[Federal Register Volume 74, Number 139 (Wednesday, July 22, 2009)]
[Rules and Regulations]
[Pages 36077-36102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17195]



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  Federal Register / Vol. 74, No. 139 / Wednesday, July 22, 2009 / 
Rules and Regulations  

[[Page 36077]]



FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1364]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim final rule; request for public comment.

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SUMMARY: The Board is amending Regulation Z, which implements the Truth 
in Lending Act, and the staff commentary to the regulation in order to 
implement provisions of the Credit Card Accountability Responsibility 
and Disclosure Act of 2009 that are effective on August 20, 2009. These 
amendments are being issued in the form of an interim final rule and 
primarily pertain to advance notices of rate increases and changes in 
terms and the time consumers are given to make their payments.

DATES: This interim final rule is effective August 20, 2009. Comments 
must be received on or before September 21, 2009.

ADDRESSES: You may submit comments, identified by Docket No. R-1364, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include the 
docket number in the subject line of the message.
     Facsimile: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th\\ Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Amy Burke or Benjamin K. Olson, Senior 
Attorneys, Division of Consumer and Community Affairs, Board of 
Governors of the Federal Reserve System, at (202) 452-3667 or 452-2412; 
for users of Telecommunications Device for the Deaf (TDD) only, contact 
(202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Background and Implementation of the Credit Card Act

January 2009 Regulation Z and FTC Act Rules

    On December 18, 2008, the Board adopted two final rules pertaining 
to open-end (not home-secured) credit. These rules were published in 
the Federal Register on January 29, 2009. The first rule makes 
comprehensive changes to Regulation Z's provisions applicable to open-
end (not home-secured) credit, including amendments that affect all of 
the five major types of required disclosures: Applications and 
solicitations, account-opening disclosures, periodic statements, 
notices of changes in terms, and advertisements. See 74 FR 5244 
(January 2009 Regulation Z Rule). The second is a joint rule published 
with the Office of Thrift Supervision (OTS) and the National Credit 
Union Administration (NCUA) under the Federal Trade Commission Act (FTC 
Act) to protect consumers from unfair acts or practices with respect to 
consumer credit card accounts. See 74 FR 5498 (January 2009 FTC Act 
Rule). The effective date for both rules is July 1, 2010.
    On May 5, 2009, the Board published proposed clarifications and 
technical amendments to the January 2009 Regulation Z Rule in the 
Federal Register. See 74 FR 20784. The Board, the OTS, and the NCUA 
(collectively, the Agencies) concurrently published proposed 
clarifications and technical amendments to the January 2009 FTC Act 
Rule. See 74 FR 20804. In both cases, as stated in the Federal 
Register, these proposals were intended to clarify and facilitate 
compliance with the consumer protections contained in the January 2009 
final rules and not to reconsider the need for--or the extent of--those 
protections. The comment period on both of these proposed sets of 
amendments ended on June 4, 2009. Where relevant, the Board has 
considered the comments submitted in preparing this interim final rule. 
The Board is still considering other comments received in response to 
the proposed amendments and intends to finalize those amendments, with 
revisions as appropriate, in connection with its next final rulemaking 
regarding credit cards. The fact that certain proposed amendments are 
not addressed in this Federal Register notice does not mean that they 
have been withdrawn. Rather, such amendments are still under 
consideration by the Board.

The Credit Card Act

    On May 22, 2009, the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 (Credit Card Act) was signed into law. Public 
Law 111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amends 
the Truth in Lending Act (TILA) and establishes a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans. 
Several of the provisions of the Credit Card Act are similar to 
provisions in the Board's January 2009 Regulation Z and FTC Act Rules, 
while other portions of the Credit Card Act address practices or 
mandate disclosures that were not addressed in the Board's rules.
    The requirements of the Credit Card Act that pertain to credit 
cards or other open-end credit for which the Board has rulemaking 
authority become effective in three stages. First, provisions generally 
requiring that consumers receive 45 days' advance notice of interest 
rate increases and significant changes in terms (new TILA Section 
127(i)) and provisions regarding the amount of time that consumers have 
to make payments (revised TILA Section 163) will become effective on 
August

[[Page 36078]]

20, 2009 (90 days after enactment of the Credit Card Act). A majority 
of the requirements under the Credit Card Act for which the Board has 
rulemaking authority, including, among other things, provisions 
regarding interest rate increases (revised TILA Section 171), over-the-
limit transactions (new TILA Section 127(k)), and student cards (new 
TILA Sections 127(c)(8), 127(p), and 140(f)) become effective on 
February 22, 2010 (9 months after enactment).
    Finally, two provisions of the Credit Card Act addressing the 
reasonableness and proportionality of penalty fees and charges (new 
TILA Section 149) and re-evaluation by creditors of rate increases (new 
TILA Section 148) are effective on August 22, 2010 (15 months after 
enactment). For these provisions that become effective on August 22, 
2010, the statute requires the Board to issue final rules not later 
than February 22, 2010 (9 months after enactment). However, the Board 
notes that, while new TILA Section 148 is not effective until August 
22, 2010, it applies to rate increases that have occurred since January 
1, 2009. Specifically, new TILA Section 148 requires that, if a 
creditor has increased a rate on a credit card account since January 1, 
2009 based on the credit risk of the consumer, market conditions, or 
other factors, the creditor must review the account at least once every 
six months and consider changes in such factors in subsequently 
determining whether to reduce that rate.\1\
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    \1\ The Credit Card Act also requires the Board to conduct 
several studies and to make several reports to Congress, and sets 
forth differing time periods in which these studies and reports must 
be completed.
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Implementation Plan

    The Board intends to implement the provisions of the Credit Card 
Act in stages, consistent with the statutory timeline established by 
Congress. Accordingly, this interim final rule implements those 
provisions of the statute that are effective August 20, 2009, primarily 
addressing change-in-terms notice requirements and the amount of time 
that consumers have to make their payments. As discussed in more detail 
in II. Statutory Authority, the Board is issuing these rules in interim 
final form based on its determination that, given the short 
implementation period established by the Credit Card Act and the fact 
that similar rules were already the subject of notice-and-comment 
rulemaking, it would be impracticable and unnecessary to issue a 
proposal for public comment followed by a final rule. The Board intends 
to consider comments on this interim final rule in connection with its 
next rulemaking required by the Credit Card Act.
    The Board intends to separately consider the remaining issues under 
the Credit Card Act and to finalize implementing regulations, in 
accordance with the timeline established by Congress, upon notice and 
after giving the public an opportunity to comment.
    To the extent appropriate, the Board intends to use its January 
2009 rules and the underlying rationale as the basis for its 
rulemakings under the Credit Card Act. The Board also intends to retain 
those portions of its January 2009 Regulation Z Rule that are 
unaffected by the Credit Card Act. The Board is not withdrawing any 
provisions of the January 2009 Regulation Z Rule or its January 2009 
FTC Act Rule at this time. The Board anticipates that in connection 
with finalizing rules for those provisions of the Credit Card Act that 
are effective February 22, 2010, it will amend or withdraw those 
portions of the January 2009 rules that are inconsistent with the 
requirements of the Credit Card Act. In particular, the Board 
anticipates that all of the requirements in its January 2009 FTC Act 
Rule will be withdrawn from Regulation AA and moved into Regulation Z, 
consistent with Congress's approach of amending the Truth in Lending 
Act.\2\ Finally, except as otherwise noted, the Board intends to 
consider comments received on the proposed clarifications and technical 
amendments that were published on May 5, 2009 and to incorporate final 
clarifications and amendments, to the extent appropriate, when it 
promulgates final rules in the second stage of its rulemaking.
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    \2\ See also OTS Memorandum for Chief Executive Officers: Credit 
CARD Act: Interest Rate Increases and Rules on Unfair Practices 
(issued July 13, 2009) (available at http://files.ots.treas.gov/25312.pdf); NCUA Press Release: Working with Other Regulators on 
Credit CARD Act and UDAP Rule (issued July 1, 2009) (available at 
http://www.ncua.gov/news/press_releases/2009/MR09-0701.htm).
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II. Statutory Authority

General Rulemaking Authority

    Section 2 of the Credit Card Act states that the Board ``may issue 
such rules and publish such model forms as it considers necessary to 
carry out this Act and the amendments made by this Act.'' This interim 
final rule implements Sec. Sec.  101(a) and 106(b) of the Credit Card 
Act, which amend TILA. TILA mandates that the Board prescribe 
regulations to carry out its purposes and specifically authorizes the 
Board, among other things, to 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 TILA, or prevent 
circumvention or evasion of TILA. See 15 U.S.C. 1604(a).

Authority To Issue Interim Final Rules Without Notice and Comment

    The Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) 
generally requires public notice before promulgation of regulations. 
See 5 U.S.C. 553(b). Unless notice or hearing is required by statute, 
however, the APA provides an exception ``when the agency for good cause 
finds (and incorporates the finding and a brief statement of reasons 
therefor in the rules issued) that notice and public procedure thereon 
are impracticable, unnecessary, or contrary to the public interest.'' 5 
U.S.C. 553(b)(B). For the reasons discussed below, the Board finds 
that, with respect to this rulemaking, there is good cause to conclude 
that providing notice and an opportunity to comment is impracticable 
and unnecessary.
    As an initial matter, neither the Credit Card Act nor TILA requires 
the Board to provide notice or a hearing with respect to this 
rulemaking. See Credit Card Act Sec.  2; 15 U.S.C. 1604(a). TILA 
Section 105(c) does require notice and an opportunity for public 
comment with respect to the adoption of model disclosure forms and 
clauses but the Board is not adopting model disclosure forms or clauses 
in this interim final rule. 15 U.S.C. 1604(c). Moreover, even if the 
Board were adopting such forms or clauses, TILA Section 105(c) only 
requires notice and an opportunity to comment ``in accordance with [5 
U.S.C. 553].'' Thus, the adoption of model disclosure forms and clauses 
is subject to the good cause exception in Sec.  553(b)(B).
    Furthermore, for purposes of implementing Sec. Sec.  101(a) and 
106(b) of the Credit Card Act, providing notice and an opportunity to 
comment within the timeframe mandated by Congress would be 
impracticable. Although most provisions of the Credit Card Act are 
effective 9 months after enactment, Sec. Sec.  101(a) and 106(b) are 
effective in 90 days (i.e., on August 20, 2009). This period does not 
provide sufficient time for the Board to:
     Prepare proposed regulations and publish them in the 
Federal Register;

[[Page 36079]]

     Provide a reasonable period for interested parties to 
review the proposal and prepare comments;
     Analyze the comments submitted; and
     Prepare the final regulations and publish them in the 
Federal Register.
    Even if the Board were able to technically comply with Sec.  553's 
notice-and-comment process within the allotted time, such a process 
would not comply with the purpose of the APA because interested parties 
would not have sufficient time to prepare well-researched comments and 
the Board would not have time to conduct a meaningful review and 
analysis of those comments. Furthermore, because the Board's 
regulations will provide creditors with guidance on how to comply with 
Sec. Sec.  101(a) and 106(b) of the Credit Card Act, a notice-and-
comment process would leave little or no time between the issuance of 
final regulations and the statutory effective date for creditors to 
adjust their procedures in order to comply. In contrast, the adoption 
of an interim final rule enables the Board to provide this guidance 
further in advance of the effective date, which provides creditors with 
more time to comply with the statutory provisions. As discussed in I. 
Background and Implementation of the Credit Card Act, interested 
parties will still have an opportunity to submit comments following 
issuance of the interim final rule, which the Board will consider when 
promulgating a non-interim final rule as part of a subsequent 
rulemaking implementing other provisions of the Credit Card Act.
    Finally, notice and an opportunity to comment is unnecessary with 
respect to the implementation of Sec. Sec.  101(a) and 106(b) of the 
Credit Card Act because these provisions are similar in most respects 
to rules recently adopted by the Board and other Agencies after notice 
and public comment. For example, as discussed in detail in III. 
Section-by-Section Analysis, Sec.  101(a) of the Credit Card Act 
generally requires creditors to provide 45 days' advance notice of an 
increase in an annual percentage rate or other significant change in 
the terms of the cardholder agreement, a requirement that largely 
mirrors provisions in the January 2009 Regulation Z Rule recently 
adopted by the Board. See 12 CFR 226.9(c)(2) and (g),\3\ 74 FR 5244, 
5413-5415. Similarly, Sec.  106(b) of the Credit Card Act requires 
creditors to mail or deliver periodic statements 21 days before payment 
is due, which is similar to a provision recently adopted by the Board 
and the other Agencies in the January 2009 FTC Act Rule. See 12 CFR 
227.22, 74 FR 5498, 5560.\4\ Prior to adopting these rules, the Board 
and the other Agencies received and considered more than 60,000 
comments. Although the statutory provisions are not identical to the 
regulations in all respects, interested parties have already had an 
opportunity to comment on the core issues.\5\ To the extent that the 
Board's interim final rule fails to anticipate new, material issues, 
interested parties will have the opportunity to raise those issues in 
their comments so that the Board can consider them in a subsequent 
rulemaking under the Credit Card Act.
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    \3\ For convenience, this supplementary information refers to 
provisions in the January 2009 Regulation Z and FTC Act Rules by 
citing to the Code of Federal Regulations as well as the Federal 
Register. The Board notes that because these provisions are not yet 
effective, they have not been incorporated into the existing Code of 
Federal Regulations.
    \4\ Although the Board, OTS, and NCUA adopted substantively 
identical rules under the FTC Act, each agency placed its rules in 
its respective part of title 12 of the Code of Federal Regulations. 
Specifically, the Board placed its rules in part 227, the OTS in 
part 535, and the NCUA in part 706. For simplicity, this 
supplementary information cites to the Board's rules and official 
staff commentary.
    \5\ The Board recognizes that there are two significant 
differences between the January 2009 rules and this interim final 
rule. First, the interim final rule permits a consumer to reject a 
rate increase or other significant change to the account terms in 
accordance with new TILA Section 127(i). Second, the mailing or 
delivery requirement for periodic statements in the interim final 
rule applies to all open-end consumer credit plans, while the 
analogous provision in the January 2009 FTC Act Rule applies only to 
credit card accounts.
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Authority To Issue an Interim Final Rule With an Effective Date of 
August 20, 2009

    Because Sec. Sec.  101(a) and 106(b) of the Credit Card Act are 
effective on August 20, 2009,\6\ the Board's interim final rule 
implementing those provisions is also effective on that date. The APA 
generally requires that rules be published not less than 30 days before 
their effective date. See 5 U.S.C. 553(d). As with the notice 
requirement, however, the APA provides an exception when ``otherwise 
provided by the agency for good cause found and published with the 
rule.'' Id. Sec.  553(d)(3). Notwithstanding the time saved by issuing 
an interim final rule without advance notice and the similarity of the 
new statutory provisions to regulations previously issued by the Board, 
60 days may not be sufficient time for the Board to review the 
legislation carefully, revise its regulations for consistency with the 
Credit Card Act, and ensure that the revised regulations are published 
in the Federal Register 30 days before the August 20, 2009 effective 
date.\7\ Accordingly, the Board finds that good cause exists to publish 
the interim final rule less than 30 days before the effective date.
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    \6\ See Credit Card Act Sec.  3.
    \7\ The date on which the Board's notice is published in the 
Federal Register depends on a number of variables that are outside 
the Board's control, including the number and size of other notices 
submitted to the Federal Register prior to the Board's notice.
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    Similarly, although 12 U.S.C. 4802(b)(1) generally requires that 
new regulations and amendments to existing regulations take effect on 
the first day of the calendar quarter which begins on or after the date 
on which the regulations are published in final form (in this case, 
October 1, 2009), the Board has determined that--for the reasons 
discussed above--there is good cause for making the interim final rule 
effective on August 20. See 12 U.S.C. 4802(b)(1)(A) (providing an 
exception to the general requirement when ``the agency determines, for 
good cause published with the regulation, that the regulations should 
become effective before such time''). Although the Credit Card Act does 
not expressly require the Board to issue regulations implementing 
Sec. Sec.  101(a) and 106(b) before October 1, Congress clearly 
intended creditors to be in compliance with those provisions on August 
20. Accordingly, the Board believes that providing creditors with 
guidance regarding compliance with Sec. Sec.  101(a) and 106(b) before 
October 1 is consistent with 12 U.S.C. 4802(b)(1)(C), which provides an 
exception to the general requirement when ``the regulation is required 
to take effect on a date other than the date determined under [12 
U.S.C. 4802(b)(1)] pursuant to any other Act of Congress.''
    Finally, TILA Section 105(d) provides that any regulation of the 
Board (or any amendment or interpretation thereof) requiring any 
disclosure which differs from the disclosures previously required by 
Chapters 1, 4, or 5 of TILA (or by any regulation of the Board 
promulgated thereunder) shall have an effective date no earlier than 
``that October 1 which follows by at least six months the date of 
promulgation.'' However, even assuming that TILA Section 105(d) applies 
to the interim final rule, the Board believes that the specific 
provisions governing the effective dates for Sec. Sec.  101(a) and 
106(b) of the Credit Card Act override the general provision in TILA 
Section 105(d).

[[Page 36080]]

III. Section-by-Section Analysis

Section 226.5 General Disclosure Requirements

5(b) Time of Disclosures
    As amended by the Credit Card Act, TILA Section 163 generally 
prohibits a creditor from treating a payment as late or imposing 
additional finance charges unless the creditor mailed or delivered the 
periodic statement at least 21 days before the payment due date and the 
expiration of any period within which any credit extended may be repaid 
without incurring a finance charge (i.e., a ``grace period''). See 
Credit Card Act Sec.  106(b). Unlike most of the Credit Card Act's 
provisions, the amendments to TILA Section 163 apply to all open-end 
consumer credit plans rather than just credit card accounts.\8\ As 
discussed below, the Board has implemented amended TILA Section 163 by 
revising Sec.  226.5(b)(2)(ii) and the accompanying official staff 
commentary.\9\
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    \8\ Specifically, while most provisions in the Credit Card Act 
apply to ``credit card account[s] under an open end consumer credit 
plan'' (e.g., Sec.  101(a)), amended TILA Section 163--like current 
TILA Section 163--applies to ``open end consumer credit plan[s].''
    \9\ The January 2009 Regulation Z Rule revised aspects of Sec.  
226.5(b)(2)(ii). However, because those revisions are not effective 
until July 1, 2010, this interim final rule amends the version of 
Sec.  226.5(b)(2)(ii) that is currently in effect. Accordingly, when 
this supplementary information refers to ``current'' or ``existing'' 
paragraphs of Sec. Sec.  226.5 or 226.9, it refers to the version 
that is currently in effect, not the version adopted in the Board's 
January 2009 Regulation Z Rule, which is effective July 1, 2010.
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    Currently, TILA Section 163 requires creditors to send periodic 
statements at least 14 days before the expiration of the grace period 
(if any), unless prevented from doing so by an act of God, war, natural 
disaster, strike, or other excusable or justifiable cause (as 
determined under regulations of the Board). 15 U.S.C. 1666b. The 
current version of Regulation Z, however, applies the 14-day 
requirement even when the consumer does not receive a grace period. 
Specifically, current Sec.  226.5(b)(2)(ii) requires that creditors 
mail or deliver periodic statements 14 days before the date by which 
payment is due for purposes of avoiding not only finance charges as a 
result of the loss of a grace period but also any charges other than 
finance charges (such as late fees). See also comment 5(b)(2)(ii)-1.
    In the January 2009 FTC Act Rule, the Board and the other Agencies 
prohibited institutions from treating payments on consumer credit card 
accounts as late for any purpose unless the institution provided a 
reasonable amount of time for consumers to make payment. See 12 CFR 
227.22(a), 74 FR 5560; see also 74 FR 5508-5512. This rule included a 
safe harbor for institutions that adopt 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. See 12 CFR 227.22(b)(2), 74 FR 5560. The 21-day safe harbor 
was intended to allow seven days for the periodic statement to reach 
the consumer by mail, seven days for the consumer to review their 
statement and make payment, and seven days for that payment to reach 
the institution by mail. However, to avoid any potential conflict with 
the 14-day requirement in TILA Section 163(a), the rule expressly 
stated that it would not apply to any grace period provided by an 
institution. See 12 CFR 227.22(c), 74 FR 5560.
5(b)(2) Periodic Statements
5(b)(2)(ii) Mailing or Delivery
    The Credit Card Act's amendments to TILA Section 163 codify aspects 
of current Sec.  226.5(b)(2)(ii) as well as the provision in the 
January 2009 FTC Act Rule regarding the mailing or delivery of periodic 
statements. Specifically, like current Sec.  226.5(b)(2)(ii), amended 
TILA Section 163 applies the mailing or delivery requirement to both 
the expiration of the grace period and the payment due date. In 
addition, similar to the January 2009 FTC Act Rule, amended TILA 
Section 163 adopts 21 days as the appropriate time period between the 
date on which the statement is mailed or delivered to the consumer and 
the date on which the consumer's payment must be received by the 
creditor to avoid adverse consequences.
    Rather than establishing an absolute requirement that periodic 
statements be mailed 21 days in advance of the payment due date, 
amended TILA Section 163(a) codifies the same standard adopted by the 
Board and the other Agencies in the January 2009 FTC Act Rule, which 
requires creditors to adopt ``reasonable procedures designed to 
ensure'' that statements are mailed or delivered at least 21 days 
before the payment due date. Notably, however, the 21-day requirement 
for grace periods in amended TILA Section 163(b) does not include 
similar language regarding ``reasonable procedures.'' Because the 
payment due date generally coincides with the expiration of the grace 
period, the Board believes that it will facilitate compliance to apply 
a single standard to both circumstances. The ``reasonable procedures'' 
standard recognizes that, for issuers mailing hundreds of thousands of 
periodic statements each month, it would be difficult if not impossible 
to know whether a specific statement is mailed or delivered on a 
specific date. Furthermore, applying different standards could 
encourage creditors to establish a payment due date that is different 
from the date on which the grace period expires, which could lead to 
consumer confusion. Accordingly, the Board is amending Sec.  
226.5(b)(2)(ii) to require that creditors adopt reasonable procedures 
designed to ensure that periodic statements are mailed or delivered at 
least 21 days before the payment due date and the expiration of the 
grace period. In doing so, the Board relies on its authority under TILA 
Section 105(a) to make adjustments that are necessary or proper to 
effectuate the purposes of TILA and to facilitate compliance therewith. 
See 15 U.S.C. 1604(a).
    For clarity, the Board also amends Sec.  226.5(b)(2)(ii) to define 
``grace period'' as ``a period within which any credit extended may be 
repaid without incurring a finance charge due to a periodic interest 
rate.'' This definition is consistent with the definition of grace 
period adopted by the Board in its January 2009 Regulation Z Rule. See 
Sec. Sec.  226.5a(b)(5), 226.6(b)(2)(v), 74 FR 5404, 5407; see also 74 
FR 5291-5294, 5310.
    Finally, amended TILA Section 163 deletes current Section 163(b), 
which states that the 14-day mailing requirement does not apply ``in 
any case where a creditor has been prevented, delayed, or hindered in 
making timely mailing or delivery of [the] periodic statement within 
the time period specified * * * because of an act of God, war, natural 
disaster, strike, or other excusable or justifiable cause, as 
determined under regulations of the Board.'' 15 U.S.C. 1666b(b). The 
Board believes that the Credit Card Act's removal of this language is 
consistent with the adoption of a ``reasonable procedures'' standard 
insofar as a creditor's procedures for responding to any of the 
situations listed in current TILA Section 163(b) will now be evaluated 
for reasonableness in addressing those situations. Accordingly, the 
Board has removed the language implementing current TILA Section 163(b) 
from footnote 10 to Sec.  226.5(b)(2)(ii).\10\
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    \10\ Both current and amended TILA Section 163 require that the 
periodic statement include the date on which the grace period will 
expire and the amount on which the finance charge will be based if 
the consumer does not pay the balance in full prior to expiration of 
the grace period. The Board notes that current Sec.  226.7(e) and 
(j) require disclosure of this information. In addition, the 21-day 
mailing requirement in amended TILA Section 163(a) is tied to the 
provision of a periodic statement that includes ``the information 
required by section 127(b).'' Although Sec. Sec.  201 and 202 of the 
Credit Card Act amend TILA Section 127(b), those provisions are not 
effective until February 22, 2010. Accordingly, until such time as 
the amendments to TILA Section 127(b) are effective, the Board 
interprets amended TILA Section 163(a) to refer to the current 
version of TILA Section 127(b).

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[[Page 36081]]

    The Board is adopting a new comment 5(b)(2)(ii)-1, which clarifies 
that, under the ``reasonable procedures'' standard, a creditor is not 
required to determine the specific date on which periodic statements 
are mailed or delivered to each individual consumer. Instead, a 
creditor complies with Sec.  226.5(b)(2)(ii) if it has adopted 
reasonable procedures designed to ensure that periodic statements are 
mailed or delivered to consumers no later than a certain number of days 
after the closing date of the billing cycle and adds that number of 
days to the 21-day period required by Sec.  226.5(b)(2)(ii) when 
determining the payment due date and the date on which any grace period 
expires. For example, if a creditor has adopted reasonable procedures 
designed to ensure that periodic statements are mailed or delivered to 
consumers no later than three days after the closing date of the 
billing cycle, the payment due date and the date on which any grace 
period expires must be no less than 24 days after the closing date of 
the billing cycle. The Board and the other Agencies adopted a similar 
comment in the January 2009 FTC Act Rule. See 12 CFR 227.22 comment 
22(b)-1, 74 FR 5511, 5561.
    The Board is deleting current comment 5(b)(2)(ii)-1 because it 
refers to the 14-day rule for grace periods and is therefore no longer 
consistent with Sec.  226.5(b)(2)(ii). To the extent that current 
comment 5(b)(2)(ii)-1 clarifies that Sec.  226.5(b)(2)(ii) applies in 
circumstances where the consumer is not eligible or ceases to be 
eligible for a grace period, it is no longer necessary because that 
requirement is reflected in amended Sec.  226.5(b)(2)(ii) and elsewhere 
in the amended commentary.
    The Board is also adopting a new comment 5(b)(2)(ii)-2, which 
clarifies 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 a specified amount of time or by a specified date. 
However, because amended TILA Section 163 (like current TILA Section 
163) does not require creditors to provide a grace period, the comment 
also clarifies that, when an account is not eligible or ceases to be 
eligible for a grace period, imposing a finance charge due to a 
periodic interest rate does not constitute treating a payment as late 
for purposes of Sec.  226.5(b)(2)(ii).\11\ The Board and the other 
Agencies adopted a similar comment in the January 2009 FTC Act Rule. 
See 12 CFR 227.22 comment 22(a)-1, 74 FR 5510, 5561.
---------------------------------------------------------------------------

    \11\ The Board notes, however, that Sec.  102(a) of the Credit 
Card Act creates a new TILA Section 127(j), which addresses the 
ability of creditors to charge interest from the date of the 
transaction in certain circumstances. However, unlike the amendments 
to Section 163, this provision is effective 9 months after enactment 
and will be implemented by the Board in a separate rulemaking. See 
Credit Card Act Sec.  3.
---------------------------------------------------------------------------

    The Board is deleting current comment 5(b)(2)(ii)-2, which 
clarifies that the emergency circumstances exception in footnote 10 
does not extend to the failure to provide a periodic statement because 
of computer malfunction. As discussed above, footnote 10 is based on 
current TILA Section 163(b), which has been repealed.
    The Board is adopting a new comment 5(b)(2)(ii)-3, which clarifies 
that, for purposes of Sec.  226.5(b)(2)(ii), ``payment due date'' 
generally means the date by which the creditor requires the consumer to 
make the required minimum periodic payment in order to avoid that 
payment being treated as late for any purpose. However, the comment 
also addresses the meaning of payment due date in two circumstances 
where a late payment or other fee may not be assessed until a date that 
is later than the date on which payment is due.
    First, the comment notes that some creditors provide an additional 
period of time after the contractual due date during which a late 
payment fee will not be assessed. This period--which is sometimes 
referred to as a ``courtesy period''-- may be set forth in the account 
agreement (as with some home equity plans subject to the requirements 
of Sec.  226.5b) or may be provided as an informal policy or practice 
(as with some credit card accounts). Regardless of whether the courtesy 
period is mandated by state law, new comment 5(b)(2)(ii)-3 clarifies 
that, for purposes of Sec.  226.5(b)(2)(ii), the payment due date is 
the due date according to the legal obligation between the parties, not 
the end of the additional ``courtesy'' period.
    Second, the comment notes that some state or other laws require 
that a certain number of days must elapse following a due date before a 
late payment or other fee may be imposed. As with courtesy periods, the 
comment clarifies that in these circumstances the payment due date for 
purposes of Sec.  226.5(b)(2)(ii) is the due date according to the 
legal obligation between the parties, not the date before which state 
law prohibits imposition of a late payment or other fee.
    The Board is adopting comment 5(b)(2)(ii)-4, which clarifies the 
definition of ``grace period'' in Sec.  226.5(b)(2)(ii). Specifically, 
this comment clarifies that a deferred interest or similar promotional 
program under which the consumer is not obligated to pay interest that 
accrues on a balance if that balance is paid in full prior to the 
expiration of a specified period of time is not a grace period for 
purposes of Sec.  226.5(b)(2)(ii). This comment also clarifies that a 
courtesy period is not a grace period for purposes of Sec.  
226.5(b)(2)(ii).
    Current comment 5(b)(2)(ii)-3 provides that, when a consumer asks 
to pick up his or her periodic statements, the creditor may permit--but 
not require--the consumer to do so, provided that statements are made 
available 14 days before expiration of the grace period. For 
organizational purposes, the Board has redesignated this comment as 
comment 5(b)(2)(ii)-4. In addition, the Board has revised the comment 
for clarity and for consistency with the new 21-day requirement.
    Finally, current comment 5(b)(2)(ii)-4 contains a cross-reference 
to comment 7-3.iv., which provides examples of grace periods in the 
context of a deferred interest transaction. For organizational 
purposes, the Board has redesignated this comment as comment 
5(b)(2)(ii)-6. In addition, the Board has made a technical amendment to 
this comment without intended substantive change and revised comment 7-
3.iv. for consistency with the new 21-day requirement.\12\
---------------------------------------------------------------------------

    \12\ In the January 2009 FTC Act Rule, the Board and the other 
Agencies adopted comment 22(b)-3, which clarified that an 
institution that only provided periodic statements electronically 
and only accepted payments electronically could comply with the 
general requirement in 12 CFR 227.22(a) to provide a reasonable 
amount of time to make payment without providing periodic statements 
21 days before the payment due date. See 74 FR 5561. Under amended 
TILA Section 163, however, the 21-day requirement applies regardless 
of how periodic statements are provided and payments are made.
---------------------------------------------------------------------------

Implementation

    As discussed in I. Background and Implementation of the Credit Card 
Act, the effective date for revised TILA Section 163 (as amended by the 
Credit Card Act) is August 20, 2009. In order to comply with revised 
Sec.  226.5(b)(2)(ii) (which implements revised TILA Section 163), 
creditors must have in

[[Page 36082]]

place on August 20 reasonable procedures designed to ensure that 
periodic statements are mailed or delivered at least 21 days before the 
payment due date and the date on which any grace period expires. That 
is, the relevant date for purposes of determining when a creditor must 
comply with revised Sec.  226.5(b)(2)(ii) is the date on which the 
periodic statement is mailed or delivered, not the due date or grace 
period expiration date reflected on the statement. Thus, if a periodic 
statement is mailed or delivered on August 20, the creditor must have 
reasonable procedures designed to ensure that the payment due date and 
the grace period expiration date are not earlier than September 10. 
However, if a periodic statement is mailed or delivered on August 19, 
this new requirement does not apply to that statement.
    The Board believes that this is the appropriate reading of the 90-
day implementation period in the Credit Card Act. Although the Credit 
Card Act could be construed to require creditors to have reasonable 
procedures designed to ensure that periodic statements are mailed or 
delivered at least 21 days before any payment due date or grace period 
expiration date that falls on or after August 20, this reading would 
create uncertainty regarding compliance with the amendments to TILA 
Section 163 by requiring creditors to mail or deliver periodic 
statements in accordance with revised TILA Section 163 and Sec.  
226.5(b)(2)(ii) prior to the effective date for those provisions. 
Accordingly, for clarity and consistency, the Board believes the better 
reading of the Credit Card Act is that creditors must begin to comply 
with amended TILA Section 163 (as implemented in amended Sec.  
226.5(b)(2)(ii)) with respect to periodic statements mailed or 
delivered on or after August 20, 2009.
    Revised Sec.  226.5(b)(2)(ii) applies to credit card accounts as 
well as all other open-end consumer credit plans. The Board understands 
that, with respect to open-end consumer credit plans other than credit 
cards, it may be difficult for some creditors to update their systems 
to produce periodic statements by August 20, 2009 that disclose payment 
due dates and grace period expiration dates (if applicable) that are 
consistent with the 21-day requirement in revised Sec.  
226.5(b)(2)(ii). As a result, it is possible that, for a short period 
of time after August 20, some periodic statements for open-end consumer 
credit plans other than credit cards may disclose payment due dates and 
grace period expiration dates (if applicable) that are technically 
inconsistent with the interim final rule. In these circumstances, the 
creditor may remedy this technical issue by prominently disclosing 
elsewhere on or with the periodic statement that the consumer's payment 
will not be treated as late for any purpose if received within 21 days 
after the statement was mailed or delivered. Under no circumstances 
does revised Sec.  226.5(b)(2)(ii) permit a creditor to treat a payment 
as late for any purpose if that payment is received within 21 days 
after mailing or delivery of the periodic statement.

Section 226.7 Periodic Statement

    As discussed above, the Board has revised comment 7-3.iv. for 
consistency with the amendments to Sec.  226.5(b)(2)(ii), which require 
that periodic statements be mailed or delivered 21 days before the 
payment due date and the expiration of any grace period. The revisions 
to this comment in the January 2009 Regulation Z Rule and the revisions 
proposed in May 2009 will be addressed in a subsequent rulemaking. See 
74 FR 5320, 5476; 74 FR 20786, 20798

Section 226.9 Subsequent Disclosure Requirements

    The Board is adopting revisions to Sec.  226.9(c) and is adopting 
new Sec.  226.9(g) and (h) to implement new TILA Section 127(i), 
enacted as part of the Credit Card Act. New TILA Section 127(i) 
generally requires that creditors provide consumers with 45 days' 
advance notice of rate increases and other significant changes to the 
terms of their credit card account agreements. Credit Card Act Sec.  
101(a)(1). Section 127(i) also requires change-in-terms notices to 
contain a disclosure of a consumer's right to cancel the account, 
pursuant to the Board's rules, prior to the effective date of the rate 
increase or change. Section 127(i) is effective on August 20, 2009, 90 
days after enactment of the Credit Card Act. As discussed below, the 
amendments to Sec.  226.9(c) and (g) adopted in this interim final rule 
in large part parallel the requirements adopted in the Board's January 
2009 Regulation Z Rule, with changes to conform to new TILA Section 
127(i).
    However, consistent with the staged approach to implementations 
outlined above in I. Background and Implementation of the Credit Card 
Act, several requirements that were included in Sec.  226.9(c) and (g) 
of the Board's January 2009 Regulation Z Rule are not included in this 
interim final rule. Compliance with these requirements is not mandated 
by the Credit Card Act, and therefore this interim final rule does not 
require compliance with these requirements on August 20, 2009. For 
example, this interim final rule does not require that advance notices 
of changes in terms or the imposition of penalty rates pursuant to 
Sec.  226.9(c) and (g) comply with certain tabular formatting 
requirements contained in the January 2009 Regulation Z Rule. However, 
the Board is not withdrawing these or any other requirements of the 
January 2009 Regulation Z Rule at this time. The implementation of, and 
any changes to, the January 2009 Regulation Z Rule and January 2009 FTC 
Act Rule necessary to conform with the Credit Card Act will be 
addressed in connection with the next stage of the Board's implementing 
regulations.
    Accordingly, because the January 2009 Regulation Z Rule is not 
effective until July 1, 2010, the Board has based the amendments to 
Sec.  226.9(c) in this interim final rule on the text of existing Sec.  
226.9(c) rather than on the version of Sec.  226.9(c) included in the 
January 2009 Regulation Z Rule. Similarly, new Sec.  226.9(g) is based 
on the January 2009 Regulation Z Rule but does not implement all of the 
formatting and content requirements included in the January 2009 
rulemaking.
    In addition, the Board is not including model forms or model 
clauses for advance notices of rate increases or changes in terms in 
this interim final rule, for several reasons. First, the formatting and 
content requirements of the January 2009 Regulation Z Rule are not yet 
effective, and therefore any model clause or form included with this 
interim final rule would be subject to further revision for conformity 
with that rule. Second, as discussed below, the Credit Card Act also 
imposes additional content requirements for change-in-terms notices, 
several of which are not effective until February 22, 2010. The Board 
intends to finalize new model forms in the next stage of its rulemaking 
under the Credit Card Act that comply with all of these new 
requirements simultaneously.

226.9(c) Change in Terms

Credit Card Act \13\
---------------------------------------------------------------------------

    \13\ For convenience, this section summarizes all of the 
provisions of the Credit Card Act related to advance notices of 
changes in terms and rate increases. Consistent with the approach it 
took in the January 2009 Regulation Z Rule, the Board is 
implementing the advance notice requirements applicable to 
contingent rate increases set forth in the cardholder agreement in a 
separate section (Sec.  226.9(g)) from those advance notice 
requirements applicable to changes in the cardholder agreement 
(Sec.  226.9(c)). The distinction between these types of changes is 
that Sec.  226.9(g) addresses changes in a rate being applied to a 
consumer's account consistent with the existing terms of the 
cardholder agreement, while Sec.  226.9(c) addresses changes in the 
underlying terms of the agreement.
---------------------------------------------------------------------------

    New TILA Section 127(i)(1) generally requires creditors to provide 
consumers

[[Page 36083]]

with a written notice of an annual percentage rate increase at least 45 
days prior to the effective date of the increase, for credit card 
accounts under an open-end consumer credit plan. Credit Card Act Sec.  
101(a)(1). The statute establishes several exceptions to this general 
requirement. Credit Card Act Sec.  101(a)(1) and (b)(2). The first 
exception applies when the change is an increase in an annual 
percentage rate upon expiration of a specified period of time, provided 
that prior to commencement of that period, the creditor clearly and 
conspicuously disclosed to the consumer the length of the period and 
the rate that would apply after expiration of the period. The second 
exception applies to increases in variable annual percentage rates that 
change according to operation of a publicly available index that is not 
under the control of the creditor. Finally, a third exception applies 
to rate increases due to the completion of, or failure of a consumer to 
comply with, the terms of a workout or temporary hardship arrangement, 
provided that prior to the commencement of such arrangement the 
creditor clearly and conspicuously disclosed to the consumer the terms 
of the arrangement, including any increases due to completion or 
failure.
    In addition to the rules in new TILA Section 127(i)(1) regarding 
rate increases, new TILA Section 127(i)(2) establishes an additional 
45-day advance notice requirement for significant changes, as 
determined by rule of the Board, in the terms (including an increase in 
any fee or finance charge) of the cardholder agreement between the 
creditor and the consumer. Credit Card Act Sec.  101(a)(1).
    New TILA Section 127(i)(3) also establishes an additional content 
requirement for notices of interest rate increases or significant 
changes in terms provided pursuant to new TILA Section 127(i). Such 
notices are required to contain a brief statement of the consumer's 
right to cancel the account, pursuant to rules established by the 
Board, before the effective date of the rate increase or other change 
disclosed in the notice. In addition, new TILA Section 127(i)(4) states 
that closure or cancellation of an account pursuant to the consumer's 
right to cancel does not constitute a default under the existing 
cardholder agreement, and does not trigger an obligation to immediately 
repay the obligation in full or through a method less beneficial than 
those listed in revised TILA Section 171(c)(2). (The disclosure 
associated with the right to cancel is discussed in the section-by-
section analysis to Sec.  226.9(c) and (g), while the substantive rules 
regarding this new right are discussed in the section-by-section 
analysis to Sec.  226.9(h).)
    The Board notes that there are additional provisions of the Credit 
Card Act that may impact the content of change-in-terms notices, and 
the types of changes that are permitted pursuant to a change-in-terms 
notice, that are not effective until February 22, 2010. For example, 
revised TILA Section 171(a) generally prohibits, subject to several 
exceptions, increases in annual percentage rates and other finance 
charges applicable to outstanding balances. In addition, revised TILA 
Section 171(b) and new TILA Section 148(b) will require, for certain 
types of rate increases, that the advance notice state the reason for a 
rate increase. Finally, for penalty rate increases applied to 
outstanding balances when the consumer fails to make a minimum payment 
within 60 days after the due date, as permitted by revised TILA Section 
171(b)(4), a creditor will be required to terminate the penalty rate 
increase if the consumer makes the subsequent six minimum payments on 
time. Consistent with the Board's approach to implementing the changes 
contained in the Credit Card Act discussed in I. Background and 
Implementation of the Credit Card Act, these changes will be addressed 
in the next stage of the Board's rulemaking.

Scope of 45-Day Advance Notice Rules

    The Board is using its authority under TILA Section 105(a) and 
Sec.  2 of the Credit Card Act to interpret the term ``credit card 
account under an open-end consumer credit plan,'' as that term is used 
in new TILA Section 127(i), not to include accounts that are home-
equity lines of credit (HELOCs) subject to Sec.  226.5b, even if those 
accounts may be accessed by a credit card device. Thus, the provisions 
in new TILA Section 127(i) would not apply to HELOC accounts. This is 
consistent with the Board's historical treatment of HELOC accounts 
accessible by a credit card under TILA; for example, the credit and 
charge card application and solicitation disclosure requirements under 
Sec.  226.5a expressly do not apply to home-equity plans accessible by 
a credit card that are subject to Sec.  226.5b. The Board is currently 
engaged in reviewing the rules applicable to HELOCs as part of its 
staged review of all of Regulation Z and will consider any appropriate 
revisions to the change-in-terms requirements for HELOCs in connection 
with that review.

January 2009 Regulation Z Rule

    The Board's interim final rule to implement the advance notice 
requirements of new TILA Section 127(i) draws upon information 
considered by the Board in adopting its January 2009 Regulation Z Rule. 
Section 226.9(c) of the Board's January 2009 Regulation Z Rule, similar 
to new TILA Section 127(i), requires 45 days' advance written notice of 
changes in key account terms. The terms for which 45 days' advance 
written notice of changes is required under the January 2009 Regulation 
Z Rule are the same terms that the Board required to be disclosed in 
the new account-opening table required for open-end (not home-secured) 
credit pursuant to Sec.  226.6(b)(1) and (b)(2) of the January 2009 
Regulation Z Rule. The terms for which advance notice of changes is 
required under the January 2009 Regulation Z Rule are those that the 
Board determined, in part based on its consumer testing, to be of the 
greatest importance to consumers, including annual percentage rates and 
other key charges, such as transaction fees and penalty fees.
    As discussed in the supplementary information to Sec.  226.9(g) in 
the January 2009 Regulation Z Rule, the Board also adopted a new Sec.  
226.9(g) to require 45 days' advance notice of increases in the rates 
applicable to a consumer's delinquency or default, or 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. New Sec.  226.9(g) of the January 2009 Regulation Z Rule 
was intended to complement Sec.  226.9(c) by requiring advance notice 
of rate increases that, while not technically changes in the terms of 
the consumer's account agreement, may still come as a costly surprise 
to the consumer.

9(c)(1) Rules Affecting Home-Equity Plans and Open-End Plans That Are 
Not Credit Card Accounts

    The interim final rule preserves, in Sec.  226.9(c)(1) and 
associated staff commentary, the existing change-in-terms notice 
requirements for home-equity plans and other open-end plans that are 
not credit card accounts. These rules are substantively identical to 
the current rules under Sec.  226.9(c), except for several technical 
and renumbering changes.
    The Board notes that open-end (not home-secured) lines of credit 
that are not credit card accounts will be subject

[[Page 36084]]

to the revised change-in-terms notice requirements contained in the 
January 2009 Regulation Z Rule when that rule becomes effective. In 
particular, changes made in January 2009 to Sec.  226.9(c) and (g) have 
not been withdrawn. However, the January 2009 Regulation Z Rule is not 
yet effective, and unsecured lines of credit that are not credit card 
accounts are not subject to the advance notice requirements in the 
Credit Card Act. Therefore the existing rules have been preserved for 
such lines of credit for the period between the effective date of this 
interim final rule and the date the January 2009 Regulation Z Rule 
becomes effective. Thus, creditors offering open-end (not home-secured) 
lines of credit that are not credit card accounts may continue to 
comply with the existing change-in-terms notice requirements, which 
have been adopted in this interim final rule as renumbered Sec.  
226.9(c)(1).
    The Board notes that it also is currently reviewing those portions 
of Regulation Z that pertain to home-equity lines of credit, and the 
applicable notice requirements for such products may be amended in the 
course of that rulemaking.

9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans

9(c)(2)(i) Changes Where Written Advance Notice Is Required
    Section Sec.  226.9(c)(2) sets forth the change-in-terms notice 
requirements for credit card accounts that are not home-secured. 
Paragraph (c)(2)(i) sets forth the general rule for when change-in-
terms notices must be provided, and states that a creditor must provide 
a written notice of a significant change to an account term as 
described in paragraph (c)(2)(ii) or an increase in the required 
minimum periodic payment, in each case at least 45 days' prior to the 
effective date of the change, unless an exception in paragraph 
(c)(2)(v) applies. Consistent with current Sec.  226.9(c), however, the 
45-day advance notice requirement does not apply if the consumer has 
agreed to the particular change; in that case, the notice need only be 
given before the effective date of the change.
9(c)(2)(ii) Significant Changes in Account Terms
    Paragraph (c)(2)(ii) identifies significant changes in account 
terms for which 45 days' advance notice is required. This paragraph 
implements both new TILA Sections 127(i)(1) and (i)(2). Consistent with 
new TILA Section 127(i)(1), Sec.  226.9(c)(2)(ii)(A) defines changes in 
annual percentage rates as significant changes. Furthermore, Sec.  
226.9(c)(2)(ii)(A) is broad and includes the rates applicable to 
purchases, cash advances, and balance transfers, as well as any 
discounted initial rate, premium initial rate, or penalty rate that may 
apply to the account. Accordingly, Sec.  226.9(c)(2)(ii)(A) is intended 
to cover changes in contract terms that result in increases in all 
types of annual percentage rates; notices of increases in applicable 
annual percentage rates due to the application of existing provisions 
in the cardholder agreement are covered by Sec.  226.9(g), which is 
discussed elsewhere in this section-by-section analysis.
    Paragraphs (c)(2)(ii)(B) through (c)(2)(ii)(L) set forth the 
remaining terms for which a change requires 45 days' advance notice, 
pursuant to the Board's authority under new TILA Section 127(i)(2) to 
determine by rule what constitutes a ``significant change'' in terms. 
The list in paragraphs (c)(2)(ii)(B) through (c)(2)(ii)(L) mirrors the 
list of terms required to be disclosed in the account-opening table 
required pursuant to Sec.  226.6(b)(1) and (b)(2) of the January 2009 
Regulation Z Rule. This list comprises those terms that, based on the 
Board's consumer testing, are those that are the most important to 
consumers. This list includes the types of fees that a consumer should 
be aware of prior to use of the account, such as key penalty fees, 
transaction fees, and fees imposed for the issuance or availability of 
an open-end credit plan, and of which the Board believes a consumer 
would most benefit from receiving 45 days' advance notice of a change. 
This list also includes additional terms, such as the grace period 
applicable to the account and the balance computation method, that are 
not fees but that can have a significant impact on the cost of credit 
to a consumer.
    The Board notes that a broader interpretation of what constitutes a 
significant change in terms could result in anomalous results that 
would not necessarily benefit consumers. There are some fees, such as 
fees for expedited delivery of a replacement card, that it may not be 
useful to disclose long in advance of when they become relevant to the 
consumer. For such fees, the Board believes that a more flexible 
approach, consistent with that adopted in the January 2009 Regulation Z 
Rule is appropriate. Thus, if a consumer calls to request an expedited 
replacement card, the consumer could be informed of the amount of the 
fee in the telephone call in which the consumer requests the card. 
Otherwise, the consumer would have to wait 45 days from receipt of a 
change-in-terms notice to be able to order an expedited replacement 
card, which would likely negate the benefit to the consumer of 
receiving the expedited delivery service.
9(c)(2)(iii) Changes Not Covered by Sec.  226.9(c)(2)(i)
    Accordingly, the Board is adopting Sec.  226.9(c)(2)(iii) to 
clarify how issuers generally must disclose changes in terms that are 
not subject to the disclosure requirements in Sec.  226.9(c)(2)(i), 
i.e., that are not significant changes as described in Sec.  
226.9(c)(2)(ii) or an increase in the required minimum payment. New 
Sec.  226.9(c)(2)(iii) generally mirrors the substance of Sec.  
226.9(c)(2)(ii) of the January 2009 Regulation Z Rule, and provides 
that creditors may disclose changes in those terms either by giving 45 
days' advance written notice, or by providing 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 the consumer would be likely 
to notice the disclosure of the charge.
9(c)(2)(iv) Disclosure Requirements--Changes to Terms Described in 
Paragraph (c)(2)(i)
    New Sec.  226.9(c)(2)(iv) sets forth the disclosure requirements 
for change-in-terms notices required to be given pursuant to Sec.  
226.9(c)(2)(i). Paragraphs (c)(2)(iv)(A)-(c)(2)(iv)(C) require the 
notice to provide a description of the changes, state that changes are 
being made to the account, and state the date the changes will become 
effective. Except when the change is an increase in the required 
minimum payment, paragraph (c)(2)(iv)(D) generally requires the notice 
to inform the consumer of his or her right to reject a change in terms 
disclosed pursuant to Sec.  226.9(c)(2) prior to the effective date of 
the change unless the consumer fails to make a required minimum 
periodic payment within 60 days after the due date for that payment. 
The notice also is required to disclose instructions for rejecting the 
change or changes, and a toll-free telephone number that the consumer 
may use to notify the creditor of the rejection. If applicable, issuers 
also are required to disclose that if the consumer rejects the change 
or changes, the consumer's ability to use the account for further 
advances will be terminated or suspended.
    The Board is not requiring that consumers receive a notice of their 
right to reject the impending changes to the account when they are 
notified, pursuant to Sec.  226.9(c)(2)(i), of an increase in the 
required minimum

[[Page 36085]]

payment. The right to reject minimum payment increases appears to be 
inconsistent with the intent of other portions of the Credit Card Act. 
In the Credit Card Act, Congress amended TILA Section 127(b)(11) to 
require enhanced disclosures regarding the impact of making only 
minimum payments, specifically to warn consumers that making only 
minimum payments can increase the amount of interest they pay and the 
time it takes to repay balances. Permitting a consumer to reject an 
increase in the minimum payment could potentially subject that consumer 
to increased interest charges and a longer amortization period, if the 
consumer continues to make only the minimum payment.
    As discussed elsewhere in the section-by-section analysis to Sec.  
226.9(c), the Board notes that the January 2009 Regulation Z Rule 
imposes additional formatting and content requirements on change-in-
terms notices. While those requirements are not included in this 
interim final rule, the Board will address them in a later stage of 
rulemaking required by the Credit Card Act, and intends to amend those 
requirements prior to their effective date to the extent necessary to 
conform with the requirements of the Credit Card Act.
9(c)(2)(v) Notice Not Required
    The Board is adopting Sec.  226.9(c)(2)(v) to set forth the 
exceptions to the general change-in-terms notice requirements for 
credit card accounts that are not home-secured. Paragraph (c)(2)(v)(A) 
retains several exceptions that are in current Sec.  226.9(c), 
including charges for documentary evidence, reductions of finance 
charges, suspension of future credit privileges (except as provided in 
Sec.  226.9(c)(vi), discussed below), termination of an account or 
plan, or when the change results from an agreement involving a court 
proceeding. The Board is not including these changes in the set of 
``significant changes'' giving rise to notice requirements pursuant to 
new TILA Section 127(i)(2). The Board believes that 45 days' advance 
notice is not necessary for these changes, which are not of the type 
that generally result in the imposition of a fee or other charge on a 
consumer's account that could come as a costly surprise. In addition, 
the Board believes that for safety and soundness reasons, issuers 
generally have a legitimate interest in suspending credit privileges or 
terminating an account or plan when a consumer's creditworthiness 
deteriorates, and that 45 days' advance notice of these types of 
changes therefore would not be appropriate.
    New Sec.  226.9(c)(2)(v)(B) sets forth an exception contained in 
the Credit Card Act for increases in annual percentage rates upon the 
expiration of a specified period of time, provided that prior to the 
commencement of that period, the creditor disclosed to the consumer 
clearly and conspicuously in writing the length of the period and the 
annual percentage rate that would apply after that period. In addition, 
in order to fall within this exception, the annual percentage rate that 
applies after the period ends may not exceed the rate previously 
disclosed. The exception generally mirrors the statutory language, 
except that the Board has expressly provided, consistent with the 
general standard for Regulation Z disclosures under Subpart B that the 
disclosure of the period and annual percentage rate that will apply 
after the period is required to be in writing. See Sec.  226.5(a)(1).
    The Board is adopting a new comment 9(c)(2)(v)-6 to clarify that an 
issuer offering a deferred interest or similar program may utilize the 
exception in Sec.  226.9(c)(2)(v)(B). The comment also provides 
examples of how the required disclosures can be made for deferred 
interest or similar programs. The Board believes that the application 
of Sec.  226.9(c)(2)(v)(B) to deferred interest arrangements is 
consistent with the Credit Card Act and that this clarification is 
necessary in order to ensure that this interim final rule does not have 
unintended adverse consequences for deferred interest promotions.
    As discussed in the supplementary information to Sec.  226.9(h), 
the Board is interpreting the consumer's right to cancel referenced in 
new TILA Section 127(i)(3) as a right to reject the changes disclosed 
in the notice. If issuers that offer deferred interest plans were 
unable to use the exception in Sec.  226.9(c)(2)(v)(B), they would be 
required to give consumers 45 days' advance notice before the end of 
the deferred interest period, as well as the right to reject the 
imposition of interest charges on the deferred interest balance. For 
those consumers who rejected the change, the issuer would in effect be 
required to extend credit at a zero percent interest rate for the life 
of the balance. This would create a strong disincentive to offering 
deferred interest programs. The Board does not believe that this was 
the intent of the Credit Card Act, and specifically notes that amended 
TILA Section 164 (effective February 22, 2010) creates a special 
payment allocation rule to facilitate deferred interest arrangements. 
The Board believes therefore, that the appropriate reading of the 
exception implemented in Sec.  226.9(c)(2)(v)(B) is that it also 
applies to deferred interest or similar programs.
    Similarly, Sec.  226.9(c)(2)(v)(C) also sets forth an exception 
contained in the Credit Card Act, for increases in variable annual 
percentage rates in accordance with a credit card agreement that 
provides for a change in the rate according to operation of an index 
that is not under the control of the creditor and is available to the 
general public. The Board believes that even absent this express 
exception, such a rate increase would not generally be a change in the 
terms of the cardholder agreement that gives rise to the requirement to 
provide 45 days' advance notice, because the index, margin, and 
frequency with which the annual percentage rate will vary will all be 
specified in the cardholder agreement in advance. However, in order to 
clarify that 45 days' advance notice is not required for a rate 
increase that occurs due to adjustments in a variable rate tied to an 
index beyond the issuer's control, the Board has expressly included 
Sec.  226.9(c)(2)(v)(C) in this interim final rule.
    Finally, Sec.  226.9(c)(2)(v)(D) implements a statutory exception 
for increases in rates due to the completion of a workout or temporary 
hardship arrangement provided that the annual percentage rate 
applicable to a category of transactions following the increase does 
not exceed the rate that applied prior to the commencement of the 
workout or temporary hardship arrangement. The exception is also 
conditioned on the issuer's having clearly and conspicuously disclosed, 
prior to the commencement of the arrangement, the terms of the 
arrangement (including any such increases due to such completion). The 
Board notes that the statutory exception applies in the event of either 
completion of, or failure to comply with, the terms of such a workout 
or temporary hardship arrangement. The exception that applies to 
completion of an arrangement is implemented in Sec.  226.9(c)(2)(v)(D), 
while the exception applicable to failure to comply with a workout or 
temporary hardship arrangement is implemented in Sec.  226.9(g) as 
discussed elsewhere in this Federal Register. This exception also 
generally mirrors the statutory language, except that the Board has 
expressly provided that the disclosures regarding the workout or 
temporary hardship arrangement are required to be in writing.

[[Page 36086]]

    New comment 9(c)(2)(v)-5, which is applicable to the exceptions in 
both Sec.  226.9(c)(2)(v)(B) and (c)(2)(v)(D), provides additional 
clarification regarding the disclosure of variable annual percentage 
rates. The comment provides that if the creditor is disclosing a 
variable rate, the notice must also state that the rate may vary and 
how the rate is determined. The comment sets forth an example of how a 
creditor may make this disclosure. The Board believes that the fact 
that a rate is variable is an important piece of information of which 
consumers should be aware prior to commencement of a deferred interest 
promotion, a promotional rate, or a stepped rate program.
    New comment 9(c)(2)(v)-7 provides clarification as to what terms 
must be disclosed in connection with a workout or temporary hardship 
arrangement. The comment states that in order for the exception to 
apply, the creditor must disclose to the consumer the rate that will 
apply to balances subject to the workout or temporary hardship 
arrangement, as well as the rate that will apply if the consumer 
completes or fails to comply with the terms of, the workout or 
temporary hardship arrangement. The notice also must state, if 
applicable, that the consumer must make timely minimum payments in 
order to remain eligible for the workout or temporary hardship 
arrangement. The Board believes that it is important for a consumer to 
be notified of his or her payment obligations pursuant to a workout or 
similar arrangement, and that the rate may be increased if he or she 
fails to make timely payments.
9(c)(2)(vi) Reduction of the Credit Limit
    Consistent with the January 2009 Regulation Z Rule, the Board is 
adopting Sec.  226.9(c)(2)(vi) to address notices of changes in a 
consumer's credit limit. Section 226.9(c)(2)(vi) requires an issuer to 
provide a consumer with 45 days' advance notice that a credit limit is 
being decreased or will be decreased prior to the imposition of any 
over-the-limit fee or penalty rate imposed solely as the result of the 
balance exceeding the newly decreased credit limit. The Board is not 
including a decrease in a consumer's credit limit itself as a 
significant change in a term that requires 45 days' advance notice, for 
several reasons. First, the Board recognizes that creditors have a 
legitimate interest in mitigating the risk of a loss when a consumer's 
creditworthiness deteriorates, and believes there would be safety and 
soundness concerns with requiring creditors to wait 45 days to reduce a 
credit limit. Second, the consumer's credit limit is not a term 
generally required to be disclosed under Regulation Z or TILA. Finally, 
the Board believes that Sec.  226.9(c)(2)(vi), as adopted, adequately 
protects consumers against the two most costly surprises potentially 
associated with a reduction in the credit limit, namely, fees and rate 
increases, while giving a consumer adequate time to mitigate the effect 
of the credit line reduction.
    The commentary to Sec.  226.9(c)(2) generally is consistent with 
the commentary to Sec.  226.9(c)(2) of the January 2009 Regulation Z 
Rule, except for changes necessary to reflect the fact that this 
interim final rule does not incorporate all of the requirements of 
Sec.  226.9(c)(2) of the January 2009 Regulation Z Rule. In addition, 
as discussed above, the Board has adopted new comments 9(c)(2)(v)-5 
through 9(c)(2)(v)-7.
226.9(g) Increase in Rates Due to Delinquency or Default or as a 
Penalty
9(g)(1) Increases Subject to This Section
    The interim final rule adopts new Sec.  226.9(g), which in 
combination with amendments to Sec.  226.9(c), implements the 45-day 
advance notice requirements for rate increases in new TILA Section 
127(i). This approach is consistent with the Board's January 2009 
Regulation Z Rule, which included change-in-terms notice requirements 
in Sec.  226.9(c) and increases in rates due to the consumer's default 
or delinquency or as a penalty for events specified in the account 
agreement in Sec.  226.9(g). The general rule is set forth in Sec.  
226.9(g)(1) and provides that for credit cards under an open-end (not 
home-secured) consumer credit plan, a creditor must provide a written 
notice to each consumer who may be affected when a rate is increased 
due to a delinquency or default or as a penalty.
9(g)(2) Timing of Written Notice
    Paragraph (g)(2) sets forth the timing requirements for the notice 
described in paragraph (g)(1), and states that the notice must be 
provided at least 45 days' prior to the effective date of the increase. 
The notice must, however, be provided after the occurrence of the event 
that gave rise to the rate increase. That is, a creditor must provide 
the notice after the occurrence of the event or events that trigger a 
specific impending rate increase and may not send a general notice 
reminding the consumer of the conditions that may give rise to penalty 
pricing.
9(g)(3) Disclosure Requirements for Rate Increases
    Paragraph (g)(3) sets forth the required content for a notice 
provided pursuant to Sec.  226.9(g). The notice must state that the 
delinquency, default, or penalty rate has been triggered, and the date 
on which the increased rate will apply. The notice also must state the 
circumstances under which the increased rate will cease to apply to the 
consumer's account or, if applicable, that the increased rate will 
remain in effect for a potentially indefinite time period. In addition, 
the notice must inform the consumer of his or her right to reject the 
application of the penalty rate prior to the effective date of the 
change, unless the consumer makes a payment that is more than 60 days 
late. The notice also must disclose instructions for rejecting the 
change or changes, and a toll-free telephone number that the consumer 
may use to notify the creditor of the rejection. If applicable, issuers 
are required to disclose that if the consumer rejects the change or 
changes, the consumer's ability to use the account for further advances 
will be terminated or suspended. These content requirements include a 
portion of the content required under Sec.  226.9(g) of the January 
2009 Regulation Z Rule and the new disclosure regarding the right to 
reject the changes included in the Credit Card Act (as implemented in 
Sec.  226.9(h)). However, the Board is not implementing certain content 
requirements at this time that pertain to whether the rate applies to 
outstanding balances or only new transactions. The Board anticipates 
reviewing and revising these additional content requirements, as 
appropriate, for conformity with the Credit Card Act in the next stage 
of rulemaking.
9(g)(4) Exceptions
    Paragraph (g)(4) sets forth two exceptions to the advance notice 
requirements of Sec.  226.9(g), both of which are consistent with 
exceptions contained in the January 2009 Regulation Z Rule. First, 
consistent with the exception described in the supplementary 
information to Sec.  226.9(c), Sec.  226.9(g)(4)(i) contains an 
exception for rate increases due to a consumer's failure to comply with 
the terms of a workout or temporary hardship arrangement between the 
creditor and consumer. Second, Sec.  226.9(g)(4)(ii) includes an 
exception that clarifies the relationship between the notice 
requirements in Sec.  226.9(c)(vi) and (g)(1) when the creditor 
decreases a consumer's credit limit and under the terms of the credit 
agreement a penalty rate may be imposed for extensions of

[[Page 36087]]

credit that exceed the newly decreased credit limit. This exception is 
substantively identical to Sec.  226.9(g)(4)(ii) of the January 2009 
Regulation Z Rule, except that the Board is not implementing certain 
content requirements at this time that pertain to whether the rate 
applies to outstanding balances or only to new transactions. The Board 
anticipates reviewing and revising these additional content 
requirements, as appropriate, for conformity with the Credit Card Act 
in the next stage of rulemaking. See 74 FR 5355 for additional 
discussion of this exception.
    The commentary to Sec.  226.9(g) generally is consistent with the 
commentary to Sec.  226.9(g) of the January 2009 Regulation Z Rule, 
except for changes necessary to reflect the fact that this interim 
final rule does not incorporate all of the requirements of Sec.  
226.9(g) of the January 2009 Regulation Z Rule.
9(h) Consumer Rejection of Significant Change in Terms or Increase in 
Annual Percentage Rate
    Section 101(a)(1) of the Credit Card Act creates a new TILA Section 
127(i)(3), which provides that, when consumers are notified of a rate 
increase or other significant change in the account terms, they must 
also receive notice of their right to cancel the account before the 
effective date of the increase or change. The Credit Card Act also 
creates a new TILA Section 127(i)(4), which states that a consumer's 
closure or cancellation of an account shall not constitute a default 
under the cardholder agreement and shall not trigger imposition of a 
penalty or fee. This provision further states that such a closure or 
cancellation shall not trigger an obligation to immediately repay the 
balance in full or through a method that is less beneficial to the 
consumer than a method described in revised TILA Section 171(c)(2). 
Revised Section 171(c)(2) lists two methods for repaying balances: 
First, an amortization period of not less than five years; and second, 
a required minimum periodic payment that includes a percentage of the 
balance that is not more than twice the prior percentage.
    While the requirement in new Section 127(i)(3) that consumers be 
notified of the right to cancel is implemented in Sec.  226.9(c)(2)(iv) 
and (g)(3) (as discussed above), the Board has implemented the 
substantive right and the protections in Section 127(i)(4) in a new 
Sec.  226.9(h). Specifically, Sec.  226.9(h)(1) provides that, if Sec.  
226.9(c)(2)(iv) or (g)(3) requires disclosure of the consumer's right 
to reject a significant change to an account term or other increase in 
an annual percentage rate, the consumer may reject that change or other 
increase by notifying the creditor before the effective date. Section 
226.9(h)(2) further provides that, if the consumer rejects the change 
or other increase before the effective date, the creditor may not apply 
that change or other rate increase to the account, may not impose a fee 
or charge or treat the account as in default solely as a result of the 
rejection, and may not require repayment of the balance on the account 
using a method that is less beneficial to the consumer than one of the 
listed methods. Finally, Sec.  226.9(h)(3) provides exceptions for 
accounts that are more than 60 days delinquent and for transactions 
that occur more than 14 days after provision of the Sec.  226.9(c) or 
(g) notice.
9(h)(1) Right To Reject
    New TILA Section 127(i)(3) requires that a notice of an increase in 
rate or other significant change in terms also contain ``a brief 
statement of the right of the [consumer] to cancel the account pursuant 
to rules established by the Board before the effective date of the 
subject rate increase or other change.'' Credit Card Act Sec.  
101(a)(1). For the reasons discussed below, the Board interprets new 
TILA Section 127(i)(3) as generally establishing a substantive right 
for consumers who receive a notice of a rate increase or change in 
terms pursuant to Sec.  226.9(c) or (g) to avoid the imposition of that 
increase or change by rejecting it before the effective date.
    The Board understands that, as a general matter, creditors 
currently permit consumers to cancel their credit card accounts at any 
time. New TILA Section 127(i)(3), however, requires that creditors 
inform consumers of their right to cancel the account. This disclosure 
would be misleading if creditors were not required to honor a 
consumer's request to cancel. Furthermore, Section 127(i)(3) requires 
that the disclosure of the right to cancel be included in each notice 
informing a consumer of a forthcoming rate increase or change in terms. 
This information would be of little value to consumers at this point in 
time if exercising the right to cancel had no effect on the increase or 
change. Finally, Section 127(i)(3) specifically requires that consumers 
be informed that they have a right to cancel before the effective date 
of the rate increase or change in terms, which implies that--as is the 
case under certain state laws--canceling the account within this time 
period will preclude the creditor from applying the increased rate or 
changed term.\14\
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    \14\ See, e.g., Ala. Code Sec.  5-20-5; 5 Del. Code Sec.  952; 
Off. Code of Ga. Sec.  7-5-4; S.D. Codified Laws Sec.  54-11-10. 
Notably, these state law rights to reject generally do not apply 
when a rate is increased due to default or delinquency or as a 
penalty. However, as with the 45-day advance notice requirement, the 
right to cancel in new TILA Section 127(i) does not distinguish 
between penalty rate increases and other rate increases. Similarly, 
although some of these state laws apply only to rate increases and 
not other changes to account terms, Section 127(i) clearly 
contemplates that the right to cancel will apply to significant 
changes in terms.
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    For these reasons, the Board believes that it is consistent with 
the purposes of the Credit Card Act and TILA to interpret the right to 
cancel in Section 127(i)(3) as a substantive right for a consumer to 
reject a rate increase or change in terms. Although the Credit Card Act 
contains other provisions that protect consumers from the application 
of increased rates, fees, and finance charges to outstanding balances, 
these provisions are not effective until February 22, 2010. See Credit 
Card Act Sec. Sec.  3, 101(b). Furthermore, even when these provisions 
become effective, they may not cover every type of change in terms that 
could be costly to consumers. Accordingly, pursuant to Section 
127(i)(3)'s specific grant of authority to establish rules implementing 
the right to cancel and the Board's general authority under TILA 
Section 105(a) (15 U.S.C. 1604(a)) to prescribe regulations to carry 
out the purposes of TILA, the Board is adopting Sec.  226.9(h)(1), 
which provides that, if Sec.  226.9(c)(2)(iv) or (g)(3) requires 
disclosure of the consumer's right to reject a significant change to an 
account term or other increase in an annual percentage rate, the 
consumer may generally reject that change or increase by notifying the 
creditor of the rejection before the effective date of the change or 
increase.\15\ As discussed below, however, this right is subject to 
limited exceptions, such as when the account is more than 60 days 
delinquent.
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    \15\ Section 226.9(h) distinguishes between an increase in an 
annual percentage rate pursuant to a change to an account term (for 
which a Sec.  226.9(c) notice is required) and ``other increase[s] 
in an annual percentage rate'' (for which a Sec.  226.9(g) notice is 
required). When a creditor increases a rate due to delinquency or 
default or as a penalty, it generally does so by invoking a penalty 
provision in the account agreement rather than by changing the terms 
of the agreement. Thus, this type of rate increase is not 
technically a change in terms.
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    Comment 9(h)(1)-1 provides clarification regarding the procedures 
creditors may use for the submission of rejections. It states that a 
creditor may place requirements on the submission of rejections of a 
change in term or a rate increase but that such requirements must be 
reasonable. As an example, the comment states it would be reasonable

[[Page 36088]]

for a creditor to require that rejections be made by the primary 
account holder and that the consumer identify the account number. 
Similarly, it states that a creditor may designate channels for 
submitting rejections other than the toll-free telephone number 
required to be disclosed pursuant to Sec.  226.9(c) or (g) (such as a 
mailing address), so long as the creditor does not require that 
rejections be submitted through such additional channels. Although some 
provisions of Regulation Z require consumers to submit requests in 
writing,\16\ the Board believes that imposing such a requirement in 
these circumstances would inhibit consumers' exercise of their right to 
reject impending rate increases and changes and is unnecessary because 
many issuers currently accept requests to close or cancel credit card 
accounts by telephone.
---------------------------------------------------------------------------

    \16\ See, e.g., 12 CFR 226.13(b) (requiring that billing error 
notices be submitted in writing).
---------------------------------------------------------------------------

    Comment 9(h)(1)-1 states that it would be reasonable for a creditor 
to require that rejections be received before the effective date 
disclosed pursuant to Sec.  226.9(c) or (g) and to treat the account as 
not subject to Sec.  226.9(h) if a rejection is received on or after 
that date. The comment states that it would not, however, be reasonable 
to require that rejections be received earlier than the day before the 
effective date. Instead, a creditor that is unable to process all 
rejections received before the effective date through the toll-free 
number and any other designated channel may delay implementation of the 
rate increase or change in terms until all rejections have been 
processed. In the alternative, the creditor could implement the 
increase or change on the effective date and then, on any account for 
which a timely rejection was received, return the account to the prior 
terms and ensure that the account is not assessed any additional 
interest or charges as a result of the increased rate or changed term 
or that the account is credited for such interest or charges. An 
example is provided in the commentary.
    The Board is also adopting comment 9(h)(1)-2, which clarifies that 
a consumer does not waive or forfeit the right to reject a change in 
terms or a rate increase by using the account for transactions prior to 
the effective date of the change or increase. Similarly, the comment 
clarifies that a consumer does not revoke a rejection by using the 
account for transactions. Although under some state laws use of the 
account following notice of an increase or change constitutes 
acceptance of that increase or change, the Board has previously 
rejected this approach with respect to the advance notice requirements 
in Sec.  226.9(c). See comment 9(c)(1)-3.ii (redesignated as comment 
9(c)(2)(i)-3.ii). A consumer may use the account for transactions after 
the notice has been sent but before it has been received and therefore 
be unaware of the change or increase. Similarly, a consumer may 
inadvertently use the account after receiving the Sec.  226.9(c) or (g) 
notice or exercising the right to reject without intending to accept 
the change or increase (such as by inadvertently failing to cancel an 
automated recurring charge). As discussed below, however, if the 
account is used for a transaction more than 14 days after provision of 
the Sec.  226.9(c) or (g) notice, Sec.  226.9(h)(3)(ii) permits the 
creditor to apply the changed term or increased rate to that 
transaction even if the consumer rejects the change or increase before 
the effective date.
9(h)(2) Effect of Rejection
9(h)(2)(i) Prohibition on Applying Changed Term or Increased Rate
    As discussed above, based on its analysis of new TILA Section 
127(i), the Board concludes that the right to cancel set forth in 
Section 127(i)(3) entitles a consumer to avoid application of a rate 
increase or change in terms by rejecting that increase or change prior 
to its effective date. Accordingly, Sec.  226.9(h)(2)(i) provides that, 
if a creditor is notified of such a rejection, the creditor must not 
apply the increased rate or changed term to the account.
    The Board is adopting comment 9(h)(2)(i)-1, which clarifies the 
application of Sec.  226.9(h)(2)(i) to accounts subject to a 
promotional rate or a deferred interest or similar program. 
Specifically, this comment clarifies that, although Sec.  
226.9(h)(2)(i) provides that the creditor must not apply the change or 
increase to the account if the consumer has rejected that change or 
increase, it does not prohibit a creditor from applying the terms of a 
pre-existing promotional rate or deferred interest or similar program. 
The comment also provides examples illustrating the application of 
Sec.  226.9(h)(2)(i) in these circumstances.\17\
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    \17\ The Board notes that these and other examples in the 
commentary to Sec.  226.9(h) reflect the amendments to TILA that go 
into effect on August 20, 2009. To the extent that these examples or 
any other aspect of the interim final rule and commentary are 
inconsistent with provisions of the Credit Card Act that take effect 
after August 20 (particularly the limitations in revised TILA 
Section 171 on the application of increased rates to existing 
balances), the Board will revise them in a subsequent rulemaking.
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9(h)(2)(ii) Prohibition on Penalties
    New TILA Section 127(i)(4) provides, among other things, that 
closure or cancellation of an account by a consumer ``shall not 
constitute a default under an existing cardholder agreement'' and 
``shall not trigger * * * the imposition of any other penalty or fee.'' 
Credit Card Act Sec.  101(a)(1). Accordingly, the Board is adopting 
Sec.  226.9(h)(2)(ii), which provides that, if a consumer rejects a 
significant change in terms or an increased rate, the creditor must not 
impose a fee or charge or treat the account as in default solely as a 
result of the rejection. The Board and the other Agencies adopted a 
similar prohibition in the January 2009 FTC Act Rule. See 12 CFR 
227.24(c)(2), 74 FR 5560.
    The Board is also adopting comment 9(h)(2)(ii)-1, which provides as 
an example of the type of fee or charge prohibited by Sec.  
226.9(h)(2)(ii) a monthly maintenance fee that would be charged only if 
the consumer rejected the change or increase. The comment clarifies, 
however, that a creditor is not prohibited from continuing to charge a 
fee that was charged before the rejection. For example, a creditor that 
charged a periodic fee or a fee for late payment before a change or 
increase was rejected is not prohibited from charging those fees after 
rejection of the change or increase. This comment is based on a similar 
comment adopted by the Board and the other Agencies in the January 2009 
FTC Act Rule as well as clarifications proposed by the Agencies in May 
2009. See comment 24(c)(2)-1, 74 FR 5566; see also 74 FR 20820.
    The Board is also adopting comment 9(h)(2)(ii)-2, which clarifies 
that Sec.  226.9(h)(2)(ii) does not prohibit a creditor from 
terminating or suspending credit availability if the consumer rejects a 
rate increase or change in terms. Although the termination or 
suspension of credit availability could be construed as a penalty, the 
Board believes that permitting the creditor to terminate or suspend 
credit availability is consistent with the references in new TILA 
Section 127(i)(3) and (4) to the closure or cancellation of the 
account. This comment clarifies, however, that Sec.  226.9(h) does not 
require a creditor to terminate or suspend credit availability for 
consumers who reject a rate increase or change in terms. Indeed, there 
may be circumstances where an issuer elects to continue extending 
credit to a consumer notwithstanding the rejection. As discussed below, 
in these circumstances, Sec.  226.9(h)(3)(ii) permits the creditor to 
apply the increased rate or changed term to transactions that

[[Page 36089]]

occur more than 14 days after provision of the Sec.  226.9(c) or (g) 
notice.
9(h)(2)(iii) Repayment of Outstanding Balance
    New TILA Section 127(i)(4) also provides that closure or 
cancellation of an account by a consumer ``shall not trigger an 
obligation to repay the obligation in full or through a method that is 
less beneficial to the [consumer] than one of the methods described in 
section 171(c)(2). * * *'' Credit Card Act Sec.  101(a)(1). Amended 
TILA Section 171(c)(2) lists two methods of repaying an outstanding 
balance: First, an amortization period of not less than five years 
(beginning on the effective date of the increase set forth in the 
Section 127(i) notice); and, second, a required minimum periodic 
payment that includes a percentage of the outstanding balance that is 
equal to not more than twice the percentage required before the 
effective date of the increase set forth in the Section 127(i) notice. 
See id.
    Notably, however, these methods are prefaced by amended TILA 
Section 171(c)(1), which states ``[t]he creditor shall not change the 
terms governing the repayment of any outstanding balance, except that 
the creditor may provide the [consumer] with one of the methods 
described in [Section 171(c)(2)] * * * or a method that is no less 
beneficial to the [consumer] than one of those methods.'' Id. In 
certain circumstances, however, the repayment method used by the 
creditor prior to rejection may result in a higher payment than under 
one of the methods listed in amended TILA Section 171(c)(2). For 
example, assume that the required minimum periodic payment on a credit 
card account is the greater of: (1) Fees and accrued interest plus two 
percent of the outstanding balance; or (2) a ``floor'' amount of $50. 
Assume also that, when the consumer rejects a rate increase or change 
in terms, the account has an outstanding balance of $1,000 and the 
creditor doubles the percentage of the balance included in the minimum 
payment to four percent. As the outstanding balance decreases with each 
payment, the minimum payment will eventually reach the $50 floor, which 
will be greater than four percent of the outstanding balance plus fees 
and accrued interest.
    Although new TILA Section 127(i)(4) could be read to prohibit a 
creditor from using the pre-existing ``floor'' minimum payment in these 
circumstances, the Board believes that it is consistent with the 
purposes of TILA (as expressed in amended TILA Section 171(c)(1)) to 
apply the existing ``floor'' minimum payment. If the purpose of Section 
127(i)(4) is to prevent the creditor from penalizing a consumer for 
closing or cancelling an account by requiring repayment of the 
outstanding balance on terms that are more onerous to the consumer, 
retention of an existing repayment method is consistent with that 
purpose. In addition, prohibiting application of the ``floor'' minimum 
payment would delay repayment of the balance in full and result in 
additional interest charges without providing any substantial benefit 
to the consumer.
    Accordingly, the Board is using its general authority under TILA 
Section 105(a) to adopt Sec.  226.9(h)(2)(iii), which provides that, if 
a consumer rejects a rate increase or change in terms, the creditor 
must not require repayment of the balance on the account using a method 
that is less beneficial to the consumer than one of three listed 
methods: First, the method of repayment for the account on the date on 
which the creditor was notified of the rejection; second, an 
amortization period of not less than five years, beginning no earlier 
than the date on which the creditor was notified of the rejection; or, 
third, a required minimum periodic payment that includes a percentage 
of the balance that is equal to no more than twice the percentage 
required on the date on which the creditor was notified of the 
rejection.\18\ The Board and the other Agencies adopted a similar 
provision in the January 2009 FTC Act Rule. See 12 CFR 227.24(c)(1), 74 
FR 5560; see also comment 24(c)-2, 74 FR 5565.
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    \18\ The repayment methods in Sec.  226.9(h)(2)(iii) focus on 
the date on which the creditor is notified of the rejection rather 
than the effective date for the increased rate or change in terms 
because, once the consumer exercises the right to reject, the 
effective date will generally become irrelevant.
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    The Board is also adopting comment 9(h)(2)(iii)-1, which clarifies 
that a repayment method is no less beneficial to the consumer if the 
method results in a required minimum periodic payment that is equal to 
or less than a minimum payment calculated using the method for the 
account prior to the date on which the creditor received the rejection. 
The comment further clarifies that a method is no less beneficial to 
the consumer if the method amortizes the balance in five years or 
longer or if the method results in a required minimum periodic payment 
that is equal to or less than a minimum payment calculated consistent 
with Sec.  226.9(h)(2)(iii)(C).
    In addition, the Board is adopting comment 9(h)(2)(iii)(B)-1, which 
clarifies that, although Sec.  226.9(h)(2)(iii)(B) provides for an 
amortization period of no less than five years beginning no earlier 
than the date on which the creditor was notified of the rejection, a 
creditor is not required to recalculate the required minimum periodic 
payment if, during the amortization period, the balance is reduced as a 
result of payments by the consumer in excess of that minimum payment.
    Furthermore, the Board is adopting comment 9(h)(2)(iii)(B)-2, which 
clarifies that, if the annual percentage rate that applies to the 
balance subject to Sec.  226.9(h)(2)(iii) varies with an index, the 
creditor may adjust the interest charges included in the required 
minimum periodic payment for that balance accordingly in order to 
ensure that the balance is amortized in five years. Finally, the Board 
is adopting comment 9(h)(2)(iii)(C)-1, which provides an example of how 
a creditor could adjust the required minimum periodic payment on a 
balance by no more than doubling the percentage of the balance included 
in that payment. The commentary to Sec.  226.9(h)(2)(iii) is similar to 
commentary adopted by the Board and the other Agencies in the January 
2009 FTC Act Rule. See comment 24(c)(1)-1, 74 FR 5565; comment 
24(c)(1)(i)-1, 74 FR 5574; comment 24(c)(1)(i)-2, 74 FR 5574; comment 
24(c)(1)(ii)-2, 74 FR 5574.
9(h)(3) Exceptions
    Pursuant to new TILA Section 127(i)(3)'s express grant of authority 
to establish rules implementing the right to cancel and the Board's 
general authority under TILA Section 105(a) (15 U.S.C. 1604(a)) to make 
adjustments and exceptions to carry out the purposes of TILA and to 
facilitate compliance therewith, the Board is establishing two 
exceptions to Sec.  226.9(h), which are discussed below.
    In addition, the Board is adopting comment 9(h)(3)-1, which 
clarifies that, in addition to the circumstances listed in Sec.  
226.9(h)(3), Sec.  226.9(h) does not apply to home equity plans subject 
to the requirements of Sec.  226.5b that are accessible by a credit or 
charge card because Sec.  226.9(c)(2) and 226.9(g) do not apply to such 
plans. Similarly, the comment clarifies that Sec.  226.9(h) does not 
apply when the required minimum periodic payment is increased because 
Sec.  226.9(c)(2)(iv) does not require disclosure of the right to 
reject in those circumstances.
9(h)(3)(i) Delinquencies of More Than 60 Days
    Section 226.9(h)(3)(i) provides that Sec.  226.9(h) does not apply 
when the creditor has not received the consumer's required minimum 
periodic payment within 60 days after the due date for

[[Page 36090]]

that payment. This exception is based on a similar exception to the 
Credit Card Act's general prohibition on applying increased annual 
percentage rates, fees, or finance charges to outstanding balances. See 
Credit Card Act Sec.  101(b) (revised TILA Section 171(b)(4)). Although 
that prohibition is not effective until February 22, 2010,\19\ the 
Board believes that a parallel exception for delinquencies of more than 
60 days is appropriate here. Otherwise, after February 22, 2010, a 
consumer who is more than 60 days delinquent could use the right to 
reject a rate increase to override the exception specifically created 
by the Credit Card Act for such circumstances. The Board does not 
believe that this was Congress's intent because the Credit Card Act's 
exception for delinquencies of more than 60 days contains its own 
remedy for consumers. Specifically, the exception provides that, if an 
increased rate, fee, or finance charge is applied to an outstanding 
balance based on a delinquency of more than 60 days, the creditor must 
``terminate such increase not later than 6 months after the date on 
which it is imposed, if the creditor receives the required minimum 
payments on time during that period.'' Credit Card Act Sec.  101(b) 
(revised TILA Section 171(b)(4)(B)). Thus, based on its review of the 
Credit Card Act as a whole, the Board believes it would be inconsistent 
to extend the right to reject to circumstances where a consumer is more 
than 60 days delinquent.\20\
---------------------------------------------------------------------------

    \19\ See Credit Card Act Sec.  3.
    \20\ Comment 9(h)(3)(i)-1 provides illustrative examples of the 
application of this exception.
---------------------------------------------------------------------------

9(h)(3)(ii) Transactions That Occur More Than 14 Days After Provision 
of Notice
    Section 226.9(h)(3)(ii) provides that Sec.  226.9(h) does not apply 
to transactions that occur more than 14 days after provision of the 
notice required by Sec.  226.9(c) or (g). Like the exception for 
delinquencies of more than 60 days, this exception is based on the 
provisions of the Credit Card Act that generally prohibit creditors 
from applying increased rates, fees, and finance charges to outstanding 
balances. Specifically, those provisions address circumstances in which 
a consumer uses an account for transactions after receiving advance 
notice of an increase by defining the ``outstanding balance'' to which 
the increase may not be applied as ``the amount owed * * * as of the 
end of the 14th day after the date on which the creditor provides [the] 
notice. * * *'' Credit Card Act Sec.  101(b) (revised TILA Section 
171(d)). By establishing separate timing rules for the notice 
requirement and the substantive limitations, the Credit Card Act 
balances the interests of consumers and creditors. On the one hand, the 
14-day period ensures that the increased rate, fee, or finance charge 
will not apply to transactions that occur before the consumer has 
received the notice and had a reasonable amount of time to review it 
and to decide whether to use the account for additional transactions. 
On the other hand, by allowing creditors to apply the increase to 
transactions that occur more than 14 days after provision of the 
notice, the Credit Card Act reduces the potential that a consumer--
having been notified of an increase in the rate for new transactions--
will use the 45-day notice period to engage in transactions to which 
the increased rate cannot be applied.
    In the FTC Act rulemaking, the Board and the other Agencies 
addressed this issue by proposing a similar 14-day period. See proposed 
12 CFR 227.24(a)(2), 73 FR 28920, 28942. Like the Agencies' 21-day safe 
harbor for mailing periodic statements, 14 days was intended to allow 
seven days for the notice to reach the consumer and seven days for the 
consumer to review that notice and take appropriate action (e.g., begin 
using a different credit account). The Agencies noted that, although 
institutions could address the concern that the 45-day notice period 
could be abused by denying additional extensions of credit after 
sending the notice, that outcome might not be beneficial to consumers 
who have received the notice and wish to use the account for new 
transactions. Based on the comments and further analysis, the Board and 
the other Agencies concluded that consumers did not require seven days 
to review the notice and take appropriate action and reduced the 14-day 
period to seven days in the January 2009 FTC Act Rule. See 12 CFR 
227.24(b)(3), 74 FR 5560. Ultimately, however, Congress elected to 
address this issue using the 14-day period originally proposed by the 
Agencies.
    Because the right to reject a rate increase or change in terms can 
raise concerns similar to those addressed by new TILA Section 171(d), 
the Board believes it is appropriate to apply the 14-day period here as 
well. As discussed above with respect to comment 9(h)(1)-2, a 
consumer's use of the account after receiving the Sec.  226.9(c) or (g) 
notice should not result in a waiver or forfeiture of the right to 
reject (even if the consumer has already exercised that right). 
However, the Board believes it would be inconsistent with the purpose 
of the Credit Card Act (as stated in revised TILA Section 171(d)) to 
permit a consumer to deliberately engage in transactions after 
receiving the notice and then exercise the right to reject shortly 
before the effective date in order to prevent the creditor from 
applying the increased rate or changed term to those transactions.\21\ 
Accordingly, based on its review of the Credit Card Act as a whole, the 
Board is using its authority under TILA Section 105(a) and new TILA 
Section 127(i)(3) to permit creditors to apply the increased rate or 
changed term to transactions that occur more than 14 days after 
provision of the Sec.  226.9(c) or (g) notice even in circumstances 
where the consumer has exercised the right to reject.
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    \21\ Furthermore, although a creditor may terminate credit 
availability and decline to honor additional transactions after the 
consumer rejects an increase or change, there may be circumstances 
where a creditor is obligated to honor a particular transaction 
(such as when the transaction was authorized by the creditor before 
credit availability was terminated).
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    The Board is adopting comment 9(h)(3)(ii)-1, which clarifies that, 
although Sec.  226.9(h)(3)(ii) permits a creditor to apply a changed 
term or increased rate to transactions that occur more than 14 days 
after provision of the notice required by Sec.  226.9(c) or (g), it 
does not permit a creditor to reach back to days before the effective 
date of the change in terms or rate increase when calculating interest 
charges. The comment also clarifies that, because the exception in 
Sec.  226.9(h)(3)(ii) is limited to changed terms and increased rates 
that can be applied to transactions, it does not permit a creditor to 
apply a changed term to the entire account simply because the account 
was used for a transaction more than 14 days after provision of a Sec.  
226.9(c) or (g) notice. For example, if a consumer rejects an increase 
in a periodic fee or late payment fee, the creditor is prohibited from 
applying the increased fee to the account even if the account is used 
for a transaction more than 14 days after provision of the Sec.  
226.9(c) notice. In contrast, Sec.  226.9(h)(3)(ii) does permit a 
creditor to apply an increased rate or a transaction fee to a 
transaction that occurred more than 14 days after provision of the 
Sec.  226.9(c) or (g) notice so long as that increased rate or 
transaction fee is not applied to other transactions.
    The Board is also adopting comment 9(h)(3)(ii)-2, which clarifies 
that whether a transaction occurred prior to provision of a notice or 
within 14 days after provision of a notice is generally determined by 
the date of the transaction. The Board notes that

[[Page 36091]]

revised TILA Section 171(d) refers to ``the amount owed'' at the end of 
the fourteenth day after provision of the Sec.  226.9(c) or (g) notice 
rather than to transactions that occur during that 14-day period. The 
Board is also aware that, for a variety of reasons (including a 
merchant's delay in submitting a transaction to the creditor), a 
transaction may occur within the 14-day period but not be added to the 
consumer's outstanding balance until after that period. Although such 
delays may present challenges for creditors when determining whether a 
transaction occurred within the 14-day period, these delays are 
generally unknown to consumers and outside of their control. A consumer 
who engages in a transaction on a particular date could reasonably 
expect the transaction to be added to their outstanding balance on that 
date. Accordingly, the Board believes that, as a general matter, it is 
consistent with the purposes of TILA to focus on the transaction date.
    However, to facilitate compliance with Sec.  226.9(h)(3)(ii), 
comment 9(h)(3)(ii)-2 states that, if a transaction that occurred 
within 14 days after provision of the notice is not charged to the 
account prior to the effective date of the change or increase, the 
creditor may treat the transaction as occurring more than 14 days after 
provision of the notice for purposes of Sec.  226.9(h)(3)(ii). In 
addition, the comment states that, when a merchant places a ``hold'' on 
the available credit on an account for an estimated transaction amount 
when the actual transaction amount will not be known until a later 
date, the date of the transaction for purposes of Sec.  226.9(h)(3)(ii) 
is the date on which the actual transaction amount is charged to the 
account.
    This comment is based on a similar comment adopted by the Board and 
the other Agencies in the January 2009 FTC Act Rule as well as 
clarifications proposed by the agencies in May 2009 and the comments 
received in response. See comment 24(b)(3)-2, 74 FR 5564; see also 74 
FR 20810, 20818. Examples illustrating the application of Sec.  
226.9(h)(3)(ii) and the guidance in comments 9(h)(3)(ii)-1 and -2 are 
provided in comment 9(h)(3)(ii)-3.
Implementation of Interim Final Rule for Subsequent Disclosure 
Requirements
    Revised Sec.  226.9(c) and new Sec.  226.9(g) and (h) are 
effective, consistent with the Credit Card Act and the rest of this 
interim final rule, on August 20, 2009.
    Notices required under Sec.  226.9(c). The relevant date for 
determining whether a change-in-terms notice must comply with the new 
advance notice requirements of revised Sec.  226.9(c)(2) is generally 
the date on which the notice is provided, not the effective date of the 
change. The Board believes that this is the appropriate transition rule 
in order to provide clarity and certainty to issuers. Therefore, if a 
notice of a change in terms is provided pursuant to existing Sec.  
226.9(c) prior to August 20, 2009, the notice only need be given 15 
days in advance of the effective date of the change, even if the change 
itself becomes effective after August 20. For example, a creditor may 
provide a notice in accordance with existing Regulation Z on August 10, 
2009 disclosing a change-in-terms effective August 26, 2009. 
Accordingly, any such notice would not be required to comply with the 
content requirements of this interim final rule, including the 
disclosure of the consumer's right to reject the change.
    Any notice provided on or after August 20, 2009 would be subject to 
all of the content and other requirements of Sec.  226.9(c)(2), as 
applicable. For example, assume a creditor mails a change-in-terms 
notice to a consumer on August 20, 2009 disclosing a rate increase 
effective on October 4, 2009, to which none of the exceptions in Sec.  
226.9(c)(2)(v) apply. That notice would be required to disclose all of 
the content set forth in Sec.  226.9(c)(2)(iv), including required 
disclosures pertaining to the consumer's right to reject the change.
    The Board believes that this is the appropriate way to implement 
the August 20, 2009 effective date in order to ensure that institutions 
are provided the full 90-day implementation period provided under the 
Credit Card Act. In the alternative, the Credit Card Act could be 
construed to require creditors to provide notices, pursuant to new 
Sec.  226.9(c)(2), 45 days in advance of changes occurring on or after 
August 20. However, this reading would create uncertainty regarding 
compliance with the rule by requiring creditors to begin providing 
change-in-terms notices in accordance with revised TILA Section 127(i) 
in some cases as much as 45 days prior to the August 20, 2009 effective 
date, and prior to the publication of this interim final rule. 
Accordingly, for clarity and consistency, the Board believes the better 
interpretation is that creditors must begin to comply with amended TILA 
Section 127(i) (as implemented in amended Sec.  226.9(c)(2)) for 
change-in-terms notices provided on or after August 20, 2009.
    Notices required under Sec.  226.9(g). For rate increases due to 
the consumer's default or delinquency or as a penalty, the 15-day 
timing requirement of Sec.  226.9(c) currently does not apply. Current 
Sec.  226.9(c)(1) states only that notice of the increase must be given 
before the effective date of the change. Therefore, the relevant date 
for purposes of penalty rate increases generally is the date on which 
the increase becomes effective. For example, if a consumer makes a late 
payment on August 10, 2009 that triggers penalty pricing, a creditor 
may increase the rate effective on or before August 19, 2009 in 
compliance with existing Regulation Z, and need not provide 45 days' 
advance notice of the change.
    The Board is aware that there may be some circumstances in which a 
consumer's behavior prior to August 20, 2009 triggers a penalty rate, 
but a creditor may be unable to implement that rate increase prior to 
August 20, 2009. For example, a consumer may make a late payment on 
August 15, 2009 that triggers a penalty rate, but the creditor may not 
be able to implement that rate increase until August 25, 2009 for 
operational reasons. In these circumstances, the Board believes that 
requiring 45 days' advance notice prior to the imposition of the 
penalty rate would not be appropriate, because it would in effect 
require compliance with new Sec.  226.9(g) prior to the August 20 
effective date. Therefore, for such penalty rate increases that are 
triggered, but cannot be implemented, prior to August 20, 2009, a 
creditor must either provide the consumer, prior to August 20, 2009, 
with a written notice disclosing the impending rate increase and its 
effective date, or must comply with new Sec.  226.9(g). In the example 
described above, therefore, a creditor could mail to the consumer a 
notice on August 19, 2009 disclosing that the consumer has triggered a 
penalty rate increase that will be effective on August 25, 2009. If the 
creditor mailed such a notice, it would not be required to comply with 
new Sec.  226.9(g). This transition guidance applies only to penalty 
rate increases triggered prior to August 20, 2009; if a consumer 
engages in behavior that triggers penalty pricing on August 20, 2009, 
the creditor must comply with new Sec.  226.9(g) and, accordingly, must 
provide the consumer with a notice at least 45 days in advance of the 
effective date of the increase.
    Promotional rates.\22\ Some creditors may have outstanding 
promotional rate programs that were in place before the effective date 
of this interim final rule, but under which the promotional rate

[[Page 36092]]

will not expire until after August 20, 2009. For example, a creditor 
may have offered its consumers a 5% promotional rate on purchases 
beginning on September 1, 2008 that will be increased to 15% effective 
as of September 1, 2009. Such creditors may have concerns about whether 
the disclosures that they have provided to consumers in accordance with 
these arrangements are sufficient to qualify for the exception in Sec.  
226.9(c)(2)(v)(B). The Board notes that Sec.  226.9(c)(2)(v)(B) of this 
interim final rule requires only clear and conspicuous written 
disclosures of the term of the promotional rate and the rate that will 
apply when the promotional rate expires. The Board anticipates that 
many creditors offering such a promotional rate program already will 
have complied with these advance notice requirements in connection with 
offering the promotional program.
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    \22\ For simplicity, the Board refers in this subsection to 
``promotional rates.'' However, pursuant to new comment 9(c)(2)(v)-
6, this transition guidance is intended to apply equally to deferred 
interest or similar programs.
---------------------------------------------------------------------------

    The Board is nonetheless aware that some other creditors may be 
uncertain whether written disclosures provided at the time an existing 
promotional rate program was offered are sufficient to comply with the 
exception in Sec.  226.9(c)(2)(v)(B). For example, for promotional rate 
offers provided after August 20, 2009, the disclosure under Sec.  
226.9(c)(2)(v)(B)(1) must include the rate that will apply after the 
expiration of the promotional period. For an existing promotional rate 
program, a creditor might instead have disclosed this rate narratively, 
for example by stating that the rate that will apply after expiration 
of the promotional rate is the standard annual percentage rate 
applicable to purchases. The Board does not believe that it is 
appropriate to require a creditor that generally provided disclosures 
consistent with Sec.  226.9(c)(2)(v)(B), but that are technically not 
compliant because they described the post-promotional rate narratively, 
to provide consumers with 45 days' advance notice and the right to 
reject the change, before expiration of the promotional period. This 
would have the impact of imposing the requirements of this interim 
final rule retroactively, to disclosures given prior to the August 20, 
2009 effective date. Therefore, a creditor that generally made 
disclosures prior to August 20, 2009 complying with Sec.  
226.9(c)(2)(v)(B) but that describe the type of post-promotional rate 
rather than disclosing the actual rate is not required to provide an 
additional notice pursuant to Sec.  226.9(c)(2) before expiration of 
the promotional rate in order to use the exception.
    Similarly, the Board acknowledges that there may be some creditors 
with outstanding promotional rate programs that did not make, or, 
without conducting extensive research, are not aware if they made, 
written disclosures of the length of the promotional period and the 
post-promotional rate. For example, some creditors may have made these 
disclosures orally. For the same reasons described in the foregoing 
paragraph, the Board believes that it would be inappropriate to 
preclude use of the Sec.  226.9(c)(2)(v)(B) exception by creditors 
offering these promotional rate programs. That interpretation of the 
rule would in effect require creditors to have complied with the 
precise requirements of the exception before the August 20, 2009 
effective date. However, the Board believes at the same time that it 
would be inconsistent with the intent of the Credit Card Act for 
creditors that provided no advance notice of the term of the promotion 
and the post-promotional rate to receive an exemption from the general 
notice requirements of Sec.  229.9(c)(2).
    Consequently, any creditor that provides a written disclosure to 
consumers subject to an existing promotional rate program, prior to 
August 20, 2009, stating the length of the promotional period and the 
rate or type of rate that will apply after that promotional rate 
expires is not required to provide an additional notice pursuant to 
Sec.  226.9(c)(2) prior to applying the post-promotional rate. In 
addition, any creditor that can demonstrate that it provided, prior to 
August 20, 2009, oral disclosures of the length of the promotional 
period and the rate or type of rate that will apply after the 
promotional period also need not provide an additional notice under 
Sec.  226.9(c)(2). However, any creditor subject to Sec.  226.9(c)(2) 
that has not provided advance notice of the term of a promotion and the 
rate that will apply upon expiration of that promotion in the manner 
described above prior to August 20, 2009 will be required to provide 45 
days' advance notice containing the content set forth in this interim 
final rule before raising the rate.
    Right to reject. New Sec.  226.9(h) is predicated on the provision 
of a notice containing a disclosure of the consumer's right to reject, 
which is required by new Sec.  226.9(c) and (g) but is not required by 
current Sec.  226.9. Thus, new Sec.  226.9(h) applies to the same 
extent as revised Sec.  226.9(c) and new Sec.  226.9(g). For example, 
because a creditor providing a change-in-terms notice on August 15, 
2009 is required to comply with the requirements of current Sec.  
226.9(c) rather than revised Sec.  226.9(c), the creditor is not 
required to provide the consumer with the right to reject that change 
pursuant to new Sec.  226.9(h). If, however, that notice were provided 
on August 20 and new Sec.  226.9(c)(2)(iv) required disclosure of the 
right to reject, the requirements in new Sec.  226.9(h) would apply.
    Similarly, because current Sec.  226.9 permits a creditor to 
increase a rate due to the consumer's delinquency or default or as a 
penalty without providing 15 days' advance notice, a creditor that 
increases a rate for these reasons effective on or before August 19, 
2009 or provides notice of such an increase on or before August 19, 
2009 is not required to provide the consumer with the right to reject 
that increase pursuant to new Sec.  226.9(h). If, however, new Sec.  
226.9(g)(3) applies to the increase, the requirements in new Sec.  
226.9(h) also would apply.
    Finally, the exception in Sec.  226.9(h)(3)(i) for accounts that 
are more than 60 days delinquent applies even if the delinquency began 
prior to the August 20, 2009 effective date. For example, if the 
required minimum periodic payment due on July 15, 2009 has not been 
received by September 14, 2009, the exception in Sec.  226.9(h)(3)(i) 
applies.

IV. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an 
initial and final regulatory flexibility analysis only when 15 U.S.C. 
553 requires publication of a notice of proposed rulemaking. See 5 
U.S.C. 603(a), 604(a). As discussed in II. Statutory Authority, 
however, the Board has found good cause under 5 U.S.C. 553(b)(B) to 
conclude that, with respect to this interim final rule, publication of 
a notice of proposed rulemaking is impracticable and unnecessary. 
Accordingly, the Board is not required to perform an initial or final 
regulatory flexibility analysis. Nonetheless, in order to solicit 
additional information from small entities subject to the interim final 
rule, the Board is publishing an initial regulatory flexibility 
analysis relying, in large part, on the regulatory flexibility analyses 
conducted for the Board's January 2009 Regulation Z Rule and the 
January 2009 FTC Act Rule.
    As discussed in III. Section-by-Section Analysis, the interim final 
rule is similar in most respects to rules adopted by the Board and the 
other Agencies in the January 2009 Regulation Z Rule and the January 
2009 FTC Act Rule. Prior to adopting those rules, the Board conducted 
initial and final regulatory flexibility analyses and ultimately 
concluded that the rules would have a significant economic impact on a 
substantial number of small entities. See 72 FR 32948, 33033-33034

[[Page 36093]]

(June 14, 2007); 73 FR 28866, 28887-28888 (May 19, 2008); 73 FR 28904, 
28933-28934 (May 19, 2008); 74 FR 5390-5393; 74 FR 5548-5550. Because 
the interim final rule does not alter the substance of the analyses and 
determinations accompanying the January 2009 rules, the Board continues 
to rely on those analyses and determinations for purposes of this 
rulemaking.\23\
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    \23\ The Board recognizes, however, that while the January 2009 
FTC Act Rule applies only to consumer credit card accounts, the 
requirement in the Credit Card Act and the interim final rule that 
periodic statements be mailed or delivered at least 21 days before 
the payment due date and grace period expiration date applies to all 
open-end consumer credit plans (including home equity lines of 
credit accessed by a credit card). Although the Board does not have 
sufficient information to quantify the effect of this specific 
aspect of the rule on small entities, this additional requirement 
supports the Board's overall conclusion that the interim final rule 
will have a significant economic impact on a substantial number of 
small entities.
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    In particular, the Board notes that, although the January 2009 
rules did not include a right to reject increases in annual percentage 
rates and other significant changes to the terms of the account 
agreement, the requirements in new Sec.  226.9(h) do not create 
significant new burdens that would alter the Board's prior regulatory 
flexibility analyses and determinations. To the extent that new Sec.  
226.9(h) prohibits creditors from applying an increased rate to a 
credit card account if the consumer rejects the increase, it is no more 
restrictive than 12 CFR 227.24 in the January 2009 FTC Act Rule, which 
generally prohibited such increases regardless of the consumer's 
acceptance or rejection. See 74 FR 5560. Furthermore, insofar as new 
Sec.  226.9(h) prohibits creditors from applying rate increases and 
other significant changes in terms if the consumer exercises the right 
to reject, many creditors are already subject to similar requirements 
under existing state laws.\24\
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    \24\ See, e.g., Ala. Code Sec.  5-20-5; 5 Del. Code Sec.  952; 
Off. Code of Ga. Sec.  7-5-4; Nev. Rev. Stat. Sec.  97A.140; S.D. 
Codified Laws Sec.  54-11-10; Utah Code Sec.  70C-4-102.
---------------------------------------------------------------------------

    Reasons, statement of objectives and legal basis for the interim 
final rule. The interim final rule implements a number of new 
substantive and disclosure provisions required by the Credit Card Act, 
which establishes fair and transparent practices relating to the 
extension of open-end consumer credit plans. The supplementary 
information above describes in detail the reasons, objectives, and 
legal basis for each component of the proposed rules.
    Description of small entities affected by the interim final rule. 
All creditors that offer open-end credit plans are subject to the 
interim final rule. The Board is relying on its analysis in the January 
2009 Regulation Z Rule, in which the Board provided data on the number 
of entities that may be affected because they offer open-end credit 
plans. The Board acknowledges, however, that the total number of small 
entities likely to be affected by the interim final rule is unknown, 
because the open-end credit provisions of the Credit Card Act and 
Regulation Z have broad applicability to individuals and businesses 
that extend even small amounts of consumer credit. (For a detailed 
description of the Board's analysis of small entities subject to the 
January 2009 Regulation Z Rule, see 74 FR 5391.) The Board invites 
comment on the effect of the interim final rule on small entities.
    Projected reporting, recordkeeping and compliance requirements of 
the interim final rule. The compliance requirements of this interim 
final rule are described above in III. Section-by-Section Analysis. The 
Board notes that the precise costs to small entities to conform their 
open-end credit disclosures to the interim final rule and the costs of 
updating their systems to comply with the rule 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 seeks information and comment on any 
costs, compliance requirements, or changes in operating procedures 
arising from the application of the interim final rule to small 
entities.
    Other federal rules. As discussed in I. Background and 
Implementation of the Credit Card Act, although the Board previously 
issued similar rules in its January 2009 Regulation Z Rule and its 
January 2009 FTC Act Rule, the Board is not currently withdrawing any 
provisions of the January 2009 rules. Instead, the Board anticipates 
that in connection with finalizing rules for the provisions of the 
Credit Card Act that are effective February 22, 2010, it will amend or 
withdraw those portions of the January 2009 rules that are inconsistent 
with the requirements of the Credit Card Act.
    Significant alternatives to the interim final rule. As noted above, 
the core provisions of this interim final rule implement the statutory 
requirements of the Credit Card Act that are effective on August 20, 
2009. The Board has implemented these requirements so as to minimize 
burden, while retaining benefits to consumers. In doing so, the Board 
was informed by consumer testing conducted and comments received in 
connection with the January 2009 rules. The Board welcomes comment on 
any significant alternatives, consistent with the Credit Card Act, that 
would minimize the impact of the interim final rule on small entities.

V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR part 1320 Appendix A.1) (PRA), the Board has reviewed the 
interim final rule under the authority delegated to the Board by the 
Office of Management and Budget. The collections of information that 
are required by the interim final rule are found in Sec.  226.9(c) and 
(g). The Federal Reserve may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless the information collection displays a currently valid OMB 
control number. The OMB control number is 7100-0199.
    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). The respondents/
recordkeepers are creditors and other entities subject to Regulation Z, 
including for-profit financial institutions and small businesses. Since 
the Federal Reserve does not collect any information, no issue of 
confidentiality arises. The current total annual burden to comply with 
the provisions of Regulation Z is estimated to be 734,127 hours for the 
1,138 Federal Reserve-regulated institutions that are deemed to be 
respondents for the purposes of the PRA.
    As discussed in III. Section-by-Section Analysis, however, the 
amended Sec.  226.9(c) and new Sec.  226.9(g) in the interim final rule 
are substantially similar to the amended Sec.  226.9(c) and new Sec.  
226.9(g) in the Board's January 2009 Regulation Z Rule. Although Sec.  
226.9(g) in the interim final rule includes a requirement that 
creditors disclose the consumer's right to reject an increased rate or 
changed term, the effect should be negligible since many creditors are 
already required to provide a similar disclosure under existing state 
laws.\25\ Moreover, those creditors not currently subject to such state 
laws must simply include a brief statement of the consumer's right to 
reject in the existing

[[Page 36094]]

notice for an increased rate or changed term. The rule does not require 
that a separate, detached disclosure of the right to reject be provided 
to the consumer. Accordingly, because the interim final rule does not 
alter the substance of the Board's PRA analysis with respect to the 
January 2009 final rule (Docket No. R-1286), the Board continues to 
rely on that analysis, as reported in accordance with those estimates 
in documents filed with OMB, for purposes of this rulemaking. See 74 FR 
5392-5393.
---------------------------------------------------------------------------

    \25\ See, e.g., Ala. Code Sec.  5-20-5; 5 Del. Code Sec.  952; 
Off. Code of Ga. Sec.  7-5-4; Nev. Rev. Stat. Sec.  97A.140; S.D. 
Codified Laws Sec.  54-11-10; Utah Code Sec.  70C-4-102.
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 226

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

Text of Interim Final Revisions

0
For the reasons set forth in the preamble, the Board amends Regulation 
Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 226 is amended to read as follows:

    Authority:  12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and 
1639(l); Pub. L. 111-24 Sec.  2, 123 Stat. 1734.


0
2. Section 226.5 is amended by revising paragraph (b)(2)(ii) to read as 
follows:


Sec.  226.5  General disclosure requirements.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Creditors must adopt reasonable procedures designed to ensure 
that periodic statements are mailed or delivered at least 21 days prior 
to the payment due date and the date on which any grace period 
expires.\10\ A creditor that fails to meet this requirement shall not 
treat a payment as late for any purpose or collect any finance or other 
charge imposed as a result of such failure. For purposes of this 
paragraph, ``grace period'' means a period within which any credit 
extended may be repaid without incurring a finance charge due to a 
periodic interest rate.
---------------------------------------------------------------------------

    \10\ Reserved.
---------------------------------------------------------------------------

0
3. Section 226.9 is amended as follows:
0
A. Paragraph (c) is revised.
0
B. New paragraphs (g) and (h) are added.


Sec.  226.9  Subsequent disclosure requirements.

* * * * *
    (c) Change in terms--(1) Rules affecting home-equity plans and 
open-end plans that are not credit card accounts. (i) Written notice 
required. For home-equity plans subject to the requirements of Sec.  
226.5b and other open-end plans that are not credit card accounts, 
whenever any term required to be disclosed under Sec.  226.6 is changed 
or the required minimum periodic payment is increased, the creditor 
shall mail or deliver written notice of the change to each consumer who 
may be affected. The notice shall be mailed or delivered at least 15 
days prior to the effective date of the change. The 15-day timing 
requirement does not apply if the change has been agreed to by the 
consumer, or if a periodic rate or other finance charge is increased 
because of the consumer's delinquency or default; the notice shall be 
given, however, before the effective date of the change.
    (ii) Notice not required. For home-equity plans subject to the 
requirements of Sec.  226.5b and other open-end plans that are not 
credit card accounts, no notice under this section is required when the 
change involves late payment charges, charges for documentary evidence, 
or over-the-limit charges; a reduction of any component of a finance or 
other charge; suspension of future credit privileges or termination of 
an account or plan; or when the change results from an agreement 
involving a court proceeding, or from the consumer's default or 
delinquency (other than an increase in the periodic rate or other 
finance charge).
    (iii) Notice for home equity plans. If a creditor prohibits 
additional extensions of credit or reduces the credit limit applicable 
to a home equity plan pursuant to Sec.  226.5b(f)(3)(i) or Sec.  
226.5b(f)(3)(vi), the creditor shall mail or deliver written notice of 
the action to each consumer who will be affected. The notice must be 
provided not later than three business days after the action is taken 
and shall contain specific reasons for the action. If the creditor 
requires the consumer to request reinstatement of credit privileges, 
the notice also shall state that fact.
    (2) Rules affecting credit card accounts that are not home-
secured--(i) Changes where written advance notice is required. For 
credit card accounts under an open-end (not home-secured) consumer 
credit plan, except as provided in paragraph (c)(2)(v) of this section, 
whenever a significant change to an account term as described in 
paragraph (c)(2)(ii) is made or the required minimum periodic payment 
is increased, a creditor must provide a written notice of the change at 
least 45 days prior to the effective date of the change to each 
consumer who may be affected. The 45-day timing requirement does not 
apply if the consumer has agreed to a particular change; the notice 
shall be given, however, before the effective date of the change.
    (ii) Significant changes in account terms. The notice requirements 
of paragraph (c)(2)(i) of this section apply to changes in the 
following terms:
    (A) Annual percentage rates. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer. For purposes of this paragraph, 
such rates include any discounted initial rate, premium initial rate, 
or penalty rate that may be applied to the account.
    (B) Fees for issuance or availability. Any annual or other periodic 
fee that may be imposed for the issuance or availability of a credit 
card account under an open-end (not home-secured) consumer credit plan, 
including any fee based on account activity or inactivity.
    (C) Fixed finance charge; minimum interest charge. Any fixed 
finance charge and any minimum interest charge if it exceeds $1.00 that 
could be imposed during a billing cycle. The creditor may, at its 
option, provide notice in accordance with paragraph (c)(2)(i) of this 
section for changes in minimum interest charges below this threshold.
    (D) Transaction charges. Any transaction charge imposed by the 
creditor for use of the credit card account under an open-end (not 
home-secured) consumer credit plan for purchases.
    (E) Grace period. The date by which or the period within which any 
credit extended may be repaid without incurring a finance charge due to 
a periodic interest rate and any conditions on the availability of the 
grace period.
    (F) Balance computation method. The balance computation method that 
is used to determine the balance on which the finance charge is 
computed for each feature.
    (G) Cash advance fee. Any fee imposed for an extension of credit in 
the form of cash or its equivalent.
    (H) Late payment fee. Any fee imposed for a late payment.
    (I) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (J) Balance transfer fee. Any fee imposed to transfer an 
outstanding balance.
    (K) Returned-payment fee. Any fee imposed by the creditor for a 
returned payment.
    (L) Required insurance, debt cancellation, or debt suspension 
coverage. A fee for insurance described

[[Page 36095]]

in Sec.  226.4(b)(7), debt cancellation coverage described in Sec.  
226.4(b)(10), or debt suspension coverage written in connection with a 
credit transaction, if the insurance, debt cancellation coverage, or 
debt suspension coverage is required as part of the plan.
    (iii) Charges not covered by Sec.  226.9(c)(2)(i). Except as 
provided in paragraph (c)(2)(v) of this section, if a creditor 
increases any component of a charge on a credit card account under an 
open-end (not home-secured) consumer credit plan, or introduces a new 
charge, that is not subject to the disclosure requirements under Sec.  
226.9(c)(2)(i), a creditor may either, at its option:
    (A) Comply with the requirements of paragraph (c)(2)(i) of this 
section; or
    (B) Provide notice of the amount of the charge before the consumer 
agrees to or becomes obligated to pay the charge, at a time and in a 
manner that a consumer would be likely to notice the disclosure of the 
charge. The notice may be provided orally or in writing.
    (iv) Disclosure requirements--changes to terms described in 
paragraph (c)(2)(i). If a creditor changes a term described in 
paragraph (c)(2)(ii) of this section or increases the required minimum 
periodic payment, the creditor must provide the following information 
on the notice provided pursuant to paragraph (c)(2)(i) of this section:
    (A) A description of the changes made to terms described in 
paragraph (c)(2)(ii) of this section or of any increase in the required 
minimum periodic payment;
    (B) A statement that changes are being made to the account;
    (C) The date the changes will become effective; and
    (D) Except in the case of an increase in the required minimum 
periodic payment:
    (1) A statement that the consumer has the right to reject the 
change or changes prior to the effective date of the changes, unless 
the consumer fails to make a required minimum periodic payment within 
60 days after the due date for that payment;
    (2) Instructions for rejecting the change or changes, and a toll-
free telephone number that the consumer may use to notify the creditor 
of the rejection; and
    (3) If applicable, a statement that if the consumer rejects the 
change or changes, the consumer's ability to use the account for 
further advances will be terminated or suspended.
    (v) Notice not required. For credit card accounts under an open-end 
(not home-secured) consumer credit plan, a creditor is not required to 
provide notice under this section:
    (A) When the change involves charges for documentary evidence; a 
reduction of any component of a finance or other charge; suspension of 
future credit privileges (except as provided in paragraph (c)(2)(vi) of 
this section) or termination of an account or plan; or when the change 
results from an agreement involving a court proceeding;
    (B) When the change is an increase in an annual percentage rate 
upon the expiration of a specified period of time, provided that:
    (1) Prior to commencement of that period, the creditor disclosed in 
writing to the consumer, in a clear and conspicuous manner, the length 
of the period and the annual percentage rate that would apply after 
expiration of the period; and
    (2) The annual percentage rate that applies after that period does 
not exceed the rate disclosed pursuant to paragraph (c)(2)(v)(B)(1) of 
this paragraph.
    (C) When the change is an increase in a variable annual percentage 
rate in accordance with a credit card agreement that provides for 
changes in the rate according to operation of an index that is not 
under the control of the creditor and is available to the general 
public; or
    (D) When the change is an increase in an annual percentage rate due 
to the completion of a workout or temporary hardship arrangement by the 
consumer, provided that:
    (1) The annual percentage rate applicable to a category of 
transactions following any such increase does not exceed the rate that 
applied to that category of transactions prior to commencement of the 
arrangement or, if the rate that applied to a category of transactions 
prior to the commencement of the workout or temporary hardship 
arrangement was a variable rate, the rate following any such increase 
is a variable rate determined by the same formula (index and margin) 
that applied to the category of transactions prior to commencement of 
the workout or temporary hardship arrangement; and
    (2) The creditor has provided the consumer, prior to the 
commencement of such arrangement, with a clear and conspicuous written 
disclosure of the terms of the arrangement (including any increases due 
to such completion).
    (vi) Reduction of the credit limit. For credit card accounts under 
an open-end (not home-secured) consumer credit plan, if a creditor 
decreases the credit limit on an account, advance notice of the 
decrease must be provided before an over-the-limit fee or a penalty 
rate can be imposed solely as a result of the consumer exceeding the 
newly decreased credit limit. Notice shall be provided in writing or 
orally at least 45 days prior to imposing the over-the-limit fee or 
penalty rate and shall state that the credit limit on the account has 
been or will be decreased.
* * * * *
    (g) Increase in rates due to delinquency or default or as a 
penalty--(1) Increases subject to this section. For credit card 
accounts under an open-end (not home-secured) consumer credit plan, 
except as provided in paragraph (g)(4) of this section, a creditor must 
provide a written notice to each consumer who may be affected when:
    (i) A rate is increased due to the consumer's delinquency or 
default; or
    (ii) A rate is increased as a penalty for one or more events 
specified in the account agreement, such as making a late payment or 
obtaining an extension of credit that exceeds the credit limit.
    (2) Timing of written notice. Whenever any notice is required to be 
given pursuant to paragraph (g)(1) of this section, the creditor shall 
provide written notice of the increase in rate at least 45 days prior 
to the effective date of the increase. The notice must be provided 
after the occurrence of the events described in paragraphs (g)(1)(i) 
and (g)(1)(ii) of this section that trigger the imposition of the rate 
increase.
    (3) Disclosure requirements for rate increases. If a creditor is 
increasing the rate due to delinquency or default or as a penalty, the 
creditor must provide the following information on the notice sent 
pursuant to paragraph (g)(1) of this section:
    (i) A statement that the delinquency or default rate or penalty 
rate, as applicable, has been triggered;
    (ii) The date on which the delinquency or default rate or penalty 
rate will apply;
    (iii) 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;
    (iv) A statement that the consumer has the right to reject the 
increase in the annual percentage rate prior to the effective date of 
that increase, unless the consumer fails to make a required minimum 
periodic payment within 60 days after the due date for that payment;
    (v) Instructions for rejecting the change or changes, and a toll-
free telephone number that the consumer may use to notify the creditor 
of the rejection; and
    (vi) If applicable, a statement that if the consumer rejects the 
change or changes, the consumer's ability to use the account for 
further advances will be terminated or suspended.

[[Page 36096]]

    (4) Exceptions--(i) Workout or temporary hardship arrangements. A 
creditor is not required to provide a notice pursuant to paragraph 
(g)(1) of this section if a rate applicable to a category of 
transactions 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 or temporary hardship arrangement between the 
creditor and the consumer, provided that:
    (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 or temporary hardship arrangement or, if the rate that 
applied to a category of transactions prior to the commencement of the 
workout or temporary hardship arrangement was a variable rate, the rate 
following any such increase is a variable rate determined by the same 
formula (index and margin) that applied to the category of transactions 
prior to commencement of the workout or temporary hardship arrangement; 
and
    (B) The creditor has provided the consumer, prior to the 
commencement of such arrangement, with a clear and conspicuous written 
disclosure of the terms of the arrangement (including any increases due 
to such failure).
    (ii) Decrease in credit limit. A creditor is not required to 
provide, prior to increasing the rate for obtaining an extension of 
credit that exceeds the credit limit, a notice pursuant to paragraph 
(g)(1) of this section, provided that:
    (A) The creditor provides at least 45 days in advance of imposing 
the penalty rate a notice, in writing, that includes:
    (1) A statement that the credit limit on the account has been or 
will be decreased;
    (2) A statement indicating the date on which the penalty rate will 
apply, if the outstanding balance exceeds the credit limit as of that 
date;
    (3) A statement that the penalty rate will not be imposed on the 
date specified in paragraph (g)(4)(ii)(A)(2) of this section, if the 
outstanding balance does not exceed the credit limit as of that date;
    (4) The circumstances under which the penalty rate, if applied, 
will cease to apply to the account, or that the penalty rate, if 
applied, will remain in effect for a potentially indefinite time 
period; and
    (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 (g)(4)(ii)(A)(2) of this section.
    (h) Consumer rejection of significant change in terms or increase 
in annual percentage rate--(1) Right to reject. If paragraph (c)(2)(iv) 
or (g)(3) of this section requires disclosure of the consumer's right 
to reject a significant change to an account term or other increase in 
an annual percentage rate, the consumer may reject that change or 
increase by notifying the creditor of the rejection before the 
effective date of the change or increase.
    (2) Effect of rejection. If a creditor is notified of a rejection 
of a significant change to an account term or other increase in an 
annual percentage rate as provided in paragraph (h)(1) of this section, 
the creditor must not:
    (i) Apply the change or increase to the account;
    (ii) Impose a fee or charge or treat the account as in default 
solely as a result of the rejection; or
    (iii) Require repayment of the balance on the account using a 
method that is less beneficial to the consumer than one of the 
following methods:
    (A) The method of repayment for the account on the date on which 
the creditor was notified of the rejection;
    (B) An amortization period of not less than five years, beginning 
no earlier than the date on which the creditor was notified of the 
rejection; or
    (C) A required minimum periodic payment that includes a percentage 
of the balance that is equal to no more than twice the percentage 
required on the date on which the creditor was notified of the 
rejection.
    (3) Exceptions. This section does not apply:
    (i) When the creditor has not received the consumer's required 
minimum periodic payment within 60 days after the due date for that 
payment; or
    (ii) To transactions that occur more than 14 days after provision 
of the notice required by paragraphs (c) or (g) of this section.

0
4. In Supplement I to Part 226 Subpart B:
0
A. Under Section 226.5--General Disclosure Requirements, paragraph 
5(b)(2)(ii):
0
i. Paragraphs 1., 2., and 3. are revised;
0
ii. Paragraphs 4., 5., and 6. are added.
0
B. Under Section 226.7--Periodic Statement, paragraphs 3.iv 
introductory text and 3.iv.D are revised.
0
C. Under Section 226.9--Subsequent Disclosure Requirements:
0
i. Paragraph 9(c) is revised;
0
ii. Paragraph 9(g) is added; and
0
iii. Paragraph 9(h) is added.

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart B--Open-End Credit

Section 226.5 General Disclosure Requirements.

* * * * *
    5(b) Time of Disclosures.
* * * * *
    5(b)(2) Periodic Statements.
* * * * *
    Paragraph (b)(2)(ii).
    1. Reasonable procedures. A creditor is not required to 
determine the specific date on which periodic statements are mailed 
or delivered to each individual consumer. A creditor complies with 
Sec.  226.5(b)(2)(ii) if it has adopted reasonable procedures 
designed to ensure that periodic statements are mailed or delivered 
to consumers no later than a certain number of days after the 
closing date of the billing cycle and adds that number of days to 
the 21-day period required by Sec.  226.5(b)(2)(ii) when determining 
the payment due date and the date on which any grace period expires. 
For example, if a creditor has adopted reasonable procedures 
designed to ensure that periodic statements are mailed or delivered 
to consumers no later than three days after the closing date of the 
billing cycle, the payment due date and the date on which any grace 
period expires must be no less than 24 days after the closing date 
of the billing cycle.
    2. Treating a payment as late for any purpose. Treating a 
payment as late for any purpose includes increasing the annual 
percentage rate as a penalty, reporting the consumer as delinquent 
to a credit reporting agency, or assessing a late fee or any other 
fee based on the consumer's failure to make a payment within a 
specified amount of time or by a specified date. When an account is 
not eligible or ceases to be eligible for a grace period, imposing a 
finance charge due to a periodic interest rate does not constitute 
treating a payment as late for purposes of Sec.  226.5(b)(2)(ii).
    3. Payment due date. For purposes of Sec.  226.5(b)(2)(ii), 
``payment due date'' means the date by which the creditor requires 
the consumer to make the required minimum periodic payment in order 
to avoid being treated as late for any purpose, except as set forth 
in paragraphs i. and ii. below.
    i. Courtesy period following payment due date. Although the 
terms of the account agreement may require that payment be made by a 
certain date, some creditors provide an additional period of time 
after that date during which a late payment fee will not be 
assessed. In some cases, this period is set forth in the account 
agreement while in others it is provided as an informal policy or 
practice. Regardless, for purposes of Sec.  226.5(b)(2)(ii), the 
payment due date is the due date according to the legal obligation 
between the parties, not the end of the additional period of time. 
For example, if an account agreement for a home equity plan subject 
to the requirements of Sec.  226.5b provides that payment is due on 
the first day of the month but a late payment fee will not be 
assessed if the payment is received by the fifteenth day of the 
month, the payment due date for purposes of Sec.  226.5(b)(2)(ii) is 
the first day of the month. Similarly, if a

[[Page 36097]]

cardholder agreement provides that payment is due on the fifteenth 
day of the month but, under the creditor's informal ``courtesy'' 
period, a late payment fee will not be assessed if the payment is 
received by the eighteenth day of the month, the payment due date 
for purposes of Sec.  226.5(b)(2)(ii) is the fifteenth day of the 
month.
    ii. Laws affecting assessment of late payment and other fees. 
Some state or other laws require that a certain number of days must 
elapse following a due date before a late payment or other fee may 
be imposed. For example, assume that the account agreement provides 
that payment is due on the fifteenth day of the month but, under 
state law, the creditor is prohibited from assessing a late payment 
fee until the twenty-sixth day of the month. For purposes of Sec.  
226.5(b)(2)(ii), the payment due date is the due date according to 
the legal obligation between the parties (the fifteenth day of the 
month), not the date before which state law prohibits the imposition 
of a late payment fee (the twenty-sixth day of the month).
    4. Definition of grace period. For purposes of Sec.  
226.5(b)(2)(ii), ``grace period'' means a period within which any 
credit extended may be repaid without incurring a finance charge due 
to a periodic interest rate. A deferred interest or similar 
promotional program under which the consumer is not obligated to pay 
interest that accrues on a balance if that balance is paid in full 
prior to the expiration of a specified period of time is not a grace 
period for purposes of Sec.  226.5(b)(2)(ii). Similarly, a courtesy 
period following the payment due date is not a grace period for 
purposes of Sec.  226.5(b)(2)(ii). See comment 5(b)(2)(ii)-3.i.
    5. Consumer request to pick up periodic statements. When a 
consumer initiates a request, the creditor may permit, but may not 
require, the consumer to pick up periodic statements. If the 
consumer wishes to pick up a statement, the statement must be made 
available in accordance with Sec.  226.5(b)(2)(ii).
    6. Deferred-payment transactions. See comment 7-3.iv.
* * * * *

Section 226.7 Periodic Statement

* * * * *
    3. * * *
    iv. Free-ride or grace period. Assuming monthly billing cycles 
ending at month-end and a free-ride or grace period ending on the 
25th of the following month, here are four examples illustrating how 
a creditor may comply with the requirement to disclose the free-ride 
or grace period applicable to a deferred payment balance ($500 in 
this example) and with the 21-day rule for mailing or delivering 
periodic statements (see Sec.  226.5):
* * * * *
    D. If the due date for the deferred payment 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 21 days prior to the due date.
* * * * *

Section 226.9 Subsequent Disclosure Requirements

* * * * *
    9(c) Change in terms.
    9(c)(1) Rules affecting home-equity plans and open-end plans 
that are not credit card accounts.
    1. Changes initially disclosed. No notice of a change in terms 
need be given if the specific change is set forth initially, such 
as: rate increases under a properly disclosed variable-rate plan, a 
rate increase that occurs when an employee has been under a 
preferential rate agreement and terminates employment, or an 
increase that occurs when the consumer has been under an agreement 
to maintain a certain balance in a savings account in order to keep 
a particular rate and the account balance falls below the specified 
minimum. In contrast, notice must be given if the contract allows 
the creditor to increase the rate at its discretion but does not 
include specific terms for an increase (for example, when an 
increase may occur under the creditor's contract reservation right 
to increase the periodic rate). The rules in Sec.  226.5b(f) 
relating to home-equity plans, however, limit the ability of a 
creditor to change the terms of such plans.
    2. State law issues. Examples of issues not addressed by Sec.  
226.9(c)(1) because they are controlled by state or other applicable 
law include:
    i. The types of changes a creditor may make. (But see Sec.  
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. Change in billing cycle. Whenever the creditor changes the 
consumer's billing cycle, it must give a change-in-terms notice if 
the change either affects any of the terms required to be disclosed 
under Sec.  226.6 or increases the minimum payment, unless an 
exception under Sec.  226.9(c)(1)(ii) applies; for example, the 
creditor must give advance notice if the creditor initially 
disclosed a 25-day free-ride period on purchases and the consumer 
will have fewer days during the billing cycle change.
    9(c)(1)(i) Written notice required.
    1. Affected consumers. Change-in-terms notices need only go to 
those consumers who may be affected by the change. For example, a 
change in the periodic rate for check overdraft credit need not be 
disclosed to consumers who do not have that feature on their 
accounts.
    2. Timing--effective date of change. The rule that the notice of 
the change in terms be provided at least 15 days before the change 
takes effect permits mid-cycle changes when there is clearly no 
retroactive effect, such as the imposition of a transaction fee. Any 
change in the balance computation method, in contrast, would need to 
be disclosed at least 15 days prior to the billing cycle in which 
the change is to be implemented.
    3. Timing--advance notice not required. Advance notice of 15 
days is not necessary--that is, a notice of change in terms is 
required, but it may be mailed or delivered as late as the effective 
date of the change--in two circumstances:
    i. If there is an increased periodic rate or any other finance 
charge attributable to the consumer's delinquency or default.
    ii. If the consumer agrees to the particular change. This 
provision is intended for use in the unusual instance when a 
consumer substitutes collateral or when the creditor can advance 
additional credit only if a change relatively unique to that 
consumer is made, such as the consumer's providing additional 
security or paying an increased minimum payment amount. Therefore, 
the following are not ``agreements'' between the consumer and the 
creditor for purposes of Sec.  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. Form of change-in-terms notice. A complete new set of the 
initial disclosures containing the changed term complies with Sec.  
226.9(c)(1)(i) if the change is highlighted in some way on the 
disclosure statement, or if the disclosure statement is accompanied 
by a letter or some other insert that indicates or draws attention 
to the term change.
    5. Security interest change--form of notice. A copy of the 
security agreement that describes the collateral securing the 
consumer's account may be used as the notice, when the term change 
is the addition of a security interest or the addition or 
substitution of collateral.
    6. Changes to home-equity plans entered into on or after 
November 7, 1989. Section 226.9(c)(1) applies when, by written 
agreement under Sec.  226.5b(f)(3)(iii), a creditor changes the 
terms of a home-equity plan--entered into on or after November 7, 
1989--at or before its scheduled expiration, for example, by 
renewing a plan on terms different from those of the original plan. 
In disclosing the change:
    i. If the index is changed, the maximum annual percentage rate 
is increased (to the limited extent permitted by Sec.  226.30), or a 
variable-rate feature is added to a fixed-rate plan, the creditor 
must include the disclosures required by Sec.  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 Sec.  226.5b(d)(5)(iii) 
(and, in variable-rate plans, the disclosures required by Sec.  
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 Sec.  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 Sec.  226.5b(f)(3)(iii), the advance-notice 
requirement does not apply.
    9(c)(1)(ii) Notice not required.
    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:

[[Page 36098]]

    i. A change in the consumer's credit limit.
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges. (But see 
Sec.  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. Skip features. If a credit program allows consumers to skip 
or reduce one or more payments during the year, or involves 
temporary reductions in finance charges, no notice of the change in 
terms is required either prior to the reduction or upon resumption 
of the higher rates or payments if these features are explained on 
the initial disclosure statement (including an explanation of the 
terms upon resumption). For example, a merchant may allow consumers 
to skip the December payment to encourage holiday shopping, or a 
teachers' credit union may not require payments during summer 
vacation. Otherwise, the creditor must give notice prior to resuming 
the original schedule or rate, even though no notice is required 
prior to the reduction. The change-in-terms notice may be combined 
with the notice offering the reduction. For example, the periodic 
statement reflecting the reduction or skip feature may also be used 
to notify the consumer of the resumption of the original schedule or 
rate, either by stating explicitly when the higher payment or 
charges resume, or by indicating the duration of the skip option. 
Language such as ``You may skip your October payment,'' or ``We will 
waive your finance charges for January,'' may serve as the change-
in-terms notice.
    9(c)(1)(iii) Notice for home-equity plans.
    1. Written request for reinstatement. If a creditor requires the 
request for reinstatement of credit privileges to be in writing, the 
notice under Sec.  226.9(c)(1)(iii) must state that fact.
    2. Notice not required. A creditor need not provide a notice 
under this paragraph if, pursuant to the commentary to Sec.  
226.5b(f)(2), a creditor freezes a line or reduces a credit line 
rather than terminating a plan and accelerating the balance.
    9(c)(2) Rules affecting credit card accounts that are not home-
secured.
    1. Changes initially disclosed. Except as provided in Sec.  
226.9(g)(1), no notice of a change in terms need be given if the 
specific change is set forth initially, such as rate increases under 
a properly disclosed variable-rate plan. In contrast, notice must be 
given if the contract allows the creditor to increase the rate at 
its discretion.
    2. State law issues. Some issues are not addressed by Sec.  
226.9(c)(2) because they are controlled by state or other applicable 
law. These issues include:
    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. Change in billing cycle. Whenever the creditor changes the 
consumer's billing cycle, it must give a change-in-terms notice if 
the change affects any of the terms described in Sec.  
226.9(c)(2)(i) and (c)(2)(ii), unless an exception under Sec.  
226.9(c)(2)(v) applies; for example, the creditor must give advance 
notice if the creditor initially disclosed a 28-day grace period on 
purchases and the consumer will have fewer days during the billing 
cycle change.
    9(c)(2)(i) Changes where written advance notice is required.
    1. Affected consumers. Change-in-terms notices need only go to 
those consumers who may be affected by the change. For example, a 
change in the periodic rate for check overdraft credit need not be 
disclosed to consumers who do not have that feature on their 
accounts. If a single credit account involves multiple consumers 
that may be affected by the change, the creditor should refer to 
Sec.  226.5(d) to determine the number of notices that must be 
given.
    2. Timing--effective date of change. The rule that the notice of 
the change in terms be provided at least 45 days before the change 
takes effect permits mid-cycle changes when there is clearly no 
retroactive effect, such as the imposition of a transaction fee. Any 
change in the balance computation method, in contrast, would need to 
be disclosed at least 45 days prior to the billing cycle in which 
the change is to be implemented.
    3. Timing--advance notice not required. Advance notice of 45 
days is not necessary--that is, a notice of change in terms is 
required, but it may be mailed or delivered as late as the effective 
date of the change, if the consumer agrees to the particular change. 
This provision is intended for use in the unusual instance when a 
consumer substitutes collateral or when the creditor can advance 
additional credit only if a change relatively unique to that 
consumer is made, such as the consumer's providing additional 
security or paying an increased minimum payment amount. Therefore, 
the following are not ``agreements'' between the consumer and the 
creditor for purposes of Sec.  226.9(c)(2)(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. Security interest change--form of notice. A copy of the 
security agreement that describes the collateral securing the 
consumer's account may be used as the notice, when the term change 
is the addition of a security interest or the addition or 
substitution of collateral.
    9(c)(2)(iii) Charges not covered by Sec.  226.9(c)(2)(i).
    1. Applicability. Generally, if a creditor increases any 
component of a charge, or introduces a new charge, for a credit card 
account under an open-end (not home-secured) consumer credit plan 
that is not subject to the disclosure requirements under Sec.  
226.9(c)(2)(i), the creditor may either, at its option (i) provide 
at least 45 days' written advance notice before the change becomes 
effective to comply with the requirements of Sec.  226.9(c)(2)(i), 
or (ii) provide notice orally or in writing, or electronically if 
the consumer requests the service electronically, of the amount of 
the charge to an affected consumer before the consumer agrees to or 
becomes obligated to pay the charge, at a time and in a manner that 
a consumer would be likely to notice the disclosure. For example, a 
fee for expedited delivery of a credit card is a charge on a credit 
card account under an open-end (not home-secured) consumer credit 
plan but is not described in Sec.  226.9(c)(2)(i). If a creditor 
changes the amount of that expedited delivery fee, the creditor may 
provide written advance notice of the change to affected consumers 
at least 45 days before the change becomes effective. Alternatively, 
the creditor may provide oral or written notice, or electronic 
notice if the consumer requests the service electronically, of the 
amount of the charge to an affected consumer before the consumer 
agrees to or becomes obligated to pay the charge, at a time and in a 
manner that the consumer would be likely to notice the disclosure.
    9(c)(2)(iv) Disclosure requirements--changes to terms described 
in paragraph (c)(2)(i).
    1. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required 
under Sec.  226.9(c)(2)(i).
    2. Form of change-in-terms notice. A complete new set of the 
initial disclosures containing the changed term complies with Sec.  
226.9(c)(2)(i) if the change is highlighted on the disclosure 
statement, or if the disclosure statement is accompanied by a letter 
or some other insert that indicates or draws attention to the term 
being changed.
    9(c)(2)(v) Notice not required.
    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:
    i. A change in the consumer's credit limit except as otherwise 
required by Sec.  226.9(c)(2)(vi).
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges.
    v. Changes arising merely by operation of law; for example, if 
the creditor's security interest in a consumer's car automatically 
extends to the proceeds when the consumer sells the car.
    2. Skip features. If a credit program allows consumers to skip 
or reduce one or more payments during the year, or involves 
temporary reductions in finance charges, no notice of the change in 
terms is required either prior to the reduction or upon resumption 
of the higher rates or payments if these features are explained on 
the account-opening disclosure statement (including an explanation 
of the terms upon resumption). For example, a merchant may allow 
consumers to skip the December payment to encourage holiday 
shopping, or a teacher's credit union may not require payments 
during summer vacation.

[[Page 36099]]

Otherwise, the creditor must give notice prior to resuming the 
original schedule or rate even though no notice is required prior to 
the reduction, unless the creditor has previously provided notice of 
an increase in the annual percentage rate upon the expiration of a 
specified period of time in accordance with Sec.  226.9(c)(v)(B).
    3. Changing from a variable rate to a non-variable rate. If a 
creditor is changing a rate applicable to a consumer's account from 
a variable rate to a non-variable rate, the creditor must provide a 
notice as otherwise required under Sec.  226.9(c) even if the 
variable rate at the time of the change is higher than the non-
variable rate.
    4. Changing from a non-variable rate to a variable rate. If a 
creditor is changing a rate applicable to a consumer's account from 
a non-variable rate to a variable rate, the creditor must provide a 
notice as otherwise required under Sec.  226.9(c) even if the non-
variable rate is higher than the variable rate at the time of the 
change.
    5. Disclosure of annual percentage rates. If a rate disclosed 
pursuant to Sec.  226.9(c)(2)(v)(B) or (c)(2)(v)(D) is a variable 
rate, the creditor must disclose the fact that the rate may vary and 
how the rate is determined. For example, a creditor could state 
``After October 1, 2009, your APR will be 14.99%. This APR will vary 
with the market based on the Prime Rate.''
    6. Deferred interest or similar programs. If the applicable 
conditions are met, the exception in Sec.  226.9(c)(2)(v)(B) applies 
to deferred interest or similar promotional programs under which the 
consumer is not obligated to pay interest that accrues on a balance 
if that balance is paid in full prior to the expiration of a 
specified period of time. For such programs, a creditor must 
disclose pursuant to Sec.  226.9(c)(2)(v)(B)(1) the length of the 
deferred interest period and the rate that will apply to the balance 
subject to the deferred interest program if that balance is not paid 
in full prior to expiration of the deferred interest period. 
Examples of language that a creditor may use to make the required 
disclosures under Sec.  226.9(c)(2)(v)(B)(1) include:
    i. ``No interest if paid in full in 6 months. If the balance is 
not paid in full in 6 months, interest will be imposed from the date 
of purchase at a rate of 15.99%.''
    ii. ``No interest if paid in full by December 31, 2010. If the 
balance is not paid in full by that date, interest will be imposed 
from the transaction date at a rate of 15%.''
    7. Disclosure of the terms of a workout or temporary hardship 
arrangement. In order for the exception in Sec.  226.9(c)(2)(v)(D) 
to apply, the disclosure provided to the consumer pursuant to Sec.  
226.9(c)(2)(v)(D)(2) must set forth:
    i. The annual percentage rate that will apply to balances 
subject to the workout or temporary hardship arrangement;
    ii. The annual percentage rate that will apply to such balances 
if the consumer completes or fails to comply with the terms of the 
workout or temporary hardship arrangement; and
    iii. If applicable, that the consumer must make timely minimum 
payments in order to remain eligible for the workout or temporary 
hardship arrangement.
* * * * *
    9(g) Increase in rates due to delinquency or default or as a 
penalty.
    1. Affected consumers. If a single credit account involves 
multiple consumers that may be affected by the change, the creditor 
should refer to Sec.  226.5(d) to determine the number of notices 
that must be given.
    2. Combining a notice described in Sec.  226.9(g)(1) with a 
notice described in Sec.  226.9(c)(2)(i). If a creditor is required 
to provide notices pursuant to both Sec.  226.9(c)(2)(i) and (g)(1) 
to a consumer, the creditor may combine the two notices. This would 
occur when penalty pricing has been triggered, and other terms are 
changing on the consumer's account at the same time.
    3. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required 
under Sec.  226.9(g).
    9(g)(4) Exceptions.
    9(g)(4)(i) Workout or temporary hardship arrangements. See 
comment 9(c)(2)(v)-6.
    9(g)(4)(ii) Decrease in credit limit.
    1. The following illustrates the requirements of Sec.  
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 
Sec.  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 Sec.  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).
    9(h) Consumer rejection of significant change in terms or 
increase in annual percentage rate.
    9(h)(1) Right to reject.
    1. Reasonable requirements for submission of rejections. A 
creditor may establish reasonable requirements for the submission of 
rejections of a significant change in terms or other increase in an 
annual percentage rate for a credit card account. For example:
    i. It would be reasonable for a creditor to require that 
rejections be made by the primary account holder and that the 
consumer identify the account number.
    ii. It would be reasonable for a creditor to require that 
rejections be made only using the toll-free telephone number 
disclosed pursuant to Sec.  226.9(c) or (g). It would also be 
reasonable for a creditor to designate additional channels for the 
submission of rejections (such as an address for rejections 
submitted by mail) so long as the creditor does not require that 
rejections be submitted through such additional channels.
    iii. It would be reasonable for a creditor to require that 
rejections be received before the effective date disclosed pursuant 
to Sec.  226.9(c) or (g) and to treat the account as not subject to 
Sec.  226.9(h) if a rejection is received on or after that date. It 
would not, however, be reasonable to require that rejections be 
submitted earlier than the day before the effective date. If a 
creditor is unable to process all rejections received before the 
effective date, the creditor may delay implementation of the change 
in terms or rate increase until all rejections have been processed. 
In the alternative, the creditor could implement the change or 
increase on the effective date and then, on any account for which a 
timely rejection was received, reverse the change or increase and 
remove or credit any interest charges or fees imposed as a result of 
the change or increase. For example, if the effective date for a 
rate increase is June 15 and the creditor cannot process all 
rejections received by telephone on June 14 until June 16, the 
creditor may delay imposition of the rate increase until June 17. 
Alternatively, the creditor could impose the increased rate on all 
affected accounts on June 15 and then, once all rejections have been 
processed, return any account for which a timely rejection was 
received to the prior rate and ensure that the account is not 
assessed any additional interest as a result of the increased rate 
or that the account is credited for such interest.
    2. Use of account following provision of notice. A consumer does 
not waive or forfeit the right to reject a significant change in 
terms or a rate increase by using the account for transactions prior 
to the effective date of the change or increase. Similarly, a 
consumer does not revoke a rejection by using the account for 
transactions after the rejection is received. If, however, the 
account is used for a transaction more than 14 days after provision 
of the Sec.  226.9(c) or (g) notice, Sec.  226.9(h)(3)(ii) permits 
the creditor to apply the changed term or increased rate to that 
transaction even if the consumer rejects the change or increase 
before the effective date. See example in comment 9(h)(3)(ii)-3.i.
    9(h)(2)(i) Prohibition on applying changed term or increased 
rate.
    1. Application to promotional rates and deferred interest and 
similar programs. Section 226.9(h)(2)(i) provides that, when a 
creditor is notified of a rejection of a significant change to an 
account term or other increase in an annual percentage rate as 
provided in Sec.  226.9(h)(1), the creditor must not apply the 
change or increase to the account. However, Sec.  226.9(h)(2)(i) 
does not prohibit a creditor from applying the terms of a pre-
existing promotional rate or deferred interest or similar program. 
The following examples illustrate the application of Sec.  
226.9(h)(2)(i) in these circumstances:
    i. Promotional rates. Assume that a credit card account is 
opened on January 1 of year one and that, on December 31 of year 
one, the creditor notifies the consumer of the following promotional 
rate offer: A non-variable annual percentage rate of 5% will

[[Page 36100]]

apply to purchases for nine months (from January 1 through September 
30 of year two) and, beginning on October 1, the rate for purchases 
will increase to a non-variable rate of 15%. The required minimum 
periodic payment due on July 5 is not received by the creditor until 
July 15. On July 15, the account has a purchase balance of $1,000 at 
the 5% rate. On that same date, the creditor provides a notice 
pursuant to Sec.  226.9(g) informing the consumer that, consistent 
with the terms of the cardholder agreement, the rate on the $1,000 
balance and for new purchases will increase to a 30% penalty rate on 
August 29. The notice further states that the consumer may reject 
the increase by calling a specified toll-free telephone number 
before August 29 but that, if the consumer does so, credit 
availability for the account will be terminated. On July 31, the 
consumer calls the toll-free telephone number and rejects the 
increase. Section 226.9(h)(2)(i) prohibits the creditor from 
increasing the rate applicable to the $1,000 balance at this time. 
However, consistent with the terms of the promotional rate offer, 
Sec.  226.9(h)(2)(i) does not prohibit the creditor from beginning 
to accrue interest on any remaining portion of the $1,000 balance at 
15% on October 1. Furthermore, pursuant to Sec.  226.9(c)(2)(v)(B), 
the creditor is not required to provide advance notice of this 
increase.
    ii. Deferred interest and similar programs. Assume that a credit 
card account is opened on January 1 of year one and that, on 
December 31 of year one, the creditor notifies the consumer of the 
following promotional program: Interest on purchases made during the 
months of January through June of year two will accrue at a non-
variable annual percentage rate of 15% but the consumer will not be 
obligated to pay that accrued interest if all required minimum 
periodic payments are received by the creditor on or before the 
payment due date and all purchases made during the six-month period 
are paid in full by December 31 of year two. On January 15 of year 
two, the consumer uses the account for a $1,000 purchase. The 
payment due on September 1 of year two is not received by the 
creditor until September 15. On that same date, the creditor 
provides a notice pursuant to Sec.  226.9(g) informing the consumer 
that on October 30, consistent with the terms of the promotional 
program, interest accrued on the $1,000 purchase at 15% since 
January 15 will be added to the outstanding balance account. The 
notice also states that the consumer may reject the addition of 
accrued interest to the outstanding balance by calling a specified 
toll-free telephone number before October 30 but that, if the 
consumer does so, credit availability for the account will be 
terminated. On October 1, the consumer calls the toll-free telephone 
number and exercises the right to reject. Section 226.9(h)(2)(i) 
prohibits the creditor from adding the accrued interest to the 
outstanding balance at this time. However, on January 1 of year 
three, Sec.  226.9(h)(2)(i) does not prohibit the creditor from, 
consistent with the terms of the promotional program, adding 
interest accrued on the $1,000 purchase at 15% since January 15 of 
year two to the outstanding balance if the $1,000 purchase is not 
paid in full by December 31 of year two. Furthermore, pursuant to 
Sec.  226.9(c)(2)(v)(B), the creditor is not required to provide 
advance notice of this increase.
    9(h)(2)(ii) Prohibition on penalties.
    1. Solely as a result of rejection. A creditor is prohibited 
from imposing a fee or charge or treating an account as in default 
solely as a result of the consumer's rejection of a significant 
change in terms or a rate increase. For example, a creditor is 
prohibited from imposing a monthly maintenance fee that would be 
charged only if the consumer rejected the change or increase. A 
creditor is not, however, prohibited from continuing to charge a fee 
that was charged before the rejection. For example, a creditor that 
charged a periodic fee or a fee for late payment before a change or 
increase was rejected is not prohibited from charging those fees 
after rejection of the change or increase.
    2. Termination of credit availability. Section 226.9(h)(2)(ii) 
does not prohibit a creditor from terminating or suspending credit 
availability if the consumer rejects a significant change in terms 
or a rate increase. If, however, the creditor elects not to 
terminate or suspend credit availability for consumers who reject a 
change or increase, Sec.  226.9(h)(3)(ii) permits the creditor to 
apply the changed term or increased rate to transactions that occur 
more than 14 days after provision of the Sec.  226.9(c) or (g) 
notice. See example in comment 9(h)(3)(ii)-3.ii.
    9(h)(2)(iii) Repayment of outstanding balance.
    1. No less beneficial to the consumer. A creditor may provide a 
method of repaying the balance subject to Sec.  226.9(h)(2)(iii) 
that is different from the methods listed in Sec.  226.9(h)(2)(iii) 
so long as the method used is no less beneficial to the consumer 
than one of the listed methods. A method is no less beneficial to 
the consumer if the method results in a required minimum periodic 
payment that is equal to or less than a minimum payment calculated 
using the method for the account prior to the date on which the 
creditor received the rejection. Similarly, a method is no less 
beneficial to the consumer if the method amortizes the balance in 
five years or longer or if the method results in a required minimum 
periodic payment that is equal to or less than a minimum payment 
calculated consistent with Sec.  226.9(h)(2)(iii)(C). For example:
    i. If at account opening the cardholder agreement stated that 
the required minimum periodic payment would be either the total of 
fees and interest charges plus 1% of the total amount owed or $20 
(whichever is greater), the creditor may require the consumer to 
make a minimum payment of $20 even if doing so would pay off the 
balance in less than five years or constitute more than 2% of the 
balance plus fees and interest charges.
    ii. A creditor could increase the percentage of the balance 
included in the required minimum periodic payment from 2% to 5% so 
long as doing so would not result in amortization of the balance in 
less than five years.
    iii. A creditor could require the consumer to make a required 
minimum periodic payment that amortizes the balance in four years so 
long as doing so would not more than double the percentage of the 
balance included in the minimum payment prior to the date on which 
the creditor was notified of the rejection.
    9(h)(2)(iii)(B) Five-year amortization period.
    1. Amortization period starting from date on which creditor was 
notified of rejection. Section 226.9(h)(2)(iii)(B) provides for an 
amortization period for the balance subject to Sec.  
226.9(h)(2)(iii) of no less than five years, beginning no earlier 
than the date on which the creditor was notified of the rejection. A 
creditor is not required to recalculate the required minimum 
periodic payment for the balance if, during the amortization period, 
the balance is reduced as a result of payments by the consumer in 
excess of that minimum payment.
    2. Amortization when applicable rate is variable. If the annual 
percentage rate that applies to the balance subject to Sec.  
226.9(h)(2)(iii) varies with an index, the creditor may adjust the 
interest charges included in the required minimum periodic payment 
for that balance accordingly in order to ensure that the balance is 
amortized in five years. For example, assume that a variable rate 
that is currently 15% applies to a balance subject to Sec.  
226.9(h)(2)(iii) and that, in order to amortize that balance in five 
years, the required minimum periodic payment must include a specific 
amount of principal plus all accrued interest charges. If the 15% 
variable rate increases due to an increase in the index, the 
creditor may increase the required minimum periodic payment to 
include the additional interest charges.
    9(h)(2)(iii)(C) Doubling repayment rate.
    1. Example. Assume that the method used by a creditor to 
calculate the required minimum periodic payment for a credit card 
account requires the consumer to pay either the total of fees and 
accrued interest charges plus 2% of the total amount owed or $50, 
whichever is greater. Assume also that, on the date on which the 
creditor is notified of the rejection, the account has a balance 
subject to Sec.  226.9(h)(2)(iii) of $2,000. Following rejection, 
Sec.  226.9(h)(2)(iii)(C) permits the creditor to require the 
consumer to pay fees and interest plus 4% of the $2,000 balance or 
$50, whichever is greater.
    9(h)(3) Exceptions.
    1. Additional circumstances in which Sec.  226.9(h) does not 
apply. As a general matter, Sec.  226.9(h) applies when Sec.  
226.9(c)(2)(iv) or (g)(3) require disclosure of the consumer's right 
to reject a significant change to an account term or other increase 
in an annual percentage rate. Accordingly, in addition to the 
circumstances listed in Sec.  226.9(h)(3), Sec.  226.9(h) does not 
apply to home equity plans subject to the requirements of Sec.  
226.5b that are accessible by a credit or charge card because Sec.  
226.9(c)(2) and 226.9(g) do not apply to such plans. Similarly, 
Sec.  226.9(h) does not apply when the required minimum periodic 
payment is increased because Sec.  226.9(c)(2)(iv) does not require 
disclosure of the right to reject in those circumstances.
    9(h)(3)(i) Delinquencies of more than 60 days.
    1. Examples. Section 226.9(h)(3)(i) provides that Sec.  226.9(h) 
does not apply when

[[Page 36101]]

the creditor has not received the consumer's required minimum 
periodic payment within 60 days after the due date for that payment. 
The following examples illustrate the application of this exception:
    i. Account becomes more than 60 days delinquent before notice 
provided. Assume that a credit card account is opened on January 1 
of year one and that the payment due date for the account is the 
fifteenth day of the month. On June 20 of year two, the account has 
a purchase balance of $5,000 at a non-variable annual percentage 
rate of 17% and the creditor has not received the required minimum 
periodic payments due on April 15, May 15, and June 15. On June 20, 
the creditor provides a notice pursuant to Sec.  226.9(g) informing 
the consumer that, consistent with the terms of the cardholder 
agreement, the rate for the $5,000 balance and for new purchases 
will increase to a non-variable penalty rate of 28% on August 4. 
Because the creditor has not received the April 15 minimum payment 
within 60 days after the due date, the exception in Sec.  
226.9(h)(3)(i) applies and the consumer may not reject the rate 
increase. Even if the consumer closes or cancels the account before 
August 4, the creditor may apply the increased rate to the $5,000 
balance.
    ii. Account becomes more than 60 days delinquent after 
rejection. Assume that a credit card account is opened on January 1 
of year one and that the payment due date for the account is the 
fifteenth day of the month. On April 20 of year two, the account has 
a purchase balance of $2,000 at a non-variable annual percentage 
rate of 15% and the creditor has not received the required minimum 
periodic payment due on April 15. On April 20, the creditor provides 
a notice pursuant to Sec.  226.9(g) informing the consumer that, 
consistent with the terms of the cardholder agreement, the rate for 
the $2,000 balance and for new purchases will increase to a non-
variable penalty rate of 28% on June 4. The notice further states 
that the consumer may reject the increase by calling a specified 
toll-free telephone number before June 4 but that, if the consumer 
does so, credit availability for the account will be terminated. On 
May 5, the consumer calls the toll-free telephone number and rejects 
the increase. On June 4, Sec.  226.9(h) prohibits the creditor from 
applying the 28% rate to the $2,000 balance. If, however, the 
creditor does not receive the minimum payments due on April 15 and 
May 15 by June 15, Sec.  226.9(h)(3)(i) permits the creditor to 
increase the rate that applies to the $2,000 balance. The creditor 
must comply with the notice requirements of Sec.  226.9(g), but the 
consumer may not reject the increase. Similarly, the restrictions in 
Sec.  226.9(h)(2)(ii) and (iii) no longer apply to the $2,000 
balance.
    9(h)(3)(ii) Transactions that occur more than 14 days after 
provision of notice.
    1. Application of Sec.  226.9(h)(3)(ii). Section 226.9(h)(3)(ii) 
permits a creditor to apply a changed term or increased rate to 
transactions that occur more than 14 days after provision of the 
notice required by Sec.  226.9(c) or (g). Section 226.9(h)(3)(ii) 
does not, however, permit a creditor to reach back to days before 
the effective date of the change in terms or rate increase when 
calculating interest charges. See examples in comment 9(h)(3)(ii)-3. 
Furthermore, because the exception in Sec.  226.9(h)(3)(ii) is 
limited to changed terms and increased rates that can be applied to 
transactions, it does not permit a creditor to apply a changed term 
to the entire account simply because the account was used for a 
transaction more than 14 days after provision of a Sec.  226.9(c) or 
(g) notice. For example, if a consumer rejects an increase in a 
periodic fee or late payment fee, the creditor is prohibited from 
applying the increased fee to the account even if the account is 
used for a transaction more than 14 days after provision of the 
Sec.  226.9(c) notice. In contrast, Sec.  226.9(h)(3)(ii) does 
permit a creditor to apply an increased rate or a transaction fee to 
a transaction that occurred more than 14 days after provision of the 
Sec.  226.9(c) or (g) notice so long as that increased rate or 
transaction fee is not applied to other transactions. See examples 
in comment 9(h)(3)(ii)-3.
    2. More than 14 days after provision of notice. Whether a 
transaction occurred prior to provision of a notice or within 14 
days after provision of a notice is generally determined by the date 
of the transaction. However, if a transaction that occurred within 
14 days after provision of the notice is not charged to the account 
prior to the effective date of the change or increase, the creditor 
may treat the transaction as occurring more than 14 days after 
provision of the notice for purposes of Sec.  226.9(h)(3)(ii). See 
example in comment 9(h)(3)(ii)-3.iv. In addition, when a merchant 
places a ``hold'' on the available credit on an account for an 
estimated transaction amount because the actual transaction amount 
will not be known until a later date, the date of the transaction 
for purposes of Sec.  226.9(h)(3)(ii) is the date on which the 
actual transaction amount is charged to the account. See example in 
comment 9(h)(3)(ii)-3.iii.
    3. Examples. The following examples illustrate the application 
of Sec.  226.9(h)(3)(ii):
    i. Use of account after notice provided. Assume that a 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 creditor provides a 
notice pursuant to Sec.  226.9(c) informing the consumer that the 
rate for the $2,000 balance and for new purchases will increase to a 
non-variable rate of 18% on April 30. The notice further states that 
the consumer may reject the increase by calling a specified toll-
free telephone number before April 30 but that, if the consumer does 
so, credit availability for the account will be terminated. The 
fourteenth day after provision of the notice is March 29 and, on 
that date, the consumer makes a $200 purchase. On March 30, the 
consumer makes a $500 purchase. On April 1, the consumer calls the 
toll-free telephone number and rejects the increase. On April 5, a 
$150 automated recurring charge is honored by the creditor. On April 
30, Sec.  226.9(h)(3)(ii) permits the creditor to begin accruing 
interest at 18% on the $500 purchase made on March 30 and the $150 
transaction made on April 5. The creditor may not, however, apply 
the 18% rate to the $2,200 purchase balance as of March 29 because 
that balance reflects transactions that occurred prior to or within 
14 days of the provision of the Sec.  226.9(c) notice. Similarly, 
the restrictions in Sec.  226.9(h)(2)(ii) and (iii) apply to the 
$2,200 purchase balance as of March 29 but not the $500 purchase 
made on March 30 and the $150 charge made on April 5.
    ii. Credit availability not terminated after rejection. Same 
facts as paragraph i. above except that the Sec.  226.9(c) notice 
does not state that the creditor will terminate credit availability 
if the consumer rejects the increase, which the consumer does on 
April 1. On April 30, Sec.  226.9(h)(3)(ii) permits the creditor to 
begin accruing interest at 18% on the $500 purchase made on March 30 
and the $150 transaction made on April 5. The creditor may not, 
however, apply the 18% rate to the $2,200 purchase balance as of 
March 29 because that balance reflects transactions that occurred 
prior to or within 14 days of the provision of the Sec.  226.9(c) 
notice. Similarly, the restrictions in Sec.  226.9(h)(2)(ii) and 
(iii) apply to the $2,200 purchase balance as of March 29 but not 
the $500 purchase made on March 30 and the $150 charge made on April 
5.
    iii. Hold on available credit. Assume that a credit card account 
is opened on January 1 of year one. On September 14 of year two, the 
account has a purchase balance of $1,000 at a non-variable annual 
percentage rate of 17%. On September 15, the creditor provides a 
notice pursuant to Sec.  226.9(c) informing the consumer that the 
rate for the $1,000 balance and for new purchases will increase to a 
non-variable rate of 20% on October 30. The notice further states 
that the consumer may reject the increase by calling a specified 
toll-free telephone number before October 30 but that, if the 
consumer does so, credit availability for the account will be 
terminated. The fourteenth day after provision of the notice is 
September 29. On that date, the consumer uses the credit card to 
check into a hotel and the hotel obtains authorization for a $750 
hold on the account to ensure there is adequate available credit to 
cover the anticipated cost of the stay. On October 1, the consumer 
calls the toll-free telephone number and rejects the increase. When 
the consumer checks out of the hotel on October 2, the actual cost 
of the stay is $850 because of additional incidental costs. On 
October 2, the $850 transaction is charged to the account by the 
hotel and honored by the creditor. For purposes of Sec.  
226.9(h)(3)(ii), the transaction occurred on October 2.
    iv. Transaction charged to account after effective date. Same 
facts as paragraph iii. above except that the $850 transaction is 
not charged to the account by the hotel until November 1. For 
purposes of Sec.  226.9(h)(3)(ii), the creditor may treat the 
transaction as occurring more than 14 days after provision of the 
Sec.  226.9(c) notice (i.e., after September 29).
* * * * *


[[Page 36102]]


    By order of the Board of Governors of the Federal Reserve 
System, July 15, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-17195 Filed 7-21-09; 8:45 am]
BILLING CODE 6210-01-P