally of receiving credit cards that provide a meaningful amount of available credit. The Agencies recognize that credit cards enable consumers to engage in certain types of transactions, such as making purchases by telephone or online or renting a car or hotel room. As noted above, however, credit lines for subprime credit card accounts are typically very low, meaning that, once security deposits and fees have been charged to the account, consumers receive little available credit with which to make purchases until they pay off the deposits or fees. Currently, many subprime credit card issuers assess fees that consume 75 percent or more of the credit line at account opening. Thus, on an account with a $400 credit limit, a consumer may pay $300 (plus interest charges) to obtain $100 of available credit. The benefit of receiving this relatively small amount of available credit does not outweigh its high cost.
Some industry commenters suggested that, rather than focusing on the amount of available credit at account opening, the Agencies should consider the benefits to consumers who pay the upfront charges and then have access to the entire credit line. As an initial matter, these commenters did not provide information regarding how many consumers are able to obtain access to the entire credit line or how long it takes them to do so. Furthermore, as noted above, a large issuer of subprime cards indicated that few new cardholders choose not to finance the upfront fees, and many consumer commenters who use high fee subprime cards explained that they have limited incomes. Therefore, it is unlikely that consumers who open a high-fee subprime credit card account will be able to pay down the upfront charges quickly. Moreover, as noted above, consumers who have the resources to pay upfront charges may receive more economic benefit from using those resources to obtain secured credit card accounts instead of high-fee subprime credit cards.
Accordingly, the Agencies conclude that, when security deposits and fees charged to a credit card account in the first year exceed the amount of credit extended at account opening, the injury caused by the charges outweighs the benefit to the consumer of receiving available credit. Similarly, the Agencies conclude that, in order to ensure that consumers receive a meaningful amount of available credit at account opening that outweighs the injury, security deposits and fees can consume no more than 25 percent of the available credit at account opening.
Although these restrictions will require issuers of high-fee subprime credit cards to adjust their lending practices, the Agencies believe that the final rule provides sufficient flexibility for these issuers to continue offering credit cards to subprime consumers. Specifically, subprime issuers may charge to the account in the first year security deposits and fees totaling 50 percent of the initial credit limit and may charge half of that total at account opening.
The second argument raised by industry commenters was that high-fee subprime credit cards offer an opportunity for consumers with damaged or limited credit histories to build or repair their credit records and qualify for credit at prime rates. However, the data supplied by these commenters indicates that most users of high-fee subprime credit cards do not experience an increase in credit score. Specifically, a study of subprime accounts performed by TransUnion (one of the three nationwide consumer reporting agencies) indicates that, while approximately 37 percent of consumers experienced an increase in credit score during the twelve months following the opening of a subprime credit card, the other 63 percent experienced a drop or no change in credit score.
Accordingly, for the reasons discussed above, the Agencies conclude that high-fee subprime credit cards do not produce benefits that outweigh the injury to consumers.
As discussed above, HOLA provides authority for both safety and soundness and consumer protection regulations. Section 535.26 supports safety and soundness. The commenters described very high credit risks associated with high-fee subprime credit cards. One estimated that at least one-third of new high fee cardholders default and over 75 percent of them default immediately, upon using 97 percent of their available credit, paying no fees, and repaying no principal. The TransUnion study also found that about 60 percent of subprime cardholders experience a drop in their VantageScore, which suggests a continuing inability to pay these obligations. Section 535.26 provides issuers with an incentive to employ better underwriting in order to target customers who are less likely to default. Consequently, it fosters the safe and sound operation of the institutions that offer these products.
In this vein, it should be noted that the federal banking agencies have agreed that subprime lending that is appropriately underwritten, priced and administered can serve the goals of enhancing credit access for borrowers with blemished credit histories.
Moreover, as noted above, subprime cardholders now receive little usable credit due to the current market practice of charging fees for the issuance of credit in amounts that substantially
Given the high default rate and the unsecured nature of credit card lending, OTS concludes that it is not a safe and sound practice for savings associations to offer consumer credit cards that charge security deposits and fees that do not comply with § 535.26.
With regard to consumer protection, § 535.26 is consistent with regulating savings associations in a manner that protects consumers and gives due consideration to best practices of thrift institutions nationwide. As a result of this provision, consumers will be protected from excessive security deposits and fees for the issuance or availability of credit that diminish the value of the account by reducing the credit available to the consumer for purchases or other transactions. They will also be protected from incurring excessive cost for credit cards that provide access to a very small amount of credit. Issuers will have less incentive to make unsubstantiated claims that these products facilitate credit repair. These benefits are particularly important when it is recognized that the consumers most likely to receive the protections provided by § 535.26 are those who are the most vulnerable, including people who are elderly, live on limited incomes, have serious health problems, or live with a combination of these circumstances. Among OTS-supervised institutions, cards that do not comply with the restrictions in § 535.26 are rare. In fact, based on OTS supervisory observations and experience, only two savings associations currently offer such cards and those products are a small part of their business.
Consequently, HOLA serves as an independent basis for § 535.26.
As discussed above, the Agencies have redesignated proposed § _.27 as § _.26. The proposed commentary has been revised accordingly. In addition, the title of this section has been revised for clarity.
Proposed § _.27(a) would have prohibited institutions from charging to the account security deposits and fees for the issuance or availability of credit during the twelve months following account opening if, in the aggregate, those fees constitute a majority of the initial credit limit. The Agencies have revised this paragraph of the proposed rule for clarity and adopted it as § _.26(a).
Proposed comment 27(a)-1 clarified that the total amount of security deposits and fees for the issuance or availability of credit constitutes a majority of the initial credit limit if that total is greater than half of the limit and provided an example. The Agencies adopt this comment as comment 26(a)-1.
Proposed § _.27(b) would have prohibited institutions from charging to the account during the first billing cycle security deposits and fees for the issuance or availability of credit that, in the aggregate, constitute more than 25 percent of the initial credit limit. It would have further required that any additional security deposits and fees be spread equally among the eleven billing cycles following the first billing cycle. Proposed comment 27(b)-1 clarified that, when dividing amounts pursuant to § _.27(b)(2), the institution may adjust amounts by one dollar or less. Proposed comment 27(b)-2 provided an example of the application of the rule.
As discussed above, the Agencies have adopted § _.27(b) as § _.26(b) with modifications. The final rule provides that security deposits and fees that constitute more than 25 percent of the initial credit limit be charged to the account in equal portions in no fewer than the five billing cycles immediately following the first billing cycle. Institutions that wish to spread these deposits and fees over a longer period may do so. This change is intended to better enable issuers to limit the risk of early default by new cardholders, but still ensure that consumers who obtain these cards have meaningful access to credit. The Agencies have revised proposed comments 27(b)-1 and 27(b)-2 for consistency with the final rule and adopted those comments as 26(b)-1 and 26(b)-2, respectively.
As discussed above, some consumer groups expressed concern that institutions could evade the proposed rule by requiring consumers to pay security deposits and fees for the issuance or availability of credit from separate funds. Although the Agencies generally do not intend the final rule to apply to amounts that are not charged to the account (such as deposits for secured credit cards), the Agencies conclude that § _.26 would provide little effective protection against the unfair assessment of security deposits and fees if institutions could evade its requirements by providing the consumer with additional credit to fund the payment of security deposits and fees for the issuance or availability of credit that exceed the total amounts permitted by § _.26(a) and (b). Accordingly, the Agencies have adopted § _.26(c), which prohibits this practice. The Agencies have also adopted comment 26(c)-1 (which provides an example of the application of the rule) and comment 26(c)-2 (which clarifies that an institution does not violate § _.26(c) if it requires the consumer to pay security deposits or fees for the issuance or availability of credit using funds that are not obtained, directly or indirectly, from the institution).
Proposed § _.27(c) would have defined “fees for the issuance or availability of credit” as including any annual or other periodic fee, any fee based on account activity or inactivity, and any non-periodic fee that relates to opening an account. This definition is based on the definition of “fees for the issuance or availability of credit” in 12 CFR 226.5a(b)(2), published by the Board elsewhere in today's
Proposed comments 27(c)-1, -2, and -3 clarified the meaning of “fees for the
As discussed in the May 2008 Proposal, the Agencies believed these concerns were addressed by proposed § _.24 to the extent that it prohibited institutions from applying increased rates to outstanding balances as a penalty for exceeding the credit limit. The Agencies were concerned, however, about the imposition of OCL fees in connection with credit holds. As further discussed below in section VI of this
Typically, the hold is kept in place until the transaction amount is presented to the institution for payment and settled, which may take place a few days after the original authorization. During this time between authorization and settlement, the hold may remain in place on the consumer's account. As discussed in the May 2008 Proposal, the Agencies were concerned that consumers who were unfamiliar with credit hold practices might inadvertently exceed the credit limit and incur an OCL fee because they assumed that the available credit was reduced only by the actual amount of the purchase.
The proposed rule was supported by consumer groups, members of Congress, the FDIC, state attorneys general, and state consumer protection agencies, although these commenters generally argued that the final rule should go further in addressing the harm caused by OCL fees. Some of these commenters argued that exceeding the credit limit should not be a basis for loss of a promotional rate under proposed § _.24(b)(2). As discussed above with respect to § _.24, the Agencies agree and the final version of § _.24(b)(2) does not permit this practice.
In addition, some of these commenters argued that institutions that reduce the credit limit on a consumer credit card account should be prohibited from penalizing consumers for exceeding that reduced limit. The Agencies believe that these concerns are addressed by the Board's revisions to Regulation Z, published elsewhere in today's
These commenters also urged the Agencies to take a variety of other actions with respect to OCL fees, including prohibiting OCL fees unless the account is over the credit limit at the
The FCRA requires that a firm offer of credit state, among other things, that (1) information contained in the consumer's credit report was used in connection with the transaction; (2) the consumer received the firm offer because the consumer satisfied the criteria for creditworthiness under which the consumer was selected for the offer; and (3) if applicable, the credit may not be extended if, after the consumer responds to the offer, the consumer does not meet the criteria used to select the consumer for the offer or any other applicable criteria bearing on creditworthiness or does not furnish any required collateral.
As discussed in the May 2008 Proposal, the Agencies were concerned that, because firm offers of credit often state that consumers have been “pre-selected” for credit or make similar statements, consumers receiving such offers may not understand that they are not necessarily eligible for the lowest annual percentage rate and the highest credit limit stated in the offer. Thus, in the absence of an affirmative statement to the contrary, consumers could reasonably believe that they could receive the lowest annual percentage rate and highest credit limit stated in the offer even though that is not the case. Accordingly, the Agencies proposed § _.28.
After conducting consumer testing, the Board has also provided model forms that can be used to disclose multiple rates or a range of rates.
Similarly, although Regulation Z does not require disclosure of the credit limit in the Schumer Box, the Board's consumer testing indicates that consumers are not misled by solicitations stating multiple credit limits or a range of credit limits. Specifically, when a solicitation did not state a specific credit limit, almost all participants understood that the credit limit for which they would qualify depended on their creditworthiness. In addition, when looking at statements that the initial credit limit would be “up to $2,500,” most participants understood that the limit they would receive might be lower than $2,500.
Accordingly, the Agencies are not taking action regarding firm offers of credit at this time. To the extent that specific practices regarding firm offers of credit raise concerns regarding unfairness or deception under the FTC Act, the Agencies plan to address those practices on a case-by-case basis through supervisory and enforcement actions. Further, to the extent that individual consumers do not wish to receive firm offers of credit, they can elect to be excluded from firm offer lists.
Historically, if a consumer attempted to engage in a transaction that would overdraw his or her deposit account, the consumer's depository institution used its discretion on an ad hoc basis to determine whether to pay the overdraft. If an overdraft was paid, the institution usually imposed a fee on the consumer's account. In recent years, many institutions have largely automated the overdraft payment process. Automation is used to apply specific criteria for determining whether to honor overdrafts and set limits on the amount of the coverage provided.
Overdraft services vary among institutions but often share certain common characteristics. In general, consumers who meet the institution's criteria are automatically enrolled in overdraft services.
In the past, institutions generally provided overdraft coverage only for check transactions. In recent years, however, the service has been extended to cover overdrafts resulting from non-check transactions, including withdrawals at ATMs, automated clearinghouse (ACH) transactions, debit card transactions at point-of-sale (POS), pre-authorized automatic debits from a consumer's account, telephone-initiated funds transfers, and online banking transactions.
Institutions charge a flat fee each time an overdraft is paid, regardless of the amount of the overdraft. Institutions commonly charge the same amount for paying the overdraft as they would if they returned the item unpaid.
In the May 2008 Proposal, the Agencies proposed to establish a new Subpart D to their respective FTC Act regulations which would adopt rules prohibiting specific unfair acts or practices with respect to overdraft services. One provision (discussed in more detail below) would have prohibited institutions from assessing any fees on a consumer's account in connection with an overdraft service, unless the consumer is given notice and a reasonable opportunity to opt out of the service, and the consumer does not opt out.
Based on the comments received and further analysis, the Agencies are not taking action regarding overdraft services or debit holds at this time. As noted above, the Board has proposed rules regarding overdraft services under Regulation E elsewhere in today's
The Agencies proposed in § _.32(a) to prohibit institutions from assessing any fees on a consumer's account in connection with an overdraft service, unless the consumer is given notice and a reasonable opportunity to opt out of the service, and the consumer does not opt out. The proposed opt-out right would have applied to overdrafts resulting from all methods of payment, including check, ACH transactions, ATM withdrawals and debit card transactions (full opt-out). In addition, the proposal would have required institutions to provide consumers with the option of opting out of only those overdrafts resulting from ATM withdrawals and debit card transactions at POS (partial opt-out). In a separate proposal under TISA and Regulation DD, the Board proposed additional amendments regarding the form, content, and timing requirements for the opt-out notice.
Industry commenters also raised a number of operational concerns regarding the proposed partial opt-out for ATM and POS transactions. These commenters noted that most systems may not be able to differentiate POS debit card transactions from other types of debit card transactions. Some industry commenters, however, argued that the opt-out should be limited to ATM withdrawals and debit card transactions. These commenters stated that the majority of consumer complaints about overdraft fees arise in connection with debit card purchases in which the amount of the overdraft fee is significantly higher than the amount of the overdraft.
Finally, industry commenters believed that it was inappropriate to address overdraft practices under the Agencies' FTC Act authority. In particular, industry commenters disputed the suggestion that overdraft services were unfair in light of the consumer benefits when overdrafts are paid, such as the avoidance of merchant fees. Industry commenters also argued that consumers could reasonably avoid overdraft fees even without being given an opportunity to opt out by properly managing their accounts. Lastly, industry commenters noted that the federal banking agencies have not previously indicated that institutions' payment of overdrafts pursuant to non-promoted overdraft services raise significant supervisory concerns, and asserted that the Agencies' proposal would subject institutions to potential litigation risks. Accordingly, many industry commenters recommended that the Board address any concerns about overdraft services under other regulatory authority, such as Regulation E and Regulation DD.
Consumer groups, members of Congress, the FDIC, individual consumers, and others supported the Agencies' proposal to prohibit institutions from assessing fees for overdraft services, unless the consumer is given notice and the opportunity to opt out. However, most of these commenters argued that the rule should instead require institutions to obtain the consumer's affirmative consent (that is, opt-in) before overdrafts could be paid and fees assessed. These commenters also stated that overdrafts are extensions of credit and should be subject to Regulation Z. Specifically, they asserted that institutions should be required to disclose the cost of an overdraft service as an annual percentage rate to allow consumers to compare those costs with other forms of credit.
In general, after reviewing the model disclosures, testing participants generally understood the concept of overdraft coverage, and that they would be charged fees if their institution paid their overdrafts. Participants also appeared to understand that if they opted out of overdraft coverage, this meant their checks would not be paid and they could be charged fees by both their institution and by the merchant.
During the first round of testing, Macro tested an opt-out form that allowed consumers to opt out of the payment of overdrafts for all transaction types, including checks and recurring debits. During both rounds, virtually all of the participants indicated that they would not opt out if their checks would be returned unpaid. However, when asked if they would opt out if the choice was limited to opting out of overdrafts in connection with ATM withdrawals and debit card purchases, half of the participants indicated that they would consider doing so.
Accordingly, the Agencies are not taking action regarding overdraft services at this time. The Agencies will review information obtained from the Board's rulemaking to determine whether to take further action.
When a consumer uses a debit card to make a purchase, a hold may be placed on funds in the consumer's account to ensure that the consumer has sufficient funds in the account when the transaction is presented for settlement. This is commonly referred to as a “debit hold.” During the time the debit hold remains in place, which may be up to three days after authorization, those funds may be unavailable for the consumer's use for other transactions.
In some cases, the actual purchase amount is not known at the time the transaction is authorized, such as when a consumer uses a debit card to pay for gas at the pump or pay for a meal at a
In May 2008, the Agencies proposed in § _.32(b) to prohibit institutions from assessing an overdraft fee where the overdraft would not have occurred but for a hold placed on funds in the consumer's account that exceeds the actual purchase or transaction amount. The proposed prohibition was intended to enable consumers to avoid the assessment of fees when the consumer would not have overdrawn his or her account had the actual transaction amount been presented for payment in a timely manner.
Consumer groups supported the proposed prohibition. However, they recommended that the Agencies also address check holds and prohibit the assessment of overdraft fees if a consumer has deposited funds that have not yet cleared, but where the deposit would have been sufficient to cover the overdraft. Alternatively, consumer groups urged the Board to use its authority under the Expedited Funds Availability Act (EFAA) to shorten the funds availability schedule for deposited items.
Industry commenters, however, opposed the debit hold proposal, stating that it would present significant operational difficulties. For example, industry commenters noted that institutions authorize transactions in real time, taking into account transactions subject to a debit hold. Because the actual purchase amount for certain transactions subject to a debit hold will not be known until the transaction is presented for payment, some industry commenters expressed concern that the rule would require institutions to monitor accounts retroactively and manually adjust transactions and fees that have posted to the account to determine whether an overdraft was caused by an excess hold. Otherwise, institutions would have to stop placing holds altogether which, industry commenters argued, raised potential safety and soundness concerns. Nonetheless, a few financial institution commenters stated that for fuel purchases, they do not place holds beyond the $1 pre-authorization amount, and one large financial institution commenter stated that it does not currently place holds of any amount on authorizations coming from gas stations, hotels, or rental car companies.
Rather than using their FTC Act authority, industry commenters urged the Agencies to use other existing regulatory authority. For example, industry commenters recommended that the Board exercise its authority under Regulation E to require merchants to disclose at the point-of-sale when holds may be placed on debit card transactions.
As discussed above, the Board is proposing to address concerns about debit holds pursuant to the Board's authority under the EFTA and Regulation E in a separate proposal published elsewhere in today's
The May 2008 Proposal did not propose any rules addressing transaction clearing practices. Instead, the Agencies solicited comment on the impact of requiring institutions to pay smaller-dollar items before larger-dollar items when received on the same day for purposes of assessing overdraft fees on a consumer's account. The Agencies also solicited comment on how such a rule would impact an institution's ability to process transactions on a real-time basis.
Industry commenters urged the Agencies not to engage in a rulemaking relating to transaction clearing practices. First, they argued that state law under the Uniform Commercial Code
Consumer groups and some members of Congress urged the Agencies to ban institutions from engaging in
The Agencies are not addressing transaction processing order at this time. The Agencies believe that it would be difficult to set forth a bright-line rule that would clearly result in the best outcome for all or most consumers. For example, requiring institutions to pay smaller dollar items first may cause an institution to return unpaid a large dollar nondiscretionary item, such as a mortgage payment, if there is an insufficient amount of overdraft coverage remaining to cover the large dollar item after the smaller items have been paid. The Agencies also acknowledge the inherent complexity of payments processing and recognize that mandating a particular posting order could create complications for institutions seeking to move toward real-time transaction processing.
The May 2008 Proposal solicited comment on whether the rules should become effective one year after issuance or whether a different period was appropriate. Although some industry commenters agreed that a one-year period was appropriate, most urged the Agencies to allow 18 or 24 months due to the difficulty of redesigning systems and procedures to comply with the rules. In contrast, some consumer advocates requested a shorter period.
The final rule is effective on July 1, 2010. Compliance with the provisions of the final rule is not required before the effective date. Accordingly, the final rule and the Agencies' accompanying analysis should have no bearing on whether or not acts or practices restricted or prohibited under this rule are unfair or deceptive before the effective date of this rule.
Unfair acts or practices can be addressed through case-by-case enforcement actions against specific institutions, through regulations applying to all institutions, or both. An enforcement action concerns a specific institution's conduct and is based on all of the facts and circumstances surrounding that conduct. By contrast, a regulation is prospective and applies to the market as a whole, drawing bright lines that distinguish broad categories of conduct.
Because broad regulations, such as those in the final rule, can require large numbers of institutions to make major adjustments to their practices, there could be more harm to consumers than benefit if the regulations were effective earlier than the effective date. If institutions were not provided a reasonable time to make changes to their operations and systems to comply with the final rule, they would either incur excessively large expenses, which would be passed on to consumers, or cease engaging in the regulated activity altogether, to the detriment of consumers. And because the Agencies find an act or practice unfair only when the harm outweighs the benefits to consumers or to competition, the implementation period preceding the effective date set forth in the final rule is integral to the Agencies' decision to restrict or prohibit certain acts or practices by regulation.
For these reasons, acts or practices occurring before the effective date of the final rule will be judged on the totality of the circumstances under applicable laws or regulations. Similarly, acts or practices occurring after the rule's effective date that are not governed by these rules will continue to be judged on the totality of the circumstances under applicable laws or regulations.
Some industry commenters requested that, because existing accounts were established with the expectation that institutions could engage in the practices prohibited by the final rule, those accounts (or existing balances on those accounts) be exempted from the final rule. The Agencies recognize that, as discussed above with respect to specific prohibitions, the final rule prohibits some long-standing practices that have been expressly or implicitly permitted under state or federal law or the guidance of the federal banking agencies. As noted above, the final rule is not intended to suggest that these practices are unfair or deceptive prior to the effective date. However, the Agencies do not believe the requested exemption is necessary because institutions will have sufficient time prior to the effective date to adjust their pricing and other practices with respect to existing accounts and balances. Indeed, prior to the effective date, institutions may change interest rates on existing balances and take other actions that will be prohibited once the final rule is effective. However, in light of the significant nature of the changes required by the final rule (including training staff), the Agencies anticipate that institutions will need to begin the compliance process long before the effective date. Although institutions are not required to comply with the final rule before the effective date, the Agencies strongly encourage institutions to use their best efforts to conform their practices to the final rule before July 1, 2010.
Based on the comments and further analysis, the Board has concluded that the final rule will have a significant economic impact on a substantial number of small entities. Accordingly, the Board has prepared the following final regulatory flexibility analysis pursuant to section 604 of the RFA.
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Section 227.22 will require some small entities to extend the period of time provided to consumers to make payments on consumer credit card accounts. One commenter estimated the cost of compliance at $30,000 per institution, although this cost will vary depending on the size of the institution. Based on the comments, however, many credit card issuers already send periodic statements 21 days in advance of the payment due date, which constitutes a reasonable amount of time under the rule. Indeed, a trade association representing community banks (many of which are small entities under the RFA) stated in its comment that 90 percent of its members currently mail or deliver periodic statements more than 21 days before the payment due date.
Section 227.23 will require small entities that provide consumer credit card accounts with multiple balances at different rates to alter their payment allocation systems and, in some cases, develop new systems for allocating payments among different balances. The cost of such changes will depend on the size of the institution and the composition of its portfolio. Compliance with this provision will also reduce interest revenue for small entities that currently allocate payments first to balances with the lowest annual percentage rate. The economic impact, however, will be mitigated to the extent that small entities adjust other terms to compensate for the loss of revenue (such as by increasing the dollar amount of fees and the annual percentage rates offered to consumers when an account is opened).
Section 227.24 generally prohibits small entities from increasing annual percentage rates, except in certain circumstances. This provision will reduce interest revenue, although—as noted above—small entities can mitigate the economic impact by increasing the dollar amount of fees, increasing the annual percentage rates offered to consumers when an account is opened, or otherwise adjusting account terms. In addition, § 227.24 permits small entities to increase the rates applicable to new transactions after the first year and to increase the rates on outstanding balances pursuant to an increase in an index and when the consumer's payment has not been received within 30 days after the due date.
Section 227.25 may require some small entities to change the way finance charges are calculated. The Board understands, however, that few institutions still use the prohibited method.
Section 227.26 will reduce the revenue that some small entities derive from security deposits and fees. These costs, however, will be borne only by those entities offering cards with security deposits and fees that currently consume a majority of the credit limit.
Accordingly, the Board believes that, in the aggregate, the provisions in its final rule will have a significant economic impact on a substantial number of small entities.
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The Board also believes that the final rule, where appropriate, provides sufficient flexibility and choice for institutions, including small entities. As such, any institution, regardless of size, may tailor its operations to its individual needs and thereby mitigate to some degree any burdens created by the final rule. For instance, although § 227.23 prohibits institutions from applying payments in excess of the minimum payment first to the balance with the lowest interest rate, it allows institutions to choose between two permissible allocation methods and does not place any limitations on institutions' ability to allocate the minimum payment. In addition, although § 227.24 generally prohibits institutions from increasing the annual percentage rates on outstanding balances, it provides reasonable exceptions and does not restrict the ability of institutions to increase rates on future transactions after the first year.
OTS certifies that this final rule will not have a significant economic impact on a substantial number of small entities. OTS is the primary federal regulator for 817 federally- and state-chartered savings associations. Of these 817 savings associations, only 116 report any credit card assets. Of these 116, only 22 have assets of $175 million or less.
Accordingly, NCUA certifies that this final rule will not have a significant economic impact on a substantial number of small entities. NCUA regulates approximately 5036 federal credit unions. Only 2427 federal credit unions report credit card assets. Of those federal credit unions offering loan products, 2363 small federal credit unions offer loans, and 425 small federal credit unions offer credit cards to members.
This information collection is required to provide benefits for consumers and is mandatory (15 U.S.C. 4301
Under § 227.24(a) (Unfair acts or practices regarding increases in annual percentage rates), banks are generally required to disclose at account opening the annual percentage rates that will apply to the account. In addition, under § 227.24(b)(3), banks must disclose in advance any increase in the rate that applies to new transactions pursuant to 12 CFR 226.9. The Board anticipates that banks will, with no additional burden, incorporate the disclosure requirements under § 227.24(a) with the disclosure requirements regarding credit and charge cards in Regulation Z, 12 CFR 226.5a and 226.6. Thus, in order to avoid double-counting, the Board will account for the burden associated with proposed Regulation AA § 227.24(a) under Regulation Z (OMB No. 7100-0199) §§ 226.5a and 226.6. Similarly, because the Board anticipates that banks will, with no additional burden, incorporate the disclosure requirement under § 227.24(b)(3) with the disclosure requirements in Regulation Z, 12 CFR 226.9, the Board will account for the burden associated with proposed Regulation AA § 227.24(b)(2) under Regulation Z (OMB No. 7100-0199) § 226.9.
Under Regulation AA § 227.14(b) (Unfair and deceptive practices involving cosigners), a clear and conspicuous disclosure statement shall be given in writing to the cosigner prior to being obligated. The disclosure statement must be substantively similar to the example provided in § 227.14(b). The Board will also account for the burden associated with Regulation AA § 227.14(b) under Regulation Z. The title of the Regulation Z information collection will be updated to account for this section of Regulation AA.
In May 2008, the Board proposed § 227.28, which would have prohibited banks from engaging in certain marketing practices in relation to prescreened firm offers of credit for consumer credit card accounts unless a disclaimer sufficiently explained the limitations of the offer. As discussed elsewhere in the
In May 2008, the Board proposed § 227.32, which would have provided that a consumer could not be assessed a fee or charge for paying an overdraft unless the consumer was provided with the right to opt out of the payment of overdrafts and a reasonable opportunity to exercise that right but did not do so. The Board stated that the burden associated with proposed § 227.32 would be accounted for under Regulation DD (OMB No. 7100-0271). However, as discussed elsewhere in the
Under § _.24(a) (Unfair acts or practices regarding increases in annual percentage rates), institutions are generally required to disclose at account opening the annual percentage rates that will apply to the account. In addition, under § _.24(b)(3), institutions must disclose in advance any increase in the rate that applies to new transactions pursuant to 12 CFR 226.9 in Regulation Z. The OTS and NCUA anticipate that institutions would, with little additional burden, incorporate the proposed disclosure requirement under § _.24(a) with the existing disclosure requirements regarding credit and charge cards in Regulation Z, 12 CFR 226.5a, and 226.6. Similarly, the OTS and NCUA anticipate that institutions will, with little additional burden, incorporate the disclosure requirement under § _.24(b)(3) with the disclosure requirements in Regulation Z, 12 CFR 226.9.
Under the existing Credit Practices Rule, 12 CFR 535.3 (to be recodified at 12 CFR 535.13) and 12 CFR 706.3, (to be recodified at 12 CFR 706.13) both entitled “Unfair or deceptive cosigner practices,” a clear and conspicuous disclosure statement shall be given in writing to the cosigner prior to being obligated. The disclosure statement must be substantively similar to the example provided in the section of the rule. Since this is not a new requirement, the OTS and NCUA anticipate little additional burden associated with this section of the rule.
In May 2008, the OTS, NCUA and the Board proposed § _.28, which would have prohibited financial institutions from engaging in certain marketing practices in relation to prescreened firm offers of credit for consumer credit card accounts unless a disclaimer sufficiently explained the limitations of the offer. As discussed elsewhere in this
In May 2008, the Agencies' proposed § _.32, which would have provided that a consumer could not be assessed a fee or charge for paying an overdraft unless the consumer was provided with the right to opt out of the payment of overdrafts and a reasonable opportunity to exercise that right but did not do so. The OTS stated that the burden associated with proposed § 535.32 would be 8,260 hours. OTS's burden estimate was based on the effect of this rule on all of its institutions because they are all depository institutions, most of which offer overdraft services. By not including provisions on overdrafts, OTS's rule affects only the 116 OTS-supervised institutions that issue credit cards. The NCUA stated that the burden associated with proposed § 706.32 would be 50,360 hours. As discussed elsewhere in this
Executive Order 12866 requires federal agencies to prepare a regulatory impact analysis for agency actions that are found to be “significant regulatory actions.” “Significant regulatory actions” include, among other things, rulemakings that “have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”
Based on the prediction of industry commenters, OTS anticipates that the final rule will exceed the $100 million threshold. However, OTS believes that these estimates may overstate the actual costs borne by institutions under OTS jurisdiction for a number of reasons. First, OTS-supervised institutions account for only a small portion of the entire credit card market. Second, several provisions included in the proposed rulemaking are not being finalized at this time, which reduces the overall economic impact of the final rule. Third, OTS-supervised institutions already refrain from engaging in many of the practices prohibited by this final rule. Issuing a rule to prevent institutions from taking up these practices will help ensure that market conduct standards remain high, but it will not cause significant economic impact on these institutions.
OTS acknowledges that several provisions of the rules may carry operational costs, although the general information provided by commenters on this point does not permit the OTS to quantify such costs with any precision. Moreover, commenter suggestions about the effect that two provisions of the rule may have on the fee and interest income may be overestimated. Notably, these suggestions blend the effects of this rulemaking with those of a related Board rulemaking on Regulation Z.
Further, given the continuing contraction in the economy since the May 2008 proposal and the close of the August 2008 comment period, OTS anticipates that the economic effect on credit card issuers will be lower than projected by commenters as the industry itself shrinks.
OTS has provided the Administrator of the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA) an economic analysis. As required by Executive Order 12866, it addresses: (1) The need for the regulatory action and how the rule meets that need, (2) the costs and benefits of the rule and its consistency with a statutory mandate that avoids interference with State, local and tribal governments, (3) the benefits anticipated from the regulation, (4) the costs anticipated from the regulation, and (5) alternatives to the regulation.
The OTS final rule, like the rules issued by the Board and NCUA, consists of five provisions intended to protect consumers from unfair acts or practices with respect to consumer credit card accounts. The identified unfair acts or practices inhibit or prevent a consumer from accurately assessing the costs and benefits of their actions and thus produce a market failure. The rule should permit cardholders to better predict how their actions will affect their costs and benefits. Presently, they cannot do so effectively.
OTS issued an Advance Notice of Proposed Rulemaking on August 6, 2007, requesting comment on possible changes to its rules under section 5 of the FTC Act.
In contrast, the consumer commenters urged OTS to move ahead with a rule that would combine the FTC's principles-based standards with prohibitions on specific practices. They urged OTS to ban numerous practices, including several practices addressed in the final rule, such as “universal default” repricing, applying payments first to balances with the lowest interest rate, and credit cards marketed at subprime consumers that provide little available credit at account opening.
To address the issue of lack of uniformity if only OTS issued a rule, and to best ensure that all entities that offer consumer credit card accounts and overdraft services on deposit accounts are treated in a like manner, the OTS, Board, and NCUA joined together to issue the May 2008 Proposal.
A description of the five provisions in this final rule follows. It includes observations about how each provision responds to a specific unfair practice.
First, § 535.22 prohibits savings associations from treating a payment as late for any purpose unless consumers have been provided a reasonable amount of time to make that payment. The rule provides that 21 days is a safe harbor. Consumers have complained that they encountered situations where they did not have enough time to make payments and that this was an unfair practice. This provision will prevent card issuers from providing an insufficient time for consumers to make payments, and then charging fees or increasing interest rates because the payment was late. The largest issuers under OTS supervision already provide at least a 20 day period to pay.
Second, when an account has balances with different annual percentage rates, § 535.23 requires savings associations to allocate amounts paid in excess of the minimum payment using one of two specified methods: either allocating the excess payment to the highest interest balance or proportionately to all balances. This provision addresses the unfairness that consumers experience when they accept low-rate promotional offers, but do not appreciate that card issuers now allocate their payments to minimize the benefits of the offer and maximize interest charges.
Third, § 535.24 prohibits savings associations from increasing the APR during the first year unless the planned increase has been disclosed at account opening, the APR varies with an index, the card holder fails to pay within 30 days of the due date, or the card holder fails to comply with a workout arrangement. After the first year, the rule also allows savings associations to increase the annual percentage rate on transactions that occur more than seven days after the institution provides a notice of the APR increase under Regulation Z. This section addresses the unfairness consumers experience when a creditor increases interest rates at any time and for any reason, and where a creditor applies a new rate to purchases that have already been made. The rule will allow consumers to more accurately estimate their costs and to predict the consequences of their decisions and actions.
Fourth, § 535.25 prohibits savings associations from using the practice sometimes referred to as two-cycle billing, in which, as a result of the loss of a grace period, a savings association imposes finance charges based on balances associated with previous billing cycles. Research conducted by the Board showed that consumers do not understand disclosures that attempt to explain this billing practice. As a result, consumers could not avoid cards that feature this practice. However, this practice is now rare, especially for OTS-supervised issuers.
Fifth, to address concerns regarding subprime credit cards with high fees and low credit limits, § 535.26 prohibits savings associations from charging to the account security deposits and fees for the issuance or availability of credit that constitute a majority of the initial credit limit in the first year or more than 25 percent of the initial credit limit in the first month. In addition the rule requires that if the fees and security deposit charges exceed 25% of the available credit, repayment would be spread over at least the first six months. These cards impose multiple fees when the consumer opens the card account and those amounts are billed to the consumer in the first statement. These large initial billings substantially reduce the amount of credit that the consumer has available on the card. For example, a card with a credit line of $250 may have only $100 available after security deposits or fees have been billed and consumers will pay interest on these billings until they are paid in full. Consumers have complained that they were not aware of how little available credit they would have after the assessment of security deposits and fees. This rule prevents this practice and provides that consumers will have a sizeable percentage of the initial credit on the card available for use.
Both the costs and the benefits of the rule are difficult to measure with precision. As noted above, OTS has relied on cost projections submitted by industry commenters, but has reduced these estimates where they appear to be overstated. Benefits, such as protecting consumers from unfairness, are more intangible and more difficult to quantify. Moreover, the monetary costs
Section 18(f)(1) of the FTC Act provides that OTS (with respect to savings associations), as well as the Board (with respect to banks) and the NCUA (with respect to federal credit unions) are responsible for prescribing “regulations defining with specificity * * * unfair or deceptive acts or practices, and containing requirements prescribed for the purpose of preventing such acts or practices.”
Also, as discussed in the
Issuing the rule on an interagency basis is consistent with section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994.
The most important benefit of the rule is that it will protect consumers from certain practices that meet well established standards for unfairness. In so doing, the rule will increase consumer confidence in the financial system.
Since the rule was proposed in May 2008, exigent market circumstances have arisen which necessitate immediate liquidity in consumer credit cards. These circumstances are reflected in the announcement on November 25, 2008 of the Treasury Department and Federal Reserve Board Term Asset-Backed Securities Loan Facility (TALF) program.
However, because this rule provides more rationality and integrity to the credit card system, its broader benefits are more qualitative than quantitative. For example, the rule will promote more efficient functioning of the economy by creating more transparency for consumers as they make credit card agreements. Consumers currently are confused by the complexity of credit card agreements, and are surprised by unexpected terms. In several of the areas addressed by the rule, disclosures have been inadequate to make the terms understandable.
The monetary costs and benefits of this rule have a net effect. Particularly as a result of the payment allocation and retroactive rate increase provisions, some card issuers will experience reduced revenues and additional expenses, but the cost of credit will be substantially reduced for many consumers. Moreover, the rule will create stability, predictability, and standardization in the credit card market and its receivables, and will help foster steady sources of funding that would otherwise avoid some risk and uncertainty.
Another benefit of the rule is that it will create a uniform playing field for credit card issuers, not only because the federal financial regulators are issuing consistent rules, but also because of its clarity. As the Board and the NCUA are simultaneously issuing virtually identical rules governing credit card practices for other types of federally insured financial institutions, the OTS final rule will ensure that consistent rules apply among banks, federal credit unions, and savings associations.
Significantly, issuers that have tried to provide better and clearer terms for consumers will no longer face a competitive disadvantage for doing so. Consumers will have more confidence in the credit card system because of the uniform protections.
By substantially limiting behavioral risk pricing, the rule will foster more efficient risk-based pricing by credit card issuers at the initial underwriting stage. Consequently, this rule will improve credit risk management. Issuer interest in assessing the cost of risk will be more closely aligned with the consumer interest in taking on more credit and being able to repay it.
Finally, because the rule clearly defines several examples of unfair practices, the federal financial institution regulatory agencies will be able to monitor and supervise the credit card market more efficiently. Similarly, the reduced uncertainty will simplify issuer efforts to act in compliance with the law.
It is helpful to put the share of OTS supervised issuers in context. OTS is the primary federal regulator for 817 federally- and state-chartered savings associations. Of these 817 savings associations, only 116 report any credit card assets. Among the 116 savings associations that offer credit cards, only 18 have more than 1% of their total assets in credit card receivables. Moreover, credit card assets comprise only 3% of all assets held by savings associations. With respect to the share of the overall credit card market held by OTS supervised institutions, it is notable that savings associations hold only 3.5% of credit card receivables.
After Washington Mutual Bank was closed on Sept. 25, 2008, JPMorganChase, a national bank regulated by the Office of the Comptroller of the Currency, acquired its assets. OTS Release 08-046 (available at:
The majority of the practices covered by this rulemaking have been included as a prophylactic measure to ensure that institutions do not begin to use or expand the use of activities deemed unfair or deceptive. Since most OTS-supervised institutions do not currently engage in these practices, the costs of complying with the provisions of the final rules are likely to be minimal.
Although some commenters indicated that implementing this provision would entail operational costs, OTS supervisory observations and experience indicates that most savings associations generally mail or deliver periodic statements to their customers at least 20 days before the due date, including the ten largest.
OTS notes that many institutions no longer use the two-cycle balance computation method and very few institutions compute balances using any method other than a single-cycle method and according to the Government Accountability Office, of the six largest card issuers, only two used the double-cycle billing method between 2003 and 2005.
This section does not apply to security deposits and fees for the issuance or availability of credit that are not charged to the account,
Credit cards to which security deposits and high account opening related fees are charged against the credit line are found predominately in the subprime credit card market,
As noted above, savings associations have only a 3.5% share of the credit card market generally.
Based on one commenter's estimate, this provision of the rule would mean these OTS-supervised subprime issuers would receive as much as $10,948,000 less revenue.
This final rule contains two other sections with a greater economic impact. One affects the way in which an institution allocates customer payments among the customer's outstanding balances. The other specifies the conditions under which an institution can raise the APR on outstanding balances.
Based on the comments received and OTS's analysis, the final rule adopts the general payment allocation rule as proposed with a few important changes to reduce burden and cost to the industry. This section will prohibit institutions from allocating payments above the minimum required to the balance with the lowest rate first. It will allow institutions to split such payments pro rata among the balances or to allocate them to the balance with the highest rate first. The costs of this rule are mitigated somewhat by providing institutions with flexibility as to which of the allocation methods they choose. In addition, by allowing institutions to have a general rule for allocating payments to all balances, including promotional balances, the costs to institutions have been reduced.
Due to concerns that this section as proposed could significantly reduce or eliminate promotional rate offers, OTS has modified this provision. For the most part, this is because commenters supplied data that indicates that promotional rates provide an overall benefit to consumers in addition to the marketing benefits that such rates provide to institutions. Consequently, OTS believes that applying the general allocation rule to promotional rate balances strikes the appropriate balance by preserving promotional rate offers that provide substantial benefits to consumers while prohibiting the most harmful payment allocation practices. Accordingly, the final rule, unlike the proposal, does not require payments above the minimum payment to be applied to promotional rate balances last, after other balances are paid.
Commenters indicated that this provision may affect institutions' interest revenue. Based on a projection for the total industry by a group of credit card issuers representing 70% of outstanding balances, the Board has estimated that this rule could result in an annual loss in interest revenue of $415 million.
It should also be noted that while this provision will significantly reduce interest charges that consumers will pay, removing requirements in the proposed rule regarding promotional rate balances will mitigate this effect by reducing the estimated impact on interest revenue. Moreover, to the extent that the payment allocation restrictions included in the rule impose costs, institutions are likely to adjust initial credit card terms to reflect those costs. If this occurs, consumers will likely have a clearer initial disclosure of potential costs with which to compare credit card offerings than they do now. Their actual cost of credit will not be increased by low-to-high balance payment allocation strategies implemented by institutions after charges have been incurred.
The rule will not permit the institution to increase the APR on the outstanding balances if the consumer defaults on other debt obligations. This practice is sometimes referred to as “universal default.” Based on OTS supervisory observations and experience, none of the larger savings associations practice universal default. The final rule will also require issuers to adjust the manner in which they offer deferred interest rate balances to ensure that consumers are not unfairly surprised by the assessment of deferred interest.
A group of credit card issuers representing 70% of outstanding balances submitted a comment which projected that the overall cost to the industry of this provision of the rule as proposed would result in an annual loss in interest revenue of 0.872 percent, or $7.40 billion. This analysis stated that banks will compensate for a loss in interest revenue by increasing rates and/or decreasing available credit for consumers. Even assuming this analysis is accurate, the OTS, Board, and NCUA believe that the revisions to the proposed rule may decrease the estimated impact on interest revenue by more than 70 percent (to an annual loss of interest revenue of 0.242 percent, or approximately $2.05 billion) and, therefore, result in a proportionately lower impact on consumers.
Applying these estimates to institutions under OTS jurisdiction, this provision of the final rule appears to have an economic impact on savings associations that ranges from $71.75 million (based on a potential $2.05 billion in loss of industry revenue)
However, if such revenue is economically justified in a competitive environment for the allocation of credit, then a likely longer-term outcome will be that institutions will incorporate such economic factors in the initial terms of credit card contracts. If that occurs, then consumers will have clearer initial information than they currently have on the comparative costs of credit card offerings. Consequently, the short-term disruptions to institutions caused by this rulemaking will likely be addressed in the longer term by changes in disclosed credit card account interest rates and fees, thus making it easier for consumers to more easily compare and consider the costs and benefits of different credit cards.
Commenters have suggested that institutions will compensate for potential losses in interest revenue by increasing credit card rates and/or decreasing credit available to consumers. Even assuming this assertion is accurate, OTS believes that the differences between the proposed and final rules will lead to both a smaller loss of revenue for issuers and decreased incentives for raising rates or limiting credit offered to consumers. To the extent income to savings associations is affected, the corresponding offset is an equally sized consumer benefit of lower fees and interest payments. Although OTS is unable to estimate its precise impact, OTS believes that many consumers will incur significantly reduced interest charges as a result of the rule. As a result, the economic effects of this rulemaking may result in transfers from institutions to consumers, with an overall limited net effect.
The costs to OTS from this rule are insignificant. OTS, like the other federal financial regulators, conducts examinations of institutions on a regular basis for safety, soundness and compliance with laws and regulations. This rule will not add to that supervisory burden. To the contrary, OTS anticipates that this rule, by clarifying some of the prohibitions against unfair acts and practices in credit card lending with bright line rules, will make the supervision of savings associations more efficient, less time consuming, and less burdensome.
Some predict that because of this rule, issuers will raise credit card rates for consumers and lower credit limits. However, OTS believes that many consumers will incur significantly reduced interest charges as a result of the rule.
The costs to OTS from this rule are insignificant. In fact, this rule will make supervision and enforcement more efficient, less time consuming, and less burdensome.
The cost to savings associations is limited because of the small size of the credit card market held by savings associations, the reduced impact of this rule caused by the Agencies' decision not to finalize several provisions, and the small number of institutions that presently employ the practices prohibited in this rule. Although the revenue loss data submitted by commenters has not been verified, the OTS has used it to provide the most generous estimate of the costs of this rule. Based on that data, the costs of this rule range between $97,223,000 and $284,473,000.
In proposing this rule, OTS considered different approaches. As suggested in the ANPR, one approach was for OTS to issue a rule under either the FTC Act or as an expansion of OTS's Advertising rule that would cover only OTS-supervised institutions.
In its ANPR, the OTS sought comment on whether it should attempt to address a broad range of potentially unfair or deceptive practices including those relating credit cards, residential mortgage lending, gift cards, and deposit accounts.
In the May 2008 Proposal, the Agencies proposed seven provisions under the FTC Act regarding consumer credit card accounts and two provisions regarding checking account overdraft services. These provisions were intended to ensure that consumers were protected from harmful practices that they could not reasonably avoid and have the ability to make informed decisions about the use of credit card accounts and checking accounts without being subjected to unfair or deceptive acts or practices.
However, after considering the comments received, OTS has decided not to address the practices covered by four of the proposed provisions in a final rule at this time. These provisions concerned overdraft and overlimit fees caused by holds, deceptive firm offers of credit, and a provision that would have provided a mechanism for a consumer to opt out of overdraft protection services.
The Board is issuing a proposal under Regulation E published elsewhere in today's
There were more than 65,000 comments on the May 2008 Proposal, and the overwhelming majority of these were from consumers. There were also comments from the industry, members of Congress
Many consumer commenters, as well as consumer groups, members of Congress, the FDIC, two state attorneys general and a state consumer protection agency supported the proposal to limit repricing except in very limited situations. Some advocated providing
The injury to consumers of having their interest rate increased substantially is difficult for most consumers to avoid. There are several circumstances that give rise to interest rate changes: market conditions (unrelated to consumer behavior), consumer default on an unrelated account, using a large proportion of the available credit, or late payment or overlimit charges. It is only the last two that are violations of the card agreement. Most consumers would not avoid the rate increase because they would not expect it in the circumstances described.
The Agencies considered, and rejected the alternative proposed by some commenters to allow a consumer to “opt out” of the card relationship by closing it and transferring the balance. This was not a good alternative because it may not be possible for a consumer to close the card and transfer the balance to a comparable rate card without paying a transfer fee. The Agencies considered the impact on credit card issuers by limiting this rule to apply to outstanding balances, not to new purchases, except for the first year an account is open.
The Agencies considered requiring the use of disclosures to inform consumers about the triggers for repricing. However, it was clear, based on consumer testing, that consumers did not understand how the triggers work, and consumers do not focus on the possibility of default at the time they open accounts. More importantly, disclosures would not allow consumers to avoid credit cards with this feature, since institutions almost uniformly apply increased rates to prior transactions.
The Agencies have received many complaints from consumers about these cards from consumers who say they were not aware of how little available credit they would have after the security deposit and fees were charged to the card. Over 70 members of Congress, several states, the Federal Deposit insurance Corporation and the Office of the Comptroller of the Currency supported this provision. Many commenters wanted to add more prohibitions to this rule, by lowering fee thresholds, prohibiting the charging of security deposits to the cards, enhancing disclosure and prohibiting the marketing of these cards and credit repair products. Many industry commenters supported this rule.
However, some commenters who are in this business asserted that they provide credit to consumers who would otherwise be unable to obtain it. In an effort to balance the concerns of consumers and the subprime credit card industry, the Agencies have limited the percentage of the fees and security deposits that can be charged to the card. This limit is no more than the majority. In addition, the rule will require issuers to spread repayment over the first six months if the fees and security deposits amount to more than 25 percent of the available credit. OTS believes that its issuers will change their underwriting, or reduce initial credit available, in response to this rule.
OTS has determined that its portion of the rulemaking does not have any federalism implications for purposes of Executive Order 13132. As discussed in section IV of this
The NCUA has determined that its portion of the rulemaking does not have any federalism implications for purposes of Executive Order 13132.
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4 (Unfunded Mandates Act) requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. (The inflation adjusted threshold is $133 million or more.) If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule.
OTS has determined that this rule will not result in expenditures by State, local, and tribal governments in excess of the threshold but may result in expenditures by the private sector in excess of the threshold. Accordingly, OTS has prepared a budgetary impact statement and addressed the regulatory alternatives considered. This is discussed further in section VIII.C. of this
NCUA has determined that this final rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 2681 (1998).
Section 722 of the Gramm-Leach-Bliley Act requires the Board and OTS to use plain language in all proposed and final rules published after January 1, 2000. Additionally, NCUA's goal is to promulgate clear and understandable regulations that impose minimal
The Agencies received only one comment in response. A credit card issuer suggested that the proposed rules prohibiting unfair or deceptive acts or practices with respect to consumer credit card accounts would be easier to understand if placed with the rules governing credit cards in the Board's Regulation Z. As discussed above, however, the Agencies have determined that the FTC Act is the appropriate authority for issuance of the final rule.
Banks, Banking, Credit, Intergovernmental relations, Trade practices.
Consumer credit, Consumer protection, Credit, Credit cards, Deception, Intergovernmental relations, Savings associations, Trade practices, Unfairness.
Credit, Credit unions, Deception, Intergovernmental relations, Trade practices, Unfairness.
15 U.S.C. 57a(f).
(a)
(b)
(c)
(1) The Comptroller of the Currency, in the case of national banks and federal branches and federal agencies of foreign banks;
(2) The Board of Governors of the Federal Reserve System, in the case of banks that are members of the Federal Reserve System (other than banks referred to in paragraph (c)(1) of this section), 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; and
(3) The Federal Deposit Insurance Corporation, in the case of banks insured by the Federal Deposit Insurance Corporation (other than banks referred to in paragraphs (c)(1) and (c)(2) of this section), and insured state branches of foreign banks.
(d)
(a)
(1) “Board” means the Board of Governors of the Federal Reserve System.
(2) “Consumer complaint” means an allegation by or on behalf of an individual, group of individuals, or other entity that a particular act or practice of a State member bank is unfair or deceptive, or in violation of a regulation issued by the Board pursuant to a Federal statute, or in violation of any other act or regulation under which the bank must operate. Unless the context indicates otherwise, “complaint” shall be construed to mean a “consumer complaint” for purposes of this section.
(3) “State member bank” means a bank that is chartered by a State and is a member of the Federal Reserve System.
(b)
(i) A description of the act or practice that is thought to be unfair or deceptive, or in violation of existing law or regulation, including all relevant facts;
(ii) The name and address of the State member bank that is the subject of the complaint; and
(iii) The name and address of the complainant.
(2) Consumer complaints should be made to—Federal Reserve Consumer Help Center, P.O. Box 1200, Minneapolis, MN 55480, Toll-free number: (888) 851-1920, Fax number: (877) 888-2520, TDD number: (877) 766-8533, E-mail address:
(c)
(d)
For purposes of this subpart, the following definitions apply:
(a) “Annual percentage rate” means the product of multiplying each periodic rate for a balance or transaction on a consumer credit card account by the number of periods in a year. The term “periodic rate” has the same meaning as in 12 CFR 226.2.
(b) “Consumer” means a natural person to whom credit is extended under a consumer credit card account or a natural person who is a co-obligor or guarantor of a consumer credit card account.
(c) “Consumer credit card account” means an account provided to a consumer primarily for personal, family, or household purposes under an open-end credit plan that is accessed by a credit card or charge card. The terms “open-end credit,” “credit card,” and “charge card” have the same meanings as in 12 CFR 226.2. The following are not consumer credit card accounts for purposes of this subpart:
(1) Home equity plans subject to the requirements of 12 CFR 226.5b that are accessible by a credit or charge card;
(2) Overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards;
(3) Lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines; and
(4) Lines of credit accessed solely by account numbers.
(a)
(b)
(2)
(c)
When different annual percentage rates apply to different balances on a consumer credit card account, the bank must allocate any amount paid by the consumer in excess of the required minimum periodic payment among the balances using one of the following methods:
(a)
(b)
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(c)
(1)
(i) An amortization period of no less than five years, starting from the date on which the increased rate becomes effective for the category of transactions; or
(ii) A required minimum periodic payment that includes a percentage of the protected balance that is no more than twice the percentage required before the date on which the increased rate became effective for the category of transactions.
(2)
(a)
(b)
(1) Adjustments to finance charges as a result of the resolution of a dispute under 12 CFR 226.12 or 12 CFR 226.13; or
(2) Adjustments to finance charges as a result of the return of a payment for insufficient funds.
(a)
(b)
(2)
(c)
(d)
(1) “Fees for the issuance or availability of credit” means:
(i) Any annual or other periodic fee that may be imposed for the issuance or availability of a consumer credit card account, including any fee based on account activity or inactivity; and
(ii) Any non-periodic fee that relates to opening an account.
(2) “First billing cycle” means the first billing cycle after a consumer credit card account is opened.
(3) “First year” means the period beginning with the date on which a consumer credit card account is opened and ending twelve months from that date.
(4) “Initial credit limit” means the credit limit in effect when a consumer credit card account is opened.
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i. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $800 in excess of the required minimum periodic payment. A bank using this method would allocate $500 to pay off the cash advance balance and then allocate the remaining $300 to the purchase balance.
ii. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $400 in excess of the required minimum periodic payment. A bank using this method would allocate the entire $400 to the cash advance balance.
iii. Assume that a consumer's account has a cash advance balance of $100 at an annual percentage rate of 20%, a purchase balance of $300 at an annual percentage rate of 18%, and a $600 protected balance on which the 12% annual percentage rate cannot be increased pursuant to § 227.24. If the consumer pays $500 in excess of the required minimum periodic payment, a bank using this method would allocate $100 to pay off the cash advance balance, $300 to pay off the purchase balance, and $100 to the protected balance.
iv. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20%, a purchase balance of $1,000 at an annual percentage rate of 15%, and a transferred balance of $2,000 that was previously at a discounted annual percentage rate of 5% but is now at an annual percentage rate of 15%. Assume also that the consumer pays $800 in excess of the required minimum periodic payment. A bank using this method would allocate $500 to pay off the cash advance balance and allocate the remaining $300 among the purchase balance and the transferred balance in the manner the bank deems appropriate.
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i. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $555 in excess of the required minimum periodic payment. A bank using this method would allocate 25% of the amount ($139) to the cash advance balance and 75% of the amount ($416) to the purchase balance.
ii. Assume that a consumer's account has a cash advance balance of $100 at an annual percentage rate of 20%, a purchase balance of $300 at an annual percentage rate of 18%, and a $600 protected balance on which the 12% annual percentage rate cannot be increased pursuant to § 227.24. If the consumer pays $130 in excess of the required minimum periodic payment, a bank using this method would allocate 10% of the amount ($13) to the cash advance balance, 30% of the amount ($39) to the purchase balance, and 60% of the amount ($78) to the protected balance.
iii. Assume that a consumer's account has a cash advance balance of $300 at an annual percentage rate of 20% and a purchase balance of $600 at an annual percentage rate of 15%. Assume also that the required minimum periodic payment is $50 and that the bank allocates this payment first to the balance with the lowest annual percentage rate (the $600 purchase balance). If the consumer pays $300 in excess of the $50 minimum payment, a bank using this method could allocate based on a total balance of $850 (consisting of the $300 cash advance balance plus the $550 purchase balance after application of the $50 minimum payment). In this case, the bank would apply 35% of the $300 ($105) to the cash advance balance and 65% of that amount ($195) to the purchase balance. In the alternative, the bank could allocate based on a total balance of $900 (which does not reflect the $50 minimum payment). In that case, the bank would apply one third of the $300 excess payment ($100) to the cash advance balance and two thirds ($200) to the purchase balance.
iv. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20%, a purchase balance of $1,000 at an annual percentage rate of 15%, and a transferred balance of $2,000 that was previously at a discounted annual percentage rate of 5% but is now at an annual percentage rate of 15%. Assume also that the consumer pays $800 in excess of the required minimum periodic payment. A bank using this method would allocate 14% of the excess payment ($112) to the cash advance balance and allocate the remaining 86% ($688) among the purchase balance and the transferred balance in the manner the bank deems appropriate.
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i. Assume that, at account opening on January 1 of year one, a bank discloses that the annual percentage rate for purchases is a non-variable rate of 15% and will apply for six months. The bank also discloses that, after six months, the annual percentage rate for purchases will be a variable rate that is currently 18% and will be adjusted quarterly by adding a margin of 8 percentage points to a publicly available index not under the
A. On January 15, the consumer uses the account to make a $2,000 purchase and a $500 cash advance. No other transactions are made on the account. At the start of each quarter, the bank adjusts the variable rate that applies to the $500 cash advance consistent with changes in the index (pursuant to § 227.24(b)(2)). All required minimum periodic payments are received on or before the payment due date until May of year one, when the payment due on May 25 is received by the bank on May 28. The bank is prohibited by § 227.24 from increasing the rates that apply to the $2,000 purchase, the $500 cash advance, or future purchases and cash advances. Six months after account opening (July 1), the bank begins accruing interest on the $2,000 purchase at the previously disclosed variable rate determined using an 8-point margin (pursuant to § 227.24(b)(1)). Because no other increases in rate were disclosed at account opening, the bank may not subsequently increase the variable rate that applies to the $2,000 purchase and the $500 cash advance (except due to increases in the index pursuant to § 227.24(b)(2)). On November 16, the bank provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two (calculated using the same index and an increased margin of 12 percentage points). On January 1 of year two, the bank increases the margin used to determine the variable rate that applies to new purchases to 12 percentage points (pursuant to § 227.24(b)(3)). On January 15 of year two, the consumer makes a $300 purchase. The bank applies the variable rate determined using the 12-point margin to the $300 purchase but not the $2,000 purchase.
B. Same facts as above except that the required minimum periodic payment due on May 25 of year one is not received by the bank until June 30 of year one. Because the bank received the required minimum periodic payment more than 30 days after the payment due date, § 227.24(b)(4) permits the bank to increase the annual percentage rate applicable to the $2,000 purchase, the $500 cash advance, and future purchases and cash advances. However, the bank must first comply with the notice requirements in 12 CFR 226.9(g). Thus, if the bank provided a 12 CFR 226.9(g) notice on June 25 stating that all rates on the account would be increased to a non-variable penalty rate of 30%, the bank could apply that 30% rate beginning on August 9 to all balances and future transactions.
ii. Assume that, at account opening on January 1 of year one, a bank discloses that the annual percentage rate for purchases will increase as follows: A non-variable rate of 5% for six months; a non-variable rate of 10% for an additional six months; and thereafter a variable rate that is currently 15% and will be adjusted monthly by adding a margin of 5 percentage points to a publicly available index not under the bank's control. The payment due date for the account is the fifteenth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase balance. On January 15, the consumer uses the account to make a $1,500 purchase. Six months after account opening (July 1), the bank begins accruing interest on the $1,500 purchase at the previously disclosed 10% non-variable rate (pursuant to § 227.24(b)(1)). On September 15, the consumer uses the account for a $700 purchase. On November 16, the bank provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two (calculated using the same index and an increased margin of 8 percentage points). One year after account opening (January 1 of year two), the bank begins accruing interest on the $2,200 purchase balance at the previously disclosed variable rate determined using a 5-point margin (pursuant to § 227.24(b)(1)). Because the variable rate determined using the 8-point margin was not disclosed at account opening, the bank may not apply that rate to the $2,200 purchase balance. Furthermore, because no other increases in rate were disclosed at account opening, the bank may not subsequently increase the variable rate that applies to the $2,200 purchase balance (except due to increases in the index pursuant to § 227.24(b)(2)). The bank may, however, apply the variable rate determined using the 8-point margin to purchases made on or after January 1 of year two (pursuant to § 227.24(b)(3)).
iii. Assume that, at account opening on January 1 of year one, a bank discloses that the annual percentage rate for purchases is a variable rate determined by adding a margin of 6 percentage points to a publicly available index outside of the bank's control. The bank also discloses that, to the extent consistent with § 227.24 and other applicable law, a non-variable penalty rate of 28% may apply if the consumer makes a late payment. The due date for the account is the fifteenth of the month. On May 30 of year two, the account has a purchase balance of $1,000. On May 31, the creditor provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on July 16 for all purchases made on or after June 8 (calculated by using the same index and an increased margin of 8 percentage points). On June 7, the consumer makes a $500 purchase. On June 8, the consumer makes a $200 purchase. On June 25, the bank has not received the payment due on June 15 and provides the consumer with a notice pursuant to 12 CFR 226.9(g) stating that the penalty rate of 28% will apply as of August 9 to all transactions made on or after July 3. On July 4, the consumer makes a $300 purchase.
A. The payment due on June 15 of year two is received on June 26. On July 16, § 227.24(b)(3) permits the bank to apply the variable rate determined using the 8-point margin to the $200 purchase made on June 8 but does not permit the bank to apply this rate to the $1,500 purchase balance. On August 9, § 227.24(b)(3) permits the bank to apply the 28% penalty rate to the $300 purchase made on July 4 but does not permit the bank to apply this rate to the $1,500 purchase balance (which remains at the variable rate determined using the 6-point margin) or the $200 purchase (which remains at the variable rate determined using the 8-point margin).
B. Same facts as above except the payment due on September 15 of year two is received on October 20. Section 227.24(b)(4) permits the bank to apply the 28% penalty rate to all balances on the account and to future transactions because it has not received payment within 30 days after the due date. However, in order to apply the 28% penalty rate to the entire $2,000 purchase balance, the bank must provide an additional notice pursuant to 12 CFR 226.9(g). This notice must be sent no earlier than October 16, which is the first day the account became more than 30 days' delinquent.
C. Same facts as paragraph A. above except the payment due on June 15 of year two is received on July 20. Section 227.24(b)(4) permits the bank to apply the 28% penalty rate to all balances on the account and to future transactions because it has not received payment within 30 days after the due date. Because the bank provided a 12 CFR 226.9(g) notice on June 24 stating the 28% penalty rate, the bank may apply the 28% penalty rate to all balances on the account as well as any future transactions on August 9 without providing an additional notice pursuant to 12 CFR 226.9(g).
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i. Assume that a bank discloses at account opening on January 1 of year one that a non-variable rate of 15% applies to purchases but that all rates on an account may be increased to a non-variable penalty rate of 30% if a consumer's required minimum periodic payment is received after the payment due date, which is the fifteenth of the month. On March 1, the account has a $2,000 purchase balance. The payment due on March 15 is not received until March 20. Section 227.24 does not permit the bank to apply the 30% penalty rate to the $2,000 purchase balance. However, pursuant to § 227.24(b)(3), the bank could provide a 12 CFR 226.9(c) or (g) notice on November 16 informing the consumer that, on January 1 of year two, the 30% rate (or a different rate) will apply to new transactions.
ii. Assume that a bank discloses at account opening on January 1 of year one that a non-variable rate of 5% applies to transferred balances but that this rate will increase to a non-variable rate of 18% if the consumer does not use the account for at least $200 in purchases each billing cycle. On July 1, the consumer transfers a balance of $4,000 to the account. During the October billing cycle, the consumer uses the account for $150 in purchases. Section 227.24 does not permit the bank to apply the 18% rate to the $4,000 transferred balance. However, pursuant to § 227.24(b)(3), the bank could provide a 12 CFR 226.9(c) or (g) notice on November 16 informing the consumer that, on January 1 of year two, the 18% rate (or a different rate) will apply to new transactions.
iii. Assume that a bank discloses at account opening on January 1 of year one that interest on purchases will be deferred for one year, although interest will accrue on purchases during that year at a non-variable rate of 20%. The bank further discloses that, if all purchases made during year one are not paid in full by the end of that year, the bank will begin charging interest on the purchase balance and new purchases at 20% and will retroactively charge interest on the purchase balance at a rate of 20% starting on the date of each purchase made during year one. On January 1 of year one, the consumer makes a purchase of $1,500. No other transactions are made on the account. On January 1 of year two, $500 of the $1,500 purchase remains unpaid. Section 227.24 does not permit the bank to reach back to charge interest on the $1,500 purchase from January 1 through December 31 of year one. However, the bank may apply the previously disclosed 20% rate to the $500 purchase balance beginning on January 1 of year two (pursuant to § 227.24(b)(1)).
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i. Assume that, at account opening on January 1 of year one, a bank discloses that a non-variable annual percentage rate of 15% will apply to purchases for one year and discloses that, after the first year, the bank will apply a variable rate that is currently 20% and is determined by adding a margin of 10 percentage points to a publicly available index not under the bank's control. On December 31 of year one, the account has a purchase balance of $3,000.
A. On November 16 of year one, the bank provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two (calculated using the same index and a reduced margin of 8 percentage points). The notice further states that, on July 1 of year two, the margin will increase to the margin disclosed at account opening (10 percentage points). On July 1 of year two, the bank increases the margin used to determine the variable rate that applies to new purchases to 10 percentage points and applies that rate to any remaining portion of the $3,000 purchase balance (pursuant to § 227.24(b)(1)).
B. Same facts as above except that the bank does not send a notice on November 16 of year one. Instead, on January 1 of year two, the bank lowers the margin used to determine the variable rate to 8 percentage points and applies that rate to the $3,000 purchase balance and to new purchases. 12 CFR 226.9 does not require advance notice in these circumstances. However, unless the account becomes more than 30 days' delinquent, the bank may not subsequently increase the rate that applies to the $3,000 purchase balance except due to increases in the index (pursuant to § 227.24(b)(2)).
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i. Assume that a consumer credit card account is opened on January 1 of year one. On March 14 of year two, the account has a purchase balance of $2,000 at a non-variable annual percentage rate of 15%. On March 15, the bank provides a notice pursuant to 12 CFR 226.9(c) informing the consumer that the rate for new purchases will increase to a non-variable rate of 18% on May 1. The notice further states that the 18% rate will apply for six months (until November 1) and states that thereafter the bank will apply a variable rate that is currently 22% and is determined by adding a margin of 12 percentage points to a publicly-available index that is not under
ii. Same facts as above except that the $200 purchase is authorized by the bank on March 22 but is not settled until March 23. On May 1, § 227.24(b)(3) permits the bank to start charging interest at 18% on both the $200 purchase and the $1,000 purchase. The bank is not permitted to apply the 18% rate to the $2,000 purchase balance as of March 22.
iii. Same facts as in paragraph i. above except that on September 17 of year two (which is 45 days before expiration of the 18% non-variable rate), the bank provides a notice pursuant to 12 CFR 226.9(c) informing the consumer that, on November 2, a new variable rate will apply to new purchases and any remaining portion of the $1,000 balance (calculated by using the same index and a reduced margin of 10 percentage points). The notice further states that, on May 1 of year three, the margin will increase to the margin disclosed at account opening (12 percentage points). On May 1 of year three, § 227.24(b)(3) permits the bank to increase the margin used to determine the variable rate that applies to new purchases to 12 percentage points and to apply that rate to any remaining portion of the $1,000 purchase as well as to new purchases.
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i. Assume that the billing cycle on a consumer credit card account starts on the first day of the month and ends on the last day of the month. The payment due date for the account is the twenty-fifth day of the month. Under the terms of the account, the consumer will not be charged interest on purchases if the balance at the end of a billing cycle is paid in full by the following payment due date. The consumer uses the credit card to make a $500 purchase on March 15. The consumer pays the balance for the February billing cycle in full on March 25. At the end of the March billing cycle (March 31), the consumer's balance consists only of the $500 purchase and the consumer will not be charged interest on that balance if it is paid in full by the following due date (April 25). The consumer pays $400 on April 25, leaving a $100 balance. The bank may charge interest on the $500 purchase from the start of the April billing cycle (April 1) through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 30). The bank is prohibited, however, from reaching back and charging interest on the $500 purchase from the date of purchase (March 15) to the end of the March billing cycle (March 31).
ii. Assume the same circumstances as in the previous example except that the consumer does not pay the balance for the February billing cycle in full on March 25 and therefore, under the terms of the account, is not eligible for a time period within which to repay the $500 purchase without incurring a finance charge. With respect to the $500 purchase, the bank may charge interest from the date of purchase (March 15) through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 30).
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i. Assume that a consumer credit card account opened on January 1 has an initial credit limit of $500. Assume also that the billing cycles for this account begin on the first day of the month and end on the last day of the month. Under § 227.26(a), the bank may charge to the account no more than $250 in security deposits and fees for the issuance or availability of credit during the first year after the account is opened. If it charges $250, the bank may charge up to $125 during the first billing cycle. If it charges $125 during the first billing cycle, it may then charge no more than $25 in each of the next five billing cycles. If it chooses, the bank may spread the additional security deposits and fees over a longer period, such as by charging $12.50 in each of the ten billing cycles following the first billing cycle.
ii. Same facts as above except that on July 1 the bank increases the credit limit on the account from $500 to $750. Because the prohibition in § 227.26(a) is based on the initial credit limit of $500, the increase in credit limit does not permit the bank to charge to the account additional security deposits and fees for the issuance or availability of credit (such as a fee for increasing the credit limit).
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Effective January 1, 1986; as amended effective July 1, 2010.
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Q11(c)-1:
A: Administrative enforcement of the rule for banks may involve actions under section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818), including cease-and-desist orders requiring that actions be taken to remedy violations. If the terms of the order are violated, the federal supervisory agency may impose penalties of up to $1,000 per day for every day that the bank is in violation of the order.
Q11(c)-2:
A: Industrial loan companies that are insured by the Federal Deposit Insurance Corporation are covered by the Board's rule.
12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 57a.
(a)
(b)
(c)
For purposes of this subpart, the following definitions apply:
(a)
(b)
(c)
(d)
(e)
It is an unfair act or practice for you, directly or indirectly, to enter into a consumer credit obligation that constitutes or contains, or to enforce in a consumer credit obligation you purchased, any of the following provisions:
(a)
(b)
(c)
(1) The assignment by its terms is revocable at the will of the debtor;
(2) The assignment is a payroll deduction plan or preauthorized payment plan, commencing at the time of the transaction, in which the consumer authorizes a series of wage deductions as a method of making each payment; or
(3) The assignment applies only to wages or other earnings already earned at the time of the assignment.
(d)
(1) Means clothing, furniture, appliances, linens, china, crockery, kitchenware, and personal effects of the consumer and the consumer's dependents.
(2) Does not include:
(i) Works of art;
(ii) Electronic entertainment equipment (except one television and one radio);
(iii) Antiques (any item over one hundred years of age, including such items that have been repaired or renovated without changing their original form or character); or
(iv) Jewelry (other than wedding rings).
(a)
(b)
(c)
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
(2)
(3)
(i) Your name and address;
(ii) An identification of the debt to be cosigned (
(iii) The date (of the transaction); and
(iv) The statement, “This notice is not the contract that makes you liable for the debt.”
(d)
(2)
(3) A person who meets the definition in this paragraph is a
(a)
(b)
For purposes of this subpart, the following definitions apply:
(a)
(b)
(c)
(1) Home equity plans subject to the requirements of 12 CFR 226.5b that are accessible by a credit or charge card;
(2) Overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards;
(3) Lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines; and
(4) Lines of credit accessed solely by account numbers.
(a)
(b)
(2)
(c)
When different annual percentage rates apply to different balances on a consumer credit card account, you must allocate any amount paid by the consumer in excess of the required minimum periodic payment among the balances using one of the following methods:
(a)
(b)
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(c)
(1)
(i) An amortization period of no less than five years, starting from the date on which the increased rate becomes effective for the category of transactions; or
(ii) A required minimum periodic payment that includes a percentage of the protected balance that is no more than twice the percentage required before the date on which the increased rate became effective for the category of transactions.
(2)
(a)
(b)
(1) Adjustments to finance charges as a result of the resolution of a dispute under 12 CFR 226.12 or 12 CFR 226.13; or
(2) Adjustments to finance charges as a result of the return of a payment for insufficient funds.
(a)
(b)
(2)
(c)
(d)
(1)
(i) Any annual or other periodic fee that may be imposed for the issuance or availability of a consumer credit card account, including any fee based on account activity or inactivity; and
(ii) Any non-periodic fee that relates to opening an account.
(2)
(3)
(4)
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i. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $800 in excess of the required minimum periodic payment. A savings association using this method would allocate $500 to pay off the cash advance balance and then allocate the remaining $300 to the purchase balance.
ii. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $400 in excess of the required minimum periodic payment. A savings association using this method would allocate the entire $400 to the cash advance balance.
iii. Assume that a consumer's account has a cash advance balance of $100 at an annual percentage rate of 20%, a purchase balance of $300 at an annual percentage rate of 18%, and a $600 protected balance on which the 12% annual percentage rate cannot be increased pursuant to § 535.24. If the consumer pays $500 in excess of the required minimum periodic payment, a savings association using this method would allocate $100 to pay off the cash advance balance, $300 to pay off the purchase balance, and $100 to the protected balance.
iv. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20%, a purchase balance of $1,000 at an annual percentage rate of 15%, and a transferred balance of $2,000 that
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i. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20% and a purchase balance of $1,500 at an annual percentage rate of 15% and that the consumer pays $555 in excess of the required minimum periodic payment. A savings association using this method would allocate 25% of the amount ($139) to the cash advance balance and 75% of the amount ($416) to the purchase balance.
ii. Assume that a consumer's account has a cash advance balance of $100 at an annual percentage rate of 20%, a purchase balance of $300 at an annual percentage rate of 18%, and a $600 protected balance on which the 12% annual percentage rate cannot be increased pursuant to § 535.24. If the consumer pays $130 in excess of the required minimum periodic payment, a savings association using this method would allocate 10% of the amount ($13) to the cash advance balance, 30% of the amount ($39) to the purchase balance, and 60% of the amount ($78) to the protected balance.
iii. Assume that a consumer's account has a cash advance balance of $300 at an annual percentage rate of 20% and a purchase balance of $600 at an annual percentage rate of 15%. Assume also that the required minimum periodic payment is $50 and that the savings association allocates this payment first to the balance with the lowest annual percentage rate (the $600 purchase balance). If the consumer pays $300 in excess of the $50 minimum payment, a savings association using this method could allocate based on a total balance of $850 (consisting of the $300 cash advance balance plus the $550 purchase balance after application of the $50 minimum payment). In this case, the savings association would apply 35% of the $300 ($105) to the cash advance balance and 65% of that amount ($195) to the purchase balance. In the alternative, the savings association could allocate based on a total balance of $900 (which does not reflect the $50 minimum payment). In that case, the savings association would apply one third of the $300 excess payment ($100) to the cash advance balance and two thirds ($200) to the purchase balance.
iv. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 20%, a purchase balance of $1,000 at an annual percentage rate of 15%, and a transferred balance of $2,000 that was previously at a discounted annual percentage rate of 5% but is now at an annual percentage rate of 15%. Assume also that the consumer pays $800 in excess of the required minimum periodic payment. A savings association using this method would allocate 14% of the excess payment ($112) to the cash advance balance and allocate the remaining 86% ($688) among the purchase balance and the transferred balance in the manner the savings association deems appropriate.
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i. Assume that, at account opening on January 1 of year one, a savings association discloses that the annual percentage rate for purchases is a non-variable rate of 15% and will apply for six months. The savings association also discloses that, after six months, the annual percentage rate for purchases will be a variable rate that is currently 18% and will be adjusted quarterly by adding a margin of 8 percentage points to a publicly-available index not under the savings association's control. Finally, the savings association discloses that the annual percentage rate for cash advances is the same variable rate that will apply to purchases after six months. The payment due date for the account is the twenty-fifth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase and cash advance balances.
A. On January 15, the consumer uses the account to make a $2,000 purchase and a $500 cash advance. No other transactions are made on the account. At the start of each quarter, the savings association adjusts the variable rate that applies to the $500 cash advance consistent with changes in the index (pursuant to § 535.24(b)(2)). All required minimum periodic payments are received on or before the payment due date until May of year one, when the payment due on May 25 is received by the savings association on May 28. The savings association is prohibited by § 535.24 from increasing the rates that apply to the $2,000 purchase, the $500 cash advance, or future purchases and cash advances. Six months after account opening (July 1), the savings association begins accruing interest on the $2,000 purchase at the previously-disclosed variable rate determined using an 8-point margin (pursuant to § 535.24(b)(1)). Because no other increases in rate were disclosed at account opening, the savings association may not subsequently increase the variable rate that applies to the $2,000 purchase and the $500 cash advance (except due to increases in the index pursuant to § 535.24(b)(2)). On November 16, the savings association provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two (calculated using the same index and an increased margin of 12 percentage points). On January 1 of year two, the savings association increases the margin used to determine the variable rate that applies to new purchases to 12 percentage points (pursuant to § 535.24(b)(3)). On January 15 of year two, the consumer makes a $300 purchase. The savings association applies the variable rate determined using the 12-point margin to the $300 purchase but not the $2,000 purchase.
B. Same facts as above except that the required minimum periodic payment due on May 25 of year one is not received by the savings association until June 30 of year one. Because the savings association received the required minimum periodic payment more than 30 days after the payment due date, § 535.24(b)(4) permits the savings association to increase the annual percentage rate applicable to the $2,000 purchase, the $500 cash advance, and future purchases and cash advances. However, the savings association must first comply with the notice requirements in 12 CFR 226.9(g). Thus, if the savings association provided a 12 CFR 226.9(g) notice on June 25 stating that all rates on the account would be increased to a non-variable penalty rate of 30%, the savings association could apply that 30% rate beginning on August 9 to all balances and future transactions.
ii. Assume that, at account opening on January 1 of year one, a savings association
iii. Assume that, at account opening on January 1 of year one, a savings association discloses that the annual percentage rate for purchases is a variable rate determined by adding a margin of 6 percentage points to a publicly available index outside of the savings association's control. The savings association also discloses that, to the extent consistent with § 535.24 and other applicable law, a non-variable penalty rate of 28% may apply if the consumer makes a late payment. The due date for the account is the fifteenth of the month. On May 30 of year two, the account has a purchase balance of $1,000. On May 31, the creditor provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on July 16 for all purchases made on or after June 8 (calculated by using the same index and an increased margin of 8 percentage points). On June 7, the consumer makes a $500 purchase. On June 8, the consumer makes a $200 purchase. On June 25, the savings association has not received the payment due on June 15 and provides the consumer with a notice pursuant to 12 CFR 226.9(g) stating that the penalty rate of 28% will apply as of August 9 to all transactions made on or after July 3. On July 4, the consumer makes a $300 purchase.
A. The payment due on June 15 of year two is received on June 26. On July 16, § 535.24(b)(3) permits the savings association to apply the variable rate determined using the 8-point margin to the $200 purchase made on June 8 but does not permit the savings association to apply this rate to the $1,500 purchase balance. On August 9, § 535.24(b)(3) permits the savings association to apply the 28% penalty rate to the $300 purchase made on July 4 but does not permit the savings association to apply this rate to the $1,500 purchase balance (which remains at the variable rate determined using the 6-point margin) or the $200 purchase (which remains at the variable rate determined using the 8-point margin).
B. Same facts as above except the payment due on September 15 of year two is received on October 20. Section 535.24(b)(4) permits the savings association to apply the 28% penalty rate to all balances on the account and to future transactions because it has not received payment within 30 days after the due date. However, in order to apply the 28% penalty rate to the entire $2,000 purchase balance, the savings association must provide an additional notice pursuant to 12 CFR 226.9(g). This notice must be sent no earlier than October 16, which is the first day the account became more than 30 days' delinquent.
C. Same facts as paragraph A. above except the payment due on June 15 of year two is received on July 20. Section 535.24(b)(4) permits the savings association to apply the 28% penalty rate to all balances on the account and to future transactions because it has not received payment within 30 days after the due date. Because the savings association provided a 12 CFR 226.9(g) notice on June 24 stating the 28% penalty rate, the savings association may apply the 28% penalty rate to all balances on the account as well as any future transactions on August 9 without providing an additional notice pursuant to 12 CFR 226.9(g).
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i. Assume that a savings association discloses at account opening on January 1 of year one that a non-variable rate of 15% applies to purchases but that all rates on an account may be increased to a non-variable penalty rate of 30% if a consumer's required minimum periodic payment is received after the payment due date, which is the fifteenth of the month. On March 1, the account has a $2,000 purchase balance. The payment due on March 15 is not received until March 20. Section 535.24 does not permit the savings association to apply the 30% penalty rate to the $2,000 purchase balance. However, pursuant to § 535.24(b)(3), the savings association could provide a 12 CFR 226.9(c) or (g) notice on November 16 informing the consumer that, on January 1 of year two, the 30% rate (or a different rate) will apply to new transactions.
ii. Assume that a savings association discloses at account opening on January 1 of year one that a non-variable rate of 5% applies to transferred balances but that this rate will increase to a non-variable rate of 18% if the consumer does not use the account for at least $200 in purchases each billing cycle. On July 1, the consumer transfers a balance of $4,000 to the account. During the October billing cycle, the consumer uses the account for $150 in purchases. Section 535.24 does not permit the savings association to apply the 18% rate to the $4,000 transferred balance. However, pursuant to § 535.24(b)(3), the savings association could provide a 12 CFR 226.9(c) or (g) notice on November 16 informing the consumer that, on January 1 of year two, the 18% rate (or a different rate) will apply to new transactions.
iii. Assume that a savings association discloses at account opening on January 1 of year one that interest on purchases will be deferred for one year, although interest will accrue on purchases during that year at a non-variable rate of 20%. The savings association further discloses that, if all purchases made during year one are not paid in full by the end of that year, the savings association will begin charging interest on the purchase balance and new purchases at 20% and will retroactively charge interest on the purchase balance at a rate of 20% starting on the date of each purchase made during year one. On January 1 of year one, the consumer makes a purchase of $1,500. No other transactions are made on the account. On January 1 of year two, $500 of the $1,500 purchase remains unpaid. Section 535.24 does not permit the savings association to reach back to charge interest on the $1,500 purchase from January 1 through December 31 of year one. However, the savings association may apply the previously disclosed 20% rate to the $500 purchase balance beginning on January 1 of year two (pursuant to § 535.24(b)(1)).
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i. Assume that, at account opening on January 1 of year one, a savings association discloses that a non-variable annual percentage rate of 15% will apply to purchases for one year and discloses that, after the first year, the savings association will apply a variable rate that is currently 20% and is determined by adding a margin of 10 percentage points to a publicly available index not under the savings association's control. On December 31 of year one, the account has a purchase balance of $3,000.
A. On November 16 of year one, the savings association provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two (calculated using the same index and a reduced margin of 8 percentage points). The notice further states that, on July 1 of year two, the margin will increase to the margin disclosed at account opening (10 percentage points). On July 1 of year two, the savings association increases the margin used to determine the variable rate that applies to new purchases to 10 percentage points and applies that rate to any remaining portion of the $3,000 purchase balance (pursuant to § 535.24(b)(1)).
B. Same facts as above except that the savings association does not send a notice on November 16 of year one. Instead, on January 1 of year two, the savings association lowers the margin used to determine the variable rate to 8 percentage points and applies that rate to the $3,000 purchase balance and to new purchases. 12 CFR 226.9 does not require advance notice in these circumstances. However, unless the account becomes more than 30 days' delinquent, the savings association may not subsequently increase the rate that applies to the $3,000 purchase balance except due to increases in the index (pursuant to § 535.24(b)(2)).
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i. Assume that a consumer credit card account is opened on January 1 of year one. On March 14 of year two, the account has a purchase balance of $2,000 at a non-variable annual percentage rate of 15%. On March 15, the savings association provides a notice pursuant to 12 CFR 226.9(c) informing the consumer that the rate for new purchases will increase to a non-variable rate of 18% on May 1. The notice further states that the 18% rate will apply for six months (until November 1) and states that thereafter the savings association will apply a variable rate that is currently 22% and is determined by adding a margin of 12 percentage points to a publicly-available index that is not under the savings association's control. The seventh day after provision of the notice is March 22 and, on that date, the consumer makes a $200 purchase. On March 24, the consumer makes a $1,000 purchase. On May 1, § 535.24(b)(3) permits the savings association to begin accruing interest at 18% on the $1,000 purchase made on March 24. The savings association is not permitted to apply the 18% rate to the $2,200 purchase balance as of March 22. After six months (November 2), the savings association may begin accruing interest on any remaining portion of the $1,000 purchase at the previously-disclosed variable rate determined using the 12-point margin.
ii. Same facts as above except that the $200 purchase is authorized by the savings association on March 22 but is not settled until March 23. On May 1, § 535.24(b)(3) permits the savings association to start charging interest at 18% on both the $200 purchase and the $1,000 purchase. The savings association is not permitted to apply the 18% rate to the $2,000 purchase balance as of March 22.
iii. Same facts as in paragraph i. above except that on September 17 of year two (which is 45 days before expiration of the 18% non-variable rate), the savings association provides a notice pursuant to 12 CFR 226.9(c) informing the consumer that, on November 2, a new variable rate will apply to new purchases and any remaining portion of the $1,000 balance (calculated by using the same index and a reduced margin of 10 percentage points). The notice further states that, on May 1 of year three, the margin will increase to the margin disclosed at account opening (12 percentage points). On May 1 of year three, § 535.24(b)(3) permits the savings association to increase the margin used to determine the variable rate that applies to new purchases to 12 percentage points and to apply that rate to any remaining portion of the $1,000 purchase as well as to new purchases.
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i. Assume that the billing cycle on a consumer credit card account starts on the first day of the month and ends on the last day of the month. The payment due date for the account is the twenty-fifth day of the month. Under the terms of the account, the consumer will not be charged interest on purchases if the balance at the end of a billing cycle is paid in full by the following payment due date. The consumer uses the credit card to make a $500 purchase on March 15. The consumer pays the balance for the February billing cycle in full on March 25. At the end of the March billing cycle (March 31), the consumer's balance consists only of the $500 purchase and the consumer will not be charged interest on that balance if it is paid in full by the following due date (April 25). The consumer pays $400 on April 25, leaving a $100 balance. The savings association may charge interest on the $500 purchase from the start of the April billing cycle (April 1) through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 30). The savings association is prohibited, however, from reaching back and charging interest on the $500 purchase from the date of purchase (March 15) to the end of the March billing cycle (March 31).
ii. Assume the same circumstances as in the previous example except that the consumer does not pay the balance for the February billing cycle in full on March 25 and therefore, under the terms of the account, is not eligible for a time period within which to repay the $500 purchase without incurring a finance charge. With respect to the $500 purchase, the savings association may charge interest from the date of purchase (March 15) through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle (April 30).
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i. Assume that a consumer credit card account opened on January 1 has an initial credit limit of $500. Assume also that the billing cycles for this account begin on the first day of the month and end on the last day of the month. Under § 535.26(a), the savings association may charge to the account no more than $250 in security deposits and fees for the issuance or availability of credit during the first year after the account is opened. If it charges $250, the savings association may charge up to $125 during the first billing cycle. If it charges $125 during the first billing cycle, it may then charge no more than $25 in each of the next five billing cycles. If it chooses, the savings association may spread the additional security deposits and fees over a longer period, such as by charging $12.50 in each of the ten billing cycles following the first billing cycle.
ii. Same facts as above except that on July 1 the savings association increases the credit limit on the account from $500 to $750. Because the prohibition in § 535.26(a) is based on the initial credit limit of $500, the increase in credit limit does not permit the savings association to charge to the account additional security deposits and fees for the issuance or availability of credit (such as a fee for increasing the credit limit).
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15 U.S.C. 57a.
(a)
(b)
(c)
For purposes of this subpart, the following definitions apply:
It is an unfair act or practice for a federal credit union, directly or indirectly, to enter into a consumer credit obligation that constitutes or contains, or to enforce in a consumer credit obligation the federal credit union purchased, any of the following provisions:
(a)
(b)
(c)
(1) The assignment by its terms is revocable at the will of the debtor;
(2) The assignment is a payroll deduction plan or preauthorized payment plan, commencing at the time of the transaction, in which the consumer authorizes a series of wage deductions as a method of making each payment; or
(3) The assignment applies only to wages or other earnings already earned at the time of the assignment.
(d)
(1) Means clothing, furniture, appliances, linens, china, crockery, kitchenware, and personal effects of the consumer and the consumer's dependents.
(2) Does not include:
(i) Works of art;
(ii) Electronic entertainment equipment (except one television and one radio);
(iii) Antiques (any item over one hundred years of age, including such items that have been repaired or renovated without changing their original form or character); or
(iv) Jewelry (other than wedding rings).
(a)
(b)
(c)
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
(2)
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(i) The federal credit union's name and address;
(ii) An identification of the debt to be cosigned (
(iii) The date (of the transaction); and
(iv) The statement, “This notice is not the contract that makes you liable for the debt.”
(d)
(2)
(3) A person who meets the definition in this paragraph is a cosigner, whether or not the person is designated as such on a credit obligation.
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(b)
For purposes of this subpart, the following definitions apply:
(1) Home equity plans subject to the requirements of 12 CFR 226.5b that are accessible by a credit or charge card;
(2) Overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards;
(3) Lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines; and
(4) Lines of credit accessed solely by account numbers.
(a)
(b)
(2)
(c)
When different annual percentage rates apply to different balances on a consumer credit card account, a federal credit union must allocate any amount paid by the consumer in excess of the required minimum periodic payment among the balances using one of the following methods:
(a)
(b)
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(c)
(1)
(i) An amortization period of no less than five years, starting from the date on which the increased rate becomes effective for the category of transactions; or
(ii) A required minimum periodic payment that includes a percentage of the protected balance that is no more than twice the percentage required before the date on which the increased rate became effective for the category of transactions.
(2)
(a)
(b)
(1) Adjustments to finance charges as a result of the resolution of a dispute under 12 CFR 226.12 or 12 CFR 226.13; or
(2) Adjustments to finance charges as a result of the return of a payment for insufficient funds.
(a)
(b)
(2)
(c)
(d)
(1)
(i) Any annual or other periodic fee that may be imposed for the issuance or availability of a consumer credit card account, including any fee based on account activity or inactivity; and
(ii) Any non-periodic fee that relates to opening an account.
(2)
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(4)
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i. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 15% and a purchase balance of $1,500 at an annual percentage rate of 10% and that the consumer pays $800 in excess of the required minimum periodic payment. A federal credit union using this method would allocate $500 to pay off the cash advance balance and then allocate the remaining $300 to the purchase balance.
ii. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 15% and a purchase balance of $1,500 at an annual percentage rate of 10% and that the consumer pays $400 in excess of the required minimum periodic payment. A federal credit union using this method would allocate the entire $400 to the cash advance balance.
iii. Assume that a consumer's account has a cash advance balance of $100 at an annual percentage rate of 15%, a purchase balance of $300 at an annual percentage rate of 13%, and a $600 protected balance on which the 10% annual percentage rate cannot be increased pursuant to § 706.24. If the consumer pays $500 in excess of the required minimum periodic payment, a federal credit union using this method would allocate $100 to pay off the cash advance balance, $300 to pay off the purchase balance, and $100 to the protected balance.
iv. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 15%, a purchase balance of $1,000 at an annual percentage rate of 12%, and a transferred balance of $2,000 that was previously at a discounted annual percentage rate of 5% but is now at an annual percentage rate of 12%. Assume also that the consumer pays $800 in excess of the required minimum periodic payment. A federal credit union using this method would allocate $500 to pay off the cash advance balance and allocate the remaining $300 among the purchase balance and the transferred balance in the manner the federal credit union deems appropriate.
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i. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 15% and a purchase balance of $1,500 at an annual percentage rate of 12% and that the consumer pays $555 in excess of the required minimum periodic payment. A federal credit union using this method would allocate 25% of the amount ($139) to the cash advance balance and 75% of the amount ($416) to the purchase balance.
ii. Assume that a consumer's account has a cash advance balance of $100 at an annual percentage rate of 15%, a purchase balance of $300 at an annual percentage rate of 13%, and a $600 protected balance on which the 10% annual percentage rate cannot be increased pursuant to § 706.24. If the consumer pays $130 in excess of the required minimum periodic payment, a federal credit union using this method would allocate 10% of the amount ($13) to the cash advance balance, 30% of the amount ($39) to the purchase balance, and 60% of the amount ($78) to the protected balance.
iii. Assume that a consumer's account has a cash advance balance of $300 at an annual percentage rate of 15% and a purchase balance of $600 at an annual percentage rate of 13%. Assume also that the required minimum periodic payment is $50 and that the federal credit union allocates this payment first to the balance with the lowest annual percentage rate, the $600 purchase balance. If the consumer pays $300 in excess of the $50 minimum payment, a federal credit union using this method could allocate based on a total balance of $850, consisting of the $300 cash advance balance plus the $550 purchase balance after application of the $50 minimum payment. In this case, the federal credit union would apply 35% of the $300 ($105) to the cash advance balance and 65% of that amount ($195) to the purchase balance. In the alternative, the federal credit union could allocate based on a total balance of $900, which does not reflect the $50 minimum payment. In that case, the federal credit union would apply one-third of the $300 excess payment ($100) to the cash advance balance and two-thirds ($200) to the purchase balance.
iv. Assume that a consumer's account has a cash advance balance of $500 at an annual percentage rate of 15%, a purchase balance of $1,000 at an annual percentage rate of 12%, and a transferred balance of $2,000 that was previously at a discounted annual percentage rate of 5%, but is now at an annual percentage rate of 12%. Assume also that the consumer pays $800 in excess of the required minimum periodic payment. A federal credit union using this method would allocate 14% of the excess payment ($112) to the cash advance balance and allocate the remaining 86% ($688) among the purchase balance and the transferred balance in the manner the federal credit union deems appropriate.
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i. Assume that, at account opening on January 1 of year one, a federal credit union discloses that the annual percentage rate for purchases is a non-variable rate of 1% and will apply for six months. The federal credit union also discloses that, after six months, the annual percentage rate for purchases will be a variable rate that is currently 9% and will be adjusted quarterly by adding a margin of 8 percentage points to a publicly-available index not under the federal credit union's control. Finally, the federal credit union discloses that the annual percentage rate for cash advances is the same variable rate that will apply to purchases after six months. The payment due date for the account is the twenty-fifth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase and cash advance balances.
A. On January 15, the consumer uses the account to make a $2,000 purchase and a $500 cash advance. No other transactions are made on the account. At the start of each quarter, the federal credit union adjusts the variable rate that applies to the $500 cash advance consistent with changes in the index, pursuant to § 706.24(b)(2). All required minimum periodic payments are received on or before the payment due date until May of year one, when the payment due on May 25 is received by the federal credit union on May 28. The federal credit union is prohibited by § 706.24 from increasing the rates that apply to the $2,000 purchase, the $500 cash advance, or future purchases and cash advances. Six months after account opening, July 1, the federal credit union applies the previously-disclosed variable rate determined using an 8-point margin pursuant to § 706.24(b)(1). Because no other increases in rate were disclosed at account opening, the federal credit union may not subsequently increase the variable rate that applies to the $2,000 purchase and the $500 cash advance, except due to increases in the index pursuant to § 706.24(b)(2). On November 16, the federal credit union provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two, calculated using the same index and an increased margin of 12 percentage points. On January 1 of year two, the federal credit union increases the margin used to determine the variable rate that applies to new purchases to 12 percentage points pursuant to § 706.24(b)(3). On January 15 of year two, the consumer makes a $300 purchase. The federal credit union applies the variable rate determined using the 12-point margin to the $300 purchase but not the $2,000 purchase.
B. Same facts as above, except that the required minimum periodic payment due on May 25 of year one is not received by the federal credit union until June 30 of year one. Because the federal credit union received the required minimum periodic payment more than 30 days after the payment due date, § 706.24(b)(4) permits the federal credit union to increase the annual percentage rate applicable to the $2,000 purchase, the $500 cash advance, and future purchases and cash advances. However, the federal credit union must first comply with the notice requirements in 12 CFR 226.9(g). Thus, if the federal credit union provided a 12 CFR 226.9(g) notice on June 25 stating that all rates on the account would be increased to a non-variable penalty rate of 15%, the federal credit union could apply that 15% rate beginning on August 9, to all balances and future transactions.
ii. Assume that, at account opening on January 1 of year one, a federal credit union discloses that the annual percentage rate for purchases will increase as follows: A non-variable rate of 3% for six months; a non-variable rate of 8% for an additional six months; and thereafter a variable rate that is currently 13% and will be adjusted monthly by adding a margin of 5 percentage points to a publicly available index not under the federal credit union's control. The payment due date for the account is the fifteenth day of the month and the required minimum periodic payments are applied to accrued interest and fees but do not reduce the purchase balance. On January 15, the consumer uses the account to make a $1,500 purchase. Six months after account opening, July 1, the federal credit union begins accruing interest on the $1,500 purchase at the previously disclosed 8% non-variable rate pursuant to § 706.24(b)(1). On September 15, the consumer uses the account for a $700 purchase. On November 16, the federal credit union provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two, calculated using the same index and an increased margin of 8 percentage points. One year after account opening, January 1 of year two, the federal credit union begins accruing interest on the $2,200 purchase balance at the previously disclosed variable rate determined using a 5-point margin pursuant to § 706.24(b)(1). Because the variable rate determined using the 8-point margin was not disclosed at account opening, the federal credit union may not apply that rate to the $2,200 purchase balance. Furthermore, because no other increases in rate were disclosed at account opening, the federal credit union may not subsequently increase the variable rate that applies to the $2,200 purchase balance (except due to increases in the index pursuant to § 706.24(b)(2)). The federal credit union may, however, apply the variable rate determined using the 8-point margin to purchases made on or after January 1 of year two pursuant to § 706.24(b)(3).
iii. Assume that, at account opening on January 1 of year one, a federal credit union discloses that the annual percentage rate for purchases is a variable rate determined by adding a margin of 6 percentage points to a publicly available index outside of the federal credit union's control. The federal credit union also discloses that, to the extent consistent with § 706.24 and other applicable law, a non-variable penalty rate of 15% may apply if the consumer makes a late payment. The due date for the account is the fifteenth of the month. On May 30 of year two, the account has a purchase balance of $1,000. On May 31, the creditor provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on July 16 for all purchases made on or after June 8, calculated by using the same index and an increased margin of 8 percentage points. On June 7, the consumer makes a $500 purchase. On June 8, the consumer makes a $200 purchase. On June 25, the federal credit union has not received the payment due on June 15, and provides the consumer with a notice pursuant to 12 CFR 226.9(g) stating that the penalty rate of 15% will apply as of August 9, to all transactions made on or after July 2. On July 4, the consumer makes a $300 purchase.
A. The payment due on June 15 of year two is received on June 25. On July 17, § 706.24(b)(3) permits the federal credit union to apply the variable rate determined using the 8-point margin to the $200 purchase made on June 8 but does not permit the federal credit union to apply this rate to the $1,500 purchase balance. On August 9, § 706.24(b)(3) permits the federal credit union to apply the 15% penalty rate to the $300 purchase made on July 4, but does not permit the federal credit union to apply this rate to the $1,500 purchase balance, which remains at the variable rate determined using the 6-point margin, or the $200 purchase, which remains at the variable rate determined using the 8-point margin.
B. Same facts as above, except the payment due on September 15 of year two is received on October 20. Section 706.24(b)(4) permits the federal credit union to apply the 15% penalty rate to all balances on the account
C. Same facts as paragraph A above, except the payment due on June 15 of year two is received on July 20. Section 706.24(b)(4) permits the federal credit union to apply the 15% penalty rate to all balances on the account and to future transactions because it has not received payment within 30 days after the due date. Because the federal credit union provided a 12 CFR 226.9(g) notice on June 24 stating the 15% penalty rate, the federal credit union may apply the 15% penalty rate to all balances on the account as well as any future transactions on August 9, without providing an additional notice pursuant to 12 CFR 226.9(g).
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i. Assume that a federal credit union discloses at account opening on January 1 of year one that a non-variable rate of 8% applies to purchases, but that all rates on an account may be increased to a non-variable penalty rate of 15% if a consumer's required minimum periodic payment is received after the payment due date, which is the fifteenth of the month. On March 1, the account has a $2,000 purchase balance. The payment due on March 15 is not received until March 20. Section 706.24 does not permit the federal credit union to apply the 15% penalty rate to the $2,000 purchase balance. However, pursuant to § 706.24(b)(3), the federal credit union could provide a 12 CFR 226.9(c) or (g) notice on November 16, informing the consumer that, on January 1 of year two, the 15% rate (or a different rate) will apply to new transactions.
ii. Assume that a federal credit union discloses at account opening on January 1 of year one that a non-variable rate of 5% applies to transferred balances but that this rate will increase to a non-variable rate of 15% if the consumer does not use the account for at least $200 in purchases each billing cycle. On July 1, the consumer transfers a balance of $4,000 to the account. During the October billing cycle, the consumer uses the account for $150 in purchases. Section 706.24 does not permit the federal credit union to apply the 15% rate to the $4,000 transferred balance. However, pursuant to § 706.24(b)(3), the federal credit union could provide a 12 CFR 226.9(c) or (g) notice on November 16 informing the consumer that, on January 1 of year two, the 15% rate, or a different rate, will apply to new transactions.
iii. Assume that a federal credit union discloses at account opening on January 1 of year one that interest on purchases will be deferred for one year, although interest will accrue on purchases during that year at a non-variable rate of 15%. The federal credit union further discloses that, if all purchases made during year one are not paid in full by the end of that year, the federal credit union will begin charging interest on the purchase balance and new purchases at 15% and will retroactively charge interest on the purchase balance at a rate of 15% starting on the date of each purchase made during year one. On January 1 of year one, the consumer makes a purchase of $1,500. No other transactions are made on the account. On January 1 of year two, $500 of the $1,500 purchase remains unpaid. Section 706.24 does not permit the federal credit union to reach back to charge interest on the $1,500 purchase from January 1 through December 31 of year one. However, the federal credit union may apply the previously disclosed 15% rate to the $500 purchase balance beginning on January 1 of year two pursuant to § 706.24(b)(1).
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i. Assume that, at account opening on January 1 of year one, a federal credit union discloses that a non-variable annual percentage rate of 5% will apply to purchases for one year and discloses that, after the first year, the federal credit union will apply a variable rate that is currently 15% and is determined by adding a margin of 10 percentage points to a publicly available index not under the federal credit union's control. On December 31 of year one, the account has a purchase balance of $3,000.
A. On November 16 of year one, the federal credit union provides a notice pursuant to 12 CFR 226.9(c) informing the consumer of a new variable rate that will apply on January 1 of year two, calculated using the same index and a reduced margin of 8 percentage points. The notice further states that, on July 1 of year two, the margin will increase to the margin disclosed at account opening, 5 percentage points. On July 1 of year two, the federal credit union increases the margin used to determine the variable rate that applies to new purchases to 10 percentage points and applies that rate to any remaining portion of the $3,000 purchase balance pursuant to § 706.24(b)(1).
B. Same facts as above, except that the federal credit union does not send a notice on November 16 of year one. Instead, on January 1 of year two, the federal credit union lowers the margin used to determine the variable rate to 8 percentage points and applies that rate to the $3,000 purchase balance and to new purchases. 12 CFR 226.9 does not require advance notice in these circumstances. However, unless the account becomes more than 30 days delinquent, the federal credit union may not subsequently increase the rate that applies to the $3,000 purchase balance except due to increases in the index pursuant to § 706.24(b)(2).
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i. Assume that a consumer credit card account is opened on January 1 of year one. On March 14 of year two, the account has a purchase balance of $2,000 at a non-variable annual percentage rate of 5%. On March 15, the federal credit union provides a notice pursuant to 12 CFR 226.9(c) informing the consumer that the rate for new purchases will increase to a non-variable rate of 15% on May 1. The notice further states that the 5% rate will apply for six months until November 1, and states that thereafter the federal credit union will apply a variable rate that is currently 15% and is determined by adding a margin of 10 percentage points to a publicly-available index that is not under the federal credit union's control. The seventh day after provision of the notice is March 22 and, on that date, the consumer makes a $200 purchase. On March 24, the consumer makes a $1,000 purchase. On May 1, § 706.24(b)(3) permits the federal credit union to begin accruing interest at 15% on the $1,000 purchase made on March 24. The federal credit union is not permitted to apply the 15% rate to the $2,200 purchase balance as of March 22. After six months, November 2, the federal credit union may begin accruing interest on any remaining portion of the $1,000 purchase at the previously-disclosed variable rate determined using the 10-point margin.
ii. Same facts as above except that the $200 purchase is authorized by the federal credit union on March 22 but is not settled until March 23. On May 1, § 706.24(b)(3) permits the federal credit union to start charging interest at 15% on both the $200 purchase and the $1,000 purchase. The federal credit union is not permitted to apply the 15% rate to the $2,000 purchase balance as of March 22.
iii. Same facts as in paragraph i above, except that on September 17 of year two, which is 45 days before expiration of the 18% non-variable rate, the federal credit union provides a notice pursuant to 12 CFR 226.9(c) informing the consumer that, on November 2, a new variable rate will apply to new purchases and any remaining portion of the $1,000 balance, calculated by using the same index and a reduced margin of 10 percentage points. The notice further states that, on May 1 of year three, the margin will increase to the margin disclosed at account opening, 12 percentage points. On May 1 of year three, § 706.24(b)(3) permits the federal credit union to increase the margin used to determine the variable rate that applies to new purchases to 12 percentage points and to apply that rate to any remaining portion of the $1,000 purchase as well as to new purchases.
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i. Assume that the billing cycle on a consumer credit card account starts on the first day of the month and ends on the last day of the month. The payment due date for the account is the twenty-fifth day of the month. Under the terms of the account, the consumer will not be charged interest on purchases if the balance at the end of a billing cycle is paid in full by the following payment due date. The consumer uses the credit card to make a $500 purchase on March 15. The consumer pays the balance for the February billing cycle in full on March 25. At the end of the March billing cycle, March 31, the consumer's balance consists only of the $500 purchase and the consumer will not be charged interest on that balance if it is paid in full by the following due date, April 25. The consumer pays $400 on April 25, leaving a $100 balance. The federal credit union may charge interest on the $500 purchase from the start of the April billing cycle, April 1, through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle, April 30. The federal credit union is prohibited, however, from reaching back and charging interest on the $500 purchase from the date of purchase, March 15 to the end of the March billing cycle, March 31.
ii. Assume the same circumstances as in the previous example except that the consumer does not pay the balance for the February billing cycle in full on March 25 and therefore, under the terms of the account, is not eligible for a time period within which to repay the $500 purchase without incurring a finance charge. With respect to the $500 purchase, the federal credit union may charge interest from the date of purchase, March 15, through April 24 and interest on the remaining $100 from April 25 through the end of the April billing cycle, April 30.
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i. Assume that a consumer credit card account opened on January 1 has an initial credit limit of $500. Assume also that the billing cycles for this account begin on the first day of the month and end on the last day of the month. Under § 706.26(a), the federal credit union may charge to the account no more than $250 in security deposits and fees for the issuance or availability of credit during the first year after the account is opened. If it charges $250, the federal credit union may charge up to $125 during the first
ii. Same facts as above except that on July 1 the federal credit union increases the credit limit on the account from $500 to $750. Because the prohibition in § 706.26(a) is based on the initial credit limit of $500, the increase in credit limit does not permit the federal credit union to charge to the account additional security deposits and fees for the issuance or availability of credit, such as a fee for increasing the credit limit.
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By order of the Board of Governors of the Federal Reserve System, December 18, 2008.
By the Office of Thrift Supervision,
Board of Governors of the Federal Reserve System.
Final rule; official staff commentary.
The Federal Reserve Board (Board) is amending Regulation DD, which implements the Truth in Savings Act, and the official staff commentary to the regulation to require all depository institutions to disclose aggregate overdraft fees on periodic statements, and not solely institutions that promote the payment of overdrafts. The final rule also addresses balance disclosures provided to consumers through automated systems. In addition, the Board is separately issuing a proposed rulemaking, published in today's
Dana E. Miller, Attorney, or Ky Tran-Trong, Counsel, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, DC 20551, at (202) 452-3667. For users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869.
The Truth in Savings Act (TISA), 12 U.S.C. 4301
The Board's authority under section 269(a) of TISA provides that its regulations may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of accounts as, in the judgment of the Board, are necessary or proper to carry out the purposes of TISA, to prevent circumvention or evasion of the requirements of TISA, or to facilitate compliance with the requirements of TISA. 12 U.S.C. 4308. It is the purpose of TISA to require the clear and uniform disclosure of the fees that are assessable against deposit accounts, so that consumers can make a meaningful comparison between the competing claims of depository institutions with regard to deposit accounts. 12 U.S.C. 4301.
In addition, under TISA and Regulation DD, account disclosures must be provided upon a consumer's request and before an account is opened. Institutions are not required to provide periodic statements; but if they do, the act requires that fees, yields, and other information be provided on the statements.
TISA and Regulation DD contain rules for advertising deposit accounts. TISA and Regulation DD prohibit inaccurate or misleading advertisements, announcements, or solicitations, or those that misrepresent the deposit contract. TISA and Regulation DD also prohibit institutions from advertising an
Historically, if a consumer attempted to engage in a transaction that would overdraw his or her deposit account, the consumer's depository institution used its discretion on an ad hoc basis to determine whether to pay the overdraft. If an overdraft was paid, the institution usually imposed a fee on the consumer's account.
Overdraft services vary among institutions but often share certain common characteristics. In general, consumers who meet the institution's criteria are automatically enrolled in overdraft services.
In the past, institutions generally provided overdraft coverage only for check transactions.
A flat fee is charged each time an overdraft is paid, regardless of the amount of the overdraft. Institutions commonly charge the same amount for paying the overdraft as they would if they returned the item unpaid. A daily fee also may apply for each day the account remains overdrawn.
The Board, Federal Deposit Insurance Corporation (FDIC), NCUA and Office of the Comptroller of the Currency published guidance on overdraft protection programs in February 2005 (Joint Guidance) in response to concerns about aspects of the growing marketing, disclosure, and implementation of overdraft services. The Joint Guidance addressed three primary areas—safety and soundness considerations, legal risks, and best practices. The Office of Thrift Supervision (OTS) published similar guidance which focused on safety and soundness considerations and best practices (OTS Guidance). The best practices described in the Joint Guidance and the OTS Guidance focused on the marketing of overdraft services and the disclosure and operation of program features, including distinguishing actual available account balances from account balances that include overdraft protection amounts.
In May 2005, the Board separately published revisions to Regulation DD and the official staff commentary to address concerns about the uniformity and adequacy of institutions' disclosure of overdraft fees generally, and the advertisement of overdraft services in particular. 70 FR 29582, May 24, 2005.
In May 2008, the Board issued two proposals relating to overdraft services. These proposals were intended to address concerns that consumers may not adequately understand the costs of overdraft services or how overdraft services operate generally. The Board, along with the OTS and the NCUA, proposed to adopt substantive protections using their authority under the Federal Trade Commission Act (FTC Act).
Pursuant to its authority under sections 263, 264, 268 and 269(a) of TISA,
The Board received over 600 comments on the Regulation DD proposal. Additionally, a number of comments submitted in connection with the FTC Act Proposal contained comments on the Regulation DD proposal. Commenters included individual consumers, consumer advocates, federal and state regulators and officials, large financial institutions, credit unions, community banks, industry trade associations, members of Congress, core systems providers, and vendors of overdraft services.
Most commenters focused on the proposed model opt-out form.
Consumers and consumer groups supported extending the aggregate overdraft fee disclosures on periodic statements to all financial institutions. These commenters maintained that streamlined disclosures will ensure that consumers fully understand the consequences of overdrawing their account. However, most industry commenters objected to extending the aggregate fee disclosures to all institutions, stating the burden would outweigh the limited benefits of the disclosure.
Consumer groups also supported the proposed requirement that institutions disclose account balance information without including any overdraft funds provided by the institution. Consumer groups urged the Board to apply the same requirement to balance information provided in person, by telephone or e-mail, or in Internet “chats” with bank personnel. Some consumer groups argued that institutions also should be prohibited from disclosing a second balance that includes these overdraft funds because it could mislead consumers. Industry response to the balance disclosure proposal was mixed; of those commenters that supported the proposal, some argued that it should only apply to proprietary ATMs. Other industry commenters requested the rule be revised to clarify what funds must be excluded from the balance (and from any second balance that might be disclosed).
Subsequent to the issuance of the Regulation DD proposal, the Board used a testing consultant, Macro International, Inc. (Macro), to conduct qualitative consumer testing to assess consumer understanding of the model form. Macro also conducted qualitative consumer testing of various model opt-out language and aggregate fee tables. Except where relevant to this final rule, the testing results are discussed in the final FTC Act rule and the Board's Regulation E proposal, where appropriate. These rulemakings are published elsewhere in today's
The following is a summary of the significant revisions to the regulation and the official staff commentary. The revisions are discussed in more detail below in the section-by-section analysis.
The Board is adopting final revisions to Regulation DD and the official staff commentary to expand the requirement to disclose overdraft fees on periodic statements to apply to all institutions, and not solely to institutions that promote the payment of overdrafts. The final rule adds format requirements to help make the aggregate fee disclosures more effective and noticeable to consumers.
In addition, the final rule requires an account balance disclosed to a consumer through any automated system (including, but not limited to, an ATM, Internet Web site, or telephone response system) to exclude additional amounts that the institution may provide or that may be transferred from another account of the consumer to cover an item where there are insufficient or unavailable funds in the consumer's account. The rule is designed to ensure that consumers are not confused or misled about the available amount of funds in their account when they request their account balance. The final rule permits the institution to disclose an additional balance that includes funds provided pursuant to a discretionary overdraft service or a line of credit, or funds that could be transferred from a consumer's linked individual or joint account, so long as the institution prominently states that the balance includes these additional amounts.
Based on the Board's review of comments received and consumer testing results, the Board believes it is appropriate to place opt-out requirements under the Board's authority under the Electronic Fund Transfer Act and Regulation E.
Although periodic statements are not required under TISA, institutions that provide such statements are required to disclose fees or charges imposed on the account during the statement period.
Consumers and consumer groups supported extending the aggregate overdraft fee disclosures on periodic statements to all financial institutions because, in their view, most institutions systematically cover overdrafts whether they promote the service or not.
In contrast, most industry commenters objected to extending the aggregate fee disclosures to all institutions. These commenters stated that revisions to periodic statements would be costly and would require extensive and time-consuming programming changes. Industry commenters also argued that the burden would outweigh the limited benefits of the disclosure; some argued that aggregate fee information would benefit only a limited number of consumers who incur substantial fees.
The final rule is intended to provide all consumers who use discretionary overdraft services with additional information to help them better understand the overdraft and NSF (returned item) costs associated with their accounts. The aggregate fee disclosures will benefit those consumers who overdraw their accounts with some frequency but who do not currently receive aggregate fee disclosures because their institution does not promote its overdraft service.
In addition, the Board believes the final rule will promote greater transparency about the terms and costs of overdraft services for all institutions. Under the current rule, institutions that do not promote their overdraft service may be reluctant to provide information about the service out of concern that such disclosures might trigger the aggregate fee disclosure requirements. The Board also believes the rule will create consistency in disclosures and will eliminate compliance challenges inherent in a regulatory scheme based on a “promoting” or “marketing” distinction.
Several industry commenters argued that overdraft fees are already disclosed in the deposit agreement or fee schedule, and questioned why these types of fees deserve special attention on the statement compared to other types of account fees. Others argued that consumers already receive itemized fees on their periodic statements. Some industry commenters argued that the emphasis on overdraft and returned item fees would detract from other account charges.
The Board believes this requirement is appropriate because overdraft and returned item fees are not as predictable as many other types of account fees. Consumers cannot always know when settlement on any one item will occur (particularly relative to other transactions, where an institution processes items using different methods). Also, balance inquiries may not always contain real-time balance information; therefore, consumers may not realize that one overdrawn item could trigger overdrafts on other transactions, and thus may not be able to predict the total fees that will be charged for any one overdraft occurrence. When there are multiple overdrafts, fee amounts may be significant, even though each item may represent a relatively small dollar amount.
A few industry commenters requested that, in lieu of a year-to-date fee total, the Board permit a rolling twelve-statement-cycle total, because the latter would be more useful for consumers. However, consumer testing on both credit card and overdraft disclosures indicated that consumers noticed year-to-date cost figures, and that they would find the numbers helpful in making financial decisions. The Board further
Several industry commenters asked whether an institution must provide an aggregate fee disclosure if the consumer has not been charged an overdraft or returned item fee for the year-to-date. Section 230.11(a)(1) states that a depository institution must separately make the fee disclosures on each periodic statement,
Because the final rule expands the applicability of the aggregate fee disclosures to all financial institutions, certain existing staff comments addressing institutions that promote overdraft services require modification or are no longer applicable. Thus, comment 11(a)(3)-1 has been revised, and comment 11(a)(5)-1 has been deleted.
Pursuant to the Board's authority under TISA Section 269, the final rule also adds proximity and format requirements which are intended to enhance the effectiveness of the disclosures and to make them more noticeable to consumers. Board staff reviewed current periodic statement disclosures for institutions that promote overdraft services. This review indicated that the aggregate fee totals are often disclosed in a manner that may not be effective in informing consumers of the totals.
Consumer groups supported the proposed proximity and formatting requirements. These commenters maintained that the requirement to place the aggregate fee disclosures in close proximity to the transaction history would better enable consumers to understand how their current account activity may have contributed to a history of overdrafts. They also supported the proposed tabular format.
Industry commenters, however, objected to the proximity and fee table requirement. They argued that it would require extensive, costly systems changes to provide a fee table in close proximity to the transaction history. Some industry commenters also argued that a proximity requirement is subjective and subject to litigation risk.
As described above, Board staff's review of current periodic statement disclosures for institutions that promote overdraft services showed that in some cases, fee tables were not placed in a location noticeable to consumers. Thus, the Board believes that uniform proximity requirements are necessary to enable consumers to easily find fee information so that, consistent with the purposes of TISA, they better understand the costs of using the service. The proposed proximity and format requirements were informed by the Board's consumer testing undertaken in the context of credit card disclosure requirements under Regulation Z. In that testing, consumers reviewing transactions identified on their periodic statements consistently noticed totals for fees and interest charges when they were grouped together with transactions.
Despite their general support of the aggregate fee disclosures, consumer groups nonetheless urged the Board to find that overdraft services are credit under Regulation Z so that consumers would be provided disclosures containing an effective APR figure. The Board believes that requiring an effective APR is not necessary to alert consumers to the costs of the service. Moreover, the Board believes the proposed aggregate fee table will be of more value than an effective APR in the overdraft context. Consumer testing in the credit card context showed that consumers preferred seeing costs reflected as amount totals rather than expressed as an effective APR.
Several industry commenters requested that the Board permit some flexibility in the language used in the aggregate fee table for the total returned item fees, because their customers are more familiar with language such as “NSF fee” rather than “returned item fee.” The Board has revised comment 11(a)(1)-3 to clarify that institutions may use terminology such as “returned item fee” or “NSF fee” to describe the fees for returning items unpaid.
Several industry commenters also requested clarification on how to display fees that have been refunded. Comment 11(a)(1)-6, which has been redesignated as comment 11(a)(1)-4 in the final rule, addresses this issue where an institution provides a statement for the current period reflecting that fees imposed during a previous period were waived and credited to the account. This comment provides that, in these circumstances, institutions may, but are not required to, reflect the adjustment in the total for the calendar year-to-date
Section 230.11(b)(2) lists the types of communications about the payment of overdrafts that are not subject to additional advertising disclosures under § 230.11(b)(1). The final rule expands the list in § 230.11(b)(2) to include an opt-out or opt-in notice regarding the institution's payment of overdrafts or provision of discretionary overdraft services.
Section 230.11(b)(1) currently requires institutions that promote the payment of overdrafts to include certain disclosures in their advertisements about the service to avoid confusion between overdraft services and traditional lines of credit. The May 2005 final rule provided examples of institutions promoting the payment of overdrafts in the staff commentary.
Industry response to the proposal was mixed. Some supported the rule as proposed; for example, one national community bank trade association stated that a common consumer complaint has been misunderstanding whether an account has sufficient funds to cover a transaction. This commenter believed that requiring the bank to disclose the available balance would help avoid customer confusion. Others argued for limiting the scope of coverage to balances provided at proprietary ATMs; some opposed the rule altogether as too burdensome. Some commenters requested that the rule be revised to clarify what funds must be excluded from the balance.
Consumer groups supported the proposed rule as a significant protection for consumers. These commenters argued that disclosing a balance without overdraft funds provided by the institution would equip consumers with the knowledge necessary to make informed financial decisions. However, these commenters urged the Board to apply the same requirement to balance information provided during communications with bank personnel. Some consumer groups also urged the Board to prohibit financial institutions from disclosing a second account balance.
The Board is adopting a revised rule, pursuant to its authority in TISA section 263(e) to prohibit misleading or inaccurate advertisements, announcements, or solicitations relating to a deposit account. Under § 230.11(c) of the final rule, if an institution discloses balance information through an automated system, it must disclose an account balance that excludes funds that the institution may provide to cover an overdraft in its discretion, funds that will be paid by the institution under a service subject to the Board's Regulation Z (12 CFR part 226), or funds transferred from another account of the consumer. For example, although an institution may add a $500 cushion to the consumer's account balance when determining whether to pay an overdrawn item, under the final rule, the additional $500 could not be included in the balance provided to the consumer through an automated system.
The proposed rule covered account balances disclosed in response to a consumer's inquiry. However, balances may also be disclosed to the consumer even if the consumer has not specifically requested a balance. For example, if a consumer withdraws funds at an ATM from his or her checking account, the receipt for that transaction may also include the consumer's account balance. Or, a consumer may receive an account balance when requesting a transaction history online. The Board believes the requirement to provide a balance not supplemented by overdraft funds should apply equally in these circumstances to ensure consumers are given an accurate account balance. Thus, the final rule deletes the reference to the consumer's inquiry.
Several industry commenters argued that the reference in proposed § 230.11(c) to “funds that are available for the consumer's immediate use or withdrawal” is superfluous and adds unnecessary complexity to the rule. They contended that this language could lead to litigation over what is actually “available.” Some commenters suggested that, to provide greater certainty, the rule should focus on the funds that must be excluded from the balance, rather than on the funds that should be included. The proposed language was intended to provide clarity that institutions should not provide a balance including overdraft funds, so that a consumer receives an accurate disclosure of his or her balance to help the consumer better manage his or her account. The rule was not intended to define what funds are available pursuant to Regulation CC. Accordingly, to avoid any ambiguity, § 230.11(c) has been revised to delete the language “funds that are available for the consumer's immediate use or withdrawal.” As discussed below, the final rule does not require disclosures of real-time balances nor otherwise affect what funds an institution considers to be available.
Several other industry commenters requested clarification as to whether institutions may include in the balance disclosure amounts available under a consumer's overdraft line of credit with
Proposed comment 11(c)-1 clarified that the institution may, but need not, include in the balance funds that are deposited in the consumer's account, such as from a check, but that are not yet made available for withdrawal in accordance with the funds availability rules under the Board's Regulation CC (12 CFR part 229). Similarly, the comment stated that the balance may, but need not, include any funds that are held by the bank to satisfy a prior obligation of the consumer (for example, to cover a hold for an ATM or debit card transaction that has been authorized but for which the bank has not settled). The comment is generally adopted as proposed.
Some consumer groups argued that the disclosed account balance should not be permitted to reflect deposits not yet available under the institution's funds availability policy, or debit card holds. They argued that inclusion of such funds misstates the balance and can cause consumers to incur overdraft fees. In contrast, industry commenters supported proposed comment 11(c)-1 based on operational concerns. These commenters agreed that the methods used by depository institutions for determining the balances that are available for the consumer's use or withdrawal may vary significantly by institution. Industry commenters also agreed that the disclosed balance should be able to include funds that have deposited but not yet cleared.
Proposed comment 11(c)-1 reflected the Board's intent not to require institutions to reconfigure their internal systems to provide “real-time” balance disclosures in order to comply with the balance disclosure provision. For example, some institutions may only be able to provide a balance to the ATM network that reflects the ledger balance for the consumer's account at the end of the previous day after the institution has completed its processing activities. Section 230.11(c) does not require institutions to provide a “real-time” balance, but only prohibits institutions from including additional overdraft funds such as a discretionary overdraft cushion in the disclosed balance.
The February 2005 Joint Guidance stated that if more than one balance is provided, the institution should “separately (and prominently) identify the balance without the inclusion of overdraft protection.” 70 FR at 9132. Proposed § 205.11(c) incorporated this portion of the Joint Guidance by providing that the institution may, at its option, disclose a second account balance that includes the additional overdraft funds, if the institution prominently indicates that this balance includes funds provided by the institution to cover overdrafts.
Some consumer groups urged the Board to prohibit financial institutions from disclosing this second account balance. These commenters argued that disclosure of a second balance could be confusing to consumers, who may not realize they will incur fees by accessing the overdraft funds. One bank trade association also questioned whether permitting disclosure of a second balance would be particularly useful, although it supported including the option for banks to provide that information.
The final rule permits, but does not require, disclosure of an additional balance that includes these additional overdraft funds, which may be useful to some consumers. For example, consumers may wish to receive a balance disclosure that indicates how much overdraft coverage they have available, so that they can make an informed decision as to whether or not to go forward with a transaction. The final rule thus permits an additional balance to be disclosed, so long as the institution prominently states that the balance contains additional overdraft funds. To address commenter concerns that consumers will be confused if multiple balances are disclosed to them on an automated system, new comment 11(c)-2 has been added to provide guidance on how institutions can appropriately identify that an additional balance includes overdraft funds. (Proposed comment 11(c)-2, described below, has been renumbered as comment 11(c)-3.) New comment 11(c)-2 explains that the institution may not simply state, for instance, that the second balance is the consumer's “available balance,” or contains “available funds.” Rather, the institution should provide enough information to convey that the second balance includes these overdraft amounts. For example, the institution may state that the balance includes “overdraft funds.”
Further, the Board notes that § 230.11(c) does not affect the existing application of the advertising disclosure rules of § 230.11(b). Thus, to the extent an institution includes the dollar amount of a discretionary overdraft limit in a disclosed balance on an automated system, the disclosure will continue to be considered an advertisement promoting the payment of overdrafts.
Many institutions currently provide consumers the ability to opt out of or opt into their overdraft service. Where a consumer has opted out of the institution's overdraft service (or, where an institution offers an opt-in and the consumer has not opted in), comment 11(c)-2 also clarifies that any additional balance disclosed may not include funds provided under their institution's service (because presumably the consumer would not have access to those funds). For example, if a consumer has $200 in his or her account, and has opted out of the institution's overdraft service, a second balance may not reflect the additional $100 that the institution might otherwise have provided under the service. (However, if the consumer is not enrolled in the institution's overdraft service but has a line of credit or other overdraft alternative, the
Similarly, some institutions may provide consumers the ability to opt out of overdraft services for ATM and debit card transactions. In this instance, the institution would continue to offer the overdraft service for other transactions, such as check transactions. Because the institution's overdraft service would be available for some, but not all transactions, comment 11(c)-2 states that if an institution discloses an additional balance where a consumer has opted out of some, but not all of the institution's overdraft services, the institution may choose whether or not to include the overdraft funds in the balance. However, if the institution chooses to include the overdraft funds in the additional balance, it must indicate that the additional overdraft funds are not available for all transactions.
Proposed comment 11(c)-2 explained that the balance disclosure requirement applies to
The comment, renumbered as comment 11(c)-3, is adopted with minor adjustments. The balance disclosure requirements apply to account balances an institution discloses through any ATM. Because account-holding institutions have discretion with respect to the balances they provide to an ATM network, they ultimately determine what additional funds (whether from the institution's discretionary overdraft service, an overdraft line of credit, or a linked account) are included in those balances (
Several industry commenters requested clarification that the rule applies only where a financial institution chooses to provide balance information, or when an ATM or other electronic terminal has the capability to provide a balance. The final rule applies only to the extent balance information is offered on an automated system; it does not require financial institutions or other automated systems owners to provide balance information on automated systems available to consumers.
Consumer groups commented that the Board should apply the balance disclosure requirement to information provided during discussions with bank personnel, whether in person, by telephone or e-mail, or over the Internet. They argued that many consumers obtain account balances directly from bank personnel, and that banks should be required to instruct employees to provide consumers with an account balance that does not include additional funds. Nonetheless, the Board continues to believe that the compliance burden and enforcement challenges associated with monitoring individual conversations and responses would outweigh the benefits provided by such a rule. Therefore, the final rule applies only to balance information disclosed through an automated system.
The Board has prepared a final regulatory flexibility analysis as required by the Regulatory Flexibility Act (5 U.S.C. 601
However, under section 605(b) of the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if an agency certifies, along with a statement providing the factual basis for such certification, that the rule will not have a significant economic impact on a substantial number of small entities. Based on its analysis and for the reasons stated below, the Board certifies that the rule will not have a significant economic impact on a substantial number of small entities.
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The Board is revising Regulation DD to expand the current requirements for disclosing totals for overdraft and returned item fees on periodic statements. The requirement is expanded to all institutions and not solely to institutions that promote the payment of overdrafts. Thus, all consumers that use overdraft services will receive additional information about fees to help them better understand the costs associated with their accounts, regardless of whether the service is marketed to them. The Board is also revising Regulation DD to address balance disclosures provided to consumers through automated systems.
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The Board believes that many small depository institutions will not be significantly impacted by the final rule because many of these institutions already have required systems in place for compliance with the rule, either in conformity with the May 2005 Regulation DD amendments or the February 2005 Joint Guidance containing similar obligations. Under the rule, all small depository institutions that did not previously revise their periodic statement
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The Board is also providing an implementation period that responds to commenters' concerns about the time needed to comply with the final rule. The Board believes the extended effective date will decrease costs for small entities by providing them with sufficient time to come into compliance with the final rule's requirements.
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the final rule under the authority delegated to the Federal Reserve by the Office of Management and Budget (OMB). The collection of information that is subject to the PRA by this final rulemaking is found in 12 CFR part 230. 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 7100-0271.
This information collection is required to provide benefits for consumers and is mandatory (15 U.S.C. 1601
Section 269 of the Truth in Savings Act (TISA) (12 U.S.C. 4308) authorizes the Board to issue regulations to carry out the provisions of TISA. TISA and Regulation DD require depository institutions to disclose yields, fees, and other terms concerning deposit accounts to consumers at account opening, upon request, and when changes in terms occur. Depository institutions that provide periodic statements are required to include information about fees imposed, interest earned, and the annual percentage yield earned during those statement periods. The act and regulation mandate the methods by which institutions determine the account balance on which interest is calculated. They also contain rules about advertising deposit accounts. To ease the compliance cost (particularly for small entities), model clauses and sample forms are appended to the regulation. Depository institutions are required to retain evidence of compliance for twenty-four months, but the regulation does not specify types of records that must be retained.
Regulation DD applies to all depository institutions except credit unions. Credit unions are covered by a substantially similar rule issued by the National Credit Union Administration. Under the PRA, the Federal Reserve accounts for the paperwork burden associated with Regulation DD only for Federal Reserve-supervised institutions. Regulation DD defines 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 imposed on the depository institutions for which they have administrative enforcement authority.
The rulemaking makes the current requirements for disclosing totals for overdraft and returned item fees on periodic statements applicable to all institutions and not solely to institutions that promote the payment of overdrafts. The rulemaking also requires that institutions that disclose balances through any automated system must, at a minimum, disclose a balance that is not supplemented by additional funds that may be provided to cover an overdraft. For example, the balance must exclude funds that will be paid by the institution in its discretion or under a service subject to Regulation Z, or funds transferred from another account held individually or jointly by a consumer.
On May 19, 2008, a notice of proposed rulemaking (NPR) was published in the
The Federal Reserve has revised its burden estimate in this final rule to reflect the withdrawn proposed notice. In addition, the number of Federal Reserve-regulated institutions that are deemed to be respondents for the purposes of the PRA has been updated from 1,172 to 1,138.
The current total annual burden is estimated to be 170,984 hours. The final
The Board estimates that 1,138 respondents regulated by the Federal Reserve would take, on average, 16 hours (two business days) to re-program and update their systems to comply with the disclosure requirements. These disclosure requirements include disclosure of total fees on periodic statements (§ 230.11(a)) and disclosure of account balances (§ 230.11(c)). The Federal Reserve estimates the total annual one-time burden to be 18,208 hours and believes that, on a continuing basis, there would be no increase in burden as the disclosures would be sufficiently accounted for once incorporated into the current periodic statement disclosure (§ 230.6). To ease the compliance burden, model clause B-10 (aggregate overdraft and returned item fees sample clause) (§ 230.11), is adopted in Appendix B.
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 Board's burden estimation methodology. Using the Board's method, the total estimated annual burden for all financial institutions subject to Regulation DD, including Federal Reserve-regulated institutions, would be approximately 2,584,275 hours. The final rule would impose a one-time increase in the estimated annual burden for all institutions subject to Regulation DD by 275,200 hours to 2,859,475 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 depository institutions (of which there are approximately 17,200), potentially are affected by this collection of information, and thus are respondents for purposes of the PRA.
The Federal Reserve has a continuing interest in the public's opinions of our collections of information. At any time, comments regarding the burden estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, may be sent to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551; and to the Office of Management and Budget, Paperwork Reduction Project (7100-0271), Washington, DC 20503.
Advertising, Banks, Banking, Consumer protection, Reporting and recordkeeping requirements, Truth in savings.
12 U.S.C. 4301
(a)
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(i) The total dollar amount for all fees or charges imposed on the account for paying checks or other items when there are insufficient or unavailable funds and the account becomes overdrawn; and
(ii) The total dollar amount for all fees or charges imposed on the account for returning items unpaid.
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(b) * * *
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(x) A notice provided to a consumer, such as at an ATM, that completing a requested transaction may trigger a fee for overdrawing an account, or a general notice that items overdrawing an account may trigger a fee;
(xi) Informational or educational materials concerning the payment of overdrafts if the materials do not specifically describe the institution's overdraft service; or
(xii) An opt-out or opt-in notice regarding the institution's payment of overdrafts or provision of discretionary overdraft services.
(c)
Section 230.11 Additional disclosures regarding the payment of overdrafts
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