[Federal Register Volume 74, Number 156 (Friday, August 14, 2009)]
[Rules and Regulations]
[Pages 41194-41257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18548]



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Part II





Federal Reserve System





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12 CFR Part 226



Truth in Lending; Final Rule

  Federal Register / Vol. 74, No. 156 / Friday, August 14, 2009 / Rules 
and Regulations  

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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1353]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; official staff commentary.

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SUMMARY: The Board is publishing final rules amending Regulation Z, 
which implements the Truth in Lending Act (TILA) following the passage 
of the Higher Education Opportunity Act (HEOA). Title X of the HEOA 
amends TILA by adding disclosure and timing requirements that apply to 
creditors making private education loans, which are defined as loans 
made for postsecondary educational expenses. The HEOA also amends TILA 
by adding limitations on certain practices by creditors, including 
limitations on ``co-branding'' their products with educational 
institutions in the marketing of private education loans. The HEOA 
requires that creditors obtain a self-certification form signed by the 
consumer before consummating the loan. It also requires creditors with 
preferred lender arrangements with educational institutions to provide 
certain information to those institutions.

DATES: Effective Date: September 14, 2009.
    Compliance Date: Compliance is optional until February 14, 2010.

FOR FURTHER INFORMATION CONTACT: Brent Lattin, Senior Attorney, or 
Mandie Aubrey, Attorney; Division of Consumer and Community Affairs, 
Board of Governors of the Federal Reserve System, Washington, DC 20551, 
at (202) 452-2412 or (202) 452-3667. For users of Telecommunications 
Device for the Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Current Regulation Z Student Loan Disclosure Requirements

    Congress enacted the Truth in Lending Act (TILA), 15 U.S.C. 1601 et 
seq., to regulate certain credit practices and promote the informed use 
of consumer credit by requiring uniform disclosures about its costs and 
terms. Under TILA section 128, creditors must provide TILA disclosures 
to consumers in writing before consummation of certain closed-end 
credit transactions. Extensions of consumer credit over $25,000 are 
exempt from TILA with the exceptions of credit secured by real 
property, and, following enactment of the HEOA, private education 
loans. Loans made, insured, or guaranteed pursuant to a program 
authorized by title IV of the Higher Education Act of 1965 (20 U.S.C. 
1070 et seq.) are also exempt from TILA.
    TILA mandates that the Board prescribe regulations to carry out the 
purposes of the statute. 15 U.S.C. 1604(a). Accordingly, the Board has 
promulgated Regulation Z, 12 CFR part 226. An Official Staff 
Commentary, 12 CFR part 226 (Supp. I) interprets the requirements of 
the regulation and provides guidance to creditors in applying the rules 
to specific transactions.
    To implement TILA section 128, 15 U.S.C. 1638, Regulation Z 
requires disclosures for certain closed-end loans, including for 
education loans that are not exempt Federal education loans. Sections 
226.17 and 226.18 require a creditor to provide the consumer with clear 
and conspicuous disclosures before consummation of the transaction. 
Current Sec.  226.17(i) contains special rules for student credit plans 
which are education loans where the repayment amount and schedule of 
payments are not known at the time that the credit is advanced. In such 
cases, creditors may make all the TILA cost disclosures at the time 
credit is extended based on the best information available at that 
time, and state clearly that the disclosures are estimates. 
Alternatively, creditors may provide partial disclosures at the time 
the credit is extended and later provide a complete set of disclosures 
when the repayment schedule for the loan is established.

B. The Higher Education Opportunity Act of 2008

    On August 14, 2008, the Higher Education Opportunity Act of 2008 
(HEOA) was enacted. Title X of the HEOA, entitled the ``Private Student 
Loan Transparency and Improvement Act of 2008,'' adds new subsection 
128(e) and section 140 to TILA. These TILA amendments add disclosure 
requirements and prohibit certain practices for creditors making 
``private education loans,'' defined as loans made expressly for 
postsecondary educational expenses, but excluding open-end credit, real 
estate-secured loans, and Federal loans under title IV of the Higher 
Education Act of 1965. The HEOA also amends TILA section 104(3) to 
expressly cover private education loans even if the amount financed 
exceeds $25,000.
1. Overview of the HEOA's Amendments to TILA
    Substantive Restrictions. The HEOA prohibits a creditor from using 
in its marketing materials a covered educational institution's name, 
logo, mascot, or other words or symbols readily identified with the 
educational institution, to imply that the educational institution 
endorses the loans offered by the creditor.\1\ With respect to private 
education loans, the HEOA also amends TILA in the following ways:
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    \1\ The HEOA adds a new section 140 to TILA that includes other 
restrictions regarding private education loans. The Board is only 
required to issue regulations to implement subsection (c) of TILA 
section 140, the prohibition on co-branding. The other subsections 
of section 140 became effective when the HEOA was enacted and the 
Board is not issuing regulations to implement them at this time. The 
other subsections of TILA Section 140 prohibit creditors from giving 
gifts to educational institutions or their employees, and prohibit 
revenue sharing between creditors and educational institutions. In 
addition, they restrict creditor payments to financial aid officials 
who serve on creditors' advisory boards, and require disclosure of 
any payments made to financial aid officials for advisory board 
service expenses. Prepayment penalties or fees for early repayment 
are prohibited for private education loans.
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     Creditors must give the consumer 30 days after a private 
education loan application is approved to decide whether to accept the 
loan offered. During that time, the creditor may not change the rates 
or terms of the loan offered, except for rate changes based on changes 
in the index used for rate adjustments on the loan.
     The consumer has a right to cancel the loan for up to 
three business days after consummation. Creditors are prohibited from 
disbursing funds until the three-day cancellation period has run.
    Disclosure Requirements. The HEOA adds a number of new disclosures 
for private education loans, which must be given at different times in 
the loan origination process. Specifically, the HEOA's amendments to 
TILA require the following disclosures for private education loans:
     Disclosures with applications (or solicitations that 
require no application). Creditors must provide general information 
about loan rates, fees, and terms, including an example of the total 
cost of a loan based on the maximum interest rate the creditor can 
charge. These disclosures must inform a prospective borrower of, among 
other things, the potential availability of Federal student loans and 
the interest rates for those loans, and that additional information 
about Federal loans may be obtained from the school or the Department 
of Education Web site.

[[Page 41195]]

     Disclosures when the loan is approved. When the creditor 
approves the consumer's application for a private education loan, the 
creditor must give the consumer a set of transaction-specific 
disclosures, including information about the rate, fees and other terms 
of the loan. The creditor must disclose, for example, estimates of the 
total repayment amount based on both the current interest rate and the 
maximum interest rate that may be charged. The creditor must also 
disclose the monthly payment at the maximum rate of interest.
     Disclosures at consummation. At consummation, the creditor 
must provide updated cost disclosures substantially similar to those 
provided at approval. The consumer's three-day right to cancel the 
transaction must also be disclosed.
    Finally, once a consumer applies for a private education loan, the 
consumer must complete a ``self-certification form'' with information 
about the cost of attendance at the school that the student will attend 
or is attending. The form includes information about the availability 
of Federal student loans, the student's cost of attendance at that 
school, the amount of any financial aid, and the amount the consumer 
can borrow to cover any gap. The creditor must obtain the signed and 
completed form before consummating the private education loan. The 
Department of Education has primary responsibility for developing the 
self-certification form in consultation with the Board.
2. Civil Liability
    The HEOA amends TILA to provide a private right of action for 
several, but not all, of the disclosure requirements added by the HEOA. 
HEOA, Title X, Subtitle A, Section 1012 (amending TILA Section 130). 
The HEOA also amends TILA's statute of limitations for civil liability 
regarding private education loans. Currently, TILA section 130(e) 
requires that an action be brought within one year of the date of the 
occurrence of the violation. Under the HEOA amendment, an action for a 
violation involving a private education loan must be brought within one 
year from the date on which the first regular payment of principal is 
due for the private education loan.
    The HEOA provides a safe harbor for any creditor that elects to use 
a model form promulgated by the Board that accurately reflects the 
terms of the creditor's loans. HEOA, Title X, Subtitle B, Section 
1021(a) (adding TILA Section 128(e)(5)(C)). Model forms are included in 
the final rule as amendments to Regulation Z's Appendix H. In addition, 
a creditor has no liability under TILA for failure to comply with the 
requirement that it receive the consumer's self-certification form 
before consummating a private education loan. HEOA, Title X, Subtitle 
B, Section 1021(a) (adding TILA Section 130(j)).

C. Consumer Testing

    In October 2008, the Board retained a research and consulting firm 
(Rockbridge Associates) and a design firm (EightShapes) to help the 
Board design the model forms required under the HEOA and to conduct 
consumer testing to determine the most effective presentation of the 
information required to be disclosed. Specifically, the Board used 
consumer testing to develop model forms for the following:
     Information required to be disclosed on or with 
applications or solicitations for private education loans (Application 
and Solicitation Disclosure);
     Information required to be disclosed when a private 
education loan is approved (Approval Disclosure); and
     Information required to be disclosed after the consumer 
accepts a private education loan and at least three business days 
before loan funds are disbursed (Final Disclosure).
    Initial forms design. In November 2008, the Board worked with 
Rockbridge Associates and EightShapes to develop sample disclosures to 
be used in the testing, taking into account the specific requirements 
of the HEOA, information learned through the Board's outreach efforts, 
and Rockbridge Associate's experience in financial disclosure testing.
    Cognitive interviews on model disclosures. In December 2008, 
Rockbridge Associates worked closely with the Board to conduct two 
rounds of consumer testing. Each round of testing comprised in-person 
cognitive interviews with 10 consumers. Both rounds of testing were 
conducted within the Washington, DC/Baltimore metropolitan area. The 
consumer participants included both college students and parents of 
college students, representing a range of ethnicities, ages, 
educational levels, and education loan experience.
    The cognitive interviews consisted of one-on-one discussions with 
consumers, during which consumers were asked to view the sample 
Application and Solicitation Disclosure, the Approval Disclosure, and 
the Final Disclosure developed by the Board. The goals of these 
interviews were as follows: (1) To learn more about what information 
consumers are concerned about and actually read when they receive 
private education loan disclosures; (2) to determine how easily 
consumers can find various critical pieces of information in the 
disclosures; (3) to assess consumers' understanding of the information 
that the HEOA and Sec.  226.18 require to be disclosed for private 
education loans, and of certain terminology related to private 
education loans; and (4) to determine the most clear and understandable 
way to disclose the required information to consumers.
    After the first round of cognitive testing, the Board worked with 
Rockbridge Associates and EightShapes to revise the initial drafts of 
the sample disclosures in response to findings from the first round of 
testing. Later in December 2008, the Board and Rockbridge Associates 
conducted a second round of testing in which 10 consumers were asked to 
review the revised sample Application and Solicitation Disclosure, 
Approval Disclosure, and Final Disclosure.
    Additional cognitive interviews on model disclosures. In April and 
May 2009, Rockbridge Associates worked closely with the Board to 
conduct two additional rounds of consumer testing. Each round of 
testing consisted of in-person cognitive interviews with 10 consumers. 
One round of testing was conducted within the Washington, DC 
metropolitan area and the second round of testing was conducted within 
the Philadelphia, PA metropolitan area. The consumer participants 
included college students, proprietary school students and parents of 
students, representing a range of ethnicities, ages, educational 
levels, and education loan experience. The format of the cognitive 
interviews was similar to the initial rounds and the Board worked with 
Rockbridge Associates and EightShapes to revise the model disclosures 
in response to findings from the each round of testing.
    Following the conclusion of the comment period on the proposed 
rule, Rockbridge Associates and EightShapes worked with the Board to 
further revise the disclosures in response to public comment. In June 
2009, Rockbridge Associates worked with the Board to conduct a final 
round of consumer testing comprised of in-person cognitive interviews 
with 10 consumers conducted in the Washington, DC metropolitan area. 
The format of the cognitive interviews was similar to the earlier 
rounds and the Board worked with Rockbridge Associates and EightShapes 
to revise the model disclosures in response to findings from the final 
round of testing.
    Results of testing. A report summarizing the results of the testing 
is

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available on the Board's Web site: http://www.federalreserve.gov.
    Application and Solicitation Disclosure. Regarding the Application 
and Solicitation Disclosure, consumers were confused in the initial 
rounds by seeing the required disclosure of a range of initial rates 
for which they could be approved. Consumers commonly mistook the 
highest rate in the range with the maximum possible rate for the life 
of the loan. Consequently, the model form was revised by providing 
information under two separate headings for the consumer's ``Starting 
interest rate upon approval'' and the consumer's ``Interest rate during 
the life of the loan.'' This revision improved consumers' ability to 
understand the range of initial interest rates and how the rate would 
vary over time.
    Once consumers understood that the rates disclosed were not 
necessarily the rates that actually would apply to them, they 
consistently wanted to know how their own rate would be determined. 
Thus, the model form places general information about how the 
consumer's rate will be determined under the heading about the 
consumer's starting interest rate upon approval. Consumers also wanted 
to understand how their rate would vary over the life of the loan, but 
many were confused by detailed information about how the interest rate 
varies based on the application of a margin to an index. A large number 
of consumers in the initial rounds were confused by the reference in 
the model forms to the London Interbank Offered Rate (LIBOR) as the 
index. However, in the final round of testing, the model form 
referenced the LIBOR being published in a major newspaper which worked 
to assure consumers that the LIBOR is a standard index used for 
determining variable interest rates on loans.
    Consumer testing also indicated that consumers want to see specific 
figures and dollar amounts for fees that may apply to their loan. Thus 
the model form requires dollar amounts to be disclosed for each fee 
included on the form wherever possible.
    In addition, testing showed that consumers found the sample total 
cost information to be useful in assessing the potential impact of a 
private education loan on their financial future. Consumers indicated 
that the sample total cost was most understandable when the loan 
amount, interest rate and loan term were included. In addition, 
consumers found showing the sample total cost of a loan based on each 
payment deferral option to be useful information.
    Finally, consumers found the presentation of Federal loan 
alternatives, ``Next Steps,'' and reference notes to be clear and 
understandable, and the information in these sections to be useful.
    Approval Disclosure. Regarding the Approval Disclosure, testing 
indicated that consumers are most concerned about the rate and loan 
costs, and that the traditional TILA box style of presenting the key 
elements of a loan is effective even with novice consumers. In initial 
testing of the proposed model forms, consumers did not understand 
explanations of the difference between the interest rate and the APR. 
For this reason, the model forms published with the proposal were 
revised to disclose the interest rate more prominently than the APR so 
that consumers would focus on the rate they understood. In subsequent 
rounds of testing, the prominence of the interest rate disclosure and 
the additional context provided to explain the APR improved some 
consumers' understanding of the concepts, although a few consumers 
continued to have difficulty understanding the difference between the 
APR and the interest rate. However, in choosing between two loans, 
consumers in the tests were more likely to compare the payment 
schedules, total of payments, and finance charge rather than relying on 
the interest rate alone.
    Testing also showed that consumers generally do not understand 
detailed explanations of how their variable rate changes based on a 
publicly available index. For consumers, the most important information 
regarding how the rate changes was simply that the creditor may not 
change the rate at will, and instead generally can do so only based on 
market factors out of the creditor's control.
    Testing also indicated that consumers strongly prefer to have all 
fees disclosed with specific dollar amounts. In addition, the placement 
of the total loan amount in the box at the top of the form, along with 
the itemization of the amount financed, improved consumers' 
understanding of the concept presented by the amount financed--that the 
amount of credit actually available to the consumer would be less than 
the total loan amount if fees applied.
    Consumers considered the monthly payment schedule and amounts to be 
critical information in understanding the financial implications of 
obtaining a private education loan. Most consumers felt the disclosure 
of the maximum monthly payment amounts and total amount for repayment 
at the maximum rate was useful information. When shown disclosures 
where a sample maximum rate was used because no maximum rate applies, 
consumers indicated that they understood the disclosure was only an 
example.
    As with the Application and Solicitation Disclosure, consumers 
found the presentation of Federal loan alternatives and ``Next Steps'' 
to be clear and understandable, and the information in these sections 
to be useful.
    Final Disclosure. Regarding the Final Disclosure, the information 
required to be disclosed under the HEOA is identical to that required 
on the Approval Disclosure, except for the right to cancel notice. 
Recognizing the importance of the right to cancel notice for consumers, 
the model Final Disclosure provides the right to cancel information as 
clearly and prominently as possible. Consumers tested immediately saw 
and read the information in the proposed right to cancel notice.
    Results from the initial rounds of testing indicated that consumers 
did not find the information about Federal loan alternatives to be 
useful at this stage in the private education loan origination process. 
Consumers stated that this information is redundant; they have already 
been told about these options two times (on the Application and 
Solicitation Disclosure and the Approval Disclosure) and have already 
decided at this point to obtain a private education loan. Consumers in 
the later rounds of testing were asked whether they felt the Federal 
loan alternatives should be included in the Final Disclosure and the 
majority did not feel such information would be useful at that stage. 
For these reasons, as discussed in the section-by-section analysis 
under Sec.  226.47(b)(3), the Board is exercising its exception 
authority under TILA sections 105(a) and 105(f) to omit information 
about Federal loan alternatives from the Final Disclosure form.

II. The Board's Rulemaking Authority

    The Board has authority under the HEOA to issue regulations to 
implement paragraphs (1), (2), (3), (4), (6), (7), and (8) of new TILA 
section 128(e), and to implement section 140(c) of new TILA section 
140. HEOA, Title X, Section 1002. In addition to implementing the 
specific disclosure requirements in TILA section 128(e), the Board has 
authority under TILA sections 128(e)(1)(R), 128(e)(2)(P), and 
128(e)(4)(B) to require disclosure of such other information as is 
necessary or appropriate for consumers to make informed borrowing 
decisions. 15 U.S.C.

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1638(e)(1)(R), 15 U.S.C. 1638(e)(2)(P), 15 U.S.C. 1638(e)(4)(B).
    TILA section 128(e)(9) provides that, in issuing regulations to 
implement the disclosure requirements under TILA section 128(e), the 
Board is to prevent duplicative disclosure requirements for creditors 
that are otherwise required to make disclosures under TILA. However, if 
the disclosure requirements of section 128(e) differ or conflict with 
the disclosure requirements elsewhere under TILA, the requirements of 
section 128(e) are controlling. 15 U.S.C. 1638(e)(9).
    TILA also mandates that the Board prescribe regulations to carry 
out the purposes of the act. TILA 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 the act, or prevent 
circumvention or evasion. 15 U.S.C. 1604(a).
    TILA also specifically authorizes the Board to exempt from all or 
part of TILA any class of transactions if the Board determines that 
TILA coverage does not provide a meaningful benefit to consumers in the 
form of useful information or protection. The Board must consider 
factors identified in the act and publish its rationale at the time it 
proposes an exemption for comment. In proposing exemptions, the Board 
considered (1) The amount of the loan and whether the disclosure 
provides a benefit to consumers who are parties to the transaction 
involving a loan of such amount; (2) the extent to which the 
requirement complicates, hinders, or makes more expensive the credit 
process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection. 15 U.S.C. 1604(f). The rationales for these 
exemptions were explained in the proposal and are explained below.

III. Overview of Comments Received

    On March 24, 2009, the Board published a proposed rule that would 
amend Regulation Z's rules by adding disclosure and timing requirements 
that apply to creditors making private education loans. 74 FR 12464. 
The Board received seventy-one public comment letters. Several 
financial institutions and financial services trade associations stated 
that they supported the Board's efforts to improve the disclosure of 
credit terms to consumers of private education loans and recognized 
that the Board's proposal was intended to conform Regulation Z to TILA, 
as amended by the HEOA. These commenters requested that the Board 
provide flexibility in the timing of the proposed approval disclosure 
to allow creditors to approve loans conditioned on verification of 
information provided by the consumer and the educational institution. 
These commenters also stated that the Board should not cover loans made 
``in whole or in part'' to finance postsecondary educational expenses, 
as proposed. They expressed concern that such coverage would increase 
the burden in complying with the rule and could cause some lenders to 
decline to provide consumers with credit if any part of the loan would 
be used for postsecondary educational expenses. Some of these 
commenters also did not support the proposal to make the disclosure of 
the annual percentage rate (APR) less prominent than the disclosure of 
the interest rate. A few financial institutions stated that the costs 
of the new disclosure and timing requirements under the HEOA outweigh 
the benefits and that consumers would object to delays in consummating 
a private education loan transaction.
    By contrast, consumer advocacy organizations generally supported 
the HEOA's goal of providing additional disclosure of private education 
loan terms to consumers and in providing for a 30-day period for the 
consumer to accept the loan and a three-day right to cancel the loan. 
Consumer advocates encouraged the Board to maintain coverage of loans 
used ``in whole or in part'' for postsecondary educational expenses. 
Most of these commenters did not support the proposal to make the 
disclosure of the APR less prominent than the disclosure of the 
interest rate.
    The Board also received comments from educational institutions and 
financial aid administrators and trade associations. These commenters 
also generally supported the HEOA's requirements to provide additional 
disclosure of private education loan credit terms to consumers. 
However, a majority of these commenters stated that educational 
institutions, or specific types of credit provided by education 
institutions, should be exempt from the proposed rules. Specifically, 
these creditors sought exemptions for credit in the form of tuition 
billing plans that permit the student to pay in installments and for 
short term ``emergency'' loans provided to students while they await 
disbursement of other funding sources. A number of financial aid 
officers commented that the proposed self-certification form would be 
burdensome and requested an exemption to the requirement to obtain a 
self-certification form in cases where the creditor certifies the 
student's financial need directly with the educational institution.
    Comments are discussed in detail below in part IV of the 
SUPPLEMENTARY INFORMATION.

IV. Section-by-Section Analysis

Overview

    The final rule adds the following new disclosure requirements to 
Regulation Z for private education loans:
    (i) Disclosures with applications (or solicitations that require no 
application) in Sec.  226.47(a);
    (ii) Disclosures when notice of loan approval is provided in Sec.  
226.47(b); and
    (iii) Disclosures before loan disbursement in Sec.  226.47(c). 
General rules applicable to the new disclosure requirements were 
detailed in Sec.  226.46 and associated commentary. Model forms for 
these disclosures are added to Regulation Z's Appendix H.
    To implement TILA's new prohibition on co-branding, Sec.  226.48 
prohibits a creditor from using in its marketing a covered educational 
institution's name, logo, mascot, or other words or symbols readily 
identified with the institution, to imply that the institution endorses 
the loans offered by the creditor. The final rule adopts an exception 
to this prohibition under the Board's TILA section 105(a) authority, 
for creditors who enter into an agreement where the covered educational 
institution endorses the creditor's private education loans. Section 
226.48 also: Provides the consumer with 30 days following receipt of 
the approval disclosures to accept the loan and prohibits certain 
changes to a loan's rate or terms during that time; provides the 
consumer a right to cancel the loan for three business days after 
receipt of the final disclosures and prohibits disbursement during that 
time; requires creditors to obtain a completed self-certification form 
signed by the consumer before consummating the transaction; and 
requires creditors with preferred lender arrangements to provide 
certain information to educational institutions.

[[Page 41198]]

    The final rule largely adopts the provisions in the Board's March 
24, 2009 proposed rule. 74 FR 12464. The Board has made certain 
modifications to the proposal in response to public comment as 
described throughout this Section-by-Section analysis. In addition, the 
provisions in new Subpart F have been redesignated from proposed 
Sec. Sec.  226.37, 38, and 39 to Sec. Sec.  226.46, 47, and 48. 
Sections 226.37 through 226.45 have been reserved in order to 
accommodate future rulemakings by the Board.

Section 226.1--Authority, Purpose, Coverage, Organization, Enforcement, 
and Liability

    Section 226.1(b) describes the purposes of Regulation Z. The Board 
proposed to amend Sec.  226.1(b) to refer to the new provisions for 
private education loans. Section 226.1(d) provides an outline of 
Regulation Z. Proposed paragraph (d)(6) referenced the addition of a 
new Subpart F containing rules relating to private education loans.
    No comments were received on these provisions and the Board is 
adopting them as proposed with redesignated cross-references. In 
addition, transition rules are added as comment 1(d)(6)-1.

Section 226.2--Definitions and Rules of Construction

    Currently, Sec.  226.2(a)(6) contains two definitions of ``business 
day.'' Under the general definition, a ``business day'' is a day on 
which the creditor's offices are open to the public for carrying on 
substantially all of its business functions. However, for some purposes 
a more precise definition applies; ``business day'' means all calendar 
days except Sundays and specified Federal legal public holidays, for 
purposes of Sec. Sec.  226.15(e), 226.19(a)(1)(ii), 226.19(a)(2), 
226.23(a), and 226.31(c)(1) and (2). The Board proposed using the more 
precise definition of business day for all purposes in proposed 
Sec. Sec.  226.37, 38, and 39, including for measuring the period 
during which consumers may cancel a private education loan. Industry 
commenters requested that the Board adopt the general definition of 
``business day,'' or exclude Saturdays from the more precise definition 
of ``business day.'' These commenters noted that they did not operate 
their systems for disbursing funds or providing disclosures on a 
Saturday and expressed concern that including Saturday as a business 
day could make it difficult to provide required disclosures to 
consumers in a timely fashion.
    Consistent with the Board's approach for certain transactions 
secured by the consumer's dwelling in Sec.  226.19(a)(1)(i), the Board 
is adopting the more precise definition of business day in providing 
presumptions of when consumers receive mailed disclosures. The Board is 
adopting the general definition of ``business day'' for all other 
purposes in Sec. Sec.  226.46, 47, and 48, including for measuring the 
period of time in which the consumer may cancel the loan. The Board 
believes that allowing creditors to exclude Saturdays or other days on 
which the creditor's offices are not open to the public for carrying on 
substantially all of its business functions will result in consumers 
being provided more time in which to cancel a private education loan. 
As discussed in the section-by-section analysis to Sec.  226.48(d), the 
final rule permits creditors to provide consumers with more time to 
cancel the loan than the minimum three business days. Thus, whichever 
definition of ``business day'' the Board were to select, creditors 
would be free to exclude Saturdays or other days by providing the 
consumer with more time in which to cancel. The final rule also 
requires the creditor to disclose prominently the precise date upon 
which the consumer's right to cancel expires and, based on the consumer 
testing, the Board believes that consumers will be able to understand 
precisely their deadline to cancel.

Section 226.3--Exempt Transactions

    TILA section 104(3) (15 U.S.C. 1603(3)) exempts from coverage 
credit transactions in which the total amount financed exceeds $25,000, 
unless the loan is secured by real property or a consumer's principal 
dwelling. The HEOA amends TILA section 104(3) to provide that private 
education loans over $25,000 are not exempt from TILA. The Board 
proposed to revise Sec.  226.3(b) to reflect this change. The Board did 
not propose changes to Sec.  226.3(f) because the HEOA did not affect 
TILA's exclusion of loans made, insured, or guaranteed under title IV 
of the Higher Education Act of 1965. 15 U.S.C. 1603(7). However, the 
Board proposed to revise comment 3(f)-1 to remove the list of Federal 
education loans covered by the exemption because it is outdated, and to 
clarify that private education loans are not exempt.
    The Board is adopting the revisions to Sec.  226.3 as proposed with 
redesignated cross-references. Under the final rules, as proposed, 
private education loans are covered by TILA and Regulation Z regardless 
of the loan's total amount financed.

Section 226.17--General Disclosure Requirements

    Proposed Sec. Sec.  226.38(b) and (c) required creditors to provide 
the current Sec.  226.18 disclosures for private education loans in 
addition to the new disclosures. Consequently, the Board proposed to 
revise Sec.  226.17 to clarify that the format and timing rules for 
private education loans differ slightly from the rules for other types 
of closed-end credit. In addition, the Board proposed to remove the 
special rules for student credit plans.
    The Board is adopting the proposed changes to Sec.  226.17 for the 
format and timing rules for private education loans, with redesignated 
cross-references. The Board is also eliminating the special rules for 
student credit plans under Sec.  226.17(i) for credit extensions made 
on or after the mandatory compliance date of Subpart F. However, as 
discussed more fully below, the Board is revising rather than removing 
Sec.  226.17(i) to clarify that student credit extensions made under 
Sec.  226.17(i) prior to the mandatory compliance date of Subpart F 
must still follow the requirements in Sec.  226.17(i).
    Current Sec.  226.17(a)(1) requires that the closed-end credit 
disclosures under Sec.  226.18 be grouped together, segregated from 
everything else, and not contain any information not directly related 
to the disclosures required under Sec.  226.18. It also requires that 
the itemization of the amount financed under Sec.  226.18(c)(1) must be 
separate from the other disclosures required under that section. The 
Board proposed to revise Sec.  226.17(a)(1) and comment 17(a)(1)-4 to 
clarify that the information required under Sec.  226.38 must be 
provided together with the information required under Sec.  226.18. In 
addition, as discussed in the section-by-section analysis under Sec.  
226.47, the Board proposed to allow creditors to provide the 
itemization of the amount financed together with the disclosures 
required under Sec.  226.18 for private education loan disclosures.
    Annual percentage rate disclosure. Current Sec.  226.17(a)(2), 
implementing TILA section 122(a), requires the terms ``finance charge'' 
and ``annual percentage rate,'' together with a corresponding amount or 
percentage rate, to be more conspicuous than any other disclosure, 
except the creditor's identity under Sec.  226.18(a). For private 
education loans, TILA sections 128(e)(2)(A) and 128(e)(4)(A) require a 
disclosure of the interest rate in addition to the APR. The Board 
proposed to exercise its authority under TILA section 105(a) to except 
private

[[Page 41199]]

education loans from the requirement that the APR be more prominent 
than other disclosures and proposed to give prominence to the interest 
rate disclosure that is required by the HEOA. The Board also proposed 
to exercise its authority under TILA section 122(a) to require that the 
interest rate be disclosed as prominently as the finance charge. See 
proposed Sec.  226.37(c)(2)(iii).
    Some industry, consumer group, and other commenters objected to the 
proposal to give the interest rate more prominence than the APR. Some 
of the commenters believed the APR was a better tool for consumers to 
use to compare the cost of a loan than the interest rate. They believed 
that emphasizing the interest rate could mislead consumers who do not 
consider other costs of loans. Other commenters believed that for 
uniformity, the APR should not deviate from the prominent position in 
the model forms for other types of closed-end loans. Further, consumer 
group commenters argued that the data produced from consumer testing 
was not definitive enough to justify making the exception, noting that 
most consumers tested did not notice the difference between the APR and 
interest rate and that the testing involved only 20 consumers. The 
consumer groups also cited several studies to support retaining the 
prominence of the APR, including a study that found that more than 70% 
of the population reported using the APR to shop for closed-end 
credit.\2\
---------------------------------------------------------------------------

    \2\ Jinkook Lee and Jeanne M. Hogarth, ``The Price of Money: 
Consumers' Understanding of APRs and Contract Interest Rates,'' 18 
J. Pub. Pol'y and Marketing 66, 74 (1999).
---------------------------------------------------------------------------

    TILA section 128(e)(1)(A) requires a disclosure of the range of 
potential interest rates in the application and solicitation 
disclosure. In consumer testing, some consumers expressed confusion as 
to why the APR on the approval and final forms was inconsistent with 
the interest rates disclosed on the application form. Consumers tested 
indicated that the interest rate was most relevant to them for private 
education loan purposes. In addition, TILA section 128(e)(9), as added 
by the HEOA, directs the Board to implement the HEOA's requirements 
even if those requirements differ from or conflict with requirements 
under other parts of TILA. The HEOA also requires the Board to develop 
model forms that may be used for the private education loan disclosures 
based on consumer testing. HEOA, Title X, Subtitle B, Sec. 1021 (adding 
TILA section 128(e)(5)(A)).
    Consumer testing of private education loan disclosures that 
continued during and after the comment period confirmed that most 
consumers understand the interest rate and that it is one of the most 
important terms to them. At the same time, most consumers do not 
understand the APR and incorrectly believe that the APR is the interest 
rate.\3\ In the initial rounds of testing the APR was presented more 
prominently than the interest rate. Most consumers had difficulty 
reconciling the two terms and some consumers believed that either the 
APR or the interest rate was a mistake and expressed a concern about 
the accuracy of the disclosures. Consumer confusion was compounded with 
the private education loan disclosures. Under the HEOA, the application 
disclosure that the consumer receives first in the series of forms 
contains a range of interest rates and not APRs. Consumers expected to 
see similar disclosures on subsequent forms.\4\
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    \3\ Rockbridge Associates, ``Consumer Research and Testing for 
Private Education Loans: Final Report of Findings'' at 8.
    \4\ Rockbridge Associates, ``Consumer Research and Testing for 
Private Education Loans: Final Report of Findings'' at 39.
---------------------------------------------------------------------------

    By contrast, in consumer testing of the model forms with a less 
prominent APR, consumers were less likely to equate the APR with the 
interest rate. Rather, the APR's less prominent location on the model 
form encouraged consumers to view it in the context of the explanatory 
text provided. This, in turn, helped consumers to better understand 
that the APR was a distinct disclosure that reflected both the interest 
rate and the fees.\5\
---------------------------------------------------------------------------

    \5\ Rockbridge Associates, ``Consumer Research and Testing for 
Private Education Loans: Final Report of Findings'' at 8, 43.
---------------------------------------------------------------------------

    In addition, based on consumer testing, the Board does not believe 
that making the APR less prominent is likely to cause consumers to 
focus solely on the interest rate to the exclusion of other costs. When 
consumers were asked in testing to determine which of two sample loans 
was less expensive, they relied on information other than the interest 
rate and APR to make their determination, such as the finance charge or 
the total of payments. By using the other cost information all 
consumers tested were able to select the loan that had a lower APR, 
even when it had a higher interest rate.\6\
---------------------------------------------------------------------------

    \6\ Rockbridge Associates, ``Consumer Research and Testing for 
Private Education Loans: Final Report of Findings'' at 55.
---------------------------------------------------------------------------

    The findings from the Board's consumer testing that consumers do 
not understand the APR are supported in other research. For example, 
the study that cited high awareness of the APR by mortgage borrowers 
also found that at least 40% of those borrowers did not understand the 
relationship between the interest rate and the APR which, the study 
concluded, ``indicates a significant gap between awareness and 
understanding.'' \7\ Lack of understanding of the APR on the part of 
the consumer could result in an inaccurate comparison of loan terms. 
For example, a consumer comparing two loans based on both the APR and 
the fees might erroneously consider fees that were already included in 
the APR.
---------------------------------------------------------------------------

    \7\ Jinkook Lee and Jeanne M. Hogarth, ``The Price of Money: 
Consumers' Understanding of APRs and Contract Interest Rates,'' 18 
J. Pub. Pol'y and Marketing 66, 74 (1999).
---------------------------------------------------------------------------

    Thus, the Board believes that an exception from the requirement 
that the APR be disclosed more prominently than other terms is 
necessary and proper to assure a meaningful disclosure of credit terms 
for consumers, and it is retained in the final rule.
    Timing of disclosures. Current Sec.  226.17(b) requires creditors 
to make closed-end credit disclosures before consummation of the 
transaction. As discussed more fully below in the section-by-section 
analysis under Sec. Sec.  226.46 and 226.47, the Board is adopting as 
proposed revisions to Sec.  226.17(b) to require creditors to make the 
current closed-end disclosures two times for private education loans: 
Once with any notice of approval of a private education loan, and again 
before disbursement. Under current comment 17(b)-1, the disclosures 
must be made before consummation, but need not be given by a particular 
time, except in certain dwelling-secured transactions. The Board is 
adopting as proposed revisions to comment 17(b)-1 to clarify that more 
specific timing rules would apply for private education loans.
    The proposed rule did not propose any changes to current Sec.  
226.17(f), but the final rule revises that section. Current Sec.  
226.17(f) requires redisclosure if disclosures are given before 
consummation of a transaction under certain conditions. The Board is 
excluding private education loans from the requirements of Sec.  
226.17(f) because the Board believes that the disclosure and other 
requirements for private education loans make redisclosures under Sec.  
226.17(f) unnecessary. Creditors must provide approval disclosures for 
private education loans and then, after the consumer accepts the loan 
and before funds are disbursed, provide final disclosures. Thus, 
consumers will always receive at least two disclosures in private 
education loan transactions. In addition, with few exceptions, 
creditors cannot change the loan's rate or terms after providing the 
disclosures,

[[Page 41200]]

and Sec.  226.48(c) requires redisclosure if certain permitted changes 
are made after the approval disclosure is provided. Creditors are 
permitted, however, to make changes to the interest rate based on 
adjustments to the index. As a result of interest rate fluctuations, 
the loan's APR may vary outside of the tolerance in Sec.  226.17(f)(2). 
The Board believes that requiring creditors to redisclose the approval 
or final disclosures merely because of fluctuations in the interest 
rate would be burdensome to creditors and could be confusing to 
consumers who might not understand that the redisclosures reflected 
only changes in the variable rate, rather than substantive changes in 
the loan terms. Accordingly, Sec.  226.17(f) in the final rule does not 
apply to private education loans.
    In addition, the final rule revises Sec.  226.17(g) which 
implements TILA section 128(c). Current Sec.  226.17(g) allows for 
delayed delivery of disclosures if a creditor receives a purchase order 
or a request for an extension of credit by mail, telephone, or 
facsimile machine without face-to-face or direct telephone 
solicitation. The creditor may delay disclosures until the due date of 
the first payment if certain information is made available to the 
consumer or the public before the actual purchase order request. The 
final rule excludes private education loans from Sec.  226.17(g) 
because the Board believes that the specific disclosure and timing 
requirements that the HEOA added to TILA for private education loans 
supersede TILA's general delayed disclosure provisions implemented in 
Sec.  226.17(g).
    Special rules for student credit extensions. Under current Sec.  
226.17(i) and accompanying commentary, Regulation Z applies special 
disclosure rules to closed-end student loans that are ``student credit 
plans.'' The commentary to Regulation Z describes a ``student credit 
plan'' as an extension of credit for educational purposes, where the 
repayment amount and schedule are not known at the time credit is 
advanced. The plans include loans made under any student credit plan 
not otherwise exempt from TILA, whether government or private. Comment 
17(i)-1. The credit extended before the repayment period begins under 
these plans is referred to as the interim student credit extension. The 
Board understands that most or all private education loans made today 
are ``student credit plans.''
    The Board proposed to eliminate the special rules for student 
credit plans under Sec.  226.17(i) and accompanying commentary because 
the new TILA section 128(e) disclosure rules effectively eliminate the 
disclosure exemptions and special rules in Sec.  226.17(i). 
Implementing new TILA section 128(e)(2)(H), proposed Sec.  
226.38(b)(3)(vii) required the creditor to give the consumer an 
estimate of the total amount for repayment at the time that the loan is 
approved. As discussed further below, the Board views the total amount 
for repayment disclosure as duplicative of TILA's existing total of 
payments disclosure. Proposed Sec.  226.38(b)(3)(vii) required 
creditors to disclose the total of payments before a definitive 
repayment schedule is set. Thus, the HEOA revisions to TILA eliminate 
the Sec.  226.17(i) exemption for disclosure of the total of payments. 
This also has the effect of eliminating the other exemptions as well, 
because an estimate of the total of payments requires the creditor to 
estimate the finance charge and payment schedule. In addition, the 
Board proposed to apply the new private education loan disclosure 
regime to consolidation loans, rendering the commentary on 
consolidation loan disclosures under comment 17(i)-3 unnecessary.
    The Board believes that retaining two different disclosure regimes 
from which creditors may choose is unnecessarily complex and may not be 
useful to consumers and creditors. Thus, the final rule eliminates the 
special rules for student credit plans under Sec.  226.17(i) for loans 
for which an application is received on or after the mandatory 
compliance date of Sec. Sec.  226.46, 47, and 48.
    However, in response to public comment the Board is not eliminating 
Sec.  226.17(i) in its entirety, as proposed. Under current comment 
17(i)-1, creditors who choose not to make complete disclosures at the 
time the credit is extended must make a new set of complete disclosures 
at the time the creditor and consumer agree upon a repayment schedule 
for the total obligation. The Board is retaining and revising Sec.  
226.17(i) to clarify that the requirement to provide a complete 
disclosures at the time the creditor and consumer agree upon a 
repayment schedule for the total obligation remains in effect for 
student credit extensions made before the mandatory compliance date of 
Sec. Sec.  226.46, 47, and 48, and for which the creditor chose not to 
make complete disclosures before consummation.
    For loans subject to Sec. Sec.  226.46, 47, and 48 the Board did 
not propose to require creditors to give a new set of disclosures once 
the creditor and consumer agree upon a repayment schedule. Consumer 
group commenters suggested that the Board require a new set of 
disclosures upon repayment. However, TILA as amended by the HEOA, does 
not require such disclosure for private education loans. The final 
rules require a complete disclosure at the time the credit is extended. 
In addition, new disclosures are required under Sec.  226.20(a) in the 
case of a refinancing of a loan.

Section 226.18--Content of Disclosures

    As discussed more fully below, the Board is adopting as proposed, 
with redesignated cross-references, revisions to the commentary to 
Sec.  226.18. The final rule requires that creditors provide the 
disclosures required in Sec.  226.18 along with the disclosures 
required with notice of approval in Sec.  226.47(b) and with the final 
disclosures required in Sec.  226.47(c). As proposed, the model forms 
in Appendix H-19 and H-20 show the disclosures required under Sec.  
226.18 as well as the disclosures required under Sec. Sec.  226.47(b) 
and (c). However, as explained below, the HEOA's disclosure about 
limitations on interest rate adjustments differs slightly from that of 
Sec.  226.18(f)(1)(ii), as interpreted in comment 18(f)(1)(ii)-1. Thus 
the Board is revising comment 18(f)(1)(ii)-1 to clarify that parts of 
the comment do not apply to private education loans.
    Current Sec.  226.18(f)(1)(ii) requires that if the annual 
percentage rate in a closed-end credit transaction not secured by the 
consumer's principal dwelling may increase after consummation, the 
creditor must disclose, among other things, any limitations on the 
increase. Current comment 18(f)(1)(ii)-1 states that when there are no 
limitations, the creditor may, but need not, disclose that fact. By 
contrast, the HEOA and Sec. Sec.  226.47(b) and 47(c) require creditors 
to disclose any limitations on interest rate adjustments, or the lack 
thereof. Thus, for private education loans, disclosure of the absence 
of any limitations on interest rate adjustments is required, not 
optional. In addition, under Sec. Sec.  226.47(b)(1)(iii), and (c)(1), 
limitations on rate increases include, rather than exclude, legal 
limits in the nature of usury or rate ceilings under state or Federal 
statutes or regulations. Comment 47(b)(1)-2, proposed as comment 
38(b)(1)-2, discussed below, provides guidance on how creditors are to 
disclose limitations on interest rate adjustments.
    The Board is also revising, as proposed, comment 18(f)(1)(iv)-2, 
which currently clarifies that for interim student credit extensions 
creditors need not provide a hypothetical example of the payment terms 
that would result from an increase in the variable rate. The comment is 
revised, with a

[[Page 41201]]

redesignated cross-reference, to replace the reference to interim 
student credit extensions with a reference to private education loans. 
Sections 226.47(b)(3)(viii) and 226.47(c)(3) require a disclosure of 
the maximum monthly payment on a private education loan based on the 
maximum possible rate of interest. As discussed more fully in the 
section-by-section analysis in Sec.  226.47, the Board believes that 
the required disclosure of the maximum monthly payment amount at the 
maximum rate satisfies the requirement under Sec.  226.18(f)(1)(iv) to 
disclose a hypothetical example of the payment terms resulting from an 
increase in the rate. Comment 47(b)(1)-1, proposed as comment 38(b)(1)-
1, clarifies that while creditors must disclose the maximum payment at 
the maximum possible rate, they need not also disclose a separate 
example of the payment terms resulting from a rate increase under Sec.  
226.18(f)(1)(iv).
    The Board also proposed to revise comment 18(k)(1)-1 which 
currently clarifies that interim interest on a student loan is not 
considered a penalty for purposes of the requirement in Sec.  
226.18(k)(1) to disclose whether or not a penalty may be imposed if a 
loan is prepaid in full. The proposal removed the reference to interim 
interest on a student loan as an example of what is not a penalty. The 
Board did not intend to indicate that interim interest on a student 
loan is considered a penalty. Rather, with the proposed removal of 
Sec.  226.17(i) and associated commentary, the reference to interim 
interest on a student loan would no longer be clear. Although the Board 
is retaining and revising Sec.  226.17(i), to avoid confusion between 
the terms ``student loan'' and ``private education loan,'' the Board is 
adopting the proposed revision to comment 18(k)(1)-1. The Board 
believes that the description of what constitutes a penalty in the 
remainder of revised comment 18(k)(1)-1 provides sufficient clarity 
that interim interest on a student loan would not be considered a 
penalty.

Subpart F

    The final rule, as proposed, adds a new Subpart F to contain the 
rules relating to private education loans. In the final rule, proposed 
Sec. Sec.  226.37, 38, and 39 have been redesignated to Sec. Sec.  
226.46, 47, and 48. On July 23, 2009, the Board proposed new disclosure 
requirements for closed-end loans secured by real property or a 
dwelling. In order to make these proposed provisions contiguous with 
the current Special Rules for Certain Mortgage Transactions in Subpart 
E, the Board proposed to add the new disclosure requirements to 
Sec. Sec.  226.37 and 226.38. In order to accommodate the potential for 
future rulemakings the Board is reserving Sec. Sec.  226.39 through 
226.45.

Section 226.46 Special Disclosure Requirements for Private Education 
Loans

    Section 226.46, proposed as Sec.  226.37, contains general rules 
about the disclosure and other requirements contained in Subpart F. 
Proposed Sec.  226.37(a) specified that Subpart F would apply only to 
private education loans. Section 226.46(a) of the final rule applies 
Subpart F to all extensions of credit that meet the definition of a 
private education loan in Sec.  226.46(b)(5). The final rule also 
permits, but does not require, creditors to comply with Subpart F for 
certain extensions of credit subject to Sec. Sec.  226.17 and 18 that 
are related to financing an education. Specifically, some commenters 
requested clarification as to whether certain loans that do not meet 
the definition of private education loan, but are extended to students 
who have completed graduate school for expenses related to relocation, 
medical internship or residency, or bar study would be covered. Under 
Sec.  226.46(a) of the final rule, compliance with Subpart F is 
optional for extensions of credit that are extended to a consumer for 
expenses incurred after graduation from a law, medical, dental, 
veterinary or other graduate school and related to relocation, study 
for a bar or other examination, participation in an internship or 
residency program, or similar purposes. New comment 46(a)-1 clarifies 
that if the creditor opts to comply with Subpart F, it must comply with 
all the applicable requirements of Subpart F. It also clarifies that if 
the creditor opts not to comply with Subpart F it must comply with the 
requirements in Sec. Sec.  226.17 and 18.
    Loans made for bar study, residency, or internship expenses may not 
meet the definition of ``private education loan'' in Sec.  226.46(b)(5) 
if the extension of credit will not be used, in whole or in part, for 
``postsecondary educational expenses'' as specified in Sec.  
226.46(b)(3). Consequently, under the HEOA, compliance with Subpart F 
would not be mandatory for such loans. However, the Board believes that 
permitting creditors to comply with Subpart F benefits both creditors 
and consumers. Creditor commenters requested the ability to comply with 
Subpart F for these loans because the loans are often made along with 
private education loans and share operational systems with those loans. 
Optional compliance would allow creditors to avoid the expense of 
maintaining separate compliance systems. The Board also believes that 
permitting creditors to comply with Subpart F will benefit consumers 
who will receive information about credit terms earlier in the lending 
process and gain the benefits of a 30-day acceptance period and three-
day right to cancel.
    Comment 46(a)-1, proposed as comment 37(a)-1 clarifies that if any 
part of a loan used for post-graduate expenses is also used for 
postsecondary educational expenses, then compliance with Subpart F is 
mandatory not optional. It also clarifies that, except where 
specifically provided otherwise, the requirements and limitations of 
Subpart F are in addition to the requirements of the other subparts of 
Regulation Z.
46(b) Definitions
    The HEOA amends TILA by adding a number of defined terms in new 
TILA sections 140 and 128(e). Section 226.46(b), proposed as Sec.  
226.37(b), adds these definitions to Regulation Z.
    The Board did not propose to add a definition to Regulation Z for 
one new term defined in the HEOA, ``private educational lender.'' 
Instead, the Board proposed to use Regulation Z's existing definition 
of ``creditor'' (12 CFR 226.2(a)(17)). The HEOA defines the term 
``private educational lender'' as a financial institution, as defined 
in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), or 
a Federal credit union, as defined in section 101 of the Federal Credit 
Union Act (12 U.S.C. 1752) that solicits, makes, or extends private 
education loans.\8\ The term also includes any other person engaged in 
the business of soliciting, making, or extending private education 
loans. In the proposal, the Board stated its belief that the 
``creditor'' definition would encompass persons ``engaged in the 
business of'' extending private education loans.\9\ The term 
``creditor'' applies to a person who regularly extends consumer credit, 
which is defined as credit extended more than 25 times (or more than 5 
times for transactions secured by a dwelling) in

[[Page 41202]]

the preceding calendar year. 12 CFR 226.2(a)(17).
---------------------------------------------------------------------------

    \8\ The term ``financial institution'' is not defined in section 
3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), but the 
Board interprets this term to refer to the defined term ``depository 
institution,'' which is the most comprehensive definition in section 
3 of the Federal Deposit Insurance Act.
    \9\ The HEOA also covers persons engaged in the business of 
soliciting private education loans. Under Sec.  226.46(d)(1), 
proposed as Sec.  226.37(d)(1), the term solicitation is defined as 
an offer to extend credit that does not require the consumer to 
complete an application. The term ``solicit'' does not include 
general advertising or invitations to apply for credit.
---------------------------------------------------------------------------

    Under the HEOA, a depository institution or Federal credit union 
would be covered for any private education loan it makes, regardless of 
whether or not the institution regularly extended consumer credit. By 
applying the private education loan rules only to ``creditors,'' the 
Board proposed to create an exception for depository institutions and 
Federal credit unions that do not regularly extend consumer credit. The 
Board requested comment on whether there were instances where an 
institution that does not regularly extend consumer credit nevertheless 
makes an occasional private education loan and should be covered by the 
rule. The few commenters who addressed this issue did not provide 
specific examples of depository institutions or Federal credit unions 
that make private education loans but do not meet the definition of 
creditor.
    Under TILA section 105(a), the Board may provide exceptions to TILA 
for any class of transactions to facilitate compliance with TILA. The 
Board believes that in most cases depository institutions and credit 
unions that extend private education loans would also be creditors 
under Regulation Z. The definition of creditor applies to institutions 
that extended consumer credit of any type more than 25 times in the 
preceding calendar year (or more than 5 times for transactions secured 
by a dwelling). That is, an institution need not make more than 25 
private education loans to be covered. If an institution makes 3 
private education loans and 23 automobile loans, that institution is a 
creditor. For institutions that do not meet the definition of creditor, 
the compliance burden of the private education loans rules appears 
significant for the small number of loans that they may extend. 
Applying the private education loan rules to such institutions would 
likely dissuade them from providing private education loans, 
diminishing competition and consumer choice for those consumers who may 
have access to such loans. Thus, the Board believes that this exception 
is necessary and proper to facilitate compliance with TILA, and it is 
adopted as proposed in the final rule.
    The Board also proposed to exercise its authority under TILA 
section 105(f) in applying the private education loan rules only to 
``creditors,'' as defined in Regulation Z, thereby exempting from the 
requirements of HEOA depository institutions and Federal credit unions 
that do not regularly extend consumer credit. The Board understands 
that the private education loan population contains students who may 
lack financial sophistication, and that the amount of the loan may be 
large and the loan itself may be important to the borrower. The Board 
believes, however, that because the number of instances where a 
consumer would receive a private education loan from an institution 
that does not regularly extend consumer credit is very limited, the 
burden and expenses of compliance that would be assumed by the 
institution are not outweighed by the benefit to the consumer. 
Furthermore, the Board believes that the goal of consumer protection 
would not be undermined by this exemption and that, after considering 
the 105(f) factors, coverage would not provide a meaningful benefit to 
consumers in the form of useful protection.
    The Board also requested comment on whether other persons not 
covered by the definition of ``creditor'' should be covered by the 
rule. A few commenters expressed concern that because the current 
definition of ``creditor'' includes only persons who met the thresholds 
for regularly extending consumer credit in the preceding calendar year, 
it would not include new entrants into the private education loan 
market in their first year. These commenters suggested that the 
definition be extended to include those persons who intend to regularly 
extend private education loans for the coming calendar year.
    As proposed, the final rule applies to persons meeting the 
definition of ``creditor'' under Sec.  226.2(a)(17). The current 
definition provides persons with certainty as to whether or not they 
are covered by Regulation Z. An alternative definition based on intent 
to regularly extend credit would be subjective and persons could not 
determine whether or not they must comply with Regulation Z until after 
the fact.
46(b)(1) Covered Educational Institution
    The HEOA defines the term ``covered educational institution'' to 
mean any educational institution that offers a postsecondary 
educational degree, certificate, or program of study (including any 
institution of higher education) and includes an agent, officer, or 
employee of the educational institution. Included in the definition of 
covered educational institution are ``institutions of higher 
education,'' as defined under section 102 of the Higher Education Act 
of 1965 (20 U.S.C. 1002). The Higher Education Act of 1965 contains two 
definitions of the term ``institution of higher education;'' a narrower 
definition in section 101, and a broader definition in section 102. See 
20 U.S.C. 1001, 1002. The HEOA explicitly uses the broader definition 
in section 102 of the Higher Education Act of 1965. HEOA Title X, 
Section 1001 (adding TILA Section 140(a)(3)). The more expansive 
definition of institution of higher education, as interpreted by the 
Department of Education's regulations (34 CFR 600), appears broad 
enough to encompass most educational institutions that offer 
postsecondary educational degrees, certificates, or programs of study. 
The definition of institution of higher education under section 102 of 
the Higher Education Act of 1965, however, would not include certain 
unaccredited educational institutions that offer postsecondary 
educational degrees, certificates, or programs of study. The HEOA's 
definition of ``covered educational institution'' appears to be broader 
than the definition of ``institution of higher education'' because the 
former includes, but is not limited to, the latter. For this reason, 
Sec.  226.46(b)(1), proposed as Sec.  226.37(b)(1), defines ``covered 
educational institution'' as an educational institution (as well as an 
agent, officer or employee of the institution) that would meet the 
definition of an institution of higher education as defined in Sec.  
226.46(b)(2), without regard to the institution's accreditation status.
    Comment 46(b)(1)-1, proposed as comment 37(b)(1)-1, clarifies that 
if an educational institution would not be considered an ``institution 
of higher education'' solely on account of the institution's lack of 
accreditation, the institution nonetheless would be a ``covered 
educational institution.'' It also clarifies that a covered educational 
institution may include, for example, a private university or a public 
community college. It may also include an institution, whether 
accredited or unaccredited, that offers instruction to prepare students 
for gainful employment in a recognized profession such as flying, 
culinary arts, or dental assistance. Under the definition, a covered 
educational institution does not include elementary or secondary 
schools.
    Although the definition of ``covered educational institution'' 
under the Title X of the HEOA includes an agent, officer or employee of 
a covered educational institution, the term ``agent'' is not explicitly 
defined in that section of the HEOA. However, section 151 of the HEOA 
defines an ``agent'' as an officer or employee of a covered institution 
or an institution-affiliated organization and excluding any creditor 
regarding any private education loan made by the creditor. Proposed 
comment 37(b)(1)-2 clarified that an ``agent'' for the

[[Page 41203]]

purposes of defining a covered educational institution is an officer or 
employee of an institution affiliated organization. Comment 46(b)(1)-2 
in the final rule further clarifies that an ``agent'' of a covered 
educational institution includes the institution-affiliated 
organization itself, as well as an officer or employee of an 
institution-affiliated organization.
46(b)(2) Institution of Higher Education
    The HEOA added the term ``institution of higher education'' to TILA 
Section 140(a)(3) and defined it to have the same meaning as in section 
102 of the Higher Education Act of 1965 (20 U.S.C. 1002). The 
definition encompasses, among other institutions, colleges and 
universities, proprietary educational institutions and vocational 
educational institutions. Proposed Sec.  226.37(b)(2) defined 
``institution of higher education'' with reference to section 102 of 
the Higher Education Act of 1965 and to the implementing regulations 
promulgated by the Department of Education. However, on May 22, 2009, 
after passage of the HEOA and publication of the Board's proposed rule, 
the Credit Card Accountability Responsibility and Disclosure Act of 
2009 (``Credit CARD Act'') amended TILA and added a definition of the 
term ``institution of higher education'' to TILA section 127 that 
differs slightly from the definition of ``institution of higher 
education'' in TILA section 140. The Credit CARD Act amendment to TILA 
defines ``institution of higher education'' to include both sections 
101 and 102 of the Higher Education Act of 1965. Credit CARD Act, Title 
III, Section 305 (adding TILA section 127(r)(1)(D)).
    The definition of institution of higher education in TILA section 
127 does not apply to private education loans. However, the Credit CARD 
Act added substantive provisions that apply to ``institutions of higher 
education'' to TILA section 127 and section 140, indicating that the 
difference between the two definitions was inadvertent. Thus, the Board 
believes that the two definitions of ``institution of higher 
education'' should be reconciled. In order to ensure that the 
definition of ``institution of higher education'' is consistent 
throughout Regulation Z, the final rule adopts a definition of 
``institution of higher education'' that includes both sections 101 and 
102 of the Higher Education Act of 1965. The Board understands, after 
consulting with the Department of Education, that intuitions covered 
under section 101 of the Higher Education Act of 1965 would also be 
covered under section 102 of the Higher Education Act. As a result, the 
Board is not expanding the coverage of the final rule, but rather is 
adopting a definition that is consistent with the most recent statutory 
amendment to TILA. The Board is adopting comment 46(b)(2)-1, proposed 
as comment 37(b)(2)-1, providing examples of institutions of higher 
education.
46(b)(3) Postsecondary Educational Expenses
    The HEOA defines ``postsecondary educational expenses'' as any of 
the expenses that are listed as part of the cost of attendance of a 
student under section 472 of the Higher Education Act of 1965 (20 
U.S.C. 1087ll). Section 226.46(b)(3) adopts this definition as proposed 
in Sec.  226.37(b)(3), and provides illustrative examples of 
postsecondary educational expenses. Examples included tuition and fees, 
books, supplies, miscellaneous personal expenses, room and board, and 
an allowance for any loan fee, origination fee, or insurance premium 
charged to a student or parent for a loan incurred to cover the cost of 
the student's attendance. Comment 46(b)(3)-1, adopted as proposed in 
comment 37(b)(3)-1, clarifies that the examples in the rule are not 
exhaustive.
46(b)(4) Preferred Lender Arrangement
    The HEOA defines ``preferred lender arrangement'' as having the 
same meaning as in section 151 of the Higher Education Act of 1965 (20 
U.S.C 1019). Section 226.46(b)(4), proposed as Sec.  226.37(b)(4), 
adopts this definition. Comment 46(b)(4)-1, proposed as comment 
37(b)(4)-1, clarifies that the term refers to an arrangement or 
agreement between a creditor and a covered educational institution 
under which a creditor provides education loans to consumers for 
students attending the school and the school recommends, promotes, or 
endorses the creditor's private education loans. It does not include 
arrangements or agreements with respect to Federal Direct Stafford/Ford 
loans, or Federal PLUS loans made under the Federal PLUS auction pilot 
program.
46(b)(5) Private Education Loan
    Proposed Sec.  226.37(b)(5) implemented the HEOA's definition of a 
``private education loan.'' Under the proposal, a private education 
loan was defined as a loan that is not made, insured, or guaranteed 
under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et 
seq.) and is extended expressly, in whole or in part, for postsecondary 
educational expenses to a consumer, regardless of whether the loan is 
provided through the educational institution that the student attends. 
A private education loan excluded any credit otherwise made under an 
open-end credit plan. It also excluded any closed-end loan secured by 
real property or a dwelling.
    Proposed comment 37(b)(5)-1 clarified that a loan made ``expressly 
for'' postsecondary educational expenses included loans issued 
explicitly for expenses incurred while a student is enrolled in a 
covered educational institution. It also covered loans issued to 
consolidate a consumer's pre-existing private education loans.
    Under Sec.  226.46(b)(5) and related commentary, the Board is 
adopting the definition of ``private education loan'' substantially as 
proposed, but with exceptions for certain credit extensions provided by 
covered educational institutions. Extensions of credit with a term of 
90 days or less, and tuition billing plans where an interest rate will 
not be applied to a balance and the term of the transaction is not 
greater than one year, even if the credit is payable in more than four 
installments, are exempt.
    Loans used for multiple purposes. Proposed comment 37(b)(5)-2 
addressed loans, other than open-end credit or any loan secured by real 
property or a dwelling, that a consumer may use for multiple purposes, 
including postsecondary education expenses. Under the proposal, 
creditors extending such loans, could, at their option, provide the 
disclosures under Sec.  226.38(a) on or with an application or 
solicitation. However, under Sec.  226.37(d)(1)(iii), the Board 
proposed to exercise its authority under TILA section 105(a) and except 
multi-purpose loans from the application disclosure requirements of 
proposed Sec.  226.38(a). As explained below, the Board stated its 
belief that this exception is necessary and proper to effectuate the 
purposes of, and facilitate compliance with, TILA.
    The Board also proposed to exercise its authority under TILA 
section 105(f) to exempt such loans from the proposed Sec.  226.38(a) 
disclosure requirements implementing TILA section 128(e)(1). The Board 
stated its view that these application and solicitation disclosure 
requirements do not provide a meaningful benefit to consumers in the 
form of useful information or protection for loans that may be used for 
multiple purposes. The Board considered that the private education loan 
population includes many students who may lack financial sophistication 
and the size of the loan could be relatively significant and important 
to the borrower. However, with respect to loans that may be used for 
multiple purposes, the creditor may not know at application if

[[Page 41204]]

the consumer intends to use such loans for educational purposes. A 
requirement to provide a consumer with the proposed Sec.  226.38(a) 
disclosures would likely have been complicated and burdensome to 
creditors and potentially infeasible to implement. Furthermore, the 
Board believed that the borrower would receive meaningful information 
about the loan through the subsequent approval and final disclosures 
required under proposed Sec. Sec.  226.38(b) and 38(c), respectively. 
The HEOA also provides borrowers with significant rights, such as the 
right to cancel the loan. The Board recognized that such multi-purpose 
loans would not be secured by the principal residence of the consumer, 
which is a factor for consideration under section 105(f). The Board 
stated its belief that consumer protection would not be undermined by 
this exemption.
    Proposed comment 37(b)(5)-2 clarified that if the consumer 
expressly indicates on an application that the proceeds of the loan 
will be used to pay for postsecondary educational expenses, the 
creditor must comply with the disclosure requirements of proposed 
Sec. Sec.  226.38(b) (approval disclosures) and 38(c) (final 
disclosures) and proposed Sec.  226.39 (including the 30 day acceptance 
period and three-business-day right to cancel). To determine the 
purpose of the loan, proposed comment 37(b)(5)-2 stated that the 
creditor may rely on a check-box or purpose line on a loan application.
    Proposed comment 37(b)(5)-2 also clarified that the creditor must 
base the disclosures on the entire amount of the loan, even if only a 
part of the proceeds is intended for postsecondary educational 
expenses. The Board's view was that this approach would be the least 
administratively burdensome for creditors and would also be clearer to 
consumers. Providing disclosures based on a partial loan amount might 
cause a consumer to misinterpret the correct amount of his or her loan 
obligation. Therefore, the Board proposed to exercise its authority 
under TILA section 105(a) to require that the approval and final 
disclosure requirements of HEOA be applied to the portion of the loan 
that is not a private education loan. As explained above, the Board 
stated its belief that this provision is necessary and appropriate to 
assure a meaningful disclosure of credit terms for consumers.
    The Board requested comment on whether the private education loan 
application disclosures should be required for loans that may be used 
for multiple purposes, or, alternatively, whether such loans should be 
exempt from any of the other disclosure requirements. The Board also 
requested comment on whether creditors who make loans that may be used 
for multiple purposes should be required to comply with the requirement 
to obtain a self-certification form under proposed Sec.  226.39(e) and, 
if so, whether creditors should be required to obtain the self-
certification form only from consumers who are students, or from all 
consumers, such as parents of a student.
    The Board received numerous comments on the proposed application of 
the private education loan rules to loans that may be used for multiple 
purposes. Industry commenters, including both large and small 
institutions and their representatives, stated that applying the 
proposed rule to such loans would be burdensome. Small institutions 
stated that the additional disclosures and timing requirements would 
not be beneficial to their customers who expect to be able to apply for 
and receive installment loans quickly based on an existing relationship 
with the institution. Larger institutions noted that they often have 
dedicated student lending operations and that applying the rules to 
general installment loans would require them to update systems not only 
for their student lending divisions, but also for other lending 
divisions. Some commenters expressed concern that, rather than build 
systems to comply with the private education loan rules, some 
institutions would decline to make a loan if the consumer indicated 
that the funds would be used for postsecondary educational expenses. 
Commenters also expressed concern that basing the disclosures on the 
entire loan amount, rather than the amount used for educational 
expenses would cause confusion.
    By contrast, consumer group commenters supported the proposed 
inclusion of loans that may be used for multiple purposes, noting the 
concern that exempting such loans could create an opportunity for 
evasion of the proposed rules. They also supported basing the 
disclosures on the entire loan amount, rather than the amount used for 
educational expenses. These commenters suggested that creditors be 
required to inquire whether a loan would be used for postsecondary 
educational expenses.
    The final rule would cover multipurpose loans largely as proposed. 
The Board believes that coverage of loans that may be used for multiple 
purposes is warranted by the statutory inclusion of loans made 
``expressly,'' that is, explicitly, for postsecondary educational 
expenses. The Board also believes that there is potential for evasion 
of the rules if creditors could avoid compliance by lending the 
consumer more than the amount needed for educational purposes. One of 
the goals of the HEOA is to prevent students from borrowing more than 
their financial need to finance their education. Comment 46(b)(5)-2 
provides that the creditor may rely on a check-box or purpose line in 
an application to determine the loan's purpose. In addition, the 
creditor must base the disclosures on the entire amount of the loan, 
even if only part of the loan is to be used for postsecondary 
educational expenses. The Board believes that providing disclosures 
based on a partial loan amount might cause a consumer to misinterpret 
the correct amount of his or her loan obligation. The Board is also 
adopting the exception to the requirement that the application 
disclosures under Sec.  226.47(a) be provided for multiple-purpose 
loans. The creditor may not know at application if the consumer intends 
to use such loans for educational purposes. A requirement to provide a 
consumer with the Sec.  226.47(a) disclosures would likely be 
complicated and burdensome to creditors and potentially infeasible to 
implement.
    Credit provided by educational institutions. In addition to 
comments about loans that may be used for multiple purposes, the Board 
received a number of comments from educational institutions requesting 
clarification as to whether tuition billing plans were covered by the 
proposed rules. These commenters noted that such billing plans do not 
involve a disbursement of funds to the consumer and do not involve the 
application of an interest rate to a balance. Consequently, a major 
part of the new disclosures required by the HEOA, such as disclosures 
about interest rates and payment amounts at the maximum interest rate, 
would not apply to such billing option plans. In addition, these 
commenters suggested that neither the 30 day acceptance period nor the 
three-day right to cancel would be meaningful to consumers in a context 
where no funds are disbursed to the consumer. Most commenters who 
addressed this issue noted that these billing plans usually have terms 
of one year or less.
    Under Sec.  226.46(b)(5)(iv)(B), the Board is revising the 
definition of ``private education loan'' to exclude certain billing 
plans provided by educational institutions. If payable in more than 
four installments, these plans may be considered credit under 
Regulation Z and would be subject to the requirements of Sec. Sec.  
226.17 and 18.

[[Page 41205]]

However, the Board agrees with commenters that the additional 
disclosure and timing rules for private education loans would not 
provide meaningful disclosures to consumers and could potentially make 
it more difficult for consumers to benefit from flexible payment 
options. The Board believes that the disclosure requirements under 
Sec. Sec.  226.17 and 18 provide consumers with adequate information 
for these types of plans. In response to public comment, the Board is 
exercising its authority under TILA section 105(a) to adopt a narrow 
exception for billing plans that do not apply an interest rate to the 
credit balance and have a term of one year or less, even if payable in 
more than four installments. Based on public comment, the Board 
believes that the limited exception for billing plans of one year or 
less that do not charge interest will provide sufficient flexibility to 
schools to accommodate students' payment needs while ensuring that 
extensions of credit that are more likely to be a substitute for a 
private education loan are covered. Comment 46(b)(5)-3 clarifies that 
such plans may nevertheless be extensions of credit subject to 
Sec. Sec.  226.17 and 18. As explained above, the Board believes that 
this exception is necessary and proper to effectuate the purposes of, 
and facilitate compliance with, TILA.
    Educational institution commenters also requested an exemption for 
``emergency'' loans provided to a student for a short term while the 
student waits for other funds to be disbursed. Most commenters that 
requested an exemption for these ``emergency'' loans stated that they 
have a term of 90 days or less. Because these loans may charge 
interest, they would not fall under the exemption for billing payment 
plans. However, as with billing payment plans, the Board believes that 
the additional disclosures required by the HEOA, such as the maximum 
rate disclosures, would not provide a meaningful benefit to consumers 
taking out short-term loans. Creditors would still be obligated to 
provide the general disclosures required under Regulation Z. Moreover, 
these commenters focused particularly on the burden that could be 
imposed on students by the prohibition on disbursing funds during the 
three-day cancellation period. For example, if delayed disbursement 
caused the student to fail to meet a tuition payment deadline the 
student may not be allowed to enroll in school, increasing the time 
needed to graduate. The Board believes that short-term loans provided 
by the school benefit consumers and that the HEOA's requirements, 
especially the three-day cancellation period, could impair their 
effectiveness by delaying disbursement of loan proceeds without 
providing a meaningful benefit to students. Accordingly, the final rule 
exempts loans provided by the school with a term of 90 days or less.
    Comment 46(b)(5)-3 clarifies that such loans are not considered 
private education loans, even if interest is charged on the credit 
balance. Because these loans charge interest, they are not covered by 
the exception under Sec.  226.46(b)(5)(iv)(B). However, these loans are 
extensions of credit subject to the requirements of Sec. Sec.  226.17 
and 18. The comment clarifies that if legal agreement provides that 
repayment is required when the consumer or the educational institution 
receives certain funds (such as by deposit into the consumer's or 
educational institution's account), the disclosures should be based on 
the creditor's estimate of the time the funds will be delivered.
    The exceptions that apply when the covered educational institution 
is the creditor apply only when the school itself is the creditors and 
not when an institution-affiliated organization is the creditor. The 
definition of covered educational institution in Sec.  226.46(b)(1) 
includes an agent of the institution, meaning and institution-
affiliated organization. Comment 46(b)(1)-2 clarifies that institution-
affiliated organization does not include the creditor with respect to 
any private education loan made by that creditor. Thus, if an 
institution-affiliated organization is the creditor, it is not a 
``covered educational institution'' and the institution-affiliated 
organization's loans are not exempt.
    Educational institution commenters also requested clarification as 
to whether state ``service requirement'' programs would be considered 
private education loans. Under these programs, money is disbursed to 
students who agree as part of the legal obligation to complete a 
service obligation, such as teaching or practicing medicine in an 
underserved area. If the consumer completes the obligation, no 
repayment of principal or interest is required. However, if the 
consumer does not complete the service obligation, under the terms of 
the legal obligation, the consumer is required to repay the funds with 
interest.
    The Board notes that the definition of ``credit'' under Sec.  
226.2(a)(14) means the right to defer payment of debt or to incur debt 
and defer its payment. Certain ``service requirement'' programs may not 
be credit under Regulation Z if the terms of the legal obligation 
contemplate that the consumer will not be required to repay principal 
or interest on disbursed funds. If the consumer is required to repay 
disbursed funds only in connection with an unanticipated breach of the 
consumer's legal obligation to perform a service, the consumer may not 
have a credit extension under Regulation Z.
46(c) Form of Disclosures
    Similar to the requirements imposed by Sec.  226.17 for the 
disclosures required by Sec.  226.18, the Board is adopting Sec.  
226.46(c)(1), proposed as Sec.  226.37(c)(1), to require the 
disclosures for private education loans be made clearly and 
conspicuously. The Board is also adopting Sec.  226.46(c)(2), proposed 
as Sec.  226.37(c)(2), to require that the approval and final 
disclosures under Sec. Sec.  226.47(b) and 47(c) to be in writing in a 
form that the consumer may keep. The disclosures must be grouped 
together, be segregated from everything else, and not contain any 
information not directly related to the disclosures required under 
Sec. Sec.  226.47(b) and 47(c), which include the disclosures required 
under Sec.  226.18. However, the disclosures may include an 
acknowledgement of receipt, the date of the transaction, and the 
consumer's name, address, and account number. In addition, as proposed, 
the following disclosures may be made together with or separately from 
other required disclosures as permitted under current Sec.  226.17: the 
creditor's identity under Sec.  226.18(a), insurance or debt 
cancellation under Sec.  226.18(n), and certain security interest 
charges under Sec.  226.18(o).
    As proposed, the term ``finance charge'' and corresponding amount, 
when required to be disclosed under Sec.  226.18(d), and the interest 
rate required to be disclosed under Sec. Sec.  226.47(b)(1)(i) and 
47(c)(1), must be more conspicuous than any other disclosure, except 
the creditor's identity under Sec.  228.18(a). As discussed in the 
section-by-section analysis under Sec.  226.17, the annual percentage 
rate is not required to be more prominent than other terms.
    Comment 46(c)-1, proposed as comment 37(c)-1, clarifies that 
creditors may follow the rules in Sec.  226.17 in complying with the 
requirement to provide the information required under Sec.  226.18, as 
well as the requirement that the disclosures be grouped together and 
segregated from everything else. However, in contrast to Sec.  226.17, 
the itemization of the amount financed under Sec.  226.18(c)(1) need 
not be separate from the other disclosures.

[[Page 41206]]

    TILA Section 128(b)(1) requires any computations or itemization to 
be segregated from the disclosures required in TILA Section 128(a). 
However, the HEOA requires creditors to disclose a number of terms that 
are part of the itemization of the amount financed under Sec.  
226.18(b), such as the principal amount of the loan and an itemization 
of fees. See Sec. Sec.  226.47(b)(2), 47(b)(3)(i), 47(c)(2) and 
47(c)(3)(i). Based on consumer testing, the Board believes that 
consumers may be confused about the difference between the required 
disclosure of the amount financed (Sec.  226.18(b)) and the loan's 
total principal amount in cases where those two disclosures are 
different. Providing an itemization can help clarify distinction 
between the ``amount financed'' and the ``total loan amount'' by 
showing the consumer how the amount financed is derived. It can also 
provide a clear and understandable disclosure of certain fees. For 
these reasons, the Board is exercising its authority under TILA section 
105(a) to except private education loans from the requirement that the 
itemization of the amount financed be segregated from the other 
disclosures. The Board believes that this exception is necessary and 
proper to effectuate the purposes of, and facilitate compliance with, 
TILA.
    The Board proposed to allow creditors to provide the disclosure of 
the loan's total principal amount as part of the itemization of the 
amount financed, if the creditor opts to provide an itemization. 
However, because the final model disclosures provide the loan's total 
principal amount, not the amount financed, prominently, the final rule 
allows the creditor to disclose the amount financed as part of the 
itemization if the creditor opts to provide an itemization.
    Section 226.46(c)(2), proposed as Sec.  226.37(c)(2), permits 
creditors to make disclosures to consumers in electronic form, subject 
to compliance with the consumer consent and other applicable provisions 
of the Electronic Signatures in Global and National Commerce Act (E-
Sign Act) (15 U.S.C. 7001 et seq.). The disclosures required by Sec.  
226.47(a) may be provided to the consumer in electronic form without 
regard to the consumer consent or other provisions of the E-Sign Act on 
or with an application or solicitation provided in electronic form. The 
self-certification form required under Sec.  226.48(e) may be obtained 
in electronic form subject to the requirements in that section. In 
addition, as discussed below in the section-by-section analysis under 
Sec. Sec.  226.48(c) and (d), if creditors have provided the approval 
or final disclosures electronically in accordance with the E-Sign Act, 
creditors may accept electronic communication of loan acceptance or 
cancellation, respectively.
    Comment 46(c)(2)-1, proposed as comment 37(c)(2)-1, contains 
guidance on the manner in which disclosures may be provided in 
electronic form. Electronic disclosures are deemed to be on or with an 
application or solicitation if they--(1) Automatically appear on the 
screen when the application or solicitation reply form appears; (2) are 
located on the same Web ``page'' as the application or solicitation 
reply form and the application or reply form contains a clear and 
conspicuous reference to the location and content of the disclosures; 
or (3) are posted on a Web site and the application or solicitation 
reply form is linked to the disclosures in a manner that prevents the 
consumer from by-passing the disclosures before submitting the 
application or reply form. This approach is consistent with the rules 
for electronic disclosures for credit and charge card applications 
under comment 5a(a)(2)-1.ii.
46(d) Timing of Disclosures
    Section 226.46(d), proposed as Sec.  226.37(d), contains the rules 
governing the timing of the proposed disclosures. Proposed comment 
37(d)-1 contained guidance specifying that if the creditor places the 
disclosures in the mail, the consumer is considered to have received 
them three business days after they are mailed. For purposes of 
proposed Sec. Sec.  226.37, 226.38, and 226.39, the term ``business 
day'' was given the more precise definition used for rescission and 
other purposes, meaning all calendar days except Sundays and the 
Federal holidays referred to in Sec.  226.2(a)(6).
    As discussed in the section-by-section analysis under Sec.  
226.2(a)(6), in the final rule the more precise definition of 
``business day'' applies only to measuring the time period in which 
consumers are deemed to have received mailed disclosures. The final 
rule includes a new Sec.  226.46(d)(4) providing that the consumer is 
deemed to have received mailed disclosures within three business days 
after they are mailed. Comment 46(d)-1 clarifies that the definition of 
``business day'' used in Sec.  226.46(d)(4) means all calendar days 
except Sundays and the Federal holidays referred to in Sec.  
226.2(a)(6). For example, if the creditor places the disclosure in the 
mail on Thursday, June 4, the disclosures are considered received on 
Monday, June 8.
    Proposed comment 37(d)-1 stated that the disclosures are considered 
provided when received by the consumer. However, in order to clarify 
the timing of different aspects of the final rule, this is not adopted 
in comment 46(d)-1. Instead, as discussed in this section-by-section 
analysis under Sec.  226.46, the final rule specifies when disclosures 
must be provided and, as discussed in the section-by-section analysis 
under Sec.  226.48, the final rule provides guidance on when 
disclosures are deemed to be received by the consumer for purposes of 
measuring the 30-day acceptance period and three-day cancellation 
period.
    Application disclosures. The HEOA requires creditors to provide 
disclosures in an application or in a solicitation that does not 
require the consumer to complete an application. HEOA, Title X, 
Subtitle B, Section 1021(a) (adding TILA section 128(e)(1)). Under 
Sec.  226.46(d)(1)(i), proposed as Sec.  226.37(d)(1), creditors are 
allowed to provide the disclosures on or with the application or 
solicitation because the disclosures are likely to be longer than a 
single page. The final regulation, as proposed, defines the term 
``solicitation'' to mean an offer of credit that does not require the 
consumer to complete an application. A ``solicitation'' would also 
include a ``firm offer of credit'' as defined in the Fair Credit 
Reporting Act (FCRA). 15 U.S.C. 1681 et seq. Because consumers who 
receive ``firm offers of credit'' have been preapproved to receive 
credit and may be turned down only under limited circumstances, the 
Board believes that these preapproved offers are of the type intended 
to be captured as a ``solicitation,'' even though consumers are 
typically asked to provide some additional information in connection 
with accepting the offer. The definition of ``solicitation'' is similar 
to that contained in Sec.  226.5a(a)(1) for credit and charge card 
application disclosures. Comment 46(d)(1)-1, proposed as comment 
37(d)(1)-1, provides additional guidance that invitations to apply for 
a private education loan would not be considered solicitations.
    Proposed Sec.  226.37(d)(1)(ii) dealt with provision of disclosures 
in a telephone application or solicitation initiated by the creditor. 
The creditor was allowed, but not required, to orally disclose the 
information in proposed Sec.  226.38(a). Alternatively, if the creditor 
did not disclose orally the information in Sec.  226.38(a), the 
creditor was required to provide or place in the mail the disclosures 
no later than three business days after the consumer applied for the 
credit. The Board stated its belief that

[[Page 41207]]

orally disclosing to consumers all of the information in proposed Sec.  
226.38(a), including rate and loan cost information, information about 
Federal loan alternatives, and loan eligibility requirements, may make 
it difficult for consumers to comprehend and retain the information.
    The Board requested comment on alternatives to providing 
application disclosures in telephone applications or solicitations 
initiated by the creditor. In response to comment, the final rule 
revises the proposal in two ways. First, under Sec.  226.47(d)(1)(ii), 
the oral disclosure provisions for telephone applications or 
solicitations apply regardless of whether the creditor or the consumer 
initiates the communication. Both industry and consumer group 
commenters stated that consumers of private education loans often 
initiate telephone applications and suggested that both consumers and 
creditors would benefit if the same rules applied regardless of which 
party initiates the communication.
    Second, the Board recognized in the proposal that creditors may 
sometimes be able to communicate approval of the consumer's application 
at the same time that the creditor would provide the application 
disclosures. Consumers may be confused by receiving both the 
application disclosures and the approval disclosures at the same time. 
Therefore, the Board proposed to exercise its authority under TILA 
section 105(a) to create an exception from the requirement to provide 
the application disclosures under proposed Sec.  226.38(a) if the 
creditor did not provide oral application disclosures but did provide 
or place in the mail the approval disclosures in proposed Sec.  
226.38(b) no later than three business days after the consumer 
requested the credit. As explained above, the Board stated its belief 
that this exception is necessary and proper to assure a meaningful 
disclosure of credit terms for consumers.
    The Board also proposed to exercise its authority under TILA 
section 105(f) in proposing the exemption, described above, from the 
requirement to provide the application disclosures under proposed Sec.  
226.38(a), as required by TILA section 128(e)(1). The Board believed 
that, as described above, the application disclosure requirements would 
not provide a meaningful benefit to consumers in the form of useful 
information or protection because they would also contemporaneously 
receive the approval disclosures which would provide the consumer with 
adequate information. Moreover, the Board stated its view that 
receiving both the application and approval disclosures at the same 
time may complicate and hinder the credit process by causing consumer 
confusion. The Board recognized that the private education loan 
population contains students who may lack financial sophistication, and 
that the amount of the loan may be large and the loan itself may be 
important to the consumer. The Board also noted that private education 
loans are not secured by the consumer's residence and that HEOA 
provides the consumer with the right to cancel the loan. Finally, in 
considering the last factor under section 105(f), the Board did not 
believe that the goal of consumer protection would be undermined by 
such an exemption.
    Commenters supported this aspect of the proposal, but industry 
commenters also suggested that if creditor denies the consumer's 
application within three business days of the telephone communication, 
the creditor should not be required to provide the application 
disclosures. The Board agrees that it would be confusing for the 
consumer to receive an adverse action notice simultaneously with or 
shortly after receiving the application disclosures. Under Sec.  
226.47(d)(1)(ii) of the final rule, if the creditor does not provide 
the application disclosures orally and the creditor denies the 
consumer's application within three business days, the creditor need 
not send the application disclosures.
    As discussed above in the section-by-section analysis under Sec.  
226.46(b)(5), Sec.  226.46(d)(1)(iii) would create an exception to the 
application disclosure requirement for a loan, other than open-end 
credit or any loan secured by real property or a dwelling, that the 
consumer may use for multiple purposes including, but not limited to, 
postsecondary educational expenses.
    Approval disclosures. Section 226.46(d)(2), proposed as Sec.  
226.37(d)(2), requires that the disclosures specified in Sec.  
226.47(b) be provided before consummation on or with any notice to the 
consumer that the creditor has approved the consumer's application for 
a loan. If the creditor provides approval to the consumer by mail, the 
disclosures have to be mailed at the same time as the approval. If the 
creditor provides approval by telephone, the creditor must place the 
disclosures in the mail within three business days of the approval. The 
creditor may provide the disclosures solely in electronic form if the 
creditor has complied with the consumer consent and other applicable 
provisions of the Electronic Signatures in Global and National Commerce 
Act (E-Sign Act) (15 U.S.C. Sec.  7001 et seq.); otherwise, the 
creditor must place the disclosures in the mail within three business 
days.
    The HEOA requires that the disclosures be provided 
contemporaneously with loan approval. However, loan approval is an 
internal process of the creditor's and it often may not be feasible to 
provide the disclosures at the precise moment that the creditor 
approves the loan. The Board believes that by requiring the disclosures 
be provided at the time the creditor communicates approval to the 
consumer, the consumer will receive the information at the earliest 
opportunity contemporaneous with loan approval. In addition, the rule 
provides creditors with certainty as to when the disclosure must be 
provided. The Board believes that creditors are likely to notify the 
consumer that the loan has been approved shortly after approval is 
granted because the creditor cannot consummate and disburse the loan 
until the consumer has received the required approval disclosures and 
accepted the loan.
    The Board requested comment on alternative approaches to the timing 
of the approval disclosure. As discussed more fully in the section-by-
section analysis under Sec.  226.48(c), industry commenters requested 
clarification as to when ``approval'' occurs. They noted that they 
currently provide conditional notices of approval to consumers but that 
final approval does not occur until information provided by the 
consumer and the educational institution are verified. These commenters 
noted that under the prohibition on changing terms during the 
consumer's 30-day acceptance period in proposed Sec.  226.39(b), they 
could no longer provide conditional approvals and expressed concern 
that final approvals would come too late in the process for the 30-day 
acceptance period to be meaningful to consumers.
    The final rule requires creditors to provide the approval 
disclosures on or with any notice of approval, as proposed. However, to 
ensure that the approval disclosure comes as early as reasonably 
possible consistent with the HEOA's prohibition on the creditor 
changing the terms of the loan, Sec.  226.48(c) allows creditors to 
make certain, limited changes to loan terms after loan approval without 
providing another 30-day acceptance period. In addition, comment 
46(d)(2)-1 explicitly permits the creditor to communicate that 
additional information is required from the consumer before approval 
may be granted, without triggering the disclosure requirements of Sec.  
226.47(b).
    Final disclosures. Proposed Sec.  226.37(d)(3) required final 
disclosures

[[Page 41208]]

to be provided to the consumer after the consumer accepts the loan and 
at least three business days prior to disbursing the private education 
loan funds.
    In the final rule Sec.  226.46(d)(3), requires the final 
disclosures to be provided to the consumer after the consumer accepts 
the loan, but does not base the timing on when the private education 
loan funds are disbursed. Section 226.48(d) prohibits the creditor from 
disbursing funds until at least three business days after the consumer 
receives the final disclosures. The reference in proposed Sec.  
226.37(d)(3) to the disbursement of funds was potentially confusing and 
did not add a meaningful restriction on the timing of providing the 
disclosures.
    In both the proposed and final rule, the timing of the final 
disclosure differs slightly from the language used in the HEOA. For the 
reasons discussed below, the Board believes that creditors may not 
always be able to comply with the literal text of the HEOA, and that 
the Board's timing rule implements the purpose of the HEOA's final 
disclosure.
    The HEOA requires a final disclosure contemporaneously with the 
consummation of a private education loan. HEOA, Title X, Subtitle B, 
Section 1021(a) (adding TILA Section 128(e)(4)). Regulation Z defines 
``consummation'' as the time that a consumer becomes contractually 
obligated on a credit transaction. 12 CFR 226.2(a)(13). The 
corresponding staff commentary provides that applicable state law 
governs in determining when a consumer becomes contractually 
obligated.\10\ The Board recognizes that states define when a consumer 
becomes contractually obligated in a variety of ways. The multiple 
state definitions could result in considerable confusion among 
creditors as to the required timing of the final disclosures. Under 
many current private education loan agreements, the consumer is not 
contractually obligated until funds are disbursed to the consumer. This 
would create a compliance problem for creditors making loans in these 
cases because, in addition to requiring delivery of the final 
disclosures contemporaneously with consummation, the HEOA forbids 
creditors from disbursing funds until three business days after the 
consumer receives the final disclosures. Thus, where the consumer is 
not contractually obligated until the funds are disbursed, creditors 
cannot comply with the literal language of the HEOA; a creditor cannot 
simultaneously provide a disclosure at the time of disbursement and not 
disburse funds until three business days after the disclosure is 
provided. The HEOA adds further complexity to determining when the 
consumer becomes contractually obligated because it requires creditors 
to provide an approval disclosure to the consumer and hold the terms 
open for 30 days for the consumer to accept. It is not clear how this 
process would affect various states' interpretations of when the 
consumer becomes contractually obligated. Thus, creditors may face 
considerable uncertainty as to when the required disclosures must be 
provided.
---------------------------------------------------------------------------

    \10\ The comment states that when a contractual obligation on 
the consumer's part is created is a matter to be determined under 
applicable law; Regulation Z does not make this determination. 
Comment 2(a)(13)-1.
---------------------------------------------------------------------------

    The Board interprets the phrase ``contemporaneously with 
consummation'' to mean a time after the consumer accepts the loan that 
is at least three days before disbursement. Accordingly, the Board is 
adopting Sec.  226.46(d)(3) to require that the final disclosures be 
provided after the consumer accepts the loan and, as discussed in the 
section-by-section analysis below, Sec.  226.48(d) to prohibit 
disbursement until three days after the consumer receives the final 
disclosures. The Board solicited comment on alternative approaches to 
the timing of the final disclosure that achieve the statutory purpose 
while ensuring that compliance is possible in all cases and commenters 
generally supported the Board's approach. The Board believes that the 
purpose of the final disclosure, and the consumer's three-business day 
right to cancel following receipt of that disclosure, is to ensure that 
consumers are given a final opportunity to evaluate their need for a 
private education loan after acceptance and before the funds are 
actually disbursed. The Board believes that rule will accomplish the 
statute's objectives while ensuring that creditors have reasonable 
certainty in complying with the rule's timing requirement.
46(e) Basis of Disclosures and Use of Estimates
    Section 226.46(e), adopted as proposed in Sec.  226.37(e), requires 
that the disclosures be based on the terms of the legal obligation 
between the parties and is similar to current Sec.  226.17(e). If any 
information necessary for an accurate disclosure is unknown to the 
creditor, the creditor must make the disclosure based on the best 
information reasonably available at the time the disclosure is provided 
and state clearly that the disclosure is an estimate. For example, the 
creditor may not know the exact date that repayment will begin at the 
time that credit is advanced to the consumer. The creditor is permitted 
to estimate a repayment start date based on, for instance, an estimate 
of the consumer's graduation date.
46(f) Multiple Creditors; Multiple Consumers
    Proposed Sec.  226.37(f), provided rules for disclosures where 
there are multiple creditors or consumers. If there are multiple 
creditors only one set of disclosures could be given and the creditors 
were required to agree which creditor must comply. If there are 
multiple consumers, the creditor was permitted to provide the 
disclosure to any consumer who is primarily liable on the obligation.
    Consumer group commenters urged the Board to require that the 
disclosures be provided to all consumers primarily liable on the 
obligation. However, proposed Sec.  226.37(f) was consistent with the 
treatment of other disclosures under Regulation Z and the Board is 
adopting it as proposed in Sec.  226.46(f).
46(g) Effect of Subsequent Events
    Under proposed Sec.  226.37(g) and comment 37(g)-1, if an event 
that occurred after consummation rendered the final disclosures under 
proposed Sec.  226.38(c) inaccurate, the inaccuracy would not be a 
violation of Regulation Z. For example, if the consumer initially chose 
to defer payment of principal and interest while enrolled in an 
educational institution, but later chose to make payments while 
enrolled, such a change would not make the original disclosures 
inaccurate.
    Proposed Sec.  226.37(g) was modeled after current Sec.  226.17(e). 
However, because only one set of disclosures are required under Sec.  
226.17, while two sets are required for private education loans, 
commenters requested clarification of the effect of subsequent events 
on the approval disclosures required under proposed Sec.  226.38(b). 
Specifically, commenters noted that because the proposed rule had 
excepted private education loans from Sec.  226.17(e), but provided an 
analogous rule in proposed Sec.  226.37(g) only for final disclosures, 
the proposal did not address the effect of subsequent events on 
approval disclosures.
    In the final rule, Sec.  226.46(g) is broken out into separate 
rules for the approval disclosures under Sec.  226.47(b) and the final 
disclosures under Sec.  226.47(c). For approval disclosures, the rule 
clarifies that if a disclosure under Sec.  226.47(b) becomes inaccurate 
because of an event that occurs after the creditor delivers the 
required disclosures, the inaccuracy is not a violation of Regulation Z 
(12 CFR part 226), although new disclosures may

[[Page 41209]]

be required under Sec.  226.48(c). Comment 46(g)-1 clarifies that 
although inaccuracies in the disclosures required under Sec.  226.47(b) 
are not violations if attributable to events occurring after 
disclosures are made, creditors are restricted under Sec.  226.48(c)(2) 
from making certain changes to the loan's rate or terms after the 
creditor provides an approval disclosure to a consumer. Creditors are 
also required to make subsequent disclosures in the form of the final 
disclosures required under Sec.  226.47(c) and therefore, except as 
specified under Sec.  226.48(c)(4), need not make new approval 
disclosures in response to an event that occurs after the creditor 
delivers the required approval disclosures. For example, at the time 
the approval disclosures are provided, the creditor may not know the 
precise disbursement date of the loan funds and must provide estimated 
disclosures based on the best information reasonably available. If, 
after the approval disclosures are provided, the creditor learns from 
the educational institution the precise disbursement date, new approval 
disclosures would not be required, unless specifically required under 
Sec.  226.48(c)(4) if other changes are made at the same time. 
Similarly, the creditor may not know the precise amounts of each loan 
to be consolidated in a consolidation loan transaction and information 
about the precise amounts would not require new approval disclosures, 
unless specifically required under Sec.  226.48(c)(4) if other changes 
are made.
    For final disclosures required under Sec.  226.47(c), Sec.  
226.46(g)(2) rule clarifies that if a disclosure under Sec.  226.47(c) 
becomes inaccurate because of an event that occurs after the creditor 
delivers the required disclosures, the inaccuracy is not a violation of 
Regulation Z (12 CFR part 226. For example, if the consumer initially 
chooses to defer payment of principal and interest while enrolled in a 
covered educational institution, but later chooses to make payments 
while enrolled, such a change does not make the original disclosures 
inaccurate.

Section 226.47 Content of Disclosures

    Section 226.47, proposed as Sec.  226.38, establishes the content 
that a creditor is required to include in its disclosures to a consumer 
at three different stages in the private education loan origination 
process: (1) On or with an application or a solicitation that does not 
require the consumer to complete an application, (2) with any notice of 
approval of the private education loan, and (3) after the consumer 
accepts the loan.
Preventing Duplication of Existing TILA Disclosure Requirements
    While adding a number of disclosure requirements for private 
education loans, the HEOA did not eliminate a creditor's obligation to 
provide consumers with the information required to be disclosed before 
consummation of any closed-end loan, in accordance with TILA sections 
128(a) through (d). The HEOA requires the Board to prevent, to the 
extent possible, duplicative disclosure requirements for creditors 
making private education loans under TILA. HEOA, Title X, Subtitle B, 
Section 1021(a) (adding TILA Section 128(e)(9)). Where the disclosure 
requirements of section 128(e) differ or conflict with other disclosure 
requirements under TILA that apply to creditors, the requirements of 
section 128(e) are controlling. Id.
    The new application and solicitation disclosures proposed under 
Sec.  226.38(a) did not duplicate disclosures previously required under 
TILA because TILA does not require disclosures at the time of 
application or solicitation for closed-end credit. Under TILA sections 
128(a) through (d), as implemented by Sec. Sec.  226.17 and 226.18, the 
closed-end loan disclosures applicable to private education loans are 
required to be provided only once, before consummation. However, the 
Board proposed to require the Sec.  226.18 closed-end loan disclosures 
be provided twice for private education loans--once when the loan is 
approved, and again with the final disclosures, in a manner shown in 
the proposed model forms in Appendix H. Specifically, the Board 
proposed to require creditors to provide consumers the existing Sec.  
226.18 disclosures along with the proposed Sec.  226.38(b) approval 
disclosures. The Board also proposed to require that the Sec.  226.18 
disclosures be provided along with the final disclosures required under 
new TILA section 128(e)(4) (implemented by proposed Sec.  226.38(c), 
discussed below).
    Under TILA sections 128(e)(2)(P) and 128(e)(4)(B), the Board has 
authority to add such other information as necessary or appropriate for 
consumers to make informed borrowing decisions. With respect to the 
approval disclosures, the Board stated in its proposal its belief that 
combining the existing closed-end credit TILA disclosures with the new 
private education loan disclosures provided to consumers the most 
relevant transaction-specific information at a point where the consumer 
was most likely to make the decision as to whether a particular private 
education loan met the consumer's needs. Once the creditor communicates 
approval to the consumer, the consumer has the right to accept the loan 
terms at any time within 30 calendar days of the date the consumer 
receives the approval disclosures. During this time, with a few 
exceptions, the creditor may not change the rate and terms of the loan. 
As a result, if the consumer accepts the loan within that 30-day 
period, the rate and terms of the approved loan will generally be the 
rate and terms of the loan ultimately made to the consumer. To make an 
informed decision during this deliberation period, the Board stated 
that consumer would be best served by having the information required 
under Sec. Sec.  226.17 and 226.18, as well as under proposed Sec.  
226.38(b).
    In addition, consistent with the requirement in Sec.  226.17 that 
creditors must provide closed-end disclosures before consummation of 
the credit transaction, proposed Sec.  226.37(d)(2) required that the 
approval disclosure be provided before consummation. Based on TILA's 
definition of ``consummation'' in Sec.  226.2(a)(13), this meant that 
the closed-end credit disclosures must be provided before the consumer 
was contractually obligated on the loan. State laws may vary as to when 
consummation occurs (see comment 2(a)(13)-1), but the Board believes 
that the time of approval is likely to precede the time at which the 
consumer becomes contractually obligated on a loan.
    The Board believed that providing the Sec.  226.18 disclosures a 
second time along with the final disclosures under proposed Sec.  
226.38(c) would enhance consumer understanding by making it easier for 
consumers to compare the approval and final disclosures. By having two 
sets of disclosures that largely mirror each other, both in content and 
in form, consumers would be able to easily compare terms between the 
two sets of disclosures and likely would be better able to decide 
whether or not to exercise their right to cancel the loan. Moreover, 
relatively few disclosures could be removed from the final disclosure 
if the current TILA disclosures were not required, given the 
substantial overlap with the HEOA requirements. Thus, the Board stated 
that requiring uniformity would likely enhance consumer understanding 
without unduly burdening creditors.
    Commenters generally supported the inclusion of the information 
required in Sec.  226.18 along with the approval and final disclosures 
in proposed Sec. Sec.  226.38(b) and 38(c) and the final rule adopts 
these requirements in Sec. Sec.  226.47(b) and 47(c). In combining the 
Sec.  226.18 disclosures with the

[[Page 41210]]

disclosures under Sec. Sec.  226.47(b) and 47(c) in a model form, the 
Board, as proposed, retains many of the basic elements of the closed-
end loan model form in existing Regulation Z Appendix H (see Appendix 
H-2). The model forms are discussed further in the section-by-section 
analysis under Appendix H.
    Graduated payment disclosure. TILA section 128(e)(2)(K) requires 
the creditor to disclose whether monthly payments are graduated. As 
proposed, the Board is implementing this requirement as part of the 
requirement that creditors provide the information under Sec.  226.18. 
Specifically, the payment schedule disclosure under Sec.  226.18(g) 
requires creditors to show whether the payments are graduated.
    Other instances in which the Board is merging specific Sec.  226.18 
disclosures with the disclosures in Sec. Sec.  226.47(b) and (c) to 
avoid duplicative disclosures are discussed throughout this section-by-
section analysis below.
General Disclosure Requirements
    Proposed comment 38-1 clarified that the disclosures required under 
proposed Sec.  226.38 need be provided only as applicable, except where 
specifically provided otherwise. For example, under proposed Sec. Sec.  
226.38(b)(1) and (c)(1) creditors would specifically be required to 
disclose the lack of any limitations on adjustments to the loan's 
interest rate, rather than omit the disclosure as inapplicable. 
However, for some loans, especially loans made to consolidate a 
consumer's existing private education loans, a number of the required 
disclosures may not apply. For example, the required disclosures about 
the availability of Federal student loans would generally not apply to 
a consolidation loan because Federal loan programs do not allow a 
consumer to consolidate private education loans. For this reason, the 
Board proposed to allow disclosures for consolidation loans to omit the 
disclosures required in proposed Sec. Sec.  226.38(a)(6), and (b)(4).
    Industry commenters sought further clarification that disclosure of 
Federal loan alternatives would not apply to other types of loans for 
which Federal funding is not available. In response to these comments, 
comment 47-1 of the final rule also lists the transactions for which 
compliance under Subpart F is optional, such as medical residency or 
bar study loans, as loans for which Sec. Sec.  226.47(a)(6) and (b)(4) 
are not applicable.
47(a) Application or Solicitation Disclosures
    Section 226.47(a), proposed as Sec.  226.38(a), specifies the 
information that a creditor must disclose to a consumer on or with any 
application for a private education loan or any solicitation for a 
private education loan that does not require an application. The 
disclosures may be included either on the same document as the 
application or solicitation or on a separate document, as long as the 
creditor provides the required disclosures to the consumer at the 
required time. Other guidance on delivery of the disclosures required 
under Sec.  226.47(a) is provided in Sec.  226.46, corresponding 
commentary, and in this section-by-section analysis under Sec.  226.46. 
Revisions to the final rule regarding the provision of application and 
solicitation disclosures in telephone applications are discussed in the 
section-by-section analysis under Sec.  226.46(d)(1).
47(a)(1) Interest Rates
    Section 226.47(a)(1), proposed as Sec.  226.38(a)(1), requires 
creditors to disclose information regarding the interest rates that 
apply to the private education loan being offered.
    Proposed Sec.  226.38(a)(1)(i) required creditors to disclose the 
initial interest rate or range of rates that are being offered for the 
loan. TILA section 128(e)(1)(A) requires disclosure of the potential 
range of rates of interest applicable to the loan, but does not clarify 
how this requirement should be applied to loans with variable interest 
rates that might change between the time of application and approval of 
the loan. The Board proposed to require that the creditor disclose the 
minimum and maximum starting rates of interest available at the time 
that the creditor provides the application or solicitation to the 
consumer.
    The Board recognized that these rates might vary based on the 
creditor's underwriting criteria for a particular loan product, 
including a consumer's credit history. Based on consumer testing, the 
Board believes that providing a general explanation of how an interest 
rate would be determined provides the context necessary for a consumer 
to understand why more than one rate is being disclosed and how a 
creditor would determine a consumer's interest rate if the consumer 
were to apply for the loan. For this reason, the Board proposed to add 
a disclosure requirement under its TILA section 128(e)(1)(R) authority. 
If the rate will depend, in part, on a later determination of the 
consumer's creditworthiness or other factors, the creditor would be 
required to state that the rate for which the consumer may qualify will 
depend on the consumer's creditworthiness and other factors. Proposed 
comment 38(a)(1)(i)-2 clarified that the disclosure does not require 
the creditor to list the factors that the creditor will use to 
determine the interest rate.
    Section 226.47(a)(1) adopts proposed Sec.  226.38(a)(1)(i) largely 
as proposed. Comment 47(a)(1)(i)-2 clarifies that the creditor may, at 
its option, specify any factors other than the consumer's credit 
history that it will use to determine the interest rate. For example, 
if the creditor will determine the interest rate based on information 
in the consumer's or co-signer's credit report and the type of school 
the consumer attends, the creditor may state, ``Your interest rate will 
be based on your credit history and other factors (co-signer credit and 
school type).''
    Proposed comment 38(a)(1)(i)-1 clarified that the rates disclosed 
must be rates that are actually offered by the creditor. For variable 
rate loans, the comment provided guidance on when a rate disclosure 
would be considered timely so that the disclosed rate would be deemed 
to be actually offered. For disclosures that are mailed, rates would be 
considered actually offered if the rates were in effect within 60 days 
before mailing. For disclosures in printed applications or 
solicitations made available to the general public, or for disclosures 
in electronic form, rates would be considered actually offered if the 
rates were in effect within 30 days before printing or within 30 days 
before the disclosures are sent to consumers electronically or, for 
disclosures made on an Internet Web site, within 30 days before being 
viewed by the public. For disclosures in telephone applications or 
solicitations, rates provided orally would be considered actually 
offered if the rates are currently applicable at the time the 
disclosures are provided. Proposed comment 38(a)(1)(i)-1 was consistent 
with the rules for variable-rate accuracy in credit and charge card 
application disclosures under Sec. Sec.  226.5a(c), (d), and (e).
    Industry commenters expressed concern that proposed comment 
38(a)(1)(i)-1 required interest rate information on an Internet Web 
site to be in effect as of the time the consumer viewed the 
information. However, the Board's intent was to provide that such 
information is deemed actually offered if in effect within 30 days 
before being viewed by the public. Final comment 47(a)(1)(i)-1 has been 
revised to clarify this.
    Industry, consumer group, and educational institution commenters 
all expressed concern that for variable-rate loans the interest rates 
disclosed under Sec.  226.47(a)(1) not be allowed to reflect

[[Page 41211]]

an interest rate other than the rate based on the index and margin used 
to make rate adjustments. For example, commenters pointed to certain 
``borrower benefits,'' such as a reduction in the interest rate for a 
series of on-time payments that creditors may offer. According to 
commenters, few consumers achieve these benefits and often the benefits 
are not contained in the legal obligation between the parties.
    Under Sec.  226.46(e)(1), the disclosures must reflect the terms of 
the legal obligation between the parties. Section 226.47(a)(1) requires 
a disclosure of the rate or rates applicable to the loan. Comment 
47(a)(1)(i)-3 clarifies that the disclosure of the interest rate or 
range of rates must reflect the rate or rates calculated based on the 
index and margin that will be used to make interest rate adjustments 
under the loan. The comment also permits the creditor to disclose a 
brief description of the index and margin, or range of margins, used to 
make rate adjustments. Consumer testing conducted for the Board 
indicated that consumers' understanding of how a variable-rate loan 
works is enhanced by such information.
    Fixed or variable rate loans, rate limitations. The Board is 
adopting proposed Sec. Sec.  226.38(a)(1)(ii) and 38(a)(1)(iii) as 
Sec. Sec.  226.47(a)(1)(ii) and 47(a)(1)(iii). Section 226.47(a)(1)(ii) 
requires the creditor to disclose whether the interest rate applicable 
to the loan is fixed or may increase after consummation of the 
transaction. TILA section 128(e)(1)(A) requires disclosure of whether 
the interest rate applicable to the loan is fixed or variable. Comment 
47(a)(1)(iii)-1, proposed as comment 38(a)(1)(iii)-1 clarifies that the 
variable rate disclosures do not apply to interest rate increases based 
on delinquency (including late payment), default, assumption, or 
acceleration. If the loan's interest rate would fluctuate solely 
because of one or more of these actions, but in no other circumstances, 
the interest rate is considered fixed.
    As proposed, if the interest rate may increase after consummation, 
Sec.  226.47(a)(1)(iii) requires the creditor to disclose any 
limitations on interest rate adjustments, or, if there are no 
limitations on interest rate adjustments, that fact. Under comment 
47(a)(1)(iii)-2, when disclosing any limitations on interest rate 
adjustments, the creditor must disclose both: (1) The maximum allowable 
increase during a single time period, or the lack of such a limit, and 
(2) the maximum allowable interest rate over the life of the loan, or 
the lack of a maximum rate. For example, a creditor could disclose that 
the maximum interest rate adjustment is two percent in a single month 
and that the maximum interest rate on the loan can never exceed twenty-
five percent over the life of the loan. Consistent with the disclosures 
based on the maximum rate in Sec. Sec.  226.47(b) and 47(c) discussed 
below, limitations include legal limits in the nature of usury or rate 
ceilings under state or Federal statutes or regulations. However, if 
the applicable rate limitation is in form of a legal limit, such as a 
state's usury cap (rather than a maximum rate specified in the legal 
obligation between the parties), the creditor must disclose that the 
maximum rate is determined by applicable law. The creditor is also 
required to disclose that the consumer's actual interest rate may be 
higher or lower than the range of rates disclosed under Sec.  
226.47(a)(1)(i), if applicable.
    Co-signer or Guarantor Disclosure. Proposed Sec.  226.38(a)(1)(iv) 
implemented TILA section 128(e)(1)(D), which requires disclosure of 
requirements for a ``co-borrower,'' including any changes in the 
applicable interest rates that may apply to the loan if the loan does 
not have a ``co-borrower.'' HEOA, Title X, Subtitle B, Section 1021(a) 
(adding TILA Section 128(e)(1)(D)). The Board interprets the phrase 
``co-borrower,'' to mean a co-signer.
    Proposed Sec.  226.38(a)(1)(iv) required the creditor to state 
whether a co-signer is required and whether the applicable interest 
rates typically will be higher if the loan is not co-signed or 
guaranteed by a third party. If the presence of a co-signer or 
guarantor would not affect the loan's interest rate, the creditor was 
required to disclose that fact. The rule required only a statement and 
the creditor was not required to estimate any potential changes in the 
applicable interest rates numerically.
    One industry commenter noted that the Board's Regulation B, which 
implements the Equal Credit Opportunity Act, prohibits creditors from 
requiring co-signers unless certain conditions are met. 12 CFR 202.7. 
This commenter expressed concern that the requirement to disclose 
whether a co-signer is required could cause confusion with the 
requirements of Regulation B. The HEOA does not alter the prohibitions 
in Regulation B. Accordingly, Sec.  226.47(a)(1)(iv) of the final rule 
does not adopt the requirement to state whether a co-signer is 
required. Rather, the final rule, as proposed, requires disclosure of 
whether interest rates typically will be higher without a co-signer. In 
addition, Sec.  226.47(a)(5) requires disclosure of certain eligibility 
criteria for co-signers. These provisions implement the HEOA's 
requirement to disclose the requirements for a co-borrower.
47(a)(2) Fees and Default or Late Payment Costs
    Proposed Sec.  226.38(a)(2) required disclosure of the fees or 
range of fees applicable to the private education loan and other 
default or late payment costs, implementing the fee and penalty 
disclosures required in TILA sections 128(e)(1)(E) and (F). Under the 
proposal, the creditor was required to itemize all fees required to 
obtain the private education loan (proposed Sec.  226.38(a)(2)(i)) and 
any applicable charges or fees, changes to the interest rate, and 
adjustments to principal based on the consumer's default or late 
payment (proposed Sec.  226.38(a)(2)(ii)).
    Proposed comment 38(a)(2)-1 explained that the creditor must 
disclose the dollar amount of each fee required to obtain the loan, 
unless the fee is based on a percentage, in which case a percentage may 
be disclosed. If the exact amount of a fee is not known at the time of 
disclosure, the creditor could disclose the dollar amount or percentage 
for each fee as an estimated range and must clearly label the fee 
amount as an estimated range.
    Neither the HEOA nor its legislative history clarifies whether 
Congress intended the fees or range of fees disclosure to require an 
itemization of all fees, or rather to allow for disclosure of a single 
dollar or percentage amount for all fees combined. The Board proposed 
to require an itemization of fees, but to permit the creditor to 
provide an estimated range of the dollar or percentage amount of each 
fee if a single dollar or percentage amount is not known. Hearings 
preceding enactment of the HEOA expressly alerted Congress to concerns 
about excessively high origination fees and the charging of separate 
additional fees.\11\ In addition, the legislative history indicates 
that the HEOA is intended to require creditors of private education 
loans to provide full information to borrowers regarding their loans 
and to protect the interests of private education loan consumers by 
requiring creditors prominently to disclose all loan terms, conditions 
and incentives.\12\
---------------------------------------------------------------------------

    \11\ See National Consumer Law Center, ``Testimony before the 
U.S. Senate Committee on Health, Education, Labor, and Pensions 
regarding `Ensuring Access to College in a Turbulent Economy' '' 
(Mar. 17, 2008), p. 8.
    \12\ See U.S. House of Representatives, Committee on Education 
and Labor, ``Higher Education Opportunity Act of 2008: Protecting 
Borrowers of Federal and Private Student Loans,'' <http://edlabor.house.gov/micro/coaa_protect.shtml> (visited Oct. 31, 
2008).

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[[Page 41212]]

    Proposed comment 38(a)(2)-2 clarified that the fees to be disclosed 
include finance charges under Sec.  226.4, such as loan origination 
fees and credit report fees, as well as fees not considered finance 
charges but required to obtain credit, such as an application fee 
charged whether or not credit is extended.
    Implementing TILA section 128(e)(1)(E), the proposal also required 
the creditor to disclose fees and costs based on defaults or late 
payments of the consumer, including adjustments to the interest rate, 
charges, late fees, and adjustments to principal. The HEOA requires a 
similar disclosure at approval and again in the final disclosure 
required after the consumer accepts the loan. HEOA, Title X, Subtitle 
B, Section 1021(a) (adding TILA Sections 128(e)(2)(E) and (e)(4)(B)).
    One difference between the proposal and TILA section 128(e)(1)(E) 
is that the latter requires disclosure of ``finance charges'' based on 
defaults or late payments, whereas the Board's proposed regulation 
eliminated the word ``finance'' and required disclosures of ``charges'' 
based on defaults or late payments. TILA section 106(a) defines the 
``finance charge'' as the sum of all charges, payable directly or 
indirectly by the person to whom the credit is extended, and imposed 
directly or indirectly by the creditor as an incident to the extension 
of credit. 15 U.S.C. 1605. The Board has interpreted the definition of 
``finance charge'' in Regulation Z to expressly exclude charges for 
late payment, delinquency, default, or a similar occurrence. 12 CFR 
226.4(c)(2). By contrast, the HEOA does not define the term ``finance 
charges,'' but simply states that ``finance charges'' based on the 
consumer's default or late payment must be disclosed. HEOA, Title X, 
Subtitle B, Section 1021(a) (adding TILA Section 128(e)(1)(E)). 
However, under current Regulation Z, there are no ``finance charges'' 
based on the consumer's default or late payment. To give effect to the 
requirements of HEOA, the Board proposed to use its authority under 
HEOA and impose additional disclosure requirements including charges 
based on defaults or late payments that are not covered by the 
definition of finance charge under Regulation Z. Therefore the word 
``charges,'' without the word ``finance,'' was used in proposed Sec.  
226.38(a)(2)(ii) and in the corresponding provisions for other private 
education loan disclosures (proposed Sec. Sec.  226.38(b)(2)(ii) and 
38(c)(2)).
    The Board did not propose to require creditors to disclose fees 
that would apply if the consumer exercised an option after consummation 
under the agreement or promissory note for the private education loan, 
such as fees for exercising deferment, forbearance, or loan 
modification options. Creditors were not required to disclose third-
party fees and costs for collection- or default-related expenses that 
might be passed on to the consumer, as these are not easily predicted 
and may never apply.
    The Board requested comment on whether creditors should be required 
to disclose these or other fees. Some consumer group commenters 
suggested that fees for exercising deferment, forbearance or loan 
modification options may be important to some consumers. However, the 
final rule does not require the disclosure of such fees. Based on 
consumer testing, the Board believes that consumers are unlikely to 
shop and compare loans based on such fees. Given the amount of 
information required to be disclosed, the Board believes that 
disclosure of these fees could produce information overload and 
distract consumers from more relevant information.
    A few commenters also requested clarification as to whether fees 
charged when the consumer enters repayment of a loan for which payments 
were deferred during an interim period were fees to ``obtain'' the 
loan.
    The Board is adopting proposed Sec.  226.38(a)(2) as Sec.  
226.47(a)(2). In addition, the Board is clarifying in comment 47(a)(2)-
2 that because repayment fees are considered finance charges, they must 
be disclosed as fees required to obtain the loan under Sec.  
226.47(a)(2).
47(a)(3) Repayment Terms
    Section 226.47(a)(3), proposed as Sec.  226.38(a)(3), requires 
disclosure of information related to repayment.
    Loan term. Proposed Sec.  226.38(a)(3)(i) implemented TILA section 
128(e)(1)(G), which requires disclosure of the term of the private 
education loan. Proposed comment 38(a)(3)(i)-1 clarified that the term 
of the loan is the period of time during which regular principal and 
interest payments must be made on the loan. For example, where 
repayment begins upon consummation of the private education loan, the 
disclosed loan term would be the same as the full term of the loan. By 
contrast, where repayment does not begin until, for instance, after the 
student is no longer enrolled, the disclosed loan term would be shorter 
than the full term of the loan. If more than one repayment term is 
possible, the creditor must disclose the loan term as the longest 
possible repayment term. Proposed Sec.  226.38(a)(3)(i) is adopted as 
Sec.  226.47(a)(3)(i).
    Payment deferral options. Proposed Sec.  226.38(a)(3)(ii) required 
disclosure of information relating to the options offered by the 
creditor to the consumer to defer payments during the life of the loan, 
implementing TILA section 128(e)(1)(I). Under the Board's TILA section 
128(e)(1)(R) authority, the proposal also required that if the creditor 
does not offer any options to defer payments, the creditor must state 
that fact. Proposed comment 38(a)(3)-2 clarified that payment deferral 
options include both options to defer payment while the student is 
enrolled and options for payment deferral, forbearance or payment 
modification during the loan's repayment term. The disclosure would 
have been required to include a description of the length of the 
deferment period, the types of payments that may be deferred, and a 
description of any payments that are required during the deferment 
period. The creditor would also have been permitted to disclose any 
conditions applicable to the deferment option, such as that deferment 
is permitted only while the student is continuously enrolled.
    Under proposed Sec.  226.38(a)(3)(iii) and proposed comment 
38(a)(3)-3, if the creditor offered payment deferral options that 
applied while the student is enrolled in a covered educational 
institution, the creditor would be required to disclose the following 
additional information for each deferral option: (1) Whether interest 
will accrue while the student is enrolled in a covered educational 
institution; and (2) if interest accrues while the student is enrolled 
at a covered educational institution, whether payment of interest may 
be deferred and added to the principal balance.
    Proposed comment 38(a)(3)-4 explained that disclosure of payment 
deferral options may be combined with the disclosure of cost estimates 
required in Sec.  226.38(a)(4). For example, the creditor could 
describe each payment deferral option in the same chart or table that 
provides the cost estimates for each payment deferral option. This 
approach was used in the Board's proposed sample form contained in 
Appendix H-21.
    A number of industry commenters requested clarification on the 
requirements of proposed Sec.  226.38(a)(3)(ii). That section required 
creditors to disclose options the consumer may have to defer payment 
after the loan's repayment period begins, such as options for 
forbearance or deferral upon re-enrolling in an

[[Page 41213]]

educational program. Comment 38(a)(3)(ii)-2 required a description of 
the length of the deferment period, the types of payments that may be 
deferred, and a description of any payments that are required during 
the deferment period for all payment deferral options, both in-school 
and after repayment begins. However, the Board's proposed model and 
samples form did not indicate where such information was to be 
provided. Commenters stated that descriptions of deferral options 
during the repayment period would be lengthy and could detract from the 
other information provided on the model forms.
    The final rule adopts Sec. Sec.  226.38(a)(3)(ii) and 38(a)(3)(iii) 
as Sec. Sec.  226.47(a)(3)(ii) and 47(a)(3)(iii), largely as proposed. 
However, to conform to the final model and sample forms, the Board is 
clarifying in comment 47(a)(3)-2 that the creditor may disclose the 
length of the maximum initial in-school deferment period. In addition, 
comment 47(a)(3)-2 clarifies that if the creditor offers payment 
deferral options that may apply during the repayment period, the 
creditor need only disclose a statement referring the consumer to the 
legal obligation for more information. Comment 47(a)(3)-4 also 
clarifies that the creditor may combine all of the disclosures required 
under Sec.  226.47(a)(3), including the loan term, with the cost 
estimate disclosure required in Sec.  226.47(a)(4).
    In addition, the final rule includes new Sec.  226.47(a)(3)(iv) 
requiring a disclosure of private education loan discharge limitations 
in bankruptcy. The disclosure of limitations of discharge of private 
education loans in bankruptcy is mandated by TILA section 128(e)(2)(E) 
for the approval disclosures and TILA section 128(e)(4)(B) for the 
final disclosures. It is not statutorily required in the application 
and solicitation disclosures prescribed by TILA section 128(e)(1)(E). 
The Board requested comment on whether disclosure of education loan 
discharge limitations in bankruptcy should be included in the 
application and solicitation disclosures as implemented by proposed 
Sec.  226.38(a). Consumer group commenters supported including the 
bankruptcy disclosures and other commenters who addressed the issue did 
not oppose it. The Board believes that the bankruptcy disclosures will 
be useful to consumers earlier in the lending process, when consumers 
are most likely to be considering a wide range of education financing 
options. The Board also believes adding bankruptcy disclosures to the 
application and solicitation disclosures provides for uniformity across 
the disclosure forms. Thus, the Board is exercising its authority under 
TILA section 128(e)(1)(R) by adding a disclosure similar to the 
disclosures required under Sec. Sec.  226.47(b)(3)(vi) and 47(c)(3).
47(a)(4) Cost Estimates
    Implementing TILA section 128(e)(1)(K), Sec.  226.47(a)(4), 
proposed as Sec.  226.38(a)(4), requires creditors to provide an 
example of the total cost to a consumer of a sample loan at the highest 
initial rate of interest actually offered by the creditor, from the 
time of consummation until the loan is repaid. The HEOA does not define 
the term ``total cost,'' and, as proposed, the Board interprets ``total 
cost'' to mean the total of payments disclosed in accordance with the 
rules in Sec.  226.18(h). See comment 47(a)(4)-1.
    Basis for estimates. Under proposed Sec.  226.38(a)(4) and comment 
38(a)(4)-2, creditors were required to disclose an example of the total 
cost of the loan calculated using the highest initial rate of interest 
applicable to the loan and the fees applicable to loans at the highest 
initial rate of interest. For example, if the creditor offers a range 
of rates and fees that depend on the consumer's creditworthiness and 
particular fees will apply to loans with the highest interest rate, 
then the creditor must include those fees in the total cost estimate.
    In order to provide consumers with information about the effect 
that financing fees has on the total cost of the loan, proposed Sec.  
226.38(a)(4) and comment 38(a)(4)-2 required that the creditor base the 
total cost estimate on a loan amount of $10,000 plus the finance 
charges applicable to loans at the highest initial rate of interest. 
For example, if the creditor charges a 3% origination fee on loans with 
the highest initial interest rate, and finances the 3% fee, under the 
proposal the creditor would calculate the total cost of the loan based 
on a $10,300 total loan amount. However, while the creditor would have 
been required to base the calculation on the total loan amount, the 
creditor would have to disclose that the example provides the total 
cost of a $10,000 amount financed, rather than disclosing the total 
loan amount used in calculating the loan cost estimate.
    The HEOA calls for an example based on the principal amount 
actually offered by the creditor. However, at the application stage, 
the creditor does not know the specific loan amount the consumer will 
request. Rather than permit each creditor to choose a loan amount upon 
which to base the disclosure, the Board believed that specifying 
uniform assumptions about the loan amount would allow consumers more 
easily to compare different loan products. The proposal allowed 
consumers to compare the cost of receiving a uniform $10,000 
disbursement under different loans.
    The Board also proposed to provide creditors with flexibility if 
they do not make loans of the size that the Board specified. If the 
creditor only offers a particular type of loan for less than $10,000, 
the creditor would be required to use a $5,000 principal amount.
    The Board requested comment on alternative ways of ensuring that 
the total cost example reflects the cost of loan fees. Specifically, 
the Board requested comment on whether an assumed loan amount of 
$10,000 should be used without adding fees to the loan amount, but 
instead separately adding the fees to the total of payments. The Board 
requested comment on whether private education loan consumers have 
historically been more likely to add fees to the loan amount they 
request, or to deduct the fees from the loan amount requested (or pay 
them separately by cash or check). The Board also requested comment on 
the practical limitations, if any, for creditors to determine the fees 
that would be applicable to loans where the highest initial rate of 
interest applies. In addition, the Board requested comment on whether 
the total cost example should be based on an assumed amount financed of 
$10,000, as proposed, or on a higher or lower amount. The Board also 
requested comment on whether the assumption of a $5,000 amount financed 
when creditors do not offer loans of $10,000 or more was an appropriate 
alternative.
    Commenters generally supported the Board's proposed approach to 
ensuring that the total loan cost example provided a consistent basis 
for calculating the total cost so that consumers could accurately 
compare loans. Specifically, most commenters supported a calculation 
method that assumed that prepaid finance charges are included in the 
total loan amount so that the total cost will reflect the effect of the 
consumer paying interest on the finance charges. Commenters supported 
requiring creditors to use a $10,000 amount financed or, if the 
creditor does not offer loans of $10,000 or more, a $5,000 amount 
financed. Commenters did not state that there were practical 
limitations on determining the amount of fees that would apply to loans 
at the highest rate.
    Two industry group commenters noted that creditors are not uniform 
in the way they calculate prepaid finance

[[Page 41214]]

charges that are based on a percentage of the loan amount. According to 
these commenters, the majority deduct prepaid finance charges from the 
total loan amount, rather than adding them to the loan amount. These 
commenters requested that the Board allow creditors to choose the 
method the creditor normally uses for assessing prepaid finance 
charges. In the alternative, the commenters suggested that if the Board 
imposed a uniform calculation method that it be based on the more 
common practice of deducting prepaid finance charges from the total 
loan amount.
    In the final rule, Sec.  226.47(a)(4) is adopted largely as 
proposed in Sec.  226.38(a)(4), but with a change in the total cost 
calculation method. Comment 47(a)(4)-2.i, as proposed in comment 
38(a)(4)-2, requires creditors to calculate the total cost estimate by 
determining all finance charges that would be applicable to loans with 
the highest initial rate of interest. For example, if a creditor 
charges a range of origination fees from 0% to 3%, but the 3% 
origination fee would apply to loans with the highest initial interest 
rate, the lender must assume the 3% origination fee is charged. Comment 
47(a)(4)-2.i also requires the creditor to base the total cost example 
on a principal amount that results in a $10,000 amount financed when 
all prepaid finance charges are financed. The creditor must disclose 
the example as reflecting the $10,000 disbursement, rather than the 
full loan amount. If the creditor only offers a particular private 
education loan for less than $10,000, the creditor may assume a total 
loan amount that results in a $5,000 amount financed for that loan.
    The Board recognizes that prepaid finance charges can be assessed 
and paid in different ways depending on the creditor's practices and 
the consumer's needs. However, the Board believes that in order for 
consumers to be able to easily compare the costs of different loan 
products using the total cost example on the application and 
solicitation disclosures, creditors must use uniform assumptions about 
the way prepaid finance charges are assessed and paid.
    Comment 47(a)(4)-2.i, as proposed, requires creditors to assume 
that all prepaid finance charges are financed by the consumer rather 
than paid separately by cash or check. However, fees based on a 
percentage of the loan amount can be assessed in two different ways, 
even when they are financed. Under the proposal, creditors were 
required to assume that the fee was assessed as a percentage of a 
hypothetical $10,000 amount financed. Thus, a 3% fee resulted in a $300 
charge. This charge, in turn, was added to the $10,000 amount financed 
resulting in a total principal loan amount of $10,300. Accordingly, the 
consumer would borrow $10,300 in order to obtain a $10,000 
disbursement.
    The assumption that fees are assessed as a percentage of the 
$10,000 amount financed and then added to the total loan amount 
reflects the practices of some, but not all creditors. Another practice 
assesses fees as a percentage of the total loan amount and then deducts 
the fees from the loan amount. For example, in this case a total loan 
amount of $10,309.28, times a 3% origination fee results in a finance 
charge of $309.28. The creditor does not, however, add an extra $309.28 
to the loan balance. Instead, the creditor deducts the $309.28 from the 
loan amount and disburses $10,000 to the consumer. The resulting amount 
financed (the $10,309.28 principal loan amount less the $309.28 prepaid 
finance charge) is $10,000.
    Under comment 47(a)(4)-2.ii in the final rule, if a prepaid finance 
charge is based on a percentage of the amount financed, for purposes of 
the example, the creditor must assume that the fee is assessed on the 
total loan amount, even if this is not the creditor's usual practice. 
In order to ensure that consumers may accurately compare total cost 
examples from different creditors, the Board is not allowing creditors 
to choose whether to add or subtract prepaid finance charges. Rather, 
based on comments received, the final rule requires creditors to use 
the method that appears to be more common.
    Highest initial rate. Proposed Sec.  226.38(a)(4)(i) required 
creditors to calculate the total cost example at the maximum rate of 
interest, and proposed comment 38(a)(4)-3 clarified that the 
``maximum'' rate of interest meant the highest initial rate of interest 
disclosed in the range of rates under proposed Sec.  226.38(a)(1)(i). 
Some industry commenters requested clarification in the regulation that 
the phrase ``maximum rate of interest'' used in proposed Sec.  
226.38(a)(4)(i) was the highest initial interest rate rather than the 
maximum possible interest rate. Section 226.47(a)(4)(i) is revised to 
clarify that the total cost example should be based on the highest rate 
required to be disclosed under Sec.  226.47(a)(1). As a result, 
proposed comment 38(a)(4)-3 is unnecessary and therefore is not 
adopted.
    Payment deferral options. Under comment 47(a)(4)-3, proposed as 
comment 38(a)(4)-4, the loan cost example must include an estimate of 
the total cost of the loan for each in-school deferral option disclosed 
in Sec.  226.47(a)(3)(iii). For example, if the creditor provides the 
consumer with the option to begin making principal and interest 
payments immediately, to defer principal payments but begin making 
interest-only payments immediately, or to defer all principal and 
interest payments while in school, the creditor is required to disclose 
three estimates of the total cost of the loan, one for each deferral 
option.
    Comment 47(a)(4)-3 also clarifies that if the creditor adds accrued 
interest to the loan balance (i.e., interest is capitalized), the 
estimate of the total loan cost should be based on the capitalization 
method that the creditor actually uses for the loan. For instance, for 
each deferred payment option where the creditor would capitalize 
interest on a quarterly basis, the total loan cost must be calculated 
assuming interest capitalizes on a quarterly basis.
    Proposed comment 38(a)(4)-5 provided guidance on the assumed 
deferral period on which to base the total cost example. For loan 
programs intended for educational expenses of undergraduate students, 
the creditor would have been required to assume that the consumer 
defers payments for four years plus the loan's maximum applicable grace 
period, if any. For all other loans the creditor would have been 
required to assume that the consumer defers for two years plus the 
maximum applicable grace period, if any, or the maximum time the 
consumer may defer payments under the loan program, whichever time is 
less. The Board believed that consumers would be better able to compare 
loan cost examples for loans that allow the consumer to defer payments 
if those examples are based on uniform assumptions about how long the 
consumer will remain in school. The Board proposed to require creditors 
assume a four-year deferral period for consumers applying for 
undergraduate loans since most undergraduate programs are four years 
long. The Board believed that using a four-year term would ensure that 
the disclosure is most meaningful to consumers who are at the beginning 
of their undergraduate education, and therefore likely are considering 
education loans for the first time. For all other types of loans, the 
proposal required creditors assume a two-year enrollment period (or to 
use the maximum deferral period for the loan, if less than two-years). 
The Board believed that a two-year enrollment period represented a term 
that would be applicable to most other postsecondary

[[Page 41215]]

education programs and would meaningfully inform consumers of the 
effect of deferring payment on the total costs of the loan for more 
than a minimal period of time.
    The Board requested comment on the proposed deferral period 
assumptions for calculating the total cost examples under proposed 
Sec.  226.38(a)(4). Specifically, the Board requested comment on 
whether creditors should be allowed to modify the total cost disclosure 
if the creditor knows a consumer's specific situation. For example, if 
the creditor knows that a consumer is a college senior, the Board asked 
whether the creditor should be allowed to provide a cost estimate based 
on a one-year deferral period, rather than a four-year deferral period. 
The Board also requested comment on whether two years is an appropriate 
term for non-undergraduate private education loans, or whether another 
term that would be a statistically more accurate representation of an 
average or median deferment period should be used. The Board also 
requested comment on whether lenders should be permitted to modify the 
disclosure for specific educational programs that are generally of a 
fixed length, such as three years for law school or four years for 
medical school.
    Commenters generally supported the proposal to use uniform 
assumptions for determining the consumer's deferral period in cases 
where the consumer's actual situation was not known. However, most 
commenters supported allowing creditors to use more accurate 
assumptions where more information was known. Commenters supported 
allowing creditors to use the specific duration of an educational 
program of a known length, such as three years for law school. In 
addition, commenters noted that the term ``undergraduate'' may include 
students in two-year programs and that the four-year term assumption 
would not be appropriate for these students. Commenters also supported 
allowing creditors to tailor the deferral period assumption to the 
specific consumer's situation if known. Where the length of the 
educational program was not known, commenters did not oppose using a 
two-year term.
    Comment 47(a)(4)-4, proposed as comment 38(a)(4)-5, has been 
revised to allow the creditor to use either of two methods for 
estimating the duration of deferral periods. Similar to the proposed 
rule, for loan programs intended for educational expenses of 
undergraduate students, the creditor may assume that the consumer 
defers payments for a four-year matriculation period, plus the loan's 
maximum applicable grace period, if any. For all other loans the 
creditor may assume that the consumer defers for a two-year 
matriculation period, plus the maximum applicable grace period, if any, 
or the maximum time the consumer may defer payments under the loan 
program, whichever is shorter.
    Alternatively, if the creditor knows that the student will be 
enrolled in a program with a standard duration, the creditor may assume 
that the consumer defers payments for the full duration of the program 
(plus any grace period). For example, if a creditor makes loans 
intended for students enrolled in a four-year medical school degree 
program, the creditor may assume that the consumer defers payments for 
four years plus the loan's maximum applicable grace period, if any. 
However, the creditor may not modify the disclosure to correspond to a 
particular student's situation. For example, even if the creditor knows 
that a student will be a second-year medical school student, the 
creditor must assume a four-year deferral period.
    The Board believes that the use of standardized assumptions will 
assist consumers when shopping for a private education loan. Providing 
consistent deferral periods is necessary in order for a consumer to 
compare the overall costs of different loans for particular educational 
programs. Consumers enrolled in an educational program may have 
difficulty comparing the total cost of two loans if one disclosure uses 
the consumer's actual deferral period and the other uses an assumed 
deferral period. The total cost may appear lower on the disclosure 
using the actual, shorter, deferral period, but the consumer may not be 
able to determine if the loan is actually less costly. Therefore, the 
Board is not permitting disclosures to be tailored to individual 
consumers.
47(a)(5) Eligibility
    Proposed Sec.  226.38(a)(5) implemented TILA section 128(e)(1)(J) 
which requires disclosure of the general eligibility criteria for a 
private education loan. The proposal specified the eligibility criteria 
that must be disclosed. The creditor would have to disclose any age or 
school enrollment eligibility requirements regarding the consumer or 
co-signer, if applicable. The Board requested comments on whether other 
types of eligibility requirements should be disclosed.
    A few commenters suggested that the Board require more information 
about eligibility requirements. However, in the consumer testing 
conducted for the Board, few consumers suggested that more such 
information would be helpful. Because the disclosure of all eligibility 
criteria could be detailed and lengthy, the Board believes that 
requiring additional eligibility information would not be meaningful to 
consumers. Therefore, the final rule provides that the creditor provide 
any age or school enrollment eligibility requirements relating to the 
consumer or co-signer.
47(a)(6) Alternatives to Private Education Loans
    The Board proposed Sec.  226.38(a)(6), to implement TILA sections 
128(e)(1)(L), (M), (N), and (Q) by requiring statements regarding the 
following alternatives to private education loans: (1) education loans 
offered or guaranteed by the Federal government and (2) school-specific 
education loan benefits and terms potentially offered by a covered 
educational institution.
    Concerning Federal education loans, under the proposal, a creditor 
was required to disclose the following: (1) A statement that the 
consumer may qualify for Federal student financial assistance through a 
program under title IV of the Higher Education Act of 1965 (20 U.S.C. 
1070 et seq.), (2) the interest rates available under each program and 
whether the rates are fixed or variable, as prescribed in the Higher 
Education Act of 1965 (20 U.S.C. 1077a), and (3) a statement that the 
consumer may obtain additional information concerning Federal student 
financial assistance from the relevant institution of higher education, 
or at the Web site of the Department of Education, including an 
appropriate Web site address. After consulting with the Department of 
Education, the Board proposed comment 38(a)(6)(ii)-1, which explained 
that the disclosure must list the address of an appropriate U.S. 
Department of Education Web site such as ``http://federalstudentaid.ed.gov.''
    To avoid overloading consumers with information and to ensure that 
consumers notice the most important information about Federal student 
loans, the Board proposed to exercise its authority under TILA section 
105(a) to make exceptions to the statute by not requiring creditors to 
state that Federal loans may be obtained in lieu of or in addition to 
private education loans. Instead the Board's proposed model forms 
labelled the disclosure as ``Federal Loan Alternatives.'' See proposed 
App. H-18, H-19. The Board stated its belief that this exception was 
necessary and proper to effectuate meaningful disclosure of credit 
terms to consumers.

[[Page 41216]]

    The Board also proposed to exercise its authority under TILA 
section 105(f) to exempt private education loans from the specific 
disclosure requirement about Federal loans, pursuant to the HOEA 
amendment to TILA sections 128(e)(1)(M) and 128(e)(2)(L). The Board 
believed that this specific requirement does not provide a meaningful 
benefit to consumers in the form of useful information or protection. 
In testing, consumers' understanding that Federal loans are available 
in lieu of or in addition to private education loans was enhanced by 
simply providing them a clear and prominent label indicating that the 
disclosures contained information about Federal loan alternatives. The 
Board considered that the private education loan population includes 
students who may lack financial sophistication and that the size of the 
loan could be relatively significant and important to the borrower. 
However, as explained above, the Board believed that the borrower would 
receive meaningful information about Federal loans through the other 
disclosures and the model form. The Board also recognized that private 
education loans would not be secured by the principal residence of the 
consumer, which is a factor for consideration under section 105(f). 
Furthermore, the HEOA provides significant rights, such as the right to 
cancel the loan. The Board believed that consumer protection would not 
be undermined by this exemption.
    A few consumer group commenters urged the Board to retain the 
phrase that Federal loans are available ``in addition to or in lieu 
of'' private education loans. However, the Board's consumer testing 
during and after the comment period continued to indicate that 
consumers understood the disclosure about Federal student loans and 
that Federal loans are available in addition to or in lieu of private 
education loans. The Board believes that requiring additional verbiage 
to communicate something that consumers already understand could 
contribute to information overload, cause consumers to skip over the 
existing textual information about Federal student loans, and 
potentially cause consumers to miss more important information in the 
disclosures. Consumers tested found the information about Federal 
student loans to be clear and understandable. The Board is adopting 
proposed Sec.  226.38(a)(6), as Sec.  226.47(a)(6).
    Under the proposal, for each title IV program enumerated in the 
disclosure (e.g., Perkins, Stafford (both subsidized and unsubsidized), 
and PLUS loans), the creditor would be required to disclose the 
interest rate corresponding to each loan program, as well as whether 
those rates are fixed or variable. The Board proposed to require 
disclosure of whether the Federal loan rates are fixed or variable, 
under its TILA section 128(e)(1)(R) authority. The Board believed this 
additional disclosure to be necessary in order to provide consumers 
with a more complete description of the nature of the Federal loans' 
interest rates and to aid in comparison of Federal loan programs to 
private education loans. During the Board's consumer testing, consumers 
indicated that the disclosure that Federal student loans have fixed 
rates is important information to them. Federal student loan interest 
rates are set by statute. Currently, Federal student loan interest 
rates are fixed rates rather than variable rates, but this has not 
always been the case. For this reason, the proposal would require a 
disclosure of whether the rates are fixed or variable.
    The statute that sets the Federal student loan interest rates 
currently contains a schedule with different fixed rates for loans 
originated at different times. See Higher Education Act of 1965 (20 
U.S.C. 1077a). For example, the fixed rate on subsidized Stafford loans 
was 6.0% for loans originated or applied for (depending on the loan) 
before July 1, 2009. For loans after July 1, 2009, the current fixed 
interest rate is 5.6%. Where the interest rate for a loan varies 
depending on the date of disbursement or receipt of application, the 
creditor must disclose only the current interest rate as of the time 
the disclosure is provided.
    To implement TILA section 128(e)(1)(L), the proposal also required 
the creditor to disclose that a covered educational institution may 
have school-specific education loan benefits and terms not detailed on 
the disclosure form. School-specific education loan benefits and terms 
might include loans with special terms negotiated by the school with 
particular creditors, or loans extended by the covered educational 
institution itself to its students. The creditor was not required to 
state what school-specific education loan benefits and terms might be 
available because these may vary widely, but rather was required to 
alert the consumer to the possibility that school-specific education 
loan benefits and terms might be available to the consumer.
47(a)(7) Rights of the Consumer
    Proposed Sec.  226.38(a)(7) implemented TILA section 128(e)(1)(O), 
by identifying for the consumer certain rights relating to the private 
education loan.
    Thirty day right of acceptance. Proposed Sec.  226.38(a)(7)(i) 
required the creditor to disclose that, should the consumer apply for 
the loan and the loan application be approved, the consumer would have 
the right to accept the terms of the loan at any time within 30 
calendar days following notice of loan approval. TILA section 
128(e)(1)(O)(i) requires a disclosure that the consumer has 30 days to 
accept and consummate the loan.
    Prohibition on loan term changes. Under proposed Sec.  
226.38(a)(7)(ii), the creditor was required to state that, except for 
changes based on adjustments to the index used to determine the rate 
for the loan, the creditor may not change the rates and terms of the 
loan during the 30-day acceptance period described in proposed Sec.  
226.38(a)(7)(i). Proposed comment 39(c)-1 allowed the creditor to give 
consumers a period of time longer than 30 days in which to accept the 
loan. In the preamble to the proposed rule, the Board stated that 
creditors choosing to give consumers a period of time in which to 
accept the loan that is longer than 30 calendar days were required to 
disclose this alternate time period.
    The Board proposed in Sec.  226.39(c) to allow creditors to make 
changes to the rate and terms of the loan not only in response to 
adjustments to a variable rate, but also in cases where the change was 
requested by, or unequivocally beneficial to, the consumer. The Board 
did not propose, however, to require the application disclosure to 
state each possible condition under which the rate or terms might 
change. The Board requested comment on the appropriate amount of detail 
in the application disclosure.
    The Board received one comment about the appropriate amount of 
detail in the statement on the application disclosure regarding the 
permissible changes to the rate or terms of the loan after the loan is 
approved. The industry commenter suggested that the Board should not 
require creditors to list every possible reason that rates and terms 
may change because of the limited amount of space on the two-page 
disclosure. The commenter suggested that it would be appropriate to 
disclose the most common reason or reasons that the rates and terms may 
change after approval.
    The Board agrees that it is not necessary or useful to list each 
reason that rates and terms of a loan may change after approval and 
that a more general statement is sufficient to alert the consumer to 
the restrictions on changing the loan terms. The Board also

[[Page 41217]]

believes a less detailed statement is appropriate in light of the 
changes made to Sec.  226.48(c) (proposed as Sec.  226.39(c)), which 
includes additional exceptions to the prohibition on changing the terms 
of the loan. Thus, in the final rule, Sec.  226.47(a)(7) requires the 
creditor to state that if the loan for which the consumer is applying 
is approved, the terms of the loan will be available for 30 days. It 
also requires the creditor to state that the terms of the loan will not 
change during this period except as a result of adjustments to the 
interest rate and due to other changes permitted by law. The 
requirement in the final rules more closely resembles the language that 
was used on the application and solicitation disclosures in consumer 
testing which consumers found clear and understandable.
47(a)(8) Self-Certification Information
    The Board proposed Sec.  226.38(a)(8) to implement TILA section 
128(e)(1)(P). It required a statement that before the loan may be 
consummated, the consumer must obtain the self-certification form 
required under proposed Sec.  226.39(e), and sign and submit the 
completed form to the creditor.
    The model forms used in consumer testing contained a basic 
statement that the consumer must complete the self-certification form 
as part of the application process and that the form may be obtained 
from the relevant institution of higher education. Consumers found the 
language in the model form to be clear and understandable and the Board 
believes that the self-certification form itself will provide consumers 
with sufficient instruction as to the steps the consumer must take to 
complete the form. Accordingly, Sec.  226.47(a)(8) of the final rule 
conforms the required disclosure to the text used in the proposed model 
form.
    As discussed in the section-by-section analysis under Sec.  
226.48(e), the disclosure regarding the self-certification form is 
required only for expenses to be used by a student enrolled in an 
institution of higher education. It would not apply to consolidation 
loans and would not apply to loans to students attending covered 
educational institutions that do not meet the definition of institution 
of higher education.
47(b) Approval Disclosures
    Section 226.47(b), proposed as Sec.  226.38(b), specifies the 
information that a creditor must disclose on or with any notice of 
approval provided to the consumer. Guidance on delivery of the 
disclosures required under Sec.  226.47(b) is provided in Sec.  226.46, 
corresponding commentary, and in the section-by-section analysis under 
Sec.  226.46.
    As discussed above in the section-by-section analysis under Sec.  
226.46(a), the creditor must make the closed-end credit disclosures 
required under Sec. Sec.  226.17 and 226.18 as well as the private 
education loan disclosures required under Sec.  226.47(b).
47(b)(1) Interest Rate
    Implementing TILA section 128(e)(2)(A), Sec.  226.47(b)(1)(i), 
proposed as Sec.  226.38(b)(1)(i), requires a creditor to disclose the 
interest rate that applies to the private education loan for which the 
consumer has been approved.
    Fixed or variable rate, rate limitations. Implementing TILA section 
128(e)(2)(A) and (B), proposed Sec. Sec.  226.38(b)(1)(ii) and (iii) 
required the creditor to disclose whether the interest rate is fixed or 
variable and any limitations, or the absence of limitations, on changes 
to the variable interest rate.
    Proposed comment 38(b)(1)-1 clarified that a private education loan 
would only be considered to have a variable rate if the terms of the 
legal obligation allow the creditor to increase the rate originally 
disclosed to the consumer. However, a rate is not considered variable 
if increases result only from delinquency, default, assumption or 
acceleration. The comment also clarified that the creditor must make 
the other variable-rate disclosures required under Sec. Sec.  
226.18(f)(1)(i) and (iii)--the circumstances under which the rate may 
increase and the effect of an increase, respectively. The creditor 
would not be required to provide an example of the payment terms that 
would result from an increase under Sec.  226.18(f)(1)(iv). Current 
comment 18(f)(1)(iv)-2 provides that creditors need not provide the 
hypothetical example for interim student credit extensions. However, 
the Board believes that the requirement to disclose the maximum monthly 
payment based on the maximum possible rate in Sec.  226.38(b)(3)(viii) 
satisfies the requirement under Sec.  226.18(f)(1)(iv) of an example of 
the payment terms that would result from an increase in the rate. In 
order to avoid duplicative examples of the effect of a rate increase, 
proposed comment 38(b)(1)-1 clarified that, although the creditor need 
not disclose a separate example under Sec.  226.18(f)(1)(iv), the 
creditor is nevertheless required to disclose the maximum monthly 
payment in Sec.  226.38(b)(2)(viii).
    As explained in the section-by-section analysis under Sec.  226.18 
(discussing the proposed changes to comment 18(f)(1)(ii)-1), proposed 
comment 38(b)(1)-2 clarified that the rules regarding disclosure of 
limitations on interest rate increases for private education loans 
differ from the general rules in Sec.  226.18(f)(1)(ii) and comment 
18(f)(1)(ii)-1. Specifically, proposed Sec.  226.38(b)(1)(iii) required 
that creditors explicitly disclose the lack of any limitations on 
interest rate adjustments. By contrast, existing comment 18(f)(1)(ii)-1 
does not require creditors to disclose the absence of limits on 
interest rate adjustments. In addition, under proposed Sec.  
226.38(b)(1)(iii), limitations on rate increases include, rather than 
exclude, legal limits in the nature of usury or rate ceilings under 
state or Federal statutes or regulations. However, if the applicable 
rate limitation is in the form of a legal limit, such as a state's 
usury cap (rather than a maximum rate specified in the legal obligation 
between the parties), the creditor must disclose that the maximum rate 
is determined by law and may change.
    As discussed in the section-by-section analysis under Sec.  
226.47(a)(1) above, commenters urged the Board allow disclosure of a 
variable interest rate only as calculated based on the index and margin 
used to make interest rate adjustments. The Board is adopting proposed 
Sec.  226.38(b)(1) as Sec.  226.47(b)(1) and adding new comment 
47(b)(1)-3 to clarify that the disclosure of the interest rate must 
reflect the rate calculated based on the index and margin that will be 
used to make interest rate adjustments for the loan.
47(b)(2) Fees and Default or Late Payment Costs
    Implementing TILA sections 128(e)(2)(E) and (F), proposed Sec.  
226.38(b)(2) and proposed comment 38(b)(2)-1 required the creditor to 
provide to the consumer the fee and penalty information required under 
proposed Sec.  226.38(a)(2), as explained in the section-by-section 
analysis for Sec.  226.47(a)(2). Under Sec.  226.18(l) creditors are 
required to disclose any dollar or percentage charge that may be 
imposed before maturity due to late payment, other than a deferral or 
extension charge. Under the proposal, creditors were required to 
disclose any charges that must be disclosed under Sec.  226.18(l) with 
the disclosures required under proposed Sec.  226.38(b)(2). In 
addition, if the creditor includes the itemization of the amount 
financed under Sec.  226.18(c), any fees disclosed as part of the 
itemization need not be separately disclosed elsewhere. The

[[Page 41218]]

Board is adopting proposed Sec.  226.38(b)(2) as Sec.  226.47(b)(2).
47(b)(3) Repayment Terms
    Section 226.47(b)(3), proposed as Sec.  226.38(b)(3), requires 
disclosure of information related to repayment.
    Principal amount. Proposed Sec.  226.38(b)(3)(i) implemented TILA 
section 128(e)(2)(D), which requires disclosure of the ``initial 
approved principal amount,'' by requiring disclosure of the loan's 
``principal amount.''
    Regulation Z currently uses the term ``principal loan amount'' as 
part of its requirement to disclose the ``amount financed.'' As 
explained below, however, the Board did not propose to equate the terms 
``principal loan amount'' used in comment 18(b)(3)-1 with the 
``principal amount'' disclosed under Sec.  226.38(b)(3)(i).
    Under current Regulation Z, the amount financed must be calculated 
in the following manner:

    (1) Determining the principal loan amount * * * (subtracting any 
downpayment);
    (2) Adding any other amounts that are financed by the creditor 
and are not part of the finance charge; and
    (3) Subtracting any prepaid finance charge. 12 CFR 226.18(b).

    Regarding the first part of this calculation, determining the 
``principal loan amount,'' the commentary states that when loan fees 
are financed by the creditor, the creditor has the option (when the 
charges are not add-on or discount charges) of either including or 
excluding the amount of the finance charges in the principal loan 
amount. As the commentary points out, this means that the ``principal 
loan amount'' for this calculation may, but need not, equal the face 
amount of the note. Comment 18(b)(3)-1. If the creditor opts to include 
finance charges in the principal loan amount, the creditor should 
deduct these charges from the principal loan amount as prepaid finance 
charges when calculating the amount financed. Id.
    Rather than equate Regulation Z's existing term ``principal loan 
amount'' with the ``principal amount'' required to be disclosed in 
proposed Sec.  226.38(b)(3)(i), the Board's view was that the most 
straightforward and easy-to-understand approach was to define 
``principal amount'' as the face amount of the note if the transaction 
occurred on the terms approved. The ``principal amount'' under proposed 
Sec.  226.38(b)(3)(i) was to include all charges incorporated in the 
approved loan amount--in other words, the total amount borrowed. This 
amount should reflect what the face amount of the note would be if the 
loan were given based on the loan amount initially approved. For 
example, prepaid finance charges, as defined and discussed in comment 
18(b)(3)-1, should be included if they would be included in the face 
amount of the note.
    The Board believed that defining ``principal amount'' in this way 
would not cause consumer confusion with Regulation Z's use of the term 
``principal loan amount'' in Sec.  226.18(b), because ``principal loan 
amount'' is not currently a stand-alone disclosure in Regulation Z that 
consumers could confuse with the ``principal amount.'' Defining the 
``principal amount'' in proposed Sec.  226.38(b)(3)(i) as distinct from 
the term ``principal loan amount'' in Sec.  226.18(b) may also reduce 
creditor confusion about whether the definition of ``principal amount'' 
changes how the ``amount financed'' is calculated under Sec.  
226.18(b). As noted above, ``principal loan amount'' is a term used 
only as part of the calculation of the ``amount financed'' disclosure. 
Current comment 18(b)(3)-1 permits creditors to decide whether to 
include or exclude prepaid finance charges in the ``principal loan 
amount,'' but solely for purposes of calculating the ``amount 
financed.''
    In addition, in order to minimize potentially duplicative 
disclosures, proposed comment 38(b)(3)-1 explained that creditors may 
disclose the principal amount as part of the itemization of the amount 
financed. The creditor would be permitted to disclose the principal 
amount as part of the itemization of the amount financed only if the 
creditor states the principal amount as part of the itemization. The 
proposed sample form in Appendix H-22 provided an example of this 
disclosure. Also, as discussed above, the proposal revised Sec.  
226.17(a)(1) to allow the itemization of the amount financed to be 
included with the required disclosures, rather than disclosed 
separately.
    Some commenters expressed confusion as to the distinction among the 
concepts of the ``principal amount'' required to be disclosed in 
proposed Sec.  226.38(b)(3)(i), the ``principal loan amount'' used to 
calculate the amount financed, and the ``amount financed'' required to 
be disclosed in Sec.  226.18(b), because the Board's sample forms did 
not include non-interest finance charges. Commenters were unclear as to 
where and how the principal amount was required to be disclosed on the 
model and sample forms.
    Proposed Sec.  226.38(b)(3)(i) is adopted as Sec.  226.47(b)(3)(i). 
Comment 47(b)(3)-1 has been revised to clarify that the principal 
amount required to be disclosed under Sec.  226.47(b)(3)(i) should be 
labelled the ``Total Loan Amount'' and that this amount may be 
different from the ``principal loan amount'' used to calculate the 
amount financed under comment 18(b)(3)-1. In addition, the Board's 
sample forms in Appendix H-22 and H-23 provide examples that include 
non-interest finance charges and better reflect the distinction between 
the principal amount and the amount financed.
    The Board is also revising the model and sample disclosures in 
Appendix H to make the principal amount, labelled the ``Total Loan 
Amount,'' more prominent by placing it in a box labelled ``Total Loan 
Amount'' at the top left of the disclosure, where the disclosure of the 
amount financed was in the proposal. The Board's consumer testing 
indicated that consumers interpret the ``Amount Financed'' and the 
accompanying phrase ``the amount of credit provided to you or on your 
behalf'' to mean the loan's total principal amount. They do not readily 
understand that the amount financed may not include certain finance 
charges and thus may be less than the face amount of the note. Consumer 
testing indicated that consumers better understand the amount financed 
if it is disclosed as part of the itemization of the amount financed 
because consumers can see how the amount financed is arrived at based 
on the total principal amount.
    The Board proposed to allow creditors to make the disclosure of the 
principal amount in Sec.  226.47(b)(3)(i) as part of the itemization of 
the amount financed, if the creditor chose to include the itemization. 
However, because the final model forms disclose the principal amount 
more prominently, comment 47(b)(3)-1 has been revised to permit the 
creditor to make the disclosure of the amount financed under Sec.  
226.18(b)(3) as part of the itemization of the amount financed, if the 
creditor elects to include the itemization on the disclosures under 
Sec.  228.18(c)(1).
    Loan term. Proposed Sec.  226.38(b)(3)(ii) and comment 38(b)(3)-2 
implemented TILA section 128(e)(2)(G), which requires disclosure of the 
maximum term of the private education loan program. Under the proposal, 
the term of the loan was the period of time during which regular 
principal and interest payments must be made on the loan. For example, 
where repayment begins upon consummation of the private education loan, 
the disclosed loan term would be the same as the full term of the loan. 
By contrast, where repayment does not begin until, for instance, after 
the student is no longer enrolled, the disclosed loan term would

[[Page 41219]]

be shorter than the full term of the loan. If more than one repayment 
term is possible, the creditor must disclose the loan term as the 
longest possible repayment term. Proposed Sec.  226.38(b)(3)(ii) is 
adopted as Sec.  226.47(b)(3)(ii).
    Payment deferral options. Proposed Sec.  226.38(b)(3)(iii) and 
proposed comment 38(b)(3)-3 required the creditor to provide 
information about deferral options, implementing TILA section 
128(e)(2)(J). This disclosure was similar to the requirement under 
proposed Sec.  226.38(a)(3)(ii), as explained in the section-by-section 
analysis for section Sec.  226.47(a)(3)(ii). However, by the time the 
consumer receives the approval disclosure, the consumer may have chosen 
a deferral option already. The difference between proposed Sec. Sec.  
226.38(a)(3)(ii) and 226.38(b)(3)(iii) is that the creditor was 
required to explain the deferral option chosen by the consumer, if the 
consumer has chosen a deferral option, as well as any other deferral 
options that the consumer is permitted to choose in the future. The 
Board is adopting Sec.  226.38(b)(3)(ii) as Sec.  226.47(b)(3)(ii). The 
section-by-section analysis of the deferral options disclosure of Sec.  
226.47(a)(3)(ii) describes the information that must also be included 
in the explanation of deferral options under Sec.  226.47(b)(3)(iii).
    Payments required during enrollment. Proposed Sec.  
226.38(b)(3)(iv) and comment 38(b)(3)-4 required the creditor to 
disclose whether any payments are required on the loan while the 
student is enrolled, implementing TILA section 128(e)(2)(I). The 
creditor also was required to describe the payments required during 
enrollment, such as principal and interest payments or interest-only 
payments. The payments required during enrollment may depend on the 
deferral option chosen by the consumer. The disclosure under proposed 
Sec.  226.38(b)(3)(iv) was required to correspond to the deferral 
option chosen by the consumer. The Board is adopting Sec.  
226.38(b)(3)(iv) as Sec.  226.47(b)(3)(iv).
    Estimate of interest accruing during enrollment. Also implementing 
TILA section 128(e)(2)(I), proposed Sec.  226.38(b)(3)(v) applied only 
if interest is charged on the private education loan while the student 
is enrolled, and the consumer will not be paying interest on the loan 
during this time. This disclosure would require the creditor to give 
the consumer an estimate of the interest that will accrue on the loan 
during enrollment. The Board is adopting proposed Sec.  226.38(b)(3)(v) 
as Sec.  226.47(b)(3)(v).
    Bankruptcy limitations. Proposed Sec.  226.38(b)(3)(vi) required 
disclosure of a statement of limitations on the discharge of a private 
education loan in bankruptcy. Proposed comment 38(b)(3)-5 stated that a 
creditor may comply with proposed Sec.  226.38(b)(vi) by disclosing the 
following statement: ``If you file for bankruptcy you may still be 
required to pay back this loan.'' To avoid overloading the consumer 
with information, the Board proposed to require a general statement 
that student loans may not be dischargeable in bankruptcy rather than 
require a detailed disclosure of student loan bankruptcy rules and 
limitations. The Board is adopting proposed Sec.  226.38(b)(3)(vi) as 
Sec.  226.47(b)(3)(vi).
    Total amount for repayment. TILA section 128(e)(2)(H) requires the 
creditor to disclose an estimate of the total amount for repayment 
calculated based on: (1) the interest rate in effect on the date of 
approval; and (2) the maximum possible rate of interest applicable to 
the loan or, if a maximum rate cannot be determined, a good faith 
estimate of the maximum rate.
    Proposed Sec.  226.38(b)(3)(vii) defined the total amount for 
repayment in the same manner as the current Regulation Z closed-end 
credit disclosure of the total of payments. 12 CFR 226.18(h). Neither 
the HEOA nor its legislative history provides guidance on the 
definition of ``total amount for repayment.'' Regulation Z defines 
``total of payments'' as the amount the consumer will have paid when 
the consumer has made all scheduled payments. 12 CFR 226.18(h). In some 
cases, the total of payments will not exactly match the total amount 
that the borrower must repay. For example, if the borrower pays prepaid 
finance charges separately in cash, the amount of these charges will 
not be reflected in the total of payments. However, the Board believes 
that requiring separate disclosures for the ``total amount for 
repayment'' and the ``total of payments'' would likely cause consumer 
confusion and that both terms are meant to capture the amount that the 
borrower will have paid after making all scheduled payments to repay 
the loan. Accordingly, in order to avoid duplication, proposed comment 
38(b)(3)-6.i clarified that compliance with the total of payments 
disclosure under Sec.  226.18(h) constitutes compliance with the 
requirement to disclose the total amount for repayment at the interest 
rate in effect on the date of approval.
    Maximum rate. For the requirement that the creditor disclose an 
estimate of the total amount for repayment at the maximum possible rate 
of interest, proposed Sec.  226.38(b)(3)(vii) and comment 38(b)(3)-6.ii 
required that either the maximum possible rate be used or, if a maximum 
rate cannot be determined, an assumed rate of 21%. For example, if the 
creditor were in a state without a usury limit on interest rates, and 
the legal agreement between the parties did not specify a maximum rate, 
the creditor would have to base the disclosure on a rate of 21%.
    Under proposed comment 38(b)(3)-6.ii, a maximum rate included a 
legal limit in the nature of a usury or rate ceiling under state or 
Federal statutes or regulations, and the creditor was required to 
calculate the total amount for repayment based on that rate, and to 
disclose that the maximum rate is determined by law and may change.
    TILA section 128(e)(2)(H) requires that, if a maximum rate cannot 
be determined, the creditor must use a good faith estimate of the 
maximum rate. The Board proposed to use its authority under the HEOA to 
add a requirement that where a maximum rate cannot be determined, the 
creditor use a rate of 21%. The Board stated its belief that such a 
rule is necessary and appropriate for consumers to make informed 
borrowing decisions. A rule providing a uniform maximum rate assumption 
also gives creditors more certainty in complying with the regulation. 
The Board proposed a rate of 21% because the Board believed that 21% 
was the most common rate within the range of usury rate ceilings that 
consumers in the private education loan market are likely to face. 
Thus, the Board believed that basing the disclosure on an assumed 
maximum rate of 21% would assist consumers in comparing different loans 
by providing consumers with an estimated total amount for repayment 
that will be similar between states with and without usury rate 
limitations.
    In addition, under the Board's TILA section 128(e)(2)(P) and 
128(e)(4)(B) authority, the proposal added a requirement that, if the 
legal obligation between the parties does not specify a maximum rate, 
the creditor must accompany the estimated total amount for repayment 
with a statement that: (1) No maximum interest rate applies to the 
private education loan; (2) the maximum interest rate used to calculate 
the total amount for repayment is an estimate; and (3) the total amount 
for repayment disclosed is an estimate and will be higher if the 
applicable interest rate increases. The Board believed that these 
additional disclosures were necessary to inform consumers that the 
examples in the disclosure statement are

[[Page 41220]]

merely illustrative and that their loan in fact has no maximum rate.
    The HEOA allows the creditor to disclose the total amount for 
repayment as an estimate. Proposed Sec.  226.38(b)(3) also required 
only an estimated total amount for repayment. The Board recognized that 
permitting disclosure of an estimate of the total amount for repayment 
is necessary because the interest rates on most private education loans 
are variable and the repayment schedule is often not known at the time 
that the approval disclosures must be provided to the consumer.
    The Board requested comment on whether a specific maximum rate 
assumption should be used for disclosures where a maximum rate cannot 
be determined, and, if so, whether 21% was the most appropriate rate or 
whether another rate should be used. The Board also requested comment 
on whether, if a maximum rate of interest was to be specified, the 
Board should publish the rate periodically, based on a median or a 
commonly used usury rate applicable to private education loans in 
various states. The Board also requested comment on alternative 
approaches by which creditors may make a good faith estimate of a 
maximum possible rate when a maximum rate cannot be determined.
    The Board received a number of comments on the proposal to require 
disclosure of the total amount for repayment at an assumed rate of 21% 
if a maximum interest rate could not be determined. Commenters 
generally supported the approach used in the proposed rule although a 
few commenters suggested specific higher or lower rates to be used as a 
maximum rate assumption, or to require a creditor to use its actual 
interest rate history. For example, consumer group commenters suggested 
that a rate of 36% represented an average of state law usury ceilings, 
but cited in support a study of payday lending laws. By contrast, some 
industry commenters suggested that historically a rate of 21% was 
higher than had actually been charged to consumers for private 
education loans. One government agency supported using the greater of 
21% or the highest rate actually charged by the creditor during a 
recent period of time. One industry commenter stated that it was 
subject to a state usury ceiling of 25% and expressed concern that 
allowing other lenders with no rate cap to base the disclosure example 
on a maximum rate of 21% was unfair to creditors in states with higher 
usury ceilings. The commenter expressed concern that some consumers 
would incorrectly conclude that it was preferable to take a loan from a 
creditor in a state with no usury ceiling than from a creditor in a 
state with a ceiling greater than 21%. Some commenters also suggested 
that the Board should publish from time to time an assumed rate to be 
used in calculating the total for repayment where a maximum rate cannot 
be determined.
    The Board is adopting proposed Sec.  226.38(b)(3)(vii) as Sec.  
226.47(b)(3)(vii) largely as proposed, but the final rule requires a 
disclosure based on an assumed rate of 25% where a maximum rate cannot 
be determined, rather than 21%. The Board proposed using a rate of 21% 
based on the most common rate in the range of usury rate ceilings that 
consumers in the private education loan market are likely to face. 
However, the Board believes that basing the example on the most common 
state usury rate could disadvantage creditors in states with higher 
usury ceilings. The highest state law usury rate actually applicable to 
student loans mentioned by commenters was 25%. In addition, consumers 
shown a disclosure where no maximum rate applied understood in testing 
that the example used only an assumed rate of 21%. However, a few 
consumers stated that they usually expect an assumption to be a ``round 
number'' such as 20% or 25%, not a number like 21%. Based on consumer 
testing results, the Board also believes that using an assumed rate of 
25% will help indicate to consumers that the disclosure is based on an 
example. The Board is not publishing a rate because commenters did not 
suggest a methodology by which the Board could choose a more 
appropriate rate. In addition, the Board believes that requiring all 
creditors to use the same assumption, rather than historic rates, will 
better assist consumers in comparing loans because a creditor's past 
interest rates may not be predictive of future interest rates.
    In response to one state education loan provider's comment, the 
Board is adding comment 47(b)(3)-6.iii to clarify that if terms of the 
legal obligation provide a limitation on the amount that the interest 
rate may increase at any one time, the creditor may reflect the effect 
of the interest rate limitation in calculating the total cost example. 
For example, if the legal obligation provides that the interest rate 
may not increase by more than three percentage points each year, the 
creditor may, at its option, assume that the rate increases by three 
percentage points each year until it reaches that maximum possible 
rate, or if a maximum rate cannot be determined, an interest rate of 
25%.
    Maximum monthly payment. Proposed Sec.  226.38(b)(3)(viii) 
implemented TILA section 128(e)(2)(O) by requiring the creditor to 
disclose the maximum monthly payment based on the maximum rate of 
interest applicable to the loan or, if a maximum rate cannot be 
determined, for the reasons discussed above, an assumed rate of 21%. In 
addition, as discussed above, under the Board's TILA section 
128(e)(2)(P) and 128(e)(4)(B) authority, the proposal added a 
requirement that the creditor state that: (1) No maximum interest rate 
applies to the loan; (2) the maximum interest rate used to calculate 
the maximum monthly payment amount is an estimate; and (3) the maximum 
monthly payment amount is an estimate and will be higher if the 
applicable interest rate increases.
    As with proposed Sec.  226.38(b)(3)(vii), the Board requested 
comment on other approaches by which creditors may calculate a maximum 
payment when a maximum rate cannot be determined. Commenters combined 
their comments on proposed Sec.  226.38(b)(3)(viii) with their comments 
on proposed Sec.  226.38(b)(3)(vii).
    For the reasons discussed above, the Board is adopting proposed 
Sec.  226.38(b)(3)(viii) as Sec.  226. 47(b)(3)(viii) largely as 
proposed except that if a maximum rate cannot be determined, an assumed 
rate of 25% must be used.
47(b)(4) Alternatives to Private Education Loans
    Implementing TILA section 128(e)(2)(M), the Board proposed 
Sec. Sec.  226.38(b)(4) to require the creditor to provide the 
information about alternatives to private education loans for financing 
education that were also required under proposed Sec. Sec.  
226.38(a)(6)(i)-(iii) and explained in the section-by-section analysis 
for Sec. Sec.  226.47(a)(6). The Board proposed to use its authority 
under TILA sections 105(a) and 105(f) to make exceptions to the statute 
by not requiring creditors to state that Federal loans may be obtained 
in lieu of or in addition to private education loans. As explained in 
the section-by-section analysis for Sec. Sec.  226.47(a)(6), the Board 
believes that this exception is necessary and proper to effectuate 
meaningful disclosure of credit terms to consumers. The Board is 
adopting Sec. Sec.  226.38(a)(6) as Sec. Sec.  226.47(a)(6).
47(b)(5) Rights of the Consumer
    In implementing TILA section 128(e)(2)(L), proposed Sec.  
226.38(b)(5) required a creditor to disclose that the consumer had the 
right to accept the loan on the terms approved for up to 30

[[Page 41221]]

calendar days. The proposed disclosure also informed the consumer that 
the rate and terms of the loan would not change during this period, 
except for changes to the rate based on adjustments to the index used 
for the loan.
    Under the Board's TILA section 128(e)(2)(P) authority, the proposed 
disclosure required a creditor to include the specific date on which 
the 30-day period expired and to indicate that the consumer may accept 
the terms of the loan until that date. For example, under the proposal, 
if the consumer received the disclosures on June 1, the disclosure was 
required to state that the consumer could accept the loan until July 1. 
The Board believed that this disclosure was necessary to inform 
consumers of the precise date when the 30-day period expired because 
the date the consumer was deemed to receive the disclosure may have 
differed slightly from the date the consumer actually received the 
disclosure. The creditor was also required to disclose the method or 
methods by which the consumer could communicate acceptance. The Board 
believed that this disclosure was necessary to ensure consumers 
understood the specific steps required to accept the loan. Proposed 
comment 39(c)-3, discussed below, provided guidance to creditors on 
disclosing methods by which consumers may communicate acceptance.
    Section 226.47(b)(5) of the final rule requires a statement that 
the consumer may accept the terms of the loan until the acceptance 
period under Sec.  226.48(c)(1) has expired. As discussed in the 
section-by-section analysis in Sec.  226.47(a)(7), the disclosure also 
requires a statement similar to the statement in the application 
disclosure that, except for changes as a result of adjustments to the 
interest rate and other changes permitted by law, the rates and terms 
of the loan may not be changed by the creditor during the acceptance 
period. As in the application disclosure, the requirements of this 
provision more closely resemble the language used on the approval 
disclosures in consumer testing, which consumers found to be clear and 
understandable.
    Section 226.47(b)(5) also requires the creditor to include the 
specific date on which the acceptance period expires, based upon the 
date on which the consumer receives the disclosures. It further 
requires the disclosure to specify the method or methods by which the 
consumer may accept the loan, such as by telephone or by mailing a 
signed acceptance.
47(c) Final Disclosures
    Section 226.47(c), proposed as Sec.  226.38(c), requires the 
creditor to disclose to the consumer a third set of disclosures after 
the consumer accepts the loan in accordance with Sec.  226.48(c)(1). 
Section 226.47(c) implements TILA section 128(e)(4), which requires the 
creditor to provide this final set of disclosures contemporaneously 
with consummation. Regulation Z defines ``consummation'' as the time 
that a consumer becomes contractually obligated on a credit 
transaction. See 12 CFR 226.2(a)(13). The corresponding commentary 
defers to state law to determine when consummation occurs. See comment 
2(a)(13)-1. As discussed earlier in the section-by-section analysis 
under Sec.  226.46, to avoid confusion about when the final private 
education loan disclosures should be given due to differing state law 
definitions of consummation, and to ensure that consumers have a 
meaningful opportunity to exercise their cancellation right under TILA 
section 128(c)(8), the Board interprets ``contemporaneously with 
consummation'' to require creditors to provide these final disclosures 
after acceptance and, under Sec.  226.48(d), at least three days before 
disbursement.
47(c)(1) Interest Rate
    Section 226.47(c)(1), proposed as Sec.  226.38(c)(1), requires 
creditors to disclose the interest rate that applies to the private 
education loan accepted by the consumer.
    Fixed or variable rate, rate limitations. As proposed in Sec.  
226.38(c)(1), Sec.  226.47(c)(1) requires the creditor to provide to 
the consumer the rate information required under Sec. Sec.  
226.47(b)(1)(ii) and (iii), as explained in the section-by-section 
analysis for those sections.
47(c)(2) Fees and Default or Late Payment Costs
    As proposed in Sec.  226.38(c)(2), Sec.  226.47(c)(2) requires the 
creditor to provide to the consumer the fee and default or late payment 
information required under Sec.  226.47(b)(2), as explained in the 
section-by-section analysis for that section.
47(c)(3) Repayment Terms
    As proposed in Sec.  226.38(c)(3), Sec.  226.47(c)(3) requires the 
creditor to provide to the consumer the repayment information required 
under Sec.  226.47(b)(3), as explained in the section-by-section 
analysis for that section.
47(c)(4) Cancellation Right
    Section 226.47(c)(4) is adopted as proposed in Sec.  226.38(c)(4). 
Section 226.47(c)(4) and comment 47(c)-1 implement TILA section 
128(e)(4)(C) by requiring the creditor to disclose to the consumer the 
following information:
    (i) The consumer has the right to cancel the loan, without being 
penalized, at any time before the cancellation period under Sec.  
226.48(d) has expired; and
    (ii) Loan proceeds will not be disbursed until after the 
cancellation period expires.
    Under the Board's TILA section 128(e)(4)(B) authority, Sec.  
226.47(c)(4) adds a requirement that creditor disclose the specific 
date on which the cancellation period expires and include the methods 
or methods by which the consumer may cancel the loan.
    Comment 47(c)-2, proposed as comment 38(c)-2, clarifies that the 
statement of the right to cancel must be more conspicuous than any 
other disclosure required under Sec.  226.47(c), except for the finance 
charge, the interest rate, and the creditor's identity. See Sec.  
226.46(c)(2)(iii). Under comment 47(c)-2, the right to cancel statement 
is deemed more conspicuous than other disclosures if the creditor 
segregates the statement from other the disclosures, places the 
statement at or near the top of the disclosure document, and highlights 
the statement in relation to other required disclosures. Examples of 
appropriate highlighting given in comment 47(c)-2 are that the 
statement may be outlined with a prominent, noticeable box; printed in 
contrasting color; printed in larger type, bold print or different type 
face; underlined; or set off with asterisks. Comments 48(d)-1, and 2, 
discussed below in the section-by-section analysis under Sec.  
226.48(d), provide additional guidance about how the creditor must 
notify the consumer of the cancellation right and how the consumer may 
exercise this right.

Alternatives to Private Education Loans

    Based on the results of the Board's consumer testing, the Board 
proposed to use its authority under TILA section 105(a) to create an 
exception from the requirement in TILA section 128(e)(4)(b) that the 
creditor provide the consumer with information about Federal 
alternatives to private education loans. Consumers overwhelmingly 
indicated that this information would not be meaningful or useful to 
them at the time when they would receive the final disclosures. 
Consumers indicated that by the time they had applied for and accepted 
a private education loan, they

[[Page 41222]]

already would have made a decision as to whether or not to seek other 
loan alternatives.
    The Board also proposed to exercise its authority under TILA 
section 105(f) to exempt private education loans from the specific 
requirement to disclose information about Federal loan alternatives in 
the final disclosure form. The Board believed that this disclosure 
requirement does not provide a meaningful benefit to consumers in the 
form of useful information or protection. The Board considered that the 
private education loan consumer population may contain students who 
lack financial sophistication and that the size of the loan could be 
relatively significant and important to the borrower. However, as 
explained above, consumers tested indicated that this disclosure was 
not useful at this final stage in the loan process. Borrowers would 
receive the information about Federal loans at application and 
approval. The Board also recognized that private education loans would 
not be secured by the principal residence of the consumer, which is a 
factor for consideration under section 105(f). Furthermore, the HEOA 
provides significant rights, such as the right to cancel the loan. The 
Board believed that consumer protection would not be undermined by this 
exemption.
    The Board requested comment on whether it should adopt this 
proposed exception. Some consumer group commenters urged the Board to 
retain the disclosures about Federal loan alternatives stating a 
concern that consumers in a testing context received the various 
private education loan disclosure forms close together in time, but 
that consumers in the marketplace would receive them at different times 
and may not recall the information about Federal loan alternatives.
    For the reasons stated in the proposal, the Board is not requiring 
disclosure of Federal loan alternatives on the final disclosure form. 
The Board's consumer testing conducted after the proposed rule was 
issued confirmed that consumers would not find this information 
beneficial at the stage in the lending process where they receive the 
final disclosure form.

Section 226.48 Limitations on Private Education Loans

    Section 226.48, proposed as Sec.  226.39, contains rules and 
limitations on private education loans. It includes a prohibition on 
co-branding in the marketing of private education loans, rules 
governing the 30-day acceptance period and three-day cancellation 
period for private education loans, the requirement that the creditor 
obtain a self-certification form from the consumer before consummating 
a private education loan, and the requirement that creditors in 
preferred lender arrangements provide certain information to covered 
educational institutions.
48(a) Co-Branding Prohibited
    The HEOA prohibits creditors from using the name, emblem, mascot, 
or logo of a covered educational institution, or other words, pictures, 
or symbols readily identified with a covered educational institution in 
the marketing of private education loans in any way that implies that 
the covered educational institution endorses the creditor's loans.
    Proposed Sec.  226.39(a)(1) implemented this prohibition by 
prohibiting creditors from referencing a covered educational 
institution in a way that implies that the educational institution 
endorses the creditor's loans. At the same time, the Board recognized 
that a creditor may at times have legitimate reasons for using the name 
of a covered educational institution. For instance, some educational 
institutions' financial aid Web sites might provide links to specific 
creditors' Web sites. Creditors might provide a welcome page to the 
student that references the name of the school that provided the link. 
Some creditors may have school-specific terms or benefits and may need 
to use the name of the school to provide accurate information to 
consumers about the nature and availability of its loan products.
    For these reasons, proposed Sec.  226.39(a)(2) provided creditors 
with the following safe harbor for those cases where the creditor's 
marketing does make reference to an educational institution. Marketing 
that refers to an educational institution would not be deemed to imply 
endorsement if the marketing clearly and conspicuously discloses that 
the educational institution does not endorse the creditor's loans, and 
that the creditor is not affiliated with the educational institution. 
This safe harbor approach is consistent with the views expressed in the 
Conference Report to the HEOA, which states that the conferees intended 
that creditors could demonstrate that they are not implying endorsement 
by the covered educational institution by providing a clear and 
conspicuous disclaimer that the use of the name, emblem, mascot, or 
logo of a covered educational institution, or other words, pictures, or 
symbols readily identified with a covered educational institution, in 
no way implies endorsement by the covered educational institution of 
the creditor's private education loans and that the creditor is not 
affiliated with the covered educational institution. The Board stated 
its belief that this safe harbor approach will inform consumers that a 
reference to a covered educational institution does not mean that the 
institution endorses the loan being marketed while also providing 
clarity about how to market private education loans without violating 
TILA and Regulation Z.
    Proposed comment 39(a)-1 clarified the term ``marketing'' as used 
in proposed Sec.  226.39. The term included all ``advertisements'' as 
that term is defined in Regulation Z. 12 CFR 226.2(a)(2). The proposal 
explained that the term marketing is broader than advertisement, 
however, and includes documents that are part of the negotiation of the 
specific private education loan transaction. For example, applications 
or solicitations, promissory notes or contract documents would be 
considered marketing. The Board believed that a broader meaning of 
marketing is needed to cover documents, such as promissory notes, that 
are not considered advertisements, but that may use the name of the 
educational institution prominently in a potentially misleading way. 
For example, naming the loan the ``University of ABC Loan'' could 
mislead consumers into believing that the loan was offered by the 
educational institution.
    Proposed comment 39(a)-2 clarified that referencing a covered 
educational institution in a way that implies that the educational 
institution, rather than the creditor, is offering or making the loan 
is a form of implying that the educational institution endorses the 
loan and was therefore not permitted under proposed Sec.  226.39(a)(1). 
However, the use of a creditor's own name, even if that name includes 
the name of a covered educational institution, would not imply 
endorsement. For example, a credit union whose name includes the name 
of a covered educational institution would not be prohibited from using 
its own name. In addition, authorized use of a state seal by a state or 
an institution of higher education in the marketing of state education 
loan products would not imply endorsement.\13\
---------------------------------------------------------------------------

    \13\ See Joint Explanatory Statement of the Committee of 
Conference on H.R. 4137, Title X, Subtitle A, Sec.  1011. The 
Conference Report states that the prohibition is not intended to 
prohibit a credit union whose name includes the name of a covered 
educational institution from using its own name in marketing its 
private education loans. In addition, it is not intended to prohibit 
states or institutions of higher education from using state seals, 
with appropriate authorization, in the marketing of state education 
loan products.

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

[[Page 41223]]

    Proposed comment 39(a)-3.i provided a model clause that creditors 
may use in complying with the safe harbor proposed in Sec.  
226.39(a)(2). The creditor would be considered to have complied with 
proposed Sec.  226.39(a)(2) if the creditor includes a clear and 
conspicuous statement, using the creditor's name and the covered 
educational institution's name, that ``[Name of creditor]'s loans are 
not endorsed by [name of school] and [name of creditor] is not 
affiliated with [name of school].''
    The Board received comments from educational institutions arguing 
that the prohibition on co-branding should not apply if the educational 
institution is itself the creditor. The Board also received comments 
from creditors suggesting that use of the educational institution's 
name on the promissory note, if no more conspicuous than the text of 
the promissory note does not imply endorsement and should not be 
prohibited. By contrast, consumer groups suggested that the Board 
engage in consumer testing to ensure that the proposed disclosures were 
effective in indicating that a private education loan was not endorsed 
by the educational institution.
    Proposed Sec. Sec.  226.39(a)(1) and 39(a)(2) are adopted as 
Sec. Sec.  226.48(a)(1) and 48(a)(2) largely as proposed. However, 
consistent with comment 47-2, which permits a creditor to use its own 
name, Sec.  226.48(a)(1) has been clarified to not apply to a covered 
educational institution if the institution is the creditor. In 
addition, comments 47(d)-3.i and 47(d)-3.ii of the final rule require 
the safe harbor model clauses be provided with equal prominence and in 
close proximity to the reference to the school. Consistent with the 
Board's interpretation of the equal prominence and close proximity 
standards in the advertising rules in Sec. Sec.  226.16 and 24, the 
statement would be deemed equally prominent and closely proximate if it 
is the same type size and is located immediately next to or directly 
above or below the reference to the school, without any intervening 
text or graphical displays. The Board believes that requiring equal 
prominence and close proximity for the use of the safe harbor 
statements will ensure that marketing material clearly communicates to 
consumers the identity of the creditor making the loan and, if 
applicable, that the school does not endorse the creditor's loans.
    The final rule does not exclude use of the school's name in the 
promissory note from the general rule, even if the school's name is no 
more prominent than other text. The Board does not believe that the 
relative prominence of the school's name within the promissory note, by 
itself, determines whether or not the use of the school's name is 
misleading.
48(b) Preferred Lender Arrangements
    In the proposal, the Board recognized that in certain instances the 
prohibition on creditors' implying endorsement from covered educational 
institutions would not be appropriate because it would not be factually 
correct. The HEOA specifically allows covered educational institutions 
to endorse the private education loans of creditors with which they 
have a ``preferred lender arrangement.'' The HEOA defines a ``preferred 
lender arrangement'' as an arrangement or agreement between a creditor 
and a school under which the creditor provides loans to the school's 
students or their families, and the school recommends, promotes, or 
endorses the creditor's loans. HEOA, Title I, Sec.  120 (adding Section 
152 to the Higher Education Act). Thus, where a creditor and a covered 
educational institution have a preferred lender arrangement, a 
creditor's statement that a school did not endorse its loans would be 
misleading.
    The Board proposed to exercise its authority under TILA section 
105(a) to provide an exception to the co-branding prohibition for 
creditors that have preferred lender arrangements. As explained above, 
the Board believes that this provision is necessary and proper to 
assure an accurate and meaningful disclosure to consumers of the 
relationship between the creditor and the educational institution. 
Proposed Sec.  226.39(b) allowed the creditor to refer to the covered 
educational institution, but required that the creditor clearly and 
conspicuously disclose that the loan is not being offered or made by 
the educational institution, but rather by the creditor. The Board 
believes that a disclosure that the loan is provided by a creditor and 
not by the school would address consumer confusion about whether the 
loan was actually made by the school, or merely endorsed by the school.
    The proposed requirement that creditors with preferred lender 
arrangements make a disclosure when referring to a school follows a 
prohibition on co-branding for preferred lenders contained in section 
152 of the Higher Education Act, as added by the HEOA, which is similar 
to the newly added co-branding prohibition in TILA. Section 152 of the 
Higher Education Act prohibits a creditor in a preferred lender 
arrangement from making a reference to a covered educational 
institution in any way that implies that the loan is offered or made by 
such institution or organization instead of the creditor. HEOA, Title 
I, Section 120 (adding Section 152(a)(2) to the Higher Education Act). 
Thus, proposed Sec.  226.39(b) reconciled the two co-branding 
prohibitions contained in the HEOA.
    Proposed comment 39(a)-3.ii provided a model clause that creditors 
could use in complying with proposed Sec.  226.39(b). The creditor 
would be considered to have complied with proposed Sec.  226.39(b) if 
the creditor included a clear and conspicuous statement, using the name 
of the creditor's loan or loan program, the creditor's name and the 
covered educational institution's name, that ``[Name of loan or loan 
program] is not being offered or made by [name of school], but by [name 
of creditor].''
    The Board requested comment on whether creditors should be offered 
a safe harbor from the prohibition on co-branding, and, if so, whether 
other types of safe harbors should be considered. The Board also 
requested comment on how the co-branding prohibition should apply to 
creditors with preferred lender arrangements with covered educational 
institutions. The Board also requested comment on whether there are 
other examples of marketing that should be included in the co-branding 
prohibition.
    The Board received comments from educational institutions and some 
lenders indicating that the proposed exception to the co-branding 
prohibition might conflict the Department of Education's, or other 
state law code-of-conduct provisions. Some educational institutions 
expressed concern that the proposed rule would permit the creditor to 
claim endorsement without the educational institution's consent if the 
educational institution merely placed a creditor on a suggested list of 
lenders provided to students.
    The Board is adopting Sec.  226.48(b) largely as proposed in Sec.  
226.39(b). However, the final rule clarifies that it does not authorize 
creditors to claim endorsement by an educational institution without 
the institution's having actually endorsed the creditor's loan program. 
After consulting with the Department of Education, the Board still 
believes that such endorsements may be permissible. The final rule has 
also been clarified to apply only when an endorsement of the creditor's 
loans by the educational institution is not

[[Page 41224]]

prohibited by other applicable law or regulation. In addition, the 
statement that must accompany the reference to the educational 
institution must be equally prominent and closely proximate as 
discussed in the section-by-section analysis under Sec.  226.48(a) 
above.
48(c) Consumer's Right To Accept
    The HEOA provides consumers with a 30-day period following receipt 
of the approval disclosures in which to accept a private education 
loan. It also prohibits creditors from changing the rate or terms of 
the loan, except for changes based on adjustments to the index used for 
the loan, until the 30-day period has expired. Section 226.48(c), 
proposed as Sec.  226.39(c), implements the 30-day acceptance period 
for private education loans.
    Under the proposal, the 30-day period began following the 
consumer's receipt of the approval disclosures required in proposed 
Sec.  226.38(b). Proposed comment 39(c)-1 required creditors to provide 
at least 30 days from the date the consumer received the disclosures 
required under proposed Sec.  226.38(b) for the consumer to accept a 
private education loan. It also allowed creditors to provide a longer 
period of time at the creditor's option. It clarified that if the 
creditor placed the disclosures in the mail, the consumer was 
considered to have received them three business days after they were 
mailed. The proposed comment also clarified that the consumer could 
accept the loan at any time before the end of the 30 day period.
    Commenters agreed with the proposal requiring a minimum 30-day 
acceptance period and the provision that a consumer could accept the 
loan at any time within the 30-day period. Therefore, proposed Sec.  
226.39(c) and comment 39(c)-1 are adopted as Sec.  226.48(c) and 
comment 48(c)-1, respectively.
    The HEOA does not specify the method by which the consumer may 
accept the terms of the loan. Proposed comment 39(c)-2 allowed the 
creditor to specify a method or methods by which acceptance could 
occur. Under the proposal, the creditor could specify that acceptance 
be made orally or in writing or could permit either form of acceptance. 
The creditor could also allow the consumer to accept electronically, 
but could not make electronic acceptance the sole form of acceptance.
    Commenters generally agreed with the proposed comment on 
permissible methods of acceptance. However, some commenters suggested 
that creditors should be permitted to require electronic communication 
to be the only means of acceptance if the creditor provided the 
approval disclosure to the consumer electronically. The Board believes 
that requiring a form of acceptance in addition to electronic 
communication is generally appropriate because not all consumers have 
access to electronic forms of communication. However, the Board agrees 
with commenters that electronic communication could be permissible as 
the only means of acceptance when the consumer has already indicated a 
willingness to communicate electronically by consenting to and 
receiving a disclosure electronically, pursuant to the E-Sign Act. 
Comment 48(c)-2, proposed as comment 39(c)-2, is adopted and revised to 
permit electronic communication as the only means of acceptance if the 
creditor has provided the approval disclosure electronically in 
compliance with the consumer consent and other applicable provisions of 
the E-Sign Act.
    Proposed Sec.  226.39(c)(2) prohibited creditors from changing the 
terms of the loan, with a few specified exceptions, before the loan 
disbursement, or the expiration of the 30-day acceptance period if the 
consumer did not accept the loan during that time. To ensure that 
consumers receive the benefit of the entire 30-day period in which to 
accept the loan, the Board proposed to prohibit creditors from changing 
the rate and terms of the loan until the date of disbursement, if the 
consumer accepted within the 30-day period.
    Proposed Sec.  226.39(c)(2) prohibited only those changes that 
would affect the rate or terms required to be disclosed under proposed 
Sec. Sec.  226.38(b) and (c), the approval and final disclosures, 
respectively. The Board interpreted the prohibition on changes to the 
rate or terms of the loan to cover only the disclosed terms.
    In the proposal, the Board provided three exceptions to the 
provision that the rate and terms of private education loans required 
to be disclosed could not be changed. Proposed Sec.  226.39(c)(2) did 
not prohibit changes based on adjustments to the index used for a loan, 
implementing TILA section 128(e)(6)(B). In addition, in the proposal, 
the Board exercised its authority under TILA section 105(a) to make 
exceptions to effectuate the purposes of the statute to allow the 
creditor to make changes that would unequivocally benefit the consumer, 
similar to the rule for home-equity plans in Sec.  226.5b(f)(3)(iv). 
The Board also proposed to exercise its authority under TILA section 
105(f) in permitting unequivocally beneficial changes by exempting 
creditors from HEOA's prohibition on making changes to the loan prior 
to the date of acceptance of the terms of the loan and consummation of 
the transaction. HEOA, Title X, Subtitle B, Section 1021(a) (adding 
TILA Section 128(e)(6)(B)).
    The proposal also did not prohibit changes made in connection with 
accommodating a request by the consumer. Proposed Sec.  226.39(c)(3) 
and proposed comment 39(c)-3 allowed creditors to change a loan's rate 
or terms in response to a request from a consumer. The proposed rule 
did not limit the changes that could be made. For example, the creditor 
was permitted to provide for a shorter repayment term as a condition of 
granting the consumer's request to borrow a lesser loan amount. 
However, under the proposal if the creditor chose to modify the terms 
of the loan in response to a consumer's request, the creditor needed to 
provide a new set of approval disclosures and provide the consumer with 
a new 30-day acceptance period.
    The HEOA provides that a consumer has 30 days in which to accept 
the terms of a private education loan and consummate the transaction, 
and that the creditor may not change the rate and terms of the loan 
during this time. The statute does not explicitly state under what 
conditions, if any, a creditor could withdraw the loan offer or change 
the loan's terms in response to a change in a material condition of the 
loan. The Board requested comment on whether there were instances where 
a material condition of the loan offer was not met such that the 
creditor should be permitted to withdraw the offer or change the terms 
of the loan.
    Commenters generally agreed with the permissible exceptions to the 
restrictions on changes to the loan's rate and terms. Industry 
commenters, however, suggested that creditors should be permitted to 
give approval disclosures at a conditional approval stage, and be 
allowed to change the terms of the loan based upon information received 
later, such as verification of income, verification of citizenship, 
validation of co-borrower information, and validation that the loan 
transaction is in compliance with applicable laws. Industry commenters 
also argued for an exception to enable creditors to change the terms of 
a loan based on revised information regarding a consumer's educational 
expenses and financial need provided in a school certification or other 
communication from a school. They argued that if creditors were not 
permitted to give approval disclosures at a conditional approval stage, 
loan approvals and

[[Page 41225]]

approval disclosures would be delayed while verifications, compliance 
checks, and school certifications were completed.
    The Board agrees that it is important to inform consumers of a loan 
approval and the applicable rates and terms early in the loan process, 
so that consumers have as much time as possible to shop for a private 
education loan with the most favorable terms. However, the HEOA 
provides that the rates and terms of the private education loan may not 
be changed by a creditor during the 30-day period in which the consumer 
has the right to accept the loan terms and consummate the transaction, 
except for changes based on adjustments to the index used for a 
loan.\14\ Thus, permitting conditions contemplated by the commenters 
would require the Board to make multiple exceptions, which could 
undermine the statutory provision. This would also prevent the consumer 
from being able to adequately shop for the best loan terms because the 
consumer would not know the final terms of the offer until the final 
disclosure was provided. Moreover, the Board believes that while 
private education loan approvals may be delayed in order for creditors 
to verify certain information, creditors will still have an incentive 
to approve the loans expeditiously in order to respond to the needs of 
their customers.
---------------------------------------------------------------------------

    \14\ Title X, Subtitle A, Sec.  1021(a) (amending TILA Section 
128(e)).
---------------------------------------------------------------------------

    However, the Board does believe that two of the exceptions 
suggested by the industry commenters are appropriate, in addition to 
those exceptions provided in the proposed rules and, for the reasons 
stated below, is adopting them pursuant to its TILA Section 105(a) 
authority in order to effectuate the purposes of and facilitate 
compliance with TILA. In response to concerns that the provision would 
require creditors to consummate a loan that is legally impermissible, 
in Sec.  226.48(c)(3) and comment 48(c)-4 in the final rules, the Board 
makes clear that a creditor may withdraw an offer prior to consummation 
if the extension of credit would be prohibited by law. The creditor 
also may withdraw an offer prior to consummation if the creditor has 
reason to believe that the consumer has committed fraud in connection 
with the application.
    The Board also understands that it is common for students' 
financial assistance packages to change in a short time period for a 
variety of reasons, such as changes to the student's and family's 
financial situation or the availability of grants. The Board shares 
commenters' concerns that those whose financial assistance amount 
increases after their private education loan has been approved could 
end up over-borrowing, which, among other things, could adversely 
affect a student's eligibility for Federal student loans. Thus, section 
226.48(c)(3) and comment 48(c)-4 permit the creditor to reduce the loan 
amount based upon a certification or other information received from a 
covered educational institution or from the consumer that indicates the 
student's cost of attendance has decreased or that other financial aid 
has increased. A creditor may make corresponding changes to the rate 
and other terms, but only to the extent that the consumer would have 
received the changed terms if the consumer had applied for the reduced 
loan amount. For example, assume a consumer applies for, and is 
approved for, a $10,000 loan at a 7% interest rate. However, the 
consumer's school certifies that the consumer's financial need is only 
$8,000. The creditor may reduce the loan amount for which the consumer 
is approved to $8,000. The creditor may also, for example, increase the 
interest rate on the loan to 7.125%, but only if the consumer would 
have received a rate of 7.125% if the consumer had originally applied 
for a $8,000 loan.
    The Board is also adopting the exceptions to the restrictions on 
changing the rates and terms of the loan that were set forth in the 
proposed rules. The Board continues to believe a permissible change 
that would unequivocally benefit the consumer is appropriate. 
Disallowing such a change could complicate the credit process and 
unnecessarily increase costs for consumers and creditors who, for 
example, would otherwise have to repeat the application process in 
order to change the terms. In addition, consumers retain their right 
under HEOA to cancel the loan. Therefore, the Board is adopting the 
exception proposed in Sec.  226.39(c)(2) and comment 39(c)-3 that 
permits a creditor to make changes if they will unequivocally benefit 
the consumer in the final rules as Sec.  226.48(c)(3) and comment 
48(c)-4. The final rules clarify that the permissible changes may be 
made to both the interest rate and the terms of the loan. For example, 
a creditor is permitted to reduce the interest rate or lower the amount 
of a fee.
    The Board is also adopting proposed Sec.  226.39(c)(2) as Sec.  
226.48(c)(3) in the final rules, permitting changes based on 
adjustments to the index used for a loan, as mandated in the HEOA. The 
final rules clarify that while changes to the interest rate are 
permissible under this exception, changes to other loan terms based on 
adjustments to the index used for a loan are not permissible.
    The Board has clarified in Sec.  226.48(c)(3)(ii) and comment 
48(c)-4 that if the creditor changes the rate or terms of the loan 
under Sec.  226.48(c)(3), the creditor need not provide the approval 
disclosures required under Sec.  226.47(b) for the changed loan terms, 
nor must the creditor provide an additional 30 days to accept the new 
terms of the loan. However, the creditor must provide the final 
disclosures required under Sec.  226.47(c).
    In addition to the changes to the rates and terms of the loan 
permitted in Sec.  226.48(c)(3), the Board also continues to believe 
that it is in the consumer's interest to be able to request changes to 
specific terms of the loan, even if this results in changes to the rate 
or other terms. The Board understands that it is common for a 
consumer's private education loan needs to change even until 
immediately prior to consummation of the loan. For example, a consumer 
may seek to defer repayment during enrollment in school after the 
consumer has already applied for the loan. The Board seeks to ensure 
that consumers retain the benefit of the 30-day acceptance period while 
also providing consumers with flexibility to move forward with a 
transaction with a creditor without having to cancel a loan, or loan 
offer, and expend time and money re-applying. Thus, the Board is also 
adopting proposed Sec.  226.39(c)(3) and comment 39(c)-4 as Sec.  
226.48(c)(4) and comment 48(c)-5 to permit a creditor, at its option, 
to change the rate or terms of a loan in order to accommodate a request 
from a consumer. The final rule also clarifies that, except for the 
permissible changes to the rates and terms in Sec.  226.48(c)(3) 
discussed above, a creditor may not withdraw or change the rate or 
terms of the original loan for which the consumer was approved unless 
the consumer accepts the terms of the loan offered in response to the 
consumer's request. For example, assume a consumer applies for a 
$10,000 loan and is approved for the $10,000 amount at an interest rate 
of 6%. After the creditor has provided the approval disclosures, the 
consumer's financial need increases, and the consumer requests to a 
loan amount of $15,000. In this situation, the creditor is permitted to 
offer a $15,000 loan, and to make any other changes such as raising the 
interest rate to 7%, in response to the consumer's request. However, 
because the consumer may choose not to accept the offer for the $15,000 
loan at the higher interest rate, the creditor may not withdraw or

[[Page 41226]]

change the rate or terms of the offer for the $10,000 loan, except as 
permitted under Sec.  226.48(c)(3), unless the consumer accepts the 
$15,000 loan.
    The Board believes that consumers could be discouraged from 
requesting changes to loan terms unless the original offer for which 
the consumer was approved is held open until the consumer accepts the 
counter-offer. For similar reasons, the Board has clarified in Sec.  
226.48(c)(4)(ii) that if the creditor offers to make changes based on a 
request from the consumer, the creditor must provide the disclosures 
required under Sec.  226.47(b) for the new loan terms. The creditor 
must also provide the consumer with an additional 30 days to accept the 
new terms of the loan and must not change the new loan's rate and terms 
except as specified in Sec. Sec.  226.48(c)(3) and 226.48(c)(4).
48(d) Consumer's Right To Cancel
    Section 226.48(d), adopted substantially as proposed in Sec.  
226.39(d), provides the consumer with the right to cancel a private 
education loan without penalty until midnight of the third business day 
following receipt of the final disclosures required in Sec.  226.47(c). 
It also prohibits the creditor from disbursing any funds until the 
expiration of the three-business day period. As proposed, the 
consumer's right to cancel applies regardless of whether or not the 
consumer is legally obligated on the loan at the time that the final 
disclosures were provided.
    Comment 48(d)-1, proposed as comment 39(d)-1, provides guidance on 
calculating the three-business day time period and when a consumer's 
request to cancel would be considered timely. It also clarifies that 
the creditor may provide a period of time longer than three business 
days in which the consumer may cancel, and that the creditor may 
disburse funds after the minimum three-business day period so long as 
the creditor honors the consumer's later timely cancellation request. 
Comment 48(d)-2, proposed as comment 39(d)-2, provides guidance to 
creditors on specifying a method or methods by which the consumer may 
cancel the loan. The creditor is permitted to require cancellation be 
communicated orally or in writing. Under the proposal, the creditor was 
also permitted to allow cancellation to be communicated electronically, 
but was not permitted to require only electronic communication because 
the Board believed that not all consumers have access to electronic 
communication. In the final rule, comment 48(d)-2 clarifies that if the 
creditor has provided the final disclosure electronically in accordance 
with the E-Sign Act, the creditor may allow electronic communication as 
the only means of acceptance.
    Comment 48(d)-3, proposed as comment 39(d)-3 clarifies the 
requirement that the creditor allow cancellation without penalty. The 
prohibition extended only to fees charged specifically for canceling 
the loan. The creditor is not required to refund fees, such as an 
application fee, when charged to all consumers whether loans are 
cancelled or not.
    The Board requested comment on whether creditors should be required 
to accept cancellation requests until midnight, or whether they should 
be allowed to set a reasonable deadline for communicating cancellation 
on the third business day. The Board also requested comment on whether 
creditors should be allowed to provide for a longer period during which 
consumers may cancel the loan, and, if so, whether creditors should be 
allowed to disburse funds after the minimum three-business-day period.
    Commenters generally supported permitting creditors to provide a 
period longer than three days in which to cancel the loan and allowing 
loan funds to be disbursed after the third day if the creditor provides 
additional time in which to cancel. A few industry commenters suggested 
that creditors be allowed to set a reasonable cut-off time for 
cancellation requests on the third business day, such as 5 p.m. 
However, because the final rule allows creditors to provide the 
consumer with more than three days in which to cancel, the final rule 
adopts the midnight cutoff time on the third day.
48(e) Self-Certification Form
    The HEOA requires that, before a creditor may consummate a private 
education loan, it obtain from the consumer a self-certification form. 
Proposed Sec.  226.39(e) implemented this requirement. The HEOA 
requires that a creditor obtain the self-certification form only from 
consumers of private education loans intended for students attending an 
institution of higher education. HEOA, Title X, Subtitle B, Section 
1021(a) (adding TILA Section 128(e)(3)). Thus, the proposal did not 
require a self-certification form with respect to every covered 
educational institution, but only those that met the definition of an 
institution of higher education in proposed Sec.  226.37(b)(2). 
Moreover, proposed comment 39(e)-1 clarified that the requirement 
applied even if the student was not currently attending an institution 
of higher education, but would use the loan proceeds for postsecondary 
educational expenses while attending such institution. For example, a 
creditor would have been required to obtain the form before 
consummating a private education loan provided to a high school senior 
for expenses to be incurred during the consumer's first year of 
college. At the same time, proposed comment 39(e)-1 clarified that the 
self-certification requirement would not apply to loans where the self-
certification information would not be applicable, such as loans 
intended to consolidate existing education loans. The self-
certification form provides the consumer with information about the 
student's education costs to be incurred in the future (such as the 
cost of attendance and the amount of financial aid available). Even if 
the student were still enrolled, the information on the self-
certification form would not apply to a consolidation loan, because the 
consolidation loan would cover expenses the student incurred in the 
past.
    Section 155(a)(2) of the Higher Education Act of 1965, as added by 
the HEOA, provides that the form shall be made available to the 
consumer by the relevant institution of higher education. HEOA, Title 
X, Subtitle B, Sec. 1021(b). Although the HEOA requires that the 
creditor obtain the completed and signed self-certification form before 
consummating the loan, it does not specify that the creditor must 
obtain the form directly from the consumer. Proposed comment 39(e)-1 
allowed the creditor to obtain the self-certification form either 
directly from the consumer or through the institution of higher 
education. Compliance with the self-certification requirement may be 
simplified for all parties if the educational institution is permitted 
to obtain the completed form from the consumer and forward it to the 
creditor. The consumer may find it easier to return the form to the 
educational institution as part of the institution's overall financial 
aid process. The creditor and educational institution may also find it 
easier to include the self-certification form as part of a larger 
package of information communicated by the institution to the creditor 
about the student's eligibility and cost of attendance.
    Both Section 128(e)(3) of TILA and Section 155 of the Higher 
Education Act of 1965 provide that the self-certification form may be 
provided to the consumer in electronic form. Under Section 155 of the 
Higher Education Act of 1965, the Department of Education must develop 
the form and ensure that institutions of higher education make it

[[Page 41227]]

available to consumers in written or electronic form. Because the form 
will be provided by educational institutions to consumers, the Board 
did not propose to impose consumer consent or other requirements on 
creditors in order to accept the form in electronic form. The self-
certification form may also be signed by the consumer in electronic 
form. Under Section 155(a)(5) of the Higher Education Act of 1965, the 
Department of Education must provide a place on the form for the 
applicant's written or electronic signature. Proposed comment 39(e)-2 
provided that a consumer's electronic signature is considered valid if 
it meets the requirements promulgated by the Department of Education 
under Section 155(a)(5) of the Higher Education Act of 1965.
    The Board received numerous comments from industry, educational 
institutions, and individual financial aid officers and their 
representatives about the self-certification requirement. These 
comments requested that the Board exempt from the self-certification 
requirement any private education loan for which the creditor certifies 
the borrower's cost of attendance, other financial aid, and financial 
need information with the school. Commenters expressed concern that the 
self-certification requirement would be duplicative of the current 
school certification process when that process is used. In particular, 
individual financial aid officers expressed concern that the self-
certification process would greatly increase the burden on financial 
aid offices with few staff. Educational institutions also suggested 
that the self-certification process was likely to be less meaningful 
when the educational institution is the creditor because the 
educational institution provides the form as well as the information 
the consumer must use to complete the form, but must also receive the 
form back from the consumer.
    Section 226.48(e) of the final rule does not provide an exception 
from the self-certification requirement for school-certified loans. The 
HEOA requires creditors to obtain the self-certification form in all 
cases. The Board believes that self-certification form is intended not 
only to ensure that the educational institution and creditor are aware 
of the cost of attendance at the educational institution and about the 
consumer's other financial aid and need, but also to provide the 
consumer with this information. Thus, even where the school and the 
creditor share this information directly, the self-certification form 
seeks to ensure consumers are aware of their own educational expenses, 
the financial aid for which they qualify, and their remaining financial 
need.
    The final rule does, however, permit creditors to provide the self-
certification form directly to the consumer with the information the 
consumer requires in order to complete the form. Nothing in the HEOA 
prohibits creditors or anyone else from providing the form to the 
consumer and the Board notes that the form necessarily will be provided 
by the creditor when the creditor is the educational institution. The 
HEOA requires a statement on the self-certification form that the 
consumer is encouraged to communicate with the financial aid office 
about the availability of other financial aid. The Board believes that 
allowing the creditor to provide the form will ensure that creditors 
have the ability to consummate private education loans and disburse 
loan funds in a timely manner and that this will benefit consumers, 
especially if financial aid offices are unable to process self-
certification requests.
48(f) Provision of Information by Preferred Lenders
    The HEOA requires a creditor that has a preferred lender 
arrangement with a covered educational institution to provide the 
educational institution annually, by a date determined by the Board in 
consultation with the Secretary of Education, with the information 
required to be disclosed on ``the model form'' developed by the Board 
for each type of private education loan the creditor plans to offer for 
the next award year (meaning the period from July 1 of the current 
calendar year to June 30 of the next year). HEOA, Title X, Subtitle B, 
Section 1021(a) (adding TILA Section 128(e)(11)). TILA Section 
128(e)(11) refers to the information on ``the model form'' but the HEOA 
requires the Board to develop three model forms and Section 128(e)(11) 
does not specify which of the model forms the creditor should use. 
However, the approval and consummation forms contain transaction-
specific data that cannot be known for the next year. Thus, the final 
rule requires, as proposed, that the creditor provide the general loan 
information required on the application form in Sec.  226.47(a), rather 
than the transaction-specific information required in the approval and 
final disclosure forms.
    After consultation with the Department of Education, the Board 
proposed to require that creditors provide information by January 1 of 
each year. Proposed Sec.  226.39(f) required that the creditor provide 
only the information about rates, terms and eligibility that are 
applicable to the creditor's specific loan products. The Board did not 
believe that educational institutions needed the other information 
required to be disclosed in Sec.  226.38(a), such as information about 
the availability of Federal student loans. In addition, the Board 
believed that educational institutions could perform their own 
calculations of the total cost of the creditors' loans and did not need 
the cost estimate disclosure required under Sec.  226.38(a)(4). Comment 
39(f)-1 provided creditors with the flexibility to comply with this 
requirement by providing educational institutions with copies of their 
application disclosure forms if they chose, or to provide only the 
required information.
    The Board requested comment on the appropriate date by which 
creditors must provide the required information and on what information 
should be required. Industry and educational institution commenters 
suggested that April 1 of each year would be a more appropriate date. 
Commenters stated that creditors often do not settle on credit terms 
for the upcoming school year and schools do not compile preferred 
lender lists until closer to April 1. In addition, commenters noted 
that under the Department of Education's negotiated rulemaking, the 
definition of preferred lender arrangement was likely to be very broad 
and that creditors may not know by April 1, or at all, that they are on 
a school's preferred lender list and thus party to a preferred lender 
arrangement. These commenters requested that they be required to 
provide the information by April 1 or within 30 days of learning that 
they were party to a preferred lender arrangement. Educational 
institution commenters also requested that the Board require disclosure 
of the total cost examples contained in the application forms, stating 
they may not always have the information or resources necessary to 
reproduce the calculations.
    Under Sec.  226.48(e), the final rule requires creditors to provide 
the required information by April 1 of each calendar year or within 30 
days of entering into, or learning that the creditor is a party to, a 
preferred lender arrangement. The information must cover private 
education loans that the creditor plans to offer students for the 
period from July 1 of the current calendar year to June 30 of the next 
calendar year (that is, the next award year). In addition, the creditor 
is required to provide the information required in Sec. Sec.  
226.47(a)(1)-(5), which includes the total cost examples.

[[Page 41228]]

Comment 48(e)-1 clarifies that a creditor is not required to comply if 
the creditor is not aware that it is a party to a preferred lender 
arrangement. For example, if a creditor is placed on a covered 
educational institution's preferred lender list without the creditor's 
knowledge, the creditor is not required to comply with Sec.  226.48(f).
Appendix H--Closed-End Model Forms and Clauses
    Appendix H to part 226 contains model forms, model clauses and 
sample forms applicable to closed-end loans. Although use of the model 
forms and clauses is not required, creditors using them properly will 
be deemed to be in compliance with the regulation with regard to those 
disclosures. The Board proposed to add several model and sample forms 
to Appendix H to part 226. The Board also proposed to add commentary to 
the model and sample forms in Appendix H to part 226, as discussed 
below.
    Current model form H-2 contains boxes at the top of the form with 
disclosures in the following order: the annual percentage rate, the 
finance charge, the amount financed, and the total of payments. 
Proposed model forms H-19, and H-20 contain a similar box-style 
arrangement, but reordered the disclosures as follows: The amount 
financed, the interest rate, the finance charge and the total of 
payments.\15\ The proposed order reflected a mathematical progression 
of the disclosures that consumer testing indicates may enhance 
understanding of these terms: the consumer borrows the amount financed, 
is charged interest which, along with fees, yields a finance charge and 
a total of payments. While the Board believed that proposed order may 
enhance consumer understanding in the context of private education 
loans, the Board also recognized that consumers may be accustomed to 
the current order from other loan contexts. The Board requested comment 
on whether it should maintain a uniform order for the disclosures, or 
whether it should adopt the proposed order for private education loans.
---------------------------------------------------------------------------

    \15\ The disclosure of the interest rate and annual percentage 
rate is discussed in the section-by-section analysis in Sec.  
226.17.
---------------------------------------------------------------------------

    A few industry and consumer group commenters suggested that the 
Board maintain the boxes in the order provided in model form H-1. 
However, the final model forms H-19 and H-20 contain further changes to 
the boxes displayed at the top of the forms. In the final model forms, 
the amount financed is disclosed as part of the itemization of the 
amount financed and the total loan amount is in the top left box where 
the amount financed was in the proposed forms. Consumer testing 
indicated that disclosing the total loan amount, interest rate, finance 
charge and total of payments in this manner enhanced consumer 
understanding. Consumers were able to follow the mathematical 
progression of the terms and understand the finance charge and total of 
payments based on the total loan amount, interest rate and itemization 
of the amount financed. For these reasons the Board is maintaining the 
order of the boxes as proposed.\16\
---------------------------------------------------------------------------

    \16\ In addition, the Board notes that current comment app. H-1 
specifically permits creditors to rearrange the order of the finance 
charge and amount financed boxes in model forms H-1 and H-2.
---------------------------------------------------------------------------

    Permissible changes to the model and sample forms. The commentary 
to Appendices G and H to part 226 currently states that creditors may 
make certain changes in the format and content of the model forms and 
clauses and may delete any disclosures that are inapplicable to a 
transaction or a plan without losing the act's protection from 
liability. See comment app. G and H-1. However, the Board proposed to 
adopt format requirements with respect to the model forms for 
disclosures applicable to private education loans, such as requiring 
certain disclosures be grouped together under specific headings. 
Proposed comment app. H-25.i provided a list of acceptable changes to 
the model forms. Proposed comment app. H-25.ii provided guidance on the 
design of the model forms that would not be required but would be 
encouraged.
    The Board also proposed sample forms H-21, H-22, and H-23 to 
illustrate various ways of adapting the model forms to the individual 
transactions described in the commentary to appendix H. The deletions 
and rearrangements shown relate only to the specific transactions 
described in proposed comments app. H-26, H-27, and H-28. As a result, 
the samples do not provide the general protection from civil liability 
provided by the model forms.
    The Board conducted consumer testing on the proposed forms and on 
later revisions of the proposed forms. The Board also received comments 
on the proposed forms requesting clarification as to whether certain 
changes could be made. For example, commenters requested the ability to 
move the notice of the right to cancel to accommodate a form that could 
be used with windowed envelopes.
    The Board is adopting final model forms H-18, H-19, and H-20, and 
final sample forms H-21, H-22, and H-23, that have been revised to 
reflect the consumer testing conducted for the Board and public 
comment. The Board is also adopting comment H-25 to provide a list of 
acceptable changes to the model forms and guidance on the design of the 
forms. For example, in response to public comment, the Board tested a 
version of the sample final form with the notice of the right to cancel 
in the top right instead of the top left and consumers did not find the 
notice less conspicuous. The final rule allows creditors to place the 
notice of the right to cancel in the top right of the form to 
accommodate windowed envelopes.

V. Effective Date

    The HEOA's amendments to TILA have various effective dates. The 
TILA amendments for which the Board is not required to issue 
regulations became effective on the date of the HEOA's enactment, 
August 14, 2008. HEOA Section 1003.
    The Board is required to issue regulations for paragraphs (1), (2), 
(3), (4), (6), (7), and (8) of section 128(e) and section 140(c) of 
TILA. The Board's regulations are to have an effective date not later 
than six months after their issuance. HEOA Section 1002. However, the 
HEOA's amendments to TILA for which the Board must issue regulations 
take effect on the earlier of the date on which the Board's regulations 
become effective or 18 months after the date of the HEOA's enactment. 
HEOA Section 1003. Consequently, the latest date at which the 
provisions of the HEOA described above could become effective is 
February 14, 2010.
    The Board requested comment on whether six months would be an 
appropriate implementation period for the proposed rules or whether the 
Board should specify a shorter implementation period. Commenters stated 
that compliance with the proposed rule would require significant 
updates to disclosure systems, processes, and training, and requested 
that the Board provide no less than a six-month implementation period. 
The final rule provides creditors until February 14, 2010 to comply.
    Compliance with the final rules is mandatory for private education 
loans for which the creditor receives an application on or after 
February 14, 2010. Transition rules are provided for private education 
loans for which applications were received before the mandatory 
compliance date in comment 1(d)(6)-2.

[[Page 41229]]

    In addition, TILA section 128(e)(5) requires the Board to develop 
model forms for the disclosures required under TILA section 128(e) 
within two years of the HEOA's date of enactment. The Board is adopting 
model forms along with this final rule. The Board is also adopting a 
rule to implement TILA section 128(e)(11) which requires lenders to 
provide certain information to covered educational institutions with 
which they have preferred lender arrangements.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the 
final rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). In addition, the Board, under OMB 
delegated authority, will extend for three years the current 
recordkeeping and disclosure requirements in connection with Regulation 
Z. The collection of information that is required by this final rule is 
found in 12 CFR part 226. The Board may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless the information collection displays a currently valid OMB 
control number. The OMB control number is 7100-0199.
    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). Since the Board 
does not collect any information, no issue of confidentiality arises. 
The respondents/recordkeepers are creditors and other entities subject 
to Regulation Z, including for-profit financial institutions and small 
businesses.
    TILA and Regulation Z are intended to ensure effective disclosure 
of the costs and terms of credit to consumers. For open-end credit, 
creditors are required to, among other things, disclose information 
about the initial costs and terms and to provide periodic statements of 
account activity, notice of changes in terms, and statements of rights 
concerning billing error procedures. Regulation Z requires specific 
types of disclosures for credit and charge card accounts and home 
equity plans. For closed-end loans, such as mortgage and installment 
loans, cost disclosures are required to be provided prior to 
consummation. Special disclosures are required in connection with 
certain products, such as reverse mortgages, certain variable-rate 
loans, and certain mortgages with rates and fees above specified 
thresholds. TILA and Regulation Z also contain rules concerning credit 
advertising. Creditors are required to retain evidence of compliance 
for twenty-four months (Sec.  226.25), but Regulation Z does not 
specify the types of records that must be retained.
    Under the PRA, the Board accounts for the paperwork burden 
associated with Regulation Z for the state member banks and other 
creditors supervised by the Board that engage in lending covered by 
Regulation Z and, therefore, are respondents under the PRA. Appendix I 
of Regulation Z defines the Board-regulated institutions as: state 
member banks, branches and agencies of foreign banks (other than 
Federal branches, Federal agencies, and insured state branches of 
foreign banks), commercial lending companies owned or controlled by 
foreign banks, and organizations operating under section 25 or 25A of 
the Federal Reserve Act. Other Federal agencies account for the 
paperwork burden imposed on the entities for which they have 
administrative enforcement authority. To ease the burden and cost of 
complying with Regulation Z (particularly for small entities), the 
Board provides model forms, which are appended to the regulation.
    As discussed above, on March 24, 2009, the Board published in the 
Federal Register a notice of proposed rulemaking to implement the HEOA 
(74 FR 12,464). The comment period for this notice expired May 26, 
2009. No comments that specifically addressed current or proposed 
paperwork burden estimates were received. The final rule will impose a 
one-time increase in the total annual burden under Regulation Z by 
45,440 hours from 734,127 to 779,567 hours. In addition, the Board 
estimates that, on a continuing basis, the requirements will increase 
the annual burden by 231,744 hours \17\ from 734,127 to 965,871 hours. 
The total annual burden will increase by 277,184 hours, from 734,127 to 
1,011,311 hours.\18\ This burden increase will affect all Board-
regulated institutions that are deemed to be respondents for the 
purposes of the PRA.
---------------------------------------------------------------------------

    \17\ The increase of 270 hours corrects a transposition of 
231,474 hours published in the proposed rules.
    \18\ The burden estimate for this rulemaking includes the burden 
addressing changes to implement provisions of the Mortgage 
Disclosure Improvement Act of 2008, as announced in a separate final 
rulemaking. See 74 FR 23,289 (May 19, 2009).
---------------------------------------------------------------------------

    The Board has a continuing interest in the public's opinions of its 
collections of information. At any time, comments regarding the burden 
estimate or any other aspect of this collection of information, 
including suggestions for reducing the burden, may be sent to: 
Secretary, Board of Governors of the Federal Reserve System, 20th and C 
Streets, NW., Washington, DC 20551; and to the Office of Management and 
Budget, Paperwork Reduction Project (7100-0199), Washington, DC 20503.

VII. Regulatory Flexibility Analysis

    In accordance with Section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 601-612) (RFA), the Board is publishing a final regulatory 
flexibility analysis for the proposed amendments to Regulation Z. The 
RFA requires an agency either to provide a final regulatory flexibility 
analysis with a final rule or certify that the final rule will not have 
a significant economic impact on a substantial number of small 
entities. The Small Business Administration (SBA) establishes size 
standards that define which entities are small businesses for purposes 
of the RFA.\19\ The size standard to be considered a small business is: 
$175 million or less in assets for banks and other depository 
institutions; $25.5 million or less in annual revenues for flight 
training schools; and $7.0 million or less in annual revenues for all 
other non-bank entities that are likely to be subject to the final 
regulations.
---------------------------------------------------------------------------

    \19\ http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------

    The Board believes that this final rule will not have a significant 
economic impact on a substantial number of small entities. The final 
amendments to Regulation Z are narrowly designed to implement the 
revisions to TILA made by the HEOA. Creditors must comply with the 
HEOA's requirements by February 14, 2010, whether or not the Board 
amends Regulation Z to conform the regulation to the statute. The 
Board's final rule is intended to facilitate compliance by eliminating 
duplication between Regulation Z's existing requirements and the 
statutory requirements imposed by the HEOA and to provide guidance on 
compliance with the HEOA's requirements.

A. Statement of the Need for, and Objectives of, the Final Rule

    Section 1002 of the HEOA requires the Board to prescribe 
regulations prohibiting creditors from co-branding and requiring 
creditors to make certain disclosures and perform related requirements 
when making private education loans. More specifically, the regulations 
must address, but are not limited to, the following aspects of sections 
128 and 140 of the TILA: (i) Prohibiting a creditor from marketing

[[Page 41230]]

private education loans in any way that implies that the covered 
educational institution endorses the private education loans it offers; 
(ii) requiring a creditor to make certain disclosures to the consumer 
in an application (or solicitation without requiring an application), 
with the approval, and with the consummation of the private education 
loan; (iii) requiring the creditor to obtain from the consumer a self-
certification form prior to consummation; (iv) allowing at least 30 
days following receipt of the approval disclosures for the consumer to 
accept and consummate the loan, and prohibiting certain changes in 
rates and terms until either consummation or expiration of such period 
of time; and (v) requiring a three-day right to cancel following 
consummation and prohibiting disbursement of funds until the three-day 
period expires.
    Moreover, section 1021(a)(5) of the HEOA requires the Board, in 
consultation with the Secretary of Education, to develop and issue 
model disclosure forms that may be used to comply with the amended 
section 128 of the TILA.
    In addition, the regulations interpret certain definitions included 
in title X of the HEOA to clarify the meaning of terms used in section 
1011(a) of the HEOA, including the definitions of private education 
loan, and covered educational institution. The HEOA does not require 
the Board to issue regulations to implement these definitions, but the 
definitions are intended to clarify the required regulations pursuant 
to the Board's authority under section 105(a) of the TILA.
    The Board is issuing the final regulations and model forms both to 
fulfill its statutory duty to implement the provisions of sections 1002 
and 1021(a)(5) of the HEOA and, in the case of the definition 
interpretations, to better clarify the requirements under the 
aforementioned sections. Parts I and IV of the SUPPLEMENTARY 
INFORMATION describe in detail the reasons, objectives, and legal basis 
for each component of the final rule.

B. Summary of Issues Raised by Comments in Response to the Initial 
Regulatory Flexibility Analysis

    In connection with the proposed rule to implement the HEOA, the 
Board sought information and comment on any costs, compliance 
requirements, or changes in operating procedures arising from the 
application of the rule to small institutions. The Board received 
several comments from small banks, credit unions, and educational 
institutions and trade associations that represent them. The commenters 
asserted that compliance with a final rule to implement the HEOA would 
increase costs and delay consummation of private education loans. 
However, these comments did not contain specific information about 
costs that will be incurred or changes in operating procedures that 
will be required to comply with the final rule. In general, the 
comments discussed the impact of statutory requirements rather than any 
impact that the Board's proposed rule itself would generate.

C. Description and Estimate of Small Entities to Which the Regulation 
Applies

    The final regulations apply to any ``creditor'' as defined in 
Regulation Z (12 CFR 226.2(a)(17)) that extends a private education 
loan.
    The total number of small entities likely to be affected by the 
final rule is unknown because the Board does not have data on the 
number of small creditors that make private education loans. The rule 
has broad applicability, applying to any creditor that makes loans 
expressly for postsecondary educational expenses, but excluding open-
end credit, real estate-secured loans, and loans made, insured, or 
guaranteed by the Federal government under title IV of the Higher 
Education Act of 1965. It could apply not only to depository 
institutions and finance companies, but also schools that meet the 
creditor definition and extend private education loans to their 
students. The Board requested but did not receive specific comment 
regarding the number and type of small entities that would be affected 
by the proposed rule.
    Based on the best information available, the Board makes the 
following estimate of small entities that would be affected by this 
final rule: Based on an average of data reported in Call Reports \20\ 
at quarter end between April 1, 2008 and March 31, 2009, approximately 
4,362 banks, 393 thrifts, and 7,038 credit unions, totaling 11,793 
institutions, would be considered small entities that are subject to 
the final rules. The Board cannot identify the percentage of these 
small institutions that extend private education loans and thus are 
subject to the rulemaking. However, because the final rules cover all 
private education loans regardless of their size or whether they are 
for multiple purposes, the Board believes a majority of the 11,793 
institutions would be covered by the final rules.
---------------------------------------------------------------------------

    \20\ Federal Financial Institutions Examination Council (FFIEC) 
Consolidated Reports of Condition and Income (Call Reports) (FFIEC 
031 & 041), Thrift Financial Report (1313), and NCUA Call Reports 
(NCUA 5300).
---------------------------------------------------------------------------

    The Board is not aware of data that provides information regarding 
finance companies' size in terms of annual revenues, and therefore 
cannot identify with certainty the number of small finance companies 
that extend private education loans that would be subject to the final 
rule. However, the size standard for these companies is $7.0 million or 
less in annual revenues (rather than assets), and the Board believes 
the size standard for depository institutions--$175 million or less in 
asset size--is likely to provide a comparable estimate. A 2005 
compilation of surveys conducted by the Board indicates that 211 
finance companies have an asset size of $100 million or less, and an 
additional 36 finance companies have an asset size between $100 million 
and $1 billion. Thus, the Board estimates that there are no more than a 
total of 247 small finance companies. The Board is unable, however, to 
locate data demonstrating the number of these small finance companies 
that extend private education loans.
    The final rule would also apply to covered educational institutions 
that extend private education loans to their students, including flight 
training schools. Accordingly to information on the Federal Aviation 
Administration Web site, there are approximately 588 flight training 
schools nationwide. The Board is unaware of data that shows how many of 
those flight training schools would be deemed small institutions and, 
of those small flight schools, how many extend private education loans.
    The final rule would also apply to other types of postsecondary 
schools, including both accredited and unaccredited postsecondary 
schools. In order to calculate an estimate of small accredited 
postsecondary schools, the Board relied on data collected by the 
Department of Education through its Integrated Postsecondary Education 
Data System (IPEDS). The Board used IPEDS data showing the revenue of 
all schools that participate in the Department's financial aid programs 
for postsecondary students, all of which are accredited. According to 
this IPEDS data, the estimated number of small accredited postsecondary 
schools is 3,159.\21\
---------------------------------------------------------------------------

    \21\ Of these small accredited postsecondary schools, 396 are 
public institutions, 678 are private not-for-profit institutions, 
and 2,085 are private for-profit institutions.
---------------------------------------------------------------------------

    The Board is not aware of sources of data on either the number of 
non-

[[Page 41231]]

accredited postsecondary schools nationwide or their revenues. However, 
based on estimates provided by several trade organizations representing 
for-profit postsecondary schools, the Board believes that the number of 
non-accredited for-profit schools is approximately three times the 
number of accredited for-profit schools. Based on the assumption that 
all non-accredited schools are for-profit institutions, and using the 
IPEDS data showing that there were approximately 2,600 accredited for-
profit postsecondary schools in 2005, the Board estimates there are 
7,800 non-accredited postsecondary schools nationwide.
    In order to approximate how many of those 7,800 non-accredited 
postsecondary schools are small entities, the Board believes that 
available data on for-profit schools with programs less than two years 
is likely to provide the closest comparable data to that of non-
accredited postsecondary schools. According to this data, approximately 
95 percent of for-profit schools with programs less than two years--and 
therefore approximately 95 percent of non-accredited postsecondary 
schools--have $7 million or less in revenue.\22\ Thus, the Board 
estimates that 7,410 non-accredited postsecondary schools qualify as 
small entities.\23\
---------------------------------------------------------------------------

    \22\ This approximation is supported by similar estimates 
provided by representatives of several state associations of for-
profit schools, who estimated that 90 to 95 percent of their 
institutions would qualify as small businesses.
    \23\ While the numbers of accredited and unaccredited 
postsecondary schools include flight training schools, the Board 
could not locate sources of data that would prevent this overlap.
---------------------------------------------------------------------------

    With respect to both accredited and unaccredited postsecondary 
schools, the Board is not aware of a source of data regarding the 
number of these small institutions that extend private education loans. 
Anecdotal information and informal survey results from representatives 
of several state associations of for-profit schools produced 
conflicting results regarding how many small schools extend private 
education loans.

D. Reporting, Recordkeeping and Other Compliance Requirements

    The compliance requirements of the final regulations are described 
in detail in parts I and IV of the SUPPLEMENTARY INFORMATION above.
    The final regulations generally prohibit a creditor from marketing 
private education loans in a way that implies that the covered 
educational institution endorses the private education loans it offers. 
A creditor will need to analyze the regulations, determine whether it 
is engaging in marketing private education loans, and establish 
procedures to ensure the marketing does not imply such endorsement.
    The final regulations also require creditors to make certain 
disclosures to the consumer on or with an application (or solicitation 
without requiring an application), with the approval, and with the 
consummation of the private education loan. The creditor is also 
required to obtain a self-certification form prior to consummation. The 
creditor must allow at least 30 days following the consumer's receipt 
of the approval disclosure documents for the consumer to accept the 
loan and must not change certain rates and terms until either 
consummation or expiration of such period of time. A creditor also must 
provide a three-day right to cancel following consummation and is 
generally prohibited from disbursing funds until the three-day period 
expires. A creditor will need to analyze the regulations, determine 
when and to whom such notices must be given, and design, generate, and 
provide those notices in the appropriate circumstances. The creditor 
must also ensure the receipt of the self-certification form prior to 
consummation and that the applicable rates and terms do not change in 
the period of time following the consumer's receipt of the approval 
disclosure documents.
    The Board requested but did not receive specific information and 
comment on any costs, compliance requirements, or changes in operating 
procedures arising from the application of the proposed rule to small 
institutions. The precise costs to small entities of updating their 
systems and disclosures are difficult to predict. These costs will 
depend on a number of unknown factors, including, among other things, 
the specifications of the current systems used by such entities to 
prepare and provide disclosures.

E. Steps Taken To Minimize the Economic Impact on Small Entities

    The steps the Board has taken to minimize the economic impact and 
compliance burden on small entities, including the factual, policy, and 
legal reasons for selecting any alternatives adopted and why certain 
alternatives were not accepted, are described in the in parts I and IV 
of the SUPPLEMENTARY INFORMATION above. The Board believes that these 
changes minimize the significant economic impact on small entities 
while still meeting the requirements of the HEOA.

List of Subjects in 12 CFR Part 226

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

Authority and Issuance

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 continues to read as follows:

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

Subpart A--General

0
2. Section 226.1 is amended by revising paragraph (b), redesignating 
paragraph (d)(6) as paragraph (d)(7), and adding new paragraph (d)(6) 
to read as follows:


Sec.  226.1  Authority, purpose, coverage, organization, enforcement 
and liability.

* * * * *
    (b) Purpose. The purpose of this regulation is to promote the 
informed use of consumer credit by requiring disclosures about its 
terms and cost. The regulation also gives consumers the right to cancel 
certain credit transactions that involve a lien on a consumer's 
principal dwelling, regulates certain credit card practices, and 
provides a means for fair and timely resolution of credit billing 
disputes. The regulation does not govern charges for consumer credit. 
The regulation requires a maximum interest rate to be stated in 
variable-rate contracts secured by the consumer's dwelling. It also 
imposes limitations on home-equity plans that are subject to the 
requirements of Sec.  226.5b and mortgages that are subject to the 
requirements of Sec.  226.32. The regulation prohibits certain acts or 
practices in connection with credit secured by a consumer's principal 
dwelling. The regulation also regulates certain practices of creditors 
who extend private education loans as defined in Sec.  226.46(b)(5).
* * * * *
    (d) * * *
    (6) Subpart F relates to private education loans. It contains rules 
on disclosures, limitations on changes in terms after approval, the 
right to cancel the loan, and limitations on co-branding in the 
marketing of private education loans.
* * * * *

[[Page 41232]]


0
2. Section 226.2 is amended by revising paragraph (a)(6) to read as 
follows:


Sec.  226.2  Definitions and rules of construction.

    (a) * * *
    (6) Business Day means a day on which the creditor's offices are 
open to the public for carrying on substantially all of its business 
functions. However, for purposes of rescission under Sec. Sec.  226.15 
and 226.23, and for purposes of Sec.  226.19(a)(1)(ii), Sec.  
226.19(a)(2), Sec.  226.31, and Sec.  226.46(d)(4), the term means all 
calendar days except Sundays and the legal public holidays specified in 
5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther 
King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor 
Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
* * * * *

0
3. Section 226.3 is amended by revising paragraph (b) to read as 
follows:


Sec.  226.3  Exempt transactions.

* * * * *
    (b) Credit over $25,000. An extension of credit in which the amount 
financed exceeds $25,000 or in which there is an express written 
commitment to extend credit in excess of $25,000, unless the extension 
of credit is:
    (1) Secured by real property, or by personal property used or 
expected to be used as the principal dwelling of the consumer; or
    (2) A private education loan as defined in Sec.  226.46(b)(5).
* * * * *

Subpart C--Closed-End Credit

0
4. Section 226.17 is amended by revising paragraphs (a), (b), (e), (f), 
(g) and (i) to read as follows:


Sec.  226.17  General disclosure requirements.

    (a) Form of disclosures. (1) The creditor shall make the 
disclosures required by this subpart clearly and conspicuously in 
writing, in a form that the consumer may keep. The disclosures required 
by this subpart may be provided to the consumer in electronic form, 
subject to compliance with the consumer consent and other applicable 
provisions of the Electronic Signatures in Global and National Commerce 
Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The disclosures required by 
Sec. Sec.  226.17(g), 226.19(b), and 226.24 may be provided to the 
consumer in electronic form without regard to the consumer consent or 
other provisions of the E-Sign Act in the circumstances set forth in 
those sections. The disclosures shall be grouped together, shall be 
segregated from everything else, and shall not contain any information 
not directly related \37\ to the disclosures required under Sec.  
226.18 or Sec.  226.47.\38\ The itemization of the amount financed 
under Sec.  226.18(c)(1) must be separate from the other disclosures 
under Sec.  226.18, except for private education loan disclosures made 
in compliance with Sec.  226.47.
---------------------------------------------------------------------------

    \37\ The disclosures may include an acknowledgment of receipt, 
the date of the transaction, and the consumer's name, address, and 
account number.
    \38\ The following disclosures may be made together with or 
separately from other required disclosures: the creditor's identity 
under Sec.  226.18(a), the variable rate example under Sec.  
226.18(f)(1)(iv), insurance or debt cancellation under Sec.  
226.18(n), and certain security interest charges under Sec.  
226.18(o).
---------------------------------------------------------------------------

    (2) Except for private education loan disclosures made in 
compliance with Sec.  226.47, the terms ``finance charge'' and ``annual 
percentage rate,'' when required to be disclosed under Sec.  226.18 (d) 
and (e) together with a corresponding amount or percentage rate, shall 
be more conspicuous than any other disclosure, except the creditor's 
identity under Sec.  226.18(a). For private education loan disclosures 
made in compliance with Sec.  226.47, the term ``annual percentage 
rate,'' and the corresponding percentage rate must be less conspicuous 
than the term ``finance charge'' and corresponding amount under Sec.  
226.18(d), the interest rate under Sec. Sec.  226.47(b)(1)(i) and 
(c)(1), and the notice of the right to cancel under Sec.  226.47(c)(4).
    (b) Time of disclosures. The creditor shall make disclosures before 
consummation of the transaction. In certain residential mortgage 
transactions, special timing requirements are set forth in Sec.  
226.19(a). In certain variable-rate transactions, special timing 
requirements for variable-rate disclosures are set forth in Sec.  
226.19(b) and Sec.  226.20(c). For private education loan disclosures 
made in compliance with Sec.  226.47, special timing requirements are 
set forth in Sec.  226.46(d). In certain transactions involving mail or 
telephone orders or a series of sales, the timing of disclosures may be 
delayed in accordance with paragraphs (g) and (h) of this section.
* * * * *
    (e) Effect of subsequent events. If a disclosure becomes inaccurate 
because of an event that occurs after the creditor delivers the 
required disclosures, the inaccuracy is not a violation of this 
regulation, although new disclosures may be required under paragraph 
(f) of this section, Sec.  226.19, Sec.  226.20, or Sec.  226.48(c)(4).
    (f) Early disclosures. Except for private education loan 
disclosures made in compliance with Sec.  226.47, if disclosures 
required by this subpart are given before the date of consummation of a 
transaction and a subsequent event makes them inaccurate, the creditor 
shall disclose before consummation (subject to the provisions of Sec.  
226.19(a)(2) and Sec.  226.19(a)(5)(iii)): \39\
---------------------------------------------------------------------------

    \39\ [Reserved.]
---------------------------------------------------------------------------

    (1) * * *
    (2) * * *
    (g) Mail or telephone orders--delay in disclosures. Except for 
private education loan disclosures made in compliance with Sec.  
226.47, if a creditor receives a purchase order or a request for an 
extension of credit by mail, telephone, or facsimile machine without 
face-to-face or direct telephone solicitation, the creditor may delay 
the disclosures until the due date of the first payment, if the 
following information for representative amounts or ranges of credit is 
made available in written form or in electronic form to the consumer or 
to the public before the actual purchase order or request:
    (1) * * *
    (2) * * *
* * * * *
    (i) Interim student credit extensions. For transactions involving 
an interim credit extension under a student credit program for which an 
application is received prior to the mandatory compliance date of 
Sec. Sec.  226.46, 47, and 48, the creditor need not make the following 
disclosures: the finance charge under Sec.  226.18(d), the payment 
schedule under Sec.  226.18(g), the total of payments under Sec.  
226.18(h), or the total sale price under Sec.  226.18(j) at the time 
the credit is actually extended. The creditor must make complete 
disclosures at the time the creditor and consumer agree upon the 
repayment schedule for the total obligation. At that time, a new set of 
disclosures must be made of all applicable items under Sec.  226.18.
* * * * *


Sec. Sec.  226.37-226.45  [Reserved.]

0
5. Sections 226.37 through 226.45 are reserved.
0
6. A new Subpart F consisting of Sec. Sec.  226.46, 226.47, and 226.48 
are added to read as follows:
Subpart F--Special Rules for Private Education Loans
Sec.
226.46 Special disclosure requirements for private education loans.
226.47 Content of disclosures.
226.48 Limitations on private education loans.

[[Page 41233]]

Subpart F--Special Rules for Private Education Loans


Sec.  226.46  Special disclosure requirements for private education 
loans.

    (a) Coverage. The requirements of this subpart apply to private 
education loans as defined in Sec.  226.46(b)(5). A creditor may, at 
its option, comply with the requirements of this subpart for an 
extension of credit subject to Sec. Sec.  226.17 and 226.18 that is 
extended to a consumer for expenses incurred after graduation from a 
law, medical, dental, veterinary, or other graduate school and related 
to relocation, study for a bar or other examination, participation in 
an internship or residency program, or similar purposes.
    (1) Relation to other subparts in this part. Except as otherwise 
specifically provided, the requirements and limitations of this subpart 
are in addition to and not in lieu of those contained in other subparts 
of this Part.
    (b) Definitions. For purposes of this subpart, the following 
definitions apply:
    (1) Covered educational institution means:
    (i) An educational institution that meets the definition of an 
institution of higher education, as defined in paragraph (b)(2) of this 
section, without regard to the institution's accreditation status; and
    (ii) Includes an agent, officer, or employee of the institution of 
higher education. An agent means an institution-affiliated organization 
as defined by section 151 of the Higher Education Act of 1965 (20 
U.S.C. 1019) or an officer or employee of an institution-affiliated 
organization.
    (2) Institution of higher education has the same meaning as in 
sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 
1001-1002) and the implementing regulations published by the U.S. 
Department of Education.
    (3) Postsecondary educational expenses means any of the expenses 
that are listed as part of the cost of attendance, as defined under 
section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), of 
a student at a covered educational institution. These expenses include 
tuition and fees, books, supplies, miscellaneous personal expenses, 
room and board, and an allowance for any loan fee, origination fee, or 
insurance premium charged to a student or parent for a loan incurred to 
cover the cost of the student's attendance.
    (4) Preferred lender arrangement has the same meaning as in section 
151 of the Higher Education Act of 1965 (20 U.S.C. 1019).
    (5) Private education loan means an extension of credit that:
    (i) Is not made, insured, or guaranteed under title IV of the 
Higher Education Act of 1965 (20 U.S.C. 1070 et seq.);
    (ii) Is extended to a consumer expressly, in whole or in part, for 
postsecondary educational expenses, regardless of whether the loan is 
provided by the educational institution that the student attends;
    (iii) Does not include open-end credit any loan that is secured by 
real property or a dwelling; and
    (iv) Does not include an extension of credit in which the covered 
educational institution is the creditor if:
    (A) The term of the extension of credit is 90 days or less; or
    (B) an interest rate will not be applied to the credit balance and 
the term of the extension of credit is one year or less, even if the 
credit is payable in more than four installments.
    (c) Form of disclosures--(1) Clear and conspicuous. The disclosures 
required by this subpart shall be made clearly and conspicuously.
    (2) Transaction disclosures. (i) The disclosures required under 
Sec. Sec.  226.47(b) and (c) shall be made in writing, in a form that 
the consumer may keep. The disclosures shall be grouped together, shall 
be segregated from everything else, and shall not contain any 
information not directly related to the disclosures required under 
Sec. Sec.  226.47(b) and (c), which include the disclosures required 
under Sec.  226.18.
    (ii) The disclosures may include an acknowledgement of receipt, the 
date of the transaction, and the consumer's name, address, and account 
number. The following disclosures may be made together with or 
separately from other required disclosures: the creditor's identity 
under Sec.  226.18(a), insurance or debt cancellation under Sec.  
226.18(n), and certain security interest charges under Sec.  226.18(o).
    (iii) The term ``finance charge'' and corresponding amount, when 
required to be disclosed under Sec.  226.18(d), and the interest rate 
required to be disclosed under Sec. Sec.  226.47(b)(1)(i) and (c)(1), 
shall be more conspicuous than any other disclosure, except the 
creditor's identity under Sec.  228.18(a).
    (3) Electronic disclosures. The disclosures required under 
Sec. Sec.  226.47(b) and (c) may be provided to the consumer in 
electronic form, subject to compliance with the consumer consent and 
other applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The 
disclosures required by Sec.  226.47(a) may be provided to the consumer 
in electronic form on or with an application or solicitation that is 
accessed by the consumer in electronic form without regard to the 
consumer consent or other provisions of the E-Sign Act. The form 
required to be received under Sec.  226.48(e) may be accepted by the 
creditor in electronic form as provided for in that section.
    (d) Timing of disclosures--(1) Application or solicitation 
disclosures.
    (i) The disclosures required by Sec.  226.47(a) shall be provided 
on or with any application or solicitation. For purposes of this 
subpart, the term solicitation means an offer of credit that does not 
require the consumer to complete an application. A ``firm offer of 
credit'' as defined in section 603(l) of the Fair Credit Reporting Act 
(15 U.S.C. 1681a(l)) is a solicitation for purposes of this section.
    (ii) The creditor may, at its option, disclose orally the 
information in Sec.  226.47(a) in a telephone application or 
solicitation. Alternatively, if the creditor does not disclose orally 
the information in Sec.  226.47(a), the creditor must provide the 
disclosures or place them in the mail no later than three business days 
after the consumer has applied for the credit, except that, if the 
creditor either denies the consumer's application or provides or places 
in the mail the disclosures in Sec.  226.47(b) no later than three 
business days after the consumer requests the credit, the creditor need 
not also provide the Sec.  226.47(a) disclosures.
    (iii) Notwithstanding paragraph (d)(1)(i), for a loan that the 
consumer may use for multiple purposes including, but not limited to, 
postsecondary educational expenses, the creditor need not provide the 
disclosures required by Sec.  226.47(a).
    (2) Approval disclosures. The creditor shall provide the 
disclosures required by Sec.  226.47(b) before consummation on or with 
any notice of approval provided to the consumer. If the creditor mails 
notice of approval, the disclosures must be mailed with the notice. If 
the creditor communicates notice of approval by telephone, the creditor 
must mail the disclosures within three business days of providing the 
notice of approval. If the creditor communicates notice of approval 
electronically, the creditor may provide the disclosures in electronic 
form in accordance with Sec.  226.46(d)(3); otherwise the creditor must 
mail the disclosures within three business days of communicating the 
notice of approval. If the creditor communicates approval in person, 
the creditor must provide the disclosures to the consumer at that time.
    (3) Final disclosures. The disclosures required by Sec.  226.47(c) 
shall be

[[Page 41234]]

provided after the consumer accepts the loan in accordance with Sec.  
226.48(c)(1).
    (4) Receipt of mailed disclosures. If the disclosures under 
paragraphs (d)(1), (d)(2) or (d)(3), are mailed to the consumer, the 
consumer is considered to have received them three business days after 
they are mailed.
    (e) Basis of disclosures and use of estimates--(1) Legal 
obligation. Disclosures shall reflect the terms of the legal obligation 
between the parties.
    (2) Estimates. If any information necessary for an accurate 
disclosure is unknown to the creditor, the creditor shall make the 
disclosure based on the best information reasonably available at the 
time the disclosure is provided, and shall state clearly that the 
disclosure is an estimate.
    (f) Multiple creditors; multiple consumers. If a transaction 
involves more than one creditor, only one set of disclosures shall be 
given and the creditors shall agree among themselves which creditor 
will comply with the requirements that this part imposes on any or all 
of them. If there is more than one consumer, the disclosures may be 
made to any consumer who is primarily liable on the obligation.
    (g) Effect of subsequent events--(1) Approval disclosures. If a 
disclosure under Sec.  226.47(b) becomes inaccurate because of an event 
that occurs after the creditor delivers the required disclosures, the 
inaccuracy is not a violation of Regulation Z (12 CFR part 226), 
although new disclosures may be required under Sec.  226.48(c).
    (2) Final disclosures. If a disclosure under Sec.  226.47(c) 
becomes inaccurate because of an event that occurs after the creditor 
delivers the required disclosures, the inaccuracy is not a violation of 
Regulation Z (12 CFR part 226).


Sec.  226.47  Content of disclosures.

    (a) Application or solicitation disclosures. A creditor shall 
provide the disclosures required under paragraph (a) of this section on 
or with a solicitation or an application for a private education loan.
    (1) Interest Rates.
    (i) The interest rate or range of interest rates applicable to the 
loan and actually offered by the creditor at the time of application or 
solicitation. If the rate will depend, in part, on a later 
determination of the consumer's creditworthiness or other factors, a 
statement that the rate for which the consumer may qualify will depend 
on the consumer's creditworthiness and other factors, if applicable.
    (ii) Whether the interest rates applicable to the loan are fixed or 
variable.
    (iii) If the interest rate may increase after consummation of the 
transaction, any limitations on the interest rate adjustments, or lack 
thereof; a statement that the consumer's actual rate could be higher or 
lower than the rates disclosed under paragraph (a)(1)(i) of this 
section, if applicable; and, if the limitation is determined by 
applicable law, that fact.
    (iv) Whether the applicable interest rates typically will be higher 
if the loan is not co-signed or guaranteed.
    (2) Fees and default or late payment costs.
    (i) An itemization of the fees or range of fees required to obtain 
the private education loan.
    (ii) Any fees, changes to the interest rate, and adjustments to 
principal based on the consumer's defaults or late payments.
    (3) Repayment terms.
    (i) The term of the loan, which is the period during which 
regularly scheduled payments of principal and interest will be due.
    (ii) A description of any payment deferral options, or, if the 
consumer does not have the option to defer payments, that fact.
    (iii) For each payment deferral option applicable while the student 
is enrolled at a covered educational institution:
    (A) Whether interest will accrue during the deferral period; and
    (B) If interest accrues, whether payment of interest may be 
deferred and added to the principal balance.
    (iv) A statement that if the consumer files for bankruptcy, the 
consumer may still be required to pay back the loan.
    (4) Cost estimates. An example of the total cost of the loan 
calculated as the total of payments over the term of the loan:
    (i) Using the highest rate of interest disclosed under paragraph 
(a)(1) of this section and including all finance charges applicable to 
loans at that rate;
    (ii) Using an amount financed of $10,000, or $5000 if the creditor 
only offers loans of this type for less than $10,000; and
    (iii) Calculated for each payment option.
    (5) Eligibility. Any age or school enrollment eligibility 
requirements relating to the consumer or co-signer.
    (6) Alternatives to private education loans.
    (i) A statement that the consumer may qualify for Federal student 
financial assistance through a program under title IV of the Higher 
Education Act of 1965 (20 U.S.C. 1070 et seq.).
    (ii) The interest rates available under each program under title IV 
of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) and 
whether the rates are fixed or variable.
    (iii) A statement that the consumer may obtain additional 
information concerning Federal student financial assistance from the 
institution of higher education that the student attends, or at the Web 
site of the U.S. Department of Education, including an appropriate Web 
site address.
    (iv) A statement that a covered educational institution may have 
school-specific education loan benefits and terms not detailed on the 
disclosure form.
    (7) Rights of the consumer. A statement that if the loan is 
approved, the terms of the loan will be available and will not change 
for 30 days except as a result of adjustments to the interest rate and 
other changes permitted by law.
    (8) Self-certification information. A statement that, before the 
loan may be consummated, the consumer must complete the self-
certification form and that the form may be obtained from the 
institution of higher education that the student attends.
    (b) Approval disclosures. On or with any notice of approval 
provided to the consumer, the creditor shall disclose the information 
required under Sec.  226.18 and the following information:
    (1) Interest rate.
    (i) The interest rate applicable to the loan.
    (ii) Whether the interest rate is fixed or variable.
    (iii) If the interest rate may increase after consummation of the 
transaction, any limitations on the rate adjustments, or lack thereof.
    (2) Fees and default or late payment costs.
    (i) An itemization of the fees or range of fees required to obtain 
the private education loan.
    (ii) Any fees, changes to the interest rate, and adjustments to 
principal based on the consumer's defaults or late payments.
    (3) Repayment terms.
    (i) The principal amount of the loan for which the consumer has 
been approved.
    (ii) The term of the loan, which is the period during which 
regularly scheduled payments of principal and interest will be due.
    (iii) A description of the payment deferral option chosen by the 
consumer, if applicable, and any other payment deferral options that 
the consumer may elect at a later time.
    (iv) Any payments required while the student is enrolled at a 
covered educational institution, based on the deferral option chosen by 
the consumer.

[[Page 41235]]

    (v) The amount of any unpaid interest that will accrue while the 
student is enrolled at a covered educational institution, based on the 
deferral option chosen by the consumer.
    (vi) A statement that if the consumer files for bankruptcy, the 
consumer may still be required to pay back the loan.
    (vii) An estimate of the total amount of payments calculated based 
on:
    (A) The interest rate applicable to the loan. Compliance with Sec.  
226.18(h) constitutes compliance with this requirement.
    (B) The maximum possible rate of interest for the loan or, if a 
maximum rate cannot be determined, a rate of 25%.
    (C) If a maximum rate cannot be determined, the estimate of the 
total amount for repayment must include a statement that there is no 
maximum rate and that the total amount for repayment disclosed under 
paragraph (b)(3)(vii)(B) of this section is an estimate and will be 
higher if the applicable interest rate increases.
    (viii) The maximum monthly payment based on the maximum rate of 
interest for the loan or, if a maximum rate cannot be determined, a 
rate of 25%. If a maximum cannot be determined, a statement that there 
is no maximum rate and that the monthly payment amount disclosed is an 
estimate and will be higher if the applicable interest rate increases.
    (4) Alternatives to private education loans.
    (i) A statement that the consumer may qualify for Federal student 
financial assistance through a program under title IV of the Higher 
Education Act of 1965 (20 U.S.C. 1070 et seq.).
    (ii) The interest rates available under each program under title IV 
of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.), and 
whether the rates are fixed or variable.
    (iii) A statement that the consumer may obtain additional 
information concerning Federal student financial assistance from the 
institution of higher education that the student attends, or at the Web 
site of the U.S. Department of Education, including an appropriate Web 
site address.
    (5) Rights of the consumer.
    (i) A statement that the consumer may accept the terms of the loan 
until the acceptance period under Sec.  226.48(c)(1) has expired. The 
statement must include the specific date on which the acceptance period 
expires, based on the date upon which the consumer receives the 
disclosures required under this subsection for the loan. The disclosure 
must also specify the method or methods by which the consumer may 
communicate acceptance.
    (ii) A statement that, except for changes to the interest rate and 
other changes permitted by law, the rates and terms of the loan may not 
be changed by the creditor during the period described in paragraph 
(b)(5)(i) of this section.
    (c) Final disclosures. After the consumer has accepted the loan in 
accordance with Sec.  226.48(c)(1), the creditor shall disclose to the 
consumer the information required by Sec.  226.18 and the following 
information:
    (1) Interest rate. Information required to be disclosed under 
Sec. Sec.  226.47(b)(1).
    (2) Fees and default or late payment costs. Information required to 
be disclosed under Sec.  226.47(b)(2).
    (3) Repayment terms. Information required to be disclosed under 
Sec.  226.47(b)(3).
    (4) Cancellation right. A statement that:
    (i) the consumer has the right to cancel the loan, without penalty, 
at any time before the cancellation period under Sec.  226.48(d) 
expires, and
    (ii) loan proceeds will not be disbursed until after the 
cancellation period under Sec.  226.48(d) expires. The statement must 
include the specific date on which the cancellation period expires and 
state that the consumer may cancel by that date. The statement must 
also specify the method or methods by which the consumer may cancel. If 
the creditor permits cancellation by mail, the statement must specify 
that the consumer's mailed request will be deemed timely if placed in 
the mail not later than the cancellation date specified on the 
disclosure. The disclosures required by this paragraph (c)(4) must be 
made more conspicuous than any other disclosure required under this 
section, except for the finance charge, the interest rate, and the 
creditor's identity, which must be disclosed in accordance with the 
requirements of Sec.  226.46(c)(2)(iii).


Sec.  226.48  Limitations on private education loans.

    (a) Co-branding prohibited. (1) Except as provided in paragraph (b) 
of this section, a creditor, other than the covered educational 
institution itself, shall not use the name, emblem, mascot, or logo of 
a covered educational institution, or other words, pictures, or symbols 
identified with a covered educational institution, in the marketing of 
private education loans in a way that implies that the covered 
education institution endorses the creditor's loans.
    (2) A creditor's marketing of private education loans does not 
imply that the covered education institution endorses the creditor's 
loans if the marketing includes a clear and conspicuous disclosure that 
is equally prominent and closely proximate to the reference to the 
covered educational institution that the covered educational 
institution does not endorse the creditor's loans and that the creditor 
is not affiliated with the covered educational institution.
    (b) Endorsed lender arrangements. If a creditor and a covered 
educational institution have entered into an arrangement where the 
covered educational institution agrees to endorse the creditor's 
private education loans, and such arrangement is not prohibited by 
other applicable law or regulation, paragraph (a)(1) of this section 
does not apply if the private education loan marketing includes a clear 
and conspicuous disclosure that is equally prominent and closely 
proximate to the reference to the covered educational institution that 
the creditor's loans are not offered or made by the covered educational 
institution, but are made by the creditor.
    (c) Consumer's right to accept. (1) The consumer has the right to 
accept the terms of a private education loan at any time within 30 
calendar days following the date on which the consumer receives the 
disclosures required under Sec.  226.47(b).
    (2) Except for changes permitted under paragraphs (c)(3) and 
(c)(4), the rate and terms of the private education loan that are 
required to be disclosed under Sec. Sec.  226.47(b) and (c) may not be 
changed by the creditor prior to the earlier of:
    (i) The date of disbursement of the loan; or
    (ii) The expiration of the 30 calendar day period described in 
paragraph (c)(1) of this section if the consumer has not accepted the 
loan within that time.
    (3) Exceptions not requiring re-disclosure. (i) Notwithstanding 
paragraph (c)(2) of this section, nothing in this section prevents the 
creditor from:
    (A) Withdrawing an offer before consummation of the transaction if 
the extension of credit would be prohibited by law or if the creditor 
has reason to believe that the consumer has committed fraud in 
connection with the loan application;
    (B) Changing the interest rate based on adjustments to the index 
used for a loan;
    (C) Changing the interest rate and terms if the change will 
unequivocally benefit the consumer; or
    (D) Reducing the loan amount based upon a certification or other 
information received from the covered educational

[[Page 41236]]

institution, or from the consumer, indicating that the student's cost 
of attendance has decreased or the consumer's other financial aid has 
increased. A creditor may make corresponding changes to the rate and 
other terms only to the extent that the consumer would have received 
the terms if the consumer had applied for the reduced loan amount.
    (ii) If the creditor changes the rate or terms of the loan under 
this paragraph (c)(3), the creditor need not provide the disclosures 
required under Sec.  228.47(b) for the new loan terms, nor need the 
creditor provide an additional 30-day period to the consumer to accept 
the new terms of the loan under paragraph (c)(1) of this section.
    (4) Exceptions requiring re-disclosure. (i) Notwithstanding 
paragraphs (c)(2) or (c)(3) of this section, nothing in this section 
prevents the creditor, at its option, from changing the rate or terms 
of the loan to accommodate a specific request by the consumer. For 
example, if the consumer requests a different repayment option, the 
creditor may, but need not, offer to provide the requested repayment 
option and make any other changes to the rate and terms.
    (ii) If the creditor changes the rate or terms of the loan under 
this paragraph (c)(4), the creditor shall provide the disclosures 
required under Sec.  228.47(b) and shall provide the consumer the 30-
day period to accept the loan under paragraph (c)(1) of this section. 
The creditor shall not make further changes to the rates and terms of 
the loan, except as specified in paragraphs (c)(3) and (4) of this 
section. Except as permitted under Sec.  226.48(c)(3), unless the 
consumer accepts the loan offered by the creditor in response to the 
consumer's request, the creditor may not withdraw or change the rates 
or terms of the loan for which the consumer was approved prior to the 
consumer's request for a change in loan terms.
    (d) Consumer's right to cancel. The consumer may cancel a private 
education loan, without penalty, until midnight of the third business 
day following the date on which the consumer receives the disclosures 
required by Sec.  226.47(c). No funds may be disbursed for a private 
education loan until the three-business day period has expired.
    (e) Self-certification form. For a private education loan intended 
to be used for the postsecondary educational expenses of a student 
while the student is attending an institution of higher education, the 
creditor shall obtain from the consumer or the institution of higher 
education the form developed by the Secretary of Education under 
section 155 of the Higher Education Act of 1965, signed by the 
consumer, in written or electronic form, before consummating the 
private education loan.
    (f) Provision of information by preferred lenders. A creditor that 
has a preferred lender arrangement with a covered educational 
institution shall provide to the covered educational institution the 
information required under Sec. Sec.  226.47(a)(1) through (5), for 
each type of private education loan that the lender plans to offer to 
consumers for students attending the covered educational institution 
for the period beginning July 1 of the current year and ending June 30 
of the following year. The creditor shall provide the information 
annually by the later of the 1st day of April, or within 30 days after 
entering into, or learning the creditor is a party to, a preferred 
lender arrangement.

0
7. In Part 226, Appendix H is amended by adding new entries H-18 
through H-23 to the table of contents at the beginning of the appendix, 
and adding new Forms H-18, H-19, H-20, H-21, H-22, and H-23.

Appendix H to Part 226--Closed-End Model Forms and Clauses

* * * * *
H-18 Private Education Loan Application and Solicitation Model Form
H-19 Private Education Loan Approval Model Form
H-20 Private Education Loan Final Model Form
H-21 Private Education Loan Application and Solicitation Sample
H-22 Private Education Loan Approval Sample
H-23 Private Education Loan Final Sample
* * * * *

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0
8. In Supplement I to Part 226:
0
a. Under Section 226.1 paragraph 1(d)(6) is revised and new paragraph 
(1)(d)(7) is added.
0
b. Under Section 226.2, paragraph 2(a) Definitions, 2(a)(6) Business 
day, paragraph 2(a)(6)-2 is revised.
0
c. Under Section 226.3, the heading to 3(b) Credit Over $25,000 Not 
Secured by Real Property or a Dwelling, and heading to 3(f) Student 
Loan Programs, are revised.
0
d. Under Section 226.17:
0
(i) In paragraph 17(a) Form of Disclosures, paragraphs 17(a)(1)-4, 
17(a)(1)-6, 17(a)(2) are revised;
0
(ii) In paragraph 17(b) Time of Disclosures, paragraph 17(b)-1 is 
revised;
0
(iii) In paragraph 17(i) Interim Student Credit Extensions, paragraph 
17(i)-1 is revised and new paragraph 17(i)-2 is added;
0
(iv) Paragraphs 17(i)-2, 17(i)-3, and 17(i)-4 are redesignated as 
paragraphs 17(i)-3, 17(i)-4, and 17(i)-5, respectively.
0
e. Under Section 226.18, paragraph 18(f)(1)(ii), paragraph 
18(f)(1)(iv)-2, and paragraph 18(k)(1) are revised.
0
f. The following new paragraphs are added:
0
(i) Subpart F--Special Rules for Private Education Loans is added,
0
(ii) Section 226.46--Requirements for Private Education Loans, is added
0
(iii) Section 226.47--Content of Disclosures, is added; and
0
(iv) Section 226.48--Limitations on Private Education Loans is added.
0
g. Under the heading, Appendixes G and H--Open-End and Closed-End Model 
Forms and Clauses, paragraph 1 is revised.
0
h. Under Appendix H--Closed-End Model Forms and Clauses, paragraphs 21 
through 24 are revised, and paragraphs 25 through 28 are added.

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart A--General

* * * * *

Section 226.1--Authority, Purpose, Coverage, Organization, 
Enforcement and Liability

* * * * *
    Paragraph 1(d)(6)
    1. Mandatory compliance dates. Compliance with the Board's 
revisions to Regulation Z published on August 14, 2009 is mandatory 
for private education loans for which the creditor receives an 
application on or after February 14, 2010. Compliance with the final 
rules on co-branding in Sec. Sec.  226.48(a) and (b) is mandatory 
for marketing occurring on or after February 14, 2010. Compliance 
with the final rules is optional for private education loan 
transactions for which an application was received prior to February 
14, 2010, even if consummated after the mandatory compliance date.
    2. Optional compliance. A creditor may, at its option, provide 
the approval and final disclosures required under Sec. Sec.  
226.47(b) or (c) for private education loans where an application 
was received prior to the mandatory compliance date. If the creditor 
opts to provide the disclosures, the creditor must also comply with 
the applicable timing and other rules in Sec. Sec.  226.46 and 
226.48 (including providing the consumer with the 30-day acceptance 
period under Sec.  226.48(c), and the right to cancel under Sec.  
226.48(d)). For example if the creditor receives an application on 
January 25, 2010 and approves the consumer's application on or after 
February 14, 2010, the creditor may, at its option, provide the 
approval disclosures under Sec.  226.47(b), the final disclosures 
under Sec.  226.47(c) and comply with the applicable requirements 
Sec. Sec.  226.46 and 226.48. The creditor must also obtain the 
self-certification form as required in Sec.  226.48(e), if 
applicable. Or, for example, if the creditor receives an application 
on January 25, 2010 and approves the consumer's application before 
February 14, 2010, the creditor may, at its option, provide the 
final disclosure under Sec.  226.47(c) and comply with the 
applicable timing and other requirements of Sec. Sec.  226.46 and 
226.48, including providing the consumer with the right to cancel 
under Sec.  226.48(d). The creditor must also obtain the self-
certification form as required in Sec.  226.48(e), if applicable.
    Paragraph 1(d)(7)
    1. [Reserved.]

Section 226.2--Definitions and Rules of Construction

    2(a) Definitions.
* * * * *
    2(a)(6) Business day.
* * * * *
    2. Rule for rescission, disclosures for certain mortgage 
transactions, and private education loans. A more precise rule for 
what is a business day (all calendar days except Sundays and the 
Federal legal holidays specified in 5 U.S.C. 6103(a)) applies when 
the right of rescission, the receipt of disclosures for certain 
dwelling-secured mortgage transactions under Sec. Sec.  
226.19(a)(1)(ii), 226.19(a)(2), 226.31(c), or the receipt of 
disclosures for private education loans under Sec.  226.46(d)(4) is 
involved. Four Federal legal holidays are identified in 5 U.S.C. 
6103(a) by a specific date: New Year's Day, January 1; Independence 
Day, July 4; Veterans Day, November 11; and Christmas Day, December 
25. When one of these holidays (July 4, for example) falls on a 
Saturday, Federal offices and other entities might observe the 
holiday on the preceding Friday (July 3). In cases where the more 
precise rule applies, the observed holiday (in the example, July 3) 
is a business day.
* * * * *

Section 226.3--Exempt Transactions

* * * * *
    3(b) Credit over $25,000.
* * * * *

[[Page 41249]]

3(f) Student Loan Programs

    1. Coverage. This exemption applies to loans made, insured, or 
guaranteed under title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070 et seq.). This exemption does not apply to private 
education loans as defined by Sec.  226.46(b)(5).
* * * * *

Subpart C--Closed-End Credit

Section 226.17--General Disclosure Requirements

* * * * *

17(a) Form of Disclosures

Paragraph 17(a)(1)

* * * * *
    4. Content of segregated disclosures. Footnotes 37 and 38 
contain exceptions to the requirement that the disclosures under 
Sec.  226.18 be segregated from material that is not directly 
related to those disclosures. Footnote 37 lists the items that may 
be added to the segregated disclosures, even though not directly 
related to those disclosures. Footnote 38 lists the items required 
under Sec.  226.18 that may be deleted from the segregated 
disclosures and appear elsewhere. Any one or more of these additions 
or deletions may be combined and appear either together with or 
separate from the segregated disclosures. The itemization of the 
amount financed under Sec.  226.18(c), however, must be separate 
from the other segregated disclosures under Sec.  226.18, except for 
private education loan disclosures made in compliance with Sec.  
226.47. If a creditor chooses to include the security interest 
charges required to be itemized under Sec.  226.4(e) and Sec.  
226.18(o) in the amount financed itemization, it need not list these 
charges elsewhere.
* * * * *
    6. Multiple-purpose forms. The creditor may design a disclosure 
statement that can be used for more than one type of transaction, so 
long as the required disclosures for individual transactions are 
clear and conspicuous. (See the Commentary to appendices G and H for 
a discussion of the treatment of disclosures that do not apply to 
specific transactions.) Any disclosure listed in Sec.  226.18 
(except the itemization of the amount financed under Sec.  226.18(c) 
for transactions other than private education loans) may be included 
on a standard disclosure statement even though not all of the 
creditor's transactions include those features. For example, the 
statement may include:
     The variable rate disclosure under Sec.  226.18(f).
     The demand feature disclosure under Sec.  226.18(i).
     A reference to the possibility of a security interest 
arising from a spreader clause, under Sec.  226.18(m).
     The assumption policy disclosure under Sec.  226.18(q).
     The required deposit disclosure under Sec.  226.18(r).
* * * * *

Paragraph 17(a)(2)

    1. When disclosures must be more conspicuous. The following 
rules apply to the requirement that the terms ``annual percentage 
rate'' (except for private education loan disclosures made in 
compliance with Sec.  226.47) and ``finance charge'' be shown more 
conspicuously:
     The terms must be more conspicuous only in relation to 
the other required disclosures under Sec.  226.18. For example, when 
the disclosures are included on the contract document, those two 
terms need not be more conspicuous as compared to the heading on the 
contract document or information required by state law.
     The terms need not be more conspicuous except as part 
of the finance charge and annual percentage rate disclosures under 
Sec.  226.18 (d) and (e), although they may, at the creditor's 
option, be highlighted wherever used in the required disclosures. 
For example, the terms may, but need not, be highlighted when used 
in disclosing a prepayment penalty under Sec.  226.18(k) or a 
required deposit under Sec.  226.18(r).
     The creditor's identity under Sec.  226.18(a) may, but 
need not, be more prominently displayed than the finance charge and 
annual percentage rate.
     The terms need not be more conspicuous than figures 
(including, for example, numbers, percentages, and dollar signs).
    2. Making disclosures more conspicuous. The terms ``finance 
charge'' and (except for private education loan disclosures made in 
compliance with Sec.  226.47) ``annual percentage rate'' may be made 
more conspicuous in any way that highlights them in relation to the 
other required disclosures. For example, they may be:
     Capitalized when other disclosures are printed in 
capital and lower case.
     Printed in larger type, bold print or different type 
face.
     Printed in a contrasting color.
     Underlined.
     Set off with asterisks.

17(b) Time of Disclosures

    1. Consummation. As a general rule, disclosures must be made 
before ``consummation'' of the transaction. The disclosures need not 
be given by any particular time before consummation, except in 
certain mortgage transactions and variable-rate transactions secured 
by the consumer's principal dwelling with a term greater than one 
year under Sec.  226.19, and in private education loan transactions 
disclosed in compliance with Sec. Sec.  226.46 and 226.47. (See the 
commentary to Sec.  226.2(a)(13) regarding the definition of 
consummation.)
* * * * *

17(i) Interim Student Credit Extensions

    1. Definition. Student credit plans involve extensions of credit 
for education purposes where the repayment amount and schedule are 
not known at the time credit is advanced. These plans include loans 
made under any student credit plan, whether government or private, 
where the repayment period does not begin immediately. (Certain 
student credit plans that meet this definition are exempt from 
Regulation Z. See Sec.  226.3(f).)
    2. Relation to other sections. For disclosures made before the 
mandatory compliance date of the disclosures required under 
Sec. Sec.  226.46, 47, and 48, paragraph 17(i) permitted creditors 
to omit from the disclosures the terms set forth in that paragraph 
at the time the credit was actually extended. However, creditors 
were required to make complete disclosures at the time the creditor 
and consumer agreed upon the repayment schedule for the total 
obligation. At that time, a new set of disclosures of all applicable 
items under Sec.  226.18 was required. Most student credit plans are 
subject to the requirements in Sec. Sec.  226.46, 47, and 48. 
Consequently, for applications for student credit plans received on 
or after the mandatory compliance date of Sec. Sec.  226.46, 47, and 
48, the creditor may not omit from the disclosures the terms set 
forth in paragraph 17(i). Instead, the creditor must comply with 
Sec. Sec.  226.46, 47, and 48, if applicable, or with Sec. Sec.  
226.17 and 226.18.
    3. Basis of disclosures. * * *
    4. Consolidation. * * *
    5. Approved student credit forms. See the commentary to appendix 
H regarding disclosure forms approved for use in certain student 
credit programs for which applications were received prior to the 
mandatory compliance date of Sec. Sec.  226.46, 47, and 48.
* * * * *

Section 226.18--Content of Disclosures

* * * * *

Paragraph 18(f)(1)(ii)

    1. Limitations. This includes any maximum imposed on the amount 
of an increase in the rate at any time, as well as any maximum on 
the total increase over the life of the transaction. Except for 
private education loans disclosures, when there are no limitations, 
the creditor may, but need not, disclose that fact, and limitations 
do not include legal limits in the nature of usury or rate ceilings 
under State or Federal statutes or regulations. (See Sec.  226.30 
for the rule requiring that a maximum interest rate be included in 
certain variable-rate transactions.) For disclosures with respect to 
private education loan disclosures, see comment 47(b)(1)-2.
* * * * *

Paragraph 18(f)(1)(iv)

* * * * *
    2. Hypothetical example not required. The creditor need not 
provide a hypothetical example in the following transactions with a 
variable-rate feature:
     Demand obligations with no alternate maturity date.
     Private education loans as defined in Sec.  
226.46(b)(5).
     Multiple-advance construction loans disclosed pursuant 
to appendix D, Part I.
* * * * *

Paragraph 18(k)(1)

    1. Penalty. This applies only to those transactions in which the 
interest calculation takes account of all scheduled reductions in 
principal, as well as transactions in which interest calculations 
are made daily. The

[[Page 41250]]

term penalty as used here encompasses only those charges that are 
assessed strictly because of the prepayment in full of a simple-
interest obligation, as an addition to all other amounts. Items 
which are penalties include, for example:
     Interest charges for any period after prepayment in 
full is made. (See the commentary to Sec.  226.17(a)(1) regarding 
disclosure of interest charges assessed for periods after prepayment 
in full as directly related information.)
     A minimum finance charge in a simple-interest 
transaction. (See the commentary to Sec.  226.17(a)(1) regarding the 
disclosure of a minimum finance charge as directly related 
information.) Items which are not penalties include, for example, 
loan guarantee fees.
* * * * *

Subpart F--Special Rules for Private Education Loans

Section 226.46--Special Disclosure Requirements for Private Education 
Loans

46(a) Coverage

    1. Coverage. This subpart applies to all private education loans 
as defined in Sec.  226.46(b)(5). Coverage under this subpart is 
optional for certain extensions of credit that do not meet the 
definition of ``private education loan'' because the credit is not 
extended, in whole or in part, for ``postsecondary educational 
expenses'' defined in Sec.  226.46(b)(3). If a transaction is not 
covered and a creditor opts to comply with any section of this 
subpart, the creditor must comply with all applicable sections of 
this subpart. If a transaction is not covered and a creditor opts 
not to comply with this subpart, the creditor must comply with all 
applicable requirements under Sec. Sec.  226.17 and 226.18. 
Compliance with this subpart is optional for an extension of credit 
for expenses incurred after graduation from a law, medical, dental, 
veterinary, or other graduate school and related to relocation, 
study for a bar or other examination, participation in an internship 
or residency program, or similar purposes. However, if any part of 
such loan is used for postsecondary educational expenses as defined 
in Sec.  226.46(b)(3), then compliance with Subpart F is mandatory 
not optional.

46(b) Definitions

46(b)(1) Covered Educational Institution

    1. General. A covered educational institution includes any 
educational institution that meets the definition of an institution 
of higher education in Sec.  226.46(b)(2). An institution is also a 
covered educational institution if it otherwise meets the definition 
of an institution of higher education, except for its lack of 
accreditation. Such an institution may include, for example, a 
university or community college. It may also include an institution, 
whether accredited or unaccredited, offering instruction to prepare 
students for gainful employment in a recognized profession, such as 
flying, culinary arts, or dental assistance. A covered educational 
institution does not include elementary or secondary schools.
    2. Agent. For purposes of Sec.  226.46(b)(1), the term agent 
means an institution-affiliated organization as defined by section 
151 of the Higher Education Act of 1965 (20 U.S.C 1019) or an 
officer or employee of an institution-affiliated organization. Under 
section 151 of the Higher Education Act, an institution-affiliated 
organization means any organization that is directly or indirectly 
related to a covered institution and is engaged in the practice of 
recommending, promoting, or endorsing education loans for students 
attending the covered institution or the families of such students. 
An institution-affiliated organization may include an alumni 
organization, athletic organization, foundation, or social, 
academic, or professional organization, of a covered institution, 
but does not include any creditor with respect to any private 
education loan made by that creditor.
    46(b)(2) Institution of higher education.
    1. General. An institution of higher education includes any 
institution that meets the definitions contained in sections 101 and 
102 of the Higher Education Act of 1965 (20 U.S.C. 1001-1002) and 
implementing Department of Education regulations (34 CFR 600). Such 
an institution may include, for example, a university or community 
college. It may also include an institution offering instruction to 
prepare students for gainful employment in a recognized profession, 
such as flying, culinary arts, or dental assistance. An institution 
of higher education does not include elementary or secondary 
schools.
    46(b)(3) Postsecondary educational expenses.
    1. General. The examples listed in Sec.  226.46(b)(3) are 
illustrative only. The full list of postsecondary educational 
expenses is contained in section 472 of the Higher Education Act of 
1965 (20 U.S.C. 1087ll).
    46(b)(4) Preferred lender arrangement.
    1. General. The term ``preferred lender arrangement'' is defined 
in section 151 of the Higher Education Act of 1965 (20 U.S.C 1019). 
The term refers to an arrangement or agreement between a creditor 
and a covered educational institution (or an institution-affiliated 
organization as defined by section 151 of the Higher Education Act 
of 1965 (20 U.S.C 1019)) under which a creditor provides private 
education loans to consumers for students attending the covered 
educational institution and the covered educational institution 
recommends, promotes, or endorses the private education loan 
products of the creditor. It does not include arrangements or 
agreements with respect to Federal Direct Stafford/Ford loans, or 
Federal PLUS loans made under the Federal PLUS auction pilot 
program.
    46(b)(5) Private education loan.
    1. Extended expressly for postsecondary educational expenses. A 
private education loan is one that is extended expressly for 
postsecondary educational expenses. The term includes loans extended 
for postsecondary educational expenses incurred while a student is 
enrolled in a covered educational institution as well as loans 
extended to consolidate a consumer's pre-existing private education 
loans.
    2. Multiple-purpose loans. i. Definition. A private education 
loan may include an extension of credit not excluded under Sec.  
226.46(b)(5) that the consumer may use for multiple purposes 
including, but not limited to, postsecondary educational expenses. 
If the consumer expressly indicates that the proceeds of the loan 
will be used to pay for postsecondary educational expenses by 
indicating the loan's purpose on an application, the loan is a 
private education loan.
    ii. Coverage. A creditor generally will not know before an 
application is received whether the consumer intends to use the loan 
for postsecondary educational expenses. For this reason, the 
creditor need not provide the disclosures required by Sec.  
226.47(a) on or with the application or solicitation for a loan that 
may be used for multiple purposes. See Sec.  226.47(d)(1)(i). 
However, if the consumer expressly indicates that the proceeds of 
the loan will be used to pay for postsecondary educational expenses, 
the creditor must comply with Sec. Sec.  226.47(b) and (c) and Sec.  
226.48. For purposes of the required disclosures, the creditor must 
calculate the disclosures based on the entire amount of the loan, 
even if only a part of the proceeds is intended for postsecondary 
educational expenses. The creditor may rely solely on a check-box, 
or a purpose line, on a loan application to determine whether or not 
the applicant intends to use loan proceeds for postsecondary 
educational expenses.
    iii. Examples. The creditor must comply only if the extension of 
credit also meets the other parts of the definition of private 
education loan. For example, if the creditor uses a single 
application form for both open-end and closed-end credit, and the 
consumer applies for open-end credit to be used for postsecondary 
educational expenses, the extension of credit is not covered. 
Similarly, if the consumer indicates the extension of credit will be 
used for educational expenses that are not postsecondary educational 
expenses, such as elementary or secondary educational expenses, the 
extension of credit is not covered. These examples are only 
illustrative, not exhaustive.
    3. Short-term loans. Some covered educational institutions offer 
loans to students with terms of 90 days or less to assist the 
student in paying for educational expenses, usually while the 
student waits for other funds to be disbursed. Under Sec.  
226.46(b)(5)(iv)(A) such loans are not considered private education 
loans, even if interest is charged on the credit balance. (Because 
these loans charge interest, they are not covered by the exception 
under Sec.  226.46(b)(5)(iv)(B).) However, these loans are 
extensions of credit subject to the requirements of Sec. Sec.  
226.17 and 18. The legal agreement may provide that repayment is 
required when the consumer or the educational institution receives 
certain funds. If, under the terms of the legal obligation, 
repayment of the loan is required when the certain funds are 
received by the consumer or the educational institution (such as by 
deposit into the consumer's or educational institution's account), 
the disclosures should be based on the creditor's estimate of the 
time the funds will be delivered.

[[Page 41251]]

    4. Billing plans. Some covered educational institutions offer 
billing plans that permit a consumer to make payments in 
installments. Such plans are not considered private education loans, 
if an interest rate will not be applied to the credit balance and 
the term of the extension of credit is one year or less, even if the 
plan is payable in more than four installments. However, such plans 
may be extensions of credit subject to the requirements of 
Sec. Sec.  226.17 and 18.

46(c) Form of Disclosures

    1. Form of disclosures--relation to other sections. Creditors 
must make the disclosures required under this subpart in accordance 
with Sec.  226.46(c). Section 226.46(c)(2) requires that the 
disclosures be grouped together and segregated from everything else. 
In complying with this requirement, creditors may follow the rules 
in Sec.  226.17, except where specifically provided otherwise. For 
example, although Sec.  226.17(b) requires creditors to provide only 
one set of disclosures before consummation of the transaction, 
Sec. Sec.  226.47(b) and (c) require that the creditor provide the 
disclosures under Sec.  226.18 both upon approval and after the 
consumer accepts the loan.

Paragraph 46(c)(3)

    1. Application and solicitation disclosures--electronic 
disclosures. If the disclosures required under Sec.  226.47(a) are 
provided electronically, they must be provided on or with the 
application or solicitation reply form. Electronic disclosures are 
deemed to be on or with an application or solicitation if they meet 
one of the following conditions:
    i. They automatically appear on the screen when the application 
or solicitation reply form appears;
    ii. They are located on the same Web ``page'' as the application 
or solicitation reply form without necessarily appearing on the 
initial screen, if the application or reply form contains a clear 
and conspicuous reference to the location of the disclosures and 
indicates that the disclosures contain rate, fee, and other cost 
information, as applicable; or
    iii. They are posted on a Web site and the application or 
solicitation reply form is linked to the disclosures in a manner 
that prevents the consumer from by passing the disclosures before 
submitting the application or reply form.

46(d) Timing of Disclosures

    1. Receipt of disclosures. Under Sec.  226.46(d)(4), if the 
creditor places the disclosures in the mail, the consumer is 
considered to have received them three business days after they are 
mailed. For purposes of Sec.  226.46(d)(4), ``business day'' means 
all calendar days except Sundays and the legal public holidays 
referred to in Sec.  226.2(a)(6). See comment 2(a)(6)-2. For 
example, if the creditor places the disclosures in the mail on 
Thursday, June 4, the disclosures are considered received on Monday, 
June 8.

Paragraph 46(d)(1)

    1. Invitations to apply. A creditor may contact a consumer who 
has not been pre-selected for a private education loan about taking 
out a loan (whether by direct mail, telephone, or other means) and 
invite the consumer to complete an application. Such a contact does 
not meet the definition of solicitation, nor is it covered by this 
subpart, unless the contact itself includes the following:
    i. An application form in a direct mailing, electronic 
communication or a single application form as a ``take-one'' (in 
racks in public locations, for example);
    ii. An oral application in a telephone contact; or
    iii. An application in an in-person contact.

Paragraph 46(d)(2)

    1. Timing. The creditor must provide the disclosures required by 
Sec.  226.47(b) at the time the creditor provides to the consumer 
any notice that the loan has been approved. However, nothing in this 
section prevents the creditor from communicating to the consumer 
that additional information is required from the consumer before 
approval may be granted. In such a case, a creditor is not required 
to provide the disclosures at that time. If the creditor 
communicates notice of approval to the consumer by mail, the 
disclosures must be mailed at the same time as the notice of 
approval. If the creditor communicates notice of approval by 
telephone, the creditor must place the disclosures in the mail 
within three business days of the telephone call. If the creditor 
communicates notice of approval in electronic form, the creditor may 
provide the disclosures in electronic form. If the creditor has 
complied with the consumer consent and other applicable provisions 
of the Electronic Signatures in Global and National Commerce Act (E-
Sign Act) (15 U.S.C. 7001 et seq.) the creditor may provide the 
disclosures solely in electronic form; otherwise, the creditor must 
place the disclosures in the mail within three business days of the 
communication.

46(g) Effect of subsequent events

    1. Approval disclosures. Inaccuracies in the disclosures 
required under Sec.  226.47(b) are not violations if attributable to 
events occurring after disclosures are made, although creditors are 
restricted under Sec.  226.48(c)(2) from making certain changes to 
the loan's rate or terms after the creditor provides an approval 
disclosure to a consumer. Since creditors are required provide the 
final disclosures under Sec.  226.47(c), they need not make new 
approval disclosures in response to an event that occurs after the 
creditor delivers the required approval disclosures, except as 
specified under Sec.  226.48(c)(4). For example, at the time the 
approval disclosures are provided, the creditor may not know the 
precise disbursement date of the loan funds and must provide 
estimated disclosures based on the best information reasonably 
available and labelled as an estimate. If, after the approval 
disclosures are provided, the creditor learns from the educational 
institution the precise disbursement date, new approval disclosures 
would not be required, unless specifically required under Sec.  
226.48(c)(4) if other changes are made. Similarly, the creditor may 
not know the precise amounts of each loan to be consolidated in a 
consolidation loan transaction and information about the precise 
amounts would not require new approval disclosures, unless 
specifically required under Sec.  226.48(c)(4) if other changes are 
made.
    2. Final disclosures. Inaccuracies in the disclosures required 
under Sec.  226.47(c) are not violations if attributable to events 
occurring after disclosures are made. For example, if the consumer 
initially chooses to defer payment of principal and interest while 
enrolled in a covered educational institution, but later chooses to 
make payments while enrolled, such a change does not make the 
original disclosures inaccurate.

Section 226.47--Content of Disclosures

    1. As applicable. The disclosures required by this subpart need 
be made only as applicable, unless specifically required otherwise. 
The creditor need not provide any disclosure that is not applicable 
to a particular transaction. For example, in a transaction 
consolidating private education loans, or in transactions under 
Sec.  226.46(a) for which compliance with this subpart is optional, 
the creditor need not disclose the information under Sec. Sec.  
226.47(a)(6), and (b)(4), and any other information otherwise 
required to be disclosed under this subpart that is not applicable 
to the transaction. Similarly, creditors making loans to consumers 
where the student is not attending an institution of higher 
education, as defined in Sec.  226.46(b)(2), need not provide the 
disclosures regarding the self-certification form in Sec.  
226.47(a)(8).

47(a) Application or Solicitation Disclosures

Paragraph 47(a)(1)(i)

    1. Rates actually offered. The disclosure may state only those 
rates that the creditor is actually prepared to offer. For example, 
a creditor may not disclose a very low interest rate that will not 
in fact be offered at any time. For a loan with variable interest 
rates, the ranges of rates will be considered actually offered if:
    i. For disclosures in applications or solicitations sent by 
direct mail, the rates were in effect within 60 days before mailing;
    ii. For disclosures in applications or solicitations in 
electronic form, the rates were in effect within 30 days before the 
disclosures are sent to a consumer, or for disclosures made on an 
Internet Web site, within 30 days before being viewed by the public;
    iii. For disclosures in printed applications or solicitations 
made available to the general public, the rates were in effect 
within 30 days before printing; or
    iv. For disclosures provided orally in telephone applications or 
solicitations, the rates are currently available at the time the 
disclosures are provided.
    2. Creditworthiness and other factors. If the rate will depend, 
at least in part, on a later determination of the consumer's 
creditworthiness or other factors, the disclosure must include a 
statement that the rate for which the consumer may qualify at 
approval will depend on the consumer's creditworthiness and other 
factors. The creditor may, but is not required to, specify

[[Page 41252]]

any additional factors that it will use to determine the interest 
rate. For example, if the creditor will determine the interest rate 
based on information in the consumer's or co-signer's credit report 
and the type of school the consumer attends, the creditor may state, 
``Your interest rate will be based on your credit history and other 
factors (co-signer credit and school type).''
    3. Rates applicable to the loan. For a variable-rate private 
education loan, the disclosure of the interest rate or range of 
rates must reflect the rate or rates calculated based on the index 
and margin that will be used to make interest rate adjustments for 
the loan. The creditor may provide a description of the index and 
margin or range of margins used to make interest rate adjustments, 
including a reference to a source, such as a newspaper, where the 
consumer may look up the index.

Paragraph 47(a)(1)(iii)

    1. Coverage. The interest rate is considered variable if the 
terms of the legal obligation allow the creditor to increase the 
interest rate originally disclosed to the consumer and the 
requirements of section 226.47(a)(1)(iii) apply to all such 
transactions. The provisions do not apply to increases resulting 
from delinquency (including late payment), default, assumption, or 
acceleration.
    2. Limitations. The creditor must disclose how often the rate 
may change and any limit on the amount that the rate may increase at 
any one time. The creditor must also disclose any maximum rate over 
the life of the transaction. If the legal obligation between the 
parties does specify a maximum rate, the creditor must disclose any 
legal limits in the nature of usury or rate ceilings under state or 
Federal statutes or regulations. However, if the applicable maximum 
rate is in the form of a legal limit, such as a state's usury cap 
(rather than a maximum rate specified in the legal obligation 
between the parties), the creditor must disclose that the maximum 
rate is determined by applicable law. The creditor must also 
disclose that the consumer's actual rate may be higher or lower than 
the initial rates disclosed under Sec.  226.47(a)(1)(i), if 
applicable.

Paragraph 47(a)(1)(iv)

    1. Co-signer or guarantor--changes in applicable interest rate. 
The creditor must state whether the interest rate typically will be 
higher if the loan is not co-signed or guaranteed by a third party. 
The creditor is required to provide a statement of the effect on the 
interest rate and is not required to provide a numerical estimate of 
the effect on the interest rate. For example, a creditor may state: 
``Rates are typically higher without a co-signer.''

47(a)(2) Fees and Default or Late Payment Costs

    1. Fees or range of fees. The creditor must itemize fees 
required to obtain the private education loan. The creditor must 
give a single dollar amount for each fee, unless the fee is based on 
a percentage, in which case a percentage must be stated. If the 
exact amount of the fee is not known at the time of disclosure, the 
creditor may disclose the dollar amount or percentage for each fee 
as an estimated range.
    2. Fees required to obtain the private education loan. The 
creditor must itemize the fees that the consumer must pay to obtain 
the private education loan. Fees disclosed include all finance 
charges under Sec.  226.4, such as loan origination fees, credit 
report fees, and fees charged upon entering repayment, as well as 
fees not considered finance charges but required to obtain credit, 
such as application fees that are charged whether or not credit is 
extended. Fees disclosed include those paid by the consumer directly 
to the creditor and fees paid to third parties by the creditor on 
the consumer's behalf. Creditors are not required to disclose fees 
that apply if the consumer exercises an option under the loan 
agreement after consummation, such as fees for deferment, 
forbearance, or loan modification.

47(a)(3) Repayment Terms

    1. Loan term. The term of the loan is the maximum period of time 
during which regularly scheduled payments of principal and interest 
will be due on the loan.
    2. Payment deferral options--general. The creditor must describe 
the options that the consumer has under the loan agreement to defer 
payment on the loan. When there is no deferment option provided for 
the loan, the creditor must disclose that fact. Payment deferral 
options required to be disclosed include options for immediate 
deferral of payments, such as when the student is currently enrolled 
at a covered educational institution. The description may include of 
the length of the maximum initial in-school deferment period, the 
types of payments that may be deferred, and a description of any 
payments that are required during the deferment period. The creditor 
may, but need not, disclose any conditions applicable to the 
deferment option, such as that deferment is permitted only while the 
student is continuously enrolled in school. If payment deferral is 
not an option while the student is enrolled in school, the creditor 
may disclose that the consumer must begin repayment upon 
disbursement of the loan and that the consumer may not defer 
repayment while enrolled in school. If the creditor offers payment 
deferral options that may apply during the repayment period, such as 
an option to defer payments if the student returns to school to 
pursue an additional degree, the creditor must include a statement 
referring the consumer to the contract document or promissory note 
for more information.
    3. Payment deferral options--in school deferment. For each 
payment deferral option applicable while the student is enrolled at 
a covered educational institution the creditor must disclose whether 
interest will accrue while the student is enrolled at a covered 
educational institution and, if interest does accrue, whether 
payment of interest may be deferred and added to the principal 
balance.
    4. Combination with cost estimate disclosure. The disclosures of 
the loan term under Sec.  226.47(a)(3)(i) and of the payment 
deferral options applicable while the student is enrolled at a 
covered educational institution under Sec. Sec.  226.47(a)(3)(ii) 
and (iii) may be combined with the disclosure of cost estimates 
required in Sec.  226.47(a)(4). For example, the creditor may 
describe each payment deferral option in the same chart or table 
that provides the cost estimates for each payment deferral option. 
See Appendix H-21.
    5. Bankruptcy limitations. The creditor may comply with Sec.  
226.47(a)(3)(iv) by disclosing the following statement: ``If you 
file for bankruptcy you may still be required to pay back this 
loan.''

47(a)(4) Cost Estimates

    1. Total cost of the loan. For purposes of Sec.  226.47(a)(4), 
the creditor must calculate the example of the total cost of the 
loan in accordance with the rules in Sec.  226.18(h) for calculating 
the loan's total of payments.
    2. Basis for estimates. i. The creditor must calculate the total 
cost estimate by determining all finance charges that would be 
applicable to loans with the highest rate of interest required to be 
disclosed under Sec.  226.47(a)(1)(i). For example, if a creditor 
charges a range of origination fees from 0% to 3%, but the 3% 
origination fee would apply to loans with the highest initial rate, 
the lender must assume the 3% origination fee is charged. The 
creditor must base the total cost estimate on a total loan amount 
that includes all prepaid finance charges and results in a $10,000 
amount financed. For example, if the prepaid finance charges are 
$600, the creditor must base the estimate on a $10,600 total loan 
amount and an amount financed of $10,000. The example must reflect 
an amount provided of $10,000. If the creditor only offers a 
particular private education loan for less than $10,000, the 
creditor may assume a loan amount that results in a $5,000 amount 
financed for that loan.
    ii. If a prepaid finance charge is determined as a percentage of 
the amount financed, for purposes of the example, the creditor 
should assume that the fee is determined as a percentage of the 
total loan amount, even if this is not the creditor's usual 
practice. For example, suppose the consumer requires a disbursement 
of $10,000 and the creditor charges a 3% origination fee. In order 
to calculate the total cost example, the creditor must determine the 
loan amount that will result in a $10,000 amount financed after the 
3% fee is assessed. In this example, the resulting loan amount would 
be $10,309.28. Assessing the 3% origination fee on the loan amount 
of $10,309.28 results in an origination fee of $309.28, which is 
withheld from the loan funds disbursed to the consumer. The 
principal loan amount of $10,309.28 minus the prepaid finance charge 
of $309.28 results in an amount financed of $10,000.
    3. Calculated for each option to defer interest payments. The 
example must include an estimate of the total cost of the loan for 
each in-school deferral option disclosed in Sec.  226.47(a)(3)(iii). 
For example, if the creditor provides the consumer with the option 
to begin making principal and interest payments immediately, to 
defer principal payments but begin making interest-only payments 
immediately, or to defer all principal and interest payments while 
in school, the creditor is required to disclose three estimates of 
the total cost of the loan,

[[Page 41253]]

one for each deferral option. If the creditor adds accrued interest 
to the loan balance (i.e., interest is capitalized), the estimate of 
the total loan cost should be based on the capitalization method 
that the creditor actually uses for the loan. For instance, for each 
deferred payment option where the creditor would capitalize interest 
on a quarterly basis, the total loan cost must be calculated 
assuming interest capitalizes on a quarterly basis.
    4. Deferment period assumptions. Creditors may use either of the 
following two methods for estimating the duration of in-school 
deferment periods:
    i. For loan programs intended for educational expenses of 
undergraduate students, the creditor may assume that the consumer 
defers payments for a four-year matriculation period, plus the 
loan's maximum applicable grace period, if any. For all other loans, 
the creditor may assume that the consumer defers for a two-year 
matriculation period, plus the maximum applicable grace period, if 
any, or the maximum time the consumer may defer payments under the 
loan program, whichever is shorter.
    ii. Alternatively, if the creditor knows that the student will 
be enrolled in a program with a standard duration, the creditor may 
assume that the consumer defers payments for the full duration of 
the program (plus any grace period). For example, if a creditor 
makes loans intended for students enrolled in a four-year medical 
school degree program, the creditor may assume that the consumer 
defers payments for four years plus the loan's maximum applicable 
grace period, if any. However, the creditor may not modify the 
disclosure to correspond to a particular student's situation. For 
example, even if the creditor knows that a student will be a second-
year medical school student, the creditor must assume a four-year 
deferral period.

47(a)(6)(ii)

    1. Terms of Federal student loans. The creditor must disclose 
the interest rates available under each program under title IV of 
the Higher Education Act of 1965 and whether the rates are fixed or 
variable, as prescribed in the Higher Education Act of 1965 (20 
U.S.C. 1077a). Where the fixed interest rate for a loan varies by 
statute depending on the date of disbursement or receipt of 
application, the creditor must disclose only the interest rate as of 
the time the disclosure is provided.

47(a)(6)(iii)

    1. Web site address. The creditor must include with this 
disclosure an appropriate U.S. Department of Education Web site 
address such as ``Federalstudentaid.ed.gov.''

47(b) Approval Disclosures

47(b)(1) Interest Rate

    1. Variable rate disclosures. The interest rate is considered 
variable if the terms of the legal obligation allow the creditor to 
increase the interest rate originally disclosed to the consumer. The 
provisions do not apply to increases resulting from delinquency 
(including late payment), default, assumption, or acceleration. In 
addition to disclosing the information required under Sec. Sec.  
226.47(b)(ii) and (iii), the creditor must disclose the information 
required under Sec. Sec.  226.18(f)(1)(i) and (iii)--the 
circumstances under which the rate may increase and the effect of an 
increase, respectively. The creditor is required to disclose the 
maximum monthly payment based on the maximum possible rate in Sec.  
226.47(b)(3)(viii), and the creditor need not disclose a separate 
example of the payment terms that would result from an increase 
under Sec.  226.18(f)(1)(iv).
    2. Limitations on rate adjustments. The creditor must disclose 
how often the rate may change and any limit on the amount that the 
rate may increase at any one time. The creditor must also disclose 
any maximum rate over the life of the transaction. If the legal 
obligation between the parties does provide a maximum rate, the 
creditor must disclose any legal limits in the nature of usury or 
rate ceilings under state or Federal statutes or regulations. 
However, if the applicable maximum rate is in the form of a legal 
limit, such as a State's usury cap (rather than a maximum rate 
specified in the legal obligation between the parties), the creditor 
must disclose that the maximum rate is determined by applicable law. 
Compliance with Sec.  226.18(f)(1)(ii) (requiring disclosure of any 
limitations on the increase of the interest rate) does not 
necessarily constitute compliance with this section. Specifically, 
this section requires that if there are no limitations on interest 
rate increases, the creditor must disclose that fact. By contrast, 
comment 18(f)(1)(ii)-1 states that if there are no limitations the 
creditor need not disclose that fact. In addition, under this 
section, limitations on rate increases include, rather than exclude, 
legal limits in the nature of usury or rate ceilings under state or 
Federal statutes or regulations.
    3. Rates applicable to the loan. For a variable-rate loan, the 
disclosure of the interest rate must reflect the index and margin 
that will be used to make interest rate adjustments for the loan. 
The creditor may provide a description of the index and margin or 
range of margins used to make interest rate adjustments, including a 
reference to a source, such as a newspaper, where the consumer may 
look up the index.

Paragraph 47(b)(2)

    1. Fees and default or late payment costs. Creditors may follow 
the commentary for Sec.  226.47(a)(2) in complying with Sec.  
226.47(b)(2). Creditors must disclose the late payment fees required 
to be disclosed under Sec.  226.18(l) as part of the disclosure 
required under Sec.  226.47(b)(2)(ii). If the creditor includes the 
itemization of the amount financed under Sec.  226.18(c)(1), any 
fees disclosed as part of the itemization need not be separately 
disclosed elsewhere.

47(b)(3) Repayment Terms

    1. Principal amount. The principal amount must equal what the 
face amount of the note would be as of the time of approval, and it 
must be labeled ``Total Loan Amount.'' See Appendix H-18. This 
amount may be different from the ``principal loan amount'' used to 
calculate the amount financed under comment 18(b)(3)-1, because the 
creditor has the option under that comment of using a ``principal 
loan amount'' that is different from the face amount of the note. If 
the creditor elects to provide an itemization of the amount financed 
under Sec.  226.18(c)(1) the creditor need not disclose the amount 
financed elsewhere.
    2. Loan term. The term of the loan is the maximum period of time 
during which regularly scheduled payments of principal and interest 
are due on the loan.
    3. Payment deferral options applicable to the consumer. 
Creditors may follow the commentary for Sec.  226.47(a)(3)(ii) in 
complying with Sec.  226.47(b)(3)(iii).
    4. Payments required during enrollment. Required payments that 
must be disclosed include payments of interest and principal, 
interest only, or other payments that the consumer must make during 
the time that the student is enrolled. Compliance with Sec.  
226.18(g) constitutes compliance with Sec.  226.47(b)(3)(iv).
    5. Bankruptcy limitations. The creditor may comply with Sec.  
226.47(b)(3)(vi) by disclosing the following statement: ``If you 
file for bankruptcy you may still be required to pay back this 
loan.''
    6. An estimate of the total amount for repayment. The creditor 
must disclose an estimate of the total amount for repayment at two 
interest rates:
    i. The interest rate in effect on the date of approval. 
Compliance with the total of payments disclosure requirement of 
Sec.  226.18(h) constitutes compliance with this requirement.
    ii. The maximum possible rate of interest applicable to the loan 
or, if the maximum rate cannot be determined, a rate of 25%. If the 
legal obligation between the parties specifies a maximum rate of 
interest, the creditor must calculate the total amount for repayment 
based on that rate. If the legal obligation does not specify a 
maximum rate but a usury or rate ceiling under State or Federal 
statutes or regulations applies, the creditor must use that rate. If 
a there is no maximum rate in the legal obligation or under a usury 
or rate ceiling, the creditor must base the disclosure on a rate of 
25% and must disclose that there is no maximum rate and that the 
total amount for repayment disclosed under Sec.  
226.47(b)(3)(vii)(B) is an estimate and will be higher if the 
applicable interest rate increases.
    iii. If terms of the legal obligation provide a limitation on 
the amount that the interest rate may increase at any one time, the 
creditor may reflect the effect of the interest rate limitation in 
calculating the total cost example. For example, if the legal 
obligation provides that the interest rate may not increase by more 
than three percentage points each year, the creditor may assume that 
the rate increases by three percentage points each year until it 
reaches that maximum possible rate, or if a maximum rate cannot be 
determined, an interest rate of 25%.
    7. The maximum monthly payment. The creditor must disclose the 
maximum payment that the consumer could be required to make under 
the loan agreement, calculated using the maximum rate of interest

[[Page 41254]]

applicable to the loan, or if the maximum rate cannot be determined, 
a rate of 25%. The creditor must determine and disclose the maximum 
rate of interest in accordance with comments 47(b)(3)-6.ii and 
47(b)(3)-6.iii. In addition, if a maximum rate cannot be determined, 
the creditor must state that there is no maximum rate and that the 
monthly payment amounts disclosed under Sec.  226.47(b)(3)(viii) are 
estimates and will be higher if the applicable interest rate 
increases.

47(b)(4) Alternatives to Private Education Loans

    1. General. Creditors may use the guidance provided in the 
commentary for Sec.  226.47(a)(6) in complying with Sec.  
226.47(b)(4).

47(b)(5) Rights of the Consumer

    1. Notice of acceptance period. The disclosure that the consumer 
may accept the terms of the loan until the acceptance period under 
Sec.  226.48(c)(1) has expired must include the specific date on 
which the acceptance period expires and state that the consumer may 
accept the terms of the loan until that date. Under Sec.  
226.48(c)(1), the date on which the acceptance period expires is 
based on when the consumer receives the disclosures. If the creditor 
mails the disclosures, the consumer is considered to have received 
them three business days after the creditor places the disclosures 
in the mail See Sec.  226.46(d)(4). If the creditor provides an 
acceptance period longer than the minimum 30 calendar days, the 
disclosure must reflect the later date. The disclosure must also 
specify the method or methods by which the consumer may communicate 
acceptance.

47(c) Final Disclosures

    1. Notice of right to cancel. The disclosure of the right to 
cancel must include the specific date on which the three-day 
cancellation period expires and state that the consumer has a right 
to cancel by that date. See comments 48(d)-1 and 2. For example, if 
the disclosures were mailed to the consumer on Friday, June 1, and 
the consumer is deemed to receive them on Tuesday, June 5, the 
creditor could state: ``You have a right to cancel this transaction, 
without penalty, by midnight on June 8, 2009. No funds will be 
disbursed to you or to your school until after this time. You may 
cancel by calling us at 800-XXX-XXXX.'' If the creditor permits 
cancellation by mail, the statement must specify that the consumer's 
mailed request will be deemed timely if placed in the mail not later 
than the cancellation date specified on the disclosure. The 
disclosure must also specify the method or methods by which the 
consumer may cancel.
    2. More conspicuous. The statement of the right to cancel must 
be more conspicuous than any other disclosure required under this 
section except for the finance charge, the interest rate, and the 
creditor's identity. See Sec.  226.46(c)(2)(iii). The statement will 
be deemed to be made more conspicuous if it is segregated from other 
disclosures, placed near or at the top of the disclosure document, 
and highlighted in relation to other required disclosures. For 
example, the statement may be outlined with a prominent, noticeable 
box; printed in contrasting color; printed in larger type, bold 
print, or different type face; underlined; or set off with 
asterisks.

Section 226.48--Limitations on Private Education Loans

    1. Co-branding--definition of marketing. The prohibition on co-
branding in Sec. Sec.  226.48(a) and (b) applies to the marketing of 
private education loans. The term marketing includes any 
advertisement under Sec.  226.2(a)(2). In addition, the term 
marketing includes any document provided by the creditor to the 
consumer related to a specific transaction, such as an application 
or solicitation, a promissory note or a contract provided to the 
consumer. For example, prominently displaying the name of the 
educational institution at the top of the application form or 
promissory note without mentioning the name of the creditor, such as 
by naming the loan product the ``University of ABC Loan,'' would be 
prohibited.
    2. Implied endorsement. A suggestion that a private education 
loan is offered or made by the covered educational institution 
instead of by the creditor is included in the prohibition on 
implying that the covered educational institution endorses the 
private education loan under Sec.  226.48(a)(1). For example, naming 
the loan the ``University of ABC Loan,'' suggests that the loan is 
offered by the educational institution. However, the use of a 
creditor's full name, even if that name includes the name of a 
covered educational institution, does not imply endorsement. For 
example, a credit union whose name includes the name of a covered 
educational institution is not prohibited from using its own name. 
In addition, the authorized use of a state seal by a state or an 
institution of higher education in the marketing of state education 
loan products does not imply endorsement.
    3. Disclosure. i. A creditor is considered to have complied with 
Sec.  226.48(a)(2) if the creditor's marketing contains a clear and 
conspicuous statement, equally prominent and closely proximate to 
the reference to the covered educational institution, using the name 
of the creditor and the name of the covered educational institution 
that the covered educational institution does not endorse the 
creditor's loans and that the creditor is not affiliated with the 
covered educational institution. For example, ``[Name of creditor]'s 
loans are not endorsed by [name of school] and [name of creditor] is 
not affiliated with [name of school].'' The statement is considered 
to be equally prominent and closely proximate if it is the same type 
size and is located immediately next to or directly above or below 
the reference to the educational institution, without any 
intervening text or graphical displays.
    ii. A creditor is considered to have complied with Sec.  
226.48(b) if the creditor's marketing contains a clear and 
conspicuous statement, equally prominent and closely proximate to 
the reference to the covered educational institution, using the name 
of the creditor's loan or loan program, the name of the covered 
educational institution, and the name of the creditor, that the 
creditor's loans are not offered or made by the covered educational 
institution, but are made by the creditor. For example, ``[Name of 
loan or loan program] is not being offered or made by [name of 
school], but by [name of creditor].'' The statement is considered to 
be equally prominent and closely proximate if it is the same type 
size and is located immediately next to or directly above or below 
the reference to the educational institution, without any 
intervening text or graphical displays.

Paragraph 48(c)

    1. 30 day acceptance period. The creditor must provide the 
consumer with at least 30 calendar days from the date the consumer 
receives the disclosures required under Sec.  226.47(b) to accept 
the terms of the loan. The creditor may provide the consumer with a 
longer period of time. If the creditor places the disclosures in the 
mail, the consumer is considered to have received them three 
business days after they are mailed under Sec.  226.46(d)(4). For 
purposes of determining when a consumer receives mailed disclosures, 
``business day'' means all calendar days except Sundays and the 
legal public holidays referred to in Sec.  226.2(a)(6). See comment 
46(d)-1. The consumer may accept the loan at any time before the end 
of the 30 day period.
    2. Method of acceptance. The creditor must specify a method or 
methods by which the consumer can accept the loan at any time within 
the 30-day acceptance period. The creditor may require the consumer 
to communicate acceptance orally or in writing. Acceptance may also 
be communicated electronically, but electronic communication must 
not be the only means provided for the consumer to communicate 
acceptance unless the creditor has provided the approval disclosure 
electronically in compliance with the consumer consent and other 
applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. Sec.  7001 et seq.). 
If acceptance by mail is allowed, the consumer's communication of 
acceptance is considered timely if placed in the mail within the 30-
day period.
    3. Prohibition on changes to rates and terms. The prohibition on 
changes to the rates and terms of the loan applies to changes that 
affect those terms that are required to be disclosed under 
Sec. Sec.  226.47(b) and (c). The creditor is permitted to make 
changes that do not affect any of the terms disclosed to the 
consumer under those sections.
    4. Permissible changes to rates and terms--re-disclosure not 
required. Creditors are not required to consummate a loan where the 
extension of credit would be prohibited by law or where the creditor 
has reason to believe that the consumer has committed fraud. A 
creditor may make changes to the rate based on adjustments to the 
index used for the loan and changes that will unequivocally benefit 
the consumer. For example, a creditor is permitted to reduce the 
interest rate or lower the amount of a fee. A creditor may also 
reduce the loan amount based on a certification or other information 
received from a covered educational institution or from the consumer 
indicating

[[Page 41255]]

that the student's cost of attendance has decreased or the amount of 
other financial aid has increased. A creditor may also withdraw the 
loan approval based on a certification or other information received 
from a covered educational institution or from the consumer 
indicating that the student is not enrolled in the institution. For 
these changes permitted by Sec.  226.48(c)(3), the creditor is not 
required to provide a new set of approval disclosures required under 
Sec.  226.47(b) or provide the consumer with a new 30-day acceptance 
period under Sec.  226.48(c)(1). The creditor must provide the final 
disclosures under Sec.  226.47(c).
    5. Permissible changes to rates and terms--school certification. 
If the creditor reduces the loan amount based on information that 
the student's cost of attendance has decreased or the amount of 
other financial aid has increased, the creditor may make certain 
corresponding changes to the rate and terms. The creditor may change 
the rate or terms to those that the consumer would have received if 
the consumer had applied for the reduced loan amount. For example, 
assume a consumer applies for, and is approved for, a $10,000 loan 
at a 7% interest rate. However, after the consumer receives the 
approval disclosures, the consumer's school certifies that the 
consumer's financial need is only $8,000. The creditor may reduce 
the loan amount for which the consumer is approved to $8,000. The 
creditor may also, for example, increase the interest rate on the 
loan to 7.125%, but only if the consumer would have received a rate 
of 7.125% if the consumer had originally applied for an $8,000 loan.
    5. Permissible changes to rates and terms--re-disclosure 
required. A creditor may make changes to the interest rate or terms 
to accommodate a request from a consumer. For example, assume a 
consumer applies for a $10,000 loan and is approved for the $10,000 
amount at an interest rate of 6%. After the creditor has provided 
the approval disclosures, the consumer's financial need increases, 
and the consumer requests to a loan amount of $15,000. In this 
situation, the creditor is permitted to offer a $15,000 loan, and to 
make any other changes such as raising the interest rate to 7%, in 
response to the consumer's request. The creditor must provide a new 
set of disclosures under Sec.  226.47(b) and provide the consumer 
with 30 days to accept the offer under Sec.  226.48(c) for the 
$15,000 loan offered in response to the consumer's request. However, 
because the consumer may choose not to accept the offer for the 
$15,000 loan at the higher interest rate, the creditor may not 
withdraw or change the rate or terms of the offer for the $10,000 
loan, except as permitted under Sec.  226.48(c)(3), unless the 
consumer accepts the $15,000 loan.

Paragraph 48(d)

    1. Right to cancel. If the creditor mails the disclosures, the 
disclosures are considered received by the consumer three business 
days after the disclosures were mailed. For purposes of determining 
when the consumer receives the disclosures, the term ``business 
day'' is defined as all calendar days except Sunday and the legal 
public holidays referred to in Sec.  226.2(a)(6). See Sec.  
226.46(d)(4). The consumer has three business days from the date on 
which the disclosures are deemed received to cancel the loan. For 
example, if the creditor places the disclosures in the mail on 
Thursday, June 4, the disclosures are considered received on Monday, 
June 8. The consumer may cancel any time before midnight Thursday, 
June 11. The creditor may provide the consumer with more time to 
cancel the loan than the minimum three business days required under 
this section. If the creditor provides the consumer with a longer 
period of time in which to cancel the loan, the creditor may 
disburse the funds three business days after the consumer has 
received the disclosures required under this section, but the 
creditor must honor the consumer's later timely cancellation 
request.
    2. Method of cancellation. The creditor must specify a method or 
methods by which the consumer may cancel. For example, the creditor 
may require the consumer to communicate cancellation orally or in 
writing. Cancellation may also be communicated electronically, but 
electronic communication must not be the only means by which the 
consumer may cancel unless the creditor provided the final 
disclosure electronically in compliance with the consumer consent 
and other applicable provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et 
seq.). If the creditor allows cancellation by mail, the creditor 
must specify an address or the name and address of an agent of the 
creditor to receive notice of cancellation. The creditor must wait 
to disburse funds until it is reasonably satisfied that the consumer 
has not canceled. For example, the creditor may satisfy itself by 
waiting a reasonable time after expiration of the cancellation 
period to allow for delivery of a mailed notice. The creditor may 
also satisfy itself by obtaining a written statement from the 
consumer, which must be provided to and signed by the consumer only 
at the end of the three-day period, that the right has not been 
exercised.
    3. Cancellation without penalty. The creditor may not charge the 
consumer a fee for exercising the right to cancel under Sec.  
226.48(d). The prohibition extends only to fees charged specifically 
for canceling the loan. The creditor is not required to refund fees, 
such as an application fee, that are charged to all consumers 
whether or not the consumer cancels the loan.

Paragraph 48(e)

    1. General. Section 226.48(e) requires that the creditor obtain 
the self-certification form, signed by the consumer, before 
consummating the private education loan. The rule applies only to 
private education loans that will be used for the postsecondary 
educational expenses of a student while that student is attending an 
institution of higher education as defined in Sec.  226.46(b)(2). It 
does not apply to all covered educational institutions. The 
requirement applies even if the student is not currently attending 
an institution of higher education, but will use the loan proceeds 
for postsecondary educational expenses while attending such 
institution. For example, a creditor is required to obtain the form 
before consummating a private education loan provided to a high 
school senior for expenses to be incurred during the consumer's 
first year of college. This provision does not require that the 
creditor obtain the self-certification form in instances where the 
loan is not intended for a student attending an institution of 
higher education, such as when the consumer is consolidating loans 
after graduation. Section 155(a)(2) of the Higher Education Act of 
1965 provides that the form shall be made available to the consumer 
by the relevant institution of higher education. However, Sec.  
226.48(e) provides flexibility to institutions of higher education 
and creditors as to how the completed self-certification form is 
provided to the lender. The creditor may receive the form directly 
from the consumer, or the creditor may receive the form from the 
consumer through the institution of higher education. In addition, 
the creditor may provide the form, and the information the consumer 
will require to complete the form, directly to the consumer.
    2. Electronic signature. Under Section 155(a)(2) of the Higher 
Education Act of 1965, the institution of higher education may 
provide the self-certification form to the consumer in written or 
electronic form. Under Section 155(a)(5) of the Higher Education Act 
of 1965, the form may be signed electronically by the consumer. A 
creditor may accept the self-certification form from the consumer in 
electronic form. A consumer's electronic signature is considered 
valid if it meets the requirements issued by the Department of 
Education under Section 155(a)(5) of the Higher Education Act of 
1965.

Paragraph 48(f)

    1. General. Section 226.48(f) does not specify the format in 
which creditors must provide the required information to the covered 
educational institution. Creditors may choose to provide only the 
required information or may provide copies of the form or forms the 
lender uses to comply with Sec.  226.47(a). A creditor is only 
required to provide the required information if the creditor is 
aware that it is a party to a preferred lender arrangement. For 
example, if a creditor is placed on a covered educational 
institution's preferred lender list without the creditor's 
knowledge, the creditor is not required to comply with Sec.  
226.48(f).
* * * * *

Appendixes G and H--Open-End and Closed-End Model Forms and Clauses

    1. Permissible changes. Although use of the model forms and 
clauses is not required, creditors using them properly will be 
deemed to be in compliance with the regulation with regard to those 
disclosures. Creditors may make certain changes in the format or 
content of the forms and clauses and may delete any disclosures that 
are inapplicable to a transaction or a plan without losing the act's 
protection from liability, except formatting changes may not be made 
to model forms and samples in H-18, H-19, H-20, H-21, H-22, H-23, G-
2(A), G-3(A), G-4(A), G-10(A)-(E), G-17(A)-(D), G-18(A) (except as 
permitted pursuant to Sec.  226.7(b)(2)), G-18(B)-(C), G-19,

[[Page 41256]]

G-20, and G-21. The rearrangement of the model forms and clauses may 
not be so extensive as to affect the substance, clarity, or 
meaningful sequence of the forms and clauses. Creditors making 
revisions with that effect will lose their protection from civil 
liability. Except as otherwise specifically required, acceptable 
changes include, for example:
    i. Using the first person, instead of the second person, in 
referring to the borrower.
    ii. Using ``borrower'' and ``creditor'' instead of pronouns.
    iii. Rearranging the sequences of the disclosures.
    iv. Not using bold type for headings.
    v. Incorporating certain state ``plain English'' requirements.
    vi. Deleting inapplicable disclosures by whiting out, blocking 
out, filling in ``N/A'' (not applicable) or ``0,'' crossing out, 
leaving blanks, checking a box for applicable items, or circling 
applicable items. (This should permit use of multipurpose standard 
forms.)
    vii. Using a vertical, rather than a horizontal, format for the 
boxes in the closed-end disclosures.

Appendix H--Closed-End Model Forms and Clauses

    21. HRSA-500-1 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-500-1 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been 
approved for use for loans made prior to the mandatory compliance 
date of the disclosures required under Subpart F. The form was 
approved for all Health Education Assistance Loans (HEAL) with a 
variable interest rate that were considered interim student credit 
extensions as defined in Regulation Z.
    22. HRSA-500-2 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-500-2 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been 
approved for use for loans made prior to the mandatory compliance 
date of the disclosures required under Subpart F. The form was 
approved for all HEAL loans with a fixed interest rate that were 
considered interim student credit extensions as defined in 
Regulation Z.
    23. HRSA-502-1 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-502-1 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been 
approved for use for loans made prior to the mandatory compliance 
date of the disclosures required under Subpart F. The form was 
approved for all HEAL loans with a variable interest rate in which 
the borrower has reached repayment status and is making payments of 
both interest and principal.
    24. HRSA-502-2 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-502-2 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been 
approved for use for loans made prior to the mandatory compliance 
date of the disclosures required under Subpart F. The form was 
approved for all HEAL loans with a fixed interest rate in which the 
borrower has reached repayment status and is making payments of both 
interest and principal.
    25. Models H-18, H-19, H-20.
    i. These model forms illustrate disclosures required under Sec.  
226.47 on or with an application or solicitation, at approval, and 
after acceptance of a private education loan. Although use of the 
model forms is not required, creditors using them properly will be 
deemed to be in compliance with the regulation with regard to 
private education loan disclosures. Creditors may make certain types 
of changes to private education loan model forms H-18 (application 
and solicitation), H-19 (approval), and H-20 (final) and still be 
deemed to be in compliance with the regulation, provided that the 
required disclosures are made clearly and conspicuously. The model 
forms aggregate disclosures into groups under specific headings. 
Changes may not include rearranging the sequence of disclosures, for 
instance, by rearranging which disclosures are provided under each 
heading or by rearranging the sequence of the headings and grouping 
of disclosures. Changes to the model forms may not be so extensive 
as to affect the substance or clarity of the forms. Creditors making 
revisions with that effect will lose their protection from civil 
liability.
    The creditor may delete inapplicable disclosures, such as:
     The Federal student financial assistance alternatives 
disclosures
     The self-certification disclosure
    Other permissible changes include, for example:
     Adding the creditor's address, telephone number, or Web 
site
     Adding loan identification information, such as a loan 
identification number
     Adding the date on which the form was printed or 
produced
     Placing the notice of the right to cancel in the top 
left or top right of the disclosure to accommodate a window envelope
     Combining required terms where several numerical 
disclosures are the same. For instance, if the itemization of the 
amount financed is provided, the amount financed need not be 
separately disclosed
     Combining the disclosure of loan term and payment 
deferral options required in Sec.  226.47(a)(3) with the disclosure 
of cost estimates required in Sec.  226.47(a)(4) in the same chart 
or table (See comment 47(a)(3)-4.)
     Using the first person, instead of the second person, 
in referring to the borrower
     Using ``borrower'' and ``creditor'' instead of pronouns
     Incorporating certain state ``plain English'' 
requirements
     Deleting inapplicable disclosures by whiting out, 
blocking out, filling in ``N/A'' (not applicable) or ``0,'' crossing 
out, leaving blanks, checking a box for applicable items, or 
circling applicable items
    ii. Although creditors are not required to use a certain paper 
size in disclosing the Sec. Sec.  226.47(a), (b) and (c) 
disclosures, samples H-21, H-22, and H-23 are designed to be printed 
on two 8\1/2\ x 11 inch sheets of paper. A creditor may use a larger 
sheet of paper, such as 8\1/2\ x 14 inch sheets of paper, or may use 
multiple pages. If the disclosures are provided on two sides of a 
single sheet of paper, the creditor must include a reference or 
references, such as ``SEE BACK OF PAGE'' at the bottom of each page 
indicating that the disclosures continue onto the back of the page. 
If the disclosures are on two or more pages, a creditor may not 
include any intervening information between portions of the 
disclosure. In addition, the following formatting techniques were 
used in presenting the information in the sample tables to ensure 
that the information is readable:
    A. A readable font style and font size (10-point Helvetica font 
style for body text).
    B. Sufficient spacing between lines of the text.
    C. Standard spacing between words and characters. In other 
words, the body text was not compressed to appear smaller than the 
10-point type size.
    D. Sufficient white space around the text of the information in 
each row, by providing sufficient margins above, below and to the 
sides of the text.
    E. Sufficient contrast between the text and the background. 
Generally, black text was used on white paper.
    iii. While the Board is not requiring issuers to use the above 
formatting techniques in presenting information in the disclosure, 
the Board encourages issuers to consider these techniques when 
deciding how to disclose information in the disclosure to ensure 
that the information is presented in a readable format.
    iv. Creditors are allowed to use color, shading and similar 
graphic techniques in the disclosures, so long as the disclosures 
remain substantially similar to the model and sample forms in 
appendix H.
    26. Sample H-21. This sample illustrates a disclosure required 
under Sec.  226.47(a). The sample assumes a range of interest rates 
between 7.375% and 17.375%. The sample assumes a variable interest 
rate that will never exceed 25% over the life of the loan. The term 
of the sample loan is 20 years for an amount up to $20,000 and 30 
years for an amount more than $20,000. The repayment options and 
sample costs have been combined into a single table, as permitted in 
the commentary to Sec.  226.47(a)(3). It demonstrates the loan 
amount, interest rate, and total paid when a consumer makes loan 
payments while in school, pays only interest while in school, and 
defers all payments while in school.
    27. Sample H-22. This sample illustrates a disclosure required 
under Sec.  226.47(b). The sample assumes the consumer financed 
$10,000 at an 8.23% annual percentage rate. The sample assumes a 
variable interest rate that will never exceed 25% over the life of 
the loan. The payment schedule and terms assumes a 20-year loan term 
and that the consumer elected to defer payments while enrolled in 
school. This includes a sample disclosure of a total loan amount of 
$10,600 and prepaid finance charges totaling $600, for a total 
amount financed of $10,000.
    28. Sample H-22. This sample illustrates a disclosure required 
under Sec.  226.47(c). The sample assumes the consumer financed 
$10,000 at an 8.23% annual percentage rate. The sample assumes a 
variable annual percentage rate in an instance where there is no 
maximum interest rate. The sample

[[Page 41257]]

demonstrates disclosure of an assumed maximum rate, and the 
statement that the consumer's actual maximum rate and payment amount 
could be higher. The payment schedule and terms assumes a 20-year 
loan term, the assumed maximum interest rate, and that the consumer 
elected to defer payments while enrolled in school. This includes a 
sample disclosure of a total loan amount of $10,600 and prepaid 
finance charges totaling $600, for a total amount financed of 
$10,000.

    By order of the Board of Governors of the Federal Reserve 
System.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-18548 Filed 8-13-09; 8:45 am]
BILLING CODE 6210-01-P