[Federal Register Volume 75, Number 34 (Monday, February 22, 2010)]
[Rules and Regulations]
[Pages 7658-7925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-624]



[[Page 7657]]

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Part II





Federal Reserve System





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12 CFR Parts 226 and 227



Truth in Lending; Unfair or Deceptive Acts or Practices; Final Rules

  Federal Register / Vol. 75 , No. 34 / Monday, February 22, 2010 / 
Rules and Regulations  

[[Page 7658]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1370]


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is amending Regulation Z, which implements the Truth 
in Lending Act, and the staff commentary to the regulation in order to 
implement provisions of the Credit Card Accountability Responsibility 
and Disclosure Act of 2009 that are effective on February 22, 2010. The 
rule establishes a number of new substantive and disclosure 
requirements to establish fair and transparent practices pertaining to 
open-end consumer credit plans, including credit card accounts. In 
particular, the rule limits the application of increased rates to 
existing credit card balances, requires credit card issuers to consider 
a consumer's ability to make the required payments, establishes special 
requirements for extensions of credit to consumers who are under the 
age of 21, and limits the assessment of fees for exceeding the credit 
limit on a credit card account.

DATES: Effective date. The rule is effective February 22, 2010.
    Mandatory compliance dates. The mandatory compliance date for the 
portion of Sec.  226.5(a)(2)(iii) regarding use of the term ``fixed'' 
and for Sec. Sec.  226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 
226.7(b)(13), 226.9(c)(2) (except for 226.9(c)(2)(iv)(D)), 226.9(e), 
226.9(g) (except for 226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 
226.16(f), and Sec. Sec.  226.51-226.58 is February 22, 2010. The 
mandatory compliance date for all other provisions of this final rule 
is July 1, 2010.

FOR FURTHER INFORMATION CONTACT: Jennifer S. Benson or Stephen Shin, 
Attorneys, Amy Henderson, Benjamin K. Olson, or Vivian Wong, Senior 
Attorneys, or Krista Ayoub or Ky Tran-Trong, Counsels, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, at (202) 452-3667 or 452-2412; for users of 
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.

SUPPLEMENTARY INFORMATION: 

I. Background and Implementation of the Credit Card Act

January 2009 Regulation Z and FTC Act Rules

    On December 18, 2008, the Board adopted two final rules pertaining 
to open-end (not home-secured) credit. These rules were published in 
the Federal Register on January 29, 2009. The first rule makes 
comprehensive changes to Regulation Z's provisions applicable to open-
end (not home-secured) credit, including amendments that affect all of 
the five major types of required disclosures: Credit card applications 
and solicitations, account-opening disclosures, periodic statements, 
notices of changes in terms, and advertisements. See 74 FR 5244 
(January 2009 Regulation Z Rule). The second is a joint rule published 
with the Office of Thrift Supervision (OTS) and the National Credit 
Union Administration (NCUA) under the Federal Trade Commission Act (FTC 
Act) to protect consumers from unfair acts or practices with respect to 
consumer credit card accounts. See 74 FR 5498 (January 2009 FTC Act 
Rule). The effective date for both rules is July 1, 2010.
    On May 5, 2009, the Board published proposed clarifications and 
technical amendments to the January 2009 Regulation Z Rule (May 2009 
Regulation Z Proposed Clarifications) in the Federal Register. See 74 
FR 20784. The Board, the OTS, and the NCUA (collectively, the Agencies) 
concurrently published proposed clarifications and technical amendments 
to the January 2009 FTC Act Rule. See 74 FR 20804 (May 2009 FTC Act 
Rule Proposed Clarifications). In both cases, as stated in the Federal 
Register, these proposals were intended to clarify and facilitate 
compliance with the consumer protections contained in the January 2009 
final rules and not to reconsider the need for--or the extent of--those 
protections. The comment period on both of these proposed sets of 
amendments ended on June 4, 2009.

The Credit Card Act

    On May 22, 2009, the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 (Credit Card Act) was signed into law. Public 
Law No. 111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily 
amends the Truth in Lending Act (TILA) and establishes a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans. 
Several of the provisions of the Credit Card Act are similar to 
provisions in the Board's January 2009 Regulation Z and FTC Act Rules, 
while other portions of the Credit Card Act address practices or 
mandate disclosures that were not addressed in the Board's rules.
    The requirements of the Credit Card Act that pertain to credit 
cards or other open-end credit for which the Board has rulemaking 
authority become effective in three stages. First, provisions generally 
requiring that consumers receive 45 days' advance notice of interest 
rate increases and significant changes in terms (new TILA Section 
127(i)) and provisions regarding the amount of time that consumers have 
to make payments (revised TILA Section 163) became effective on August 
20, 2009 (90 days after enactment of the Credit Card Act). A majority 
of the requirements under the Credit Card Act for which the Board has 
rulemaking authority, including, among other things, provisions 
regarding interest rate increases (revised TILA Section 171), over-the-
limit transactions (new TILA Section 127(k)), and student cards (new 
TILA Sections 127(c)(8), 127(p), and 140(f)) become effective on 
February 22, 2010 (9 months after enactment). Finally, two provisions 
of the Credit Card Act addressing the reasonableness and 
proportionality of penalty fees and charges (new TILA Section 149) and 
re-evaluation by creditors of rate increases (new TILA Section 148) are 
effective on August 22, 2010 (15 months after enactment). The Credit 
Card Act also requires the Board to conduct several studies and to make 
several reports to Congress, and sets forth differing time periods in 
which these studies and reports must be completed.
    As is discussed further in the supplementary information to Sec.  
226.5(b)(2), on November 6, 2009, TILA Section 163 was further amended 
by the Credit CARD Technical Corrections Act of 2009 (Technical 
Corrections Act), which narrowed the application of the requirement 
regarding the time consumers receive to pay to credit card accounts. 
Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Board is as 
adopting amendments to Sec.  226.5(b)(2) to conform to the requirements 
of TILA Section 163 as amended by the Technical Corrections Act.

Implementation of Credit Card Act

    On July 22, 2009, the Board published an interim final rule to 
implement those provisions of the Credit Card Act that became effective 
on August 20, 2009 (July 2009 Regulation Z Interim Final Rule). See 74 
FR 36077. As discussed in the supplementary information to the July 
2009 Regulation Z Interim Final

[[Page 7659]]

Rule, the Board is implementing the provisions of the Credit Card Act 
in stages, consistent with the statutory timeline established by 
Congress. Accordingly, the interim final rule implemented those 
provisions of the statute that became effective August 20, 2009, 
primarily addressing change-in-terms notice requirements and the amount 
of time that consumers have to make payments. The Board issued rules in 
interim final form based on its determination that, given the short 
implementation period established by the Credit Card Act and the fact 
that similar rules were already the subject of notice-and-comment 
rulemaking, it would be impracticable and unnecessary to issue a 
proposal for public comment followed by a final rule. The Board 
solicited comment on the interim final rule; the comment period ended 
on September 21, 2009. The Board has considered comments on the interim 
final rule in connection with this rule.
    On October 21, 2009 the Board published a proposed rule in the 
Federal Register to implement the provisions of the Credit Card Act 
that become effective February 22, 2010 (October 2009 Regulation Z 
Proposal). 74 FR 54124. The comment period on the October 2009 
Regulation Z Proposal closed on November 20, 2009. The Board received 
approximately 150 comments in response to the proposed rule, including 
comments from credit card issuers, trade associations, consumer groups, 
individual consumers, and a member of Congress. As discussed in more 
detail elsewhere in this supplementary information, the Board has 
considered comments received on the October 2009 Regulation Z Proposal 
in adopting this final rule.
    The Board is separately considering the two remaining provisions 
under the Credit Card Act regarding reasonable and proportional penalty 
fees and charges and the re-evaluation of rate increases, and intends 
to finalize implementing regulations upon notice and after giving the 
public an opportunity to comment.
    To the extent appropriate, the Board has used its January 2009 
rules and the underlying rationale as the basis for its rulemakings 
under the Credit Card Act. This final rule incorporates in substance 
those portions of the Board's January 2009 Regulation Z Rule that are 
unaffected by the Credit Card Act, except as specifically noted in V. 
Section-by-Section Analysis. Because the requirements of the Board's 
January 2009 Regulation Z and FTC Act Rules are incorporated in this 
rule, the Board is publishing elsewhere in this Federal Register two 
notices withdrawing the January 2009 Regulation Z Rule and its January 
2009 FTC Act Rule.

Provisions of January 2009 Regulation Z Rule Applicable to HELOCs

    The final rule incorporates several sections of the January 2009 
Regulation Z Rule that are applicable only to home-equity lines of 
credit subject to the requirements of Sec.  226.5b (HELOCs). In 
particular, the final rule includes new Sec. Sec.  226.6(a), 226.7(a) 
and 226.9(c)(1), which are identical to the analogous provisions 
adopted in the January 2009 Regulation Z Rule. These sections, as 
discussed in the supplementary information to the January 2009 
Regulation Z Rule, are intended to preserve the existing requirements 
of Regulation Z for home-equity lines of credit until the Board's 
ongoing review of the rules that apply to HELOCs is completed. On 
August 26, 2009, the Board published proposed revisions to those 
portions of Regulation Z affecting HELOCs in the Federal Register. See 
74 FR 43428 (August 2009 Regulation Z HELOC Proposal). This final rule 
is not intended to amend or otherwise affect the August 2009 Regulation 
Z HELOC Proposal. However, the Board believes that these sections are 
necessary to give HELOC creditors clear guidance on how to comply with 
Regulation Z after the effective date of this rule but prior to the 
effective date of the forthcoming final rules directly addressing 
HELOCs.
    Finally, the Board has incorporated in the regulatory text and 
commentary for Sec. Sec.  226.1, 226.2, and 226.3 several changes that 
were adopted in the Board's recent rulemaking pertaining to private 
education loans. See 74 FR 41194 (August 14, 2009) for further 
discussion of these changes.

Effective Date and Mandatory Compliance Dates

    As noted above, the effective date of the Board's January 2009 
Regulation Z Rule was July 1, 2010. However, the effective date of the 
provisions of the Credit Card Act implemented by this final rule is 
February 22, 2010. Many of the provisions of the Credit Card Act as 
implemented by this final rule are closely related to provisions of the 
January 2009 Regulation Z Rule. For example, Sec.  226.9(c)(2)(ii), 
which describes ``significant changes in terms'' for which 45 days' 
advance notice is required, cross-references Sec.  226.6(b)(1) and 
(b)(2) as adopted in the January 2009 Regulation Z Rule.
    For consistency with the Credit Card Act, the Board is making the 
effective date for the final rule February 22, 2010. However, in the 
October 2009 Regulation Z Proposal, the Board solicited comment on 
whether compliance should be mandatory on February 22, 2010 for the 
provisions of the January 2009 Regulation Z Rule that are not directly 
affected by the Credit Card Act.
    Many industry commenters urged the Board to retain the original 
July 1, 2010 mandatory compliance date for amendments to Regulation Z 
that are not specifically required by the Credit Card Act. These 
commenters noted that there would be significant operational issues 
associated with accelerating the effective date for all of the 
revisions contained in the January 2009 Regulation Z Rule that are not 
specific requirements of the Credit Card Act. Commenters noted that 
they have already allocated resources and planned for a July 1, 2010 
mandatory compliance date for the January 2009 Regulation Z Rule and 
that it would be unworkable, if not impossible, to comply with all of 
the requirements of this final rule by February 22, 2010. The Board 
notes that this final rule is being issued less than two months prior 
to the February 22, 2010 effective date of the majority of the Credit 
Card Act requirements, and that an acceleration of the mandatory 
compliance date for provisions originally adopted in the January 2009 
Regulation Z Rule that are not directly impacted by the Credit Card Act 
would be extremely burdensome for creditors. For some creditors, it may 
be impossible to implement these provisions by February 22, 2010. 
Accordingly, the Board is generally retaining a July 1, 2010 mandatory 
compliance date for those provisions originally adopted in the January 
2009 Regulation Z Rule that are not requirements of the Credit Card 
Act.\1\
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    \1\ The Board notes that the provisions regarding advance notice 
of changes in terms and rate increases set forth in Sec.  
226.9(c)(2) and (g) apply to all open-end (not home-secured) plans. 
The Credit Card Act's requirements regarding advance notice of 
changes in terms and rate increases, as implemented in this final 
rule, apply only to credit card accounts under an open-end (not 
home-secured) consumer credit plan. In order to have one consistent 
rule for all open-end (not home-secured) plans, compliance with the 
requirements of Sec.  226.9(c)(2) and (g) (except for specific 
formatting requirements) is mandatory for all open-end (not home-
secured) plans on February 22, 2010.
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    Accordingly, as discussed further in VI. Mandatory Compliance 
Dates, the mandatory compliance date for the portion of Sec.  
226.5(a)(2)(iii) regarding use of the term ``fixed'' and for Sec. Sec.  
226.5(b)(2)(ii), 226.7(b)(11), 226.7(b)(12), 226.7(b)(13), 226.9(c)(2) 
(except for 226.9(c)(2)(iv)(D)), 226.9(e), 226.9(g) (except for 
226.9(g)(3)(ii)), 226.9(h), 226.10, 226.11(c), 226.16(f),

[[Page 7660]]

and Sec. Sec.  226.51-226.58 is February 22, 2010. The mandatory 
compliance date for all other provisions of this final rule is July 1, 
2010.

II. Summary of Major Revisions

A. Increases in Annual Percentage Rates

    Existing balances. Consistent with the Credit Card Act, the final 
rule prohibits credit card issuers from applying increased annual 
percentage rates and certain fees and charges to existing credit card 
balances, except in the following circumstances: (1) When a temporary 
rate lasting at least six months expires; (2) when the rate is 
increased due to the operation of an index (i.e., when the rate is a 
variable rate); (3) when the minimum payment has not been received 
within 60 days after the due date; and (4) when the consumer 
successfully completes or fails to comply with the terms of a workout 
arrangement. In addition, when the annual percentage rate on an 
existing balance has been reduced pursuant to the Servicemembers Civil 
Relief Act (SCRA), the final rule permits the card issuer to increase 
that rate once the SCRA ceases to apply.
    New transactions. The final rule implements the Credit Card Act's 
prohibition on increasing an annual percentage rate during the first 
year after an account is opened. After the first year, the final rule 
provides that a card issuer is permitted to increase the annual 
percentage rates that apply to new transactions so long as the issuer 
provides the consumer with 45 days advance notice of the increase.

B. Evaluation of Consumer's Ability To Pay

    General requirements. The Credit Card Act prohibits credit card 
issuers from opening a new credit card account or increasing the credit 
limit for an existing credit card account unless the issuer considers 
the consumer's ability to make the required payments under the terms of 
the account. Because credit card accounts typically require consumers 
to make a minimum monthly payment that is a percentage of the total 
balance (plus, in some cases, accrued interest and fees), the final 
rule requires card issuers to consider the consumer's ability to make 
the required minimum payments.
    However, because an issuer will not know the exact amount of a 
consumer's minimum payments at the time it is evaluating the consumer's 
ability to make those payments, the Board proposed to require issuers 
to use a reasonable method for estimating a consumer's minimum payments 
and proposed a safe harbor that issuers could use to satisfy this 
requirement. For example, with respect to the opening of a new credit 
card account, the proposed safe harbor provided that it would be 
reasonable for an issuer to estimate minimum payments based on a 
consumer's utilization of the full credit line using the minimum 
payment formula employed by the issuer with respect to the credit card 
product for which the consumer is being considered.
    Based on comments received and further analysis, the final rule 
adopts these aspects of the proposal. In addition, the final rule 
provides that--if the applicable minimum payment formula includes fees 
and accrued interest--the estimated minimum payment must include 
mandatory fees and must include interest charges calculated using the 
annual percentage rate that will apply after any promotional or other 
temporary rate expires.
    The proposed rule would also have specified the types of factors 
card issuers should review in considering a consumer's ability to make 
the required minimum payments. Specifically, it provided that an 
evaluation of a consumer's ability to pay must include a review of the 
consumer's income or assets as well as current obligations, and a 
creditor must establish reasonable policies and procedures for 
considering that information. When considering a consumer's income or 
assets and current obligations, an issuer would have been permitted to 
rely on information provided by the consumer or information in a 
consumer's credit report.
    Based on comments received and further analysis, the final rule 
adopts these aspects of the proposal. In addition, when evaluating a 
consumer's ability to pay, the final rule requires issuers to consider 
the ratio of debt obligations to income, the ratio of debt obligations 
to assets, or the income the consumer will have after paying debt 
obligations (i.e., residual income). Furthermore, the final rule 
provides that it would be unreasonable for an issuer not to review any 
information about a consumer's income, assets, or current obligations, 
or to issue a credit card to a consumer who does not have any income or 
assets. Finally, in order to provide flexibility regarding 
consideration of income or assets, the final rule permits issuers to 
make a reasonable estimate of the consumer's income or assets based on 
empirically derived, demonstrably and statistically sound models.
    Specific requirements for underage consumers. Consistent with the 
Credit Card Act, the final rule prohibits a creditor from issuing a 
credit card to a consumer who has not attained the age of 21 unless the 
consumer has submitted a written application that meets certain 
requirements. Specifically, the application must include either: (1) 
Information indicating that the underage consumer has the ability to 
make the required payments for the account; or (2) the signature of a 
cosigner who has attained the age of 21, who has the means to repay 
debts incurred by the underage consumer in connection with the account, 
and who assumes joint liability for such debts.

C. Marketing to Students

    Prohibited inducements. The Credit Card Act limits a creditor's 
ability to offer a student at an institution of higher education any 
tangible item to induce the student to apply for or open an open-end 
consumer credit plan offered by the creditor. Specifically, the Credit 
Card Act prohibits such offers: (1) On the campus of an institution of 
higher education; (2) near the campus of an institution of higher 
education; or (3) at an event sponsored by or related to an institution 
of higher education.
    The final rule contains official staff commentary to assist 
creditors in complying with these prohibitions. For example, the 
commentary clarifies that ``tangible item'' means a physical item (such 
as a gift card, t-shirt, or magazine subscription) and does not include 
non-physical items (such as discounts, rewards points, or promotional 
credit terms). The commentary also clarifies that a location that is 
within 1,000 feet of the border of the campus of an institution of 
higher education (as defined by the institution) is considered near the 
campus of that institution. Finally, consistent with guidance recently 
adopted by the Board with respect to certain private education loans, 
the commentary states that an event is related to an institution of 
higher education if the marketing of such event uses words, pictures, 
or symbols identified with the institution in a way that implies that 
the institution endorses or otherwise sponsors the event.
    Disclosure and reporting requirements. The final rule also 
implements the provisions of the Credit Card Act requiring institutions 
of higher education to publicly disclose agreements with credit card 
issuers regarding the marketing of credit cards. The final rule states 
that an institution may comply with this requirement by,

[[Page 7661]]

for example, posting the agreement on its Web site or by making the 
agreement available upon request.
    In addition, the final rule implements the provisions of the Credit 
Card Act requiring card issuers to make annual reports to the Board 
regarding any business, marketing, or promotional agreements between 
the issuer and an institution of higher education (or an affiliated 
organization) regarding the issuance of credit cards to students at 
that institution. The first report must provide information regarding 
the 2009 calendar year and must be submitted to the Board by February 
22, 2010.\2\
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    \2\ Technical specifications for these submissions are set forth 
in Attachment I to this Federal Register notice.
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D. Fees or Charges for Transactions That Exceed the Credit Limit

    Consumer consent requirement. Consistent with the Credit Card Act, 
the final rule requires credit card issuers to obtain a consumer's 
express consent (or opt-in) before imposing any fees on a consumer's 
credit card account for making an extension of credit that exceeds the 
account's credit limit. Prior to obtaining this consent, the issuer 
must disclose, among other things, the dollar amount of any fees or 
charges that will be assessed for an over-the-limit transaction as well 
as any increased rate that may apply if the consumer exceeds the credit 
limit. In addition, if the consumer consents, the issuer is also 
required to provide a notice of the consumer's right to revoke that 
consent on any periodic statement that reflects the imposition of an 
over-the-limit fee or charge.
    The final rule applies these requirements to all consumers 
(including existing accountholders) if the issuer imposes a fee or 
charge for paying an over-the-limit transaction. Thus, after February 
22, 2010, issuers are prohibited from assessing any over-the-limit fees 
or charges on an account until the consumer consents to the payment of 
transactions that exceed the credit limit.
    Prohibited practices. Even if the consumer has affirmatively 
consented to the issuer's payment of over-the-limit transactions, the 
Credit Card Act prohibits certain practices in connection with the 
assessment of over-the-limit fees or charges. Consistent with these 
statutory prohibitions, the final rule would prohibit an issuer from 
imposing more than one over-the-limit fee or charge per billing cycle. 
In addition, an issuer could not impose an over-the-limit fee or charge 
on the account for the same over-the-limit transaction in more than 
three billing cycles.
    The Credit Card Act also directs the Board to prescribe regulations 
that prevent unfair or deceptive acts or practices in connection with 
the manipulation of credit limits designed to increase over-the-limit 
fees or other penalty fees. Pursuant to this authority, the proposed 
rule would have prohibited issuers from assessing over-the-limit fees 
or charges that are caused by the issuer's failure to promptly 
replenish the consumer's available credit. The proposed rule would have 
also prohibited issuers from conditioning the amount of available 
credit on the consumer's consent to the payment of over-the-limit 
transactions. Finally, the proposed rule would have prohibited the 
imposition of any over-the-limit fees or charges if the credit limit is 
exceeded solely because of the issuer's assessment of fees or charges 
(including accrued interest charges) on the consumer's account. The 
final rule adopts these prohibitions.

E. Payment Allocation

    When different rates apply to different balances on a credit card 
account, the Board's January 2009 FTC Act Rule required banks to 
allocate payments in excess of the minimum first to the balance with 
the highest rate or pro rata among the balances. The Credit Card Act 
contains a similar provision, except that excess payments must always 
be allocated first to the balance with the highest rate. In addition, 
the Credit Card Act provided that, when a balance on an account is 
subject to a deferred interest or similar program, excess payments must 
be allocated first to that balance during the last two billing cycles 
of the deferred interest period so that the consumer can pay the 
balance in full and avoid deferred interest charges.
    The final rule mirrors the statutory requirements. However, in 
order to provide consumers who utilize deferred interest programs with 
an additional means of avoiding deferred interest charges, the final 
rule also permits issuers to allocate excess payments in the manner 
requested by the consumer at any point during a deferred interest 
period. This exception allows issuers to retain existing programs that 
permit consumers to, for example, pay off a deferred interest balance 
in installments over the course of the deferred interest period. 
However, this provision applies only when a balance on an account is 
subject to a deferred interest or similar program.

F. Timely Settlement of Estates

    The Credit Card Act directs the Board to prescribe regulations 
requiring credit card issuers to establish procedures ensuring that any 
administrator of an estate can resolve the outstanding credit card 
balance of a deceased accountholder in a timely manner. The proposed 
rule would have imposed two specific requirements designed to enable 
administrators to determine the amount of and pay a deceased consumer's 
balance in a timely manner.
    First, upon request by the administrator, the issuer would have 
been required to disclose the amount of the balance in a timely manner. 
The final rule adopts this requirement. Second, once an administrator 
has requested the account balance, the proposed rule would have 
prohibited the issuer from imposing additional fees and charges on the 
account so that the amount of the balance does not increase while the 
administrator is arranging for payment. However, because the Board was 
concerned that a permanent moratorium on fees and interest charges 
could be unduly burdensome, the proposal solicited comment on whether a 
particular period of time would generally be sufficient to enable an 
administrator to arrange for payment.
    Based on comments received and further analysis, the Board believes 
that it would not be appropriate to permanently prohibit the accrual of 
interest on a credit card account once an administrator requests the 
account balance because interest will continue to accrue on other types 
of credit accounts that are part of the estate. Instead, the final rule 
provides that--if the administrator pays the balance stated by the 
issuer in full within 30 days--the issuer must waive any additional 
interest charges. However, the final rule retains the proposed 
prohibition on the imposition of additional fees so that the account is 
not, for example, assessed late payment fees or annual fees while the 
administrator is settling the estate.

G. On-Line Disclosure of Credit Card Agreements

    The Credit Card Act requires issuers to post credit card agreements 
on their Web sites and to submit those agreements to the Board for 
posting on its Web site. The Credit Card Act further provides that the 
Board may establish exceptions to these requirements in any case where 
the administrative burden outweighs the benefit of increased 
transparency, such as where a credit card plan has a de minimis number 
of accountholders.

[[Page 7662]]

    The final rule adopts the proposed requirement that issuers post on 
their Web sites or otherwise make available their credit card 
agreements with current cardholders. In addition, consistent with the 
Credit Card Act, the final rule generally requires that--no later than 
February 22, 2010--issuers submit to the Board for posting on its Web 
site all credit card agreements offered to the public as of December 
31, 2009. Subsequent submissions are due on August 2, 2010 and on a 
quarterly basis thereafter.\3\
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    \3\ Technical specifications for these submissions are set forth 
in Attachment I to this Federal Register notice.
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    However, the final rule also adopts certain exceptions to this 
submission requirement. First, the final rule adopts the proposed de 
minimis exception for issuers with fewer than 10,000 open credit card 
accounts. Because the overwhelming majority of credit card accounts are 
held by issuers that have more than 10,000 open accounts, the 
information provided through the Board's Web site would still reflect 
virtually all of the terms available to consumers. Similarly, based on 
comments received and further analysis, the final rule provides that 
issuers are not required to submit agreements for private label plans 
offered on behalf of a single merchant or a group of affiliated 
merchants or for plans that are offered in order to test a new credit 
card product so long as the plan involves no more than 10,000 credit 
card accounts.
    Second, the final rule adopts the proposed exception for agreements 
that are not currently offered to the public. The Board believes that 
the primary purpose of the information provided through the Board's Web 
site is to assist consumers in comparing credit card agreements offered 
by different issuers when shopping for a new credit card. Including 
agreements that are no longer offered to the public would not 
facilitate comparison shopping by consumers. In addition, including 
such agreements could create confusion regarding which terms are 
currently available.

G. Additional Provisions

    The final rule also implements the following provisions of the 
Credit Card Act, all of which go into effect on February 22, 2010.
    Limitations on fees. The Board's January 2009 FTC Act Rule 
prohibited banks from charging to a credit card account during the 
first year after account opening certain account-opening and other fees 
that, in total, constituted the majority of the initial credit limit. 
The Credit Card Act contains a similar provision, except that it 
applies to all fees (other than fees for late payments, returned 
payments, and exceeding the credit limit) and limits the total fees to 
25% of the initial credit limit.
    Double-cycle billing. The Board's January 2009 FTC Act Rule 
prohibited banks from imposing finance charges on balances for days in 
previous billing cycles as a result of the loss of a grace period (a 
practice sometimes referred to as ``double-cycle billing''). The Credit 
Card Act contains a similar prohibition. In addition, when a consumer 
pays some but not all of a balance prior to expiration of a grace 
period, the Credit Card Act prohibits the issuer from imposing finance 
charges on the portion of the balance that has been repaid.
    Fees for making payment. The Credit Card Act prohibits issuers from 
charging a fee for making a payment, except for payments involving an 
expedited service by a service representative of the issuer.
    Minimum payments. The Board's January 2009 Regulation Z Rule 
implemented provisions of the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005 requiring creditors to provide a toll-free 
telephone number where consumers could receive an estimate of the time 
to repay their account balances if they made only the required minimum 
payment each month. The Credit Card Act substantially revised the 
statutory requirements for these disclosures. In particular, the Credit 
Card Act requires the following new disclosures on the periodic 
statement: (1) The amount of time and the total cost (interest and 
principal) involved in paying the balance in full making only minimum 
payments; and (2) the monthly payment amount required to pay off the 
balance in 36 months and the total cost (interest and principal) of 
repaying the balance in 36 months.

III. Statutory Authority

General Rulemaking Authority

    Section 2 of the Credit Card Act states that the Board ``may issue 
such rules and publish such model forms as it considers necessary to 
carry out this Act and the amendments made by this Act.'' This final 
rule implements several sections of the Credit Card Act, which amend 
TILA. TILA mandates that the Board prescribe regulations to carry out 
its purposes and specifically authorizes the Board, among other things, 
to do the following:
     Issue regulations that contain such classifications, 
differentiations, or other provisions, or that provide for such 
adjustments and exceptions for any class of transactions, that in the 
Board's judgment are necessary or proper to effectuate the purposes of 
TILA, facilitate compliance with the act, or prevent circumvention or 
evasion. 15 U.S.C. 1604(a).
     Exempt from all or part of TILA any class of transactions 
if the Board determines that TILA coverage does not provide a 
meaningful benefit to consumers in the form of useful information or 
protection. The Board must consider factors identified in the act and 
publish its rationale at the time it proposes an exemption for comment. 
15 U.S.C. 1604(f).
     Add or modify information required to be disclosed with 
credit and charge card applications or solicitations if the Board 
determines the action is necessary to carry out the purposes of, or 
prevent evasions of, the application and solicitation disclosure rules. 
15 U.S.C. 1637(c)(5).
     Require disclosures in advertisements of open-end plans. 
15 U.S.C. 1663.
    For the reasons discussed in this notice, the Board is using its 
specific authority under TILA and the Credit Card Act, in concurrence 
with other TILA provisions, to effectuate the purposes of TILA, to 
prevent the circumvention or evasion of TILA, and to facilitate 
compliance with the act.

Authority To Issue Final Rule With an Effective Date of February 22, 
2010

    Because the provisions of the Credit Card Act implemented by this 
final rule are effective on February 22, 2010,\4\ this final rule is 
also effective on February 22, 2010 (except as otherwise provided). The 
Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) generally 
requires that rules be published not less than 30 days before their 
effective date. See 15 U.S.C. 553(d). However, the APA provides an 
exception when ``otherwise provided by the agency for good cause found 
and published with the rule.'' Id. Sec.  553(d)(3). Although the Board 
is issuing this final rule more than 30 days before February 22, 2010, 
it is unclear whether it will be published in the Federal Register more 
than 30 days before that date.\5\ Accordingly, the Board finds that 
good cause exists to publish the final rule less than 30 days before 
the effective date.
---------------------------------------------------------------------------

    \4\ See Credit Card Act Sec.  3.
    \5\ The date on which the Board's notice is published in the 
Federal Register depends on a number of variables that are outside 
the Board's control, including the number and size of other notices 
submitted to the Federal Register prior to the Board's notice.

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

[[Page 7663]]

    Similarly, although 12 U.S.C. 4802(b)(1) generally requires that 
new regulations and amendments to existing regulations take effect on 
the first day of the calendar quarter which begins on or after the date 
on which the regulations are published in final form (in this case, 
April 1, 2010), the Board has determined that--in light of the 
statutory effective date--there is good cause for making this final 
rule effective on February 22, 2010. See 12 U.S.C. 4802(b)(1)(A) 
(providing an exception to the general requirement when ``the agency 
determines, for good cause published with the regulation, that the 
regulations should become effective before such time''). Furthermore, 
the Board believes that providing creditors with guidance regarding 
compliance before April 1, 2010 is consistent with 12 U.S.C. 
4802(b)(1)(C), which provides an exception to the general requirement 
when ``the regulation is required to take effect on a date other than 
the date determined under [12 U.S.C. 4802(b)(1)] pursuant to any other 
Act of Congress.''
    Finally, TILA Section 105(d) provides that any regulation of the 
Board (or any amendment or interpretation thereof) requiring any 
disclosure which differs from the disclosures previously required by 
Chapters 1, 4, or 5 of TILA (or by any regulation of the Board 
promulgated thereunder) shall have an effective date no earlier than 
``that October 1 which follows by at least six months the date of 
promulgation.'' However, even assuming that TILA Section 105(d) applies 
to this final rule, the Board believes that the specific provision in 
Section 3 of the Credit Card Act governing effective dates overrides 
the general provision in TILA Section 105(d).

IV. Applicability of Provisions

    While several provisions under the Credit Card Act apply to all 
open-end credit, others apply only to certain types of open-end credit, 
such as credit card accounts under open-end consumer credit plans. As a 
result, the Board understands that some additional clarification may be 
helpful as to which provisions of the Credit Card Act as implemented in 
Regulation Z are applicable to which types of open-end credit products. 
In order to clarify the scope of the revisions to Regulation Z, the 
Board is providing the below table, which summarizes the applicability 
of each of the major revisions to Regulation Z.\6\
---------------------------------------------------------------------------

    \6\ This table summarizes the applicability only of those new 
paragraphs or provisions added to Regulation Z in order to implement 
the Credit Card Act, as well as the applicability of proposed 
provisions addressing deferred interest or similar offers. The Board 
notes that it has not changed the applicability of provisions of 
Regulation Z amended by the January 2009 Regulation Z Rule or May 
2009 Regulation Z Proposed Clarifications.

------------------------------------------------------------------------
             Provision                          Applicability
------------------------------------------------------------------------
Sec.   226.5(a)(2)(iii)...........  All open-end (not home-secured)
                                     consumer credit plans.
Sec.   226.5(b)(2)(ii)(A).........  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.5(b)(2)(ii)(B).........  All open-end consumer credit plans.
Sec.   226.7(b)(11)...............  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.7(b)(12)...............  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.7(b)(14)...............  All open-end (not home-secured)
                                     consumer credit plans.
Sec.   226.9(c)(2)................  All open-end (not home-secured)
                                     consumer credit plans.
Sec.   226.9(e)...................  Credit or charge card accounts
                                     subject to Sec.   226.5a.
Sec.   226.9(g)...................  All open-end (not home-secured)
                                     consumer credit plans.
Sec.   226.9(h)...................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.10(b)(2)(ii)...........  All open-end consumer credit plans.
Sec.   226.10(b)(3)...............  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.10(d)..................  All open-end consumer credit plans.
Sec.   226.10(e)..................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.10(f)..................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.11(c)..................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.16(f)..................  All open-end consumer credit plans.
Sec.   226.16(h)..................  All open-end (not home-secured)
                                     consumer credit plans.
Sec.   226.51.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.52.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.53.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.54.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.55.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.56.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
Sec.   226.57.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan, except that Sec.
                                     226.57(c) applies to all open-end
                                     consumer credit plans.
Sec.   226.58.....................  Credit card accounts under an open-
                                     end (not home-secured) consumer
                                     credit plan.
------------------------------------------------------------------------

V. Section-by-Section Analysis

Section 226.2 Definitions and Rules of Construction

2(a) Definitions
2(a)(15) Credit Card
    In the January 2009 Regulation Z Rule, the Board revised Sec.  
226.2(a)(15) to read as follows: ``Credit card means any card, plate, 
or other single credit device that may be used from time to time to 
obtain credit. Charge card means a credit card on an account for which 
no periodic rate is used to compute a finance charge.'' 74 FR 5257. In 
order to clarify the application of certain provisions of the Credit 
Card Act that apply to ``credit card account[s] under an open end 
consumer credit plan,'' the October 2009 Regulation Z Proposal would 
have further revised Sec.  226.2(a)(15) by adding a definition of 
``credit card account under an open-end (not home-secured) consumer 
credit plan.'' Specifically, proposed Sec.  226.2(a)(15)(ii) would have 
defined this term to mean any credit account accessed by a credit card 
except a credit card that accesses a home-equity plan subject to the 
requirements of Sec.  226.5b or an overdraft line of credit accessed by 
a debit card. The Board proposed to move the definitions of ``credit 
card'' and ``charge card'' in the January 2009 Regulation Z Rule to 
Sec.  226.2(a)(15)(i) and (iii), respectively.
    The Board noted that the exclusion of credit cards that access a 
home-equity plan subject to Sec.  226.5b was consistent

[[Page 7664]]

with the approach adopted by the Board in the July 2009 Regulation Z 
Interim Final Rule. See 74 FR 36083. Specifically, in the interim final 
rule, the Board used its authority under TILA Section 105(a) and Sec.  
2 of the Credit Card Act to interpret the term ``credit card account 
under an open-end consumer credit plan'' in new TILA Section 127(i) to 
exclude home-equity lines of credit subject to Sec.  226.5b, even if 
those lines could be accessed by a credit card. Instead, the Board 
applied the disclosure requirements in current Sec.  226.9(c)(2)(i) and 
(g)(1) to ``credit card accounts under an open-end (not home-secured) 
consumer credit plan.'' See 74 FR 36094-36095. For consistency with the 
interim final rule, the Board proposed to generally use its authority 
under TILA Section 105(a) and Sec.  2 of the Credit Card Act to apply 
the same interpretation to other provisions of the Credit Card Act that 
apply to a ``credit card account under an open end consumer credit 
plan.'' See, e.g., revised TILA Sec.  127(j), (k), (l), (n); revised 
TILA Sec.  171; new TILA Sec. Sec.  140A, 148, 149, 172.\7\ The Board 
noted that this interpretation was also consistent with the Board's 
historical treatment of HELOC accounts accessible by a credit card 
under TILA; for example, the credit and charge card application and 
solicitation disclosure requirements under Sec.  226.5a expressly do 
not apply to home-equity plans accessible by a credit card that are 
subject to Sec.  226.5b. See current Sec.  226.5a(a)(3); revised Sec.  
226.5a(a)(5)(i), 74 FR 5403. The Board has issued the August 2009 
Regulation Z HELOC Proposal to address changes to Regulation Z that it 
believes are necessary and appropriate for HELOCs and will consider any 
appropriate revisions to the requirements for HELOCs in connection with 
that review. Commenters generally supported this exclusion, which is 
adopted in the final rule.
---------------------------------------------------------------------------

    \7\ In certain cases, the Board has applied a statutory 
provision that refers to ``credit card accounts under an open end 
consumer credit plan'' to a wider range of products. Specifically, 
see the discussion below regarding the implementation of new TILA 
Section 127(i) in Sec.  226.9(c)(2), the implementation of new TILA 
Section 127(m) in Sec. Sec.  226.5(a)(2)(iii) and 226.16(f), and the 
implementation of new TILA Section 127(o)(2) in Sec.  226.10(d).
---------------------------------------------------------------------------

    The Board also proposed to interpret the term ``credit card account 
under an open end consumer credit plan'' to exclude a debit card that 
accesses an overdraft line of credit. Although such cards are ``credit 
cards'' under current Sec.  226.2(a)(15), the Board has generally 
excluded them from the provisions of Regulation Z that specifically 
apply to credit cards. For example, as with credit cards that access 
HELOCs, the provisions in Sec.  226.5a regarding credit and charge card 
applications and solicitations do not apply to overdraft lines of 
credit tied to asset accounts accessed by debit cards. See current 
Sec.  226.5a(a)(3); revised Sec.  226.5a(a)(5)(ii), 74 FR 5403.
    Instead, Regulation E (Electronic Fund Transfers) generally governs 
debit cards that access overdraft lines of credit. See 12 CFR part 205. 
For example, Regulation E generally governs the issuance of debit cards 
that access an overdraft line of credit, although Regulation Z's 
issuance provisions apply to the addition of a credit feature (such as 
an overdraft line) to a debit card. See 12 CFR 205.12(a)(1)(ii) and 
(a)(2)(i). Similarly, when a transaction that debits a checking or 
other asset account also draws on an overdraft line of credit, 
Regulation Z treats the extension of credit as incident to an 
electronic fund transfer and the error resolution provisions in 
Regulation E generally govern the transaction. See 12 CFR 205.12 
comment 12(a)-1.i.\8\
---------------------------------------------------------------------------

    \8\ However, the error resolution provisions in Sec.  226.13(d) 
and (g) do apply to such transactions. See 12 CFR 205.12 comment 
12(a)-1.ii.D; see also current Sec. Sec.  226.12(g) and 13(i); 
current comments 12(c)(1)-1 and 13(i)-3; new comment 12(c)-3, 74 FR 
5488; revised comment 12(c)(1)-1.iv., 74 FR 5488. In addition, if 
the transaction solely involves an extension of credit and does not 
include a debit to a checking or other asset account, the liability 
limitations and error resolution requirements in Regulation Z apply. 
See 12 CFR 205.12(a)-1.i.
---------------------------------------------------------------------------

    Consistent with this approach, the Board believes that debit cards 
that access overdraft lines of credit should not be subject to the 
regulations implementing the provisions of the Credit Card Act that 
apply to ``credit card accounts under an open end consumer credit 
plan.'' As discussed in the January 2009 Regulation Z Rule, the Board 
understands that overdraft lines of credit are not in wide use.\9\ 
Furthermore, as a general matter, the Board understands that creditors 
do not generally engage in the practices addressed in the relevant 
provisions of the Credit Card Act with respect to overdraft lines of 
credit. For example, as discussed in the January 2009 Regulation Z 
Rule, overdraft lines of credit are not typically promoted as--or used 
for--long-term extensions of credit. See 74 FR 5331. Therefore, because 
proposed Sec.  226.9(c)(2) would require a creditor to provide 45 days' 
notice before increasing an annual percentage rate for an overdraft 
line of credit, a creditor is unlikely to engage in the practices 
prohibited by revised TILA Section 171 with respect to the application 
of increased rates to existing balances. Similarly, because creditors 
generally do not apply different rates to different balances or provide 
grace periods with respect to overdraft lines of credit, the provisions 
in proposed Sec. Sec.  226.53 and 226.54 would not provide any 
meaningful protection. Accordingly, the Board proposed to use its 
authority under TILA Section 105(a) and Sec.  2 of the Credit Card Act 
to create an exception for debit cards that access an overdraft line of 
credit.
---------------------------------------------------------------------------

    \9\ The 2007 Survey of Consumer Finances data indicates that few 
families (1.7 percent) had a balance on lines of credit other than a 
home-equity line or credit card at the time of the interview. In 
comparison, 73 percent of families had a credit card, and 60.3 
percent of these families had a credit card balance at the time of 
the interview. See Brian Bucks, et al., Changes in U.S. Family 
Finances from 2004 to 2007: Evidence from the Survey of Consumer 
Finances, Federal Reserve Bulletin (February 2009) (``Changes in 
U.S. Family Finances from 2004 to 2007'').
---------------------------------------------------------------------------

    Commenters generally supported this exclusion, which is adopted in 
the final rule. Several industry commenters also requested that the 
Board exclude lines of credit accessed by a debit card that can be used 
only at automated teller machines and lines of credit accessed solely 
by account numbers. These commenters argued that--like overdraft lines 
of credit accessed by a debit card--these products are not 
``traditional'' credit cards and that creditors may be less willing to 
provide these products if they are required to comply with the 
provisions of the Credit Card Act. They also noted that the Board has 
excluded these products from the disclosure requirements for credit and 
charge cards in Sec.  226.5a and the definition of ``consumer credit 
card account'' in the January 2009 FTC Act Rule. See Sec.  
226.5a(a)(5); 12 CFR 227.21(c), 74 FR 5560.
    The Board believes that, as a general matter, Congress intended the 
Credit Card Act to apply broadly to products that meet the definition 
of a credit card. As discussed above, the Board's exclusion of HELOCs 
and overdraft lines of credit accessed by cards is based on the Board's 
determination that alternative forms of regulation exist that are 
better suited to protecting consumers from harm with respect to those 
products. No such alternative exists for lines of credit accessed 
solely by account numbers. Similarly, although the protections in 
Regulation E generally apply when a debit card is used at an automated 
teller machine to credit a deposit account with funds obtained from a 
line of credit,\10\

[[Page 7665]]

Regulation E generally does not apply when a debit card is used at an 
automated teller machine to obtain cash from the line of credit. 
Furthermore, because it appears that both type of credit lines are more 
likely to be used for long-term extensions of credit than overdraft 
lines, consumers are more likely to experience substantial harm if--for 
example--an increased annual percentage rate is applied to an 
outstanding balance.\11\ Thus, the Board does not believe that an 
exclusion is warranted for lines of credit accessed by a debit card 
that can be used only at automated teller machines or lines of credit 
accessed solely by account numbers.
---------------------------------------------------------------------------

    \10\ 12 CFR 205.3(a) (stating that Regulation E ``applies to any 
electronic fund transfer that authorizes a financial institution to 
debit or credit a consumer's account'').
    \11\ Commenters that supported an exclusion for lines of credit 
accessed by a debit card that can be used only at automated teller 
machines noted that--unlike most credit cards--the debit card cannot 
access the line of credit for purchases at point of sale. However, 
it appears that consumers can use the debit card to obtain 
extensions of credit either in the form of cash or a transfer of 
funds to a deposit account.
---------------------------------------------------------------------------

    Finally, the Board notes that the revisions to 226.2(a)(15) are not 
intended to alter the scope or coverage of provisions of Regulation Z 
that refer generally to credit cards or open-end credit rather than the 
new defined term ``credit card account under an open-end (not home-
secured) consumer credit plan.''

Section 226.5 General Disclosure Requirements

5(a) Form of Disclosures
5(a)(2) Terminology
    New TILA Section 127(m) (15) U.S.C. 1637(m)), as added by Section 
103 of the Credit Card Act, states that with respect to the terms of 
any credit card account under an open-end consumer credit plan, the 
term ``fixed,'' when appearing in conjunction with a reference to the 
APR or interest rate applicable to such account, may only be used to 
refer to an APR or interest rate that will not change or vary for any 
reason over the period specified clearly and conspicuously in the terms 
of the account. In the January 2009 Regulation Z Rule, the Board had 
adopted Sec. Sec.  226.5(a)(2)(iii) and 226.16(f) to restrict the use 
of the term ``fixed,'' or any similar term, to describe a rate 
disclosed in certain required disclosures and in advertisements only to 
instances when that rate would not increase until the expiration of a 
specified time period. If no time period is specified, then the term 
``fixed,'' or any similar term, may not be used to describe the rate 
unless the rate will not increase while the plan is open. As discussed 
in the October 2009 Regulation Z Proposal, the Board believes that 
Sec. Sec.  226.5(a)(2)(iii) and 226.16(f), as adopted in the January 
2009 Regulation Z Rule, would be consistent with new TILA Section 
127(m). Sections 226.5(a)(2)(iii) and 226.16(f) were therefore 
republished in the October 2009 Regulation Z Proposal to implement TILA 
Section 127(m). The Board did not receive any comments on Sec. Sec.  
226.5(a)(2)(iii) and 226.16(f), and they are adopted as proposed.
5(b) Time of Disclosures
5(b)(1) Account-Opening Disclosures
5(b)(1)(i) General Rule
    In certain circumstances, a creditor may substitute or replace one 
credit card account with another credit card account. For example, if 
an existing cardholder requests additional features or benefits (such 
as rewards on purchases), the creditor may substitute or replace the 
existing credit card account with a new credit card account that 
provides those features or benefits. The Board also understands that 
creditors often charge higher annual percentage rates or annual fees to 
compensate for additional features and benefits. As discussed below, 
Sec.  226.55 and its commentary address the application of the general 
prohibitions on increasing annual percentage rates, fees, and charges 
during the first year after account opening and on applying increased 
rates to existing balances in these circumstances. See Sec.  226.55(d); 
comments 55(b)(3)-3 and 55(d)-1 through -3.
    In order to clarify the application of the disclosure requirements 
in Sec. Sec.  226.6(b) and 226.9(c)(2) when one credit card account is 
substituted or replaced with another, the Board has adopted comment 
5(b)(1)(i)-6, which states that, when a card issuer substitutes or 
replaces an existing credit card account with another credit card 
account, the card issuer must either provide notice of the terms of the 
new account consistent with Sec.  226.6(b) or provide notice of the 
changes in the terms of the existing account consistent with Sec.  
226.9(c)(2). The Board understands that, when an existing cardholder 
requests new features or benefits, disclosure of the new terms pursuant 
to Sec.  226.6(b) may be preferable because the cardholder generally 
will not want to wait 45 days for the new terms to take effect (as 
would be the case if notice were provided pursuant to Sec.  
226.9(c)(2)). Thus, this comment is intended to provide card issuers 
with flexibility regarding whether to treat the substitution or 
replacement as the opening of a new account (subject to Sec.  226.6(b)) 
or a change in the terms of an existing account (subject to Sec.  
226.9(c)(2)).
    However, the comment is not intended to permit card issuers to 
circumvent the disclosure requirements in Sec.  226.9(c)(2) by treating 
a change in terms as the opening of a new account. Accordingly, the 
comment further states that whether a substitution or replacement 
results in the opening of a new account or a change in the terms of an 
existing account for purposes of the disclosure requirements in 
Sec. Sec.  226.6(b) and 226.9(c)(2) is determined in light of all the 
relevant facts and circumstances.
    The comment provides the following list of relevant facts and 
circumstances: (1) Whether the card issuer provides the consumer with a 
new credit card; (2) whether the card issuer provides the consumer with 
a new account number; (3) whether the account provides new features or 
benefits after the substitution or replacement (such as rewards on 
purchases); (4) whether the account can be used to conduct transactions 
at a greater or lesser number of merchants after the substitution or 
replacement; (5) whether the card issuer implemented the substitution 
or replacement on an individualized basis; and (6) whether the account 
becomes a different type of open-end plan after the substitution or 
replacement (such as when a charge card is replaced by a credit card). 
The comment states that, when most of these facts and circumstances are 
present, the substitution or replacement likely constitutes the opening 
of a new account for which Sec.  226.6(b) disclosures are appropriate. 
However, the comment also states that, when few of these facts and 
circumstances are present, the substitution or replacement likely 
constitutes a change in the terms of an existing account for which 
Sec.  226.9(c)(2) disclosures are appropriate.\12\
---------------------------------------------------------------------------

    \12\ The comment also provides cross-references to other 
provisions in Regulation Z and its commentary that address the 
substitution or replacement of credit card accounts.
---------------------------------------------------------------------------

    In the October 2009 Regulation Z Proposal, the Board solicited 
comment on whether additional facts and circumstances were relevant. 
The Board also solicited comment on alternative approaches to 
determining whether a substitution or replacement results in the 
opening of a new account or a change in the terms of an existing 
account for purposes of the disclosure requirements in Sec. Sec.  
226.6(b) and 226.9(c)(2).
    On the one hand, consumer groups commenters stated that the Board's 
proposed approach was not sufficiently restrictive. They argued that 
Sec.  226.9(c)(2) should apply whenever a

[[Page 7666]]

credit card account is substituted or replaced with another credit card 
account so that consumers will always receive 45 days' notice before 
any significant new terms take effect. However, the Board is concerned 
that this strict approach may not be beneficial to consumers overall. 
As discussed above, when an existing cardholder has requested new 
features or benefits, the cardholder generally will not want to wait 45 
days to receive those features or benefits. Although a card issuer 
could provide the new features or benefits immediately, it may not be 
willing to do so if it cannot simultaneously compensate for the 
additional features or benefits by, for example, charging a higher 
annual percentage rate on new transactions or adding an annual fee.
    On the other hand, industry commenters stated that the Board's 
proposed approach was overly restrictive. They argued that Sec.  
226.6(b) should apply whenever the substitution or replacement was 
requested by the consumer so that the new terms can be applied 
immediately. However, the Board has generally declined to provide a 
consumer request exception to the 45-day notice requirement in Sec.  
226.9(c)(2) because of the difficulty of defining by regulation the 
circumstances under which a consumer is deemed to have requested a 
change versus the circumstances in which the change is ``suggested'' by 
the card issuer. See revised Sec.  226.9(c)(2)(i). Thus, the Board does 
not believe that the determination of whether Sec. Sec.  226.6(b) or 
226.9(c)(2) applies should turn solely on whether a consumer has 
requested the replacement or substitution.
    For the foregoing reasons, the Board believes that the proposed 
standard provides the appropriate degree of flexibility insofar as it 
states that whether Sec. Sec.  226.6(b) or 226.9(c)(c)(2) applies is 
determined in light of the relevant facts and circumstances. However, 
in response to requests from commenters, the Board has clarified some 
of the listed facts and circumstances. Specifically, the Board has 
added the substitution or replacement of a retail card with a cobranded 
general purpose credit card as an example of a circumstance in which an 
account can be used to conduct transactions at a greater or lesser 
number of merchants after the substitution or replacement. Similarly, 
the Board has added a substitution or replacement in response to a 
consumer's request as an example of a substitution or replacement on an 
individualized basis. Finally, the Board has clarified that, 
notwithstanding the listed facts and circumstances, a card issuer that 
replaces a credit card or provides a new account number because the 
consumer has reported the card stolen or because the account appears to 
have been used for unauthorized transactions is not required to provide 
a notice under Sec.  226.6(b) or 226.9(c)(2) unless the card issuer has 
changed a term of the account that is subject to Sec. Sec.  226.6(b) or 
226.9(c)(2).
5(b)(2) Periodic Statements
    As amended by the Credit Card Act in May 2009, TILA Section 163 
generally prohibited a creditor from treating a payment as late or 
imposing additional finance charges unless the creditor mailed or 
delivered the periodic statement at least 21 days before the payment 
due date and the expiration of any period within which any credit 
extended may be repaid without incurring a finance charge (i.e., a 
``grace period''). See Credit Card Act Sec.  106(b)(1). Unlike most of 
the Credit Card Act's provisions, the amendments to Section 163 applied 
to all open-end consumer credit plans rather than just credit card 
accounts.\13\ The Board's July 2009 Regulation Z Interim Final Rule 
implemented the amendments to TILA Section 163 by revising Sec.  
226.5(b)(2)(ii) and the accompanying official staff commentary. Both 
the statutory amendments and the interim final rule became effective on 
August 22, 2009. See Credit Card Act Sec.  106(b)(2).
---------------------------------------------------------------------------

    \13\ Specifically, while most provisions in the Credit Card Act 
apply to ``credit card account[s] under an open end consumer credit 
plan'' (e.g., Sec.  101(a)), the May 2009 amendments to TILA Section 
163 applied to all ``open end consumer credit plan[s].''
---------------------------------------------------------------------------

    However, in November 2009, the Credit CARD Technical Corrections 
Act of 2009 (Technical Corrections Act) further amended TILA Section 
163, narrowing application the requirement that statements be mailed or 
delivered at least 21 days before the payment due date to credit card 
accounts. Public Law 111-93, 123 Stat. 2998 (Nov. 6, 2009).\14\ 
Accordingly, the Board adopts Sec.  226.5(b)(2)(ii) and its commentary 
in this final rule with revisions implementing the Technical 
Corrections Act and clarifying aspects of the July 2009 interim final 
rule in response to comments.
---------------------------------------------------------------------------

    \14\ As discussed below, the Technical Corrections Act did not 
alter the requirement in amended TILA Section 163 that all open-end 
consumer credit plans generally mail or deliver periodic statements 
at least 21 days before the date on which any grace period expires.
---------------------------------------------------------------------------

5(b)(2)(ii) Mailing or Delivery
    Prior to the Credit Card Act, TILA Section 163 required creditors 
to send periodic statements at least 14 days before the expiration of 
the grace period (if any), unless prevented from doing so by an act of 
God, war, natural disaster, strike, or other excusable or justifiable 
cause (as determined under regulations of the Board). 15 U.S.C. 1666b. 
The Board's Regulation Z, however, applied the 14-day requirement even 
when the consumer did not receive a grace period. Specifically, Sec.  
226.5(b)(2)(ii) required that creditors mail or deliver periodic 
statements 14 days before the date by which payment was due for 
purposes of avoiding not only finance charges as a result of the loss 
of a grace period but also any charges other than finance charges (such 
as late fees). See also comment 5(b)(2)(ii)-1.
    In the January 2009 FTC Act Rule, the Board and the other Agencies 
prohibited institutions from treating payments on consumer credit card 
accounts as late for any purpose unless the institution provided a 
reasonable amount of time for consumers to make payment. See 12 CFR 
227.22(a), 74 FR 5560; see also 74 FR 5508-5512.\15\ This rule included 
a safe harbor for institutions that adopted reasonable procedures 
designed to ensure that periodic statements specifying the payment due 
date were mailed or delivered to consumers at least 21 days before the 
payment due date. See 12 CFR 227.22(b)(2), 74 FR 5560. The 21-day safe 
harbor was intended to allow seven days for the periodic statement to 
reach the consumer by mail, seven days for the consumer to review their 
statement and make payment, and seven days for that payment to reach 
the institution by mail. However, to avoid any potential conflict with 
the 14-day requirement in TILA Section 163(a), the rule expressly 
stated that it would not apply to any grace period provided by an 
institution. See 12 CFR 227.22(c), 74 FR 5560.
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    \15\ Although the Board, OTS, and NCUA adopted substantively 
identical rules under the FTC Act, each agency placed its rules in 
its respective part of Title 12 of the Code of Federal Regulations. 
Specifically, the Board placed its rules in part 227, the OTS in 
part 535, and the NCUA in part 706. For simplicity, this 
supplementary information cites to the Board's rules and official 
staff commentary.
---------------------------------------------------------------------------

    The Credit Card Act's amendments to TILA Section 163 codified 
aspects of the Board's Sec.  226.5(b)(2)(ii) as well as the provision 
in the January 2009 FTC Act Rule regarding the mailing or delivery of 
periodic statements. Specifically, like the Board's Sec.  
226.5(b)(2)(ii), amended TILA Section 163 applies the mailing or 
delivery requirement to both the expiration of the grace period and the 
payment due date. In addition, similar to the January 2009 FTC Act 
Rule,

[[Page 7667]]

amended TILA Section 163 adopts 21 days as the appropriate time period 
between the date on which the statement is mailed or delivered to the 
consumer and the date on which the consumer's payment must be received 
by the creditor to avoid adverse consequences.
    Rather than establishing an absolute requirement that periodic 
statements be mailed or delivered 21 days in advance of the payment due 
date, amended TILA Section 163(a) codifies the same standard adopted by 
the Board and the other Agencies in the January 2009 FTC Act Rule, 
which requires creditors to adopt ``reasonable procedures designed to 
ensure'' that statements are mailed or delivered at least 21 days 
before the payment due date. Notably, however, the 21-day requirement 
for grace periods in amended TILA Section 163(b) does not include 
similar language regarding ``reasonable procedures.'' Because the 
payment due date generally coincides with the expiration of the grace 
period, the Board believes that it will facilitate compliance to apply 
a single standard to both circumstances. The ``reasonable procedures'' 
standard recognizes that, for issuers mailing hundreds of thousands of 
periodic statements each month, it would be difficult if not impossible 
to know whether a specific statement is mailed or delivered on a 
specific date. Furthermore, applying different standards could 
encourage creditors to establish a payment due date that is different 
from the date on which the grace period expires, which could lead to 
consumer confusion.
    Accordingly, the Board's interim final rule amended Sec.  
226.5(b)(2)(ii) to require that creditors adopt reasonable procedures 
designed to ensure that periodic statements are mailed or delivered at 
least 21 days before the payment due date and the expiration of the 
grace period. In doing so, the Board relied on its authority under TILA 
Section 105(a) to make adjustments that are necessary or proper to 
effectuate the purposes of TILA and to facilitate compliance therewith. 
See 15 U.S.C. 1604(a).
    For clarity, the interim final rule also amended Sec.  
226.5(b)(2)(ii) to define ``grace period'' as ``a period within which 
any credit extended may be repaid without incurring a finance charge 
due to a periodic interest rate.'' This definition is consistent with 
the definition of grace period adopted by the Board in its January 2009 
Regulation Z Rule. See Sec. Sec.  226.5a(b)(5), 226.6(b)(2)(v), 74 FR 
5404, 5407; see also 74 FR 5291-5294, 5310.
    Finally, the Credit Card Act removed prior TILA Section 163(b), 
which stated that the 14-day mailing requirement does not apply ``in 
any case where a creditor has been prevented, delayed, or hindered in 
making timely mailing or delivery of [the] periodic statement within 
the time period specified * * * because of an act of God, war, natural 
disaster, strike, or other excusable or justifiable cause, as 
determined under regulations of the Board.'' 15 U.S.C. 1666b(b). The 
Board believes that the Credit Card Act's removal of this language is 
consistent with the adoption of a ``reasonable procedures'' standard 
insofar as a creditor's procedures for responding to any of the 
situations listed in prior TILA Section 163(b) will now be evaluated 
for reasonableness. Accordingly, the interim final rule removed the 
language implementing prior TILA Section 163(b) from footnote 10 to 
Sec.  226.5(b)(2)(ii).\16\
---------------------------------------------------------------------------

    \16\ The Board notes that the October 2009 Regulation Z Proposal 
erroneously included this language in Sec.  226.5(b)(2)(iii). The 
final rule corrects this error.
---------------------------------------------------------------------------

    Commenters generally supported the interim final rule, with one 
notable exception. Credit unions and community bank commenters strongly 
opposed the interim final rule on the grounds that requiring creditors 
to mail or deliver periodic statements at least 21 days before the 
payment due date with respect to open-end consumer credit plans other 
than credit card accounts was unnecessary and unduly burdensome. In 
particular, these commenters noted that the requirement 
disproportionately impacted credit unions, which frequently provide 
open-end products with multiple due dates during a month (such as bi-
weekly due dates that correspond to the dates on which the consumer is 
paid) as well as consolidated periodic statements for multiple open-end 
products with different due dates. These commenters argued that 
applying the 21-day requirement to these products would significantly 
increase costs by requiring multiple periodic statements or cause 
creditors to cease offering such products altogether. However, these 
commenters noted that the requirement that statements be provided at 
least 21 days before the expiration of a grace period was not 
problematic because these products do not provide a grace period.
    The Technical Corrections Act addressed these concerns by narrowing 
the application of the 21-day requirement in TILA Section 163(a) to 
credit cards. However, open-end consumer credit plans that provide a 
grace period remain subject to the 21-day requirement in Section 
163(b). The final rule revises Sec.  226.5(b)(2)(ii) consistent with 
the Technical Corrections Act. Specifically, because the Technical 
Corrections Act amended TILA Section 163 to apply different 
requirements to different types of open-end credit accounts, the Board 
has reorganized Sec.  226.5(b)(2)(ii) into Sec.  226.5(b)(2)(ii)(A) and 
Sec.  226.5(b)(2)(ii)(B). This reorganization does not reflect any 
substantive revision of the interim final rule beyond those changes 
necessary to implement the Technical Corrections Act.
5(b)(2)(ii)(A) Payment Due Date
    Section 226.5(b)(2)(ii)(A)(1) provides that, for consumer credit 
card accounts under an open-end (not home-secured) consumer credit 
plan, a card issuer must adopt reasonable procedures designed to ensure 
that periodic statements are mailed or delivered at least 21 days prior 
to the payment due date. Furthermore, Sec.  226.5(b)(2)(ii)(A)(2) 
provides that the card issuer must also adopt reasonable procedures 
designed to ensure that a required minimum periodic payment received by 
the card issuer within 21 days after mailing or delivery of the 
periodic statement disclosing the due date for that payment is not 
treated as late for any purpose.
    For clarity and consistency, Sec.  226.5(b)(2)(ii)(A)(1) provides 
that a periodic statement generally must be mailed or delivered at 
least 21 days before the payment due date disclosed pursuant to Sec.  
226.7(b)(11)(i)(A). As discussed in greater detail below, Sec.  
226.7(b)(11)(i)(A) implements the Credit Card Act's requirement that 
periodic statements for credit card accounts disclose a payment due 
date. See amended TILA Section 127(b)(12)(A).\17\ The Board believes 
that--like the mailing or delivery requirements for periodic statements 
in the January 2009 FTC Act Rule--the Credit Card Act's amendments to 
TILA Section 163 are intended to ensure that consumers have a 
reasonable amount of time to make payment after receiving their 
periodic statements. For that reason, the Board believes that it is 
important to ensure that the payment due date disclosed pursuant to 
Sec.  226.7(b)(11)(i)(A) is consistent with requirements of Sec.  
226.5(b)(2)(ii)(A). If creditors were permitted to disclose a payment 
due date on the periodic statement that was less than 21 days

[[Page 7668]]

after mailing or delivery of the periodic statement, consumers could be 
misled into believing that they have less time to pay than provided 
under TILA Section 163 and Sec.  226.5(b)(2)(ii)(A).
---------------------------------------------------------------------------

    \17\ Although the 21-day requirement in amended TILA Section 
163(a) is specifically tied to provision of a periodic statement 
that ``includ[es] the information required by [TILA] section 
127(b)],'' the July 2009 interim final rule did not cross-reference 
the due date disclosure because that disclosure was not scheduled to 
go into effect until February 22, 2010.
---------------------------------------------------------------------------

    The interim final rule adopted a new comment 5(b)(2)(ii)-1, which 
clarifies that, under the ``reasonable procedures'' standard, a 
creditor is not required to determine the specific date on which 
periodic statements are mailed or delivered to each individual 
consumer. Instead, a creditor complies with Sec.  226.5(b)(2)(ii) if it 
has adopted reasonable procedures designed to ensure that periodic 
statements are mailed or delivered to consumers no later than a certain 
number of days after the closing date of the billing cycle and adds 
that number of days to the 21-day period required by Sec.  
226.5(b)(2)(ii) when determining the payment due date and the date on 
which any grace period expires. For example, if a creditor has adopted 
reasonable procedures designed to ensure that periodic statements are 
mailed or delivered to consumers no later than three days after the 
closing date of the billing cycle, the payment due date and the date on 
which any grace period expires must be no less than 24 days after the 
closing date of the billing cycle. The final rule retains this comment 
with revisions to reflect the reorganization of Sec.  
226.5(b)(2)(ii).\18\
---------------------------------------------------------------------------

    \18\ The Board and the other Agencies adopted a similar comment 
in the January 2009 FTC Act Rule. See 12 CFR 227.22 comment 22(b)-1, 
74 FR 5511, 5561. The interim final rule deleted prior comment 
5(b)(2)(ii)-1 because it referred to the 14-day rule for grace 
periods and was therefore no longer consistent with Sec.  
226.5(b)(2)(ii). In doing so, the Board concluded that, to the 
extent that the comment clarified that Sec.  226.5(b)(2)(ii) applied 
in circumstances where the consumer is not eligible or ceases to be 
eligible for a grace period, it was no longer necessary because that 
requirement was reflected in amended Sec.  226.5(b)(2)(ii) and 
elsewhere in the amended commentary.
---------------------------------------------------------------------------

    The interim final rule also adopted a new comment 5(b)(2)(ii)-2, 
which clarifies that treating a payment as late for any purpose 
includes increasing the annual percentage rate as a penalty, reporting 
the consumer as delinquent to a credit reporting agency, or assessing a 
late fee or any other fee based on the consumer's failure to make a 
payment within a specified amount of time or by a specified date.\19\ 
Several commenters requested that the Board narrow or expand this 
language to clarify that certain activities are included or excluded. 
The current language is consistent with the Board's intent that the 
prohibition on treating a payment as late for purpose be broadly 
construed and that the list of examples be illustrative rather than 
exhaustive. Nevertheless, in order to provide additional clarity, the 
final rule amends comment 5(b)(2)(ii)-2 to provide two additional 
examples of activities that constitute treating a payment as late for 
purposes of Sec.  226.5(b)(2)(ii)(A)(2): terminating benefits (such as 
rewards on purchases) and initiating collection activities. However, 
the provision of additional examples should not be construed as a 
determination by the Board that other activities would not constitute 
treating a payment as late for any purpose.
---------------------------------------------------------------------------

    \19\ The Board and the other Agencies adopted a similar comment 
in the January 2009 FTC Act Rule. See 12 CFR 227.22 comment 22(a)-1, 
74 FR 5510, 5561. The interim final rule deleted prior comment 
5(b)(2)(ii)-2, which clarified that the emergency circumstances 
exception in prior footnote 10 does not extend to the failure to 
provide a periodic statement because of computer malfunction. As 
discussed above, prior footnote 10 was based on prior TILA Section 
163(b), which has been repealed.
---------------------------------------------------------------------------

    In the October 2009 Regulation Z Proposal, the Board proposed to 
amend other aspects of comment 5(b)(2)(ii)-2. In particular, the Board 
proposed to clarify that the prohibition in Sec.  226.5(b)(2)(ii) on 
treating a payment as late for any purpose or collecting finance or 
other charges applies only during the 21-day period following mailing 
or delivery of the periodic statement stating the due date for that 
payment. Thus, if a creditor does not receive a payment within 21 days 
of mailing or delivery of the periodic statement, the prohibition does 
not apply and the creditor may, for example, impose a late payment fee. 
Commenters generally supported this clarification. Accordingly, the 
Board has adopted this guidance--with additional clarifications--in the 
final rule. In addition, for consistency with the reorganization of 
Sec.  226.5(b)(2)(ii), the Board has moved the guidance regarding grace 
periods to comment 5(b)(2)(ii)-3.
5(b)(2)(ii)(B) Grace Period Expiration Date
    Section 226.5(b)(2)(ii)(B)(1) provides that, for open-end consumer 
credit plans, a creditor must adopt reasonable procedures designed to 
ensure that periodic statements are mailed or delivered at least 21 
days prior to the date on which any grace period expires. Furthermore, 
Sec.  226.5(b)(2)(ii)(B)(2) provides that the creditor must also adopt 
reasonable procedures designed to ensure that the creditor does not 
impose finance charges as a result of the loss of a grace period if a 
payment that satisfies the terms of the grace period is received by the 
creditor within 21 days after mailing or delivery of the periodic 
statement. Finally, the interim final rule's definition of ``grace 
period'' has been moved to Sec.  226.5(b)(2)(ii)(B)(3) without any 
substantive change.
    The interim final rule adopted comment 5(b)(2)(ii)-3, which 
clarified that, for purposes of Sec.  226.5(b)(2)(ii), ``payment due 
date'' generally excluded courtesy periods following the contractual 
due date during which a consumer could make payment without incurring a 
late payment fee. This comment was intended to address open-end 
consumer credit plans other than credit cards and therefore is not 
necessary in light of the Technical Corrections Act.\20\ Accordingly, 
the guidance in current comment 5(b)(2)(ii)-3 has been replaced with 
guidance regarding application of the grace period requirements in 
Sec.  226.5(b)(2)(ii)(B). Specifically, this comment incorporates 
current comment 5(b)(2)(ii)-4, which clarifies that the definition of 
``grace period'' in Sec.  226.5(b)(2)(ii) does not include a deferred 
interest or similar promotional program under which the consumer is not 
obligated to pay interest that accrues on a balance if that balance is 
paid in full prior to the expiration of a specified period of time. The 
comment also clarifies that courtesy periods following the payment due 
date during which a late payment fee will not be assessed are not grace 
periods for purposes of Sec.  226.5(b)(2)(ii)(B) and provides a cross-
reference to comments 7(b)(11)-1 and -2 for additional guidance 
regarding such periods.
---------------------------------------------------------------------------

    \20\ Furthermore, similar guidance is provided in comments 
7(b)(11)-1 and -2, which the Board is adopting in this final rule 
(as discussed below). The Board initially adopted comments 7(b)(11)-
1 and -2 in the January 2009 Regulation Z Rule. See 74 FR 5478. 
However, because this commentary was not yet effective, the July 
2009 Regulation Z Interim Final Rule provided similar guidance in 
current comment 5(b)(2)(ii)-3.
---------------------------------------------------------------------------

    Comment 5(b)(2)(ii)-3 also clarifies the applicability of Sec.  
226.5(b)(2)(ii)(B). Specifically, it states that Sec.  
226.5(b)(2)(ii)(B) applies if an account is eligible for a grace period 
when the periodic statement is mailed or delivered. It further states 
that Sec.  226.5(b)(2)(ii)(B) does not require the creditor to provide 
a grace period or prohibit the creditor from placing limitations and 
conditions on a grace period to the extent consistent with Sec.  
226.5(b)(2)(ii)(B) and Sec.  226.54. Finally, it states that the 
prohibition in Sec.  226.5(b)(2)(ii)(B)(2) applies only during the 21-
day period following mailing or delivery of the periodic statement and 
applies only when the creditor receives a payment that satisfies the 
terms of the grace period within that 21-day period. An illustrative 
example is provided.

[[Page 7669]]

    As noted above, current comment 5(b)(2)(ii)-4 has been incorporated 
into comment 5(b)(2)(ii)-3. In its place, the Board has adopted 
guidance to address confusion regarding the interaction between the 
payment due date disclosure in proposed Sec.  226.7(b)(11)(i)(A) and 
the 21-day requirements in Sec.  226.5(b)(2)(ii) with respect to charge 
card accounts and charged-off accounts. Charge cards are typically 
products where outstanding balances cannot be carried over from one 
billing cycle to the next and are payable when the periodic statement 
is received. See Sec.  226.5a(b)(7). Therefore, the contractual payment 
due date for a charge card account is the date on which the consumer 
receives the periodic statement (although charge card issuers generally 
request that the consumer make payment by some later date). See comment 
5a(b)(7)-1. Similarly, when an account is over 180 days past due and 
has been placed in charged off status, full payment is due immediately.
    However, as discussed below, the Board has concluded that it would 
not be appropriate to apply the payment due date disclosure in Sec.  
226.7(b)(11)(i)(A) to periodic statements provided solely for charge 
card accounts or periodic statements provided for charged-off accounts 
where full payment of the entire account balance is due immediately. In 
addition, a card issuer could not comply with the requirement to mail 
or deliver the periodic statement 21 days before the payment due date 
if the payment due date is the date that the consumer receives the 
statement. Accordingly, comment 5(b)(2)(ii)-4 clarifies that, because 
the payment due date disclosure in Sec.  226.7(b)(11)(i)(A) does not 
apply to periodic statements provided solely for charge card accounts 
or periodic statements provided for charged-off accounts where full 
payment of the entire account balance is due immediately, Sec.  
226.5(b)(2)(ii)(A)(1) does not apply to the mailing or delivery of 
periodic statements provided solely for such accounts.
    Comment 5(b)(2)(ii)-4 further clarifies that, with respect to 
charge card accounts, Sec.  226.5(b)(2)(ii)(A)(2) nevertheless requires 
the card issuer to have reasonable procedures designed to ensure that a 
payment is not treated as late for any purpose during the 21-day period 
following mailing or delivery of that statement. Thus, notwithstanding 
the contractual due date, consumers with charge card accounts must 
receive at least 21 days to make payment without penalty.
    With respect to charged-off accounts, comment 5(b)(2)(ii)-4 
clarifies that, as discussed above with respect to comment 5(b)(2)(ii)-
2, a card issuer is only prohibited from treating a payment as late 
during the 21-day period following mailing or delivery of the periodic 
statement stating the due date for that payment. Thus, because a 
charged-off account will generally have several past due payments, the 
card issuer may continue to treat those payments as late during the 21-
day period for new payments.
    Comment 5(b)(2)(ii)-4 also clarifies the application of the grace 
period requirements in Sec.  226.5(b)(2)(ii)(B) to charge card and 
charged-off accounts. Specifically, the comment states that Sec.  
226.5(b)(2)(ii)(B) does not apply to charge card accounts because, for 
purposes of Sec.  226.5(b)(2)(ii)(B), a grace period is a period within 
which any credit extended may be repaid without incurring a finance 
charge due to a periodic interest rate and, consistent with Sec.  
226.2(a)(15)(iii), charge card accounts do not impose a finance charge 
based on a periodic rate. Similarly, the comment states that Sec.  
226.5(b)(2)(ii)(B) does not apply to charged-off accounts where full 
payment of the entire account balance is due immediately because such 
accounts do not provide a grace period.
    The final rule does not alter current comment 5(b)(2)(ii)-5, which 
provides that, when a consumer initiates a request, the creditor may 
permit, but may not require, the consumer to pick up periodic 
statements. Finally, the Board has adopted the proposed revisions to 
comment 5(b)(2)(ii)-6, which amend the cross-reference to reflect the 
restructuring of the commentary to Sec.  226.7.

Section 226.5a Credit and Charge Card Applications and Solicitations

5a(b) Required Disclosures
5a(b)(1) Annual Percentage Rate
    The Board republished proposed comment 5a(b)(1)-9 in the October 
2009 Regulation Z Proposal, which was originally published in the May 
2009 Regulation Z Proposed Clarifications. The comment clarified that 
an issuer offering a deferred interest or similar plan may not disclose 
a rate as 0% due to the possibility that the consumer may not be 
obligated for interest pursuant to a deferred interest or similar 
transaction. The Board did not receive any comments opposing this 
provision, and the comment is adopted as proposed. The Board notes that 
comment 5a(b)(1)-9 would apply to account opening disclosures pursuant 
to comment 6(b)(1)-1.
5a(b)(5) Grace Period
    Sections 226.5a(b)(5) and 6(b)(2)(v) require that creditors 
disclose, among other things, any conditions on the availability of a 
grace period. As discussed below with respect to Sec.  226.54, the 
Credit Card Act provides that, when a consumer pays some but not all of 
the balance subject to a grace period prior to expiration of the grace 
period, the card issuer is prohibited from imposing finance charges on 
the portion of the balance paid. Industry commenters requested that the 
Board clarify that Sec. Sec.  226.5a(b)(5) and 6(b)(2)(v) do not 
require card issuers to disclose this limitation.
    In the January 2009 Regulation Z Rule, the Board provided the 
following model language for the disclosures required by Sec. Sec.  
226.5a(b)(5) and 6(b)(2)(v): ``Your due date is at least 25 days after 
the close of each billing cycle. We will not charge you any interest on 
purchases if you pay your entire balance by the due date each month.'' 
See, e.g., App. G-10(B).\21\ This language was developed through 
extensive consumer testing. However, the Board has not been able to 
conduct additional consumer testing with respect to disclosure of the 
limitations on the imposition of finance charges in Sec.  226.54. 
Accordingly, the Board is concerned that the inclusion of language 
attempting to describe those limitations could reduce the effectiveness 
of the disclosure.
---------------------------------------------------------------------------

    \21\ The model forms in Appendix G-17(B) and (C) also state: 
``We will begin charging interest on cash advances and balance 
transfers on the transaction date.''
---------------------------------------------------------------------------

    Furthermore, the Board does not believe that such a disclosure is 
necessary insofar as the model language accurately states that a 
consumer generally will not be charged any interest on purchases if the 
entire purchase balance is paid by the due date. Thus, although Sec.  
226.54 limits the imposition of finance charges if the consumer pays 
less than the entire balance, the model language achieves its intended 
purpose of explaining succinctly how a consumer can avoid all interest 
charges.
    Accordingly, the Board has created new comments 5a(b)(5)-4 and 
6(b)(2)(v)-4, which clarify that Sec. Sec.  226.5a(b)(5) and 6(b)(2)(v) 
do not require card issuers to disclose the limitations on the 
imposition of finance charges in Sec.  226.54. For additional clarity, 
the Board also states in a new comment 7(b)(8)-3 that a card issuer is

[[Page 7670]]

not required to include this disclosure when disclosing the date by 
which or the time period within which the new balance or any portion of 
the new balance must be paid to avoid additional finance charges 
pursuant to Sec.  226.7(b)(8).

Section 226.6 Account-Opening Disclosures

6(b) Rules Affecting Open-End (Not Home-Secured) Plans
6(b)(2)(i) Annual Percentage Rate
    Section 226.6(b)(2)(i) sets forth disclosure requirements for rates 
that apply to open-end (not home-secured) accounts. Under the January 
2009 Regulation Z Rule, creditors generally must disclose the specific 
APRs that will apply to the account in the table provided at account 
opening. The Board, however, provided a limited exception to this rule 
where the APRs that creditors may charge vary by state for accounts 
opened at the point of sale. See Sec.  226.6(b)(2)(i)(E). Pursuant to 
that exception, creditors imposing APRs that vary by state and 
providing the disclosures required by Sec.  226.6(b) in person at the 
time an open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may, at the creditor's 
option, disclose in the account-opening table either (1) the specific 
APR applicable to the consumer's account, or (2) the range of the APRs, 
if the disclosure includes a statement that the APR varies by state and 
refers the consumer to the account agreement or other disclosure 
provided with the account-opening summary table where the APR 
applicable to the consumer's account is disclosed, for example in a 
list of APRs for all states.
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
proposed to provide similar flexibility to the disclosure of APRs at 
the point of sale when rates vary based on the consumer's 
creditworthiness. Thus, the Board proposed to amend Sec.  
226.6(b)(2)(i)(E) to state that creditors providing the disclosures 
required by Sec.  226.6(b) in person at the time an open-end (not home-
secured) plan is established in connection with financing the purchase 
of goods or services may, at the creditor's option, disclose in the 
account-opening table either (1) the specific APR applicable to the 
consumer's account, or (2) the range of the APRs, if the disclosure 
includes a statement that the APR varies by state or depends on the 
consumer's creditworthiness, as applicable, and refers the consumer to 
an account agreement or other disclosure provided with the account-
opening summary table where the APR applicable to the consumer's 
account is disclosed, for example in a separate document provided with 
the account-opening table.
    The Board noted in the supplementary information to the proposed 
clarifications that if creditors are not given additional flexibility, 
some consumers could be disadvantaged because creditors may provide a 
single rate for all consumers rather than varying the rate, with some 
consumers receiving lower rates than would be offered under a single-
rate plan. Thus, without the proposed change, some consumers may be 
harmed by receiving higher rates. Moreover, the Board noted its 
understanding that the operational changes necessary to provide the 
specific APR applicable to the consumer's account in the table at point 
of sale when that rate depends on the consumer's creditworthiness may 
be too burdensome and increase creditors' risk of inadvertent 
noncompliance. Currently, creditors that establish open-end plans at 
point of sale provide account-opening disclosures at point of sale 
before the first transaction, with a reference to the APR in a separate 
document provided with the account agreement, and commonly provide a 
second, additional set of disclosures which reflect the actual APR for 
the account when, for example, a credit card is sent to the consumer.
    Industry commenters generally supported the proposed clarification, 
for the reasons stated by the Board in the supplementary information to 
the May 2009 Regulation Z Proposed Clarifications. Consumer group 
commenters opposed the proposed clarification. However, the Board notes 
that the consumer group comments were premised on consumer groups' 
understanding that the clarification would require disclosure of the 
actual rate that will apply to the consumer's account only at a later 
point of time, subsequent to when the other account-opening disclosures 
are provided at point of sale. The Board notes that the proposed 
clarification would require the disclosure of the specific APR that 
will apply to the consumer's account at the same time that other 
account-opening disclosures are provided at point of sale. The 
clarification would, however, provide creditors with the flexibility to 
disclose the specific APR on a separate page or document than the 
tabular disclosure.
    The Board is adopting the clarification to Sec.  226.6(b)(2)(i)(E) 
as proposed. The Board believes that permitting creditors to provide 
the specific APR information outside of the table at point of sale, 
with the expectation that consumers will also receive a second set of 
disclosures with the specific APR applicable to the consumer properly 
formatted in the account-opening table at a later time, strikes the 
appropriate balance between the burden on creditors and the need to 
disclose to consumers the specific APR applicable to the consumer's 
account in the account-opening table provided at point of sale. Under 
the final rule, the consumer must receive a disclosure of the actual 
APR that applies to the account at the point of sale, but that rate 
could be provided in a separate document.
6(b)(2)(v) Grace Period
    See discussion regarding Sec.  226.5a(b)(5).
6(b)(4) Disclosure of Rates for Open-End (Not Home-Secured) Plans
6(b)(4)(ii) Variable-Rate Accounts
    Section 226.6(b)(4)(ii) as adopted in the January 2009 Regulation Z 
Rule sets forth the rules for variable-rate disclosures at account-
opening, including accuracy requirements for the disclosed rate. The 
accuracy standard as adopted provides that a disclosed rate is accurate 
if it is in effect as of a ``specified date'' within 30 days before the 
disclosures are provided. See Sec.  226.6(b)(4)(ii)(G).
    Currently, creditors generally update rate disclosures provided at 
point of sale only when the rates have changed. The Board understands 
that some confusion has arisen as to whether the new rule as adopted 
literally requires that the account-opening disclosure specify a date 
as of which the rate was accurate, and that this date must be within 30 
days of when the disclosures are given. Such a requirement could pose 
operational challenges for disclosures provided at point of sale as it 
would require creditors to reprint disclosures periodically, even if 
the variable rate has not changed since the last time the disclosures 
were printed.
    The Board did not intend such a result. Requiring creditors to 
update rate disclosures to specify a date within the past 30 days would 
impose a burden on creditors with no corresponding benefit to 
consumers, where the disclosed rate is still accurate within the last 
30 days before the disclosures are provided. Accordingly, the Board 
proposed in May 2009 to revise the rule to clarify that a variable rate 
is accurate if it is a rate as of a specified date and this rate was in 
effect within the last 30 days before the disclosures are provided. No

[[Page 7671]]

significant issues were raised by commenters on this clarification, 
which is adopted as proposed.
    The Board is adopting one additional amendment to Sec.  
226.6(b)(4)(ii), to provide flexibility when variable rates are 
disclosed at point of sale. The Board understands that one consequence 
of the Credit Card Act's amendments regarding repricing of accounts, as 
implemented in Sec.  226.55 of this final rule, is that private label 
and retail card issuers may be more likely to impose variable, rather 
than non-variable, rates when opening new accounts. The Board further 
understands that account-opening disclosures provided at point of sale 
are often pre-printed, which presents particular operational 
difficulties when those disclosures must be replaced at a large number 
of retail locations. As discussed above, the general accuracy standard 
for variable rates disclosed at account opening is that a variable rate 
is accurate if it is a rate as of a specified date and this rate was in 
effect within the last 30 days before the disclosures are provided. The 
Board notes that for a creditor establishing new open-end accounts at 
point of sale, this could mean that the disclosures at each retail 
location must be replaced each month, if the creditor's variable rate 
changes in accordance with an index value each month.
    For reasons similar to those discussed above in the supplementary 
information to Sec.  226.6(b)(2)(i)(E), the Board believes that 
additional flexibility is appropriate for issuers providing account-
opening disclosures at point of sale when the rate being disclosed is a 
variable rate. The Board believes that permitting issuers to provide a 
variable rate in the table that is in effect within 90 days before the 
disclosures are provided, accompanied by a separate disclosure of a 
variable rate in effect within the last 30 days will strike the balance 
between operational burden on creditors and ensuring that consumers 
receive clear and timely disclosures of the terms that apply to their 
accounts.
    Accordingly, the Board is adopting a new Sec.  226.6(b)(4)(ii)(H), 
which states that creditors imposing annual percentage rates that vary 
according to an index that is not under the creditor's control that 
provide the disclosures required by Sec.  226.6(b) in person at the 
time an open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may disclose in the 
table a rate, or range of rates to the extent permitted by Sec.  
226.6(b)(2)(i)(E), that was in effect within the last 90 days before 
the disclosures are provided, along with a reference directing the 
consumer to the account agreement or other disclosure provided with the 
account-opening table where an annual percentage rate applicable to the 
consumer's account in effect within the last 30 days before the 
disclosures are provided is disclosed.

Section 226.7 Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans
7(b)(8) Grace Period
    See discussion regarding Sec.  226.5a(b)(5).
7(b)(11) Due Date; Late Payment Costs
    In 2005, the Bankruptcy Act amended TILA to add Section 127(b)(12), 
which required creditors that charge a late payment fee to disclose on 
the periodic statement (1) the payment due date or, if the due date 
differs from when a late payment fee would be charged, the earliest 
date on which the late payment fee may be charged, and (2) the amount 
of the late payment fee. See 15 U.S.C. 1637(b)(12). In the January 2009 
Regulation Z Rule, the Board implemented this section of TILA for open-
end (not home-secured) credit plans. Specifically, the final rule added 
Sec.  226.7(b)(11) to require creditors offering open-end (not home-
secured) credit plans that charge a fee or impose a penalty rate for 
paying late to disclose on the periodic statement: The payment due 
date, and the amount of any late payment fee and any penalty APR that 
could be triggered by a late payment. For ease of reference, this 
supplementary information will refer to the disclosure of any late 
payment fee and any penalty APR that could be triggered by a late 
payment as ``the late payment disclosures.''
    Section 226.7(b)(13), as adopted in the January 2009 Regulation Z 
Rule, sets forth formatting requirements for the due date and the late 
payment disclosures. Specifically, Sec.  226.7(b)(13) requires that the 
due date be disclosed on the front side of the first page of the 
periodic statement. Further, the amount of any late payment fee and any 
penalty APR that could be triggered by a late payment must be disclosed 
in close proximity to the due date.
    Section 202 of the Credit Card Act amends TILA Section 127(b)(12) 
to provide that for a ``credit card account under an open-end consumer 
credit plan,'' a creditor that charges a late payment fee must disclose 
in a conspicuous location on the periodic statement (1) the payment due 
date, or, if the due date differs from when a late payment fee would be 
charged, the earliest date on which the late payment fee may be 
charged, and (2) the amount of the late payment fee. In addition, if a 
late payment may result in an increase in the APR applicable to the 
credit card account, a creditor also must provide on the periodic 
statement a disclosure of this fact, along with the applicable penalty 
APR. The disclosure related to the penalty APR must be placed in close 
proximity to the due-date disclosure discussed above.
    In addition, Section 106 of the Credit Card Act adds new TILA 
Section 127(o), which requires that the payment due date for a credit 
card account under an open-end (not home-secured) consumer credit plan 
be the same day each month. 15 U.S.C. 1637(o).
    As discussed in more detail below, in the October 2009 Regulation Z 
Proposal, the Board proposed to retain the due date and the late 
payment disclosure provisions adopted in Sec.  226.7(b)(11) as part of 
the January 2009 Regulation Z Rule, with several revisions. Format 
requirements relating to the due date and the late payment disclosure 
provisions are discussed in more detail in the section-by-section 
analysis to Sec.  226.7(b)(13).
    Applicability of the due date and the late payment disclosure 
requirements. The due date and the late payment disclosures added to 
TILA Section 127(b)(12) by the Bankruptcy Act applied to all open-end 
credit plans. Consistent with TILA Section 127(b)(12), as added by the 
Bankruptcy Act, the due date and the late payment disclosures in Sec.  
226.7(b)(11) (as adopted in the January 2009 Regulation Z Rule) apply 
to all open-end (not home-secured) credit plans, including credit card 
accounts, overdraft lines of credit and other general purpose lines of 
credit that are not home secured.
    The Credit Card Act amended TILA Section 127(b)(12) to apply the 
due date and the late payment disclosures only to creditors offering a 
credit card account under an open-end consumer credit plan. Consistent 
with newly-revised TILA Section 127(b)(12), in the October 2009 
Regulation Z Proposal, the Board proposed to amend Sec.  226.7(b)(11) 
to require the due date and the late payment disclosures only for a 
``credit card account under an open-end (not home-secured) consumer 
credit plan,'' as that term would have been defined under proposed 
Sec.  226.2(a)(15)(ii). Based on the proposed definition of ``credit 
card account under an open-end (not home-secured) consumer credit 
plan,'' the due date and the late payment disclosures would not have 
applied to (1) open-end credit plans that are not credit card accounts 
such as general purpose lines of credit that are not accessed by a 
credit card; (2) HELOC

[[Page 7672]]

accounts subject to Sec.  226.5b even if they are accessed by a credit 
card device; and (3) overdraft lines of credit even if they are 
accessed by a debit card. In addition, as discussed in more detail 
below, under proposed Sec.  226.7(b)(11)(ii), the Board also proposed 
to exempt charge card accounts from the late payment disclosure 
requirements.
    In response to the October 2009 Regulation Z Proposal, several 
consumer groups encouraged the Board to use its authority under Section 
105(a) of TILA to require the payment due date and late payment 
disclosures for all open-end credit, not just ``credit card accounts 
under an open-end (not home-secured) consumer credit plan.''
    However, the final rule applies the payment due date and late 
payment disclosures only to credit card accounts under an open-end (not 
home-secured) consumer credit plan, as that term is defined in Sec.  
226.2(a)(15)(ii). Thus, the due date and the late payment disclosures 
would not apply to (1) open-end credit plans that are not credit card 
accounts such as general purpose lines of credit that are not accessed 
by a credit card; (2) HELOC accounts subject to Sec.  226.5b even if 
they are accessed by a credit card device; and (3) overdraft lines of 
credit even if they are accessed by a debit card. In addition, as 
discussed in more detail below, under Sec.  226.7(b)(11)(ii), the final 
rule also exempts charge card accounts and charged-off accounts from 
the payment due date and late payment disclosure requirements.
    1. HELOC accounts. In the August 2009 Regulation Z HELOC Proposal, 
the Board did not propose to use its authority in TILA Section 105(a) 
to apply the due date and late payment disclosures to HELOC accounts 
subject to Sec.  226.5b, even if they are accessed by a credit card 
device. In the supplemental information to the August 2009 Regulation Z 
HELOC Proposal, the Board stated its belief that the payment due date 
and late payment disclosures are not needed for HELOC accounts to 
effectuate the purposes of TILA. The consequences to a consumer of not 
making the minimum payment by the payment due date are less severe for 
HELOC accounts than for unsecured credit cards. Unlike with unsecured 
credit cards, creditors offering HELOC accounts subject to 226.5b 
typically do not impose a late-payment fee until 10-15 days after the 
payment is due. In addition, as proposed in the August 2009 Regulation 
Z HELOC Proposal, creditors offering HELOC accounts would be restricted 
from terminating and accelerating the account, permanently suspending 
the account or reducing the credit line, or imposing penalty rates or 
penalty fees (except for the contractual late-payment fee) for a 
consumer's failure to pay the minimum payment due on the account, 
unless the payment is more than 30 days late. For unsecured credit 
cards, under the Credit Card Act, after the first year an account is 
opened, unsecured credit card issuers may increase rates and fees on 
new transactions for a late payment, even if the consumer is only one 
day late in making the minimum payment. Unlike with unsecured credit 
cards, as proposed in the August 2009 Regulation HELOC Proposal, even 
after the first year that the account is open, creditors offering HELOC 
accounts subject to Sec.  226.5b could not impose penalty rates or 
penalty fees (except for a contractual late-payment fee) on new 
transactions for a consumer's failure to pay the minimum payment on the 
account, unless the consumer's payment is more than 30 days late. For 
these reasons, the final rule does not extend the payment due date and 
late payment disclosures to HELOC accounts subject to Sec.  226.5b, 
even if they are accessed by a credit card device.
    2. Overdraft lines of credit and other general purpose credit 
lines. For several reasons, the Board also does not use its authority 
in TILA Section 105(a) to apply the due date and late payment 
disclosures to overdraft lines of credit (even if they are accessed by 
a debit card) and general purpose credit lines that are not accessed by 
a credit card. First, these lines of credit are not in wide use. The 
2007 Survey of Consumer Finances data indicates that few families--1.7 
percent--had a balance on lines of credit other than a home-equity line 
or credit card at the time of the interview. (By comparison, 73 percent 
of families had a credit card, and 60.3 percent of these families had a 
credit card balance at the time of the interview.) \22\ Second, the 
Board is concerned that the operational costs of requiring creditors to 
comply with the payment due date and late payment disclosure 
requirements for overdraft lines of credit and other general purpose 
lines of credit may cause some institutions to no longer provide these 
products as accommodations to consumers, to the detriment of consumers 
who currently use these products. For these reasons, the final rule 
does not extend the payment due date and late payment disclosure 
requirements to overdraft lines of credit and other general purpose 
credit lines.
---------------------------------------------------------------------------

    \22\ Brian Bucks, et al., Changes in U.S. Family Finances from 
2004 to 2007: Evidence from the Survey of Consumer Finances, Federal 
Reserve Bulletin (February 2009).
---------------------------------------------------------------------------

    3. Charge card accounts. As discussed above, the late payment 
disclosures in TILA Section 127(b)(12), as amended by the Credit Card 
Act, apply to ``creditors'' offering credit card accounts under an 
open-end consumer credit plan. Issuers of ``charge cards'' (which are 
typically products where outstanding balances cannot be carried over 
from one billing period to the next and are payable when a periodic 
statement is received) are ``creditors'' for purposes of specifically 
enumerated TILA disclosure requirements. 15 U.S.C. 1602(f); Sec.  
226.2(a)(17). The late payment disclosure requirement in TILA Section 
127(b)(12), as amended by the Credit Card Act, is not among those 
specifically enumerated.
    Under the October 2009 Regulation Z Proposal, a charge card issuer 
would have been required to disclose the payment due date on the 
periodic statement that was the same day each month. However, under 
proposed Sec.  226.7(b)(11)(ii), a charge card issuer would not have 
been required to disclose on the periodic statement the late payment 
disclosures, namely any late payment fee or penalty APR that could be 
triggered by a late payment. The Board noted that, as discussed above, 
the late payment disclosure requirements are not specifically 
enumerated in TILA Section 103(f) to apply to charge card issuers. In 
addition, the Board noted that for some charge card issuers, payments 
are not considered ``late'' for purposes of imposing a fee until a 
consumer fails to make payments in two consecutive billing cycles. 
Therefore, the Board concluded that it would be undesirable to 
encourage consumers who in January receive a statement with the balance 
due upon receipt, for example, to avoid paying the balance when due 
because a late payment fee may not be assessed until mid-February; if 
consumers routinely avoided paying a charge card balance by the due 
date, it could cause issuers to change their practice with respect to 
charge cards.
    An industry commenter noted that charge cards should also be exempt 
from the requirement in new TILA Section 127(o) that the payment due 
date be the same day each month because that requirement, like the late 
payment disclosure requirements in revised TILA Section 127(b)(12), is 
not specifically enumerated in TILA Section 103(f) as applying to 
charge card issuers. Historically, however, the Board has generally 
used its authority under TILA Section 105(a) to apply the same 
requirements to credit and charge cards.

[[Page 7673]]

See Sec.  226.2(a)(15); comment 2(a)(15)-3. The Board has taken a 
similar approach with respect to implementation of the Credit Card Act. 
See Sec.  226.2(a)(15)(ii). Nevertheless, in these circumstances, the 
Board believes that it would not be appropriate to apply the 
requirements in TILA Section 127(b)(12) and (o) to periodic statements 
provided solely for charge card accounts.
    Charge card accounts generally require that the consumer pay the 
full balance upon receipt of the periodic statement. See comment 
2(a)(15)-3. In practice, however, the Board understands that charge 
card issuers generally request that consumers make payment by some 
later date. See comment 5a(b)(7)-1. As discussed below, proposed 
comments 7(b)(11)-1 and -2 clarify that the payment due date disclosed 
pursuant to Sec.  226.7(b)(11)(i)(A) must be the date on which the 
consumer is legally obligated to make payment, even if the contract or 
state law provides that a late payment fee cannot be assessed until 
some later date. Thus, proposed Sec.  226.7(b)(11)(i)(A) would have 
required a charge card issuer to disclose that payment was due 
immediately upon receipt of the periodic statement. As discussed above 
with respect to Sec.  226.5(b)(2)(ii), the Board believes that such a 
disclosure would be unnecessarily confusing for consumers and would 
prevent a charge card issuer from complying with the requirement that 
periodic statements be mailed or delivered 21 days before the payment 
due date. Instead, the Board believes that it is appropriate to amend 
proposed Sec.  226.7(b)(11)(ii)(A) to exempt charge card periodic 
statements from the requirements of Sec.  226.7(b)(11)(i).
    However, as discussed above, charge card issuers are still 
prohibited by Sec.  226.5(b)(2)(ii)(A)(2) from treating a payment as 
late for any purpose during the 21-day period following mailing or 
delivery of the periodic statement. Furthermore, Sec.  226.7(b)(11)(ii) 
makes clear the exemption is for periodic statements provided solely 
for charge card accounts; periodic statements provided for credit card 
accounts with a charge card feature and revolving feature must comply 
with the due date and late payment disclosure provisions as to the 
revolving feature. The Board is also retaining comment app. G-9 (which 
was adopted in the January 2009 Regulation Z Rule). Comment app. G-9 
explains that creditors offering card accounts with a charge card 
feature and a revolving feature may revise disclosures, such as the 
late payment disclosures and the repayment disclosures discussed in the 
section-by-section analysis to Sec.  226.7(b)(12) below, to make clear 
the feature to which the disclosures apply.
    4. Charged-off accounts. In response to the October 2009 Regulation 
Z Proposal, one commenter requested that credit card issuers not be 
required to provide the payment due date and late payment disclosures 
for charged-off accounts since, on those accounts, consumers are over 
180 days late, the accounts have been placed in charge-off status, and 
full payment is due immediately. The final rule provides that the 
payment due date and late payment disclosures do not apply to a 
charged-off account where full payment of the entire account balance is 
due immediately. See Sec.  226.7(b)(11)(ii)(B). In these cases, it 
would be impossible for card issuers to ensure that the payment due 
date is the same day each month because the payment is due immediately 
upon receipt of the periodic statement, and issuers cannot control 
which day the periodic statement will be received. In addition, the 
late payment disclosures are not likely to be meaningful to consumers 
because consumers are likely aware of any penalties for late payment 
when an account is 180 days late.
    5. Lines of credit accessed solely by account numbers. In response 
to the October 2009 Regulation Z Proposal, one commenter requested that 
the Board provide an exemption from the due date and late payment 
disclosures for lines of credit accessed solely by account numbers. 
This commenter believed that this exemption would simplify compliance 
issues, especially for smaller retailers offering in-house revolving 
open-end accounts, in view of some case law indicating that a reusable 
account number could constitute a ``credit card.'' The final rule does 
not contain a specific exemption from the payment due date and late 
payment disclosure requirements for lines of credit accessed solely by 
account numbers. The Board believes that consumers that use these lines 
of credit (to the extent they are considered credit card accounts) 
would benefit from the due date and late payment disclosures.
    Payment due date. As adopted in the January 2009 Regulation Z Rule, 
Sec.  226.7(b)(11) requires creditors offering open-end (not home-
secured) credit to disclose the due date for a payment if a late 
payment fee or penalty rate could be imposed under the credit 
agreement, as discussed in more detail as follows. As adopted in the 
January 2009 Regulation Z Rule, Sec.  226.7(b)(11) applies to all open-
end (not home-secured) credit plans, even those plans that are not 
accessed by a credit card device. In the October 2009 Regulation Z 
Proposal, the Board proposed generally to retain the due date 
disclosure, except that this disclosure would have been required only 
for a card issuer offering a ``credit card account under an open-end 
(not home-secured) consumer credit plan,'' as that term would have been 
defined in proposed Sec.  226.2(a)(15)(ii).
    In addition, the Board proposed several other revisions to Sec.  
226.7(b)(11) in order to implement new TILA Section 127(o), which 
requires that the payment due date for a credit card account under an 
open-end (not home-secured) consumer credit plan be the same day each 
month. In addition to requiring that the due date disclosed be the same 
day each month, in order to implement new TILA Section 127(o), the 
Board proposed to require that the due date disclosure be provided 
regardless of whether a late payment fee or penalty rate could be 
imposed and proposed to require that the due date be disclosed for 
charge card accounts, although charge card issuers would not be 
required to provide the late payment disclosures set forth in proposed 
Sec.  226.7(b)(11)(i)(B). The final rule retains this provision with 
one modification. For the reasons discussed above, the final rule 
amends proposed Sec.  226.7(b)(11)(ii) to provide that the due date and 
late payment disclosure requirements do not apply to periodic 
statements provided solely for charge card accounts or to periodic 
statements provided for charged-off accounts where payment of the 
entire account balance is due immediately.
    1. Courtesy periods. In the January 2009 Regulation Z Rule, Sec.  
226.7(b)(11) interpreted the due date to be a date that is required by 
the legal obligation. Comment 7(b)(11)-1 clarified that creditors need 
not disclose informal ``courtesy periods'' not part of the legal 
obligation that creditors may observe for a short period after the 
stated due date before a late payment fee is imposed, to account for 
minor delays in payments such as mail delays. In the October 2009 
Regulation Z Proposal, the Board proposed to retain comment 7(b)(11)-1 
with technical revisions to refer to card issuers, rather than 
creditors, consistent with the proposal to limit the due date and late 
payment disclosures to a ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' as that term would have been 
defined in proposed Sec.  226.2(a)(15)(ii). The Board received no 
comments on this provision. The final rule adopts comment 7(b)(11)-1 as 
proposed.
    2. Assessment of late fees. Under TILA Section 127(b)(12), as 
revised by the Credit Card Act, a card issuer must disclose on periodic 
statements the

[[Page 7674]]

payment due date or, if different, the earliest date on which the late 
payment fee may be charged. Some state laws require that a certain 
number of days must elapse following a due date before a late payment 
fee may be imposed. Under such a state law, the later date arguably 
would be required to be disclosed on periodic statements.
    In the January 2009 Regulation Z Rule, the Board required creditors 
to disclose the due date under the terms of the legal obligation, and 
not a later date, such as when creditors are restricted by state or 
other law from imposing a late payment fee unless a payment is late for 
a certain number of days following the due date. Specifically, comment 
7(b)(12)-2 (as adopted as part of the January 2009 Regulation Z Rule) 
notes that some state or other laws require that a certain number of 
days must elapse following a due date before a late payment fee may be 
imposed. For example, assume a payment is due on March 10 and state law 
provides that a late payment fee cannot be assessed before March 21. 
Comment 7(b)(11)-2 clarifies that creditors must disclose the due date 
under the terms of the legal obligation (March 10 in this example), and 
not a date different than the due date, such as when creditors are 
restricted by state or other law from imposing a late payment fee 
unless a payment is late for a certain number of days following the due 
date (March 21 in this example). Consumers' rights under state law to 
avoid the imposition of late payment fees during a specified period 
following a due date are unaffected by the disclosure requirement. In 
this example, the creditor would disclose March 10 as the due date for 
purposes of Sec.  226.7(b)(11), even if under state law the creditor 
could not assess a late payment fee before March 21.
    The Board was concerned that disclosure of the later date would not 
provide a meaningful benefit to consumers in the form of useful 
information or protection and would result in consumer confusion. In 
the example above, highlighting March 20 as the last date to avoid a 
late payment fee may mislead consumers into thinking that a payment 
made any time on or before March 20 would have no adverse financial 
consequences. However, failure to make a payment when due is considered 
an act of default under most credit contracts, and can trigger higher 
costs due to loss of a grace period, interest accrual, and perhaps 
penalty APRs. The Board considered additional disclosures on the 
periodic statement that would more fully explain the consequences of 
paying after the due date and before the date triggering the late 
payment fee, but such an approach appeared cumbersome and overly 
complicated.
    For these reasons, notwithstanding TILA Section 127(b)(12) (as 
revised by the Credit Card Act), in the October 2009 Regulation Z 
Proposal, the Board proposed to continue to require card issuers to 
disclose the due date under the terms of the legal obligation, and not 
a later date, such as when creditors are restricted by state or other 
law from imposing a late payment fee unless a payment is late for a 
certain number of days following the due date.
    Thus, the Board proposed to retain comment 7(b)(11)-2 with several 
revisions. First, the comment would have been revised to refer to card 
issuers, rather than creditors, consistent with the proposal to limit 
the due date and late payment disclosures to a ``credit card account 
under an open-end (not home-secured) consumer credit plan,'' as that 
term would have been defined in proposed Sec.  226.2(a)(15)(ii). 
Second, the comment would have been revised to address the situation 
where the terms of the account agreement (rather than state law) limit 
a card issuer from imposing a late payment fee unless a payment is late 
a certain number of days following a due date. The Board proposed to 
revise comment 7(b)(11)-2 to provide that in this situation a card 
issuer must disclose the date the payment is due under the terms of the 
legal obligation, and not the later date when a late payment fee may be 
imposed under the contract.
    The Board did not receive any comments on this aspect of the 
October 2009 Regulation Z Proposal. For the reasons described above, 
comment 7(b)(11)-2 is adopted as proposed. The Board adopts this 
exception to the TILA requirement to disclose the later date pursuant 
to the Board's authority under TILA Section 105(a) to make adjustments 
that are necessary to effectuate the purposes of TILA. 15 U.S.C. 
1604(a).
    3. Same due date each month. The Credit Card Act created a new TILA 
Section 127(o), which states in part that the payment due date for a 
credit card account under an open end consumer credit plan shall be the 
same day each month. The Board proposed to implement this requirement 
by revising Sec.  226.7(b)(11)(i). The text the Board proposed to 
insert into amended Sec.  226.7(b)(11)(i) generally tracked the 
statutory language in new TILA Section 127(o) and stated that for 
credit card accounts under open-end (not home-secured) consumer credit 
plans, the due date disclosed pursuant to Sec.  226.7(b)(11)(i) must be 
the same day of the month for each billing cycle.
    The Board proposed several new comments to clarify the requirement 
that the due date be the same day of the month for each billing cycle. 
Proposed comment 7(b)(11)-6 clarified that the same day of the month 
means the same numerical day of the month. The proposed comment noted 
that one example of a compliant practice would be to have a due date 
that is the 25th of every month. In contrast, it would not be 
permissible for the payment due date to be the same relative date, but 
not numerical date, of each month, such as the third Tuesday of the 
month. The Board believes that the intent of new TILA Section 127(o) is 
to promote predictability and to enhance consumer awareness of due 
dates each month to make it easier to make timely payments. The Board 
stated in the proposal that requiring the due date to be the same 
numerical day each month would effectuate the statute, and that the 
Board believed permitting the due date to be the same relative day each 
month would not as effectively promote predictability for consumers.
    The Board noted that in practice the requirement that the due date 
be the same numerical date each month would preclude creditors from 
setting due dates that are the 29th, 30th, or 31st of the month. The 
Board is aware that some credit card issuers currently set due dates 
for a portion of their accounts on every day of the month, in order to 
distribute the burden associated with processing payments more evenly 
throughout the month. The Board solicited comment on any operational 
burden associated with processing additional payments received on the 
1st through 28th of the month in those months with more than 28 days.
    Several industry commenters requested that the Board permit 
creditors to set a due date that is the last day of each month, even 
though the last day of the month will fall on a different numerical 
date in some months. Other industry commenters stated that the rule 
should permit due dates that are the 29th or 30th of each month, noting 
that February is the only month that has fewer than 30 days. One 
commenter noted that there could be customer service problems with the 
rule as proposed, especially if a consumer requests a payment due date 
that is the last day of the month. The Board believes that the intent 
of new TILA Section 127(o) is that a consumer's due date be predictable 
and generally not change from month to month. However, comment 
7(b)(11)-6 has been revised from the proposal to provide that a

[[Page 7675]]

consumer's due date may be the last day of the month, notwithstanding 
the fact that this will not be the same numerical date for each month. 
The Board believes that consumers can generally understand what the 
last day of the month will be, and that this clarification effectuates 
the intent of new TILA Section 127(o) that consumer's due date be 
predictable from month to month.
    Proposed comment 7(b)(11)(i)-7 provided that a creditor may adjust 
a consumer's due date from time to time, for example in response to a 
consumer-initiated request, provided that the new due date will be the 
same numerical date each month on an ongoing basis. The proposed 
comment cross-referenced existing comment 2(a)(4)-3 for guidance on 
transitional billing cycles that might result when the consumer's due 
date is changed. The Board stated its belief that it is appropriate to 
permit creditors to change the consumer's due date from time to time, 
for example, if the creditor wishes to honor a consumer request for a 
new due date that better coincides with the time of the month when the 
consumer is paid by his or her employer. While the proposed comment 
referred to consumer-initiated requests as one example of when a change 
in due date might occur, proposed Sec.  226.7(b)(11)(i) and comment 
7(b)(11)-7 did not prohibit changes in the consumer's due date from 
time to time that are not consumer-initiated, for example, if a 
creditor acquires a portfolio and changes the consumer's due date as it 
migrates acquired accounts onto its own systems.
    The Board received only one comment on proposed comment 
7(b)(11)(i)-7, which is adopted as proposed. One industry commenter 
stated that the guidance that the due date may be adjusted from time to 
time, but must be the same thereafter is overly restrictive. This 
commenter stated that consumers should be able to choose their desired 
due date. The Board believes that comment 7(b)(11)(i)-7 does permit 
sufficient flexibility for card issuers to permit consumers to change 
their due dates from time to time. However, the Board believes that 
clarification that the due date must generally be the same each month 
is necessary to effectuate the purposes of new TILA Section 127(o) and 
to provide predictability to consumers regarding their payment due 
dates.
    Regulation Z's definition of ``billing cycle'' in Sec.  226.2(a)(4) 
contemplates that the interval between the days or dates of regular 
periodic statements must be equal and no longer than a quarter of a 
year. Therefore, some creditors may have billing cycles that are two or 
three months in duration. The Board proposed comment 7(b)(11)-8 to 
clarify that new Sec.  226.7(b)(11)(i) does not prohibit billing cycles 
that are two or three months, provided that the due date for each 
billing cycle is on the same numerical date of each month. The Board 
received no comments on comment 7(b)(11)-8, which is adopted as 
proposed.
    Finally, the Board proposed comment 7(b)(11)-9 to clarify the 
relationship between Sec. Sec.  226.7(b)(11)(i) and 226.10(d). As 
discussed elsewhere in this supplementary information, Sec.  226.10(d) 
provides that if the payment due date is a day on which the creditor 
does not receive or accept payments by mail, the creditor is generally 
required to treat a payment received the next business day as timely. 
It is likely that, from time to time, a due date that is the same 
numerical date each month as required by Sec.  226.7(b)(11)(i) may fall 
on a date on which the creditor does not accept or receive mailed 
payments, such as a holiday or weekend. Proposed comment 7(b)(11)-9 
clarified that in such circumstances the creditor must disclose the due 
date according to the legal obligation between the parties, not the 
date as of which the creditor is permitted to treat the payment as 
late. For example, if the consumer's due date is the 4th of every 
month, a card issuer may not accept or receive payments by mail on 
Thursday, July 4. Pursuant to Sec.  226.10(d), the creditor may not 
treat a mailed payment received on the following business day, Friday, 
July 5, as late for any purpose. The creditor must nonetheless, 
however, disclose July 4 as the due date on the periodic statement and 
may not disclose a July 5 due date.
    Two industry commenters objected to proposed comment 7(b)(11)-9 and 
stated that creditors should be permitted to disclose the next business 
day as the due date if the regular due date falls on a weekend or 
holiday on which they do not receive or accept payments by mail. One 
commenter noted that this proposed requirement could create operational 
difficulties, because some creditors' systems do not process payments 
as timely if the payment is received after the posted due date on the 
periodic statement. The commenter stated that this would require some 
creditors to apply back-end due diligence to ensure that they are not 
inadvertently creating penalties, which can pose a significant burden 
on creditors.
    The Board is adopting comment 7(b)(11)-9 as proposed. The Board 
believes that the purpose of TILA Section 127(o) is to promote 
consistency and predictability regarding a consumer's due date. The 
Board believes that predictability is not promoted by permitting 
creditors to disclose different numerical dates during months where the 
consumer's payment due date falls, for example, on a weekend or holiday 
when the card issuer does not receive or accept payments by mail. This 
is consistent with the approach that the Board has taken with regard to 
payment due dates in comments 7(b)(11)-1 and -2, where the due date 
disclosed is required to reflect the legal obligation between the 
parties, not any courtesy period offered by the creditor or required by 
state or other law.
    Late payment fee and penalty APR. In the January 2009 Regulation Z 
Rule, the Board adopted Sec.  226.7(b)(11) to require creditors 
offering open-end (not home-secured) credit plans that charge a fee or 
impose a penalty rate for paying late to disclose on the periodic 
statement the amount of any late payment fee and any penalty APR that 
could be triggered by a late payment (in addition to the payment due 
date discussed above). Consistent with TILA Section 127(b)(12), as 
revised by the Credit Card Act, proposed Sec.  226.7(b)(11) would have 
continued to require that a card issuer disclose any late payment fee 
and any penalty APR that may be imposed on the account as a result of a 
late payment, in addition to the payment due date discussed above. No 
comments were received on this aspect of the proposal. The final rule 
adopts this provision as proposed.
    Fee or rate triggered by multiple events. In the January 2009 
Regulation Z Rule, the Board added comment 7(b)(11)-3 to provide 
guidance on complying with the late payment disclosure if a late fee or 
penalty APR is triggered after multiple events, such as two late 
payments in six months. Comment 7(b)(11)-3 provides that in such cases, 
the creditor may, but is not required to, disclose the late payment and 
penalty APR disclosure each month. The disclosures must be included on 
any periodic statement for which a late payment could trigger the late 
payment fee or penalty APR, such as after the consumer made one late 
payment in this example. In the October 2009 Regulation Z Proposal, the 
Board proposed to retain this comment with technical revisions to refer 
to card issuers, rather than creditors, consistent with the proposal to 
limit the late payment disclosures to a ``credit card account under an 
open-end (not home-secured) consumer credit plan,'' as that term would 
have been defined in proposed Sec.  226.2(a)(15)(ii).

[[Page 7676]]

    In response to the October 2009 Regulation Z Proposal, one 
commenter suggested that consumers would benefit from disclosure of the 
issuer's policy on late fee and penalty APRs on each periodic 
statement, whether or not the cardholder could trigger such 
consequences by making a late payment with respect to a particular 
billing period. The final rule retains comment 7(b)(11)-3 as proposed. 
The Board believes that issuers should be given the flexibility to 
tailor the late payment disclosure to the activity on the consumer's 
account, which will likely make the disclosure more useful to 
consumers.
    Range of fees and rates. In the January 2009 Regulation Z Rule, 
Sec.  226.7(b)(11)(i)(B) provides that if a range of late payment fees 
or penalty APRs could be imposed on the consumer's account, creditors 
may disclose the highest late payment fee and rate and at the 
creditor's option, an indication (such as using the phrase ``up to'') 
that lower fees or rates may be imposed. Comment 7(b)(11)-4 was added 
to illustrate the requirement. The final rule also permits creditors to 
disclose a range of fees or rates. In the October 2009 Regulation Z 
Proposal, the Board proposed to retain Sec.  226.7(b)(11)(i)(B) and 
comment 7(b)(11)-4 with technical revisions to refer to card issuers, 
rather than creditors, consistent with the proposal to limit the late 
payment disclosures to a ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' as that term would have been 
defined in proposed Sec.  226.2(a)(15)(ii). This approach recognizes 
the space constraints on periodic statements and provides card issuers 
flexibility in disclosing possible late payment fees and penalty rates.
    In response to the October 2009 Regulation Z Proposal, one industry 
commenter requested that the Board allow credit card issuers to 
disclose a range of rates or a highest rate for a card program where 
different penalty APRs apply to different accounts in the program. 
According to the commenter, different penalty APRs may apply to 
consumers' accounts within the same card program because some consumers 
in a program may not have received a change in terms for a program 
(possibly because the account was not active at the time of the 
change), or the consumer may have opted out of a change in terms 
related to an increase in the penalty APR. The commenter indicates that 
some systems do not have the operational capability to tailor the 
periodic statement warning message as a variable message and include 
the precise penalty APR that applies to each account. The commenter 
believed that there is no detriment to a consumer in allowing a more 
generic warning message because the intent of the warning message is to 
give consumers notice that paying late can have serious consequences. 
Section 226.7(b)(11)(i)(B) and comment 7(b)(11)-4 are adopted as 
proposed. The Board did not amend these provisions to allow card 
issuers to disclose to a consumer a range of rates or highest rate for 
a card program, where those rates do not apply to a consumer's account. 
The Board is mindful of compliance costs associated with customizing 
the disclosure to reflect terms applicable to a consumer's account; 
however, the Board believes the purposes of TILA would not be served if 
a consumer received a late-payment disclosure for a penalty APR that 
exceeded, perhaps substantially, the penalty APR the consumer could be 
assessed under the terms of the legal obligation of the account. For 
that reason, Sec.  226.7(b)(11)(i)(B) and comment 7(b)(11)-4 provide 
that ranges or the highest fee or penalty APR must be those applicable 
to the consumer's account. Accordingly, a creditor may state a range or 
highest penalty APR only if all penalty APRs in that range or the 
highest penalty APR would be permitted to be imposed on the consumer's 
account under the terms of the consumer's account.
    Penalty APR in effect. In the January 2009 Regulation Z Rule, 
comment 7(b)(11)-5 was added to provide that if the highest penalty APR 
has previously been triggered on an account, the creditor may, but is 
not required to, delete as part of the late payment disclosure the 
amount of the penalty APR and the warning that the rate may be imposed 
for an untimely payment, as not applicable. Alternatively, the creditor 
may, but is not required to, modify the language to indicate that the 
penalty APR has been increased due to previous late payments, if 
applicable. In the October 2009 Regulation Z Proposal, the Board 
proposed to retain this comment with technical revisions to refer to 
card issuers, rather than creditors, consistent with the proposal to 
limit the late payment disclosures to a ``credit card account under an 
open-end (not home-secured) consumer credit plan,'' as that term would 
have been defined in proposed Sec.  226.2(a)(15)(ii).
    In response to the October 2009 Regulation Z Proposal, one 
commenter suggested that the Board revise comment 7(b)(11)-5 to provide 
that if the highest APR has previously been triggered on an account, a 
creditor must modify the language of the late payment disclosure to 
indicate that the penalty APR has been increased due to previous late 
payment. The final rule adopts comment 7(b)(11)-5 as proposed. To ease 
compliance burdens, the Board believes that it is appropriate to 
provide flexibility to card issuers in providing the late payment 
disclosure when the highest penalty APR has previously been triggered 
on the account. The Board notes that consumers will receive advance 
notice under Sec.  226.9(g) when a penalty APR is being imposed on the 
consumer's account. In cases where the highest penalty APR has been 
imposed, the Board does not believe that allowing the late payment 
disclosures to continue to include the amount of the penalty APR and 
the warning that the rate may be imposed for an untimely payment is 
likely to confuse consumers.
7(b)(12) Repayment Disclosures
    The Bankruptcy Act added TILA Section 127(b)(11) to require 
creditors that extend open-end credit to provide a disclosure on the 
front of each periodic statement in a prominent location about the 
effects of making only minimum payments. 15 U.S.C. 1637(b)(11). This 
disclosure included: (1) A ``warning'' statement indicating that making 
only the minimum payment will increase the interest the consumer pays 
and the time it takes to repay the consumer's balance; (2) a 
hypothetical example of how long it would take to pay off a specified 
balance if only minimum payments are made; and (3) a toll-free 
telephone number that the consumer may call to obtain an estimate of 
the time it would take to repay his or her actual account balance 
(``generic repayment estimate''). In order to standardize the 
information provided to consumers through the toll-free telephone 
numbers, the Bankruptcy Act directed the Board to prepare a ``table'' 
illustrating the approximate number of months it would take to repay an 
outstanding balance if the consumer pays only the required minimum 
monthly payments and if no other advances are made. The Board was 
directed to create the table by assuming a significant number of 
different APRs, account balances, and minimum payment amounts; the 
Board was required to provide instructional guidance on how the 
information contained in the table should be used to respond to 
consumers' requests.
    Alternatively, the Bankruptcy Act provided that a creditor may use 
a toll-free telephone number to provide the actual number of months 
that it will take consumers to repay their outstanding balances 
(``actual repayment disclosure'') instead of providing an

[[Page 7677]]

estimate based on the Board-created table. A creditor that does so 
would not need to include a hypothetical example on its periodic 
statements, but must disclose the warning statement and the toll-free 
telephone number on its periodic statements. 15 U.S.C. 1637(b)(11)(J)-
(K).
    For ease of reference, this supplementary information will refer to 
the above disclosures in the Bankruptcy Act about the effects of making 
only the minimum payment as ``the minimum payment disclosures.''
    In the January 2009 Regulation Z Rule, the Board implemented this 
section of TILA. In that rulemaking, the Board limited the minimum 
payment disclosures required by the Bankruptcy Act to credit card 
accounts, pursuant to the Board's authority under TILA Section 105(a) 
to make adjustments that are necessary to effectuate the purposes of 
TILA. 15 U.S.C. 1604(a). In addition, the final rule in Sec.  
226.7(b)(12) provided that credit card issuers could choose one of 
three ways to comply with the minimum payment disclosure requirements 
set forth in the Bankruptcy Act: (1) Provide on the periodic statement 
a warning about making only minimum payments, a hypothetical example, 
and a toll-free telephone number where consumers may obtain generic 
repayment estimates; (2) provide on the periodic statement a warning 
about making only minimum payments, and a toll-free telephone number 
where consumers may obtain actual repayment disclosures; or (3) provide 
on the periodic statement the actual repayment disclosure. The Board 
issued guidance in Appendix M1 to part 226 for how to calculate the 
generic repayment estimates, and guidance in Appendix M2 to part 226 
for how to calculate the actual repayment disclosures. Appendix M3 to 
part 226 provided sample calculations for the generic repayment 
estimates and the actual repayment disclosures discussed in Appendices 
M1 and M2 to part 226.
    The Credit Card Act substantially revised Section 127(b)(11) of 
TILA. Specifically, Section 201 of the Credit Card Act amends TILA 
Section 127(b)(11) to provide that creditors that extend open-end 
credit must provide the following disclosures on each periodic 
statement: (1) A ``warning'' statement indicating that making only the 
minimum payment will increase the interest the consumer pays and the 
time it takes to repay the consumer's balance; (2) the number of months 
that it would take to repay the outstanding balance if the consumer 
pays only the required minimum monthly payments and if no further 
advances are made; (3) the total cost to the consumer, including 
interest and principal payments, of paying that balance in full, if the 
consumer pays only the required minimum monthly payments and if no 
further advances are made; (4) the monthly payment amount that would be 
required for the consumer to pay off the outstanding balance in 36 
months, if no further advances are made, and the total cost to the 
consumer, including interest and principal payments, of paying that 
balance in full if the consumer pays the balance over 36 months; and 
(5) a toll-free telephone number at which the consumer may receive 
information about credit counseling and debt management services. For 
ease of reference, this supplementary information will refer to the 
above disclosures in the Credit Card Act as ``the repayment 
disclosures.''
    The Credit Card Act provides that the repayment disclosures 
discussed above (except for the warning statement) must be disclosed in 
the form and manner which the Board prescribes by regulation and in a 
manner that avoids duplication; and be placed in a conspicuous and 
prominent location on the billing statement. By regulation, the Board 
must require that the disclosure of the repayment information (except 
for the warning statement) be in the form of a table that contains 
clear and concise headings for each item of information and provides a 
clear and concise form stating each item of information required to be 
disclosed under each such heading. In prescribing the table, the Board 
must require that all the information in the table, and not just a 
reference to the table, be placed on the billing statement and the 
items required to be included in the table must be listed in the order 
in which such items are set forth above. In prescribing the table, the 
statute states that the Board shall use terminology different from that 
used in the statute, if such terminology is more easily understood and 
conveys substantially the same meaning. With respect to the toll-free 
telephone number for providing information about credit counseling and 
debt management services, the Credit Card Act provides that the Board 
must issue guidelines by rule, in consultation with the Secretary of 
the Treasury, for the establishment and maintenance by creditors of a 
toll-free telephone number for purposes of providing information about 
accessing credit counseling and debt management services. These 
guidelines must ensure that referrals provided by the toll-free 
telephone number include only those nonprofit budget and credit 
counseling agencies approved by a U.S. bankruptcy trustee pursuant to 
11 U.S.C. 111(a).
    As discussed in more detail below, in the October 2009 Regulation Z 
Proposal, the Board proposed to revise Sec.  226.7(b)(12) to implement 
Section 201 of the Credit Card Act.
    Limiting the repayment disclosure requirements to credit card 
accounts. Under the Credit Card Act, the repayment disclosure 
requirements apply to all open-end accounts (such as credit card 
accounts, HELOCs, and general purpose credit lines). As discussed 
above, in the January 2009 Regulation Z Rule, the Board limited the 
minimum payment disclosures required by the Bankruptcy Act to credit 
card accounts. For similar reasons, in the October 2009 Regulation Z 
Proposal, the Board proposed to limit the repayment disclosures in the 
Credit Card Act to credit card accounts under open-end (not home-
secured) consumer credit plans, as that term would have been defined in 
proposed Sec.  226.2(a)(15)(ii).
    As proposed, the final rule limits the repayment disclosures in the 
Credit Card Act to credit card accounts under open-end (not home-
secured) consumer credit plans, as that term is defined in Sec.  
226.2(a)(15)(ii). As discussed in more detail in the section-by-section 
analysis to Sec.  226.2(a)(15)(ii), the term ``credit card account 
under an open-end (not home-secured) consumer credit plan'' means any 
open-end account accessed by a credit card, except this term does not 
include HELOC accounts subject to Sec.  226.5b that are accessed by a 
credit card device or overdraft lines of credit that are accessed by a 
debit card. Thus, based on the proposed exemption to limit the 
repayment disclosures to credit card accounts under open-end (not home-
secured) consumer credit plans, the following products would be exempt 
from the repayment disclosures in TILA Section 127(b)(11), as set forth 
in the Credit Card Act: (1) HELOC accounts subject to Sec.  226.5b even 
if they are accessed by a credit card device; (2) overdraft lines of 
credit even if they are accessed by a debit card; and (3) open-end 
credit plans that are not credit card accounts, such as general purpose 
lines of credit that are not accessed by a credit card.
    The Board adopts this rule pursuant to its exception and exemption 
authorities under TILA Section 105. Section 105(a) authorizes the Board 
to make exceptions to TILA to effectuate the statute's purposes, which 
include facilitating consumers' ability to compare credit terms and 
helping consumers avoid the uninformed use of credit. See 15 U.S.C. 
1601(a), 1604(a). Section 105(f) authorizes the Board to

[[Page 7678]]

exempt any class of transactions from coverage under any part of TILA 
if the Board determines that coverage under that part does not provide 
a meaningful benefit to consumers in the form of useful information or 
protection. See 15 U.S.C. 1604(f)(1). The Board must make this 
determination in light of specific factors. See 15 U.S.C. 1604(f)(2). 
These factors are (1) the amount of the loan and whether the disclosure 
provides a benefit to consumers who are parties to the transaction 
involving a loan of such amount; (2) the extent to which the 
requirement complicates, hinders, or makes more expensive the credit 
process; (3) the status of the borrower, including any related 
financial arrangements of the borrower, the financial sophistication of 
the borrower relative to the type of transaction, and the importance to 
the borrower of the credit, related supporting property, and coverage 
under TILA; (4) whether the loan is secured by the principal residence 
of the borrower; and (5) whether the exemption would undermine the goal 
of consumer protection.
    As discussed in more detail below, the Board has considered each of 
these factors carefully, and based on that review, believes that the 
exemption is appropriate.
    1. HELOC accounts. In the August 2009 Regulation Z HELOC Proposal, 
the Board proposed that the repayment disclosures required by TILA 
Section 127(b)(11), as amended by the Credit Card Act, not apply to 
HELOC accounts, including HELOC accounts that can be accessed by a 
credit card device. See 74 FR 43428. The Board proposed this rule 
pursuant to its exception and exemption authorities under TILA Section 
105(a) and 105(f), as discussed above. In the supplementary information 
to the August 2009 Regulation Z HELOC Proposal, the Board stated its 
belief that the minimum payment disclosures in the Credit Card Act 
would be of limited benefit to consumers for HELOC accounts and are not 
necessary to effectuate the purposes of TILA. First, the Board 
understands that most HELOCs have a fixed repayment period. Under the 
August 2009 Regulation Z HELOC Proposal, in proposed Sec.  
226.5b(c)(9)(i), creditors offering HELOCs subject to Sec.  226.5b 
would be required to disclose the length of the plan, the length of the 
draw period and the length of any repayment period in the disclosures 
that must be given within three business days after application (but 
not later than account opening). In addition, this information also 
must be disclosed at account opening under proposed Sec.  
226.6(a)(2)(v)(A), as set forth in the August 2009 Regulation Z HELOC 
Proposal. Thus, for a HELOC account with a fixed repayment period, a 
consumer could learn from those disclosures the amount of time it would 
take to repay the HELOC account if the consumer only makes required 
minimum payments. The cost to creditors of providing this information a 
second time, including the costs to reprogram periodic statement 
systems, appears not to be justified by the limited benefit to 
consumers.
    In addition, in the supplementary information to the August 2009 
Regulation Z HELOC Proposal, the Board stated its belief that the 
disclosure about total cost to the consumer of paying the outstanding 
balance in full (if the consumer pays only the required minimum monthly 
payments and if no further advances are made) would not be useful to 
consumers for HELOC accounts because of the nature of consumers' use of 
HELOC accounts. The Board understands that HELOC consumers tend to use 
HELOC accounts for larger transactions that they can finance at a lower 
interest rate than is offered on unsecured credit cards, and intend to 
repay these transactions over the life of the HELOC account. By 
contrast, consumers tend to use unsecured credit cards to engage in a 
significant number of small dollar transactions per billing cycle, and 
may not intend to finance these transactions for many years. The Board 
also understands that HELOC consumers often will not have the ability 
to repay the balances on the HELOC account at the end of each billing 
cycle, or even within a few years. To illustrate, the Board's 2007 
Survey of Consumer Finances data indicates that the median balance on 
HELOCs (for families that had a balance at the time of the interview) 
was $24,000, while the median balance on credit cards (for families 
that had a balance at the time of the interview) was $3,000.\23\
---------------------------------------------------------------------------

    \23\ Changes in U.S. Family Finances from 2004 to 2007.
---------------------------------------------------------------------------

    As discussed in the supplementary information to the August 2009 
Regulation Z HELOC Proposal, the nature of consumers' use of HELOCs 
also supports the Board's belief that periodic disclosure of the 
monthly payment amount required for the consumer to pay off the 
outstanding balance in 36 months, and the total cost to the consumer of 
paying that balance in full if the consumer pays the balance over 36 
months, would not provide useful information to consumers for HELOC 
accounts.
    For all these reasons, the final rule exempts HELOC accounts (even 
when they are accessed by a credit card account) from the repayment 
disclosure requirements set forth in TILA Section 127(b)(11), as 
revised by the Credit Card Act.
    2. Overdraft lines of credit and other general purpose credit 
lines. The final rule also exempts overdraft lines of credit (even if 
they are accessed by a debit card) and general purpose credit lines 
that are not accessed by a credit card from the repayment disclosure 
requirements set forth in TILA Section 127(b)(11), as revised by the 
Credit Card Act, for several reasons. 15 U.S.C. 1637(b)(11). First, 
these lines of credit are not in wide use. The 2007 Survey of Consumer 
Finances data indicates that few families--1.7 percent--had a balance 
on lines of credit other than a home-equity line or credit card at the 
time of the interview. (By comparison, 73 percent of families had a 
credit card, and 60.3 percent of these families had a credit card 
balance at the time of the interview.) \24\ Second, these lines of 
credit typically are neither promoted, nor used, as long-term credit 
options of the kind for which the repayment disclosures are intended. 
Third, the Board is concerned that the operational costs of requiring 
creditors to comply with the repayment disclosure requirements for 
overdraft lines of credit and other general purpose lines of credit may 
cause some institutions to no longer provide these products as 
accommodations to consumers, to the detriment of consumers who 
currently use these products. For these reasons, the Board uses its 
TILA Section 105(a) and 105(f) authority (as discussed above) to exempt 
overdraft lines of credit and other general purpose credit lines from 
the repayment disclosure requirements, because in this context the 
Board believes the repayment disclosures are not necessary to 
effectuate the purposes of TILA. 15 U.S.C. 1604(a) and (f).
---------------------------------------------------------------------------

    \24\ Changes in U.S. Family Finances from 2004 to 2007.
---------------------------------------------------------------------------

7(b)(12)(i) In General
    TILA Section 127(b)(11)(A), as amended by the Credit Card Act, 
requires that a creditor that extends open-end credit must provide the 
following disclosures on each periodic statement: (1) A ``warning'' 
statement indicating that making only the minimum payment will increase 
the interest the consumer pays and the time it takes to repay the 
consumer's balance; (2) the number of months that it would take to 
repay the outstanding balance if

[[Page 7679]]

the consumer pays only the required minimum monthly payments and if no 
further advances are made; (3) the total cost to the consumer, 
including interest and principal payments, of paying that balance in 
full, if the consumer pays only the required minimum monthly payments 
and if no further advances are made; (4) the monthly payment amount 
that would be required for the consumer to pay off the outstanding 
balance in 36 months, if no further advances are made, and the total 
cost to the consumer, including interest and principal payments, of 
paying that balance in full if the consumer pays the balance over 36 
months; and (5) a toll-free telephone number at which the consumer may 
receive information about accessing credit counseling and debt 
management services.
    In implementing these statutory disclosures, proposed Sec.  
226.7(b)(12)(i) would have set forth the repayment disclosures that a 
credit card issuer generally must provide on the periodic statement. As 
discussed in more detail below, proposed Sec.  226.7(b)(12)(ii) would 
have set forth the repayment disclosures that a credit card issuer must 
provide on the periodic statement when negative or no amortization 
occurs on the account.
    Warning statement. TILA Section 127(b)(11)(A), as amended by the 
Credit Card Act, requires that a creditor include the following 
statement on each periodic statement: ``Minimum Payment Warning: Making 
only the minimum payment will increase the amount of interest you pay 
and the time it takes to repay your balance,'' or a similar statement 
that is required by the Board pursuant to consumer testing. 15 U.S.C. 
1637(b)(11)(A). Under proposed Sec.  226.7(b)(12)(i)(A), if 
amortization occurs on the account, a credit card issuer generally 
would have been required to disclose the following statement with a 
bold heading on each periodic statement: ``Minimum Payment Warning: If 
you make only the minimum payment each period, you will pay more in 
interest and it will take you longer to pay off your balance.'' The 
proposed warning statement would have contained several stylistic 
revisions to the statutory language, based on plain language 
principles, in an attempt to make the language of the warning more 
understandable to consumers.
    The Board received no comments on this aspect of the proposal. The 
Board adopts the above warning statement as proposed. The Board tested 
the warning statement as part of the consumer testing conducted by the 
Board on credit card disclosures in relation to the January 2009 
Regulation Z Rule. Participants in that consumer testing reviewed 
periodic statement disclosures with the warning statement, and they 
indicated they understood from this statement that paying only the 
minimum payment would increase both interest charges and the length of 
time it would take to pay off a balance.
    Minimum payment disclosures. TILA Section 127(b)(11)(B)(i) and 
(ii), as amended by the Credit Card Act, requires that a creditor 
provide on each periodic statement: (1) The number of months that it 
would take to pay the entire amount of the outstanding balance, if the 
consumer pays only the required minimum monthly payments and if no 
further advances are made; and (2) the total cost to the consumer, 
including interest and principal payments, of paying that balance in 
full, if the consumer pays only the required minimum monthly payments 
and if no further advances are made. 15 U.S.C. 1637(b)(11)(B)(i) and 
(ii). In the October 2009 Regulation Z Proposal, the Board proposed new 
Sec.  226.7(b)(12)(i)(B) and (C) to implement these statutory 
provisions.
    1. Minimum payment repayment estimate. Under proposed Sec.  
226.7(b)(12)(i)(B), if amortization occurs on the account, a credit 
card issuer generally would have been required to disclose on each 
periodic statement the minimum payment repayment estimate, as described 
in proposed Appendix M1 to part 226. As described in more detail in the 
section-by-section analysis to Appendix M1 to part 226, the minimum 
payment repayment estimate would be an estimate of the number of months 
that it would take to pay the entire amount of the outstanding balance 
shown on the periodic statement, if the consumer pays only the required 
minimum monthly payments and if no further advances are made.
    Proposed Sec.  226.7(b)(12)(i)(B) would have provided that if the 
minimum payment repayment estimate is less than 2 years, a credit card 
issuer must disclose the estimate in months. Otherwise, the estimate 
would be disclosed in years. If the estimate is 2 years or more, the 
estimate would have been rounded to the nearest whole year, meaning 
that if the estimate contains a fractional year less than 0.5, the 
estimate would be rounded down to the nearest whole year. The estimate 
would have been rounded up to the nearest whole year if the estimate 
contains a fractional year equal to or greater than 0.5. In response to 
the October 2009 Regulation Z Proposal, several consumer groups 
commented that the minimum payment repayment estimate should not be 
rounded to the nearest year if the repayment period is 2 years or more. 
Instead, the Board should require in those cases that the minimum 
payment repayment estimate be disclosed in years and months. For 
example, assume a minimum payment repayment estimate of 209 months. The 
consumer groups suggest that credit card issuers should be required to 
disclose the repayment estimate of 209 months as 17 years and 5 months, 
instead of disclosing this repayment estimate as 17 years which would 
be required under the rounding rules set forth in the proposal. The 
consumer groups indicated that six months can be a significant amount 
of time for some consumers.
    As proposed, the final rule in Sec.  226.7(b)(12)(i)(B) provides 
that if the minimum payment repayment estimate is less than 2 years, a 
credit card issuer must disclose the estimate in months. Otherwise, the 
estimate would be disclosed in years. If the estimate is 2 years or 
more, the estimate would have been rounded to the nearest whole year. 
The Board adopts this provision of the final rule pursuant to the 
Board's authority to make adjustments to TILA's requirements to 
effectuate the statute's purposes, which include facilitating 
consumers' ability to compare credit terms and helping consumers avoid 
the uninformed use of credit. See 15 U.S.C. 1601(a), 1604(a). The Board 
believes that disclosing the estimated minimum payment repayment period 
in years (if the estimated payoff period is 2 years or more) allows 
consumers to better comprehend longer repayment periods without having 
to convert the repayment periods themselves from months to years. In 
consumer testing conducted by the Board on credit card disclosures in 
relation to the January 2009 Regulation Z Rule, participants reviewed 
disclosures with estimated minimum payment repayment periods in years, 
and they indicated they understood the length of time it would take to 
repay the balance if only minimum payments were made.
    Thus, if the minimum payment repayment estimate is 2 years or more, 
the final rule does not require credit card issuers to disclose the 
minimum payment repayment estimate in years and months, such as 
disclosing the minimum payment repayment estimate of 209 months as 17 
years and 5 months, instead of disclosing this repayment estimate as 17 
years (which is required under the rounding rules set forth in the 
final rule). The Board recognizes that the minimum payment repayment 
estimates, as calculated in Appendix M1 to part 226, are estimates, 
calculated

[[Page 7680]]

using a number of assumptions about current and future account terms. 
The Board believes that disclosing minimum payment repayment estimates 
that are 2 years or more in years and months might cause consumers to 
believe that the estimates are more accurate than they really are, 
especially for longer repayment periods. The Board believes that 
rounding the minimum payment repayment estimate to the nearest year (if 
the repayment estimate is 2 years or more) provides consumers with an 
appropriate estimate of how long it would take to repay the outstanding 
balance if only minimum payments are made.
    2. Minimum payment total cost estimate. Consistent with TILA 
Section 127(b)(11)(B)(ii), as revised by the Credit Card Act, proposed 
Sec.  226.7(b)(12)(i)(C) provided that if amortization occurs on the 
account, a credit card issuer generally must disclose on each periodic 
statement the minimum payment total cost estimate, as described in 
proposed Appendix M1 to part 226. As described in more detail in the 
section-by-section analysis to proposed Appendix M1 to part 226, the 
minimum payment total cost estimate would have been an estimate of the 
total dollar amount of the interest and principal that the consumer 
would pay if he or she made minimum payments for the length of time 
calculated as the minimum payment repayment estimate, as described in 
proposed Appendix M1 to part 226. Under the proposal, the minimum 
payment total cost estimate must be rounded to the nearest whole 
dollar. The final rule adopts this provision as proposed.
    3. Disclosure of assumptions used to calculate the minimum payment 
repayment estimate and the minimum payment total cost estimate. Under 
proposed Sec.  226.7(b)(12)(i)(D), a creditor would have been required 
to provide on the periodic statement the following statements: (1) A 
statement that the minimum payment repayment estimate and the minimum 
payment total cost estimate are based on the current outstanding 
balance shown on the periodic statement; and (2) a statement that the 
minimum payment repayment estimate and the minimum payment total cost 
estimate are based on the assumption that only minimum payments are 
made and no other amounts are added to the balance. The final rule 
adopts this provision as proposed. The Board believes that this 
information is needed to help consumers understand the minimum payment 
repayment estimate and the minimum payment total cost estimate. The 
final rule does not require issuers to disclose other assumptions used 
to calculate these estimates. The many assumptions that are necessary 
to calculate the minimum payment repayment estimate and the minimum 
payment total cost estimate are complex and unlikely to be meaningful 
or useful to most consumers.
    Repayment disclosures based on repayment in 36 months. TILA Section 
127(b)(11)(B)(iii), as revised by the Credit Card Act, requires that a 
creditor disclose on each periodic statement: (1) The monthly payment 
amount that would be required for the consumer to pay off the 
outstanding balance in 36 months, if no further advances are made; and 
(2) the total costs to the consumer, including interest and principal 
payments, of paying that balance in full if the consumer pays the 
balance over 36 months. 15 U.S.C. 1637(b)(11)(B)(iii).
    1. Estimated monthly payment for repayment in 36 months and total 
cost estimate for repayment in 36 months. In implementing TILA Section 
127(b)(11)(B)(iii), as revised by the Credit Card Act, proposed Sec.  
226.7(b)(12)(i)(F) provided that except when the minimum payment 
repayment estimate disclosed under proposed Sec.  226.7(b)(12)(i)(B) is 
3 years or less, a credit card issuer must disclose on each periodic 
statement the estimated monthly payment for repayment in 36 months and 
the total cost estimate for repayment in 36 months, as described in 
proposed Appendix M1 to part 226. As described in more detail in the 
section-by-section analysis to Appendix M1 to part 226, the proposed 
estimated monthly payment for repayment in 36 months would have been an 
estimate of the monthly payment amount that would be required to pay 
off the outstanding balance shown on the statement within 36 months, 
assuming the consumer paid the same amount each month for 36 months. 
Also, as described in Appendix M1 to part 226, the proposed total cost 
estimate for repayment in 36 months would have been the total dollar 
amount of the interest and principal that the consumer would pay if he 
or she made the estimated monthly payment each month for 36 months. 
Under the proposal, the estimated monthly payment for repayment in 36 
months and the total cost estimate for repayment in 36 months would 
have been rounded to the nearest whole dollar. The final rule adopts 
these provisions as proposed, except with several additional exceptions 
to when the 36-month disclosures must be disclosed as discussed below.
    2. Savings estimate for repayment in 36 months. In addition to the 
disclosure of the estimated monthly payment for repayment in 36 months 
and the total cost estimate for repayment in 36 months, proposed Sec.  
226.7(b)(12)(i)(F) also would have required that a credit card issuer 
generally must disclose on each periodic statement the savings estimate 
for repayment in 36 months, as described in proposed Appendix M1 to 
part 226. As described in proposed Appendix M1 to part 226, the savings 
estimate for repayment in 36 months would have been calculated as the 
difference between the minimum payment total cost estimate and the 
total cost estimate for repayment in 36 months. Thus, the savings 
estimate for repayment in 36 months would have represented an estimate 
of the amount of interest that a consumer would ``save'' if the 
consumer repaid the balance shown on the statement in 3 years by making 
the estimated monthly payment for repayment in 36 months each month, 
rather than making minimum payments each month. In response to the 
October 2009 Regulation Z Proposal, one commenter indicated that the 
Board should not require the savings estimate for repayment in 36 
months because this disclosure would not be helpful to consumers. The 
final rule requires credit card issuers generally to disclose the 
savings estimate for repayment in 36 months on periodic statements, as 
proposed. The Board adopts this disclosure requirement pursuant to the 
Board's authority to make adjustments to TILA's requirements to 
effectuate the statute's purposes, which include facilitating 
consumers' ability to compare credit terms and helping consumers avoid 
the uninformed use of credit. See 15 U.S.C. 1601(a), 1604(a). The Board 
continues to believe that the savings estimate for repayment in 36 
months will allow consumers more easily to understand the potential 
savings of paying the balance shown on the periodic statement in 3 
years rather than making minimum payments each month. This potential 
savings appears to be Congress' purpose in requiring that the total 
cost for making minimum payments and the total cost for repayment in 36 
months be disclosed on the periodic statement. The Board believes that 
including the savings estimate on the periodic statement allows 
consumers to comprehend better the potential savings without having to 
compute this amount themselves from the total cost estimates disclosed 
on the periodic statement. In consumer testing conducted by the Board 
on closed-end mortgage disclosures in relation to the

[[Page 7681]]

August 2009 Regulation Z Closed-End Credit Proposal, some participants 
were shown two offers for mortgage loans with different APRs and 
different totals of payments. In that consumer testing, in comparing 
the two mortgage loans, participants tended not to calculate for 
themselves the difference between the total of payments for the two 
loans (i.e., the potential savings in choosing one loan over another), 
and use that amount to compare the two loans. Instead, participants 
tended to disregard the total of payments for both loans, because both 
totals were large numbers. Given the results of that consumer testing, 
the Board believes it is important to disclose the savings estimate on 
the periodic statement to focus consumers' attention explicitly on the 
potential savings of repaying the balance in 36 months.
    3. Minimum payment repayment estimate disclosed on the periodic 
statement is three years or less. Under proposed Sec.  
226.7(b)(12)(i)(F), a credit card issuer would not have been required 
to provide the disclosures related to repayment in 36 months if the 
minimum payment repayment estimate disclosed under proposed Sec.  
226.7(b)(12)(i)(B) was 3 years or less. The Board retains this 
exemption in the final rule with several technical revisions. The Board 
adopts this exemption pursuant to the Board's authority exception and 
exemption authorities under TILA Section 105(a) and (f). The Board has 
considered the statutory factors carefully, and based on that review, 
believes that the exemption is appropriate. The Board believes that the 
estimated monthly payment for repayment in 36 months, and the total 
cost estimate for repayment in 36 months would not be useful and may be 
misleading to consumers where based on the minimum payments that would 
be due on the account, a consumer would be required to repay the 
outstanding balance in three years or less. For example, assume that 
based on the minimum payments due on an account, a consumer would repay 
his or her outstanding balance in two years if the consumer only makes 
minimum payments and take no additional advances. The consumer under 
the account terms would not have the option to repay the outstanding 
balance in 36 months (i.e., 3 years). In this example, disclosure of 
the estimated monthly payment for repayment in 36 months and the total 
cost estimate for repayment in 36 months would be misleading, because 
under the account terms the consumer does not have the option to make 
the estimated monthly payment each month for 36 months. Requiring that 
this information be disclosed on the periodic statement when it is 
might be misleading to consumers would undermine TILA's goal of 
consumer protection, and could make the credit process more expensive 
by requiring card issuers to incur costs to address customer confusion 
about these disclosures.
    In the final rule, the provision that exempts credit card issuers 
from disclosing on the periodic statement the disclosures related to 
repayment in 36 months if the minimum payment repayment estimate 
disclosed under Sec.  226.7(b)(12)(i)(B) is 3 years or less has been 
moved to Sec.  226.7(b)(1)(i)(F)(2)(i). In addition, the language of 
this exemption has been revised to clarify that the exemption applies 
if the minimum payment repayment estimate disclosed on the periodic 
statement under Sec.  226.7(b)(12)(i)(B) after rounding is 3 years or 
less. For example, under the final rule, if the minimum payment 
repayment estimate is 2 years 6 month to 3 years 5 months, issuers 
would be required to disclose on the periodic statement that it would 
take 3 years to pay off the balance in full if making only the minimum 
payment. In these cases, an issuer would not be required to disclose 
the 36-month disclosures on the periodic statement because the minimum 
payment repayment estimate disclosed to the consumer on the periodic 
statement (after rounding) is 3 years or less. Comment 7(b)(12)(i)(F)-1 
has been added to clarify these disclosure rules.
    4. Estimated monthly payment for repayment in 36 months is less 
than the minimum payment for a particular billing cycle. In response to 
the October 2009 Regulation Z Proposal, several commenters suggested 
that card issuer should not be required to disclose the 36-month 
disclosures in a billing cycle where the minimum payment for that 
billing cycle is higher than the payment amount that would be disclosed 
in order to pay off the account in 36 months (i.e., the estimated 
monthly payment for repayment in 36 months). One commenter indicated 
that this can occur for credit card programs that use a graduated 
payment schedule, which require a larger minimum payment in the initial 
months after a transaction on the account. This may also occur when an 
account is past due, and the required minimum payment for a particular 
billing cycle includes the entire past due amount. Commenters were 
concerned that disclosing an estimated monthly payment for repayment in 
36 months in a billing cycle where this estimated payment is lower than 
the required minimum payment for that billing cycle might be confusing 
and even deceptive to consumers. A consumer that paid the estimated 
monthly payment for repayment in 36 months (which is lower than the 
required minimum payment that billing cycle) could incur a late fee and 
be subject to other penalties. The Board shares these concerns, and 
thus, the final rule provides that a card issuer is not required to 
disclose the 36-month disclosures for any billing cycle where the 
estimated monthly payment for repayment in 36 months, as described in 
Appendix M1 to part 226, rounded to the nearest whole dollar that is 
calculated for a particular billing cycle is less than the minimum 
payment required for the plan for that billing cycle. See Sec.  
226.7(b)(12)(i)(F)(2)(ii). The Board adopts this exemption pursuant to 
the Board's authority exception and exemption authorities under TILA 
Section 105(a). The Board has considered the statutory factors 
carefully, and based on that review, believes that the exemption is 
appropriate. Requiring that the 36-month disclosures be disclosed on 
the periodic statement when they might be misleading to consumers would 
undermine TILA's goal of consumer protection, and could make the credit 
process more expensive by requiring card issuers to incur costs to 
address customer confusion about these disclosures.
    5. A billing cycle where an account has both a balance on a 
revolving feature and on a fixed repayment feature. In response to the 
October 2009 Regulation Z Proposal, several commenters raised concerns 
that the 36-month disclosures could be misleading in a particular 
billing cycle where an account has both a balance in a revolving 
feature where the required minimum payments for this feature will not 
amortize that balance in a fixed amount of time specified in the 
account agreement and a balance in a fixed repayment feature where the 
required minimum payment for this fixed repayment feature will amortize 
that balance in a fixed amount of time specified in the account 
agreement which is less than 36 months. For example, assume a retail 
card has several features. One feature is a general revolving feature, 
where the required minimum payment for this feature does not pay off 
the balance in a fixed period of time. Another feature allows consumers 
to make specific types of purchases (such as furniture purchases, or 
other large purchases), with a required minimum payment that will

[[Page 7682]]

pay off the purchase within a fixed period of time as set forth in the 
account agreement that is less than 36 months, such as one year. 
Commenters indicated that in many cases, where this type of account has 
balances on both the revolving feature and fixed repayment feature for 
a particular billing cycle, the required minimum due may initially be 
higher than what would be required to repay the entire account balance 
in 36 equal payments. In addition, calculation of the estimated monthly 
payment for repayment in 36 months assumes that the entire balance may 
be repaid in 36 months, while under the account agreement the balance 
in the fixed repayment feature must be repaid in a shorter timeframe. 
Based on these concerns, the Board amends the final rule to provide 
that a card issuer is not required to provide the 36-month disclosures 
on a periodic statement for a billing cycle where an account has both a 
balance in a revolving feature where the required minimum payments for 
this feature will not amortize that balance in a fixed amount of time 
specified in the account agreement and a balance in a fixed repayment 
feature where the required minimum payment for this fixed repayment 
feature will amortize that balance in a fixed amount of time specified 
in the account agreement which is less than 36 months. See Sec.  
226.7(b)(12)(i)(F)(2)(iii). The Board adopts this exemption pursuant to 
the Board's authority exception and exemption authorities under TILA 
Section 105(a). The Board has considered the statutory factors 
carefully, and based on that review, believes that the exemption is 
appropriate. Requiring that the 36-month disclosures be disclosed on 
the periodic statement when they might be misleading to consumers would 
undermine TILA's goal of consumer protection, and could make the credit 
process more expensive by requiring card issuers to incur costs to 
address customer confusion about these disclosures.
    6. Disclosure of assumptions used to calculate the 36-month 
disclosures. If a card issuer is required to provide the 36-month 
disclosures, proposed Sec.  226.7(b)(12)(i)(F)(2) would have provided 
that a credit card issuer must disclose as part of those disclosures a 
statement that the card issuer estimates that the consumer will repay 
the outstanding balance shown on the periodic statement in 3 years if 
the consumer pays the estimated monthly payment each month for 3 years. 
The final rule retains this provision as proposed, except that this 
provision is moved to Sec.  226.7(b)(12)(i)(F)(1)(ii). The Board 
believes that this information is needed to help consumers understand 
the estimated monthly payment for repayment in 36 months. The final 
rule does not require issuers to disclose assumptions used to calculate 
this estimated monthly payment. The many assumptions that are necessary 
to calculate the estimated monthly payment for repayment in 36 months 
are complex and unlikely to be meaningful or useful to most consumers.
    Disclosure of extremely long repayment periods. In response to the 
October 2009 Regulation Z Proposal, one commenter indicated that it had 
observed accounts that result in very long repayment periods. This 
commenter indicated that this situation usually results when the 
minimum payment requirements are very low in proportion to the APRs on 
the account. The commenter indicated that these scenarios result most 
frequently when issuers endeavor to provide temporary relief to 
consumers during periods of hardship, workout and disasters such as 
floods. This commenter indicated that requiring issuers to calculate 
and disclose these long repayment periods would cause compliance 
problems, because the software program cannot be written to execute an 
ad infinitum number of cycles. The commenter requested that the Board 
establish a reasonable maximum number of years for repayment and 
provide an appropriate statement disclosure message to reflect an 
account that exceeds the number of years and total costs provided.
    With respect to these temporarily reduced minimum payments, the 
calculation of these long repayment periods often result from assuming 
that the temporary minimum payment will apply indefinitely. The Board 
notes that guidance provided in Appendix M1 to part 226 for how to 
handle temporary minimum payments may reduce the situations in which 
the calculation of a long repayment period would result. In particular, 
as discussed in more detail in the section-by-section analysis to 
Appendix M1 to part 226, Appendix M1 provides that if any promotional 
terms related to payments apply to a cardholder's account, such as a 
deferred billing plan where minimum payments are not required for 12 
months, credit card issuers may assume no promotional terms apply to 
the account. In Appendix M1 to part 226, the term ``promotional terms'' 
is defined as terms of a cardholder's account that will expire in a 
fixed period of time, as set forth by the card issuer. Appendix M1 to 
part 226 clarifies that issuers have two alternatives for handling 
promotional minimum payments. Under the first alternative, an issuer 
may disregard the promotional minimum payment during the promotional 
period, and instead calculate the minimum payment repayment estimate 
using the standard minimum payment formula that is applicable to the 
account. For example, assume that a promotional minimum payment of $10 
applies to an account for six months, and then after the promotional 
period expires, the minimum payment is calculated as 2 percent of the 
outstanding balance on the account or $20 whichever is greater. An 
issuer may assume during the promotional period that the $10 
promotional minimum payment does not apply, and instead calculate the 
minimum payment disclosures based on the minimum payment formula of 2 
percent of the outstanding balance or $20, whichever is greater. The 
Board notes that allowing issuers to disregard promotional payment 
terms on accounts where the promotional payment terms apply only for a 
limited amount of time eases the compliance burden on issuers, without 
a significant impact on the accuracy of the repayment estimates for 
consumers.
    Under the second alternative, an issuer in calculating the minimum 
payment repayment estimate during the promotional period may choose not 
to disregard the promotional minimum payment but instead may calculate 
the minimum payments as they will be calculated over the duration of 
the account. In the above example, an issuer could calculate the 
minimum payment repayment estimate during the promotional period by 
assuming the $10 promotional minimum payment will apply for the first 
six months and then assuming the 2 percent or $20 (whichever is 
greater) minimum payment formula will apply until the balance is 
repaid. Appendix M1 to part 226 clarifies, however, that in calculating 
the minimum payment repayment estimate during a promotional period, an 
issuer may not assume that the promotional minimum payment will apply 
until the outstanding balance is paid off by making only minimum 
payments (assuming the repayment estimate is longer than the 
promotional period). In the above example, the issuer may not calculate 
the minimum payment repayment estimate during the promotional period by 
assuming that the $10 promotional minimum payment will apply beyond the 
six months until the outstanding balance is repaid.

[[Page 7683]]

    While the Board believes that the above guidance for how to handle 
temporary minimum payments may reduce the situations in which the 
calculation of a long repayment period would result, the Board 
understands that there may still be circumstances where long repayment 
periods result, because the standard minimum payment is low in 
comparison to the APR that applies to the account. The final rule does 
not contain special rules for disclosing extremely long repayment 
periods, such as allowing credit card issuers to disclose long 
repayment periods as ``over 100 years.'' As proposed, the final rule 
requires a credit card issuer to disclose the minimum payment repayment 
estimate, as described in Appendix M1 to part 226, on the periodic 
statement even if that repayment period is extremely long, such as over 
100 years. The Board believes that it was Congress' intent to require 
that estimates of the repayment periods be disclosed on periodic 
statements, even if the repayment periods are extremely long.
    Toll-free telephone number. TILA Section 127(b)(11)(B)(iii), as 
revised by the Credit Card Act, requires that a creditor disclose on 
each periodic statement a toll-free telephone number at which the 
consumer may receive information about credit counseling and debt 
management services. 15 U.S.C. 1637(b)(11)(B)(iii). Proposed Sec.  
226.7(b)(12)(i)(E) provided that a credit card issuer generally must 
disclose on each periodic statement a toll-free telephone number where 
the consumer may obtain information about credit counseling services 
consistent with the requirements set forth in proposed Sec.  
226.7(b)(12)(iv). The final rule adopts this provision as proposed. As 
discussed in more detail below, Sec.  226.7(b)(12)(iv) sets forth the 
information that a credit card issuer must provide through the toll-
free telephone number.
7(b)(12)(ii) Negative or No Amortization
    Negative or no amortization can occur if the required minimum 
payment is the same as or less than the total finance charges and other 
fees imposed during the billing cycle. Several major credit card 
issuers have established minimum payment requirements that prevent 
prolonged negative or no amortization. But some creditors may use a 
minimum payment formula that allows negative or no amortization (such 
as by requiring a payment of 2 percent of the outstanding balance, 
regardless of the finance charges or fees incurred).
    The Credit Card Act appears to require the following disclosures 
even when negative or no amortization occurs: (1) A ``warning'' 
statement indicating that making only the minimum payment will increase 
the interest the consumer pays and the time it takes to repay the 
consumer's balance; (2) the number of months that it would take to 
repay the outstanding balance if the consumer pays only the required 
minimum monthly payments and if no further advances are made; (3) the 
total cost to the consumer, including interest and principal payments, 
of paying that balance in full, if the consumer pays only the required 
minimum monthly payments and if no further advances are made; (4) the 
monthly payment amount that would be required for the consumer to pay 
off the outstanding balance in 36 months, if no further advances are 
made, and the total cost to the consumer, including interest and 
principal payments, of paying that balance in full if the consumer pays 
the balance over 36 months; and (5) a toll-free telephone number at 
which the consumer may receive information about credit counseling and 
debt management services.
    Nonetheless, for the reasons discussed in more detail below, in the 
October 2009 Regulation Z Proposal, the Board proposed to make 
adjustments to the above statutory requirements when negative or no 
amortization occurs. Specifically, when negative or no amortization 
occurs, the Board proposed in new Sec.  226.7(b)(12)(ii) to require a 
credit card issuer to disclose to the consumer on the periodic 
statement the following information: (1) the following statement: 
``Minimum Payment Warning: Even if you make no more charges using this 
card, if you make only the minimum payment each month we estimate you 
will never pay off the balance shown on this statement because your 
payment will be less than the interest charged each month;'' (2) the 
following statement: ``If you make more than the minimum payment each 
period, you will pay less in interest and pay off your balance 
sooner;'' (3) the estimated monthly payment for repayment in 36 months; 
(4) the fact that the card issuer estimates that the consumer will 
repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years; and (5) the toll-free telephone number for obtaining 
information about credit counseling services. The final rule adopts 
these disclosures, as proposed, pursuant to the Board's authority under 
TILA Section 105(a) to make adjustments or exceptions to effectuate the 
purposes of TILA. 15 U.S.C. 1604(a). When negative or no amortization 
occurs, the number of months to repay the balance shown on the 
statement if minimum payments are made and the total cost in interest 
and principal if the balance is repaid making only minimum payments 
cannot be calculated because the balance will never be repaid if only 
minimum payments are made. Under the final rule, these statutory 
disclosures are replaced with a warning that the consumer will never 
repay the balance if making minimum payments each month.
    In addition, under the final rule, if negative or no amortization 
occurs, card issuers would be required to disclose the following 
statement: ``If you make more than the minimum payment each period, you 
will pay less in interest and pay off your balance sooner.'' This 
sentence is similar to, and accomplishes the goals of, the statutory 
warning statement, by informing consumers that they can pay less 
interest and pay off the balance sooner if the consumer pays more than 
the minimum payment each month.
    In addition, consistent with TILA Section 127(b)(11) as revised by 
the Credit Card Act, if negative or no amortization occurs, under the 
final rule, a credit card issuer must disclose to the consumer the 
estimated monthly payment for repayment in 36 months and a statement of 
the fact the card issuer estimates that the consumer will repay the 
outstanding balance shown on the periodic statement in 3 years if the 
consumer pays the estimated monthly payment each month for 3 years.
    Under the final rule, if negative or no amortization occurs, a card 
issuer, however, would not disclose the total cost estimate for 
repayment in 36 months, as described in Appendix M1 to part 226. The 
Board adopts an exception to TILA's requirement to disclose the total 
cost estimate for repayment in 36 months pursuant to the Board's 
exception and exemption authorities under TILA Section 105(f).
    The Board has considered each of the statutory factors carefully, 
and based on that review, believes that the exemption is appropriate. 
As discussed above, when negative or no amortization occurs, a minimum 
payment total cost estimate cannot be calculated because the balance 
shown on the statement will never be repaid if only minimum payments 
are made. Thus, under the final rule, a credit card issuer would not be 
required to disclose a minimum payment total cost estimate as described 
in proposed Appendix M1 to part 226. Because the minimum payment total 
cost estimate will not be disclosed when

[[Page 7684]]

negative or no amortization occurs, the Board does not believe that the 
total cost estimate for repayment in 36 months would be useful to 
consumers. The Board believes that the total cost estimate for 
repayment in 36 months is useful when it can be compared to the minimum 
payment total cost estimate. Requiring that this information be 
disclosed on the periodic statement when it is not useful to consumers 
could distract consumers from more important information on the 
periodic statement, which could undermine TILA's goal of consumer 
protection.
7(b)(12)(iii) Format Requirements
    As discussed above, TILA Section 127(b)(11)(D), as revised by the 
Credit Card Act, provides that the repayment disclosures (except for 
the warning statement) must be disclosed in the form and manner which 
the Board prescribes by regulation and in a manner that avoids 
duplication and must be placed in a conspicuous and prominent location 
on the billing statement. 15 U.S.C. 1637(b)(11)(D). By regulation, the 
Board must require that the disclosure of the repayment information 
(except for the warning statement) be in the form of a table that 
contains clear and concise headings for each item of information and 
provides a clear and concise form stating each item of information 
required to be disclosed under each such heading. In prescribing the 
table, the Board must require that all the information in the table, 
and not just a reference to the table, be placed on the billing 
statement. In addition, the items required to be included in the table 
must be listed in the following order: (1) The minimum payment 
repayment estimate; (2) the minimum payment total cost estimate; (3) 
the estimated monthly payment for repayment in 36 months; (4) the total 
cost estimate for repayment in 36 months; and (5) the toll-free 
telephone number. In prescribing the table, the Board must use 
terminology different from that used in the statute, if such 
terminology is more easily understood and conveys substantially the 
same meaning.
    Samples G-18(C)(1), G-18(C)(2) and G-18(C)(3). Proposed Sec.  
226.7(b)(12)(iii) provided that a credit card issuer must provide the 
repayment disclosures in a format substantially similar to proposed 
Samples G 18(C)(1), G-18(C)(2) and G-18(C)(3) in Appendix G to part 
226, as applicable.
    Proposed Sample G-18(C)(1) would have applied when amortization 
occurs and the 36-month disclosures were required to be disclosed under 
proposed Sec.  226.7(b)(12)(i)(F). In this case, as discussed above, a 
credit card issuer would have been required under proposed Sec.  
226.7(b)(12) to disclose on the periodic statement: (1) The warning 
statement; (2) the minimum payment repayment estimate; (3) the minimum 
payment total cost estimate; (4) the fact that the minimum payment 
repayment estimate and the minimum payment total cost estimate are 
based on the current outstanding balance shown on the periodic 
statement, and the fact that the minimum payment repayment estimate and 
the minimum payment total cost estimate are based on the assumption 
that only minimum payments are made and no other amounts are added to 
the balance; (5) the estimated monthly payment for repayment in 36 
months; (6) the total cost estimate for repayment in 36 months; (7) the 
savings estimate for repayment in 36 months; (8) the fact that the card 
issuer estimates that the consumer will repay the outstanding balance 
shown on the periodic statement in 3 years if the consumer pays the 
estimated monthly payment each month for 3 years; and (9) the toll-free 
telephone number for obtaining information about credit counseling 
services. Sample G-18(C)(1) is adopted as proposed, with technical 
edits to the heading of the sample form.
    As shown in Sample G-18(C)(1), card issuers are required to provide 
the following disclosures in the form of a table with headings, content 
and format substantially similar to Sample G-18(C)(1): (1) The fact 
that the minimum payment repayment estimate and the minimum payment 
total cost estimate are based on the assumption that only minimum 
payments are made; (2) the minimum payment repayment estimate; (3) the 
minimum payment total cost estimate, (4) the estimated monthly payment 
for repayment in 36 months; (5) the fact the card issuer estimates that 
the consumer will repay the outstanding balance shown on the periodic 
statement in 3 years if the consumer pays the estimated monthly payment 
each month for 3 years; (6) total cost estimate for repayment in 36 
months; and (7) the savings estimate for repayment in 36 months. The 
following information is incorporated into the headings for the table: 
(1) The fact that the minimum payment repayment estimate and the 
minimum payment total cost estimate are based on the current 
outstanding balance shown on the periodic statement; and (2) the fact 
that the minimum payment repayment estimate and the minimum payment 
total cost estimate are based on the assumption that no other amounts 
are added to the balance. The warning statement must be disclosed above 
the table and the toll-free telephone number must be disclosed below 
the table.
    Proposed Sample G-18(C)(2) would have applied when amortization 
occurs and the 36-month disclosures were not required to be disclosed 
under proposed Sec.  226.7(b)(12)(i)(F). In this case, as discussed 
above, a credit card issuer would have been required under proposed 
Sec.  226.7(b)(12) to disclose on the periodic statement: (1) The 
warning statement; (2) the minimum payment repayment estimate; (3) the 
minimum payment total cost estimate; (4) the fact that the minimum 
payment repayment estimate and the minimum payment total cost estimate 
are based on the current outstanding balance shown on the periodic 
statement, and the fact that the minimum payment repayment estimate and 
the minimum payment total cost estimate are based on the assumption 
that only minimum payments are made and no other amounts are added to 
the balance; and (5) the toll-free telephone number for obtaining 
information about credit counseling services. Sample G-18(C)(2) is 
adopted as proposed, with technical edits to the heading of the sample 
form.
    As shown in Sample G-18(C)(2), disclosure of the above information 
is similar in format to how this information is disclosed in Sample G-
18(C)(1). Specifically, as shown in Sample G-18(C)(2), card issuers are 
required to disclose the following disclosures in the form of a table 
with headings, content and format substantially similar to Sample G-
18(C)(2): (1) The fact that the minimum payment repayment estimate and 
the minimum payment total cost estimate are based on the assumption 
that only minimum payments are made; (2) the minimum payment repayment 
estimate; and (3) the minimum payment total cost estimate. The 
following information is incorporated into the headings for the table: 
(1) The fact that the minimum payment repayment estimate and the 
minimum payment total cost estimate are based on the current 
outstanding balance shown on the periodic statement; and (2) the fact 
that the minimum payment repayment estimate and the minimum payment 
total cost estimate are based on the assumption that no other amounts 
are added to the balance. The warning statement must be disclosed above 
the table and the toll-free telephone number must be disclosed below 
the table.
    Proposed Sample G-18(C)(3) would have applied when negative or no 
amortization occurs. In this case, as discussed above, a credit card 
issuer would have been required under

[[Page 7685]]

proposed Sec.  226.7(b)(12) to disclose on the periodic statement: (1) 
The following statement: ``Minimum Payment Warning: Even if you make no 
more charges using this card, if you make only the minimum payment each 
month we estimate you will never pay off the balance shown on this 
statement because your payment will be less than the interest charged 
each month;'' (2) the following statement: ``If you make more than the 
minimum payment each period, you will pay less in interest and pay off 
your balance sooner;'' (3) the estimated monthly payment for repayment 
in 36 months; (4) the fact the card issuer estimates that the consumer 
will repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years; and (5) the toll-free telephone number for obtaining 
information about credit counseling services. Sample G-18(C)(3) is 
adopted as proposed.
    As shown in Sample G-18(C)(3), none of the above information would 
be required to be in the form of a table, notwithstanding TILA's 
requirement that the repayment information (except the warning 
statement) be in the form of a table. The Board adopts this exemption 
to this TILA requirement pursuant to the Board's authority exception 
and exemption authorities under TILA Section 105(a). The Board does not 
believe that the tabular format is a useful format for disclosing that 
negative or no amortization is occurring. The Board believes that a 
narrative format is better than a tabular format for communicating to 
consumers that making only minimum payments will not repay the balance 
shown on the periodic statement. For consistency, Sample G-18(C)(3) 
also provides the disclosures about repayment in 36 months in a 
narrative form as well. To help ensure that consumers notice the 
disclosures about negative or no amortization and the disclosures about 
repayment in 36 months, the Board would require that card issuers 
disclose certain key information in bold text, as shown in Sample G-
18(C)(3).
    As discussed above, TILA Section 127(b)(11)(D), as revised by the 
Credit Card Act, provides that the toll-free telephone number for 
obtaining credit counseling information must be disclosed in the table 
with: (1) The minimum payment repayment estimate; (2) the minimum 
payment total cost estimate; (3) the estimated monthly payment for 
repayment in 36 months; and (4) the total cost estimate for repayment 
in 36 months. As proposed, the final rule does not provide that the 
toll-free telephone number must be in a tabular format. See Samples G-
18(C)(1), G-18(C)(2) and G-18(C)(3). The Board adopts this exemption 
pursuant to the Board's exception and exemption authorities under TILA 
Section 105(a), as discussed above. The Board believes that it might be 
confusing to consumers to include the toll-free telephone number in the 
table because it does not logically flow from the other information 
included in the table. To help ensure that the toll-free telephone 
number is noticeable to consumer, the final rule requires that the 
toll-free telephone number be grouped with the other repayment 
information.
    Format requirements set forth in Sec.  226.7(b)(13). Proposed Sec.  
226.7(b)(12)(iii) provided that a credit card issuer must provide the 
repayment disclosures in accordance with the format requirements of 
proposed Sec.  226.7(b)(13). The final rule adopts this provision as 
proposed. As discussed in more detail in the section-by-section 
analysis to Sec.  226.7(b)(13), the final rule in Sec.  226.7(b)(13) 
requires that the repayment disclosures required to be disclosed under 
Sec.  226.7(b)(12) must be disclosed closely proximate to the minimum 
payment due. In addition, under the final rule, the repayment 
disclosures must be grouped together with the due date, late payment 
fee and annual percentage rate, ending balance, and minimum payment 
due, and this information must be disclosed on the front of the first 
page of the periodic statement.
7(b)(12)(iv) Provision of Information About Credit Counseling Services
    Section 201(c) of the Credit Card Act requires the Board to issue 
guidelines by rule, in consultation with the Secretary of the Treasury, 
for the establishment and maintenance by creditors of the toll-free 
number disclosed on the periodic statement from which consumers can 
obtain information about accessing credit counseling and debt 
management services. The Credit Card Act requires that these guidelines 
ensure that consumers are referred ``only [to] those nonprofit and 
credit counseling agencies approved by a United States bankruptcy 
trustee pursuant to [11 U.S.C. 111(a)].'' The Board proposed to 
implement Section 201(c) of the Credit Card Act in Sec.  
226.7(b)(12)(iv). In developing this final rule, the Board consulted 
with the Treasury Department as well as the Executive Office for United 
States Trustees.
    Prior to filing a bankruptcy petition, a consumer generally must 
have received ``an individual or group briefing (including a briefing 
conducted by telephone or on the Internet) that outlined the 
opportunities for available credit counseling and assisted [the 
consumer] in performing a related budget analysis.'' 11 U.S.C. 109(h). 
This briefing can only be provided by ``nonprofit budget and credit 
counseling agencies that provide 1 or more [of these] services * * * 
[and are] currently approved by the United States trustee (or the 
bankruptcy administrator, if any).'' 11 U.S.C. 111(a)(1); see also 11 
U.S.C. 109(h). In order to be approved to provide credit counseling 
services, an agency must, among other things: be a nonprofit entity; 
demonstrate that it will provide qualified counselors, maintain 
adequate provision for safekeeping and payment of client funds, and 
provide adequate counseling with respect to client credit problems; 
charge only a reasonable fee for counseling services and make such 
services available without regard to ability to pay the fee; and 
provide trained counselors who receive no commissions or bonuses based 
on the outcome of the counseling services. See 11 U.S.C. 111(c).
    Proposed Sec.  226.7(b)(12)(iv)(A) required that a card issuer 
provide through the toll-free telephone number disclosed pursuant to 
proposed Sec.  226.7(b)(12)(i)(E) or (ii)(E) the name, street address, 
telephone number, and Web site address for at least three organizations 
that have been approved by the United States Trustee or a bankruptcy 
administrator pursuant to 11 U.S.C. 111(a)(1) to provide credit 
counseling services in the state in which the billing address for the 
account is located or the state specified by the consumer. In addition, 
proposed Sec.  226.7(b)(12)(iv)(B) required that, upon the request of 
the consumer and to the extent available from the United States Trustee 
or a bankruptcy administrator, the card issuer must provide the 
consumer with the name, street address, telephone number, and Web site 
address for at least one organization meeting the above requirements 
that provides credit counseling services in a language other than 
English that is specified by the consumer.
    Several industry commenters stated that requiring card issuers to 
provide information regarding credit counseling through a toll-free 
number would be unduly burdensome, particularly for small institutions 
that do not currently have automated response systems for providing 
consumers with information about their accounts over the telephone. 
These commenters requested that card issuers instead be permitted to 
refer consumers to the United States Trustee or the Board. However, 
Section 201(c) of the Credit Card Act explicitly requires that card 
issuers establish and maintain

[[Page 7686]]

a toll-free telephone number for providing information regarding 
approved credit counseling services. Nevertheless, as discussed below, 
the Board has made several revisions to proposed Sec.  226.7(b)(12)(iv) 
in order to reduce the burden of compliance.
    In particular, the Board has revised Sec.  226.7(b)(12)(iv)(A) to 
clarify that card issuers are only required to disclose information 
regarding approved organizations to the extent available from the 
United States Trustee or a bankruptcy administrator. The United States 
Trustee collects the name, street address, telephone number, and Web 
site address for approved organizations and provides that information 
to the public through its Web site, organized by state.\25\ For states 
where credit counseling organizations are approved by a bankruptcy 
administrator pursuant to 11 U.S.C. 111(a)(1), a card issuer can obtain 
this information from the relevant administrator. Accordingly, as 
discussed in the proposal, the information that Sec.  226.7(b)(12)(iv) 
requires a card issuer to provide is readily available to issuers.
---------------------------------------------------------------------------

    \25\ See U.S. Trustee Program, List of Credit Counseling 
Agencies Approved Pursuant to 11 U.S.C. 111 (available at http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm).
---------------------------------------------------------------------------

    The Board has also revised Sec.  226.7(b)(12)(iv)(A) to clarify 
that the card issuer must provide information regarding approved 
organizations in, at its option, either the state in which the billing 
address for the account is located or the state specified by the 
consumer. Furthermore, although the United States Trustee's Web site 
also organizes information regarding approved organizations by the 
language in which the organization can provide credit counseling 
services, the Board has removed the requirement in proposed Sec.  
226.7(b)(12)(iv)(B) that card issuers provide this information upon 
request. Although consumer group commenters supported the requirement, 
comments from small institutions argued that Section 201(c) does not 
expressly require provision of this information and that it would be 
particularly burdensome for card issuers to do so. Specifically, it 
would be difficult for a card issuer to use an automated response 
system to comply with a consumer's request for a particular language 
without listing each of the nearly thirty languages listed on the 
United States Trustee's Web site. Instead, a card issuer would have to 
train its customer service representatives to respond to such requests 
on an individualized basis. Accordingly, although information regarding 
approved organizations that provide credit counseling services in 
languages other than English can be useful to consumers, it appears 
that the costs associated with providing this information through the 
toll-free number outweigh the benefits. Instead, as discussed below, 
the Board has revised the proposed commentary to provide guidance for 
card issuers on how to handle requests for this type of information 
(such as by referring the consumer to the United States Trustee's Web 
site).
    The Board has replaced proposed Sec.  226.7(b)(12)(iv)(B) with a 
requirement that card issuers update information regarding approved 
organizations at least annually for consistency with the information 
provided by the United States Trustee or a bankruptcy administrator. 
This requirement was previously proposed as guidance in comment 
7(b)(12)(iv)-2. In connection with that proposed guidance, the Board 
solicited comment on whether card issuers should be required to update 
the credit counseling information they provide to consumers more or 
less frequently. Commenters generally supported an annual requirement, 
which the Board has adopted. Although one credit counseling 
organization suggested that card issuers be required to coordinate 
their verification process with the United States Trustee's review of 
its approvals, the Board believes such a requirement would 
unnecessarily complicate the updating process.
    Because different credit counseling organizations may provide 
different services and charge different fees, the Board stated in the 
proposal that providing information regarding at least three approved 
organizations would enable consumers to make a choice about the 
organization that best suits their needs. However, the Board solicited 
comment on whether card issuers should provide information regarding a 
different number of approved organizations. In response, commenters 
generally agreed that the provision of information regarding three 
approved organizations was appropriate, although some industry 
commenters argued that card issuers generally have an established 
relationship with one credit counseling organization and should not be 
required to disclose information regarding additional organizations. 
Because the Board believes that consumers should be provided with more 
than one option for obtaining credit counseling services, the final 
rule adopts the requirement that card issuers provide information 
regarding three approved organizations.
    In addition, some credit counseling organizations and one city 
government consumer protection agency requested that the Board require 
card issuers to disclose information regarding at least one 
organization that operates in the consumer's local community. However, 
Section 201(c) of the Credit Card Act does not authorize the Board to 
impose this type of requirement. In addition, the Board believes that 
it would be difficult to develop workable standards for determining 
whether a particular organization operated in a consumer's community. 
Nevertheless, the Board emphasizes that nothing in Sec.  
226.7(b)(12)(iv) should be construed as preventing card issuers from 
providing information regarding organizations that have been approved 
by the United States Trustee or a bankruptcy administrator to provide 
credit counseling services in a consumer's community.
    Proposed Sec.  226.7(b)(12)(iv) relied in two respects on the 
Board's authority under TILA Section 105(a) to make adjustments or 
exceptions to effectuate the purposes of TILA or to facilitate 
compliance therewith. See 15 U.S.C. 1604(a). First, although revised 
TILA Section 127(b)(11)(B)(iv) and Section 201(c)(1) of the Credit Card 
Act refer to the creditors' obligation to provide information about 
accessing ``credit counseling and debt management services,'' proposed 
Sec.  226.7(b)(12)(iv) only required the creditor to provide 
information about obtaining credit counseling services.\26\ Although 
credit counseling may include information that assists the consumer in 
managing his or her debts, 11 U.S.C. 109(h) and 111(a)(1) do not 
require the United States Trustee or a bankruptcy administrator to 
approve organizations to provide debt management services. Because 
Section 201(c) of the Credit Card Act requires that creditors only 
provide information about organizations approved pursuant to 11 U.S.C. 
111(a), the Board does not believe that Congress intended to require 
creditors to provide information about services that are not subject to 
that approval process. Accordingly, proposed Sec.  226.7(b)(12)(iv) 
would not have required card issuers to disclose information about debt 
management services.
---------------------------------------------------------------------------

    \26\ Similarly, proposed Sec.  226.7(b)(12)(i)(E) and (ii)(E) 
only required a card issuer to disclose on the periodic statement a 
toll-free telephone number where the consumer may acquire from the 
card issuer information about obtaining credit counseling services.
---------------------------------------------------------------------------

    Second, although Section 201(c)(2) of the Credit Card Act refers to 
credit counseling organizations approved pursuant to 11 U.S.C. 111(a), 
proposed

[[Page 7687]]

Sec.  226.7(b)(12)(iv) clarified that creditors may provide information 
only regarding organizations approved pursuant to 11 U.S.C. 111(a)(1), 
which addresses the approval process for credit counseling 
organizations. In contrast, 11 U.S.C. 111(a)(2) addresses a different 
approval process for instructional courses concerning personal 
financial management.
    Commenters did not object to these adjustments, which are adopted 
in the final rule. However, the United States Trustee and several 
credit counseling organizations requested that the Board clarify that 
the credit counseling services subject to review by the United States 
Trustee or a bankruptcy administrator are designed for consumers who 
are considering whether to file for bankruptcy and may not be helpful 
to consumers who are seeking more general credit counseling services. 
Based on these comments, the Board has made several revisions to the 
commentary for Sec.  226.7(b)(12)(iv), which are discussed below.
    Proposed comment 7(b)(12)(iv)-1 clarified that, when providing the 
information required by Sec.  226.7(b)(12)(iv)(A), the card issuer may 
use the billing address for the account or, at its option, allow the 
consumer to specify a state. The comment also clarified that a card 
issuer does not satisfy the requirement to provide information 
regarding credit counseling agencies approved pursuant to 11 U.S.C. 
111(a)(1) by providing information regarding providers that have been 
approved to offer personal financial management courses pursuant to 11 
U.S.C. 111(a)(2). This comment has been revised for consistency with 
the revisions to Sec.  226.7(b)(12)(iv)(A) but is otherwise adopted as 
proposed.
    Proposed comment 7(b)(12)(iv)-2 clarified that a card issuer 
complies with the requirements of Sec.  226.7(b)(12)(iv) if it provides 
the consumer with the information provided by the United States Trustee 
or a bankruptcy administrator, such as information provided on the Web 
site operated by the United States Trustee. If, for example, the Web 
site address for an organization approved by the United States Trustee 
is not available from the Web site operated by the United States 
Trustee, a card issuer is not required to provide a Web site address 
for that organization. However, at least annually, the card issuer must 
verify and update the information it provides for consistency with the 
information provided by the United States Trustee or a bankruptcy 
administrator. These aspects of the proposed comment have been revised 
for consistency with the revisions to Sec.  226.7(b)(12)(iv) but are 
otherwise adopted as proposed.
    However, because the Board understands that many nonprofit 
organizations provide credit counseling services under a name that is 
different than the legal name under which the organization has been 
approved by the United States Trustee or a bankruptcy administrator, 
the Board has revised comment 7(b)(12)(iv)-2 to clarify that, if 
requested by the organization, the card issuer may at its option 
disclose both the legal name and the name used by the organization. 
This clarification will reduce the possibility of consumer confusion in 
these circumstances while still ensuring that consumers can verify that 
card issuers are referring them to organizations approved by the United 
States Trustee or a bankruptcy administrator.
    In addition, because the contact information provided by the United 
States Trustee or a bankruptcy administrator relates to pre-bankruptcy 
credit counseling, the Board has revised comment 7(b)(12)(iv)-2 to 
clarify that, at the request of an approved organization, a card issuer 
may at its option provide a street address, telephone number, or Web 
site address for the organization that is different than the street 
address, telephone number, or Web site address obtained from the United 
States Trustee or a bankruptcy administrator. This will enable card 
issuers to provide contact information that directs consumers to 
general credit counseling services rather than pre-bankruptcy 
counseling services. Furthermore, because some approved organizations 
may not provide general credit counseling services, the Board has 
revised comment 7(b)(12)(iv)-2 to clarify that, if requested by an 
approved organization, a card issuer must not provide information 
regarding that organization through the toll-free number.
    As noted above, the Board has also revised the commentary to Sec.  
226.7(b)(12)(iv) to provide guidance regarding the handling of requests 
for information about approved organizations that provide credit 
counseling services in languages other than English. Specifically, 
comment 7(b)(12)(iv)-2 states that a card issuer may at its option 
provide such information through the toll-free number or, in the 
alternative, may state that such information is available from the Web 
site operated by the United States Trustee.
    Finally, the Board has revised comment 7(b)(12)(iv)-2 to clarify 
that Sec.  226.7(b)(12)(iv) does not require a card issuer to disclose 
that credit counseling organizations have been approved by the United 
States Trustee or a bankruptcy administrator. However, if a card issuer 
chooses to make such a disclosure, the revised comment clarifies that 
the card issuer must provide certain additional information in order to 
prevent consumer confusion. This revision responds to concerns raised 
by the United States Trustee that, if a consumer is informed that a 
credit counseling organization has been approved by the United States 
Trustee, the consumer may incorrectly assume that all credit counseling 
services provided by that organization are subject to approval by the 
United States Trustee. Accordingly, the revised comment clarifies that, 
in these circumstances, a card issuer must disclose the following 
additional information: (1) The United States Trustee or a bankruptcy 
administrator has determined that the organization meets the minimum 
requirements for nonprofit pre-bankruptcy budget and credit counseling; 
(2) the organization may provide other credit counseling services that 
have not been reviewed by the United States Trustee or a bankruptcy 
administrator; and (3) the United States Trustee or the bankruptcy 
administrator does not endorse or recommend any particular 
organization.
    Proposed comment 7(b)(12)(iv)-3 clarified that, at their option, 
card issuers may use toll-free telephone numbers that connect consumers 
to automated systems, such as an interactive voice response system, 
through which consumers may obtain the information required by Sec.  
226.7(b)(12)(iv) by inputting information using a touch-tone telephone 
or similar device. This comment is adopted as proposed.
    Proposed comment 7(b)(12)(iv)-4 clarified that a card issuer may 
provide a toll-free telephone number that is designed to handle 
customer service calls generally, so long as the option to receive the 
information required by Sec.  226.7(b)(12)(iv) is prominently disclosed 
to the consumer. For automated systems, the option to receive the 
information required by Sec.  226.7(b)(12)(iv) is prominently disclosed 
to the consumer if it is listed as one of the options in the first menu 
of options given to the consumer, such as ``Press or say `3' if you 
would like information about credit counseling services.'' If the 
automated system permits callers to select the language in which the 
call is conducted and in which information is provided, the menu to 
select the language may precede the menu with the option to receive 
information about accessing

[[Page 7688]]

credit counseling services. The Board has adopted this comment as 
proposed.
    Proposed comment 7(b)(12)(iv)-5 clarified that, at their option, 
card issuers may use a third party to establish and maintain a toll-
free telephone number for use by the issuer to provide the information 
required by Sec.  226.7(b)(12)(iv). This comment is adopted as 
proposed.
    Proposed comment 7(b)(12)(iv)-6 clarified that, when providing the 
toll-free telephone number on the periodic statement pursuant to Sec.  
226.7(b)(12)(iv), a card issuer at its option may also include a 
reference to a Web site address (in addition to the toll-free telephone 
number) where its customers may obtain the information required by 
Sec.  226.7(b)(12)(iv), so long as the information provided on the Web 
site complies with Sec.  226.7(b)(12)(iv). The Web site address 
disclosed must take consumers directly to the Web page where 
information about accessing credit counseling may be obtained. In the 
alternative, the card issuer may disclose the Web site address for the 
Web page operated by the United States Trustee where consumers may 
obtain information about approved credit counseling organizations. This 
guidance is adopted as proposed. In addition, the Board has revised 
this comment to clarify that disclosing the United States Trustee's Web 
site address does not by itself constitute a statement that 
organizations have been approved by the United States Trustee for 
purposes of comment 7(b)(12)(iv)-2.
    Finally, proposed comment 7(b)(12)(iv)-7 clarified that, if a 
consumer requests information about credit counseling services, the 
card issuer may not provide advertisements or marketing materials to 
the consumer (except for providing the name of the issuer) prior to 
providing the information required by Sec.  226.7(b)(12)(iv). However, 
educational materials that do not solicit business are not considered 
advertisements or marketing materials for this purpose. The comment 
also provides examples of how the restriction on the provision of 
advertisements and marketing materials applies in the context of the 
toll-free number and a Web page. This comment is adopted as proposed.
7(b)(12)(v) Exemptions
    As explained above, as proposed, the final rule provides that the 
repayment disclosures required under Sec.  226.7(b)(12) be provided 
only for a ``credit card account under an open-end (not home-secured) 
consumer credit plan,'' as that term is defined in Sec.  
226.2(a)(15)(ii).
    In addition, as discussed below, the final rule contains several 
additional exemptions from the repayment disclosure requirements 
pursuant to the Board's exception and exemption authorities under TILA 
Section 105(a) and (f).
    As discussed in more detail below, the Board has considered the 
statutory factors carefully, and based on that review, believes that 
following exemptions are appropriate.
    Exemption for charge cards. In the October 2009 Regulation Z 
Proposal, the Board proposed to exempt charge cards from the repayment 
disclosure requirements. Charge cards are used in connection with an 
account on which outstanding balances cannot be carried from one 
billing cycle to another and are payable when a periodic statement is 
received. The Board adopts this exemption as proposed. See Sec.  
226.7(b)(12)(v)(A). The Board believes that the repayment disclosures 
would not be useful for consumers with charge card accounts.
    Exemption where cardholders have paid their accounts in full for 
two consecutive billing cycles. In proposed Sec.  226.7(b)(v)(B), the 
Board proposed to provide that a card issuer is not required to include 
the repayment disclosures on the periodic statement for a particular 
billing cycle immediately following two consecutive billing cycles in 
which the consumer paid the entire balance in full, had a zero balance 
or had a credit balance.
    In response to the October 2009 Regulation Z Proposal, several 
consumer groups argued that this exemption should be deleted. These 
consumer groups believe that even consumers that pay their credit card 
accounts in full each month should be provided repayment disclosures 
because these disclosures will inform those consumers of the 
disadvantages of changing their payment behavior. These consumer groups 
believe these repayment disclosures would educate these consumers on 
the magnitude of the consequences of making only minimum payments and 
may induce these consumers to encourage their friends and family 
members not to make only the minimum payment each month on their credit 
card accounts. On the other hand, several industry commenters requested 
that the Board broaden this exception to not require repayment 
disclosures in a particular billing cycle if there is a zero balance or 
credit balance in the current cycle, regardless of whether this 
condition existed in the previous cycle.
    The final rule retains this exception as proposed. The Board 
believes the two consecutive billing cycle approach strikes an 
appropriate balance between benefits to consumers of the repayment 
disclosures, and compliance burdens on issuers in providing the 
disclosures. Consumers who might benefit from the repayment disclosures 
would receive them. Consumers who carry a balance each month would 
always receive the repayment disclosures, and consumers who pay in full 
each month would not. Consumers who sometimes pay their bill in full 
and sometimes do not would receive the repayment disclosures if they do 
not pay in full two consecutive months (cycles). Also, if a consumer's 
typical payment behavior changes from paying in full to revolving, the 
consumer would begin receiving the repayment disclosures after not 
paying in full one billing cycle, when the disclosures would appear to 
be useful to the consumer. In addition, credit card issuers typically 
provide a grace period on new purchases to consumers (that is, 
creditors do not charge interest to consumers on new purchases) if 
consumers paid both the current balance and the previous balance in 
full. Thus, card issuers already currently capture payment history for 
consumers for two consecutive months (or cycles).
    The Board notes that card issuers would not be required to use this 
exemption. A card issuer would be allowed to provide the repayment 
disclosures to all of its cardholders, even to those cardholders that 
fall within this exemption. If issuers choose to provide voluntarily 
the repayment disclosures to those cardholders that fall within this 
exemption, the Board would expect issuers to follow the disclosure 
rules set forth in proposed Sec.  226.7(b)(12), the accompanying 
commentary, and Appendix M1 to part 226 for those cardholders.
    Exemption where minimum payment would pay off the entire balance 
for a particular billing cycle. In proposed Sec.  226.7(b)(12)(v)(C), 
the Board proposed to exempt a card issuer from providing the repayment 
disclosure requirements for a particular billing cycle where paying the 
minimum payment due for that billing cycle will pay the outstanding 
balance on the account for that billing cycle. For example, if the 
entire outstanding balance on an account for a particular billing cycle 
is $20 and the minimum payment is $20, an issuer would not need to 
comply with the repayment disclosure requirements for that particular 
billing cycle. The final rule retains this exemption as proposed. The 
Board believes that the repayment disclosures would not be helpful to 
consumers in this context.

[[Page 7689]]

    As discussed in more detail below, the Board notes that this 
exemption also would apply to a charged-off account where payment of 
the entire account balance is due immediately. Comment 7(b)(12)(v)-1 is 
added to provide examples of when this exception would apply.
    Other exemptions. In response to the October 2009 Regulation Z 
Proposal, several commenters requested that the Board include several 
additional exemptions to the repayment disclosures set forth in Sec.  
226.7(b)(12). These suggested exemptions are discussed below.
    1. Fixed repayment periods. In the January 2009 Regulation Z Rule, 
the Board in Sec.  226.7(b)(12)(v)(E) exempted a credit card account 
from the minimum payment disclosure requirements where a fixed 
repayment period for the account is specified in the account agreement 
and the required minimum payments will amortize the outstanding balance 
within the fixed repayment period. This exemption would be applicable 
to, for example, accounts that have been closed due to delinquency and 
the required monthly payment has been reduced or the balance decreased 
to accommodate a fixed payment for a fixed period of time designed to 
pay off the outstanding balance. See comment 7(b)(12)(v)-1.
    In addition, in the January 2009 Regulation Z Rule, the Board in 
Sec.  226.7(b)(12)(v)(F) exempted credit card issuers from providing 
the minimum payment disclosures on periodic statements in a billing 
cycle where the entire outstanding balance held by consumers in that 
billing cycle is subject to a fixed repayment period specified in the 
account agreement and the required minimum payments applicable to that 
balance will amortize the outstanding balance within the fixed 
repayment period. Some retail credit cards have several credit features 
associated with the account. One of the features may be a general 
revolving feature, where the required minimum payment for this feature 
does not pay off the balance in a specific period of time. The card 
also may have another feature that allows consumers to make specific 
types of purchases (such as furniture purchases, or other large 
purchases), and the required minimum payments for that feature will pay 
off the purchase within a fixed period of time, such as one year. This 
exemption was meant to cover retail cards where the entire outstanding 
balance held by a consumer in a particular billing cycle is subject to 
a fixed repayment period specified in the account agreement. On the 
other hand, this exemption would not have applied in those cases where 
all or part of the consumer's balance for a particular billing cycle is 
held in a general revolving feature, where the required minimum payment 
for this feature does not pay off the balance in a specific period of 
time set forth in the account agreement. See comment 7(b)(12)(v)-2.
    In adopting these two exemptions to the minimum payment disclosure 
requirements in the January 2009 Regulation Z Rule, the Board stated 
that in these two situations, the minimum payment disclosure does not 
appear to provide additional information to consumers that they do not 
already have in their account agreements.
    In the October 2009 Regulation Z Proposal, the Board proposed not 
to include these two exemptions in proposed Sec.  226.7(b)(12)(v). In 
implementing Section 201 of the Credit Card Act, proposed Sec.  
226.7(b)(12) would require additional repayment information beyond the 
disclosure of the estimated length of time it would take to repay the 
outstanding balance if only minimum payments are made, which was the 
main type of information that was required to be disclosed under the 
January 2009 Regulation Z Rule. As discussed above, under proposed 
Sec.  226.7(b)(12)(i), a card issuer would be required to disclose on 
the periodic statement information about the total costs in interest 
and principal to repay the outstanding balance if only minimum payments 
are made, and information about repayment of the outstanding balance in 
36 months. Consumers would not know from the account agreements this 
additional information about the total cost in interest and principal 
of making minimum payments, and information about repayment of the 
outstanding balance in 36 months. Thus, in the proposal, the Board 
indicated that these two exemptions may no longer be appropriate given 
the additional repayment information that must be provided on the 
periodic statement pursuant to proposed Sec.  226.7(b)(12). 
Nonetheless, the Board solicited comment on whether these exemptions 
should be retained. For example, the Board solicited comment on whether 
the repayment disclosures relating to repayment in 36 months would be 
helpful where a fixed repayment period longer than 3 years is specified 
in the account agreement and the required minimum payments will 
amortize the outstanding balance within the fixed repayment period. For 
these types of accounts, the Board solicited comment on whether 
consumers tend to enter into the agreement with the intent (and the 
ability) to repay the account balance over the life of the account, 
such that the disclosures for repayment of the account in 36 months 
would not be useful to consumers.
    In response to the October 2009 Regulation Z Proposal, several 
consumer groups supported the Board's proposal not to include these two 
exemptions to the repayment disclosure requirements. On the other hand, 
several industry commenters indicated that with respect to these fixed 
repayment plans, consumers are quite sensitive to the repayment term 
and have selected the specific repayment term for each balance. These 
commenters suggest that in this context the proposed repayment 
disclosures are neither relevant nor helpful, and may be confusing if 
they tend to suggest that the selected repayment term is no longer 
available.
    The final rule does not contain these two exemptions related to 
fixed repayment periods. As discussed above, when a fixed repayment 
period is set forth in the account agreement, the estimate of how long 
it would take to repay the outstanding balance if only minimum payments 
are made does not appear to provide additional information to consumers 
that they do not already have in their account agreements. Nonetheless, 
consumers would not know from the account agreements additional 
information about the total cost in interest and principal of making 
minimum payments, and information about repayment of the outstanding 
balance in 36 months, that is required to be disclosed on the periodic 
statement under the Credit Card Act. The Board believes this additional 
information would be helpful to consumers in managing their accounts, 
even for consumers that have previously selected the fixed repayment 
period that applies to the account. For example, assume the fixed 
repayment period set forth in the account agreement is 5 years. On the 
periodic statement, the consumer would be informed of the total cost of 
repaying the outstanding balance in 5 years, compared with the monthly 
payment and the total cost of repaying the outstanding balance in 3 
years. In this example, this additional information on the periodic 
statement could be helpful to the consumer in deciding whether to repay 
the balance earlier than in 5 years.
    2. Accounts in bankruptcy. In response to the October 2009 
Regulation Z Proposal, one commenter requested that the Board include 
in the final rule an exemption from the repayment disclosures set forth 
in Sec.  226.7(b)(12) in connection with sending monthly

[[Page 7690]]

periodic statements or informational statements to customers who have 
filed for bankruptcy. This commenter indicated that it is possible that 
a debtor's attorney could argue that including the disclosures, such as 
the minimum payment warning and the minimum payment repayment estimate, 
on a monthly bankruptcy informational statement is an attempt to 
collect a debt in violation of the automatic stay imposed by Section 
362 of the Bankruptcy Code or the permanent discharge injunction 
imposed under Section 524 of the Bankruptcy Code.
    The Board does not believe that an exemption from the requirement 
to provide the repayment disclosures with respect to accounts in 
bankruptcy is needed. The Board notes that under Sec.  226.5(b)(2), a 
creditor is not required to send a periodic statement under Regulation 
Z if delinquency collection proceedings have been instituted. Thus, if 
a consumer files for bankruptcy, creditors are not longer required to 
provide periodic statements to that consumer under Regulation Z. A 
creditor could continue to send periodic statements to consumers that 
have filed for bankruptcy (if permitted by law) without including the 
repayment disclosures on the periodic statements, because those 
periodic statements would not be required under Regulation Z and would 
not need to comply with the requirements of Sec.  226.7.
    3. Charged-off accounts. In response to the October 2009 Regulation 
Z Proposal, one industry commenter requested that the Board include in 
the final rule an exemption from the repayment disclosures for charged 
off accounts where consumers are 180 days late, the accounts have been 
placed in charge-off status and full payment is due immediately. The 
Board does not believe that a specific exemption is needed for charged-
off accounts because charged-off accounts would be exempted from the 
repayment disclosures under another exemption. As discussed above, the 
final rule contains an exemption under which a card issuer is not 
required to provide the repayment disclosure requirements for a 
particular billing cycle where paying the minimum payment due for that 
billing cycle will pay the outstanding balance on the account for that 
billing cycle. Comment 7(b)(12)-1 clarifies that this exemption would 
apply to a charged-off account where payment of the entire account 
balance is due immediately.
    4. Lines of credit accessed solely by account numbers. In response 
to the October 2009 Regulation Z Proposal, one commenter requested that 
the Board provide an exemption from the repayment disclosures for lines 
of credit accessed solely by account numbers. This commenter believed 
that this exemption would simplify compliance issues, especially for 
smaller retailers offering in-house revolving open-end accounts, in 
view of some case law indicating that a reusable account number could 
constitute a ``credit card.'' The final rule does not contain a 
specific exemption for lines of credit accessed solely by account 
numbers. The Board believes that consumers that use these lines of 
credit (to the extent they are considered credit card account) would 
benefit from the repayment disclosures.
7(b)(13) Format Requirements
    Under the January 2009 Regulation Z Rule, creditors offering open-
end (not home-secured) plans are required to disclose the payment due 
date (if a late payment fee or penalty rate may be imposed) on the 
front side of the first page of the periodic statement. The amount of 
any late payment fee and penalty APR that could be triggered by a late 
payment is required to be disclosed in close proximity to the due date. 
In addition, the ending balance and the minimum payment disclosures 
must be disclosed closely proximate to the minimum payment due. Also, 
the due date, late payment fee, penalty APR, ending balance, minimum 
payment due, and the minimum payment disclosures must be grouped 
together. See Sec.  226.7(b)(13). In the supplementary information to 
the January 2009 Regulation Z Rule, the Board stated that these 
formatting requirements were intended to fulfill Congress' intent to 
have the due date, late payment and minimum payment disclosures enhance 
consumers' understanding of the consequences of paying late or making 
only minimum payments, and were based on consumer testing conducted for 
the Board in relation to the January 2009 Regulation Z Rule that 
indicated improved understanding when related information is grouped 
together. For the reasons described below, the Board proposed in 
October 2009 to retain these format requirements, with several 
revisions. Proposed Sample G-18(D) in Appendix G to part 226 would have 
illustrated the proposed requirements.
    Due date and late payment disclosures. As discussed above under the 
section-by-section analysis to Sec.  226.7(b)(11), Section 202 of the 
Credit Card Act amends TILA Section 127(b)(12) to provide that for a 
``credit card account under an open-end consumer credit plan,'' a 
creditor that charges a late payment fee must disclose in a conspicuous 
location on the periodic statement (1) the payment due date, or, if the 
due date differs from when a late payment fee would be charged, the 
earliest date on which the late payment fee may be charged, and (2) the 
amount of the late payment fee. In addition, if a late payment may 
result in an increase in the APR applicable to the credit card account, 
a creditor also must provide on the periodic statement a disclosure of 
this fact, along with the applicable penalty APR. The disclosure 
related to the penalty APR must be placed in close proximity to the 
due-date disclosure discussed above.
    Consistent with TILA Section 127(b)(12), as revised by the Credit 
Card Act, in the October 2009 Regulation Z Proposal, the Board proposed 
to retain the requirement in Sec.  226.7(b)(13) that credit card 
issuers disclose the payment due date on the front side of the first 
page of the periodic statement. In addition, credit card issuers would 
have been required to disclose the amount of any late payment fee and 
penalty APR that could be triggered by a late payment in close 
proximity to the due date. Also, the due date, late payment fee, 
penalty APR, ending balance, minimum payment due, and the repayment 
disclosures required by proposed Sec.  226.7(b)(12) must be grouped 
together. See Sec.  226.7(b)(13). The final rule retains these 
formatting requirements, as proposed. The Board believes that these 
format requirements fulfill Congress' intent that the due date and late 
payment disclosures be grouped together and be disclosed in a 
conspicuous location on the periodic statement.
    Repayment disclosures. As discussed above under the section-by-
section analysis to Sec.  226.7(b)(12), TILA Section 127(b)(11)(D), as 
revised by the Credit Card Act, provides that the repayment disclosures 
(except for the warning statement) must be disclosed in the form and 
manner which the Board prescribes by regulation and in a manner that 
avoids duplication and must be placed in a conspicuous and prominent 
location on the billing statement. 15 U.S.C. 1637(b)(11)(D).
    Under proposed Sec.  226.7(b)(13), the ending balance and the 
repayment disclosures required under proposed Sec.  226.7(b)(12) must 
be disclosed closely proximate to the minimum payment due. In addition, 
proposed Sec.  226.7(b)(13) provided that the repayment disclosures 
must be grouped together with the due date, late payment fee, penalty 
APR, ending balance, and minimum payment due, and this information must 
appear on the front of the first page of the periodic statement.

[[Page 7691]]

The final rule retains these formatting requirements, as proposed. The 
Board believes that these format requirements fulfill Congress' intent 
that the repayment disclosures be placed in a conspicuous and prominent 
location on the billing statement.
    Samples G-18(D), 18(E), 18(F) and 18(G). As adopted in the January 
2009 Regulation Z Rule, Samples G-18(D) and G-18(E) in Appendix G to 
part 226 illustrate the requirement to group together the due date, 
late payment fee, penalty APR, ending balance, minimum payment due, and 
the repayment disclosures required by Sec.  226.7(b)(12). Sample G-
18(D) applies to credit cards and includes all of the above disclosures 
grouped together. Sample G-18(E) applies to non-credit card accounts, 
and includes all of the above disclosures except for the repayment 
disclosures because the repayment disclosures only apply to credit card 
accounts. Samples G-18(F) and G-18(G) illustrate the front side of 
sample periodic statements and show the disclosures listed above.
    In the October 2009 Regulation Z Proposal, the Board proposed to 
revise Sample G-18(D), G-18(F) and G-18(G) to incorporate the new 
format requirements for the repayment disclosures, as shown in proposed 
Sample G-18(C)(1) and G-18(C)(2). See section-by-section analysis to 
Sec.  226.7(b)(12) for a discussion of these new format requirements. 
The final rule adopts Sample G-18(D), G-18(F) and G-18(G) as proposed. 
In addition, as proposed, the final rule deletes Sample G-18(E) (which 
applies to non-credit card accounts) as unnecessary. The formatting 
requirements in Sec.  226.7(b)(13) generally are applicable only to 
credit card issuers because the due date, late payment fee, penalty 
APR, and repayment disclosures would apply only to a ``credit card 
account under an open-end (not home-secured) consumer credit plan,'' as 
that term is defined in Sec.  226.2(a)(15)(ii).
7(b)(14) Deferred Interest or Similar Transactions
    In the October 2009 Regulation Z Proposal, the Board republished 
provisions and amendments related to periodic statement disclosures for 
deferred interest or similar transactions that were initially proposed 
in the May 2009 Regulation Z Proposed Clarifications. These included 
proposed revisions to comment 7(b)-1 and Sample G-18(H) as well as a 
proposed new Sec.  226.7(b)(14). In addition, a related cross-reference 
in comment 5(b)(2)(ii)-1 was proposed to be updated.
    Specifically, the Board proposed to revise comment 7(b)-1 to 
require creditors to provide consumers with information regarding 
deferred interest or similar balances on which interest may be imposed 
under a deferred interest or similar program, as well as the interest 
charges accruing during the term of a deferred interest or similar 
program. The Board also proposed to add a new Sec.  226.7(b)(14) to 
require creditors to include on a consumer's periodic statement, for 
two billing cycles immediately preceding the date on which deferred 
interest or similar transactions must be paid in full in order to avoid 
the imposition of interest charges, a disclosure that the consumer must 
pay such transactions in full by that date in order to avoid being 
obligated for the accrued interest. Moreover, proposed Sample G-18(H) 
provided model language for making the disclosure required by proposed 
Sec.  226.7(b)(14), and the Board proposed to require that the language 
used to make the disclosure under Sec.  226.7(b)(14) be substantially 
similar to Sample G-18(H).
    In general, commenters supported the Board's proposals to require 
certain periodic statement disclosures for deferred interest and other 
similar programs. Some industry commenters requested that the Board 
clarify that programs in which a consumer is not charged interest, 
whether or not the consumer pays the balance in full by a certain time, 
are not deferred interest programs that are subject to these periodic 
statement disclosures. One industry commenter also noted that the Board 
already proposed such clarification with respect to the advertising 
requirements for deferred interest and other similar programs. See 
proposed comment 16(h)-1. Accordingly, the Board has amended comment 
7(b)-1 to reference the definition of ``deferred interest'' in Sec.  
226.16(h)(2) and associated commentary. The Board has also made 
technical amendments to comment 7(b)-1 to be consistent with the 
requirement in Sec.  226.55(b)(1) that a promotional or other temporary 
rate program that expires after a specified period of time (including a 
deferred interest or similar program) last for at least six months.
    Some consumer group and industry commenters also suggested 
amendments to the model language in Sample G-18(H). In particular, 
consumer group commenters suggested that language be added to clarify 
that minimum payments will not pay off the deferred interest balance. 
Industry commenters suggested that additional language may clarify for 
consumers how much they should pay in order to avoid finance charges 
when there are other balances on the account in addition to the 
deferred interest balance. The Board believes that the language in 
Sample G-18(H) sufficiently conveys the idea that in order to avoid 
interest charges on the deferred interest balance, consumers must pay 
such balance in full. While the additional language recommended by 
commenters may provide further information to consumers that may be 
helpful, each of the clauses suggested by commenters would not 
necessarily apply to all consumers in all situations. Therefore, the 
Board is opting not to include such clauses in Sample G-18(H). The 
Board notes, however, that the regulation does not prohibit creditors 
from providing these additional disclosures. Indeed, the Board 
encourages any additional disclosure that may be useful to consumers in 
avoiding finance charges. In response to these comments, however, the 
Board is amending Sec.  226.7(b)(14) to require that language used to 
make the disclosure be similar, instead of substantially similar, to 
Sample G-18(H) in order to provide creditors with some flexibility.
    Proposed Sec.  226.7(b)(14) required the warning language only for 
the last two billing cycles preceding the billing cycle in which the 
deferred interest period ends. Consumer group commenters recommended 
that the disclosure be required on each periodic statement during the 
deferred interest period. Since Sec.  226.53(b) permits issuers to 
allow consumers to request that payments in excess of the minimum 
payment be allocated to deferred interest balances any time during the 
deferred interest period, as discussed below, the Board believes that 
the disclosure required under Sec.  226.7(b)(14) would be beneficial 
for consumers to see on each periodic statement issued during the 
deferred interest period from the time the deferred interest or similar 
transaction is reflected on a periodic statement. Section 226.7(b)(14) 
and comment 7(b)-1 have been amended accordingly.

Section 226.9 Subsequent Disclosure Requirements

9(c) Change in Terms
    Section 226.9(c) sets forth the advance notice requirements when a 
creditor changes the terms applicable to a consumer's account. As 
discussed below, the Board is adopting several changes to Sec.  
226.9(c)(2) and the associated staff commentary in order to conform to 
the new requirements of the Credit Card Act.

[[Page 7692]]

9(c)(1) Rules Affecting Home-Equity Plans
    In the January 2009 Regulation Z Rule, the Board preserved the 
existing rules for changes in terms for home-equity lines of credit in 
a new Sec.  226.9(c)(1), in order to clearly delineate the requirements 
for HELOCs from those applicable to other open-end credit. The Board 
noted that possible revisions to rules affecting HELOCs would be 
considered in the Board's review of home-secured credit, which was 
underway at the time that the January 2009 Regulation Z rule was 
published. On August 26, 2009, the Board published proposed revisions 
to those portions of Regulation Z affecting HELOCs in the Federal 
Register. In order to clarify that the October 2009 Regulation Z 
Proposal was not intended to amend or otherwise affect the August 2009 
Regulation Z HELOC Proposal, the Board did not republish Sec.  
226.9(c)(1) in October 2009.
    However, this final rule is being issued prior to completion of 
final rules regarding HELOCs. Therefore, the Board has incorporated 
Sec.  226.9(c)(1), as adopted in the January 2009 Regulation Z Rule, in 
this final rule, to give HELOC creditors guidance on how to comply with 
change-in-terms requirements between the effective date of this rule 
and the effective date of the forthcoming HELOC rules.
9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans
Credit Card Act \27\
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    \27\ For convenience, this section summarizes the provisions of 
the Credit Card Act that apply both to advance notices of changes in 
terms and rate increases. Consistent with the approach it took in 
the January 2009 Regulation Z Rule and the July 2009 Regulation Z 
Interim Final Rule, the Board is implementing the advance notice 
requirements applicable to contingent rate increases set forth in 
the cardholder agreement in a separate section (Sec.  226.9(g)) from 
those advance notice requirements applicable to changes in the 
cardholder agreement (Sec.  226.9(c)). The distinction between these 
types of changes is that Sec.  226.9(g) addresses changes in a rate 
being applied to a consumer's account consistent with the existing 
terms of the cardholder agreement, while Sec.  226.9(c) addresses 
changes in the underlying terms of the agreement.
---------------------------------------------------------------------------

    New TILA Section 127(i)(1) generally requires creditors to provide 
consumers with a written notice of an annual percentage rate increase 
at least 45 days prior to the effective date of the increase, for 
credit card accounts under an open-end consumer credit plan. 15 U.S.C. 
1637(i)(1). The statute establishes several exceptions to this general 
requirement. 15 U.S.C. 1637(i)(1) and (i)(2). The first exception 
applies when the change is an increase in an annual percentage rate 
upon expiration of a specified period of time, provided that prior to 
commencement of that period, the creditor clearly and conspicuously 
disclosed to the consumer the length of the period and the rate that 
would apply after expiration of the period. The second exception 
applies to increases in variable annual percentage rates that change 
according to operation of a publicly available index that is not under 
the control of the creditor. Finally, a third exception applies to rate 
increases due to the completion of, or failure of a consumer to comply 
with, the terms of a workout or temporary hardship arrangement, 
provided that prior to the commencement of such arrangement the 
creditor clearly and conspicuously disclosed to the consumer the terms 
of the arrangement, including any increases due to completion or 
failure.
    In addition to the rules in new TILA Section 127(i)(1) regarding 
rate increases, new TILA Section 127(i)(2) establishes a 45-day advance 
notice requirement for significant changes, as determined by rule of 
the Board, in the terms (including an increase in any fee or finance 
charge) of the cardholder agreement between the creditor and the 
consumer. 15 U.S.C. 1637(i)(2).
    New TILA Section 127(i)(3) also establishes an additional content 
requirement for notices of interest rate increases or significant 
changes in terms provided pursuant to new TILA Section 127(i). 15 
U.S.C. 1637(i)(3). Such notices are required to contain a brief 
statement of the consumer's right to cancel the account, pursuant to 
rules established by the Board, before the effective date of the rate 
increase or other change disclosed in the notice. In addition, new TILA 
Section 127(i)(4) states that closure or cancellation of an account 
pursuant to the consumer's right to cancel does not constitute a 
default under the existing cardholder agreement, and does not trigger 
an obligation to immediately repay the obligation in full or through a 
method less beneficial than those listed in revised TILA Section 
171(c)(2). 15 U.S.C. 1637(i)(4). The disclosure associated with the 
right to cancel is discussed in the section-by-section analysis to 
Sec.  226.9(c) and (g), while the substantive rules regarding this new 
right are discussed in the section-by-section analysis to Sec.  
226.9(h).
    The Board implemented TILA Section 127(i), which was effective 
August 20, 2009, in the July 2009 Regulation Z Interim Final Rule. 
However, the Board is now implementing additional provisions of the 
Credit Card Act that are effective on February 22, 2010 that have an 
impact on the content of change-in-terms notices and the types of 
changes that are permissible upon provision of a change-in-terms notice 
pursuant to Sec.  226.9(c) or (g). For example, revised TILA Section 
171(a), which the Board is implementing in new Sec.  226.55, as 
discussed elsewhere in this Federal Register notice generally prohibits 
increases in annual percentage rates, fees, and finance charges 
applicable to outstanding balances, subject to several exceptions. In 
addition, revised TILA Section 171(b) requires, for certain types of 
penalty rate increases, that the advance notice state the reason for a 
rate increase. Finally, for penalty rate increases applied to 
outstanding balances when the consumer fails to make a minimum payment 
within 60 days after the due date, as permitted by revised TILA Section 
171(b)(4), a creditor is required to disclose in the notice of the 
increase that the increase will be terminated if the consumer makes the 
subsequent six minimum payments on time.

January 2009 Regulation Z Rule and July 2009 Regulation Z Interim Final 
Rule

    As discussed in I. Background and Implementation of the Credit Card 
Act, the Board is implementing the changes contained in the Credit Card 
Act in a manner consistent with the January 2009 Regulation Z Rule, to 
the extent permitted under the statute. Accordingly, the Board is 
retaining those requirements of the January 2009 Regulation Z Rule that 
are not directly affected by the Credit Card Act concurrently with the 
promulgation of regulations implementing the provisions of the Credit 
Card Act effective February 22, 2010.\28\ Consistent with this 
approach, the Board has used Sec.  226.9(c)(2) of the January 2009 
Regulation Z Rule as the basis for its regulations to implement the 
change-in-terms requirements of the Credit Card Act. Section 
226.9(c)(2) also is intended, except where noted, to contain 
requirements that are substantively equivalent to the requirements of 
the July 2009 Regulation Z Interim Final Rule. Accordingly, the Board 
is adopting a revised version of Sec.  226.9(c)(2) of the January 2009

[[Page 7693]]

Regulation Z Rule, with several amendments necessary to conform to the 
new Credit Card Act. This supplementary information focuses on 
highlighting those aspects in which Sec.  226.9(c)(2) as adopted in 
this final rule differs from Sec.  226.9(c)(2) of the January 2009 
Regulation Z Rule.
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    \28\ However, as discussed in I. Background and Implementation 
of the Credit Card Act, the Board intends to leave in place the 
mandatory compliance date for certain aspects of proposed Sec.  
226.9(c)(2) that are not directly required by the Credit Card Act. 
These provisions would have a mandatory compliance date of July 1, 
2010, consistent with the effective date that the Board adopted in 
the January 2009 Regulation Z Rule. For example, the Board is not 
requiring a tabular format for certain change-in-terms notice 
requirements before the July 1, 2010 mandatory compliance date.
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May 2009 Regulation Z Proposed Clarifications

    On May 5, 2009, the Board published for comment in the Federal 
Register proposed clarifications to the January 2009 Regulation Z Rule. 
See 74 FR 20784. Several of these proposed clarifications pertain to 
the advance notice requirements in Sec.  226.9(c). The Board is 
adopting the May 2009 Regulation Z Proposed Clarifications that affect 
proposed Sec.  226.9(c)(2), with revisions to the extent appropriate, 
as discussed further in this supplementary information.
9(c)(2)(i) Changes Where Written Advance Notice is Required
    Section 226.9(c)(2) sets forth the change-in-terms notice 
requirements for open-end consumer credit plans that are not home-
secured. Section 226.9(c)(2)(i) as proposed in October 2009 stated that 
a creditor must generally provide a written notice at least 45 days 
prior to the change, when any term required to be disclosed under Sec.  
226.6(b)(3), (b)(4), or (b)(5) is changed or the required minimum 
periodic payment is increased, unless an exception applies. As noted in 
the supplementary information to the proposal, this rule was intended 
to be substantively equivalent to Sec.  226.9(c)(2) of the January 2009 
Regulation Z Rule. The Board proposed to set forth the exceptions to 
this general rule in proposed paragraph (c)(2)(v). In addition, 
proposed (c)(2)(iii) provided that 45 days' advance notice is not 
required for those changes that the Board is not designating as 
``significant changes'' in terms using its authority under new TILA 
Section 127(i). Section 226.9(c)(2)(iii), which is discussed in more 
detail elsewhere in this supplementary information, also is intended to 
be equivalent in substance to the Board's January 2009 Regulation Z 
Rule.
    Proposed Sec.  226.9(c)(2)(i) set forth two additional 
clarifications of the scope of the change-in-terms notice requirements, 
consistent with Sec.  226.9(c)(2) of the January 2009 Regulation Z 
Rule. First, as proposed, the 45-day advance notice requirement would 
not apply if the consumer has agreed to the particular change; in that 
case, the notice need only be given before the effective date of the 
change. Second, proposed Sec.  226.9(c)(2)(i) also noted that increases 
in the rate applicable to a consumer's account due to delinquency, 
default, or as a penalty described in Sec.  226.9(g) that are not made 
by means of a change in the contractual terms of a consumer's account 
must be disclosed pursuant to that section.
    Proposed Sec.  226.9(c)(2) applied to all open-end (not home-
secured) credit, consistent with the January 2009 Regulation Z Rule. 
TILA Section 127(i), as implemented in the July 2009 Regulation Z 
Interim Final Rule for the period between August 20, 2009 and February 
22, 2010, applies only to credit card accounts under an open-end (not 
home-secured) consumer credit plan. However, the advance notice 
requirements adopted by the Board in January 2009 apply to all open-end 
(not home-secured) credit. For consistency with the January 2009 
Regulation Z Rule, the proposal accordingly would have applied Sec.  
226.9(c)(2) to all open-end (not home-secured) credit. The final rule 
adopts this approach, which is consistent with the approach the Board 
adopted in the January 2009 Regulation Z Rule. The Board notes that 
while the general notice requirements are consistent for credit card 
accounts and other open-end credit that is not home-secured, there are 
certain content and other requirements, such as a consumer's right to 
reject certain changes in terms, that apply only to credit card 
accounts under an open-end (not home-secured) consumer credit plan. As 
discussed in more detail in the supplementary information to Sec.  
226.9(c)(2)(iv), the regulation applies such requirements only to 
credit card accounts under an open-end (not home-secured) consumer 
credit plan.
    Section 226.9(c)(2)(i), as proposed and under the January 2009 
Regulation Z Rule, provides that the 45-day advance notice timing 
requirement does not apply if the consumer has agreed to a particular 
change. In this case, notice must be given before the effective date of 
the change. Comment 9(c)(2)(i)-3, as adopted in the January 2009 
Regulation Z Rule, states that the provision is intended for use in 
``unusual instances,'' such as when a consumer substitutes collateral 
or when the creditor may advance additional credit only if a change 
relatively unique to that consumer is made. In the May 2009 Regulation 
Z Proposed Clarifications, the Board proposed to amend the comment to 
emphasize the limited scope of the exception and provide that the 
exception applies solely to the unique circumstances specifically 
identified in the comment. See 74 FR 20788. The proposed comment would 
also add an example of an occurrence that would not be considered an 
``agreement'' for purposes of relieving the creditor of its 
responsibility to provide an advance change-in-terms notice. This 
proposed example stated that an ``agreement'' does not include a 
consumer's request to reopen a closed account or to upgrade an existing 
account to another account offered by the creditor with different 
credit or other features. Thus, a creditor that treats an upgrade of a 
consumer's account as a change in terms would be required to provide 
the consumer 45 days' advance notice before increasing the rate for new 
transactions or increasing the amount of any applicable fees to the 
account in those circumstances.
    Commenters on the October 2009 Regulation Z Proposal and the May 
2009 Regulation Z Proposed Clarifications raised concerns about the 45-
day notice requirement causing an undue delay when a consumer requests 
that his or her account be changed to a different product offered by 
the creditor, for example to take advantage of a rewards or other 
program. The Board has addressed these concerns in comment 5(b)(1)(i)-
6, discussed above. The Board also believes that the proposed 
clarification to comment 9(c)(2)(i)-3 is appropriate for those 
circumstances in which a creditor treats an upgrade of an account as a 
change-in-terms in accordance with proposed comment 5(b)(1)(i)-6. In 
addition, the Board continues to believe that it would be difficult to 
define by regulation the circumstances under which a consumer is deemed 
to have requested the account upgrade, versus circumstances in which 
the upgrade is suggested by the creditor. For these reasons, the Board 
is adopting the substantive guidance in proposed 9(c)(2)(i)-3. However, 
for clarity, the Board has moved this guidance into a new Sec.  
226.9(c)(2)(i)(B) of the regulation rather than including it in the 
commentary. Comment 9(c)(2)(i)-3, as adopted, contains a cross-
reference to comment 5(b)(1)(i)-6.
    The Board received a number of additional comments on Sec.  
226.9(c)(2), as are discussed below in further detail. However, the 
Board received no comments on the general approach in Sec.  
226.9(c)(2)(i), which is substantively equivalent to the rule the Board 
adopted in January 2009. Therefore, the Board is adopting Sec.  
226.9(c)(2)(i) generally as proposed (redesignated as Sec.  
226.9(c)(2)(i)(A)), with one technical amendment to correct a 
scrivener's error in the proposal.

[[Page 7694]]

9(c)(2)(ii) Significant Changes in Account Terms
    Pursuant to new TILA Section 127(i), the Board has the authority to 
determine by rule what are significant changes in the terms of the 
cardholder agreement between a creditor and a consumer. The Board 
proposed Sec.  226.9(c)(2)(ii) to identify which changes are 
significant changes in terms. Similar to the January 2009 Regulation Z 
Rule, proposed Sec.  226.9(c)(2)(ii) stated that for the purposes of 
Sec.  226.9(c), a significant change in account terms means changes to 
terms required to be disclosed in the table provided at account opening 
pursuant to Sec.  226.6(b)(1) and (b)(2) or an increase in the required 
minimum periodic payment. The terms included in the account-opening 
table are those that the Board determined, based on its consumer 
testing, to be the most important to consumers. In the July 2009 
Regulation Z Interim Final Rule, the Board had expressly listed these 
terms in Sec.  226.9(c)(2)(ii). Because Sec.  226.6(b) was not in 
effect as of August 20, 2009, the Board could not identify these terms 
by a cross-reference to Sec.  226.6(b) in the proposal. However, 
proposed Sec.  226.9(c)(2)(ii) was intended to be substantively 
equivalent to the list of terms included in Sec.  226.9(c)(2)(ii) of 
the July 2009 Regulation Z Interim Final Rule.
    Industry commenters generally were supportive of the Board's 
proposed definition of ``significant change in account terms.'' These 
commenters believed that the Board's proposed definition provided 
necessary clarity to creditors in determining for which changes 45 
days' advance notice is required, and that it properly focused on 
changes in those terms that are the most important to consumers.
    Consumer group commenters stated that the Board's proposed 
definition of ``significant change in account terms'' was overly 
restrictive, and that 45 days' advance notice should also be required 
for other types of fees and changes in terms. These commenters 
specifically noted the addition of security interests or a binding 
mandatory arbitration provision as changes for which advance notice 
should be required. In addition, they stated that fees should be 
permitted to be disclosed orally and immediately prior to their 
imposition only if they are fees or one-time or time-sensitive 
services. Consumer groups noted their concerns that the Board's list of 
``significant changes in account terms'' could lead creditors to 
establish new types of fees that for which 45 days' advance disclosure 
would not be required.
    The Board is adopting Sec.  226.9(c)(2)(ii) generally as proposed. 
The Board continues to believe, based on its consumer testing, that the 
list of fees, categories of fees, and other terms required to be 
disclosed in a tabular format at account-opening includes those terms 
that are the most important to consumers. The Board notes that 
consumers will receive notice of any other types of charges imposed as 
part of the plan prior to their imposition, as required by Sec.  
226.5(b)(1)(ii). The Board also believes that TILA Section 127(i) does 
not require 45 days' advance notice for all changes in terms, because 
the statute specifically mentions ``significant change[s],'' and thus 
by its terms does not apply to all changes.
    However, in response to consumer group comments, the Board has 
added the acquisition of a security interest to the list of significant 
changes for which 45 days' advance notice is required. The Board 
believes that if a creditor acquires or will acquire a security 
interest that was not previously disclosed under Sec.  226.6(b)(5), 
this constitutes a change of which a consumer should be aware in 
advance. A consumer may wish to use a different form of financing or to 
otherwise adjust his or her use of the open-end plan in consideration 
of such a security interest. Under the final rule, a consumer will 
receive 45 days' advance notice of this change.
    The Board is not adopting a requirement that creditors provide 45 
days' advance notice of the addition of, or changes in the terms of, a 
mandatory arbitration clause. TILA does not address or require 
disclosures regarding arbitration for open-end credit plans, and 
Regulation Z's rules applicable to open-end credit have accordingly 
never addressed arbitration. Furthermore, the Board's regulations 
generally do not address the remedies for violations of Regulation Z 
and TILA; rather, the procedures and remedies for violations are 
addressed in the statute. Accordingly, the Board does not believe it is 
appropriate at this time to require disclosures regarding mandatory 
arbitration clauses under Regulation Z.
9(c)(2)(iii) Charges Not Covered by Sec.  226.6(b)(1) and (b)(2)
    Proposed Sec.  226.9(c)(2)(iii) set forth the disclosure 
requirements for changes in terms required to be disclosed under Sec.  
226.6(b)(3) that are not significant changes in account terms described 
in Sec.  226.9(c)(2)(ii). The Board proposed a 45-day notice period 
only for changes in the terms that are required to be disclosed as a 
part of the account-opening table under proposed Sec.  226.6(b)(1) and 
(b)(2) or for increases in the required minimum periodic payment. A 
different disclosure requirement would apply when a creditor increases 
any component of a charge, or introduces a new charge, that is imposed 
as part of the plan under proposed Sec.  226.6(b)(3) but is not 
required to be disclosed as part of the account-opening summary table 
under proposed Sec.  226.6(b)(1) and (b)(2). Under those circumstances, 
the proposal required the creditor to either, at its option (1) provide 
at least 45 days' written advance notice before the change becomes 
effective, or (2) provide notice orally or in writing of the amount of 
the charge to an affected consumer at a relevant time before the 
consumer agrees to or becomes obligated to pay the charge. This is 
consistent with the requirements of both the January 2009 Regulation Z 
Rule and the July 2009 Regulation Z Interim Final Rule.
    One consumer group commenter stated that if the 45-day advance 
notice requirement does not apply to all undisclosed charges, the Board 
should require written disclosures of all charges not required to be 
disclosed in the account-opening table. The Board is not adopting a 
requirement that notices given pursuant to Sec.  226.9(c)(2)(iii) be in 
writing. The Board believes that oral disclosure of certain charges on 
a consumer's open-end (not home-secured) account may, in some 
circumstances, be more beneficial to a consumer than a written 
disclosure, because the oral disclosure can be provided at the time 
that the consumer is considering purchasing an incidental service from 
the creditor that has an associated charge. In such a case, it would 
unnecessarily delay the consumer's access to that service to require 
that a written disclosure be provided.
    For the reasons discussed above and in the supplementary 
information to Sec.  226.9(c)(2)(ii), the Board is adopting Sec.  
226.9(c)(2)(iii) as proposed. The Board continues to believe that there 
are some fees, such as fees for expedited delivery of a replacement 
card, that it may not be useful to disclose long in advance of when 
they become relevant to the consumer. For such fees, the Board believes 
that a more flexible approach, consistent with that adopted in the 
January 2009 Regulation Z Rule and the July 2009 Regulation Z Interim 
Final Rule is appropriate. Thus, if a consumer calls to request an 
expedited replacement card, the consumer could be informed of the 
amount of the fee in the telephone call in which the consumer requests 
the card. Otherwise, the consumer would have to wait 45 days from 
receipt of a change-in-terms

[[Page 7695]]

notice to be able to order an expedited replacement card, which would 
likely negate the benefit to the consumer of receiving the expedited 
delivery service.
9(c)(2)(iv) Disclosure Requirements
General Content Requirements
    Proposed Sec.  226.9(c)(2)(iv) set forth the Board's proposed 
content and formatting requirements for change-in-terms notices 
required to be given for significant changes in account terms pursuant 
to proposed Sec.  226.9(c)(2)(i). Proposed Sec.  226.9(c)(2)(iv)(A) 
required such notices to include (1) a summary of the changes made to 
terms required by Sec.  226.6(b)(1) and (b)(2) or of any increase in 
the required minimum periodic payment, (2) a statement that changes are 
being made to the account, (3) for accounts other than credit card 
accounts under an open-end consumer credit plan subject to Sec.  
226.9(c)(2)(iv)(B), a statement indicating that the consumer has the 
right to opt out of these changes, if applicable, and a reference to 
additional information describing the opt-out right provided in the 
notice, if applicable, (4) the date the changes will become effective, 
(5) if applicable, a statement that the consumer may find additional 
information about the summarized changes, and other changes to the 
account, in the notice, (6) if the creditor is changing a rate on the 
account other than a penalty rate, a statement that if a penalty rate 
currently applies to the consumer's account, the new rate referenced in 
the notice does not apply to the consumer's account until the 
consumer's account balances are no longer subject to the penalty rate, 
and (7) if the change in terms being disclosed is an increase in an 
annual percentage rate, the balances to which the increased rate will 
be applied and, if applicable, a statement identifying the balances to 
which the current rate will continue to apply as of the effective date 
of the change in terms.
    Proposed Sec.  226.9(c)(2)(iv)(A) generally mirrored the content 
required under Sec.  226.9(c)(2)(iii) of the January 2009 Regulation Z 
Rule, except that the Board proposed to require a disclosure regarding 
any applicable right to opt out of changes under proposed Sec.  
226.9(c)(2)(iv)(A)(3) only if the change is being made to an open-end 
(not home-secured) credit plan that is not a credit card account 
subject to Sec.  226.9(c)(2)(iv)(B). For credit card accounts, as 
discussed in the supplementary information to Sec. Sec.  226.9(h) and 
226.55, the Credit Card Act imposes independent substantive limitations 
on rate increases, and generally provides the consumer with a right to 
reject other significant changes being made to their accounts. A 
disclosure of this right to reject, when applicable, is required for 
credit card accounts under proposed Sec.  226.9(c)(2)(iv)(B). 
Therefore, the Board believed a separate reference to other applicable 
opt-out rights is unnecessary and may be confusing to consumers, when 
the notice is given in connection with a change in terms applicable to 
a credit card account.
    The Board received few comments on Sec.  226.9(c)(2)(iv)(A), and it 
is generally adopted as proposed, except that Sec.  
226.9(c)(2)(iv)(A)(1) has been amended to refer to security interests 
being acquired by the creditor, for consistency with Sec.  
226.9(c)(2)(ii). The Board is amending comment 9(c)(2)(i)-5, regarding 
the form of a change in terms notice required for an additional 
security interest. The comment notes that a creditor must provide a 
description of the change consistent with Sec.  226.9(c)(2)(iv), but 
that it may use a copy of the security agreement as the change-in-terms 
notice. The Board also has made a technical amendment to Sec.  
226.9(c)(2)(iv)(A)(1) to note that a description, rather than a 
summary, of any increase in the required minimum periodic payment be 
disclosed.
    Several commenters noted that proposed Sample G-20, which sets 
forth a sample disclosure for an annual percentage rate increase for a 
credit card account, erroneously included a reference to the consumer's 
right to opt out of the change, which is not required by proposed Sec.  
226.9(c)(2)(iv)(A)(3) for credit card accounts. The reference to opt-
out rights has been deleted from Sample G-20 in the final rule.
    Consumer groups commented that notices provided in connection with 
rate increases should set forth the current rate as well as the 
increased rate that will apply. For the reasons discussed in the 
supplementary information to the January 2009 Regulation Z Rule, the 
Board is not adopting a requirement that a change-in-terms notice set 
forth the current rate or rates. See 74 FR 5244, 5347. As noted in that 
rulemaking, the main purpose of the change-in-terms notice is to inform 
consumers of the new rates that will apply to their accounts. The Board 
is concerned that disclosure of each current rate in the change-in-
terms notice could contribute to information overload, particularly in 
light of new restrictions on repricing in Sec.  226.55, which may lead 
to a consumer's account having multiple protected balances to which 
different rates apply.
    One exception to the repricing rules set forth in Sec.  
226.55(b)(3) permits card issuers to increase the rate on new 
transactions for a credit card account under an open-end (not home-
secured) consumer credit plan, provided that the creditor complies with 
the notice requirements in Sec.  226.9(b), (c), or (g). Under this 
exception, the increased rate can apply only to transactions that 
occurred more than 14 days after provision of the applicable notice. 
One federal banking agency suggested that Sec.  226.9(c) should 
expressly repeat the 14-day requirement and reference the advance 
notice exception set forth in Sec.  226.55(b)(3), so that issuers do 
not have to cross-reference two sections in providing the notice 
required under Sec.  226.9(c)(2). The Board believes that including an 
express reference to the 14-day requirement from Sec.  226.55(b)(3) in 
Sec.  226.9(c)(2) is not necessary. The Board expects that card issuers 
will be familiar with the substantive requirements regarding rate 
increases set forth in Sec.  226.55(b)(3), and that a second detailed 
reference to those requirements in Sec.  226.9(c)(2) therefore would be 
redundant.
Additional Content Requirements for Credit Card Accounts
    Proposed Sec.  226.9(c)(2)(iv)(B) set forth additional content 
requirements that are applicable only to credit card accounts under an 
open-end (not home-secured) consumer credit plan. In addition to the 
information required to be disclosed pursuant to Sec.  
226.9(c)(2)(iv)(A), the proposal required credit card issuers making 
significant changes to terms to disclose certain information regarding 
the consumer's right to reject the change pursuant to Sec.  226.9(h). 
The substantive rule regarding the right to reject is discussed in 
connection with proposed Sec.  226.9(h); however, the associated 
disclosure requirements are set forth in Sec.  226.9(c)(2). In 
particular, the proposal provided that a card issuer must generally 
include in the notice (1) a statement that the consumer has the right 
to reject the change or changes prior to the effective date, unless the 
consumer fails to make a required minimum periodic payment within 60 
days after the due date for that payment, (2) instructions for 
rejecting the change or changes, and a toll-free telephone number that 
the consumer may use to notify the creditor of the rejection, and (3) 
if applicable, a statement that if the consumer rejects the change or 
changes, the consumer's ability to use the account for further advances 
will be terminated or suspended. Proposed section 226.9(c)(2)(iv)(B) 
generally mirrored requirements made applicable

[[Page 7696]]

to credit card issuers in the July 2009 Regulation Z Interim Final 
Rule.
    The Board did not receive any significant comments on the content 
of disclosures regarding a consumer's right to reject certain 
significant changes to their account terms. Therefore, the content 
requirements in Sec.  226.9(c)(2)(iv)(B)(1)-(3) are adopted as 
proposed.
    The proposal provided that the right to reject does not apply to 
increases in the required minimum payment, an increase in an annual 
percentage rate applicable to a consumer's account, a change in the 
balance computation method applicable to a consumer's account necessary 
to comply with the new prohibition on use of ``two-cycle'' balance 
computation methods in proposed Sec.  226.54, or changes due to the 
creditor not receiving the consumer's required minimum periodic payment 
within 60 days after the due date for that payment. The Board is 
adopting the exceptions to the right to reject as proposed, with one 
change. For the reasons discussed in the supplementary information to 
Sec.  226.9(h), the proposed exception for increases in annual 
percentage rates has been adopted as an exception for all changes in 
annual percentage rates.
Rate Increases Resulting From Delinquency of More Than 60 Days
    As discussed in the supplementary information to Sec.  226.9(g), 
TILA Section 171(b)(4) requires several additional disclosures to be 
provided when the annual percentage rate applicable to a credit card 
account under an open-end consumer credit plan is increased due to the 
consumer's failure to make a minimum periodic payment within 60 days 
from the due date for that payment. In those circumstances, the notice 
must state the reason for the increase and disclose that the increase 
will cease to apply if the creditor receives six consecutive required 
minimum periodic payments on or before the payment due date, beginning 
with the first payment due following the effective date of the 
increase. The Board proposed in Sec.  226.9(g)(3)(i)(B) to set forth 
this additional content for rate increases pursuant to the exercise of 
a penalty pricing provision in the contract; however, the proposal 
contained no analogous disclosure requirements in Sec.  226.9(c)(2) 
when the rate increase is made pursuant to a change in terms notice. 
One issuer commented that Sec.  226.9(c)(2) also should set forth 
guidance for disclosing the 6-month cure right when a rate is increased 
via a change-in-terms notice due to a delinquency of more than 60 days. 
The final rule adopts new Sec.  226.9(c)(2)(iv)(C), which implements 
the notice requirements contained in amended TILA Section 171(b)(4), as 
adopted by the Credit Card Act; the substantive requirements of TILA 
Section 171(b)(4) are discussed in proposed Sec.  226.55(b)(4), as 
discussed below.
    New Sec.  226.9(c)(2)(iv)(C) requires the notice regarding the 6-
month cure right to be provided if the change-in-terms notice is 
disclosing an increase in an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) based on the consumer's failure to make a minimum periodic 
payment within 60 days from the due date for that payment. This differs 
from Sec.  226.9(g)(3)(i)(B), in that it references fees of a type 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii). Section 226.9(c)(2) addresses changes in fees and interest 
rates, while Sec.  226.9(g) applies only to interest rates; therefore, 
the reference to fees in Sec.  226.9(c)(2)(iv)(C) has been included for 
conformity with the substantive requirements of Sec.  226.55. The 
notice is required to state the reason for the increase and that the 
increase will cease to apply if the creditor receives six consecutive 
required minimum periodic payments on or before the payment due date, 
beginning with the first payment due following the effective date of 
the increase.
    Several industry commenters noted that the model forms for the 
table required to be provided at account opening disclose a cure right 
that is more advantageous to the consumer than the cure required by 
Sec.  226.55. In particular, proposed Samples G-17(B) and G-17(C) state 
that a penalty rate will apply until the consumer makes six consecutive 
minimum payments when due. In contrast, the substantive right under 
Sec.  226.55 applies only if the consumer makes the first six 
consecutive required minimum periodic payments when due, following the 
effective date of a rate increase due to the consumer's failure to make 
a required minimum periodic payment within 60 days of the due date. The 
Board is adopting the disclosure of penalty rates in Samples G-17(B) 
and G-17(C) as proposed. The Board notes that Samples G-17(B) and G-
17(C) set forth two examples of how the disclosures required by Sec.  
226.6(b)(1) and (b)(2) can be made, and those samples can be adjusted 
as applicable to reflect a creditor's actual practices regarding 
penalty rates. A creditor is still free, under the final rule, to 
provide that the penalty APR will cease to apply if the consumer makes 
any six consecutive payments on time, although the substantive right in 
Sec.  226.55 does not compel a creditor to do so. The Board does not 
wish to discourage creditors from providing more advantageous penalty 
pricing triggers than those that are required by the Credit Card Act 
and Sec.  226.55.
Formatting Requirements
    Proposed Sec.  226.9(c)(2)(iv)(C) set forth the formatting 
requirements that would apply to notices required to be given pursuant 
to Sec.  226.9(c)(2)(i). The proposed formatting requirements were 
generally the same as those that the Board adopted in Sec.  
226.9(c)(2)(iii) of the January 2009 Regulation Z Rule, except that the 
reference to the content of the notice included, when applicable, the 
information about the right to reject that credit card issuers must 
disclose pursuant to Sec.  226.9(c)(2)(iv)(B). These formatting 
requirements are not affected by the Credit Card Act, and therefore the 
Board proposed to adopt them generally as adopted in January 2009. The 
Board received no significant comment on the formatting requirements, 
and Sec.  226.9(c)(2)(iv)(D) (renumbered from proposed Sec.  
226.9(c)(2)(iv)(C)) is adopted as proposed.
    As proposed, the Board is amending Sample G-20 and adding a new 
Sample G-21 to illustrate how a card issuer may comply with the 
requirements of Sec.  226.9(c)(2)(iv). The Board is amending references 
to these samples in Sec.  226.9(c)(2)(iv) and comment 9(c)(2)(iv)-8 
accordingly. Sample G-20 is a disclosure of a rate increase applicable 
to a consumer's credit card account. The sample explains when the new 
rate will apply to new transactions and to which balances the current 
rate will continue to apply. Sample G-21 illustrates an increase in the 
consumer's late payment and returned payment fees, and sets forth the 
content required in order to disclose the consumer's right to reject 
those changes.
9(c)(2)(v) Notice Not Required
    The Board proposed Sec.  226.9(c)(2)(v) to set forth the exceptions 
to the general change-in-terms notice requirements for open-end (not 
home-secured) credit. With several exceptions, proposed Sec.  
226.9(c)(2)(v) was intended to be substantively equivalent to Sec.  
226.9(c)(2)(v) of the July 2009 Regulation Z Interim Final Rule, except 
that the Board proposed an additional express exception for the 
extension of a grace period. Proposed Sec.  226.9(c)(2)(v)(A) set forth 
several exceptions that are in current Sec.  226.9(c), including 
charges for documentary

[[Page 7697]]

evidence, reductions of finance charges, suspension of future credit 
privileges (except as provided in Sec.  226.9(c)(vi), discussed below), 
termination of an account or plan, or when the change results from an 
agreement involving a court proceeding. The Board did not include these 
changes in the set of ``significant changes'' giving rise to notice 
requirements pursuant to new TILA Section 127(i)(2). The Board stated 
that it believes 45 days' advance notice is not necessary for these 
changes, which are not of the type that generally result in the 
imposition of a fee or other charge on a consumer's account that could 
come as a costly surprise.
    The Board received several comments on the exceptions in proposed 
Sec.  226.9(c)(2)(v)(A) for termination of an account or plan and the 
suspension of future credit privileges. Consumer groups stated that 
notice should be required of credit limit decreases or account 
termination, either contemporaneously with or subsequent to those 
actions. In addition, one member of Congress stated that 45 days' 
advance notice should be required prior to account termination.
    The Board is retaining the exceptions for account termination and 
suspension of credit privileges in the final rule. As stated in the 
proposal, the Board believes that for safety and soundness reasons, 
issuers generally have a legitimate interest in suspending credit 
privileges or terminating an account or plan when a consumer's 
creditworthiness deteriorates, and that 45 days' advance notice of 
these types of changes therefore would not be appropriate. With regard 
to the suspension of credit privileges, the Board notes that Sec.  
226.9(c)(vi) requires creditors to provide 45 days' advance notice that 
a consumer's credit limit has been decreased before an over-the-limit 
fee or penalty rate can be imposed solely for exceeding that newly 
decreased credit limit. The Board believes that Sec.  226.9(c)(vi) will 
adequately ensure that consumers receive notice of a decrease in their 
credit limit prior to any adverse consequences as a result of the 
consumer exceeding the new credit limit.
    Similarly, the Board does not believe that it is necessary to 
require notices of the termination of an account or the suspension of 
credit privileges contemporaneously with or immediately following such 
a termination or suspension. In many cases, consumers will receive 
subsequent notification of the termination of an account or the 
suspension of credit privileges pursuant to Regulation B. See 12 CFR 
part 202. The Board acknowledges that Regulation B does not require 
subsequent notification of the termination of an account or suspension 
of credit privileges in all cases, for example, when the action affects 
all or substantially all of a class of the creditor's accounts or is an 
action relating to an account taken in connection with inactivity, 
default, or delinquency as to that account. However, the Board believes 
that the benefit to consumers of requiring such a subsequent notice in 
all cases would be limited. If a consumer's account is terminated or 
suspended and the consumer attempts to use the account for new 
transactions, those transactions will be denied. The Board expects that 
in such circumstances most consumers would call the card issuer and be 
notified at that time of the suspension or termination of their 
account.
Increase in Annual Percentage Rate Upon Expiration of Specified Period 
of Time
    Proposed Sec.  226.9(c)(2)(v)(B) set forth an exception contained 
in the Credit Card Act for increases in annual percentage rates upon 
the expiration of a specified period of time, provided that prior to 
the commencement of that period, the creditor disclosed to the consumer 
clearly and conspicuously in writing the length of the period and the 
annual percentage rate that would apply after that period. The proposal 
required that this disclosure be provided in close proximity and equal 
prominence to any disclosure of the rate that applies during that 
period, ensuring that it would be provided at the same time the 
consumer is informed of the temporary rate. In addition, in order to 
fall within this exception, the annual percentage rate that applies 
after the period ends may not exceed the rate previously disclosed.
    The proposed exception generally mirrored the statutory language, 
except for two additional requirements. First, the Board's proposal 
provided, consistent with July 2009 Regulation Z Interim Final Rule and 
the standard for Regulation Z disclosures under Subpart B, that the 
disclosure of the period and annual percentage rate that will apply 
after the period is generally required to be in writing. See Sec.  
226.5(a)(1). Second, pursuant to its authority under TILA Section 
105(a) to prescribe regulations to effectuate the purposes of TILA, the 
Board proposed to require that the disclosure of the length of the 
period and the annual percentage rate that would apply upon expiration 
of the period be set forth in close proximity and equal prominence to 
the disclosure of the rate that applies during the specified period of 
time. 15 U.S.C. 1604(a). The Board stated that it believes both of 
these requirements are appropriate in order to ensure that consumers 
receive, comprehend, and are able to retain the disclosures regarding 
the rates that will apply to their transactions.
    Proposed comment 9(c)(2)(v)-5 clarified the timing of the 
disclosure requirements for telephone purchases financed by a merchant 
or private label credit card issuer. The Board is aware that the 
general requirement in the July 2009 Regulation Z Interim Final Rule 
that written disclosures be provided prior to commencement of the 
period during which a temporary rate will be in effect has caused some 
confusion for merchants who offer a promotional rate on the telephone 
to finance the purchase of goods. In order to clarify the application 
of the rule to such merchants, proposed comment 9(c)(2)(v)-5 stated 
that the timing requirements of Sec.  226.9(c)(2)(v)(B) are deemed to 
have been met, and written disclosures required by Sec.  
226.9(c)(2)(v)(B) may be provided as soon as reasonably practicable 
after the first transaction subject to a temporary rate if: (1) The 
first transaction subject to the temporary rate occurs when a consumer 
contacts a merchant by telephone to purchase goods and at the same time 
the consumer accepts an offer to finance the purchase at the temporary 
rate; (2) the merchant or third-party creditor permits consumers to 
return any goods financed subject to the temporary rate and return the 
goods free of cost after the merchant or third-party creditor has 
provided the written disclosures required by Sec.  226.9(c)(2)(v)(B); 
and (3) the disclosures required by Sec.  226.9(c)(2)(v)(B) and the 
consumer's right to reject the temporary rate offer and return the 
goods are disclosed to the consumer as part of the offer to finance the 
purchase. This clarification mirrored a timing rule for account-opening 
disclosures provided by merchants financing the purchase of goods by 
telephone under Sec.  226.5(b)(1)(iii) of the January 2009 Regulation Z 
Rule.
    The Board received a large number of comments from retailers and 
private label card issuers raising concerns about the proposal and 
regarding the operational difficulties associated with providing the 
disclosures required by proposed Sec.  226.9(c)(2)(v)(B). Specifically, 
these commenters stated that issuers should be permitted to provide 
consumers with a disclosure of an ``up to'' annual percentage rate, and

[[Page 7698]]

not the specific rate that will apply to a consumer's account upon 
expiration of the promotion. The Board is not adopting this suggestion, 
for several reasons. First, the Board believes that the appropriate 
interpretation is that amended TILA Section 127(i)(1) (which cross-
references new TILA Section 171(a)(1)) requires disclosure of the 
actual rate that will apply upon expiration of a temporary rate. 
Second, the Board believes that a disclosure of a range of rates or 
``up to'' rate will not be as useful for consumers as a disclosure of 
the specific rate that will apply. The Board is aware that some private 
label card issuers and retailers permit consumers to make transactions 
at a promotional rate, even if the consumer's account is currently 
subject to a penalty rate. In this case, an ``up to'' rate disclosure 
would disclose the penalty rate, which would be much higher than the 
actual rate that will apply upon expiration of the promotion for most 
consumers. Thus, the disclosure would convey little useful information 
to a consumer whose account is not subject to the penalty rate.
    Other retailers and private label card issuers suggested that the 
Board permit issuers to provide the required disclosures or a portion 
of the required disclosures with a receipt or other document. One such 
commenter stated that these disclosures should be permitted to be given 
at the conclusion of a transaction. The Board believes that amended 
TILA Section 127(i)(1) (which cross-references new TILA Section 
171(a)(1)) clearly contemplates that the disclosures will be provided 
prior to commencement of the period during which the temporary rate 
will be in effect. Therefore, the final rule would not permit a 
creditor to provide the disclosures after conclusion of a transaction 
at point of sale.
    However, the Board believes that it is appropriate to provide some 
flexibility for the formatting of notices of temporary rates provided 
at point of sale. The Board understands that private label and retail 
card issuers may offer different rates to different consumers based on 
their creditworthiness and other factors. In addition, some consumers' 
accounts may be at a penalty rate that differs from the standard rates 
on the portfolio. Commenters have indicated that there can be 
significant operational issues associated with ensuring that sales 
associates provide the correct disclosures to each consumer at point of 
sale when those consumers' rates vary. In order to address an analogous 
issue for the disclosures required to be given at account opening, the 
Board understands that card issuers disclose the rate that will apply 
to the consumer's account on a separate page which can be printed 
directly from the receipt terminal, as permitted by Sec.  
226.6(b)(2)(i)(E). The Board believes that a similar formatting rule is 
appropriate for disclosures of temporary rate offers. Accordingly, the 
Board is adopting a new comment 9(c)(2)(v)-7 which states that card 
issuers providing the disclosures required by Sec.  226.9(c)(2)(v)(B) 
in person in connection with financing the purchase of goods or 
services may, at the creditor's option, disclose the annual percentage 
rate that would apply after expiration of the period on a separate page 
or document from the temporary rate and the length of the period, 
provided that the disclosure of the annual percentage rate that would 
apply after the expiration of the period is equally prominent to, and 
is provided at the same time as, the disclosure of the temporary rate 
and length of the period. The Board believes that this will ensure that 
consumers receive the disclosures required for a temporary rate offer, 
and will be aware of the rate that will apply after the temporary rate 
expires, while alleviating burden on retail and private label credit 
card issuers.
    One industry commenter urged the Board to provide flexibility in 
the formatting of the promotional rate disclosures under Sec.  
226.9(c)(2)(v)(B), noting that any requirement that these disclosures 
be presented in a tabular format would present significant operational 
challenges. The Board notes that the proposal did not require that 
these disclosures be provided in a tabular format, and the final rule 
similarly does not require that the disclosures under Sec.  
226.9(c)(2)(v)(B) be presented in a table.
    In the October 2009 Regulation Z Proposal, the Board stated, that 
for a brief period necessary to update their systems to disclose a 
single rate, issuers offering a deferred interest or other promotional 
rate program at point of sale could disclose a range of rates or an 
``up to'' rate rather than a single rate. The Board noted that stating 
a range of rates or ``up to'' rate would only be permissible for a 
brief transition period and that it expected that merchants and 
creditors would disclose a single rate that will apply when a deferred 
interest or other promotional rate expires in accordance with Sec.  
226.9(c)(2)(v)(B) as soon as possible. The Board expects that all 
issuers will disclose a single rate by the February 22, 2010 effective 
date of this final rule. The Board notes that in addition to the 
exception to Sec.  226.9(c)(2)'s advance notice requirements, provision 
of the notice pursuant to Sec.  226.9(c)(2)(v)(B) now also is a 
condition of an exception to the substantive repricing rules in Sec.  
226.55(b)(1). Accordingly, the Board believes that it is particularly 
important that consumers receive notice of the specific rate that will 
apply upon expiration of a promotion, since the ability to raise the 
rate upon termination of the program is conditioned on the consumer's 
receipt of that disclosure.
    Several industry commenters stated that the alternative timing rule 
for telephone purchases in proposed comment 9(c)(2)(v)-5 should apply 
to all telephone offers of temporary rate reductions. These commenters 
argued that consumers should not have to wait for written disclosures 
to be delivered prior to commencement of a temporary reduced rate, 
because that rate constitutes a beneficial change to the consumer. 
Several of these commenters indicated that a consumer who accepts a 
temporary rate offer by telephone should have a subsequent right to 
reject the offer for 45 days after provision of the written 
disclosures.
    In response to these comments, the Board is adopting a revised 
comment 9(c)(2)(v)-5, which provides that the timing requirements of 
Sec.  226.9(c)(2)(v)(B) are deemed to have been met, and written 
disclosures required by Sec.  226.9(c)(2)(v)(B) may be provided as soon 
as reasonably practicable after the first transaction subject to a 
temporary rate, if: (i) The consumer accepts the offer of the temporary 
rate by telephone; (ii) the creditor permits the consumer to reject the 
temporary rate offer and have the rate or rates that previously applied 
to the consumer's balances reinstated for 45 days after the creditor 
mails or delivers the written disclosures required by Sec.  
226.9(c)(2)(v)(B); and (iii) the disclosures required by Sec.  
226.9(c)(2)(v)(B) and the consumer's right to reject the offer and have 
the rate or rates that previously applied to the consumer's account 
reinstated are disclosed to the consumer as part of the temporary rate 
offer. The Board believes that consumers who accept a promotional rate 
offer by telephone expect that the promotional rate will apply 
immediately upon their acceptance. The Board believes that requiring 
written disclosures prior to commencement of a temporary rate when 
offer is made by telephone and the required disclosures are provided 
orally would unnecessarily delay, in many cases, a benefit to the 
consumer. However, the Board believes that a consumer should have a 
right,

[[Page 7699]]

subsequent to receiving written disclosures, to change his or her mind 
and reject the temporary rate offer. The Board believes that comment 
9(c)(2)(v)-5, as adopted, ensures that consumers may take immediate 
advantage of promotions that they believe to be a benefit, while 
protecting consumers by allowing them to terminate the promotion, with 
no adverse consequences, upon receipt of written disclosures.
    In addition to requesting that the disclosures under Sec.  
226.9(c)(2)(v)(B) be permitted to be provided by telephone, other 
industry commenters stated that these disclosures should be permitted 
to be provided electronically without regard to 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 
Board is not providing an exception to the consumer consent 
requirements under the E-Sign Act at this time. The requirements of the 
E-Sign Act are implemented in Regulation Z in Sec.  226.36, which 
states that a creditor is required to obtain a consumer's affirmative 
consent when providing disclosures related to a transaction. The Board 
believes that disclosure of a promotional or other temporary rate is a 
disclosure related to a transaction, and that consumers should only 
receive the disclosures under Sec.  226.9(c)(2)(v)(B) electronically if 
they have affirmatively consented to receive disclosures in that form.
    Several commenters asked the Board to provide additional 
clarification regarding the proposed requirement that the disclosures 
of the length of the period and the rate that will apply after the 
expiration of the period be disclosed in close proximity and equal 
prominence to the disclosure of the temporary rate. One card issuer 
indicated that the Board should require only that the disclosures 
required by Sec.  226.9(c)(2)(v)(B) be provided in close proximity and 
equal prominence to the first listing of the promotional rate, 
analogous to what Sec.  226.16(g) requires for disclosures of 
promotional rates in advertisements. The Board believes that this 
clarification is appropriate, and is adopting a new comment 9(c)(2)(v)-
6, which states that the disclosures of the rate that will apply after 
expiration of the period and the length of the period are only required 
to be provided in close proximity and equal prominence to the first 
listing of the temporary rate in the disclosures provided to the 
consumer. The comment further states that for purposes of Sec.  
226.9(c)(2)(v)(B), the first statement of the temporary rate is the 
most prominent listing on the front side of the first page of the 
disclosure. The comment notes that if the temporary rate does not 
appear on the front side of the first page of the disclosure, then the 
first listing of the temporary rate is the most prominent listing of 
the temporary rate on the subsequent pages of the disclosure. The Board 
believes that this rule will ensure that consumers notice the 
disclosure of the rate that will apply after the temporary rate 
expires, by requiring that it be closely proximate and equally 
prominent to the most prominent disclosure of the temporary rate, while 
mitigating burden on issuers to present this disclosure multiple times 
in the materials provided to the consumer.
    One industry commenter stated that there should be an exception 
analogous to Sec.  226.9(c)(2)(v)(B) for promotional fee offerings. The 
Board is not adopting such an exception at this time. The Board notes 
that the exception in amended TILA Section 127(i)(1) (which cross-
references new TILA Section 171(a)(1)) refers only to annual percentage 
rates and not to fees. The Board does not think a similar exception for 
fees is appropriate or necessary. Fees generally do not apply to a 
specific balance on the consumer's account, but rather, apply 
prospectively. Therefore, a creditor could reduce a fee pursuant to the 
exception in Sec.  226.9(c)(2)(v) for reductions in finance or other 
charges, without having to provide advance notice of that reduction. 
The creditor could then increase the fee with prospective application 
after providing 45 days' advance notice pursuant to Sec.  226.9(c). 
Nothing in the rule prohibits a creditor from providing notice of the 
increase in a fee at the same time it temporarily reduces the fee; a 
creditor could provide information regarding the temporary reduction in 
the same notice, provided that it is not interspersed with the content 
required to be disclosed pursuant to Sec.  226.9(c)(2)(iv).
    The Board proposed to retain comment 9(c)(2)(v)-6 from the July 
2009 Regulation Z Interim Final Rule (redesignated as comment 
9(c)(2)(v)-7) to clarify that an issuer offering a deferred interest or 
similar program may utilize the exception in Sec.  226.9(c)(2)(v)(B). 
The proposed comment also provides examples of how the required 
disclosures can be made for deferred interest or similar programs. The 
Board did not receive any significant comment on the applicability of 
Sec.  226.9(c)(2)(v)(B) to deferred interest plans, and continues to 
believe that the application of Sec.  226.9(c)(2)(v)(B) to deferred 
interest arrangements is consistent with the Credit Card Act. The Board 
is adopting proposed comment 9(c)(2)(v)-7 (redesignated as comment 
9(c)(2)(v)-9), in order to ensure that the final rule does not have 
unintended adverse consequences for deferred interest promotions. In 
order to ensure consistent treatment of deferred interest programs, the 
Board has added a cross-reference to comment 9(c)(2)(v)-9 indicating 
that for purposes of Sec.  226.9(c)(2)(v)(B) and comment 9(c)(2)(v)-9, 
``deferred interest'' has the same meaning as in Sec.  226.16(h)(2) and 
associated commentary.
    In October 2009, the Board proposed to retain comment 9(c)(2)(v)-5 
from the July 2009 Regulation Z Interim Final Rule (redesignated as 
comment 9(c)(2)(v)-6), which is applicable to the exceptions in both 
Sec.  226.9(c)(2)(v)(B) and (c)(2)(v)(D), and provides additional 
clarification regarding the disclosure of variable annual percentage 
rates. The comment provides that if the creditor is disclosing a 
variable rate, the notice must also state that the rate may vary and 
how the rate is determined. The comment sets forth an example of how a 
creditor may make this disclosure. The Board believes that the fact 
that a rate is variable is an important piece of information of which 
consumers should be aware prior to commencement of a deferred interest 
promotion, a promotional rate, or a stepped rate program. The Board 
received no comments on proposed comment 9(c)(2)(v)-6 and it is adopted 
as redesignated comment 9(c)(2)(v)-8.
Increases in Variable Rates
    The Board proposed Sec.  226.9(c)(2)(v)(C) to implement an 
exception in the Credit Card Act for increases in variable annual 
percentage rates in accordance with a credit card or other account 
agreement that provides for a change in the rate according to operation 
of an index that is not under the control of the creditor and is 
available to the general public. The Board proposed a minor amendment 
to the text of Sec.  226.9(c)(2)(v)(C) as adopted in the July 2009 
Regulation Z Interim Final Rule to reflect the fact that this exception 
would apply to all open-end (not home-secured) credit. The Board 
believes that even absent this express exception, such a rate increase 
would not generally be a change in the terms of the cardholder or other 
account agreement that gives rise to the requirement to provide 45 
days' advance notice, because the index, margin, and frequency with 
which the annual percentage rate will vary will all be specified in the 
cardholder or other account agreement in advance. However, in order to 
clarify that 45

[[Page 7700]]

days' advance notice is not required for a rate increase that occurs 
due to adjustments in a variable rate tied to an index beyond the 
creditor's control, the Board proposed to retain Sec.  
226.9(c)(2)(v)(C) of the July 2009 Regulation Z Interim Final Rule.
    The Board received no significant comment on Sec.  
226.9(c)(2)(v)(C), which is adopted as proposed. The Board notes that, 
as discussed in the supplementary information to Sec.  226.55(b)(2), it 
is adopting additional commentary clarifying when an index is deemed to 
be outside of an issuer's control, in order to address certain 
practices regarding variable rate ``floors'' and the adjustment or 
resetting of variable rates to account for changes in the index. The 
Board is adopting a new comment 9(c)(2)(v)-11, which cross-references 
the guidance in comment 55(b)(2)-2.
Exception for Workout or Temporary Hardship Arrangements
    In the October 2009 Regulation Z Proposal, the Board proposed to 
retain Sec.  226.9(c)(2)(v)(D) to implement a statutory exception in 
amended TILA Section 127(i)(1) (which cross-references new TILA Section 
171(b)(3)), for increases in rates or fees or charges due to the 
completion of, or a consumer's failure to comply with the terms of, a 
workout or temporary hardship arrangement provided that the annual 
percentage rate or fee or charge applicable to a category of 
transactions following the increase does not exceed the rate that 
applied prior to the commencement of the workout or temporary hardship 
arrangement. Proposed Sec.  226.9(c)(2)(v)(D) was substantively 
equivalent to the analogous provision included in the July 2009 
Regulation Z Interim Final Rule.
    The exception in proposed Sec.  226.9(c)(2)(v)(D) applied both to 
completion of or failure to comply with a workout arrangement. The 
proposed exception was conditioned on the creditor's having clearly and 
conspicuously disclosed, prior to the commencement of the arrangement, 
the terms of the arrangement (including any such increases due to such 
completion). The Board notes that the statutory exception applies in 
the event of either completion of, or failure to comply with, the terms 
of such a workout or temporary hardship arrangement. This proposed 
exception generally mirrored the statutory language, except that the 
Board proposed to require that the disclosures regarding the workout or 
temporary hardship arrangement be in writing.
    The Board also proposed to retain comment 9(c)(2)(v)-7 of the July 
2009 Regulation Z Interim Final Rule (redesignated as comment 
9(c)(2)(v)-8), which provides clarification as to what terms must be 
disclosed in connection with a workout or temporary hardship 
arrangement. The comment stated that in order for the exception to 
apply, the creditor must disclose to the consumer the rate that will 
apply to balances subject to the workout or temporary hardship 
arrangement, as well as the rate that will apply if the consumer 
completes or fails to comply with the terms of, the workout or 
temporary hardship arrangement. For consistency with proposed Sec.  
226.55(b)(5)(i), the Board proposed to revise the comment to also state 
that the creditor must disclose the amount of any reduced fee or charge 
of a type required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) that will apply to balances subject to the 
arrangement, as well as the fee or charge that will apply if the 
consumer completes or fails to comply with the terms of the 
arrangement. The proposal also required the notice to state, if 
applicable, that the consumer must make timely minimum payments in 
order to remain eligible for the workout or temporary hardship 
arrangement. The Board noted its belief that it is important for a 
consumer to be notified of his or her payment obligations pursuant to a 
workout or similar arrangement, and that the rate, fee or charge may be 
increased if he or she fails to make timely payments.
    Several industry commenters stated that creditors should be 
permitted to provide the disclosures pursuant to Sec.  
226.9(c)(2)(v)(D) for workout or temporary hardship arrangements orally 
with subsequent written confirmation. These commenters noted that oral 
disclosure of the terms of a workout arrangement would permit creditors 
to reduce rates and fees as soon as the consumer agrees to the 
arrangement, but that a requirement that written disclosures be 
provided in advance could unnecessarily delay commencement of the 
arrangement. These commenters noted that workout arrangements 
unequivocally benefit consumers, so there is no consumer protection 
rationale for delaying relief until a creditor can provide written 
disclosures. Commenters further noted that the consumers who enter such 
arrangements are having trouble making the payments on their accounts, 
and that any delay can be detrimental to the consumer.
    The Board notes that amended TILA Section 127(i) (which cross-
references TILA Section 171(b)(3)) requires clear and conspicuous 
disclosure of the terms of a workout or temporary hardship arrangement 
prior to its commencement, but the statute does not contain an express 
requirement that these disclosures be in writing. The Board further 
understands that a delay in commencement of a workout or temporary 
hardship arrangement can have adverse consequences for a consumer. 
Therefore, Sec.  226.9(c)(2)(v)(D) of the final rule provides that 
creditors may provide the disclosure of the terms of the workout or 
temporary hardship arrangement orally by telephone, provided that the 
creditor mails or delivers a written disclosure of the terms of the 
arrangement to the consumer as soon as reasonably practicable after the 
oral disclosure is provided. The Board notes that a consumer's rate can 
only be raised, upon completion or failure to comply with the terms of, 
a workout or temporary hardship arrangement, to the rate that applied 
prior to commencement of the arrangement. Therefore, the Board believes 
that consumers will be adequately protected by receiving written 
disclosures as soon as practicable after oral disclosures are provided.
    In addition to requesting that the disclosures under Sec.  
226.9(c)(2)(v)(D) be permitted to be provided by telephone, other 
industry commenters stated that these disclosures should be permitted 
to be provided electronically without regard to 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 
Board is not providing an exception to the consumer consent 
requirements under the E-Sign Act at this time. The Board believes that 
disclosure of the terms of a workout or other temporary hardship 
arrangement is a disclosure related to a transaction, and that 
consumers should only receive the disclosures under Sec.  
226.9(c)(2)(v)(D) electronically if they have affirmatively consented 
to receive disclosures in that form.
    Several industry commenters requested that the Board extend the 
exception in Sec.  226.9(c)(2)(v)(D) to address the reduction of the 
consumer's minimum periodic payment as part of a workout or temporary 
hardship arrangement. The Board understands that a requirement that 45 
days' advance notice be given prior to reinstating the prior minimum 
payment requirements could lead to negative amortization for a period 
of 45 days or more, when the consumer's rate or rates are increased as 
a result of the completion of or failure to comply with the terms of, 
the

[[Page 7701]]

workout or temporary hardship arrangement. Therefore, the Board has 
amended Sec.  226.9(c)(2)(v)(D) and comment 9(c)(2)(v)-10 (proposed as 
comment 9(c)(2)(v)-8) to provide that increases in the required minimum 
periodic payment are covered by the exception in Sec.  
226.9(c)(2)(v)(D), but that such increases in the minimum payment must 
be disclosed as part of the terms of the workout or temporary hardship 
arrangement. As with rate increases, a consumer's required minimum 
periodic payment can only be increased to the required minimum periodic 
payment prior to commencement of the workout or temporary hardship 
arrangement in order to qualify for the exception.
    One industry commenter asked the Board to simplify the content 
requirements for the notice required to be given prior to commencement 
of a workout or temporary hardship arrangement. The issuer stated that 
the notice could be confusing for consumers because they may have 
different annual percentage rates applicable to different categories of 
transactions, promotional rates in effect, and protected balances under 
Sec.  226.55. While the Board acknowledges that the disclosure of the 
various annual percentage rates applicable to a consumer's account 
could be complex, the Board believes that a consumer should be aware of 
all of the annual percentage rates and fees that would be applicable 
upon completion of, or failure to comply with, the workout or temporary 
hardship arrangement. Therefore, the Board is adopting comment 
9(c)(2)(v)-10 (proposed as comment 9(c)(2)(v)-8) generally as proposed, 
except for the addition of a reference to changes in the required 
minimum periodic payment, discussed above.
Additional Exceptions
    A number of commenters urged the Board to adopt additional 
exceptions to the requirement to provide 45 days' advance notice of 
significant changes in account terms. Several industry commenters 
stated that the Board should provide an exception to the advance notice 
requirements for rate increases made when the provisions of the 
Servicemembers Civil Relief Act (SCRA), 50 U.S.C. app. 501 et seq., 
which in some circumstances requires reductions in consumers' interest 
rates when they are engaged in military service, cease to apply. These 
commenters noted that proposed Sec.  226.55 provided an exception to 
the substantive repricing requirements in these circumstances. However, 
the Board is not adopting an analogous exception to the notice 
requirements in Sec.  226.9. The Board believes that consumers formerly 
engaged in military service should receive advance notice when a higher 
rate will begin to apply to their accounts. A consumer may not be aware 
of exactly when the SCRA's protections cease to apply and may choose, 
in reliance on the notice, to change his or her account usage or 
utilize another source of financing in order to mitigate the impact of 
the rate increase.
    One industry trade association requested an exception to the 45-day 
advance notice requirement for termination of a preferential rate for 
employees. The Board notes that it expressly removed such an exception 
historically set forth in comment 9(c)-1 in the January 2009 Regulation 
Z Rule. For the reasons discussed in the supplementary information to 
the January 2009 Regulation Z Rule, the Board is not restoring that 
exception in this final rule. See 74 FR 5244, 5346.
    Finally, one industry commenter requested an exception to the 
advance notice requirements when a change in terms is favorable to a 
consumer, such as the extension of a grace period, even if it does not 
involve a reduction in a finance charge. The commenter noted that, for 
such changes, an issuer also may not want to provide a right to reject 
under Sec.  226.9(h), because rejecting the change would be unfavorable 
to the consumer. While the Board notes that, consistent with the 
proposal, the final rule creates an exception to the advance notice 
requirements for extensions of the grace period, the Board is not 
adopting a more general exception to the advance notice requirements 
for favorable changes at this time. With the exception of reductions in 
finance or other charges, the Board believes that it is difficult to 
articulate criteria for when other types of changes are beneficial to a 
consumer.
9(c)(2)(vi) Reduction of the Credit Limit
    Consistent with the January 2009 Regulation Z Rule and the July 
2009 Regulation Z Interim Final Rule, the Board proposed to retain 
Sec.  226.9(c)(2)(vi) to address notices of changes in a consumer's 
credit limit. Section 226.9(c)(2)(vi) requires an issuer to provide a 
consumer with 45 days' advance notice that a credit limit is being 
decreased or will be decreased prior to the imposition of any over-the-
limit fee or penalty rate imposed solely as the result of the balance 
exceeding the newly decreased credit limit. The Board did not propose 
to include a decrease in a consumer's credit limit itself as a 
significant change in a term that requires 45 days' advance notice, for 
several reasons. First, the Board recognizes that creditors have a 
legitimate interest in mitigating the risk of a loss when a consumer's 
creditworthiness deteriorates, and believes there would be safety and 
soundness concerns with requiring creditors to wait 45 days to reduce a 
credit limit. Second, the consumer's credit limit is not a term 
generally required to be disclosed under Regulation Z or TILA. Finally, 
the Board stated its belief that Sec.  226.9(c)(2)(vi) adequately 
protects consumers against the two most costly surprises potentially 
associated with a reduction in the credit limit, namely, fees and rate 
increases, while giving a consumer adequate time to mitigate the effect 
of the credit line reduction.
    The Board received no significant comment on Sec.  226.9(c)(2)(vi), 
which is adopted as proposed. The Board notes that consumer group 
commenters stated that the final rule should also require disclosure of 
a credit line decrease either contemporaneously with the decrease or 
shortly thereafter; for the reasons discussed above in the section-by-
section analysis to Sec.  226.9(c)(2)(v), the Board is not adopting 
such a requirement at this time.
    The Board notes that the final rule contains additional protections 
against a credit line decrease. First, Sec.  226.55 prohibits a card 
issuer from applying an increased rate, fee, or charge to an existing 
balance as a result of transactions that exceeded the credit limit. In 
addition, Sec.  226.56 allows a card issuer to charge a fee for 
transactions that exceed the credit limit only when the consumer has 
consented to such transactions.
Additional Changes to Commentary to Sec.  226.9(c)(2)
    The commentary to Sec.  226.9(c)(2) generally is consistent with 
the commentary to Sec.  226.9(c)(2) of the January 2009 Regulation Z 
Rule, except for technical changes or changes discussed below. In 
addition, as discussed above, the Board is adopting several new 
comments to Sec.  226.9(c)(2)(v) and has renumbered the remaining 
commentary accordingly.
    In October 2009, the Board proposed to amend comment 9(c)(2)(i)-6 
to reference examples in Sec.  226.55 that illustrate how the advance 
notice requirements in Sec.  226.9(c) relate to the substantive rule 
regarding rate increases in proposed Sec.  226.55. In the January 2009 
Regulation Z Rule, comment 9(c)(2)(i)-6 referred to the commentary to 
Sec.  226.9(g). Because, as discussed in the supplementary information 
to

[[Page 7702]]

Sec.  226.55, the Credit Card Act moved the substantive rule regarding 
rate increases into Regulation Z, the Board believed that it is not 
necessary to repeat the examples under Sec.  226.9. The Board received 
no comments on the proposed amendments to comment 9(c)(2)(i)-6, which 
are adopted as proposed.
    The Board also proposed to amend comment 9(c)(2)(v)-2 (adopted in 
the January 2009 Regulation Z Rule as comment 9(c)(2)(iv)-2) in order 
to conform with the new substantive and notice requirements of the 
Credit Card Act. This comment addresses the disclosures that must be 
given when a credit program allows consumers to skip or reduce one or 
more payments during the year or involves temporary reductions in 
finance charges. However, new Sec.  226.9(c)(2)(v)(B) requires a 
creditor to provide a notice of the period for which a temporarily 
reduced rate will be in effect, as well as a disclosure of the rate 
that will apply after that period, in order for a creditor to be 
permitted to increase the rate at the end of the period without 
providing 45 days' advance notice. Similarly, Sec.  226.55, discussed 
elsewhere in this supplementary information, requires a creditor to 
provide advance notice of a temporarily reduced rate if a creditor 
wants to preserve the ability to raise the rate on balances subject to 
that temporarily reduced rate. Accordingly, the Board is proposing 
amendments to clarify that if a credit program involves temporary 
reductions in an interest rate, no notice of the change in terms is 
required either prior to the reduction or upon resumption of the higher 
rates if these features are disclosed in advance in accordance with the 
requirements of Sec.  226.9(c)(2)(v)(B). See proposed comment 55(b)-3. 
The proposed comment further clarifies that if a creditor does not 
provide advance notice in accordance with Sec.  226.9(c)(2)(v)(B), that 
it must provide a notice that complies with the timing requirements of 
Sec.  226.9(c)(2)(i) and the content and format requirements of Sec.  
226.9(c)(2)(iv)(A), (B) (if applicable), (C) (if applicable), and (D). 
The proposed comment notes that creditors should refer to Sec.  226.55 
for additional restrictions on resuming the original rate that is 
applicable to credit card accounts under an open-end (not home-secured) 
plan.
Relationship Between Sec.  226.9(c)(2) and (b)
    In the October 2009 Regulation Z Proposal, the Board republished 
proposed amendments to Sec.  226.9(c)(2)(v) and comments 9(c)(2)-4 and 
9(c)(2)(i)-3 that were part of the May 2009 Regulation Z Proposed 
Clarifications. Several of the Board's proposed revisions to Sec.  
226.9(c)(2)(v) (proposed in May 2009 as Sec.  226.9(c)(2)(iv)) and 
proposed comment 9(c)(2)-4 were to clarify the relationship between the 
change-in-terms requirements of Sec.  226.9(c) and the notice 
provisions of Sec.  226.9(b) that apply when a creditor adds a credit 
feature or delivers a credit access device for an existing open-end 
plan. See 74 FR 20787 for further discussion of these proposed 
amendments. Commenters that addressed this aspect of the proposal 
generally supported these proposed clarifications, which are adopted as 
proposed.
9(e) Disclosures Upon Renewal of Credit or Charge Card
    The Credit Card Act amended TILA Section 127(d), which sets forth 
the disclosures that card issuers must provide in connection with 
renewal of a consumer's credit or charge card account. 15 U.S.C. 
1637(d). TILA Section 127(d) is implemented in Sec.  226.9(e), which 
has historically required card issuers that assess an annual or other 
fee based on inactivity or activity, on a credit card account of the 
type subject to Sec.  226.5a, to provide a renewal notice before the 
fee is imposed. The creditor must provide disclosures required for 
credit card applications and solicitations (although not in a tabular 
format) and must inform the consumer that the renewal fee can be 
avoided by terminating the account by a certain date. The notice must 
generally be provided at least 30 days or one billing cycle, whichever 
is less, before the renewal fee is assessed on the account. Under 
current Sec.  226.9(e), there is an alternative delayed notice 
procedure where the fee can be assessed provided the fee is reversed if 
the consumer is given notice and chooses to terminate the account.

Alternative Delayed Notice

    The Credit Card Act amended TILA Section 127(d) to eliminate the 
provision permitting creditors to provide an alternative delayed 
notice. Thus, the statute requires card issuers to provide the renewal 
notice described in Sec.  226.9(e)(1) prior to imposition of any annual 
or other periodic fee to renew a credit or charge card account of the 
type subject to Sec.  226.5a, including any fee based on account 
activity or inactivity. Card issuers may no longer assess the fee and 
provide a delayed notice offering the consumer the opportunity to 
terminate the account and have the fee reversed. Accordingly, the Board 
proposed to delete Sec.  226.9(e)(2) and to renumber Sec.  226.9(e)(3) 
as Sec.  226.9(e)(2). The Board proposed technical conforming changes 
to comments 9(e)-7, 9(e)(2)-1 (currently comment 9(e)(3)-1), and 
9(e)(2)-2 (currently comment 9(e)(3)-2).
    Consumer groups commented that the Board's final rule should permit 
the alternative delayed disclosure. These commenters believe that the 
deletion of TILA Section 127(d)(2) was a drafting error, and that the 
Board should use its authority under TILA Section 105(a) to restore the 
alternative delayed notice procedure. These commenters stated that 
restoring Sec.  226.9(e)(2) would benefit both consumers and issuers, 
because consumers are in their opinion more likely to notice the fee 
and exercise their right to cancel the card if the fee appears on the 
periodic statement.
    The Board believes that the language of Section 203 of the Credit 
Card Act, which amended TILA Section 127(d), clearly deletes the 
statutory basis for the alternative delayed notice. Therefore, the 
Board does not believe that use of its TILA Section 105(a) authority is 
appropriate at this time to override this express statutory provision. 
The final rule deletes Sec.  226.9(e)(2) and renumbers Sec.  
226.9(e)(3) as Sec.  226.9(e)(2), as proposed. Similarly, the Board is 
adopting the technical conforming changes to comments 9(e)-7, 9(e)(2)-1 
(currently comment 9(e)(3)-1), and 9(e)(2)-2 (currently comment 
9(e)(3)-2), as proposed.

Terms Amended Since Last Renewal

    As amended by the Credit Card Act, TILA Section 127(d) provides 
that a card issuer that has changed or amended any term of the account 
since the last renewal that has not been previously disclosed must 
provide the renewal disclosure, even if that card issuer does not 
charge an annual fee, periodic fee, or other fee for renewal of the 
credit or charge card account. The Board proposed to implement amended 
TILA Section 127(d) by making corresponding amendments to Sec.  
226.9(e)(1). Proposed Sec.  226.9(e)(1) stated, in part, that any card 
issuer that has changed or amended any term of a cardholder's account 
required to be disclosed under Sec.  226.6(b)(1) and (b)(2) that has 
not previously been disclosed to the consumer, shall mail or deliver 
written notice of the renewal to the cardholder. The Board proposed to 
use its authority pursuant to TILA Section 105(a) to clarify that the 
requirement to provide the renewal disclosures due to a change in 
account terms applies only if the change has not been previously 
disclosed and is a change of the type

[[Page 7703]]

required to be disclosed in the table provided at account opening.
    Several industry commenters stated that renewal disclosures should 
be required only if an annual or other renewal fee is assessed on a 
consumer's account. However, the Credit Card Act specifically amended 
TILA Section 127(d) to require renewal disclosures when creditors have 
changed or amended terms of the account since the last renewal that 
have not been previously disclosed. The Board therefore believes that a 
rule requiring renewal disclosures to be given only if an annual or 
other renewal fee is charged would not effectuate the statutory 
amendment.
    Consumer groups stated that renewal disclosures should be required 
if any undisclosed change has been made to the account terms since the 
last renewal, not only if undisclosed changes have been made to terms 
required to be disclosed pursuant to Sec.  226.6(b)(1) and (b)(2). 
Consumer groups argued that the language ``any term of the account'' in 
amended TILA Section 127(d) contemplates that renewal disclosures will 
be given if any term has been changed and not previously disclosed, 
regardless of the type of term. As discussed in the supplementary 
information to the proposal, the Board considered an interpretation of 
amended TILA Section 127(d), consistent with consumer group comments, 
that would have required that the renewal disclosures be provided for 
all changes in account terms that have not been previously disclosed, 
including changes that are not required to be disclosed pursuant to 
Sec.  226.6(b)(1) and (b)(2). Such an interpretation of the statute 
would require that the renewal disclosures be given even when creditors 
have made relatively minor changes to the account terms, such as by 
increasing the amount of a fee to expedite delivery of a credit card. 
The Board noted that it believes providing a renewal notice in these 
circumstances would not provide a meaningful benefit to consumers.
    The Board also noted that under such an interpretation, the renewal 
notice would in many cases not disclose the changed term, which would 
render it of little value to consumers. Amended TILA Section 127(d) 
requires only that the renewal disclosure contain the information set 
forth in TILA Sections 127(c)(1)(A) and (c)(4)(A), which are 
implemented in Sec.  226.5a(b)(1) through (b)(7). These sections 
require disclosure of key terms of a credit card account including the 
annual percentage rates applicable to the account, annual or other 
periodic membership fees, minimum finance charges, transaction charges 
on purchases, the grace period, balance computation method, and 
disclosure of similar terms for charge card accounts. The Board notes 
that the required disclosures all address terms required to be 
disclosed pursuant to Sec.  226.6(b)(1) and (b)(2). Therefore, if the 
rule required that the renewal disclosures be provided for any change 
in terms, such as a change in a fee for expediting delivery of a credit 
card, the renewal disclosures would not disclose the amount of the 
changed fee. The Board also notes that charges imposed as part of an 
open-end (not home-secured) plan that are not required to be disclosed 
pursuant to Sec.  226.6(b)(1) and (b)(2) are required to be disclosed 
to consumers prior to their imposition pursuant to Sec.  
226.5(b)(1)(ii). Therefore, if a card issuer changed a charge imposed 
as part of an open-end (not home-secured) plan but had not previously 
disclosed that change, a consumer would receive disclosure prior to 
imposition of the charge.
    For these reasons, the Board is adopting Sec.  226.9(e)(1) as 
proposed. The Board believes that Sec.  226.9(e)(1) as adopted strikes 
the appropriate balance between ensuring that consumers receive notice 
of important changes to their account terms that have not been 
previously disclosed and avoiding burden on issuers with little or no 
corresponding benefit to consumers. In most cases, changes to terms 
required to be disclosed pursuant to Sec.  226.6(b)(1) and (b)(2) will 
be required to be disclosed 45 days in advance in accordance with Sec.  
226.9(c)(2). However, there are several types of changes to terms 
required to be disclosed under Sec.  226.6(b)(1) and (b)(2) for which 
advance notice is not required under Sec.  226.9(c)(2)(v)(1), including 
reductions in finance and other charges and the extension of a grace 
period. The Board believes that such changes are generally beneficial 
to the consumer, and therefore a 45-day advance notice requirement is 
not appropriate for these changes. However, the Board believes that 
requiring creditors to send consumers subject to such changes a notice 
prior to renewal disclosing key terms of their accounts will promote 
the informed use of credit by consumers. The notice will remind 
consumers of the key terms of their accounts, including any reduced 
rates or extended grace periods that apply, when consumers are making a 
decision as to whether to renew their account and how to use the 
account in the future.
    One industry commenter requested that the Board clarify that 
disclosing a change in terms on a periodic statement is sufficient to 
constitute prior disclosure of that change for purposes of Sec.  
226.9(e). The Board believes that this generally is appropriate, and 
has adopted a new comment 9(e)-10 . Comment 9(e)-10 states that clear 
and conspicuous disclosure of a changed term on a periodic statement 
provided to a consumer prior to renewal of the consumer's account 
constitutes prior disclosure of that term for purposes of Sec.  
226.9(e)(1). The comment contains a cross-reference to Sec.  
226.9(c)(2) for additional timing, content, and formatting requirements 
that apply to certain changes in terms under that paragraph.
    Consumer group commenters urged the Board to require that renewal 
disclosures be tabular, prominently located, and retainable. The Board 
is not imposing such a requirement at this time. The Board believes 
that the general requirements of Sec.  226.5(a), which require that 
renewal disclosures be clear and conspicuous and in writing, are 
sufficient to ensure that renewal disclosures are noticeable to 
consumers.
    Section 226.9(e)(1), consistent with the proposal, further 
clarifies the timing of the notice requirement when a card issuer has 
changed a term on the account but does not impose an annual or other 
periodic fee for renewal, by stating that if the card issuer has 
changed or amended any term required to be disclosed under Sec.  
226.6(b)(1) and (b)(2) and such changed or amended term has not 
previously been disclosed to the consumer, the notice shall be provided 
at least 30 days prior to the scheduled renewal date of the consumer's 
credit or charge card. Accordingly, card issuers that do not charge 
periodic or other fees for renewal of the credit or charge card 
account, and who have previously disclosed any changed terms pursuant 
to Sec.  226.9(c)(2) are not required to provide renewal disclosures 
pursuant to proposed Sec.  226.9(e).
9(g) Increase in Rates Due to Delinquency or Default or as a Penalty
9(g)(1) Increases Subject to This Section
    The Board proposed to adopt Sec.  226.9(g) substantially as adopted 
in the January 2009 Regulation Z Rule, except as required to be amended 
for conformity with the Credit Card Act. Proposed Sec.  226.9(g), in 
combination with amendments to Sec.  226.9(c), implemented the 45-day 
advance notice requirements for rate increases in new TILA Section 
127(i). This approach is consistent with the Board's January 2009 
Regulation Z Rule and the July

[[Page 7704]]

2009 Regulation Z Interim Final Rule, each of which included change-in-
terms notice requirements in Sec.  226.9(c) and increases in rates due 
to the consumer's default or delinquency or as a penalty for events 
specified in the account agreement in Sec.  226.9(g). Proposed Sec.  
226.9(g)(1) set forth the general rule and stated that for open-end 
plans other than home-equity plans subject to the requirements of Sec.  
226.5b, a creditor must provide a written notice to each consumer who 
may be affected when a rate is increased due to a delinquency or 
default or as a penalty for one or more events specified in the account 
agreement. The Board received no significant comment on the general 
rule in Sec.  226.9(g)(1), which is adopted as proposed.
9(g)(2) Timing of Written Notice
    Proposed paragraph (g)(2) set forth the timing requirements for the 
notice described in paragraph (g)(1), and stated that the notice must 
be provided at least 45 days prior to the effective date of the 
increase. The notice must, however, be provided after the occurrence of 
the event that gave rise to the rate increase. That is, a creditor must 
provide the notice after the occurrence of the event or events that 
trigger a specific impending rate increase and may not send a general 
notice reminding the consumer of the conditions that may give rise to 
penalty pricing. For example, a creditor may send a consumer a notice 
pursuant to Sec.  226.9(g) if the consumer makes a payment that is one 
day late disclosing a rate increase applicable to new transactions, in 
accordance with Sec.  226.55. However, a more general notice reminding 
a consumer who makes timely payments that paying late may trigger 
imposition of a penalty rate would not be sufficient to meet the 
requirements of Sec.  226.9(g) if the consumer subsequently makes a 
late payment. The Board received no significant comment on Sec.  
226.9(g)(2), which is adopted as proposed.
9(g)(3) Disclosure Requirements for Rate Increases
    Proposed paragraph (g)(3) set forth the content and formatting 
requirements for notices provided pursuant to Sec.  226.9(g). Proposed 
Sec.  226.9(g)(3)(i)(A) set forth the content requirements applicable 
to all open-end (not home-secured) credit plans. Similar to the 
approach discussed above with regard to Sec.  226.9(c)(2)(iv), the 
Board proposed a separate Sec.  226.9(g)(3)(i)(B) that contained 
additional content requirements required under the Credit Card Act that 
are applicable only to credit card accounts under an open-end (not 
home-secured) consumer credit plan.
    Proposed Sec.  226.9(g)(3)(i)(A) provided that the notice must 
state that the delinquency, default, or penalty rate has been 
triggered, and the date on which the increased rate will apply. The 
notice also must state the circumstances under which the increased rate 
will cease to apply to the consumer's account or, if applicable, that 
the increased rate will remain in effect for a potentially indefinite 
time period. In addition, the notice must include a statement 
indicating to which balances the delinquency or default rate or penalty 
rate will be applied, and, if applicable, a description of any balances 
to which the current rate will continue to apply as of the effective 
date of the rate increase, unless a consumer fails to make a minimum 
periodic payment within 60 days from the due date for that payment.
    Proposed Sec.  226.9(g)(3)(i)(B) set forth additional content that 
credit card issuers must disclose if the rate increase is due to the 
consumer's failure to make a minimum periodic payment within 60 days 
from the due date for that payment. In those circumstances, the 
proposal required that the notice state the reason for the increase and 
disclose that the increase will cease to apply if the creditor receives 
six consecutive required minimum periodic payments on or before the 
payment due date, beginning with the first payment due following the 
effective date of the increase. Proposed Sec.  226.9(g)(3)(i)(B) 
implemented notice requirements contained in amended TILA Section 
171(b)(4), as adopted by the Credit Card Act, and implemented in 
proposed Sec.  226.55(b)(4), as discussed below.
    Unlike Sec.  226.9(g)(3) of the July 2009 Regulation Z Interim 
Final Rule, the notice proposed under Sec.  226.9(g)(3) would not have 
required disclose the consumer's right to reject the application of the 
penalty rate. For the reasons discussed in the supplementary 
information to Sec.  226.9(h), the Board is not providing a right to 
reject penalty rate increases in light of the new substantive rule on 
rate increases in proposed Sec.  226.55. Accordingly, the proposal 
would not have required disclosure of a right to reject for penalty 
rate increases.
    Proposed paragraph (g)(3)(ii) set forth the formatting requirements 
for a rate increase due to default, delinquency, or as a penalty. These 
requirements were substantively equivalent to the formatting rule 
adopted in Sec.  226.9(g)(3)(ii) of the January 2009 Regulation Z Rule 
and would require the disclosures required under Sec.  226.9(g)(3)(i) 
to be set forth in the form of a table. As discussed elsewhere in this 
Federal Register, the formatting requirements are not directly 
compelled by the Credit Card Act, and consequently the Board is 
retaining the original July 1, 2010 effective date of the January 2009 
Regulation Z Rule for the tabular formatting requirements.
    The Board proposed to amend Sample G-21 from the January 2009 
Regulation Z Rule (redesignated as Sample G-22) and to add a new sample 
G-23 to illustrate how a card issuer may comply with the requirements 
of proposed Sec.  226.9(g)(3)(i). The proposal would have amended 
references to these samples in comment 9(g)-8 accordingly. Proposed 
Sample G-22 is a disclosure of a rate increase applicable to a 
consumer's credit card account based on a late payment that is fewer 
than 60 days late. The sample explains when the new rate will apply to 
new transactions and to which balances the current rate will continue 
to apply. Sample G-23 discloses a rate increase based on a delinquency 
of more than 60 days, and includes the required content regarding the 
consumer's ability to cure the penalty pricing by making the next six 
consecutive minimum payments on time.
    One industry commenter stated that Sec.  226.9(g)(3) and Model Form 
G-23 should be revised to more accurately reflect the balances to which 
the consumer's cure right applies, when the consumer's rate is 
increased due to a delinquency of greater than 60 days. As discussed in 
the supplementary information to Sec.  226.55(b)(4)(ii), the rule 
requires only that the rate be reduced on transactions that occurred 
prior to or within 14 days of the notice provided pursuant to Sec.  
226.9(c) or (g), when the consumer makes the first six required minimum 
periodic payments on time following the effective date of a rate 
increase due to a delinquency of more than 60 days. The Board believes 
that consumers could be confused by a notice, as proposed, that states 
only that the rate increase will cease to apply if the consumer, but 
does not distinguish between outstanding balances and new transactions. 
Accordingly, the Board has revised Sec.  226.9(g)(3)(i)(B)(2) to 
require disclosure that the increase will cease to apply with respect 
to transactions that occurred prior to or within 14 days of provision 
of the notice, if the creditor receives six consecutive required 
minimum periodic payments on or before the payment due date, beginning 
with the first payment due following the effective date of the 
increase. The Board has made a conforming change to Model Form G-23.

[[Page 7705]]

    The Board received no other significant comment on the disclosure 
requirements in Sec.  226.9(g)(3) and is otherwise is adopting Sec.  
226.9(g)(3) as proposed.
9(g)(4) Exceptions
    Proposed Sec.  226.9(g)(4) set forth an exception to the advance 
notice requirements of Sec.  226.9(g), which is consistent with an 
analogous exception contained in the January 2009 Regulation Z Rule and 
July 2009 Regulation Z Interim Final Rule. Proposed Sec.  226.9(g)(4) 
clarified the relationship between the notice requirements in Sec.  
226.9(c)(vi) and (g)(1) when the creditor decreases a consumer's credit 
limit and under the terms of the credit agreement a penalty rate may be 
imposed for extensions of credit that exceed the newly decreased credit 
limit. This exception is substantively equivalent to Sec.  
226.9(g)(4)(ii) of the January 2009 Regulation Z Rule. In addition, it 
is generally equivalent to Sec.  226.9(g)(4)(ii) of the July 2009 
Regulation Z Interim Final Rule, except that the proposed exception 
implemented content requirements analogous to those in proposed Sec.  
226.9(g)(3)(i) that pertain to whether the rate applies to outstanding 
balances or only to new transactions. See 74 FR 5355 for additional 
discussion of this exception. The Board received no comments on this 
exception, which is adopted as proposed.
    As discussed in the supplementary information to the October 2009 
Regulation Z Proposal, a second exception for an increase in an annual 
percentage rate due to the failure of a consumer to comply with a 
workout or temporary hardship arrangement contained in the July 2009 
Regulation Z Interim Final Rule has been moved to Sec.  
226.9(c)(2)(v)(D).
    The Board noted in the supplementary information to the proposal 
that one respect in which proposed Sec.  226.9(g)(4) differs from the 
January 2009 Regulation Z Rule is that it did not contain an exception 
to the 45-day advance notice requirement for penalty rate increases if 
the consumer's account becomes more than 60 days delinquent prior to 
the effective date of a rate increase applicable to new transactions, 
for which a notice pursuant to Sec.  226.9(g) has already been 
provided.
    Industry commenters urged the Board to provide an exception that 
would permit creditors to send a notice disclosing a rate increase 
applicable to both a consumer's outstanding balances and new 
transactions, prior to the consumer's account becoming more than 60 
days delinquent. These commenters stated that, as proposed, the rule 
would require issuers to wait at least 105 days prior to imposing rate 
increases as a result of the consumer paying more than 60 days late. 
These commenters also stated that a notice disclosing the consequences 
that would occur if a consumer paid more than 60 days late would give 
the consumer the opportunity to avoid the rate increase.
    The Board is not adopting an exception that would permit a creditor 
to send a notice disclosing a rate increase applicable to both a 
consumer's outstanding balances and new transactions, prior to the 
consumer's failure to make a minimum payment within 60 days of the due 
date for that payment. As discussed in the supplementary information to 
Sec.  226.9(g)(3)(i), amended TILA Section 171(b)(4)(A) requires that 
specific content be disclosed when a consumer's rate is increased based 
on a failure to make a minimum payment within 60 days of the due date 
for that payment. Specifically, TILA Section 171(b)(4)(A) requires the 
notice to state the reasons for the increase and that the increase will 
terminate no later than six months from the effective date of the 
change, provided that the consumer makes the minimum payments on time 
during that period. The Board believes that the intent of this 
provision is to create a right for consumers whose rate is increased 
based on a payment that is more than 60 days late to cure that penalty 
pricing in order to return to a lower interest rate.
    The Board believes that the disclosures associated with this 
ability to cure will be the most useful to consumers if they receive 
them after they have already triggered such penalty pricing based on a 
delinquency of more than 60 days. Under the Board's proposed rule, 
creditors will be required to provide consumers with a notice 
specifically disclosing a rate increase based on a delinquency of more 
than 60 days, at least 45 days prior to the effective date of that 
increase. The notice will state the effective date of the rate 
increase, which will give consumers certainty as to the applicable 6-
month period during which they must make timely payments in order to 
return to the lower rate. If creditors were permitted to raise the rate 
applicable to all of a consumer's balances without providing an 
additional notice, consumers may be unsure exactly when their account 
became more than 60 days delinquent and therefore may not know the 
period in which they need to make timely payments in order to return to 
a lower rate.
    The Board believes that many creditors will impose rate increases 
applicable to new transactions for consumers who make late payments 
that are 60 or fewer days late. For notices of such rate increases 
provided pursuant to Sec.  226.9(g), Sec.  226.9(g)(3)(i)(A)(5) 
requires that the notice describe the balances to which the current 
rate will continue to apply unless the consumer fails to make a minimum 
periodic payment within 60 days of the due date for that payment. The 
Board believes that this will result in consumers receiving a notice of 
the consequences of paying more than 60 days late and, thus, will give 
consumers an opportunity to avoid a rate increase applicable to 
outstanding balances.
    In addition, the Board notes that the Credit Card Act, as 
implemented in Sec.  226.55(b)(4), does not permit a creditor to raise 
the interest rate applicable to a consumer's existing balances unless 
that consumer fails to make a minimum payment within 60 days from the 
due date. This differs from the Board's January 2009 FTC Act Rule, 
which permitted such a rate increase based on a failure to make a 
minimum payment within 30 days from the due date. The exception in 
Sec.  226.9(g)(4)(iii) of the January 2009 Regulation Z Rule reflected 
the Board's understanding that some creditors might impose penalty 
pricing on new transactions based on a payment that is one or several 
days late, and therefore it might be a relatively common occurrence for 
consumers' accounts to become 30 days delinquent within the 45-day 
notice period provided for a rate increase applicable to new 
transactions. The Board believes that, given the 60-day period imposed 
by the Credit Card Act and Sec.  226.55(b)(4), it will be less common 
for consumers' accounts to become delinquent within the original 45-day 
notice period provided for new transactions.
Proposed Changes to Commentary to Sec.  226.9(g)
    The commentary to Sec.  226.9(g) generally is consistent with the 
commentary to Sec.  226.9(g) of the January 2009 Regulation Z Rule, 
except for technical changes. In addition, the Board has amended 
comment 9(g)-1 to reference examples in Sec.  226.55 that illustrate 
how the advance notice requirements in Sec.  226.9(g) relate to the 
substantive rule regarding rate increases applicable to existing 
balances. Because, as discussed in the supplementary information to 
Sec.  226.55, the Credit Card Act placed the substantive rule regarding 
rate increases into TILA and

[[Page 7706]]

Regulation Z, the Board believes that it is not necessary to repeat the 
examples under Sec.  226.9.
9(h) Consumer Rejection of Certain Significant Changes in Terms
    In the July 2009 Regulation Z Interim Final Rule, the Board adopted 
Sec.  226.9(h), which provided that, in certain circumstances, a 
consumer may reject significant changes to account terms and increases 
in annual percentage rates. See 74 FR 36087-36091, 36096, 36099-36101. 
Section 226.9(h) implemented new TILA Section 127(i)(3) and (4), 
which--like the other provisions of the Credit Card Act implemented in 
the July 2009 Regulation Z Interim Final Rule--went into effect on 
August 20, 2009. See Credit Card Act Sec.  101(a) (new TILA Section 
127(i)(3)-(4)). However, several aspects of Sec.  226.9(h) were based 
on revised TILA Section 171, which--like the other statutory provisions 
addressed in this final rule--goes into effect on February 22, 2010. 
Accordingly, because the Board is now implementing revised TILA Section 
171 in Sec.  226.55, the Board has modified Sec.  226.9(h) for clarity 
and consistency.

Application of Right To Reject to Increases in Annual Percentage Rate

    Because revised TILA Section 171 renders the right to reject 
redundant in the context of rate increases, the Board has amended Sec.  
226.9(h) to apply that right only to other significant changes to an 
account term. Currently, Sec.  226.9(h) provides that, if a consumer 
rejects an increase in an annual percentage rate prior to the effective 
date stated in the Sec.  226.9(c) or (g) notice, the creditor cannot 
apply the increased rate to transactions that occurred within fourteen 
days after provision of the notice. See Sec.  226.9(h)(2)(i), 
(h)(3)(ii). However, under revised TILA Section 171 (as implemented in 
proposed Sec.  226.55), a creditor is generally prohibited from 
applying an increased rate to transactions that occurred within 
fourteen days after provision of a Sec.  226.9(c) or (g) notice 
regardless of whether the consumer rejects that increase. Similarly, 
although the exceptions in Sec.  226.9(h)(3)(i) and revised TILA 
Section 171(b)(4) permit a creditor to apply an increased rate to an 
existing balance when an account becomes more than 60 days delinquent, 
revised TILA Section 171(b)(4)(B) (as implemented in proposed Sec.  
226.55(b)(4)(ii)) provides that the creditor must terminate the 
increase if the consumer makes the next six payments on or before the 
payment due date. Thus, with respect to rate increases, the right to 
reject does not provide consumers with any meaningful protections 
beyond those provided by revised TILA Section 171 and Sec.  226.55. 
Accordingly, the Board believes that, on or after February 22, 2010, 
the right to reject will be unnecessary for rate increases. Indeed, 
once revised TILA Section 171 becomes effective, notifying consumers 
that they have a right to reject a rate increase could be misleading 
insofar as it could imply that a consumer who does so will receive some 
additional degree of protection (such as protection against increases 
in the rate that applies to future transactions).
    Industry commenters strongly opposed the Board's establishment of a 
right to reject in the July 2009 Regulation Z Interim Final Rule but 
supported the revisions in the October 2009 Regulation Z Proposal. 
Consumer group commenters took the opposite position. In particular, 
along with a federal banking regulator, consumer group commenters 
argued that the Board should interpret the ``right to cancel'' in 
revised TILA Section 127(i)(3) as providing consumers with the right to 
reject increases in rates that apply to new transactions. However, the 
Board does not believe this interpretation would be consistent with the 
Credit Card Act's provisions regarding rate increases. As discussed in 
detail below with respect to Sec.  226.55, the Credit Card Act 
generally prohibits card issuers from applying increased rates to 
existing balances while generally permitting card issuers to increase 
the rates that apply to new transactions after providing 45 days' 
advance notice. Furthermore, by prohibiting card issuers from applying 
an increased rate to transactions that occur during a 14-day period 
following provision of the notice of the increase, the Credit Card Act 
ensures that consumers can generally avoid application of increased 
rates to new transactions by ceasing to use their accounts after 
receiving the notice of the increase.
    Accordingly, the final rule removes references to rate increases 
from Sec.  226.9(h) and its commentary. Similarly, because the 
exception in Sec.  226.9(h)(3)(ii) for transactions that occurred more 
than fourteen days after provision of the notice was based on revised 
TILA Section 171(d),\29\ that exception has been removed from Sec.  
226.9(h) and incorporated into Sec.  226.55. Finally, the Board has 
redesignated comment 9(h)(3)-1 as comment 9(h)-1 and amended it to 
clarify that Sec.  226.9(h) does not apply to increases in an annual 
percentage rate.
---------------------------------------------------------------------------

    \29\ See 74 FR 36089-36090.
---------------------------------------------------------------------------

    As noted above, the Board has also revised Sec.  226.9(c)(2)(iv)(B) 
to clarify that the right to reject does not apply to changes in an 
annual percentage rate that do not result in an immediate increase in 
rate (such as changes in the method used to calculate a variable rate 
or conversion of a variable rate to an equivalent fixed rate). As 
discussed below, consistent with the requirements in the Credit Card 
Act, Sec.  226.55 generally prohibits a card issuer from applying any 
change in an annual percentage rate to an existing balance if that 
change could result in an increase in rate. See commentary to Sec.  
226.55(b)(2). However, because the Credit Card Act generally permits 
card issuers to change the rates that apply to new transactions, it 
would be inconsistent with the Act to apply the right to reject to such 
changes. Nevertheless, as with rate increases that apply to new 
transactions, the consumer will receive 45 days' advance notice of the 
change and thus can decide whether to continue using the account.
    Industry and consumer group commenters also requested that the 
Board add or remove several exceptions to the right to reject. However, 
the Board does not believe that further revisions are warranted at this 
time. In particular, industry commenters argued that the right to 
reject should not apply when the consumer has consented to the change 
in terms, when the change is unambiguously in the consumer's favor, or 
in similar circumstances. As discussed elsewhere in this final rule, 
the Board believes that it would be difficult to develop workable 
standards for determining when a change has been requested by the 
consumer (rather than suggested by the issuer), when a change is 
unambiguously beneficial to the consumer, and so forth. Furthermore, an 
exception to the right to reject generally should not be necessary if 
the consumer has actually requested a change or if a change is clearly 
advantageous to the consumer.
    Industry commenters also argued that the Board should exempt 
increases in fees from the right to reject if the fee is increased to a 
pre-disclosed amount after a specified period of time, similar to the 
exception for temporary rates in Sec.  226.9(c)(2)(v)(B). However, as 
discussed above, Sec.  226.9(c)(2)(v)(B) implements revised TILA 
Section 171(b)(1), which applies only to increases in annual percentage 
rates. The fact that the exceptions in Section 171(b)(3) and (b)(4) 
expressly apply to increases in rates and fees indicates that Congress 
intentionally excluded fees

[[Page 7707]]

from Section 171(b)(1). Accordingly, the Board does not believe it 
would be appropriate to exclude increases in fees from the right to 
reject.
    Consumer groups argued that the Board should remove the exception 
in Sec.  226.9(h)(3) for accounts that are more than 60 days' 
delinquent. However, this exception is based on revised TILA Section 
171(b)(4), which provides that the Credit Card Act's limitations on 
rate increases do not apply when an account is more than 60 days' past 
due. Accordingly, the Board believes that it is consistent with the 
intent of the Credit Card Act to provide card issuers with greater 
flexibility to adjust the account terms in these circumstances.
    Consumer groups also argued that the Board should remove the 
exception in Sec.  226.9(c)(2)(iv) for increases in the required 
minimum periodic payment. However, the Board believes that, as a 
general matter, increases in the required minimum payment can be 
advantageous for consumers insofar as they can increase repayment of 
the outstanding balance, which can reduce the cost of borrowing. 
Indeed, although the Credit Card Act limits issuers' ability to 
accelerate repayment in circumstances where the issuer cannot apply an 
increased rate to an existing balance (revised TILA Section 171(c)), 
the Act also encourages consumers to increase the repayment of credit 
card balances by requiring card issuers to disclose on the periodic 
statement the costs associated with making only the minimum payment 
(revised TILA Section 127(b)(11)). Furthermore, although consumer 
groups argued that card issuers could raise minimum payments to 
unaffordable levels in order to force accounts to become more than 60 
days' past due (which would allow issuers to apply increased rates to 
existing balances), it seems unlikely that it would be in card issuers' 
interests to do so, given the high loss rates associated with accounts 
that become more than 60 days' delinquent.\30\ Thus, the Board does not 
believe application of the right to reject to increases in the minimum 
payment is warranted at this time.
---------------------------------------------------------------------------

    \30\ For example, data submitted to the Board during the comment 
period for the January 2009 FTC Act Rule indicated that 
approximately half of all accounts that become two billing cycles' 
past due (which is roughly equivalent to 60 days' delinquent) charge 
off during the subsequent twelve months. See Federal Reserve Board 
Docket No. R-1314: Exhibit 5, Table 1a to Comment from Oliver I. 
Ireland, Morrison Foerster LLP (Aug 7, 2008) (Argus Analysis) 
(presenting results of analysis by Argus Information & Advisory 
Services, LLC of historical data for consumer credit card accounts 
believed to represent approximately 70% of all outstanding consumer 
credit card balances).
---------------------------------------------------------------------------

Repayment Restrictions
    Because the repayment restrictions in Sec.  226.9(h)(2)(iii) are 
based on revised TILA Section 171(c), the Board believes that those 
restrictions should be implemented with the rest of revised Section 171 
in Sec.  226.55. Section 226.9(h)(2)(iii) implemented new TILA Section 
127(i)(4), which expressly incorporated the repayment methods in 
revised TILA Section 171(c)(2). Because the rest of revised Section 171 
would not be effective until February 22, 2010, the July 2009 
Regulation Z Interim Final Rule implemented new TILA Section 127(i)(4) 
by incorporating the repayment restrictions in Section 171(c)(2) into 
Sec.  226.9(h)(2)(iii). See 74 FR 36089. However, the Board believes 
that--once revised TILA Section 171 becomes effective on February 22, 
2010--these repayment restrictions should be moved to Sec.  226.55(c). 
In addition to being duplicative, implementing revised TILA Section 
171(c)'s repayment methods in both Sec.  226.9(h) and Sec.  226.55(c) 
would create the risk of inconsistency. Furthermore, because these 
restrictions will generally be of greater importance in the context of 
rate increases than other significant changes in terms, the Board 
believes they should be located in proposed Sec.  226.55.
    The Board did not receive significant comment on this aspect of the 
proposal. Accordingly, the final rule moves the provisions and 
commentary regarding repayment to Sec.  226.55(c)(2) and amends Sec.  
226.9(h)(2)(iii) to include a cross-reference to Sec.  226.55(c)(2).
    Furthermore, the Board has amended comment 9(h)(2)(iii)-1 to 
clarify the application of the repayment methods listed in proposed 
Sec.  226.55(c)(2) in the context of a rejection of a significant 
change in terms. As revised, this comment clarifies that, when applying 
the methods listed in Sec.  226.55(c)(2) pursuant to Sec.  
226.9(h)(2)(iii), a creditor may utilize the date on which the creditor 
was notified of the rejection or a later date (such as the date on 
which the change would have gone into effect but for the rejection). 
For example, when a creditor increases an annual percentage rate 
pursuant to Sec.  226.55(b)(3), Sec.  226.55(c)(2)(ii) permits the 
creditor to establish an amortization period for a protected balance of 
not less than five years, beginning no earlier than the effective date 
of the increase. Accordingly, when a consumer rejects a significant 
change in terms pursuant to Sec.  226.9(h)(1), Sec.  226.9(h)(2)(iii) 
permits the creditor to establish an amortization period for the 
balance on the account of not less than five years, beginning no 
earlier than the date on which the creditor was notified of the 
rejection. The comment provides an illustrative example.
    In addition, comment 9(h)(2)(iii)-2 has been revised to clarify the 
meaning of ``the balance on the account'' that is subject to the 
repayment restrictions in Sec.  226.55(c)(2). The revised comment would 
clarify that, when applying the methods listed in Sec.  226.55(c)(2) 
pursuant to Sec.  226.9(h)(2)(iii), the provisions in Sec.  
226.55(c)(2) and the guidance in the commentary to Sec.  226.55(c)(2) 
regarding protected balances also apply to a balance on the account 
subject to Sec.  226.9(h)(2)(iii). Furthermore, the revised comment 
clarifies that, if a creditor terminates or suspends credit 
availability based on a consumer's rejection of a significant change in 
terms, the balance on the account for purposes of Sec.  
226.9(h)(2)(iii) is the balance at the end of the day on which credit 
availability was terminated or suspended. However, if a creditor does 
not terminate or suspend credit availability, the balance on the 
account for purposes of Sec.  226.9(h)(2)(iii) is the balance on a date 
that is not earlier than the date on which the creditor was notified of 
the rejection. An example is provided.
Additional Revisions to Commentary
    Consistent with the revisions discussed above, the Board has made 
non-substantive, technical amendments to the commentary to Sec.  
226.9(h). In addition, for organizational reasons, the Board has 
renumbered comments 9(h)(2)(ii)-1 and -2. Finally, the Board has 
amended comment 9(h)(2)(ii)-2 to clarify the application of the 
prohibition in Sec.  226.9(h)(2)(ii) on imposing a fee or charge solely 
as a result of the consumer's rejection of a significant change in 
terms. In particular, the revised comment clarifies that, if credit 
availability is terminated or suspended as a result of the consumer's 
rejection, a creditor is prohibited from imposing a periodic fee that 
was not charged before the consumer rejected the change (such as a 
closed account fee).

Section 226.10 Payments

    Section 226.10, which implements TILA Section 164, currently 
contains rules regarding the prompt crediting of payments and is 
entitled ``Prompt crediting of payments.'' 15 U.S.C. 1666c. In October 
2009, the Board proposed to implement several new provisions of the 
Credit Card Act regarding payments in Sec.  226.10, such as 
requirements regarding the permissibility of certain fees to make 
expedited payments. Several of these rules do not pertain directly to 
the prompt crediting of

[[Page 7708]]

payments, but more generally to the conditions that may be imposed upon 
payments. Accordingly, the Board proposed to amend the title of Sec.  
226.10 to ``Payments'' to more accurately reflect the content of 
amended Sec.  226.10. The Board received no comments on this change, 
which is adopted as proposed.
226.10(b) Specific Requirements for Payments
Cut-Off Times for Payments
    TILA Section 164 states that payments received by the creditor from 
a consumer for an open-end consumer credit plan shall be posted 
promptly to the account as specified in regulations of the Board. The 
Credit Card Act amended TILA Section 164 to state that the Board's 
regulations shall prevent a finance charge from being imposed on any 
consumer if the creditor has received the consumer's payment in readily 
identifiable form, by 5 p.m. on the date on which such payment is due, 
in the amount, manner, and location indicated by the creditor to avoid 
the imposition of such a finance charge. While amended TILA Section 164 
generally mirrors current TILA Section 164, the Credit Card Act added 
the reference to a 5 p.m. cut-off time for payments received on the due 
date.
    TILA Section 164 is implemented in Sec.  226.10. The Board's 
January 2009 Regulation Z Rule addressed cut-off times by providing 
that a creditor may specify reasonable requirements for payments that 
enable most consumers to make conforming payments. Section 
226.10(b)(2)(ii) of the January 2009 Regulation Z Rule stated that a 
creditor may set reasonable cut-off times for payments to be received 
by mail, by electronic means, by telephone, and in person. Amended 
Sec.  226.10(b)(2)(ii) provided a safe harbor for the reasonable cut-
off time requirement, stating that it would be reasonable for a 
creditor to set a cut-off time for payments by mail of 5 p.m. on the 
payment due date at the location specified by the creditor for the 
receipt of such payments. While this safe harbor referred only to 
payments received by mail, the Board noted in the supplementary 
information to the January 2009 Regulation Z Rule that it would 
continue to monitor other methods of payment in order to determine 
whether similar guidance was necessary. See 74 FR 5357.
    As amended by the Credit Card Act, TILA Section 164 differs from 
Sec.  226.10 of the January 2009 Regulation Z Rule in two respects. 
First, amended TILA Section 164 applies the requirement that a creditor 
treat a payment received by 5 p.m. on the due date as timely to all 
forms of payment, not only payments received by mail. In contrast, the 
safe harbor regarding cut-off times that the Board provided in Sec.  
226.10(b)(2)(ii) of the January 2009 Regulation Z Rule directly 
addressed only mailed payments. Second, while the Board's January 2009 
Regulation Z Rule left open the possibility that in some circumstances, 
cut-off times earlier than 5 p.m. might be considered reasonable, 
amended TILA Section 164 prohibits cut-off times earlier than 5 p.m. on 
the due date in all circumstances.
    In the October 2009 Regulation Z Proposal, the Board proposed to 
implement amended TILA Section 164 in a revised Sec.  226.10(b)(2)(ii). 
Proposed Sec.  226.10(b)(2)(ii) stated that a creditor may set 
reasonable cut-off times for payments to be received by mail, by 
electronic means, by telephone, and in person, provided that such cut-
off times must be no earlier than 5 p.m. on the payment due date at the 
location specified by the creditor for the receipt of such payments. 
Creditors would be free to set later cut-off times; however, no cut-off 
time would be permitted to be earlier than 5 p.m. This paragraph, in 
accordance with amended TILA Section 164, would apply to payments 
received by mail, electronic means, telephone, or in person, not only 
payments received by mail. The Board is adopting Sec.  226.10(b)(2)(ii) 
generally as proposed.
    Consistent with the January 2009 Regulation Z Rule, proposed Sec.  
226.10(b)(2)(ii) referred to the time zone of the location specified by 
the creditor for the receipt of payments. The Board believed that this 
clarification was necessary to provide creditors with certainty 
regarding how to comply with the proposed rule, given that consumers 
may reside in different time zones from the creditor. The Board noted 
that a rule requiring a creditor to process payments differently based 
on the time zone at each consumer's billing address could impose 
significant operational burdens on creditors. The Board solicited 
comment on whether this clarification is appropriate for payments made 
by methods other than mail.
    Consumer group commenters indicated that the cut-off time rule for 
electronic and telephone payments should refer to the consumer's time 
zone. These commenters believe that it is unfair for consumers to be 
penalized for making what they believe to be a timely payment based on 
their own time zone. In contrast, industry commenters stated that it is 
appropriate for the 5 p.m. cut-off time to be determined by reference 
to the time zone of the location specified for making payments, 
including for payments by means other than mail. These commenters 
specifically noted the operational burden that would be associated with 
a rule requiring a creditor to process payments differently based on 
the time zone of the consumer.
    The final rule, consistent with the proposal, refers to the time 
zone of the location specified by the creditor for making payments. The 
Board believes that the benefit to consumers of a rule that refers to 
the time zone of the consumer's billing address would not outweigh the 
operational burden to creditors. As amended by the Credit Card Act, 
TILA contains a number of protections, including new periodic statement 
mailing requirements for credit card accounts implemented in Sec.  
226.5(b)(2)(ii), to ensure that consumers receive a sufficient period 
of time to make payments. The Board also notes that there may be 
consumers who are United States residents, such that Regulation Z would 
apply pursuant to comment 1(c)-1, but who have billing addresses that 
are outside of the United States. Thus, if the rule referred to the 
time zone of the consumer's billing address, a creditor might need to 
have many different payment processing procedures, including procedures 
for time zones outside of the United States.
    Section 226.10(b)(2)(ii), consistent with the proposal, generally 
applies to payments made in person. However, as discussed below, the 
Credit Card Act amends TILA Section 127(b)(12) to establish a special 
rule for payments on credit card accounts made in person at branches of 
financial institutions, which the Board is implementing in a new Sec.  
226.10(b)(3). Notwithstanding the general rule in proposed Sec.  
226.10(b)(2)(ii), card issuers that are financial institutions that 
accept payments in person at a branch or office may not impose a cut-
off time earlier than the close of business of that office or branch, 
even if the office or branch closes later than 5 p.m. The Board notes 
that this rule refers only to payments made in person at the branch or 
office. Payments made by other means such as by telephone, 
electronically, or by mail are subject to the general rule prohibiting 
cut-off times prior to 5 p.m., regardless of when a financial 
institution's branches or offices close. The Board notes that there may 
be creditors that are not financial institutions that accept payments 
in person, such as at a retail location, and thus is adopting a 
reference in Sec.  226.10(b)(2)(ii) to payments made in person in order 
to address cut-off times for such creditors that are not also subject 
to proposed Sec.  226.10(b)(3).

[[Page 7709]]

    The Board notes that the Credit Card Act applies the 5 p.m. cut-off 
time requirement to all open-end credit plans, including open-end 
(home-secured) credit. Accordingly, Sec.  226.10(b)(2)(ii), consistent 
with the proposal, applies to all open-end credit. This is consistent 
with current Sec.  226.10, which applies to all open-end credit.
Other Requirements for Conforming Payments
    One industry commenter asked the Board to clarify that an issuer 
can specify a single address for receiving conforming payments. The 
Board notes that Sec.  226.10(b)(2)(v) provides ``[s]pecifying one 
particular address for receiving payments'' such as a post office box'' 
as an example of a reasonable requirement for payments. Accordingly, 
the Board believes that no additional clarification is necessary. 
However, a creditor that specifies a single address for the receipt of 
conforming payments is still subject to the general requirement in 
Sec.  226.10(b) that the requirement enable most consumers to make 
conforming payments.
    The commenter further urged the Board to adopt a clarification to 
comment 10(b)-2, which states that if a creditor promotes electronic 
payment via its Web site, any payments made via the creditor's Web site 
are generally conforming payments for purposes of Sec.  226.10(b). The 
commenter asked the Board to clarify that a creditor may set a cut-off 
time for payments via its Web site, consistent with the general rule in 
Sec.  226.10(b). The Board agrees that this clarification is 
appropriate and has included a reference to the creditor's cut-off time 
in comment 10(b)-2.
    Finally, the Board is adopting a technical revision to Sec.  
226.10(b)(4), which addresses nonconforming payments. Section 
226.10(b)(4) states that if a creditor specifies, on or with the 
periodic statement, requirements for the consumer to follow in making 
payments, but accepts a payment that does not conform to the 
requirements, the creditor shall credit the payment within five days of 
receipt. The Board has amended Sec.  226.10(b)(4) to clarify that a 
creditor may only specify such requirements as are permitted under 
Sec.  226.10. For example, a creditor may not specify requirements for 
making payments that would be unreasonable under Sec.  226.10(b)(2), 
such as a cut-off time for mailed payments of 4:00 p.m., and treat 
payments received by mail between 4:00 p.m. and 5:00 p.m. as non-
conforming payments.
Payments Made at Financial Institution Branches
    The Credit Card Act amends TILA Section 127(b)(12) to provide that, 
for creditors that are financial institutions which maintain branches 
or offices at which payments on credit card accounts are accepted in 
person, the date on which a consumer makes a payment on the account at 
the branch or office is the date on which the payment is considered to 
have been made for purposes of determining whether a late fee or charge 
may be imposed. 15 U.S.C. 1637(b)(12). The Board proposed to implement 
the requirements of amended TILA Section 127(b)(12) that pertain to 
payments made at branches or offices of a financial institution in new 
Sec.  226.10(b)(3).
    Proposed Sec.  226.10(b)(3)(i) stated that a card issuer that is a 
financial institution shall not impose a cut-off time earlier than the 
close of business for payments made in person on a credit card account 
under an open-end (not home-secured) consumer credit plan at any branch 
or office of the card issuer at which such payments are accepted. The 
proposal further provided that payments made in person at a branch or 
office of the financial institution during the business hours of that 
branch or office shall be considered received on the date on which the 
consumer makes the payment. Proposed Sec.  226.10(b)(3) interpreted 
amended TILA Section 127(b)(12) as requiring card issuers that are 
financial institutions to treat in-person payments they receive at 
branches or offices during business hours as conforming payments that 
must be credited as of the day the consumer makes the in-person 
payment. The Board believes that this is the appropriate reading of 
amended TILA Section 127(b)(12) because it is consistent with consumer 
expectations that in-person payments made at a branch of the financial 
institution will be credited on the same day that they are made.
    Several industry commenters stated that the Board should clarify 
the relationship between Sec.  226.10(b)(3) and the general rule in 
Sec.  226.10(b)(2) regarding cut-off times. These commenters indicated 
that it was unclear whether the Board intended to require that bank 
branches remain open until 5 p.m. if a card issuer accepts in-person 
payments at a branch location. The Board did not intend to require 
branches or offices of financial institutions to remain open until 5 
p.m. if in-person credit card payments are accepted at that location. 
The Board believes that such a rule might discourage financial 
institutions from accepting in-person payments, to the detriment of 
consumers. The Board therefore is adopting Sec.  226.10(b)(3)(i) 
generally as proposed, but has clarified that, notwithstanding Sec.  
226.10(b)(2)(ii), a card issuer may impose a cut-off time earlier than 
5 p.m. for payments on a credit card account under an open-end (not 
home-secured) consumer credit plan made in person at a branch or office 
of a card issuer that is a financial institution, if the close of 
business of the branch or office is earlier than 5 p.m. For example, if 
a branch or office of the card issuer closes at 3 p.m., the card issuer 
must treat in-person payments received at that branch prior to 3 p.m. 
as received on that date.
    Several industry commenters stated that a card issuer should not be 
required to treat an in-person payment received at a branch or office 
as conforming, if the issuer does not promote payment at the branch. 
The Board believes that TILA Section 127(b)(12)(C) requires all card 
issuers that are financial institutions that accept payments in person 
at a branch or office to treat those payments as received on the date 
on which the consumer makes the payment. The Credit Card Act does not 
distinguish between circumstances where a card issuer promotes in-
person payments at branches and circumstances where a card issuer 
accepts, but does not promote, such payments. The Board believes that 
the intent of TILA Section 127(b)(12)(C) is to require in-person 
payments to be treated as received on the same day, which is consistent 
with consumer expectations. Accordingly, Sec.  226.10(b)(3) does not 
distinguish between financial institutions that promote in-person 
payments at a branch and financial institutions that accept, but do not 
promote, such payments.
    Neither the Credit Card Act nor TILA defines ``financial 
institution.'' In order to give clarity to card issuers, the Board 
proposed to adopt a definition of ``financial institution,'' for 
purposes of Sec.  226.10(b)(3), in a new Sec.  226.10(b)(3)(ii). 
Proposed Sec.  226.10(b)(3)(ii) stated that ``financial institution'' 
has the same meaning as ``depository institution'' as defined in the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    Industry commenters noted that the Board's proposed definition of 
``financial institution'' excluded credit unions. Consumer groups 
stated that a broader definition of ``financial institution'' including 
entities other than depository institutions, such as retail locations 
that accept payments on store credit cards for that retailer, would be

[[Page 7710]]

appropriate in light of consumer expectations. The Board has revised 
Sec.  226.10(b)(3)(ii) in the final rule to cover credit unions, 
because omission of credit unions in the proposal was an unintentional 
oversight. Section 226.10(b)(3)(ii) of the final rule states that a 
``financial institution'' means a bank, savings association, or credit 
union. The Board believes that a broader definition of ``financial 
institution'' that includes non-depository institutions, such as retail 
locations, would not be appropriate, because the primary business of 
such entities is not the provision of financial services. The Board 
believes that the statute's reference to ``financial institutions'' 
contemplates that not all card issuers will be covered by this rule. 
The Board believes that the definition it is adopting effectuates the 
purposes of amended TILA Section 127(b)(12) by including all banks, 
savings associations, and credit unions, while excluding entities such 
as retailers that should not be considered ``financial institutions'' 
for purposes of proposed Sec.  226.10(b)(3).
    In October, 2009, the Board proposed a new comment 10(b)-5 to 
clarify the application of proposed Sec.  226.10(b)(3) for payments 
made at point of sale. Proposed comment 10(b)-5 stated that if a 
creditor that is a financial institution issues a credit card that can 
be used only for transactions with a particular merchant or merchants, 
and a consumer is able to make a payment on that credit card account at 
a retail location maintained by such a merchant, that retail location 
is not considered to be a branch or office of the creditor for purposes 
of Sec.  226.10(b)(3).
    One industry commenter commented in support of proposed comment 
10(b)-5, but asked that it be expanded to cover co-branded cards in 
addition to private label credit cards. This commenter pointed out that 
as proposed, comment 10(b)-5 applied only to private label credit 
cards, but the Board's supplementary information referenced co-branded 
credit cards. Consumer groups indicated that they believe proposed 
comment 10(b)-5 is contrary to consumer expectations. These commenters 
further stated that if a bank branch must credit payments as of the 
date of in-person payment, consumers will come to expect and assume 
that retail locations that accept credit card payments should do the 
same. The Board is adopting comment 10(b)-5 generally as proposed, but 
has expanded the comment to address co-branded credit cards. The Board 
believes that the intent of TILA Section 127(b)(12) is to apply only to 
payments made at a branch or office of the creditor, not to payments 
made at a location maintained by a third party that is not the 
creditor. TILA Section 127(b)(12) is limited to branches or offices of 
a card issuer that is a financial institution, and accordingly the 
Board believes that the statute was not intended to address other types 
of locations where an in-person payment on a credit card account may be 
accepted.
    Finally, the Board also proposed a new comment 10(b)-6 to clarify 
what constitutes a payment made ``in person'' at a branch or office of 
a financial institution. Proposed comment 10(b)-6 would state that for 
purposes of Sec.  226.10(b)(3), payments made in person at a branch or 
office of a financial institution include payments made with the direct 
assistance of, or to, a branch or office employee, for example a teller 
at a bank branch. In contrast, the comment would provide that a payment 
made at the bank branch without the direct assistance of a branch or 
office employee, for example a payment placed in a branch or office 
mail slot, is not a payment made in person for purposes of Sec.  
226.10(b)(3). The Board believes that this is consistent with consumer 
expectations that payments made with the assistance of a financial 
institution employee will be credited immediately, while payments that 
are placed in a mail slot or other receptacle at the branch or office 
may require additional processing time. The Board received no 
significant comment on proposed comment 10(b)-6, and it is adopted as 
proposed.
    One issuer asked the Board to clarify that in-person payments made 
at a branch or location of a card issuer's affiliate should not be 
treated as conforming payments, even if the affiliate shares the same 
logo or trademark as the card issuer. The Board understands that for 
many large financial institutions, the card issuing entity may be a 
separate legal entity from the affiliated depository institution or 
other affiliated entity. In such cases, the card issuing entity is not 
likely to have branches or offices at which a consumer can make a 
payment, while the affiliated depository institution or other 
affiliated entity may have such branches or offices. Therefore, as a 
practical matter, in many cases a consumer will only be able to make 
in-person payments on his or her credit card account at an affiliate of 
the card issuer, not at a branch of the card issuer itself. The Board 
believes that in such cases, it may not be apparent to consumers that 
they are in fact making payment at a legal entity different than their 
card issuer, especially when the affiliates share a logo or have 
similar names. Therefore, the Board believes that the clarification 
requested by the commenter is inappropriate. The Board is adopting a 
new comment 10(b)-7 which states that if an affiliate of a card issuer 
that is a financial institution shares a name with the card issuer, 
such as ``ABC,'' and accepts in-person payments on the card issuer's 
credit card accounts, those payments are subject to the requirements of 
Sec.  226.10(b)(3).
10(d) Crediting of Payments When Creditor Does Not Receive or Accept 
Payments on Due Date
    The Credit Card Act adopted a new TILA Section 127(o) that 
provides, in part, that if the payment due date for a credit card 
account under an open-end consumer credit plan is a day on which the 
creditor does not receive or accept payments by mail (including 
weekends and holidays), the creditor may not treat a payment received 
on the next business day as late for any purpose. 15 U.S.C. 1637(o). 
New TILA Section 127(o) is similar to Sec.  226.10(d) of the Board's 
January 2009 Regulation Z Rule, with two notable differences. Amended 
Sec.  226.10(d) of the January 2009 Regulation Z Rule stated that if 
the due date for payments is a day on which the creditor does not 
receive or accept payments by mail, the creditor may not treat a 
payment received by mail the next business day as late for any purpose. 
In contrast, new TILA Section 127(o) provides that if the due date is a 
day on which the creditor does not receive or accept payments by mail, 
the creditor may not treat a payment received the next business day as 
late for any purpose. TILA Section 127(o) applies to payments made by 
any method on a due date which is a day on which the creditor does not 
receive or accept mailed payments, and is not limited to payments 
received the next business day by mail. Second, new TILA Section 127(o) 
applies only to credit card accounts under an open-end consumer plan, 
while Sec.  226.10(d) of the January 2009 rule applies to all open-end 
consumer credit.
    The Board proposed to implement new TILA Section 127(o) in an 
amended Sec.  226.10(d). The general rule in proposed Sec.  226.10(d) 
would track the statutory language of new TILA Section 127(o) to state 
that if the due date for payments is a day on which the creditor does 
not receive or accept payments by mail, the creditor may generally not 
treat a payment received by any method the next business day as late 
for any purpose. The Board proposed, however, to provide that if the 
creditor accepts or receives payments made by a method

[[Page 7711]]

other than mail, such as electronic or telephone payments, a due date 
on which the creditor does not receive or accept payments by mail, it 
is not required to treat a payment made by that method on the next 
business day as timely. The Board proposed this clarification using its 
authority under TILA Section 105(a) to make adjustments necessary to 
effectuate the purposes of TILA. 15 U.S.C. 1604(a).
    Consumer group commenters stated that electronic and telephone 
payments should not be exempted from the rule for payments made on a 
due date which is a day on which the creditor does not receive or 
accept payments by mail. The Board notes that proposed Sec.  226.10(d) 
did not create a general exemption for electronic or telephone 
payments, except when the creditor receives or accepts payments by 
those methods on a day on which it does not accept payments by mail. 
Under these circumstances, Sec.  226.10(d) requires a creditor to 
credit a conforming electronic or telephone payment as of the day of 
receipt, and accordingly the fact that the creditor does not accept 
mailed payments on that day does not result in any detriment to a 
consumer who makes his or her payment electronically or by telephone.
    The Board believes that it is not the intent of new TILA Section 
127(o) to permit consumers who can make timely payments by methods 
other than mail, such as payments by phone, to have an extra day after 
the due date to make payments using those methods without those 
payments being treated as late. Rather, the Board believes that new 
TILA Section 127(o) was intended to address those limited circumstances 
in which a consumer cannot make a timely payment on the due date, for 
example if it falls on a weekend or holiday and the creditor does not 
accept or receive payments on that date. In those circumstances, 
without the protections of new TILA Section 127(o), the consumer would 
have to make a payment one or more days in advance of the due date in 
order to have that payment treated as timely. The Credit Card Act 
provides other protections designed to ensure that consumers have 
adequate time to make payments, such as amended TILA Section 163, which 
was implemented in Sec.  226.5(b) in the July 2009 Regulation Z Interim 
Final Rule, which generally requires that creditors mail or deliver 
periodic statements to consumers at least 21 days in advance of the due 
date. For these reasons, the Board is adopting Sec.  226.10(d) as 
proposed, except that the Board has restructured the paragraph for 
clarity.
    An industry trade association asked the Board to clarify that Sec.  
226.10(d), which prohibits the treatment of a payment as late for any 
purpose, does not prohibit charging interest for the period between the 
due date on which the creditor does not accept payments by mail and the 
following business day. The Board believes, consistent with the 
approach it took in Sec.  226.5(b)(2)(ii), that charging interest for 
the period between the due date and the following business day does not 
constitute treating a payment as late for any purpose, unless the delay 
results in the loss of a grace period. Accordingly, the Board is 
adopting new comment 10(d)-2, which cross-references the guidance on 
``treating a payment as late for any purpose'' in comment 5(b)(2)(ii)-
2. The comment also expressly states that when an account is not 
eligible for a grace period, imposing a finance charge due to a 
periodic interest rate does not constitute treating a payment as late.
    One industry commenter asked the Board to clarify the operation of 
Sec.  226.10(d) if a holiday on which an issuer does not accept 
payments is on a Friday, but the bank does accept payments by mail on 
the following Saturday. The Board believes that in this case, Saturday 
is the next business day for purposes of Sec.  226.10(d). Accordingly, 
the Board has included a statement in Sec.  226.10(d)(1) indicating 
that for the purposes of Sec.  226.10(d), the ``next business day'' 
means the next day on which the creditor accepts or receives payments 
by mail.
    Another industry commenter stated that the rule should provide that 
if a creditor receives multiple mail deliveries on the next business 
day following a due date on which it does not accept mailed payments, 
only payments in the first delivery should be required to be treated as 
timely. The Board believes that such a comment would not be 
appropriate, because if the creditor received or accepted mailed 
payments on the due date, payments in every mail delivery on that day 
would be timely, not just those payments received in the first mail 
delivery. The Board believes that consumers should accordingly have a 
full business day after a due date on which the creditor does not 
accept payments by mail in order to make a timely payment.
    Finally, as proposed, amended Sec.  226.10(d) applies to all open-
end consumer credit plans, not just credit card accounts, even though 
new TILA Section 127(o) applies only to credit card accounts. The Board 
received no comments on the applicability of Sec.  226.10(d) to open-
end credit plans that are not credit card accounts. The Board believes 
that it is appropriate to have one consistent rule regarding the 
treatment of payments when the due date falls on a date on which the 
creditor does not receive or accept payments by mail. The Board 
believes that that Regulation Z should treat payments on an open-end 
plan that is not a credit card account the same as payments on a credit 
card account. Regardless of the type of open-end plan, if the payment 
due date is a day on which the creditor does not accept or receive 
payments by mail, a consumer should not be required to make payments 
prior to the due date in order for them to be treated as timely. This 
is consistent with Sec.  226.10(d) of the January 2009 Regulation Z 
Rule, which set forth one consistent rule for all open-end credit.
10(e) Limitations on Fees Related to Method of Payment
    The Credit Card Act adopted new TILA Section 127(l) which generally 
prohibits creditors, in connection with a credit card account under an 
open-end consumer credit plan, from imposing a separate fee to allow a 
consumer to repay an extension of credit or pay a finance charge, 
unless the payment involves an expedited service by a customer service 
representative. 15 U.S.C. 1637(l). In the October 2009 Regulation Z 
Proposal, the Board proposed to implement TILA Section 127(l) in Sec.  
226.10(e), which generally prohibits creditors, in connection with a 
credit card account under an open-end (not home-secured) consumer 
credit plan, from imposing a separate fee to allow consumers to make a 
payment by any method, such as mail, electronic, or telephone payments, 
unless such payment method involves an expedited service by a customer 
service representative of the creditor. The final rule adopts new Sec.  
226.10(e) as proposed.
    Separate fee. Proposed comment 10(e)-1 defined ``separate fee'' as 
a fee imposed on a consumer for making a single payment to the account. 
Consumer group commenters suggested that the definition of the term 
``separate fee'' was too narrow and could create a loophole for 
periodic fees, such as a monthly fee, to allow consumers to make a 
payment. Consistent with the statutory provision in TILA Section 
127(l), the Board believes a separate fee for any payment made to an 
account is prohibited, with the exception of a payment involving 
expedited service by a customer service representative. See 15 U.S.C. 
1604(a). The Board revises proposed comment 10(e)-1 by removing the 
word ``single'' in order to clarify that the prohibition on a 
``separate fee''

[[Page 7712]]

applies to any general payment method which does not involve expedited 
service by a customer service representative and to any payment to an 
account, regardless of whether the payment involves a single payment 
transaction or multiple payment transactions. Therefore, the term 
separate fee includes any fee which may be imposed periodically to 
allow consumers to make payments. The Board also notes that periodic 
fees may be prohibited because they do not involve expedited service or 
a customer service representative. The term separate fee also includes 
any fee imposed to allow a consumer to make multiple payments to an 
account, such as automatic monthly payments, if the payments do not 
involve expedited service by a customer service representative. 
Accordingly, comment 10(e)-1 is adopted with the clarifying revision.
    Expedited. The Board proposed comment 10(e)-2 to clarify that the 
term ``expedited'' means crediting a payment to the account the same 
day or, if the payment is received after the creditor's cut-off time, 
the next business day. In response to the October 2009 Regulation Z 
Proposal, industry commenters asked the Board to revise guidance on the 
term ``expedited'' to include representative-assisted payments that are 
scheduled to occur on a specific date, i.e., a future date, and then 
credited or posted immediately on the requested specified date. The 
Board has not included this interpretation of expedited in the final 
rule because the Board believes it would be inconsistent with the 
intent of TILA Section 127(l). Comment 10(e)-2 is adopted as proposed.
    Customer service representative. Proposed comment 10(e)-3 clarified 
that expedited service by a live customer service representative of the 
creditor would be required in order for a creditor to charge a separate 
fee to allow consumers to make a payment. One commenter requested that 
the Board clarify that a creditor's customer service representative 
includes the creditor's agents or service bureau. The Board notes that 
proposed comment 10(e)-3 already stated that payment service may be 
provided by an agent of the creditor. Consumer group commenters 
strongly supported the Board's guidance that a customer service 
representative does not include automated payment systems, such as a 
voice response unit or interactive voice response system. Another 
commenter, however, asked the Board to clarify guidance for payment 
transactions which involve both an automated system and the assistance 
of a live customer service representative. Specifically, the commenter 
noted that some payments systems require an initial consumer contact 
through an automated system but the payment is ultimately handled by a 
live customer service representative. The Board acknowledges that some 
payments transactions may require the use of an automated system for a 
portion of the transaction, even if a live customer service 
representative provides assistance. For example, a customer's telephone 
call may be answered by an automated system before the customer is 
directed to a live customer service representative, or a customer 
service representative may direct a customer to an automated system to 
complete the payment transaction, such as entering personal 
identification numbers (PINs). The Board notes that a payment made with 
the assistance of a live representative or agent of the credit, which 
also requires an automated system for a portion of the transaction, is 
considered service by a live customer service representative. The Board 
is amending comment 10(e)-3 in the final rule accordingly.

Section 226.10(f) Changes by Card Issuer

    The Credit Card Act adopted new TILA Section 164(c), which provides 
that a card issuer may not impose any late fee or finance charge for a 
late payment on a credit card account if a card issuer makes ``a 
material change in the mailing address, office, or procedures for 
handling cardholder payments, and such change causes a material delay 
in the crediting of a cardholder payment made during the 60-day period 
following the date on which the change took effect.'' 15 U.S.C. 
1666c(c). The Board is implementing new TILA Section 164(c) in Sec.  
226.10(f). Proposed Sec.  226.10(f) prohibited a credit card issuer 
from imposing any late fee or finance charge for a late payment on a 
credit card account if a card issuer makes a material change in the 
address for receiving cardholder payments or procedures for handling 
cardholder payments, and such change causes a material delay in the 
crediting of a payment made during the 60-day period following the date 
on which the change took effect. As discussed in the October 2009 
Regulation Z Proposal, the Board modified the language of new TILA 
Section 164(c) to clarify that the meaning of the term ``office'' 
applies only to changes in the address of a branch or office at which 
payments on a credit card account are accepted. To avoid potential 
confusion, the Board revises Sec.  226.10(f) to clarify that the 
prohibition on imposing a late fee or finance charge applies only 
during the 60-day period following the date on which a material change 
took effect. The Board adopts Sec.  226.10(f) as proposed with the 
clarifying revision.
    Comment 10(f)-1 clarified that ``address for receiving payment'' 
means a mailing address for receiving payment, such as a post office 
box, or the address of a branch or office at which payments on credit 
card accounts are accepted. No comments were received on proposed 
comment 10(f)-1 in particular; however, as discussed below, industry 
commenters opposed including the closing of a bank branch as an example 
of a material change in address. See comment 10(f)-4.iv. The final rule 
adopts comment 10(f)-1 as proposed.
    The Board also proposed comment 10(f)-2 to provide guidance to 
creditors in determining whether a change or delay is material. 
Proposed comment 10(f)-2 clarified that ``material change'' means any 
change in address for receiving payment or procedures for handling 
cardholder payments which causes a material delay in the crediting of a 
payment. Proposed comment 10(f)-2 further clarified that a ``material 
delay'' means any delay in crediting a payment to a consumer's account 
which would result in a late payment and the imposition of a late fee 
or finance charge. The final rule adopts comment 10(f)-2 as proposed.
    In the October 2009 Regulation Z Proposal, the Board acknowledged 
that a card issuer may face operational challenges in order to 
ascertain, for any given change in the address for receiving payment or 
procedures for handling payments, whether that change did in fact cause 
a material delay in the crediting of a consumer's payment. Accordingly, 
proposed comment 10(f)-3 provided card issuers with a safe harbor for 
complying with the proposed rule. Specifically, a card issuer may elect 
not to impose a late fee or finance charge on a consumer's account for 
the 60-day period following a change in address for receiving payment 
or procedures for handling cardholder payments which could reasonably 
expected to cause a material delay in crediting of a payment to the 
consumer's account. The Board solicited comment on other reasonable 
methods that card issuers may use in complying with proposed Sec.  
226.10(f). The Board did not receive any significant comments on the 
proposed safe harbor or suggestions for alternative reasonable methods 
which would assist card issuers in compliance.
    Despite the lack of comments, the Board believes that a safe harbor 
based on a ``reasonably expected'' standard is

[[Page 7713]]

appropriate. The safe harbor recognizes the operational difficulty in 
determining in advance the number of customer accounts affected by a 
particular change in payment address or procedure and whether that 
change will cause a late payment. However, upon further consideration, 
the Board notes that in certain circumstances, a late fee or finance 
charge may have been improperly imposed because the late payment was 
subsequently determined to have been caused by a material change in the 
payment address or procedures. Accordingly, the final rule revises 
comment 10(f)-3, which is renumbered comment 10(f)-3.i, to clarify that 
for purposes of Sec.  226.10(f), a late fee or finance charge is not 
imposed if the fee or charge is waived or removed, or an amount equal 
to the fee or charge is credited to the account. Furthermore, the Board 
amends proposed comment 10(f)-3 by adopting comment 10(f)-3.ii, which 
provides a safe harbor specifically for card issuers with a retail 
location which accepts payment.
    The final rule permits a card issuer to impose a late fee or 
finance charge for a late payment during the 60-day period following a 
material change in a retail location which accepts payments, such as 
closing a retail location or no longer accepting payments at the retail 
location. However, if a card issuer is notified by a consumer, no later 
than 60 days after the card issuer transmitted the first periodic 
statement that reflects the late fee or finance charge for a late 
payment, that a late payment was caused by such change, the card issuer 
must waive or remove any late fee or finance charge, or credit an 
amount equal to any late fee or finance charge, imposed on the account 
during the 60-day period following the date on which the change took 
effect. In response to concerns raised by commenters, the Board 
believes a safe harbor for card issuers which accept payment at retail 
locations addresses the operational difficulty of determining which 
consumers are affected by a material change in a retail location or 
procedures for handling payment at a retail location. Accordingly, the 
final rule adopts comment 10(f)-3(ii) and provides an example as 
guidance in new comment 10(f)-4.vi, as discussed below.
    Proposed comment 10(f)-4 provided illustrative examples consistent 
with proposed Sec.  226.10(f), in order to provide additional guidance 
to creditors. Proposed comment 10(f)-4.i illustrated an example of a 
change in mailing address which is immaterial. No comments were 
received on this example, and the final rule adopts comment 10(f)-4.i 
as proposed. Proposed comment 10(f)-4.ii illustrated an example of a 
material change in mailing address which would not cause a material 
delay in crediting a payment. No comments were received on this 
example, and the final rule adopts comment 10(f)-4.ii as proposed. 
Proposed comment 10(f)-4.iii illustrated an example of a material 
change in mailing address which could cause a material delay in 
crediting a payment. No comments were received on this example, and the 
final rule adopts comment 10(f)-4.iii as proposed.
    Proposed comment 10(f)-4.iv illustrated an example of a permanent 
closure of a local branch office of a card issuer as a material change 
in address for receiving payment. Several industry commenters raised 
concerns about proposed comment 10(f)-4.iv. In particular, industry 
commenters argued that a branch closing of a bank is not a material 
change in the address for receiving payment. One industry commenter 
suggested that a bank branch closing should not be considered as a 
factor in determining the cause of a late payment. Two commenters noted 
that national banks and insured depository institutions are required to 
give 90 days' advance notice related to the branch closing as well as 
post a notice at the branch location at least 30 days prior to closure. 
See 12 U.S.C. 1831r-1; 12 CFR 5.30(j). Commenters argued that these 
advance notice requirements provide adequate notice for customers to 
make alternative arrangements for payment.
    Furthermore, industry commenters stated that interpreting a branch 
closing as a material change, as proposed in comment 10(f)-4.iv, would 
impose significant operational challenges and costs on banks in order 
to comply with this provision. Specifically, commenters stated that 
banks would have difficulty determining which customers ``regularly 
make payments'' at particular branches and which late payments were 
caused by the closing of a bank branch. In addition, commenters 
asserted that they would be unable to identify customers who are 
outside the ``footprint'' of a branch and unsuccessfully attempt to 
make a payment at the closed branch, such as if the customer is 
traveling in a different city. Furthermore, one commenter noted that 
banks can respond to a one-time complaint from a customer impacted by a 
branch closing.
    The Board is adopting comment 10(f)-4.iv, but with clarification 
and additional guidance based on the comments and the Board's further 
consideration. In order to ease compliance burden, the final comment 
clarifies that a card issuer is not required to determine whether a 
customer ``regularly makes payments'' at a particular branch. As noted 
by commenters, certain banks and card issuers may have other regulatory 
obligations which require the identification of and notification to 
customers of a local bank branch. The final comment is revised to 
provide an example of a card issuer which chooses to rely on the safe 
harbor for the late payments on customer accounts which it reasonably 
believes may be affected by the branch closure.
    Proposed comment 10(f)-4.v illustrated an example of a material 
change in the procedures for handling cardholder payments. The Board 
did not receive comments on this example, and the final rule adopts 
comment 10(f)-4.v as proposed.
    The final rule includes new comment 10(f)-4.vi to address 
circumstances when a card issuer which accepts payment at a retail 
location makes a material change in procedures for handling cardholder 
payments the retail location, such as no longer accepting payments in 
person as a conforming payment. The new example also provides guidance 
for circumstances when a card issuer is notified by a consumer that a 
late fee or finance charge for a late payment was caused by a material 
change. Under these circumstances, a card issuer must waive or remove 
the late fee or finance charge or credit the customer's account in an 
amount equal to the fee or charge.
    Proposed comment 10(f)-5 clarified that when an account is not 
eligible for a grace period, imposing a finance charge due to a 
periodic interest rate does not constitute imposition of a finance 
charge for a late payment for purposes of Sec.  226.10(f). 
Notwithstanding the proposed rule, a card issuer may impose a finance 
charge due to a periodic interest rate in those circumstances. The 
Board received no significant comment addressing comment 10(f)-5, which 
is adopted as proposed.

Section 226.11 Treatment of Credit Balances; Account Termination

11(c) Timely Settlement of Estate Debts
    The Credit Card Act adds new TILA Section 140A and requires that 
the Board, in consultation with the Federal Trade Commission and each 
other agency referred to in TILA Section 108(a), to prescribe 
regulations requiring creditors, with respect to credit card accounts 
under an open-end consumer credit plan, to establish procedures to 
ensure that any administrator of an estate can resolve the outstanding 
credit

[[Page 7714]]

balance of a deceased accountholder in a timely manner. 15 U.S.C. 1651. 
The Board proposed to implement TILA Section 140A in new Sec.  
226.11(c).
    The final rule generally requires that a card issuer adopt 
reasonable written procedures designed to ensure that an administrator 
of an estate of a deceased accountholder can determine the amount of 
and pay any balance on the account. The final rule also has two 
specific requirements which effectuate the statute's purpose. First, 
the final rule requires a card issuer to disclose the amount of the 
balance on the account in a timely manner upon request by an 
administrator. The final rule provides a safe harbor of 30 days. 
Second, the final rule places certain limitations on card issuers 
regarding fees, annual percentage rates, and interest. Specifically, 
upon request by an administrator for the balance amount, a card issuer 
must not impose fees on the account or increase any annual percentage 
rate, except as provided by the rule. In addition, a card issuer must 
waive or rebate interest, including trailing or residual interest, for 
any payment in full received within 30 days of disclosing a timely 
statement of balance.
    Proposed Sec.  226.11(c)(1) set forth the general rule requiring 
card issuers to adopt reasonable procedures designed to ensure that any 
administrator of an estate of a deceased accountholder can determine 
the amount of and pay any balance on the decedent's credit card account 
in a timely manner. For clarity, the Board proposed to interpret the 
term ``resolve'' for purposes of Sec.  226.11(c) to mean determine the 
amount of and pay any balance on a deceased consumer's account. In 
addition, in order to ensure that the rule applies consistently to any 
personal representative of an estate who has the duty to settle any 
estate debt, the Board proposed to include ``executor'' in proposed 
Sec.  226.11(c). The Board stated that TILA Section 140A is intended to 
apply to any deceased accountholder's estate, regardless of whether an 
administrator or executor is responsible for the estate. In order to 
provide further guidance, the Board clarifies that for purposes of 
Sec.  226.11(c), the term ``administrator'' of an estate means an 
administrator, executor, or any personal representative of an estate 
who is authorized to act on behalf of the estate. Accordingly, the 
final rule removes the reference to ``executor'' in Sec.  226.11(c), 
renumbers proposed comment 11(c)-1 as comment 11(c)-2, and adopts the 
guidance on ``administrator'' in new comment 11(c)-1.
    As the Board discussed in the October 2009 Regulation Z Proposal, 
the Board recognized that some card issuers may already have 
established procedures for the resolution of a deceased accountholder's 
balance. The Board believes a ``reasonable procedures'' standard would 
permit card issuers to retain, to the extent appropriate, procedures 
which may already be in place, in complying with proposed Sec.  
226.11(c), as well as applicable state and federal laws governing 
probate. Consumer group commenters suggested that the language of the 
general rule be modified to require that card issuers ``have and follow 
reasonable written procedures'' designed to ensure that an 
administrator of an estate of a deceased accountholder can determine 
the amount of and pay any balance on the account in a timely manner. 
The Board is amending proposed Sec.  226.11(c)(1) to require that the 
reasonable policies and procedures be written. The Board believes that 
the suggested change to add the word ``follow'' is unnecessary because 
there are references throughout Regulation Z and the Board's other 
regulations that require reasonable policies and procedures without an 
explicit instruction that they be followed. In each of these instances, 
the Board has expected and continues to expect that these policies and 
procedures will be followed. The final rule adopts Sec.  226.11(c)(1), 
which has been renumbered Sec.  226.11(c)(1)(i), as amended.
    The Board is renumbering proposed Sec.  226.11(c)(2)(ii) as Sec.  
226.11(c)(1)(ii) in order to clarify that Sec.  226.11(c) does not 
apply to the account of a deceased consumer if a joint accountholder 
remains on the account. Proposed Sec.  226.11(c)(2)(ii) (renumbered as 
Sec.  226.11(c)(1)(ii)) provided that a card issuer may impose fees and 
charges on a deceased consumer's account if a joint accountholder 
remains on the account. Proposed comment 11(c)-3 clarified that a card 
issuer may impose fees and charges on a deceased consumer's account if 
a joint accountholder remains on the account but may not impose fees 
and charges on a deceased consumer's account if only an authorized user 
remains on the account. Consumer groups argued that the Board should 
require card issuers to provide documentary proof that another party to 
the account is a joint accountholder, and not just an authorized user, 
before continuing to impose fees and charges on a deceased consumer's 
account. Specifically, consumer groups raised the concern that card 
issuers may attempt to hold authorized users liable for account 
balances. The Board notes, however, that authorized users are not 
liable for the debts of a deceased accountholder or the estate. The 
final rule adopts proposed Sec.  226.11(c)(2)(ii), which has been 
renumbered Sec.  226.11(c)(1)(ii), and proposed comment 11(c)-3, which 
has been renumbered as comment 11(c)-6 for organizational purposes.
    Proposed comment 11(c)-1 provided examples of reasonable procedures 
consistent with proposed Sec.  226.11(c). The final rule adopts 
proposed comments 11(c)-1.i-iv, which have been renumbered as comments 
11(c)-2.i-iv, as proposed. Industry commenters asked the Board to 
permit card issuers to require evidence, such as written documentation, 
that an administrator, executor, or personal representative has the 
authority to act on behalf of the estate. Commenters raised privacy 
concerns of disclosing financial information to third parties. The 
Board believes a reasonable procedure for verifying an administrator's 
status or authority is consistent with Sec.  226.11(c), without 
significantly increasing administrative burden on an administrator. The 
Board also believes the benefit of greater privacy protection outweighs 
the additional burden. Two commenters also requested that the Board 
permit card issuers to require verification of a customer's death. The 
Board believes, however, that this requirement is unnecessary. 
Therefore, in response to comments received, the Board adopts new 
comment 11(c)-2.v to clarify that card issuers are permitted to 
establish reasonable procedures requiring verification of an 
administrator's authority to act on behalf of an estate.
    Commenters requested that the Board provide additional guidance 
regarding the use of designated communication channels, such as a 
specific toll-free number or mailing address. Industry commenters cited 
the reduced operational costs and burden associated with requiring 
administrators to use designated communication channels because 
specialized training and customer service representatives who handle 
estate matters could be consolidated. Other commenters recommended that 
the Board consider additional methods for providing an easily 
accessible point of contact for estate administrators or family members 
of deceased accountholders. For example, a card issuer could include 
contact information regarding deceased accountholders on a dedicated 
link on a creditor's Web site or on the periodic statement. One 
commenter suggested a standardized form or format which an 
administrator may use to register an accountholder as deceased at 
multiple card issuers. Another commenter argued

[[Page 7715]]

that the examples for reasonable procedures should address practical 
procedures, and not ``debt forgiveness.'' Consumer groups believed the 
examples in proposed comment 11(c)-1 did not address the failure of 
creditors to respond to an administrator's inquiries or correspondence. 
Consumer groups recommended that the Board consider additional 
procedures, such as acknowledging receipt of an administrator's 
inquiry, providing details regarding payoff, and providing a payoff 
receipt. In response to comments received, the Board adopts new comment 
11(c)-2.vi and 11(c)-2.vii to provide additional guidance. New comment 
11(c)-2.vi clarifies that a card issuer may designate a department, 
business unit, or communication channel for administrators in order to 
expedite handling estate matters. New comment 11(c)-2.vii clarifies 
that a card issuer should be able to direct administrators who call a 
toll-free number or send mail to a general correspondence address to 
the appropriate customer service representative, department, business 
unit, or communication channel.
    For organizational purposes, the Board has renumbered proposed 
Sec.  226.11(c)(3) as Sec.  226.11(c)(2) in the final rule. Proposed 
Sec.  226.11(c)(3)(i) required a card issuer to disclose the amount of 
the balance on the account in a timely manner, upon request by the 
administrator of the estate. The Board believed a timely statement 
reflecting the deceased accountholder's balance is necessary to assist 
administrators with the settlement of estate debts. Consumer groups 
urged the Board not to require a formal request for a statement 
balance. Instead, card issuers should be required to act in good faith 
whenever informed of a consumer's death and the presence of an estate 
administrator. One commenter asked the Board to clarify that the rule 
does not supplant state probate laws and timelines for the resolution 
of estates. Specifically, the commenter argued that state probate law 
accomplishes the goals of the statutory provision and that compliance 
with state probate requirements should be explicitly stated as a 
reasonable procedure for the timely settlement of estates. The Board 
understands that state probate procedures are well-established, and 
this final rule does not relieve the card issuer of its obligations, 
such as filing a claim, nor affect a creditor's rights, such as 
contesting a claim rejection, under state probate laws. The final rule 
adopts Sec.  226.11(c)(3)(i), which has been renumbered as Sec.  
226.11(c)(2)(i), as proposed with technical revisions.
    Proposed Sec.  226.11(c)(3)(ii) provided card issuers with a safe 
harbor for disclosing the balance amount in a timely manner, stating 
that it would be reasonable for a card issuer to provide the balance on 
the account within 30 days of receiving a request by the administrator 
of an estate. The Board believes that 30 days is reasonable to ensure 
that transactions and charges have been accounted for and calculated 
and to provide a written statement or confirmation. The Board solicited 
comment as to whether 30 days provides creditors with sufficient time 
to provide a statement of the balance on the deceased consumer's 
account. Industry commenters and consumer groups generally agreed that 
30 days is sufficient time to provide a timely statement of balance on 
an account. One industry commenter, however, expressed concern that 30 
days would be insufficient and requested 45-60 days instead to ensure 
all charges were processed. Based on the comments received, the Board 
believes 30 days is sufficient for a card issuer to provide a timely 
statement of the balance amount. The final rule adopts Sec.  
226.11(c)(3)(ii), which has been renumbered as Sec.  226.11(c)(2)(ii), 
as proposed with technical revisions.
    Proposed comment 11(c)-4 (renumbered as comment 11(c)-2) clarified 
that a card issuer may receive a request for the amount of the balance 
on the account in writing or by telephone call from the administrator 
of an estate. If a request is made in writing, such as by mail, the 
request is received when the card issuer receives the correspondence. 
No significant comments were received on proposed comment 11(c)-4, and 
it is adopted as proposed with technical revisions and renumbered as 
comment 11(c)-2 for organizational purposes.
    Proposed comment 11(c)-5 (renumbered as comment 11(c)-3) provided 
guidance to card issuers in complying with the requirement to provide a 
timely statement of balance. Card issuers may provide the amount of the 
balance, if any, by a written statement or by telephone. Proposed 
comment 11(c)-5 also clarified that proposed Sec.  226.11(c)(3) 
(renumbered as Sec.  226.11(c)(2)) would not preclude a card issuer 
from providing the balance amount to appropriate persons, other than 
the administrator of an estate. For example, the Board noted that the 
proposed rule would not preclude a card issuer, subject to applicable 
federal and state laws, from providing a spouse or family members who 
indicate that they will pay the decedent's debts from obtaining a 
balance amount for that purpose. Proposed comment 11(c)-5 further 
clarified that proposed Sec.  226.11(c)(3) (renumbered as Sec.  
226.11(c)(2)) does not relieve card issuers of the requirements to 
provide a periodic statement, under Sec.  226.5(b)(2). A periodic 
statement, under Sec.  226.5(b)(2), may satisfy the requirements of 
proposed Sec.  226.11(c)(3) (renumbered as Sec.  226.11(c)(2)), if 
provided within 30 days of notice of the consumer's death. A commenter 
stated that proposed comment 11(c)-5 should reference the 30-day period 
following the date of the balance request, and not the notice of the 
accountholder's death. The final rule revises proposed comment 11(c)-5 
to reference the date of the balance request with regard to using a 
periodic statement to satisfy the requirements of new Sec.  
226.11(c)(2) and renumbers proposed comment 11(c)-5 as comment 11(c)-3 
for organizational purposes.
    Proposed Sec.  226.11(c)(2)(i) (renumbered as Sec.  
226.11(c)(3)(i)) prohibited card issuers from imposing fees and charges 
on a deceased consumer's account upon receiving a request for the 
amount of any balance from an administrator of an estate. As stated in 
the October 2009 Regulation Z Proposal, the Board believed that this 
prohibition is necessary to provide certainty for all parties as to the 
balance amount and to ensure the timely settlement of estate debts. The 
Board solicited comment on whether a card issuer should be permitted to 
resume the imposition of fees and charges if the administrator of an 
estate has not paid the account balance within a specified period of 
time. Consumer group commenters opposed resuming fees and charges 
because settling estates can be time-consuming and an administrator may 
not have authority to pay the balance for some time. One industry 
commenter argued that there should be no prohibition against charging 
fees or interest because it was unreasonable to provide an interest-
free loan for an indefinite period of time until an estate has settled. 
Most industry commenters, however, requested that card issuer be 
permitted to resume charging fees and interest if the balance on the 
account has not been paid within a specified time period after the 
balance request has been made. Most industry commenters stated 30 days 
was a reasonable time to pay before fees and interest would resume 
accruing, and two commenters stated 60 days may be reasonable. Two 
commenters also suggested that after the time to pay had elapsed, a 
creditor

[[Page 7716]]

could be required to provide an updated statement upon subsequent 
request by an administrator. One government agency suggested that the 
Board simplify the final rule by determining the amount which can be 
collected from an estate as the balance on the periodic statement for 
the billing cycle during which the accountholder died.
    The Board is revising proposed Sec.  226.11(c)(2), which has been 
renumbered as Sec.  226.11(c)(3), based on the comments received and 
the Board's further consideration. New Sec.  226.11(c)(3)(i) prohibits 
card issuers from imposing any fee, such as a late fee or annual fee, 
on a deceased consumer's account upon receiving a request from an 
administrator of an estate. The Board believes that in order to best 
effectuate the statute's intent, it is appropriate to limit fees or 
penalties on a deceased consumer's account which is closed or frozen. 
For the purposes of Sec.  226.11(c), new Sec.  226.11(c)(3)(i) also 
prohibits card issuers from increasing the annual percentage rate on an 
account, and requires card issuers to maintain the applicable interest 
rate on the date of receiving the request, except as provided by Sec.  
226.55(b)(2).
    New Sec.  226.11(c)(3)(ii) requires card issuers to waive or rebate 
trailing or residual interest if the balance disclosed pursuant to 
Sec.  226.11(c)(2) is paid in full within 30 days after disclosure. A 
card issuer may continue to accrue interest on the account balance from 
the date on which a timely statement of balance is provided, however, 
that interest must be waived or rebated if the card issuer receives 
payment in full within 30 days. A card issuer is not required to waive 
or rebate interest if payment in full is not received within 30 days. 
For example, on March 1, a card issuer receives a request from an 
administrator for the amount of the balance on a deceased consumer's 
account. On March 25, the card issuer provides an administrator with a 
timely statement of balance in response to the administrator's request. 
If the administrator makes payment in full on April 24, a card issuer 
must waive or rebate any additional interest that accrued on the 
balance between March 25 and April 24. However, if a card issuer 
receives only a partial payment on or before April 24 or receives 
payment in full after April 24, a card issuer is not required to waive 
or rebate interest that accrued between March 25 and April 24. The 
Board believes the requirement to waive or rebate trailing or residual 
interest, when payment is received within the 30-day period following 
disclosure of the balance, provides an administrator with certainty as 
to the amount required to pay the entire account balance and assists 
administrators in settling the estate. The Board believes a 30-day 
period is generally sufficient for an administrator to arrange for 
payment.. The Board notes that if an administrator is unable to pay the 
card issuer before the 30-day period following the timely statement of 
balance has elapsed, an administrator is permitted to make subsequent 
requests for an updated statement of balance. In order to provide 
additional guidance, the Board is adopting new comment 11(c)-5, which 
provides an illustrative example.
    Proposed comment 11(c)-2 clarified that a card issuer may impose 
finance charges based on balances for days that precede the date on 
which the creditor receives a request pursuant to proposed Sec.  
226.11(c)(3). No comments were received on proposed comment 11(c)-2, 
and it is adopted as proposed with technical revision and renumbered as 
comment 11(c)-4 for organizational purposes.

Section 226.12 Special Credit Card Provisions

Section 226.13 Billing Error Resolution

    Comment 12(b)-3 states that a card issuer must investigate claims 
in a reasonable manner before imposing liability for an unauthorized 
use, and sets forth guidance on conducting an investigation of a claim. 
Comment 13(f)-3 contains similar guidance for a creditor investigating 
a billing effort. The January 2009 Regulation Z Rule amended both 
comments to specifically provide that a card issuer (or creditor) may 
not require a consumer to submit an affidavit or to file a police 
report as a condition of investigating a claim. In the May 2009 
Regulation Z Proposed Clarifications, the Board proposed to clarify 
that the card issuer (or creditor) could, however, require a consumer's 
signed statement supporting the alleged claim. Such a signed statement 
may be necessary to enable the card issuer to provide some form of 
certification indicating that the cardholder's claim is legitimate, for 
example, to obtain documentation from a merchant relevant to a claim or 
to pursue chargeback rights. Accordingly, the Proposed Clarifications 
would have amended comments 12(b)-3 and 13(f)-3 to reflect the ability 
of the card issuer (or creditor) to require a consumer signed statement 
for these types of circumstances.
    The Board received one comment in support of the proposed 
clarification. This industry commenter stated that expressly permitting 
a signature requirement would facilitate expedited resolutions of error 
claims. The final rule adopts the clarifications in comments 12(b)-3 
and 13(f)-3, as proposed.

Section 226.16 Advertising

    Although Sec.  226.16 was republished in its entirety, the Board 
only solicited comment on proposed Sec. Sec.  226.16(f) and (h), as the 
other sections of Sec.  226.16 were previously finalized in the January 
2009 Regulation Z Rule. Therefore, the Board is only addressing 
comments received on Sec. Sec.  226.16(f) and (h).
16(f) Misleading Terms
    As discussed in the section-by-section analysis for Sec.  
226.5(a)(2)(iii), the Board did not receive any comments regarding 
Sec.  226.16(f), which is adopted as proposed.
16(h) Deferred Interest or Similar Offers
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
proposed to use its authority under TILA Section 143(3) to add a new 
Sec.  226.16(h) to address the Board's concern that the disclosures 
currently required under Regulation Z may not adequately inform 
consumers of the terms of deferred interest offers. 15 U.S.C. 1663(3). 
The Board republished this proposal in the October 2009 Regulation Z 
Proposal. The proposed rules regarding deferred interest would have 
incorporated many of the same formatting concepts that were previously 
adopted for promotional rates under Sec.  226.16(g). Specifically, the 
Board proposed to require that the deferred interest period be 
disclosed in immediate proximity to each statement regarding interest 
or payments during the deferred interest period. The Board also 
proposed that certain information about the terms of the deferred 
interest offer be disclosed in a prominent location closely proximate 
to the first statement regarding interest or payments during the 
deferred interest period. These proposals are discussed in more detail 
below.
    The Board received broad support from both consumer group and 
industry commenters for its proposal to implement disclosure 
requirements for advertisements of deferred interest offers. Consumer 
group commenters, however, believed that the Board should go further 
and ban ``no interest'' advertising as deceptive when used in 
conjunction with an offer that could potentially result in the consumer 
being charged interest reaching back to the date of purchase. The Board 
believes that deferred interest plans can provide benefits to consumers 
who properly

[[Page 7717]]

understand how the product is structured. Therefore, the Board believes 
the appropriate approach to addressing deferred interest offers is to 
ensure that important information about these offers is provided to 
consumers through the disclosure requirements proposed in Sec.  
226.16(h) instead of banning the term ``no interest'' in advertisements 
of deferred interest plans.
16(h)(1) Scope
    Similar to the rules applicable to promotional rates under Sec.  
226.16(g), the Board proposed that the rules related to deferred 
interest offers under proposed Sec.  226.16(h) be applicable to any 
advertisement of such offers for open-end (not home-secured) plans. In 
addition, the proposed rules applied to promotional materials 
accompanying applications or solicitations made available by direct 
mail or electronically, as well as applications or solicitations that 
are publicly available. The Board did not receive any significant 
comments to Sec.  226.16(h)(1), which is adopted as proposed.
16(h)(2) Definitions
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
proposed to define ``deferred interest'' in new Sec.  226.16(h)(2) as 
finance charges on balances or transactions that a consumer is not 
obligated to pay if those balances or transactions are paid in full by 
a specified date. The term would not, however, include finance charges 
the creditor allows a consumer to avoid in connection with a recurring 
grace period. Therefore, an advertisement including information on a 
recurring grace period that could potentially apply each billing 
period, would not be subject to the additional disclosure requirements 
under Sec.  226.16(h).
    The Board also proposed in comment 16(h)-1 to clarify that deferred 
interest offers would not include offers that allow a consumer to defer 
payments during a specified time period, but where the consumer is not 
obligated under any circumstances for any interest or other finance 
charges that could be attributable to that period. Furthermore, 
proposed comment 16(h)-1 specified that deferred interest offers would 
not include zero percent APR offers where a consumer is not obligated 
under any circumstances for interest attributable to the time period 
the zero percent APR was in effect, although such offers may be 
considered promotional rates under Sec.  226.16(g)(2)(i).
    Moreover, the Board proposed to define the ``deferred interest 
period'' for purposes of proposed Sec.  226.16(h) as the maximum period 
from the date the consumer becomes obligated for the balance or 
transaction until the specified date that the consumer must pay the 
balance or transaction in full in order to avoid finance charges on 
such balance or transaction. To clarify the meaning of deferred 
interest period, the Board proposed comment 16(h)-2 to state that the 
advertisement need not include the end of an informal ``courtesy 
period'' in disclosing the deferred interest period. The Board did not 
receive any significant comments on the proposed definitions under 
Sec.  226.16(h)(2) and associated commentary. Consequently, Sec.  
226.16(h)(2) and comment 16(h)-2 are adopted as proposed. Comment 
16(h)-1 is adopted as proposed with one technical amendment.
16(h)(3) Stating the Deferred Interest Period
    General rule. The Board proposed Sec.  226.16(h)(3) to require that 
advertisements of deferred interest or similar plans disclose the 
deferred interest period clearly and conspicuously in immediate 
proximity to each statement of a deferred interest triggering term. 
Proposed Sec.  226.16(h)(3) also required advertisements that use the 
phrase ``no interest'' or similar term to describe the possible 
avoidance of interest obligations under the deferred interest or 
similar program to state ``if paid in full'' in a clear and conspicuous 
manner preceding the disclosure of the deferred interest period. For 
example, as described in proposed comment 16(h)-7, an advertisement may 
state ``no interest if paid in full within 6 months'' or ``no interest 
if paid in full by December 31, 2010.'' The Board proposed to require 
these disclosures because of concerns that the statement ``no 
interest,'' in the absence of additional details about the applicable 
conditions of the offer may confuse consumers who might not understand 
that they need to pay their balances in full by a certain date in order 
to avoid the obligation to pay interest. Commenters supported the 
Board's proposal, and Sec.  226.16(h)(3) and comment 16(h)-7 are 
adopted as proposed.
    Immediate proximity. Proposed comment 16(h)-3 provided guidance on 
the meaning of ``immediate proximity'' by establishing a safe harbor 
for disclosures made in the same phrase. The guidance was identical to 
the safe harbor adopted previously for promotional rates. See comment 
16(g)-2. Therefore, if the deferred interest period is disclosed in the 
same phrase as each statement of a deferred interest triggering term 
(for example, ``no interest if paid in full within 12 months'' or ``no 
interest if paid in full by December 1, 2010'' the deferred interest 
period would be deemed to be in immediate proximity to the statement.
    Industry commenters were supportive of the Board's approach. 
Consumer group commenters suggested that the safe harbor require that 
the deferred interest period be adjacent to or immediately before or 
after the triggering term instead of in the same phrase. As the Board 
discussed in adopting a similar safe harbor for promotional rates, the 
Board believes that advertisers should be provided with some 
flexibility to make this disclosure. For example, if the deferred 
interest offer related to the purchase of a specific item, the 
advertisement might state, ``no interest on this refrigerator if paid 
in full within 6 months.'' Therefore, the Board is adopting comment 
16(h)-3 as proposed.
    Clear and conspicuous standard. The Board proposed to amend comment 
16-2.ii to provide that advertisements clearly and conspicuously 
disclose the deferred interest period only if the information is 
equally prominent to each statement of a deferred interest triggering 
term. Under proposed comment 16-2.ii, if the disclosure of the deferred 
interest period is the same type size as the statement of the deferred 
interest triggering term, it would be deemed to be equally prominent.
    The Board also proposed to clarify in comment 16-2.ii that the 
equally prominent standard applies only to written and electronic 
advertisements. This approach is consistent with the treatment of 
written and electronic advertisements of promotional rates. The Board 
also noted that disclosure of the deferred interest period under Sec.  
226.16(h)(3) for non-written, non-electronic advertisements, while not 
required to meet the specific clear and conspicuous standard in comment 
16-2.ii would nonetheless be subject to the general clear and 
conspicuous standard set forth in comment 16-1.
    Consumer group commenters recommended that the Board apply the 
equally prominent standard to all advertisements instead of only to 
written and electronic advertisements. As the Board discussed in its 
proposal, because equal prominence is a difficult standard to measure 
outside the context of written and electronic advertisements, the Board 
believes that the guidance on clear and conspicuous disclosures set 
forth in proposed comment 16-2.ii, should apply solely to written and 
electronic advertisements.

[[Page 7718]]

16(h)(4) Stating the Terms of the Deferred Interest Offer
    In order to ensure that consumers notice and fully understand 
certain terms related to a deferred interest offer, the Board proposed 
that certain disclosures be required to be in a prominent location 
closely proximate to the first listing of a statement of ``no 
interest,'' ``no payments,'' or ``deferred interest'' or similar term 
regarding interest or payments during the deferred interest period. In 
particular, the Board proposed to require a statement that if the 
balance or transaction is not paid within the deferred interest period, 
interest will be charged from the date the consumer became obligated 
for the balance or transaction. The Board also proposed to require a 
statement, if applicable, that interest can also be charged from the 
date the consumer became obligated for the balance or transaction if 
the consumer's account is in default prior to the end of the deferred 
interest period. To facilitate compliance with this provision, the 
Board proposed model language in Sample G-24 in Appendix G.
    Prominent location closely prominent. To be consistent with the 
requirement in Sec.  226.16(g)(4) that terms be in a ``prominent 
location closely proximate to the first listing,'' the Board proposed 
guidance in comments 16(h)-4 and 16(h)-5 similar to comments 16(g)-3 
and 16(g)-4. As a result, proposed comment 16(h)-4 provided that the 
information required under proposed Sec.  226.16(h)(4) that is in the 
same paragraph as the first listing of a statement of ``no interest,'' 
``no payments, ``deferred interest'' or similar term regarding interest 
or payments during the deferred interest period would have been deemed 
to be in a prominent location closely proximate to the statement. 
Similar to comment 16(g)-3 for promotional rates, information appearing 
in a footnote would not be deemed to be in a prominent location closely 
proximate to the statement.
    Some consumer group commenters expressed opposition to the safe 
harbor for ``prominent location closely proximate,'' and suggested that 
a disclosure be deemed closely proximate only if it is side-by-side 
with or immediately under or above the triggering phrase. The Board 
believes that the safe harbor under proposed comment 16(h)-4 strikes 
the appropriate balance of ensuring that certain information concerning 
deferred interest or similar programs is located near the triggering 
phrase but also providing sufficient flexibility for advertisers. For 
this reason, and for consistency with a similar safe harbor in comment 
16(g)-3 for promotional rates, comment 16(h)-4 is adopted as proposed.
    First listing. Proposed comment 16(h)-5 further provided that the 
first listing of a statement of ``no interest,'' ``no payments,'' or 
deferred interest or similar term regarding interest or payments during 
the deferred interest period is the most prominent listing of one of 
these statements on the front side of the first page of the principal 
promotional document. The proposed comment borrowed the concept of 
``principal promotional document'' from the Federal Trade Commission's 
definition of the term under its regulations promulgated under the Fair 
Credit Reporting Act. 16 CFR 642.2(b). Under the proposal, if one of 
these statements is not listed on the principal promotional document or 
there is no principal promotional document, the first listing of one of 
these statements would be deemed to be the most prominent listing of 
the statement on the front side of the first page of each document 
containing one of these statements. The Board also proposed that the 
listing with the largest type size be a safe harbor for determining 
which listing is the most prominent. In the proposed comment, the Board 
also noted that consistent with comment 16(c)-1, a catalog or other 
multiple-page advertisement would have been considered one document for 
these purposes.
    Consumer group commenters suggested that instead of requiring the 
disclosures required under Sec.  226.16(h)(4) to be closely proximate 
to the first listing of the triggering term on the principal 
promotional document, the disclosures should be closely proximate to 
the first listing of the triggering term on every document in a 
mailing. The Board believes that the guidance on what constitutes the 
``first listing'' should be the same as the approach taken for comment 
16(g)-4 for promotional rates. Therefore, comment 16(h)-5 is adopted as 
proposed.
    Segregation. The Board also proposed comment 16(h)-6 to clarify 
that the information the Board proposed to require under Sec.  
226.16(h)(4) would not need to be segregated from other information the 
advertisement discloses about the deferred interest offer. This may 
include triggered terms that the advertisement is required to disclose 
under Sec.  226.16(b). The comment is consistent with the Board's 
approach on many other required disclosures under Regulation Z. See 
comment 5(a)-2. Moreover, the Board believes flexibility is warranted 
to allow advertisers to provide other information that may be essential 
for the consumer to evaluate the offer, such as a minimum purchase 
amount to qualify for the deferred interest offer. The Board received 
no comments on proposed comment 16(h)-6, and the comment is adopted as 
proposed.
    Clear and conspicuous disclosure. The Board proposed to amend 
comment 16-2.ii to require equal prominence only for the disclosure of 
the information required under Sec.  226.16(h)(3). Therefore, 
disclosures under proposed Sec.  226.16(h)(4) are not required to be 
equally prominent to the first listing of the deferred interest 
triggering statement. Consumer group commenters, however, recommended 
that these disclosures also be required to be equally prominent to the 
triggering statement. As the Board discussed in the May 2009 Regulation 
Z Proposed Clarifications, the Board believes that requiring equal 
prominence to the triggering statement for this information would 
render an advertisement difficult to read and confusing to consumers 
due to the amount of information the Board is requiring under Sec.  
226.16(h)(4). Therefore, the Board declines to make these suggested 
amendments to comment 16-2.ii.
    Non-written, non-electronic advertisements. As discussed above in 
the section-by-section analysis to Sec.  226.16(h)(1), the requirements 
of Sec.  226.16(h) apply to all advertisements, including non-written, 
non-electronic advertisements. To provide advertisers with flexibility, 
the Board proposed that only written or electronic advertisements be 
subject to the requirement to place the terms of the offer in a 
prominent location closely proximate to the first listing of a 
statement of ``no interest,'' ``no payments,'' or ``deferred interest'' 
or similar term regarding interest or payments during the deferred 
interest period.
    As with their comments regarding clear and conspicuous disclosures 
under Sec.  226.16(h)(3), consumer group commenters suggested that the 
specific formatting rules under Sec.  226.16(h)(4) should apply to non-
written, non-electronic advertisements. Given the difficulty of 
applying these standards to non-written, non-electronic advertisements 
and the time and space constraints of such media, the Board believes 
this exclusion is appropriate. Consequently, for non-written, non-
electronic advertisements, the information required under Sec.  
226.16(h)(4) must be included in the advertisement, but is not subject 
to any proximity or formatting requirements

[[Page 7719]]

other than the general requirement that information be clear and 
conspicuous, as contemplated under comment 16-1.
16(h)(5) Envelope Excluded
    The Board proposed to exclude envelopes or other enclosures in 
which an application or solicitation is mailed, or banner 
advertisements or pop-up advertisements linked to an electronic 
application or solicitation from the requirements of Sec.  
226.16(h)(4). Consumer group commenters objected to the Board's 
proposal to exempt envelopes, banner advertisements, and pop-up 
advertisements from these requirements. One industry commenter 
recommended that the exception in Sec.  226.16(h)(5) should be amended 
to include the requirements of Sec.  226.16(h)(3).
    Given the limited space that envelopes, banner advertisements, and 
pop-up advertisements have to convey information, the Board believes 
the burden of providing the information proposed under Sec.  
226.16(h)(4) on these types of communications exceeds any benefit. It 
is the Board's understanding that interested consumers generally look 
at the contents of an envelope or click on the link in a banner 
advertisement or pop-up advertisement in order to learn more about the 
specific terms of an offer instead of relying solely on the information 
on an envelope, banner advertisement, or pop-up advertisement to become 
informed about an offer. The Board, however, does not believe the 
disclosures required by Sec.  226.16(h)(3) are as burdensome as those 
required by Sec.  226.16(h)(4) and that the exception, should not, 
therefore, be extended to the disclosures required under Sec.  
226.16(h)(3). Thus, Sec.  226.16(h)(5) is adopted as proposed.
Appendix G
    As discussed in the supplementary information to Sec. Sec.  
226.7(b)(14) and 226.16(h), the Board proposed to adopt model language 
for the disclosures required to be given in connection with deferred 
interest or similar programs in Samples G-18(H) and G-24. Proposed 
Sample G-24 contained two model clauses, one for use in connection with 
credit card accounts under an open-end (not home-secured) consumer 
credit plan, and one for use in connection with other open-end (not 
home-secured) consumer credit plans. The model clause for credit card 
issuers reflects the fact that, under those rules, an issuer may only 
revoke a deferred or waived interest program if the consumer's payment 
is more than 60 days late. The Board also proposed to add a new comment 
App. G-12 to clarify which creditors should use each of the model 
clauses in proposed Sample G-24.
    As discussed in the section-by-section analysis to Sec.  
226.7(b)(14), the Board is adopting Sample G-18(H) as proposed. 
Furthermore, the Board did not receive comment on the model language in 
Sample G-24. Therefore, comment App. G-12 and Sample G-24 are also 
adopted as proposed.

Section 226.51 Ability To Pay

51(a) General Ability To Pay
    In the October 2009 Regulation Z Proposal the Board proposed to 
implement new TILA Section 150, as added by Section 109 of the Credit 
Card Act, prohibiting a card issuer from opening a credit card account 
for a consumer, or increasing the credit limit applicable to a credit 
card account, unless the card issuer considers the consumer's ability 
to make the required payments under the terms of such account, in new 
Sec.  226.51(a). 15 U.S.C. 1665e. Proposed Sec.  226.51(a)(1) contained 
the substance of the rule in TILA Section 150. Proposed Sec.  
226.51(a)(2) required card issuers to use a reasonable method for 
estimating the required payments under Sec.  226.51(a)(1) and provided 
a safe harbor for such estimation.
51(a)(1) Consideration of Ability To Pay
    Proposed Sec.  226.51(a)(1) generally followed the language 
provided in TILA Section 150 with two clarifying modifications. As 
detailed in the October 2009 Regulation Z Proposal, the Board proposed 
to interpret the term ``required payments'' to mean the required 
minimum periodic payment since the minimum periodic payment is the 
amount that a consumer is required to pay each billing cycle under the 
terms of the contract with the card issuer. In addition, proposed Sec.  
226.51(a)(1) provided that the card issuer's consideration of the 
ability of the consumer to make the required minimum periodic payments 
must be based on the consumer's income or assets and the consumer's 
current obligations. Proposed Sec.  226.51(a)(1) also required card 
issuers to have reasonable policies and procedures in place to consider 
this information.
    While consumer group commenters and some industry commenters agreed 
that a consideration of ability to pay should include a review of a 
consumer's income or assets and current obligations, many industry 
commenters asserted that the Credit Card Act did not compel this 
interpretation. These commenters stated that there are other factors 
that they believe are more predictive of a consumer's ability to pay 
than information on a consumer's income or assets, such as payment 
history and credit scores. The Board believes that there indeed may be 
other factors that are useful for card issuers in evaluating a 
consumer's ability to pay, and for this reason, the Board had proposed 
comment 51(a)-1 to clarify that card issuers may also consider other 
factors that are consistent with the Board's Regulation B (12 CFR Part 
202). However, the Board still believes a proper evaluation of a 
consumer's ability to pay must include a review of a consumer's income 
or assets and obligations in order to give card issuers a more complete 
picture of a consumer's current financial state. As a result, the Board 
is adopting Sec.  226.51(a)(1) as Sec.  226.51(a)(1)(i), largely as 
proposed.
    Industry group commenters also detailed challenges with respect to 
collecting income or asset information directly from consumers in 
certain contexts. Several commenters expressed concern regarding the 
lack of privacy for consumers in supplying income or asset information 
if a consumer applies for a credit card at point-of-sale. These 
commenters also suggested that requesting consumers to update income or 
asset information when increasing credit lines also presented several 
issues, especially at point-of-sale. Unlike a new account opening, 
there is generally no formal application for a credit line increase. 
Therefore, card issuers and retailers may need to develop new 
procedures to obtain this information. For point-of-sale credit line 
increases, card issuers and retailers believe this will negatively 
impact the consumer's experience because a consumer may need to take 
extra steps to complete a sale, which may lead consumers to abandon the 
purchase. Other commenters noted that requesting consumers to update 
income or asset information for credit line increases may foster an 
environment that encourages phishing scams as consumers may be required 
to distinguish between legitimate requests for updated information from 
fraudulent requests. Some industry commenters also suggested that the 
Board provide a de minimis exception for which a card issuer need not 
consider income or asset information.
    Given these concerns, the Board is clarifying in comment 51(a)-4, 
which the Board is renumbering as comment 51(a)(1)-4 for organizational 
purposes, that card issuers may obtain income or asset information from 
several sources, similar to comment 51(a)-5 (renumbered as 51(a)(1)-5) 
regarding obligations. In addition to collecting this

[[Page 7720]]

information from the consumer directly, in connection with either this 
credit card account or any other financial relationship the card issuer 
or its affiliates has with the consumer, card issuers may also rely on 
information from third parties, subject to any applicable restrictions 
on information sharing. Furthermore, the Board is aware of various 
models developed to estimate income or assets. The Board believes that 
empirically derived, demonstrably and statistically sound models that 
reasonably estimate a consumer's income or assets may provide 
information as valid as a consumer's statement of income or assets. 
Therefore, comment 51(a)(1)-4 states that card issuers may use 
empirically derived, demonstrably and statistically sound models that 
reasonably estimate a consumer's income or assets.
    Moreover, the Board is not providing a de minimis exception for 
considering a consumer's income or assets. The Board is concerned that 
any de minimis amount chosen could still have a significant impact on a 
particular consumer, depending on the consumer's financial state. For 
example, subprime credit card accounts with relatively ``small'' credit 
lines may still be difficult for certain consumers to afford. 
Suggesting that these card issuers may simply avoid consideration of a 
consumer's income or assets may be especially harmful for consumers in 
this market segment.
    Consumer group commenters suggested that the Board include more 
guidance on how card issuers must evaluate a consumer's income or 
assets and obligations. While consumer group commenters did not 
recommend a specific debt-to-income ratio or any other particular 
quantitative measures, they suggested that card issuers be required to 
consider a debt-to-income ratio and a consumer's disposable income. The 
Board's proposal required card issuers to have reasonable policies and 
procedures in place to consider this information. To provide further 
guidance for card issuers, the Board is adopting a new Sec.  
226.51(a)(1)(ii) to state that reasonable policies and procedures to 
consider a consumer's ability to make the required payments would 
include a consideration of at least one of the following: The ratio of 
debt obligations to income; the ratio of debt obligations to assets; or 
the income the consumer will have after paying debt obligations. 
Furthermore, Sec.  226.51(a)(1)(ii) provides that it would be 
unreasonable for a card issuer to not review any information about a 
consumer's income, assets, or current obligations, or to issue a credit 
card to a consumer who does not have any income or assets.
    Consumer group commenters further suggested that the language be 
modified to require that card issuers ``have and follow reasonable 
written policies and procedures'' to consider a consumer's ability to 
pay. The Board is moving the requirement that card issuers establish 
and maintain reasonable policies and procedures to new Sec.  
226.51(a)(1)(ii) and amending the provision to require that the 
reasonable policies and procedures be written. The Board believes that 
the suggested change to add the word ``follow,'' however, is 
unnecessary. There are references throughout Regulation Z and the 
Board's other regulations that require reasonable policies and 
procedures without an explicit instruction that they be followed. In 
each of these instances, the Board has expected and continues to expect 
that these policies and procedures will be followed. Similarly, the 
Board has the same expectation with Sec.  226.51(a)(1)(ii).
    As noted above, proposed comment 51(a)-1 clarified that card 
issuers may consider credit reports, credit scores, and any other 
factor consistent with Regulation B (12 CFR Part 202) in considering a 
consumer's ability to pay. One industry commenter suggested that the 
Board amend the comment to include a reference to consumer reports, 
which include credit reports. The Board is adopting proposed comment 
51(a)-1 as comment 51(a)(1)-1 with this suggested change.
    Proposed comment 51(a)-2 clarified that in considering a consumer's 
ability to pay, a card issuer must base the consideration on facts and 
circumstances known to the card issuer at the time the consumer applies 
to open the credit card account or when the card issuer considers 
increasing the credit line on an existing account. This guidance is 
similar to comment 34(a)(4)-5 addressing a creditor's requirement to 
consider a consumer's repayment ability for certain closed-end mortgage 
loans based on facts and circumstances known to the creditor at loan 
consummation. Several industry commenters asked whether this comment 
required card issuers to update any income or asset information the 
card issuer may have on a consumer prior to a credit line increase on 
an existing account. The Board believes that card issuers should be 
required to update a consumer's income or asset information, similar to 
how card issuers generally update information on a consumer's 
obligations, prior to considering whether to increase a consumer's 
credit line. This will prevent the card issuer from making an 
evaluation of a consumer's ability to make the required payments based 
on stale information. Consistent with the Board's changes to comment 
51(a)-4 (adopted as 51(a)(1)-4), as discussed below, card issuers have 
several options to obtain updated income or asset information. Proposed 
comment 51(a)-2 is adopted as comment 51(a)(1)-2.
    Furthermore, since credit line increases can occur at the request 
of a consumer or through a unilateral decision by the card issuer, 
proposed comment 51(a)-3 clarified that Sec.  226.51(a) applies in both 
situations. Consumer group commenters suggested that credit line 
increases should only be granted upon the request of a consumer. The 
Board believes that if a card issuer conducts the proper evaluation 
prior to a credit line increase, such increases should not be 
prohibited simply because the consumer did not request the increase. 
The consumer is still in control as to how much of the credit line to 
ultimately use. Proposed comment 51(a)-3 is adopted as comment 
51(a)(1)-3, with a minor non-substantive wording change.
    Proposed comment 51(a)-4 provided examples of assets and income the 
card issuer may consider in evaluating a consumer's ability to pay. As 
discussed above, in response to comments on issues related to 
collecting income or asset information directly from consumers, the 
Board is amending comment 51(a)-4 (renumbered as 51(a)(1)-4) to provide 
a parallel comment to comment 51(a)-5 (renumbered as 51(a)(1)-5) 
regarding obligations. Specifically, the Board is clarifying that card 
issuers are not obligated to obtain income or asset information 
directly from a consumer. Card issuers may also obtain this information 
through third parties as well as empirically derived, demonstrably and 
statistically sound models that reasonably estimates a consumer's 
income or assets. The Board believes that, to the extent that card 
issuers are able to obtain information on a consumer's income or assets 
through means other than directly from the consumer, card issuers 
should be provided with flexibility.
    The Board also proposed comment 51(a)-5 to clarify that in 
considering a consumer's current obligations, a card issuer may rely on 
information provided by the consumer or in a consumer's credit report. 
Commenters were supportive of this comment, and the comment is adopted 
as proposed, with one addition. Industry commenters requested that the 
Board clarify that in evaluating a consumer's current open-

[[Page 7721]]

end obligations, card issuers should not be required to assume such 
obligations are fully utilized. The Board agrees. In contrast to the 
Board's safe harbor in estimating the minimum payments for the credit 
account for which the consumer is applying, the card issuer will have 
information on the consumer's historic utilization rates for other 
obligations. With respect to the credit account for which the consumer 
is applying, the card issuer has no information as to how the consumer 
plans to use the account, and assumption of full utilization is thus 
appropriate in that context. Moreover, while credit limit information 
is widely reported in consumer reports, there are still instances where 
such information is not reported. Furthermore, the Board is concerned 
that assuming full utilization of all open-end credit lines could 
result in an anticompetitive environment wherein card issuers raise 
credit limits on existing accounts in order to prevent a consumer from 
obtaining any new credit cards. For these reasons, proposed comment 
51(a)-5 is amended to provide that in evaluating a consumer's current 
obligations to determine the consumer's ability to make the required 
payments, the card issuer need not assume that any credit line is fully 
utilized. In addition, the comment has been renumbered as comment 
51(a)(1)-5.
    Several industry commenters requested that the Board clarify that 
for joint accounts, a card issuer may consider the ability of both 
applicants or accountholders to make the required payments, instead of 
considering the ability of each consumer individually. In response, the 
Board is adopting new comment 51(a)(1)-6 to permit card issuers to 
consider joint applicants or joint accountholders collectively.
    Moreover, as discussed in the October 2009 Regulation Z Proposal, 
the Board did not propose to require card issuers to verify information 
before an account is opened or credit line is increased for several 
reasons. The Board noted that TILA Section 150 does not require 
verification of a consumer's ability to make required payments and that 
verification can be burdensome for both consumers and card issuers, 
especially when accounts are opened at point of sale or by telephone. 
Furthermore, as discussed in the October 2009 Regulation Z Proposal, 
the Board stated its belief that because credit card accounts are 
generally unsecured, card issuers will be motivated to verify 
information when either the information supplied by the applicant is 
inconsistent with the data the card issuers already have or obtain on 
the consumer or when the risk in the amount of the credit line warrants 
such verification.
    Many industry commenters expressed support for the Board's approach 
to provide card issuers with flexibility to determine instances when 
verification might be necessary and to refrain from strictly requiring 
verification or documentation in all instances. In contrast, consumer 
group commenters opposed this approach, stating that while there is no 
widespread evidence of income inflation in the credit card market, such 
problems do occur. One federal financial regulator commenter suggested 
that verification could be required in certain instances, such as when 
a consumer does not have a large credit file or when the credit line is 
large. The Board believes that given the inconvenience to consumers 
detailed in the October 2009 Regulation Z Proposal in providing 
documentation and the lack of evidence currently that consumers' 
incomes have been inflated in the credit card market on a widespread 
basis, a strict verification should not be required at this time.
51(a)(2) Minimum Periodic Payments
    Under proposed Sec.  226.51(a)(2)(i), card issuers would be 
required to use a reasonable method for estimating the required minimum 
periodic payments. Proposed Sec.  226.51(a)(2)(ii) provided a safe 
harbor that card issuers could use to comply with this requirement. 
Specifically, the proposed safe harbor required the card issuer to 
assume utilization of the full credit line that the issuer is 
considering offering to the consumer from the first day of the billing 
cycle. The proposed safe harbor also required the issuer to use a 
minimum payment formula employed by the issuer for the product the 
issuer is considering offering to the consumer or, in the case of an 
existing account, the minimum payment formula that currently applies to 
that account. If the applicable minimum payment formula includes 
interest charges, the proposed safe harbor required the card issuer to 
estimate those charges using an interest rate that the issuer is 
considering offering to the consumer for purchases or, in the case of 
an existing account, the interest rate that currently applies to 
purchases. Finally, if the applicable minimum payment formula included 
fees, the proposed safe harbor permitted the card issuer to assume that 
no fees have been charged to the account.
    Consumer group commenters and many industry commenters generally 
agreed with the Board's approach and proposed safe harbor. A federal 
financial regulator and an industry commenter stated that the Board's 
emphasis on the minimum periodic payments was misplaced. The federal 
financial regulator commenter suggested that instead of considering a 
consumer's ability to make the minimum periodic payments based on full 
utilization of the credit line, the commenter recommended that card 
issuers be required to consider a consumer's ability to pay the entire 
credit line over a reasonable period of time, such as a year. The 
Credit Card Act requires evaluation of a consumer's ability to make the 
``required payments.'' Unless the terms of the contract provide 
otherwise, repayment of the balance on a credit card account over one 
year is not required. As discussed in the October 2009 Regulation Z 
Proposal, the minimum periodic payment is generally the amount that a 
consumer is required to pay each billing cycle under the terms of the 
contract. As a result, the Board believes that requiring card issuers 
to consider the consumer's ability to make the minimum periodic payment 
is the most appropriate interpretation of the requirements of the 
Credit Card Act.
    With respect to the Board's proposed safe harbor approach, some 
industry commenters suggested that the Board permit card issuers to 
estimate minimum periodic payments based on an average utilization rate 
for the product offered to the consumer. In the October 2009 Regulation 
Z Proposal, the Board acknowledged that requiring card issuers to 
estimate minimum periodic payments based on full utilization of the 
credit line could have the effect of overstating the consumer's likely 
required payments. The Board believes, however, that since card issuers 
may not know how a particular consumer may use the account, and the 
issuer is qualifying the consumer for a certain credit line, of which 
the consumer will have full use, an assumption that the entire credit 
line will be used is a proper way to estimate the consumer's payments 
under the safe harbor. Furthermore, the Board notes that the regulation 
requires that a card issuer use a reasonable method to estimate 
payments, and that Sec.  226.51(a)(2)(ii) merely provides a safe harbor 
for card issuers to comply with this standard, but that it may not be 
the only permissible way to comply with Sec.  226.51(a)(2)(i). Section 
226.51(a)(2)(ii) is therefore adopted as proposed with one minor 
clarifying change.
    As noted above, the proposed safe harbor under Sec.  
226.51(a)(2)(ii) required an issuer to use a minimum payment formula 
employed by the issuer for the product the issuer is considering

[[Page 7722]]

offering to the consumer or, in the case of an existing account, the 
minimum payment formula that currently applies to that account. The 
Board is adding new comment 51(a)(2)-1 to clarify that if an account 
has or may have a promotional program, such as a deferred payment or 
similar program, where there is no applicable minimum payment formula 
during the promotional period, the issuer must estimate the required 
minimum periodic payment based on the minimum payment formula that will 
apply when the promotion ends.
    Proposed Sec.  226.51(a)(2)(ii) also provided that if the 
applicable minimum payment formula includes interest charges, the 
proposed safe harbor required the card issuer to estimate those charges 
using an interest rate that the issuer is considering offering to the 
consumer for purchases or, in the case of an existing account, the 
interest rate that currently applies to purchases. The Board is 
adopting a new comment to clarify this provision. New comment 51(a)(2)-
2 provides that if the interest rate for purchases is or may be a 
promotional rate, the safe harbor requires the issuer to use the post-
promotional rate to estimate interest charges.
    As discussed in the October 2009 Regulation Z Proposal, the Board's 
proposed safe harbor further provided that if the minimum payment 
formula includes fees, the card issuer could assume that no fees have 
been charged because the Board believed that estimating the amount of 
fees that a typical consumer might incur could be speculative. Consumer 
group commenters suggested that the Board amend the safe harbor to 
require the addition of mandatory fees as such fees are not 
speculative. The Board agrees. As a result, Sec.  226.51(a)(2)(ii) 
requires that if a minimum payment formula includes the addition of any 
mandatory fees, the safe harbor requires the card issuer to assume that 
such fees are charged. In addition, the Board is adopting a new comment 
51(a)(2)-3 to provide guidance as to what types of fees are considered 
mandatory fees. Specifically, the comment provides that mandatory fees 
for which a card issuer is required to assume are charged include those 
fees that a consumer will be required to pay if the account is opened, 
such as an annual fee.
51(b) Rules Affecting Young Consumers
    The Board proposed in the October 2009 Regulation Z Proposal to 
implement new TILA Sections 127(c)(8) and 127(p), as added by Sections 
301 and 303 of the Credit Card Act, respectively, in Sec.  226.51(b). 
Specifically, proposed Sec.  226.51(b)(1) provided that a card issuer 
may not open a credit card account under an open-end (not home-secured) 
consumer credit plan for a consumer less than 21 years old, unless the 
consumer submits a written application and provides either a signed 
agreement of a cosigner, guarantor, or joint applicant pursuant to 
Sec.  226.51(b)(1)(i) or financial information consistent with Sec.  
226.51(b)(1)(ii). The Board proposed Sec.  226.51(b)(2) to state that 
no increase may be made in the amount of credit authorized to be 
extended under a credit card account for which an individual has 
assumed joint liability pursuant to proposed Sec.  226.51(b)(1)(i) for 
debts incurred by the consumer in connection with the account before 
the consumer attains the age of 21, unless that individual approves in 
writing, and assumes joint liability for, such increase.
    As discussed in the October 2009 Regulation Z Proposal, proposed 
Sec.  226.51(b) generally followed the statutory language with 
modifications to resolve ambiguities in the statute and to improve 
readability and consistency with Sec.  226.51(a). While many of these 
proposed changes did not generate much comment, certain of the Board's 
proposed modifications did prompt suggestions from commenters. First, 
consumer group commenters maintained that the Board's proposed language 
to limit the scope of Sec.  226.51(b)(1) to credit card accounts only 
was not consistent with the language in TILA Section 127(c)(8)(A). For 
all the reasons set forth in the October 2009 Regulation Z Proposal, 
however, the Board believes that the intent of TILA Section 127(c)(8), 
read as a whole, was to apply these requirements only to credit card 
accounts. Furthermore, as discussed in the October 2009 Regulation Z 
Proposal, limiting the scope of Sec.  226.51(b)(1) to credit card 
accounts only is consistent with the treatment of the related provision 
in TILA Section 127(p) regarding credit line increases, which applies 
solely to credit card accounts. Therefore, Sec.  226.51(b)(1) will 
apply only to credit card accounts as proposed.
    The Board also received comment regarding its proposal to make 
Sec.  226.51(b) consistent with Sec.  226.51(a) by requiring card 
issuers to determine whether a consumer under the age of 21, or any 
cosigner, guarantor, or joint applicant of a consumer under the age of 
21, has the means to repay debts incurred by the consumer by evaluating 
a consumer's ability to make the required payments under Sec.  
226.51(a). Therefore, proposed Sec.  226.51(b)(1)(i) and (ii) both 
referenced Sec.  226.51(a) in discussing the ability of a cosigner, 
guarantor, or joint applicant to make the minimum payments on the 
consumer's debts and the consumer's independent ability to make the 
minimum payments on any obligations arising under the account.
    Industry commenters were supportive of the Board's approach. 
Consumer group commenters, however, recommended that the Board require 
a more stringent evaluation of a consumer's ability to make the 
required payments for consumers under the age of 21 than the one 
required in Sec.  226.51(a). In particular, consumer group commenters 
suggested, for example, that card issuers be required to only consider 
income earned from wages or require a higher residual income or lower 
debt-to-income ratio for consumers less than 21 years old. A state 
regulatory agency commenter suggested that the Board require card 
issuers to verify income or asset information stated on an application 
submitted by a consumer under the age of 21. The Board declines to make 
the suggested changes. The Board believes that the heightened 
procedures already set forth in TILA Sections 127(c)(8) and 127(p), as 
adopted by the Board in Sec.  226.51(b), will provide sufficient 
protection for consumers less than 21 years old without unnecessarily 
impinging on their ability to obtain credit and build a credit history. 
Furthermore, the Board is concerned that the suggested changes could be 
inconsistent with the Board's Regulation B (12 CFR Part 202). For 
example, excluding certain income from consideration, such as alimony 
or child support, could conflict with 12 CFR Sec.  202.6(b)(5).
    The Board, however, is amending Sec.  226.51(b)(1) to clarify that, 
consistent with comments 51(a)(1)-4 and 51(a)(1)-5, card issuers need 
not obtain financial information directly from the consumer to evaluate 
the ability of the consumer, cosigner, guarantor, or joint applicant to 
make the required payments. The Board is also making organizational and 
other non-substantive changes to Sec.  226.51(b)(1) to improve 
readability and consistency. Section 226.51(b)(2) is adopted as 
proposed. The Board notes that for any credit line increase on an 
account of a consumer under the age of 21, the requirements of Sec.  
226.51(b)(2) are in addition to those in Sec.  226.51(a).
    In the October 2009 Regulation Z Proposal, the Board also proposed 
several comments to provide guidance to card issuers in complying with 
Sec.  226.51(b). Proposed comment 51(b)-1 clarified that Sec.  
226.51(b)(1) and (b)(2)

[[Page 7723]]

apply only to a consumer who has not attained the age of 21 as of the 
date of submission of the application under Sec.  226.51(b)(1) or the 
date the credit line increase is requested by the consumer under Sec.  
226.51(b)(2). If no request has been made (for example, for unilateral 
credit line increases by the card issuer), the provision would apply 
only to a consumer who has not attained the age of 21 as of the date 
the credit line increase is considered by the card issuer. Some 
industry commenters suggested that the Board's final rule provide that 
the age of the consumer be determined at account opening as opposed to 
the consumer's age as of the date of submission of the application. The 
Board notes that TILA Section 127(c)(8)(B) applies to consumers who are 
under the age of 21 as of the date of submission of the application. 
Therefore, in compliance with the statutory provision, the Board is 
adopting comment 51(b)-1 as proposed.
    Proposed comment 51(b)-2 addressed the ability of a card issuer to 
require a cosigner, guarantor, or joint accountholder to assume 
liability for debts incurred after the consumer has attained the age of 
21. Consumer group commenters recommended that the Board require that 
card issuers obtain separate consent of a cosigner, guarantor, or joint 
accountholder to assume liability for debts incurred after the consumer 
has attained the age of 21. The Board believes that requiring separate 
consent is unnecessary and duplicative as card issuers requiring 
cosigners, guarantors, or joint accountholders to assume such liability 
will likely obtain a single consent at the time the account is opened 
for the cosigner, guarantor, or joint accountholder to assume liability 
on debt that is incurred before and after the consumer has turned 21. 
Proposed comment 51(b)-2 is adopted in final.
    The Board proposed comment 51(b)-3 to clarify that Sec.  
226.51(b)(1) and (b)(2) do not apply to a consumer under the age of 21 
who is being added to another person's account as an authorized user 
and has no liability for debts incurred on the account. The Board did 
not receive any comment on this provision, and the comment is adopted 
as proposed.
    Proposed comment 51(b)-4 explained how the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.) 
would govern the submission of electronic applications. TILA Section 
127(c)(8) requires a consumer who has not attained the age of 21 to 
submit a written application, and TILA Section 127(p) requires a 
cosigner, guarantor, or joint accountholder to consent to a credit line 
increase in writing. As noted in the October 2009 Regulation Z 
Proposal, the Board believes that, consistent with the purposes of the 
E-Sign Act, applications submitted under TILA Section 127(c)(8) and 
consents under TILA Section 127(p), which must be provided in writing, 
may also be submitted electronically. See 15 U.S.C. 7001(a). 
Furthermore, since the submission of an application by a consumer or 
consent to a credit line increase by a cosigner, guarantor, or joint 
accountholder is not a disclosure to a consumer, the Board believes the 
consumer consent and other requirements necessary to provide consumer 
disclosures electronically pursuant to the E-Sign Act would not apply. 
The Board notes, however, that under the E-Sign Act, an electronic 
record of a contract or other record required to be in writing may be 
denied legal effect, validity or enforceability if such record is not 
in a form that is capable of being retained and accurately reproduced 
for later reference by all parties or persons who are entitled to 
retain the contract or other record. 15 U.S.C. 7001(e). Consumer group 
commenters recommended that the Board include this reference in the 
comment. The Board believes this is unnecessary, and comment 51(b)-4 is 
adopted as proposed with minor wording changes.
    Under proposed comment 51(b)(1)-1, creditors must comply with 
applicable rules in Regulation B (12 CFR Part 202) in evaluating an 
application to open a credit card account or credit line increase for a 
consumer under the age of 21. In the October 2009 Regulation Z 
Proposal, the Board noted that because age is generally a prohibited 
basis for any creditor to take into account in any system evaluating 
the creditworthiness of applicants under Regulation B, the Board 
believes that Regulation B prohibits card issuers from refusing to 
consider the application of a consumer solely because the applicant has 
not attained the age of 21 (assuming the consumer has the legal ability 
to enter into a contract).
    TILA Section 127(c)(8) permits card issuers to open a credit card 
account for a consumer who has not attained the age of 21 if either of 
the conditions under TILA Section 127(c)(8)(B) are met. Therefore, the 
Board believes that a card issuer may choose to evaluate an application 
of a consumer who is less than 21 years old solely on the basis of the 
information provided under Sec.  226.51(b)(1)(i). Consequently, the 
Board believes, a card issuer is not required to accept an application 
from a consumer less than 21 years old with the signature of a 
cosigner, guarantor, or joint applicant pursuant to Sec.  
226.51(b)(1)(ii), unless refusing such applications would violate 
Regulation B. For example, if the card issuer permits other applicants 
of non-business credit card accounts who have attained the age of 21 to 
provide the signature of a cosigner, guarantor, or joint applicant, the 
card issuer must provide this option to applicants of non-business 
credit card accounts who have not attained the age of 21 (assuming the 
consumer has the legal ability to enter into a contract).
    Several industry commenters requested the Board further clarify the 
interaction between Regulation B and Sec.  226.51(b). Some commenters 
suggested the Board state that certain provisions of Sec.  226.51(b) 
override provisions of Regulation B. The Board notes that issuers would 
not violate Regulation B by virtue of complying with Sec.  226.51(b). 
Therefore, the Board does not believe it is necessary to state that 
Sec.  226.51(b) overrides provisions of Regulation B.
    Furthermore, many industry commenters asked the Board to permit 
card issuers, in determining whether consumers under the age of 21 have 
the ``independent'' means to repay debts incurred, to consider a 
consumer's spouse's income. The Board believes that neither Regulation 
B nor Sec.  226.51(b) compels this interpretation. Pursuant to TILA 
Section 127(c)(8)(B), card issuers evaluating a consumer under the age 
of 21 under Sec.  226.51(b)(1)(ii), who is applying as an individual, 
must consider the consumer's independent ability. The Board notes, 
however, that in evaluating joint accounts, the card issuer may 
consider the collective ability of the joint applicants or joint 
accountholders to make the required payments under new comment 
51(a)(1)-6, as discussed above. Comment 51(b)(1)-1 is adopted as 
proposed.
    Proposed comment 51(b)(2)-1 provided that the requirement under 
Sec.  226.51(b)(2) that a cosigner, guarantor, or joint accountholder 
for a credit card account opened pursuant to Sec.  226.51(b)(1)(ii) 
must agree in writing to assume liability for a credit line increase 
does not apply if the cosigner, guarantor or joint accountholder who is 
at least 21 years old requests the increase. Because the party that 
must approve the increase is the one that is requesting the increase in 
this situation, the Board believed that Sec.  226.51(b)(2) would be 
redundant. An industry commenter requested the Board clarify situations 
in which this applies. For example, the commenter requested

[[Page 7724]]

whether comment 51(b)(2)-1 would apply if a consumer under the age of 
21 requests the credit line increase over the telephone, but 
subsequently passes the telephone to the cosigner, guarantor, or joint 
accountholder who is at least 21 years old to make the request after 
being told that they are not sufficiently old enough to do so. The 
Board believes this approach will be tantamount to an oral approval and 
would circumvent the protections of Sec.  226.51(b)(2). Consequently, 
the Board is modifying the proposed comment to clarify that it must be 
the cosigner, guarantor, or joint accountholder who is at least 21 
years old who initiates the request to increase the credit line.

Section 226.52 Limitations on Fees

52(a) Limitations During First Year After Account Opening
    New TILA Section 127(n)(1) applies ``[i]f the terms of a credit 
card account under an open end consumer credit plan require the payment 
of any fees (other than any late fee, over-the-limit fee, or fee for a 
payment returned for insufficient funds) by the consumer in the first 
year during which the account is opened in an aggregate amount in 
excess of 25 percent of the total amount of credit authorized under the 
account when the account is opened.'' 15 U.S.C. 1637(n)(1). If the 25 
percent threshold is met, then ``no payment of any fees (other than any 
late fee, over-the-limit fee, or fee for a payment returned for 
insufficient funds) may be made from the credit made available under 
the terms of the account.'' However, new TILA Section 127(n)(2) 
provides that Section 127(n) may not be construed as authorizing any 
imposition or payment of advance fees prohibited by any other provision 
of law. The Board proposed to implement new TILA Section 127(n) in 
Sec.  226.52(a).\31\
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    \31\ In a separate rulemaking, the Board will implement new TILA 
Section 149 in Sec.  226.52(b). New TILA Section 149, which is 
effective August 22, 2010, requires that credit card penalty fees 
and charges be reasonable and proportional to the consumer's 
violation of the cardholder agreement.
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    Subprime credit cards often charge substantial fees at account 
opening and during the first year after the account is opened. For 
example, these cards may impose multiple one-time fees when the 
consumer opens the account (such as an application fee, a program fee, 
and an annual fee) as well as a monthly maintenance fee, fees for using 
the account for certain types of transactions, and fees for increasing 
the credit limit. The account-opening fees are often billed to the 
consumer on the first periodic statement, substantially reducing from 
the outset the amount of credit that the consumer has available to make 
purchases or other transactions on the account. For example, some 
subprime credit card issuers assess $250 in fees at account opening on 
accounts with credit limits of $300, leaving the consumer with only $50 
of available credit with which to make purchases or other transactions. 
In addition, the consumer may pay interest on the fees until they are 
paid in full.
    Because of concerns that some consumers were not aware of how fees 
would affect their ability to use the card for its intended purpose of 
engaging in transactions, the Board's January 2009 Regulation Z Rule 
enhanced the disclosure requirements for these types of fees and 
clarified the circumstances under which a consumer who has been 
notified of the fees in the account-opening disclosures (but has not 
yet used the account or paid a fee) may reject the plan and not be 
obligated to pay the fees. See Sec.  226.5(b)(1)(iv), 74 FR 5402; Sec.  
226.5a(b)(14), 74 FR 5404; Sec.  226.6(b)(1)(xiii), 74 FR 5408. In 
addition, because the Board and the other Agencies were concerned that 
disclosure alone was insufficient to protect consumers from unfair 
practices regarding high-fee subprime credit cards, the January 2009 
FTC Act Rule prohibited institutions from charging certain types of 
fees during the first year after account opening that, in the 
aggregate, constituted the majority of the credit limit. In addition, 
these fees were limited to 25 percent of the initial credit limit in 
the first billing cycle with any additional amount (up to 50 percent) 
spread equally over the next five billing cycles. Finally, institutions 
were prohibited from circumventing these restrictions by providing the 
consumer with a separate credit account for the payment of additional 
fees. See 12 CFR 227.26, 74 FR 5561, 5566; see also 74 FR 5538-5543.
    In the October 2009 Regulation Z Proposal, the Board discussed two 
issues of statutory interpretation related to the implementation of new 
TILA Section 127(n). First, as noted above, new TILA Section 127(n)(1) 
applies when ``the terms of a credit card account * * * require the 
payment of any fees (other than any late fee, over-the-limit fee, or 
fee for a payment returned for insufficient funds) by the consumer in 
the first year during which the account is opened in an aggregate 
amount in excess of 25 percent of the total amount of credit authorized 
under the account when the account is opened.'' (Emphasis added.) In 
the proposal, the Board acknowledged that Congress's use of ``require'' 
could be construed to mean that Section 127(n)(1) applies only to fees 
that are unconditional requirements of the account--in other words, 
fees that all consumers are required to pay regardless of how the 
account is used (such as account-opening fees, annual fees, and monthly 
maintenance fees). However, the Board stated that such a narrow reading 
would be inconsistent with the words ``any fees,'' which indicate that 
Congress intended the provision to apply to a broader range of fees. 
Furthermore, the Board expressed concern that categorically excluding 
fees that are conditional (in other words, fees that consumers are only 
required to pay in certain circumstances) would enable card issuers to 
circumvent the 25 percent limit by, for example, requiring consumers to 
pay fees in order to receive a particular credit limit or to use the 
account for purchases or other transactions. Finally, the Board noted 
that new TILA Section 127(n)(1) specifically excludes three fees that 
are conditional (late payment fees, over-the-limit fees, and fees for a 
payment returned for insufficient funds), which suggests that Congress 
otherwise intended Section 127(n)(1) to apply to fees that a consumer 
is required to pay only in certain circumstances (such as fees for 
other violations of the account terms or fees for using the account for 
transactions). In other words, if Congress had intended Section 
127(n)(1) to apply only to fees that are unconditional requirements of 
the account, there would have been no need to specifically exclude 
conditional fees such as late payment fees. For these reasons, the 
Board concluded that the best interpretation of new TILA Section 
127(n)(1) was to apply the 25 percent limitation to any fee that a 
consumer is required to pay with respect to the account (unless 
expressly excluded), even if the requirement only applies in certain 
circumstances.
    Consumer group commenters strongly supported this interpretation of 
new TILA Section 127(n)(1), while industry commenters strongly 
disagreed. In particular, institutions that do not issue subprime cards 
argued that Congress intended Section 127(n) to apply only to fees 
imposed on subprime cards with low credit limits and that it would be 
unduly burdensome to require issuers of credit card products with 
higher limits to comply. However, while new TILA Section 127(n) is 
titled ``Standards Applicable to Initial Issuance of Subprime or `Fee 
Harvester' Cards,'' nothing in the statutory text limits its 
application to a particular type of credit card. Instead, for the 
reasons discussed above, it appears that Congress intended

[[Page 7725]]

Section 127(n) to apply to a broad range of fees regardless of the type 
of credit card account. Although the practice of charging fees that 
represent a high percentage of the credit limit is generally limited to 
subprime cards at present, it appears that Congress intended Section 
127(n) to prevent this practice from spreading to other types of credit 
card products. Accordingly, although the Board understands that 
complying with Section 127(n) may impose a significant burden on card 
issuers, the Board does not believe that this burden warrants a 
different interpretation of Section 127(n).
    Second, in the proposal, the Board interpreted new TILA Section 
127(n)(1), which provides that, if the 25 percent threshold is met, 
``no payment of any fees (other than any late fee, over-the-limit fee, 
or fee for a payment returned for insufficient funds) may be made from 
the credit made available under the terms of the account.'' The Board 
stated that, although this language could be read to require card 
issuers to determine at account opening the total amount of fees that 
will be charged during the first year, this did not appear to be 
Congress's intent because the total amount of fees charged during the 
first year will depend on how the account is used. For example, most 
card issuers currently require consumers who use a credit card account 
for cash advances, balance transfers, or foreign transactions to pay a 
fee that is equal to a percentage of the transaction. Thus, the total 
amount of fees charged during the first year will depend on, among 
other things, the number and amount of cash advances, balance 
transfers, or foreign transactions. Accordingly, the Board interpreted 
Section 127(n)(1) to limit the fees charged to a credit card account 
during the first year to 25 percent of the initial credit limit and to 
prevent card issuers from collecting additional fees by other means 
(such as directly from the consumer or by providing a separate credit 
account). The Board did not receive significant comment on this 
interpretation, which is adopted in the final rule.
    Accordingly, in order to effectuate this purpose and to facilitate 
compliance, the Board uses its authority under TILA Section 105(a) to 
implement new TILA Section 127(n) as set forth below.
52(a)(1) General Rule
    Proposed Sec.  226.52(a)(1)(i) provided that, if a card issuer 
charges any fees to a credit card account under an open-end (not home-
secured) consumer credit plan during the first year after account 
opening, those fees must not in total constitute more than 25 percent 
of the credit limit in effect when the account is opened. Furthermore, 
in order to prevent card issuers from circumventing proposed Sec.  
226.52(a)(1)(i), proposed Sec.  226.52(a)(1)(ii) provided that a card 
issuer that charges fees to the account during the first year after 
account opening must not require the consumer to pay any fees in excess 
of the 25 percent limit with respect to the account during the first 
year.
    Commenters generally supported the proposed rule. However, a 
federal banking agency requested that the Board clarify the proposed 
rule, expressing concern that, as proposed, Sec.  226.52(a)(1) could be 
construed to authorize card issuers to require consumers to pay an 
unlimited amount of fees so long as the total amount of fees charged to 
the account did not equal the 25 percent limit. This was not the 
Board's intent, nor does the Board believe that the proposed rule 
supports such an interpretation. Nevertheless, in order to avoid any 
potential uncertainty, the Board has revised Sec.  226.52(a)(1) to 
provide that, if a card issuer charges any fees to a credit card 
account under an open-end (not home-secured) consumer credit plan 
during the first year after the account is opened, the total amount of 
fees the consumer is required to pay with respect to the account during 
that year must not exceed 25 percent of the credit limit in effect when 
the account is opened.
    The Board has also reorganized and revised the proposed commentary 
for consistency with the revisions to Sec.  226.52(a)(1). Comment 
52(a)(1)-1 clarifies that Sec.  226.52(a)(1) applies if a card issuer 
charges any fees to a credit card account during the first year after 
the account is opened (unless the fees are specifically exempted by 
Sec.  226.52(a)(2)). Thus, if a card issuer charges a non-exempt fee to 
the account during the first year after account opening, Sec.  
226.52(a)(1) provides that the total amount of non-exempt fees the 
consumer is required to pay with respect to the account during the 
first year cannot exceed 25 percent of the credit limit in effect when 
the account is opened. The comment further clarifies that this 25 
percent limit applies to fees that the card issuer charges to the 
account as well as to fees that the card issuer requires the consumer 
to pay with respect to the account through other means (such as through 
a payment from the consumer to the card issuer or from another credit 
account provided by the card issuer). The comment also provides 
illustrative examples of the application of Sec.  226.52(a), including 
the examples previously provided in proposed comments 52(a)(1)(i)-1 and 
52(a)(1)(ii)-1.
    Proposed comment 52(a)(1)(i)-2 clarified that a card issuer that 
charges a fee to a credit card account that exceeds the 25 percent 
limit could comply with Sec.  226.52(a)(1) by waiving or removing the 
fee and any associated interest charges or crediting the account for an 
amount equal to the fee and any associated interest charges at the end 
of the billing cycle during which the fee was charged. Thus, if a card 
issuer's systems automatically assess a fee based on certain account 
activity (such as automatically assessing a cash advance fee when the 
account is used for a cash advance) and, as a result, the total amount 
of fees subject to Sec.  226.52(a) that have been charged to the 
account during the first year exceeds the 25 percent limit, the card 
issuer could comply with Sec.  226.52(a)(1) by removing the fee and any 
interest charged on that fee at the end of the billing cycle.
    Some industry commenters expressed concern that, because fees are 
totaled at the end of the billing cycle, there would be circumstances 
in which their systems would not be able to identify a fee that exceeds 
the 25 percent limit in time to correct the account before the billing 
cycle ends (such as when the fee was charged late in the cycle). The 
Board is concerned that providing additional time will result in fees 
that exceed the 25 percent limit appearing on consumer's periodic 
statements. However, in order to facilitate compliance, the Board has 
revised the proposed comment to require card issuers to waive or remove 
the excess fee and any associated interest charges within a reasonable 
amount of time but no later than the end of the billing cycle following 
the billing cycle during which the fee was charged. For organizational 
purposes, the Board has also redesignated this comment as 52(a)(1)-2.
    Proposed comment 52(a)(1)(i)-3 clarified that, because the 
limitation in Sec.  226.52(a)(1) is based on the credit limit in effect 
when the account is opened, a subsequent increase in the credit limit 
during the first year does not permit the card issuer to charge to the 
account additional fees that would otherwise be prohibited (such as a 
fee for increasing the credit limit). An illustrative example was 
provided. For organizational purposes, this comment has been 
redesignated as 52(a)(1)-3.
    In addition, in response to comments from consumer groups, the 
Board has also provided guidance regarding decreases in credit limits 
during the first year after account opening. Consumer

[[Page 7726]]

groups expressed concern that card issuers could evade the 25 percent 
limitation by, for example, providing a $500 credit limit and charging 
$125 in fees for the issuance or availability of credit at account 
opening and then quickly reducing the limit to $200, leaving the 
consumer with only $75 of available credit. Although there are 
legitimate reasons for reducing a credit limit during the first year 
after account opening (such as concerns about fraud), the Board 
believes that, in these circumstances, it would be inconsistent with 
the intent of new TILA Section 127(n) to require the consumer to pay 
(or to allow the issuer to retain) any fees that exceed 25 percent of 
the reduced limit. Accordingly, proposed comment 52(a)(1)-3 clarifies 
that, if a card issuer decreases the credit limit during the first year 
after the account is opened, Sec.  226.52(a)(1) requires the card 
issuer to waive or remove any fees charged to the account that exceed 
25 percent of the reduced credit limit or to credit the account for an 
amount equal to any fees the consumer was required to pay with respect 
to the account that exceed 25 percent of the reduced credit limit 
within a reasonable amount of time but no later than the end of the 
billing cycle following the billing cycle during which the fee was 
charged. An example is provided.
52(a)(2) Fees Not Subject to Limitations
    Section 226.52(a)(2)(i) implements the exception in new TILA 
Section 127(n)(1) for late payment fees, over-the-limit fees, and fees 
for payments returned for insufficient funds. However, pursuant to the 
Board's authority under TILA Section 105(a), Sec.  226.52(a)(2)(i) 
applies to all fees for returned payments because a payment may be 
returned for reasons other than insufficient funds (such as because the 
account on which the payment is drawn has been closed or because the 
consumer has instructed the institution holding that account not to 
honor the payment). The Board did not receive significant comment on 
Sec.  226.52(a)(2)(i), which is adopted as proposed.
    As discussed above, new TILA Section 127(n)(1) applies to fees that 
a consumer is required to pay with respect to a credit card account. 
Accordingly, proposed Sec.  226.52(a)(2)(ii) would have created an 
exception to Sec.  226.52(a) for fees that a consumer is not required 
to pay with respect to the account. The proposed commentary to Sec.  
226.52(a) illustrated the distinction between fees the consumer is 
required to pay and those the consumer is not required to pay. Proposed 
comment 52(a)(2)-1 clarified that, except as provided in Sec.  
226.52(a)(2), the limitations in Sec.  226.52(a)(1) apply to any fees 
that a card issuer will or may require the consumer to pay with respect 
to a credit card account during the first year after account opening. 
The proposed comment listed several types of fees as examples of fees 
covered by Sec.  226.52(a). First, fees that the consumer is required 
to pay for the issuance or availability of credit described in Sec.  
226.5a(b)(2), including any fee based on account activity or inactivity 
and any fee that a consumer is required to pay in order to receive a 
particular credit limit. Second, fees for insurance described in Sec.  
226.4(b)(7) or debt cancellation or debt suspension coverage described 
in Sec.  226.4(b)(10) written in connection with a credit transaction, 
if the insurance or debt cancellation or debt suspension coverage is 
required by the terms of the account. Third, fees that the consumer is 
required to pay in order to engage in transactions using the account 
(such as cash advance fees, balance transfer fees, foreign transaction 
fees, and other fees for using the account for purchases). And fourth, 
fees that the consumer is required to pay for violating the terms of 
the account (except to the extent specifically excluded by Sec.  
226.52(a)(2)(i)).
    Proposed comment 52(a)(2)-2 provided as examples of fees that 
generally fall within the exception in Sec.  226.52(a)(2)(ii) fees for 
making an expedited payment (to the extent permitted by Sec.  
226.10(e)), fees for optional services (such as travel insurance), fees 
for reissuing a lost or stolen card, and statement reproduction fees.
    Commenters generally supported proposed Sec.  226.52(a)(2)(ii) and 
proposed comments 52(a)(2)-1 and -2. Although one industry commenter 
suggested that the Board take a broader approach to identifying the 
fees that fall within the exception in Sec.  226.52(a)(2)(ii), the 
Board believes that such an approach would be inconsistent with the 
purposes of TILA Section 127(n). Accordingly, the Board adopts these 
aspects of the proposal.
    Finally, proposed comment 52(a)(2)-3 clarified that a security 
deposit that is charged to a credit card account is a fee for purposes 
of Sec.  226.52(a). However, the comment also clarified that Sec.  
226.52(a) would not prohibit a card issuer from providing a secured 
credit card that requires a consumer to provide a cash collateral 
deposit that is equal to the credit line for the account. Consumer 
group commenters strongly supported this commentary. However, a federal 
banking agency requested that the Board clarify that a security deposit 
is an amount of funds transferred by a consumer to a card issuer at 
account opening that is pledged as security on the account. The Board 
has revised the proposed comment to include similar language. 
Otherwise, comment 52(a)(2)-3 is adopted as proposed.
52(a)(3) Rule of Construction
    New TILA Section 127(n)(2) states that ``[n]o provision of this 
subsection may be construed as authorizing any imposition or payment of 
advance fees otherwise prohibited by any provision of law.'' 15 U.S.C. 
1637(n)(2). The Board proposed to implement this provision in Sec.  
226.52(a)(3). As an example of a provision of law limiting the payment 
of advance fees, proposed comment 52(a)(3)-1 cited 16 CFR 310.4(a)(4), 
which prohibits any telemarketer or seller from ``[r]equesting or 
receiving payment of any fee or consideration in advance of obtaining a 
loan or other extension of credit when the seller or telemarketer has 
guaranteed or represented a high likelihood of success in obtaining or 
arranging a loan or other extension of credit for a person.'' The Board 
did not receive significant comment on either the proposed regulation 
or the proposed commentary, both of which have been adopted as 
proposed.

Section 226.53 Allocation of Payments

    As amended by the Credit Card Act, TILA Section 164(b)(1) provides 
that, ``[u]pon receipt of a payment from a cardholder, the card issuer 
shall apply amounts in excess of the minimum payment amount first to 
the card balance bearing the highest rate of interest, and then to each 
successive balance bearing the next highest rate of interest, until the 
payment is exhausted.'' 15 U.S.C. 1666c(b)(1). However, amended Section 
164(b)(2) provides the following exception to this general rule: ``A 
creditor shall allocate the entire amount paid by the consumer in 
excess of the minimum payment amount to a balance on which interest is 
deferred during the last 2 billing cycles immediately preceding 
expiration of the period during which interest is deferred.'' As 
discussed in detail below, the Board has implemented amended TILA 
Section 164(b) in new Sec.  226.53.
    As an initial matter, however, the Board interprets amended TILA 
Section 164(b) to apply to credit card accounts under an open-end (not 
home-secured) consumer credit plan rather than to all open-end consumer 
credit plans. Although the requirements in amended TILA Section 164(a) 
regarding the

[[Page 7727]]

prompt crediting of payments apply to ``[p]ayments received from [a 
consumer] under an open end consumer credit plan,'' the general payment 
allocation rule in amended TILA Section 164(b)(1) applies ``[u]pon 
receipt of a payment from a cardholder.'' Furthermore, the exception 
for deferred interest plans in amended Section 164(b)(1) requires ``the 
card issuer [to] apply amounts in excess of the minimum payment amount 
first to the card balance bearing the highest rate of interest. * * *'' 
Based on this language, it appears that Congress intended to apply the 
payment allocation requirements in amended Section 164(b) only to 
credit card accounts. This is consistent with the approach taken by the 
Board and the other Agencies in the January 2009 FTC Act Rule. See 74 
FR 5560. Furthermore, the Board is not aware of concerns regarding 
payment allocation with respect to other open-end credit products, 
likely because such products generally do not apply different annual 
percentage rates to different balances. Commenters generally supported 
this aspect of the proposal.
53(a) General Rule
    The Board proposed to implement amended TILA Section 164(b)(1) in 
Sec.  226.53(a), which stated that, except as provided in Sec.  
226.53(b), when a consumer makes a payment in excess of the required 
minimum periodic payment for a credit card account under an open-end 
(not home-secured) consumer credit plan, the card issuer must allocate 
the excess amount first to the balance with the highest annual 
percentage rate and any remaining portion to the other balances in 
descending order based on the applicable annual percentage rate. The 
Board and the other Agencies adopted a similar provision in the January 
2009 FTC Act Rule in response to concerns that card issuers were 
applying consumers' payments in a manner that inappropriately maximized 
interest charges on credit card accounts with balances at different 
annual percentage rates. See 12 CFR 227.23, 74 FR 5512-5520, 5560. 
Specifically, most card issuers currently allocate consumers' payments 
first to the balance with the lowest annual percentage rate, resulting 
in the accrual of interest at higher rates on other balances (unless 
all balances are paid in full). Because many card issuers offer 
different rates for purchases, cash advances, and balance transfers, 
this practice can result in consumers who do not pay the balance in 
full each month incurring higher finance charges than they would under 
any other allocation method.\32\ Commenters generally supported Sec.  
226.53(a), which is adopted as proposed.
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    \32\ For example, assume that a credit card account charges 
annual percentage rates of 12% on purchases and 20% on cash 
advances. Assume also that, in the same billing cycle, the consumer 
uses the account for purchases totaling $3,000 and cash advances 
totaling $300. If the consumer pays $800 in excess of the required 
minimum periodic payment, most card issuers would apply the entire 
excess payment to the purchase balance and the consumer would incur 
interest charges on the more costly cash advance balance. Under 
these circumstances, the consumer is effectively prevented from 
paying off the balance with the higher interest rate (cash advances) 
unless the consumer pays the total balance (purchases and cash 
advances) in full.
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    The Board also proposed comment 53-1, which clarified that Sec.  
226.53 does not limit or otherwise address the card issuer's ability to 
determine, consistent with applicable law and regulatory guidance, the 
amount of the required minimum periodic payment or how that payment is 
allocated. It further clarified that a card issuer may, but is not 
required to, allocate the required minimum periodic payment consistent 
with the requirements in proposed Sec.  226.53 to the extent consistent 
with other applicable law or regulatory guidance. The Board did not 
receive any significant comment on this guidance, which is adopted as 
proposed.
    Comment 53-2 clarified that Sec.  226.53 permits a card issuer to 
allocate an excess payment based on the annual percentage rates and 
balances on the date the preceding billing cycle ends, on the date the 
payment is credited to the account, or on any day in between those two 
dates. Because the rates and balances on an account affect how excess 
payments will be applied, this comment was intended to provide 
flexibility regarding the point in time at which payment allocation 
determinations required by proposed Sec.  226.53 can be made. For 
example, it is possible that, in certain circumstances, the annual 
percentage rates may have changed between the close of a billing cycle 
and the date on which payment for that billing cycle is received.
    Industry commenters generally supported this guidance. However, 
consumer groups opposed it on the grounds that card issuers could 
misuse the flexibility to systematically vary the dates on which 
payments are allocated at the account level in order to generate higher 
interest charges. The Board agrees that such a practice would be 
inconsistent with the intent of comment 53-2. Accordingly, the Board 
has revised this comment to clarify that the day used by the card 
issuer to determine the applicable annual percentage rates and balances 
for purposes of Sec.  226.53 generally must be consistent from billing 
cycle to billing cycle, although the card issuer may adjust this day 
from time to time.
    Proposed comment 53-3 addressed the relationship between the 
dispute rights in Sec.  226.12(c) and the payment allocation 
requirements in proposed Sec.  226.53. This comment clarified that, 
when a consumer has asserted a claim or defense against the card issuer 
pursuant to Sec.  226.12(c), the card issuer must apply the consumer's 
payment in a manner that avoids or minimizes any reduction in the 
amount of that claim or defense. See comment 12(c)-4. Based on comments 
from industry, the Board has revised the proposed comment to clarify 
that the same requirements apply with respect to amounts subject to 
billing error disputes under Sec.  226.13. The Board has also added 
illustrative examples.
    Proposed comment 53-4 addressed circumstances in which the same 
annual percentage rate applies to more than one balance on a credit 
card account but a different rate applies to at least one other balance 
on that account. For example, an account could have a $500 cash advance 
balance at 20%, a $1,000 purchase balance at 15%, and a $2,000 balance 
also at 15% that was previously at a 5% promotional rate. The comment 
clarified that, in these circumstances, Sec.  226.53 generally does not 
require that any particular method be used when allocating among the 
balances with the same rate and that the card issuer may treat the 
balances with the same rate as a single balance or separate 
balances.\33\ The Board did not receive any significant comment on this 
aspect of the guidance, which is adopted as proposed.
---------------------------------------------------------------------------

    \33\ An example of how excess payments could be applied in these 
circumstances is provided in comment 53-5.iv.
---------------------------------------------------------------------------

    However, proposed comment 53-4 also clarified that, when a balance 
on a credit card account is subject to a deferred interest or similar 
program that provides that a consumer will not be obligated to pay 
interest that accrues on the balance if the balance is paid in full 
prior to the expiration of a specified period of time, that balance 
must be treated as a balance with an annual percentage rate of zero for 
purposes of Sec.  226.53 during that period of time rather than a 
balance with the rate at which interest accrues (the accrual rate).\34\ 
In the proposal, the Board noted

[[Page 7728]]

that treating the rate as zero is consistent with the nature of 
deferred interest and similar programs insofar as the consumer will not 
be obligated to pay any accrued interest if the balance is paid in full 
prior to expiration. The Board further noted that this approach ensures 
that excess payments will generally be applied first to balances on 
which interest is being charged, which will generally result in lower 
interest charges if the consumer pays the balance in full prior to 
expiration.
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    \34\ For example, if an account has a $1,000 purchase balance 
and a $2,000 balance that is subject to a deferred interest program 
that expires on July 1 and a 15% annual percentage rate applies to 
both, the balances must be treated as balances with different rates 
for purposes of Sec.  226.53 until July 1. In addition, for purposes 
of allocating pursuant to Sec.  226.53, any amount paid by the 
consumer in excess of the required minimum periodic payment must be 
applied first to the $1,000 purchase balance except during the last 
two billing cycles of the deferred interest period (when it must be 
applied first to any remaining portion of the $2,000 balance). See 
comment 53-5.v.
---------------------------------------------------------------------------

    However, the Board also acknowledged that treating the rate on this 
type of balance as zero could be disadvantageous for consumers in 
certain circumstances. Specifically, the Board noted that, if the rate 
for a deferred interest balance is treated as zero during the deferred 
interest period, consumers who wish to pay off that balance in 
installments over the course of the program would be prevented from 
doing so.
    In response to the proposal, the Board received a number of 
comments from industry and consumer groups raising concerns about 
prohibiting consumers from paying off a deferred interest or similar 
balance in monthly installments. Accordingly, as discussed below, the 
Board has revised Sec.  226.53(b) to address those concerns.
    Finally, proposed comment 53(a)-1 provided examples of allocating 
excess payments consistent with proposed Sec.  226.53. The Board has 
redesignated this comment as 53-5 for organizational purposes and 
revised the examples for consistency with the revisions to Sec.  
226.53(b).\35\
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    \35\ The commentary discussed above is similar to commentary 
adopted by the Board and the other Agencies in the January 2009 FTC 
Act Rule as well as to amendments to that commentary proposed in May 
2009. See 74 FR 5561-5562; 74 FR 20815-20816.
---------------------------------------------------------------------------

53(b) Special Rule for Accounts With Balances Subject to Deferred 
Interest or Similar Programs
    The Board proposed to implement amended TILA Section 164(b)(2) in 
Sec.  226.53(b), which provided that, when a balance on a credit card 
account under an open-end (not home-secured) consumer credit plan is 
subject to a deferred interest or similar program, the card issuer must 
allocate any amount paid by the consumer in excess of the required 
minimum periodic payment first to that balance during the two billing 
cycles immediately preceding expiration of the deferred interest period 
and any remaining portion to any other balances consistent with 
proposed Sec.  226.53(a). See 15 U.S.C. 1666c(b)(2).
    The Board and the other Agencies proposed a similar exception to 
the January 2009 FTC Act Rule's payment allocation provision in the May 
2009 proposed clarifications and amendments. See proposed 12 CFR 
227.23(b), 74 FR 20814. This exception was based on the Agencies' 
concern that, if the deferred interest balance was not the only balance 
on the account, the general payment allocation rule could prevent 
consumers from paying off the deferred interest balance prior to 
expiration of the deferred interest period unless they also paid off 
all other balances on the account.\36\ If the consumer is unaware of 
the need to pay off the entire balance, the consumer would be charged 
interest on the deferred interest balance and thus would not obtain the 
benefits of the deferred interest program. See 74 FR 20807-20808.
---------------------------------------------------------------------------

    \36\ For example, assume that a credit card account has a $2,000 
purchase balance with a 20% annual percentage rate and a $1,000 
balance on which interest accrues at a 15% annual percentage rate, 
but the consumer will not be obligated to pay that interest if that 
balance is paid in full by a specified date. If the general rule in 
Sec.  226.53(a) applied, the consumer would be required to pay 
$3,000 in order to avoid interest charges on the $1,000 balance.
---------------------------------------------------------------------------

    As noted above, comments from industry and consumer groups raised 
concerns that the proposed rule would prohibit consumers who may lack 
the resources to pay off a deferred interest balance in one of the last 
two billing cycles of the deferred interest period from paying that 
balance off in monthly installments over the course of the period. 
These commenters generally urged the Board to permit card issuers to 
allocate payments consistent with a consumer's request when an account 
has a deferred interest or similar balance.
    Because the consumer testing conducted by the Board for the January 
2009 Regulation Z Rule indicated that disclosures do not enable 
consumers to understand sufficiently the effects of payment allocation 
on interest charges, the Board is concerned that permitting card 
issuers to allocate payments based on a consumer's request could create 
a loophole that would undermine the purposes of revised TILA Section 
164(b). For example, consumers who do not understand the effects of 
payment allocation could be misled into selecting an allocation method 
that will generally result in higher interest charges than applying 
payments first to the balance with the highest rate (such as a method 
under which payments are applied first to the oldest unpaid 
transactions on the account). For this reason, the Board does not 
believe that a general exception to Sec.  226.53(a) based on a 
consumer's request is warranted.
    However, in the narrow context of accounts with balances subject to 
deferred interest or similar programs, the Board is persuaded that the 
benefits of providing flexibility for consumers who are able to avoid 
deferred interest charges by paying off a deferred interest balance in 
installments over the course of the deferred interest period outweigh 
the risk that some consumers could make choices that result in higher 
interest charges than would occur under the proposed rule.
    Accordingly, pursuant to its authority under TILA Sec.  105(a) to 
make adjustments and exceptions in order to effectuate the purposes of 
TILA, the Board has revised proposed Sec.  226.53(b) to permit card 
issuers to allocate payments in excess of the minimum consistent with a 
consumer's request when the account has a balance subject to a deferred 
interest or similar program.\37\ Specifically, Sec.  226.52(b)(1) 
provides that, when a balance on a credit card account under an open-
end (not home-secured) consumer credit plan is subject to a deferred 
interest or similar program, the card issuer must allocate any amount 
paid by the consumer in excess of the required minimum periodic payment 
consistent with Sec.  226.53(a) except that, during the two billing 
cycles immediately preceding expiration of the specified period, the 
excess amount must be allocated first to the balance subject to the 
deferred interest or similar program and any remaining portion 
allocated to any other balances consistent with Sec.  226.53(a). In the 
alternative, Sec.  226.53(b)(2) provides that the card issuer may at 
its option allocate any

[[Page 7729]]

amount paid by the consumer in excess of the required minimum periodic 
payment among the balances on the account in the manner requested by 
the consumer.
---------------------------------------------------------------------------

    \37\ Although consumer group commenters urged the Board to 
require (rather than permit) card issuers to allocate consistent 
with a consumer's request, the Board understands that--while some 
card issuers currently have the systems in place to accommodate such 
requests--many do not. The Board further understands that card 
issuers without the ability to allocate payments based on a consumer 
request could not develop the systems to do so prior to February 22, 
2010. Although these issuers could presumably develop the necessary 
systems by some later date, the Board believes that the difficulties 
associated with making informed decisions regarding payment 
allocation are such that a requirement that all issuers develop the 
systems to accommodate consumer requests is not warranted. Instead, 
the Board has revised Sec.  226.53(b) to ensure that card issuers 
that currently accommodate consumer requests can continue to do so.
---------------------------------------------------------------------------

    The Board has revised the proposed commentary to Sec.  226.53(b) 
for consistency with the amendments to Sec.  226.53(b) and for 
organizational purposes. As an initial matter, the Board has 
redesignated proposed comment 53(b)-2 as comment 53(b)-1. Proposed 
comment 53(b)-2 clarified that Sec.  226.53(b) applies to deferred 
interest or similar programs under which the consumer is not obligated 
to pay interest that accrues on a balance if that balance is paid in 
full prior to the expiration of a specified period of time. The 
proposed comment further clarified that a grace period during which any 
credit extended may be repaid without incurring a finance charge due to 
a periodic interest rate is not a deferred interest or similar program 
for purposes of Sec.  226.53(b).\38\ In response to requests for 
guidance from commenters, the Board has revised this comment to clarify 
that Sec.  226.53(b) applies regardless of whether the consumer is 
required to make payments with respect to the balance subject to the 
deferred interest or similar program during the specified period. In 
addition, the Board has revised the comment to clarify that a temporary 
annual percentage rate of zero percent that applies for a specified 
period of time consistent with Sec.  226.55(b)(1) is not a deferred 
interest or similar program for purposes of Sec.  226.53(b) unless the 
consumer may be obligated to pay interest that accrues during the 
period if a balance is not paid in full prior to expiration of the 
period. Finally, in order to ensure consistent treatment of deferred 
interest programs in Regulation Z, the Board has clarified that, for 
purposes of Sec.  226.53, ``deferred interest'' has the same meaning as 
in Sec.  226.16(h)(2) and associated commentary.
---------------------------------------------------------------------------

    \38\ The Board and the other Agencies proposed a similar comment 
in May 2009. See 12 CFR 227.23 proposed comment 23(b)-1, 74 FR 
20816.
---------------------------------------------------------------------------

    For organizational purposes, the Board has redesignated proposed 
comment 53(b)-1 as comment 53(b)-2. Proposed comment 53(b)-1 clarified 
the application of Sec.  226.53(b) in circumstances where the deferred 
interest or similar program expires during a billing cycle (rather than 
at the end of a billing cycle). The comment clarified that, for 
purposes of Sec.  226.53(b), a billing cycle does not constitute one of 
the two billing cycles immediately preceding expiration of a deferred 
interest or similar program if the expiration date for the program 
precedes the payment due date in that billing cycle. An example is 
provided. The Board believes that this interpretation is consistent 
with the purpose of amended TILA Section 164(b)(2) insofar as it 
ensures that, at a minimum, the consumer will receive two complete 
billing cycles to avoid accrued interest charges by paying off a 
balance subject to a deferred interest or similar program. The Board 
did not receive any significant comment on this guidance, which has 
been revised for consistency with the revisions to Sec.  226.53(b).
    The Board has also adopted a new comment 53(b)-3 in order to 
clarify that Sec.  226.53(b) does not require a card issuer to allocate 
amounts paid by the consumer in excess of the required minimum periodic 
payment in the manner requested by the consumer, provided that the card 
issuer instead allocates such amounts consistent with Sec.  
226.53(b)(1). For example, a card issuer may decline consumer requests 
regarding payment allocation as a general matter or may decline such 
requests when a consumer does not comply with requirements set by the 
card issuer (such as submitting the request in writing or submitting 
the request prior to or contemporaneously with submission of the 
payment), provided that amounts paid by the consumer in excess of the 
required minimum periodic payment are allocated consistent with Sec.  
226.53(b)(1). Similarly, a card issuer that accepts requests pursuant 
to Sec.  226.53(b)(2) generally must allocate amounts paid by a 
consumer in excess of the required minimum periodic payment consistent 
with Sec.  226.53(b)(1) if the consumer does not submit a request or 
submits a request with which the card issuer cannot comply (such as a 
request that contains a mathematical error).
    Comment 53(b)-3 also provides illustrative examples of what does 
and does not constitute a consumer request for purposes of Sec.  
226.53(b)(2). In particular, the comment clarifies that a consumer has 
made a request for purposes of Sec.  226.53(b)(2) if the consumer 
contacts the card issuer and specifically requests that a payment or 
payments be allocated in a particular manner during the period of time 
that the deferred interest or similar program applies to a balance on 
the account. Similarly, a consumer has made a request for purposes of 
Sec.  226.53(b)(2) if the consumer completes a form or payment coupon 
provided by the card issuer for the purpose of requesting that a 
payment or payments be allocated in a particular manner and submits 
that form to the card issuer. Finally, a consumer has made a request 
for purposes of Sec.  226.53(b)(2) if the consumer contacts a card 
issuer and specifically requests that a payment that the card issuer 
has previously allocated consistent with Sec.  226.53(b)(1) instead be 
allocated in a different manner.
    In contrast, the comment clarifies that a consumer has not made a 
request for purposes of Sec.  226.53(b)(2) if the terms and conditions 
of the account agreement contain preprinted language stating that by 
applying to open an account or by using that account for transactions 
subject to a deferred interest or similar program the consumer requests 
that payments be allocated in a particular manner. Similarly, a 
consumer has not made a request for purposes of Sec.  226.53(b)(2) if 
the card issuer's on-line application contains a preselected check box 
indicating that the consumer requests that payments be allocated in a 
particular manner and the consumer does not deselect the box.\39\
---------------------------------------------------------------------------

    \39\ These examples are similar to examples adopted by the Board 
with respect to the affiliate marketing provisions of the Fair 
Credit Reporting Act. See 12 CFR 222.21(d)(4)(iii) and (iv).
---------------------------------------------------------------------------

    In addition, a consumer has not made a request for purposes of 
Sec.  226.53(b)(2) if the payment coupon provided by the card issuer 
contains preprinted language or a preselected check box stating that by 
submitting a payment the consumer requests that the payment be 
allocated in a particular manner. Furthermore, a consumer has not made 
a request for purposes of Sec.  226.53(b)(2) if the card issuer 
requires a consumer to accept a particular payment allocation method as 
a condition of using a deferred interest or similar program, making a 
payment, or receiving account services or features.

Section 226.54 Limitations on the Imposition of Finance Charges

    The Credit Card Act creates a new TILA Section 127(j), which 
applies when a consumer loses any time period provided by the creditor 
with respect to a credit card account within which the consumer may 
repay any portion of the credit extended without incurring a finance 
charge (i.e., a grace period). 15 U.S.C. 1637(j). In these 
circumstances, new TILA Section 127(j)(1)(A) prohibits the creditor 
from imposing a finance charge with respect to any balances for days in 
billing cycles that precede the most recent billing cycle (a practice 
that is sometimes referred to as ``two-cycle'' or ``double-cycle'' 
billing). Furthermore, in these circumstances, Section 127(j)(1)(B) 
prohibits the creditor from imposing a finance charge with respect to 
any balances or portions thereof in

[[Page 7730]]

the current billing cycle that were repaid within the grace period. 
However, Section 127(j)(2) provides that these prohibitions do not 
apply to any adjustment to a finance charge as a result of the 
resolution of a dispute or the return of a payment for insufficient 
funds. As discussed below, the Board is implementing new TILA Section 
127(j) in Sec.  226.54.
54(a) Limitations on Imposing Finance Charges as a Result of the Loss 
of a Grace Period
54(a)(1) General Rule
Prohibition on Two-Cycle Billing
    As noted above, new TILA Section 127(j)(1)(A) prohibits the balance 
computation method sometimes referred to as ``two-cycle billing'' or 
``double-cycle billing.'' The January 2009 FTC Act Rule contained a 
similar prohibition. See 12 CFR 227.25, 74 FR 5560-5561; see also 74 FR 
5535-5538. The two-cycle balance computation method has several 
permutations but, generally speaking, a card issuer using the two-cycle 
method assesses interest not only on the balance for the current 
billing cycle but also on balances on days in the preceding billing 
cycle. This method generally does not result in additional finance 
charges for a consumer who consistently carries a balance from month to 
month (and therefore does not receive a grace period) because interest 
is always accruing on the balance. Nor does the two-cycle method affect 
consumers who pay their balance in full within the grace period every 
month because interest is not imposed on their balances. The two-cycle 
method does, however, result in greater interest charges for consumers 
who pay their balance in full one month (and therefore generally 
qualify for a grace period) but not the next month (and therefore 
generally lose the grace period).
    The following example illustrates how the two-cycle method results 
in higher costs for these consumers than other balance computation 
methods: Assume that the billing cycle on a credit card account starts 
on the first day of the month and ends on the last day of the month. 
The payment due date for the account is the twenty-fifth day of the 
month. Under the terms of the account, the consumer will not be charged 
interest on purchases if the balance at the end of a billing cycle is 
paid in full by the following payment due date (in other words, the 
consumer receives a grace period). The consumer uses the credit card to 
make a $500 purchase on March 15. The consumer pays the balance for the 
February billing cycle in full on March 25. At the end of the March 
billing cycle (March 31), the consumer's balance consists only of the 
$500 purchase and the consumer will not be charged interest on that 
balance if it is paid in full by the following due date (April 25). The 
consumer pays $400 on April 25, leaving a $100 balance. Because the 
consumer did not pay the balance for the March billing cycle in full on 
April 25, the consumer would lose the grace period and most card 
issuers would charge interest on the $500 purchase from the start of 
the April billing cycle (April 1) through April 24 and interest on the 
remaining $100 from April 25 through the end of the April billing cycle 
(April 30). Card issuers using the two-cycle method, however, would 
also charge interest on the $500 purchase from the date of purchase 
(March 15) to the end of the March billing cycle (March 31).
    In the October 2009 Regulation Z Proposal, the Board proposed to 
implement new TILA Section 127(j)(1)(A)'s prohibition on two-cycle 
billing in Sec.  226.54(a)(1)(i), which states that, except as provided 
in proposed Sec.  226.54(b), a card issuer must not impose finance 
charges as a result of the loss of a grace period on a credit card 
account if those finance charges are based on balances for days in 
billing cycles that precede the most recent billing cycle. The Board 
also proposed to adopt Sec.  226.54(a)(2), which would define ``grace 
period'' for purposes of Sec.  226.54(a)(1) as having the same meaning 
as in Sec.  226.5(b)(2)(ii).\40\ Finally, proposed comment 54(a)(1)-4 
explained that Sec.  226.54(a)(1)(i) prohibits use of the two-cycle 
average daily balance computation method.
---------------------------------------------------------------------------

    \40\ Section 226.5(b)(2)(ii) was amended by the July 2009 
Regulation Z Interim Final Rule to define ``grace period'' as a 
period within which any credit extended may be repaid without 
incurring a finance charge due to a periodic interest rate. 74 FR 
36094. As discussed above, the Board has revised Sec.  
226.5(b)(2)(ii) by, among other things, moving the definition of 
grace period to Sec.  226.5(b)(2)(ii)(B). Accordingly, the Board has 
also made a corresponding revision to Sec.  226.54(a)(2).
---------------------------------------------------------------------------

    The Board did not receive significant comment on this proposed 
regulation and commentary. Accordingly, they are adopted as proposed.
Partial Grace Period Requirement
    As discussed above, many credit card issuers that provide a grace 
period currently require the consumer to pay off the entire balance on 
the account or the entire balance subject to the grace period before 
the period expires. However, new TILA Section 127(j)(1)(B) limits this 
practice. Specifically, Section 127(j)(1)(B) provides that a creditor 
may not impose any finance charge on a credit card account as a result 
of the loss of any time period provided by the creditor within which 
the consumer may repay any portion of the credit extended without 
incurring a finance charge with respect to any balances or portions 
thereof in the current billing cycle that were repaid within such time 
period. The Board proposed to implement this prohibition in Sec.  
226.54(a)(1)(ii), which states that, except as provided in Sec.  
226.54(b), a card issuer must not impose finance charges as a result of 
the loss of a grace period on a credit card account if those finance 
charges are based on any portion of a balance subject to a grace period 
that was repaid prior to the expiration of the grace period. The Board 
did not receive significant comment on Sec.  226.54(a)(1)(ii), which is 
adopted as proposed.
    The Board also proposed comment 54(a)(1)-5, which clarified that 
card issuers are not required to use a particular method to comply with 
Sec.  226.54(a)(1)(ii) but provided an example of a method that is 
consistent with the requirements of Sec.  226.54(a)(1)(ii). 
Specifically, it stated that a card issuer can comply with the 
requirements of Sec.  226.54(a)(1)(ii) by applying the consumer's 
payment to the balance subject to the grace period at the end of the 
prior billing cycle (in a manner consistent with the payment allocation 
requirements in Sec.  226.53) and then calculating interest charges 
based on the amount of that balance that remains unpaid. An example of 
the application of this method is provided in comment 54(a)(1)-6 along 
with other examples of the application of Sec.  226.54(a)(1)(i) and 
(ii). For the reasons discussed below, the Board has revised comments 
54(a)(1)-5 and -6 to clarify the circumstances in which Sec.  226.54 
applies. Otherwise, these comments are adopted as proposed.
    In addition to the commentary clarifying the specific prohibitions 
in Sec.  226.54(a)(1)(i) and (ii), the Board also proposed to adopt 
three comments clarifying the general scope and applicability of Sec.  
226.54. First, proposed comment 54(a)(1)-1 clarified that Sec.  226.54 
does not require the card issuer to provide a grace period or prohibit 
a card issuer from placing limitations and conditions on a grace period 
to the extent consistent with Sec.  226.54. Currently, neither TILA nor 
Regulation Z requires a card issuer to provide a grace period. 
Nevertheless, for competitive and other reasons, many credit card 
issuers choose to do so, subject to certain limitations and conditions. 
For example, credit card grace periods generally apply to

[[Page 7731]]

purchases but not to other types of transactions (such as cash 
advances). In addition, as noted above, card issuers that provide a 
grace period generally require the consumer to pay off all balances on 
the account or the entire balance subject to the grace period before 
the period expires.
    Although new TILA Section 127(j) prohibits the imposition of 
finance charges as a result of the loss of a grace period in certain 
circumstances, the Board does not interpret this provision to mandate 
that card issuers provide such a period or to limit card issuers' 
ability to place limitations and conditions on a grace period to the 
extent consistent with the statute. Instead, Section 127(j)(1) refers 
to ``any time provided by the creditor within which the [consumer] may 
repay any portion of the credit extended without incurring a finance 
charge.'' This language indicates that card issuers retain the ability 
to determine when and under what conditions to provide a grace period 
on a credit card account so long as card issuers that choose to provide 
a grace period do so consistent with the requirements of new TILA 
Section 127(j). Commenters generally supported this interpretation, 
which the Board has adopted in this final rule.
    The Board also proposed to adopt comment 54(a)(1)-2, which 
clarified that Sec.  226.54 does not prohibit the card issuer from 
charging accrued interest at the expiration of a deferred interest or 
similar promotional program. Specifically, the comment stated that, 
when a card issuer offers a deferred interest or similar promotional 
program, Sec.  226.54 does not prohibit the card issuer from charging 
accrued interest to the account if the balance is not paid in full 
prior to expiration of the period (consistent with Sec.  226.55 and 
other applicable law and regulatory guidance). A contrary 
interpretation of proposed Sec.  226.54 (and new TILA Section 127(j)) 
would effectively eliminate deferred interest and similar programs as 
they are currently constituted by prohibiting the card issuer from 
charging any interest based on any portion of the deferred interest 
balance that is paid during the deferred interest period. However, as 
discussed above with respect to proposed Sec.  226.53, the Credit Card 
Act's revisions to TILA Section 164 specifically create an exception to 
the general rule governing payment allocation for deferred interest 
programs, which indicates that Congress did not intend to ban such 
programs. See Credit Card Act Sec.  104(1) (revised TILA Section 
164(b)(2)).
    Comments from credit card issuers, retailers, and industry groups 
strongly supported this interpretation. However, consumer group 
commenters argued that new TILA Section 127(j) should be interpreted to 
prohibit the interest charges on amounts paid within a deferred 
interest and similar period. For the reasons discussed above, the Board 
believes that such a prohibition would be inconsistent with Congress' 
intent. Accordingly, the Board adopts the interpretation in proposed 
comment 54(a)(1)-2.
    In response to requests for clarification from industry commenters, 
the Board has also made a number of revisions to comments 54(a)(1)-1 
and -2 in order to clarify the circumstances in which Sec.  226.54 
applies. As discussed below, these clarifications are intended to 
preserve current industry practices with respect to grace periods and 
the waiver of trailing or residual interest that are generally 
beneficial to consumers. First, the Board has generally revised the 
commentary to clarify that a card issuer is permitted to condition 
eligibility for the grace period on the payment of certain transactions 
or balances within the specified period, rather than requiring 
consumers to pay in full all transactions or balances on the account 
within that period. The Board understands that, for example, some card 
issuers permit a consumer to retain a grace period on purchases by 
paying the purchase balance in full, even if other balances (such as 
balances subject to promotional rates or deferred interest programs) 
are not paid in full. Insofar as this practice enables consumers to 
avoid interest charges on purchases without paying the entire account 
balance in full, it appears to be advantageous for consumers.
    Second, the Board has revised comment 54(a)(1)-1 to clarify that 
Sec.  226.54 does not limit the imposition of finance charges with 
respect to a transaction when the consumer is not eligible for a grace 
period on that transaction at the end of the billing cycle in which the 
transaction occurred. This clarification is intended to preserve a 
grace period eligibility requirement used by some card issuers that is 
more favorable to consumers than the requirement used by other issuers. 
Specifically, the Board understands that, while most credit card 
issuers only require consumers to pay the relevant balance in full in 
one billing cycle in order to be eligible for the grace period, some 
issuers require consumers to pay in full for two consecutive cycles. 
While either requirement is permissible under Sec.  226.54,\41\ the 
less restrictive requirement appears to be more beneficial to 
consumers.
---------------------------------------------------------------------------

    \41\ Consumer group commenters argued that the Board should 
prohibit the more restrictive eligibility requirement. However, as 
discussed above, it does not appear that Congress intended to limit 
card issuers' ability to place conditions on grace period 
eligibility.
---------------------------------------------------------------------------

    However, many industry commenters expressed concern that, under the 
less restrictive requirement, a consumer could be considered eligible 
for a grace period in every billing cycle--and therefore Sec.  226.54 
would apply--regardless of whether the consumer had ever paid the 
relevant balance in full in a previous cycle. Because new TILA Section 
127(j) does not mandate provision of a grace period, the Board believes 
that interpreting Sec.  226.54 as applying in every billing cycle 
regardless of whether the consumer paid the previous cycle's balance in 
full would be inconsistent with Congress' intent. Furthermore, although 
this interpretation could be advantageous for consumers if card issuers 
retained the less restrictive eligibility requirement, the Board is 
concerned that card issuers would instead convert to the more 
restrictive approach, which would ultimately harm consumers. 
Accordingly, the Board has revised the commentary to clarify that a 
card issuer that employs the less restrictive eligibility requirement 
is not subject to Sec.  226.54 unless the relevant balance for the 
prior billing cycle has been paid in full before the beginning of the 
current cycle. The Board has also added illustrative examples to 
comment 54(a)(1)-1.
    Third, the Board has revised comment 54(a)(1)-2 to clarify that the 
practice of waiving or rebating finance charges on an individualized 
basis (such as in response to a consumer's request) and the practice of 
waiving or rebating trailing or residual interest do not constitute 
provision of a grace period for purposes of Sec.  226.54. The Board 
believes that these practices are generally beneficial to consumers. In 
particular, the Board understands that, when a consumer is not eligible 
for a grace period at the start of a billing cycle, many card issuers 
waive interest that accrues during that billing cycle if the consumer 
pays the relevant balance in full by the payment due date. For reasons 
similar to those discussed above, industry commenters expressed concern 
that waiving interest in these circumstances could be construed as 
providing a grace period regardless of whether the relevant balance for 
the prior cycle was paid in full. Accordingly, the revisions to comment 
54(a)(1)-2 are intended to encourage issuers to continue waiving or 
rebating

[[Page 7732]]

interest charges in these circumstances. Illustrative examples are 
provided.
    However, consumer group commenters also raised concerns about an 
emerging practice of establishing interest waiver or rebate programs 
that are similar in many respects to grace periods. Under these 
programs, all interest accrued on purchases will be waived or rebated 
if the purchase balance at the end of the billing cycle during which 
the purchases occurred is paid in full by the following payment due 
date. The Board is concerned that these programs may be structured to 
avoid the requirements of new TILA Section 127(j) and Sec.  226.54 
(particularly the prohibition on imposing finance charges on amounts 
paid during a grace period). Accordingly, pursuant to its authority 
under TILA Section 105(a) to prevent evasion, the Board clarifies in 
comment 54(a)(1)-2 that this type of program is subject to the 
requirements of Sec.  226.54. An illustrative example is provided.
    Finally, proposed comment 54(a)(1)-3 clarified that card issuers 
must comply with the payment allocation requirements in Sec.  226.53 
even if doing so will result in the loss of a grace period. For 
example, as illustrated in comment 54(a)(1)-6.ii, a card issuer must 
generally allocate a payment in excess of the required minimum periodic 
payment to a cash advance balance with a 25% rate before a purchase 
balance with a 15% rate even if this will result in the loss of a grace 
period on the purchase balance. Although there could be a narrow set of 
circumstances in which--depending on the size of the balances and the 
amount of the difference between the rates--this allocation would 
result in higher interest charges than if the excess payment were 
applied in a way that preserved the grace period, Congress did not 
create an exception for these circumstances in the provisions of the 
Credit Card Act specifically addressing payment allocation.
    Consumer group commenters argued that credit card issuers should be 
required to allocate payments in a manner that preserves the grace 
period. However, the Board is not persuaded that, as a general matter, 
this approach would necessarily be more advantageous for consumers than 
paying down the balance with the highest annual percentage rate. 
Furthermore, the payment allocation requirements in revised TILA 
Section 164(b) are mandatory in all circumstances, whereas the 
limitations on the imposition of finance charges in new TILA Section 
127(j) apply only when the card issuer chooses to provide a grace 
period. Therefore, in circumstances where, for example, a card issuer 
must choose between allocating a payment to the balance with the 
highest rate (which the Credit Card Act requires) or preserving a grace 
period (which the Credit Card Act does not require), the Board believes 
it is appropriate that the payment allocation requirements control. 
Accordingly, comment 54(a)(1)-3 is adopted as proposed.
54(b) Exceptions
    New TILA Section 127(j)(2) provides that the prohibitions in 
Section 127(j)(1) do not apply to any adjustment to a finance charge as 
a result of resolution of a dispute or as a result of the return of a 
payment for insufficient funds. The Board proposed to implement these 
exceptions in Sec.  226.54(b).
    The Board interpreted the exception for the ``resolution of a 
dispute'' in new TILA Section 127(j)(2)(A) to apply when the dispute is 
resolved pursuant to TILA's dispute resolution procedures. Accordingly, 
proposed Sec.  226.54(b)(1) permitted adjustments to finance charges 
when a dispute is resolved under Sec.  226.12 (which governs the right 
of a cardholder to assert claims or defenses against the card issuer) 
or Sec.  226.13 (which governs resolution of billing errors).
    In addition, because a payment may be returned for reasons other 
than insufficient funds (such as because the account on which the 
payment is drawn has been closed or because the consumer has instructed 
the institution holding that account not to honor the payment), the 
Board proposed to use its authority under TILA Section 105(a) to apply 
the exception in new TILA Section 127(j)(2)(B) to all circumstances in 
which adjustments to finance charges are made as a result of the return 
of a payment.
    The Board did not receive significant comment on this aspect of the 
proposal. Accordingly, Sec.  226.54(b) is adopted as proposed.

Section 226.55 Limitations on Increasing Annual Percentage Rates, Fees, 
and Charges

    As revised by the Credit Card Act, TILA Section 171(a) generally 
prohibits creditors from increasing any annual percentage rate, fee, or 
finance charge applicable to any outstanding balance on a credit card 
account under an open-end consumer credit plan. See 15 U.S.C. 1666i-1. 
Revised TILA Section 171(b), however, provides exceptions to this rule 
for temporary rates that expire after a specified period of time and 
rates that vary with an index. Revised TILA Section 171(b) also 
provides exceptions in circumstances where the creditor has not 
received the required minimum periodic payment within 60 days after the 
due date and where the consumer completes or fails to comply with the 
terms of a workout or temporary hardship arrangement. Revised TILA 
Section 171(c) limits a creditor's ability to change the terms 
governing repayment of an outstanding balance. The Credit Card Act also 
creates a new TILA Section 172, which provides that a creditor 
generally cannot increase a rate, fee, or finance charge during the 
first year after account opening and that a promotional rate (as 
defined by the Board) generally cannot expire earlier than six months 
after it takes effect. As discussed in detail below, the Board is 
implementing both revised TILA Section 171 and new TILA Section 172 in 
Sec.  226.55.
55(a) General Rule
    As noted above, revised TILA Section 171(a) generally prohibits 
increases in annual percentage rates, fees, and finance charges on 
outstanding balances. Revised TILA Section 171(d) defines ``outstanding 
balance'' as the amount owed as of the end of the fourteenth day after 
the date on which the creditor provides notice of an increase in the 
annual percentage rate, fee, or finance charge in accordance with TILA 
Section 127(i).\42\ TILA Section 127(i)(1) and (2), which went into 
effect on August 20, 2009, generally require creditors to notify 
consumers 45 days before an increase in an annual percentage rate or 
any other significant change in the terms of a credit card account (as 
determined by rule of the Board).
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    \42\ As discussed in the July 2009 Regulation Z Interim Final 
Rule (at 74 FR 36090), the Board believes that this fourteen-day 
period is intended to balance the interests of consumers and 
creditors. On the one hand, the fourteen-day period ensures that the 
increased rate, fee, or charge will not apply to transactions that 
occur before the consumer has received the notice and had a 
reasonable amount of time to review it and decide whether to use the 
account for additional transactions. On the other hand, the 
fourteen-day period reduces the potential that a consumer--having 
been notified of an increase for new transactions--will use the 45-
day notice period to engage in transactions to which the increased 
rate, fee, or charge cannot be applied.
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    In the July 2009 Regulation Z Interim Final Rule, the Board 
implemented new TILA Section 127(i)(1) and (2) in Sec.  226.9(c) and 
(g). In addition to increases in annual percentage rates, Sec.  
226.9(c)(2)(ii) lists the fees and other charges for which an increase 
constitutes a significant change to the account terms necessitating 45 
days' advance notice, including annual or other periodic fees, fixed 
finance

[[Page 7733]]

charges, minimum interest charges, transaction charges, cash advance 
fees, late payment fees, over-the-limit fees, balance transfer fees, 
returned-payment fees, and fees for required insurance, debt 
cancellation, or debt suspension coverage. As discussed above, however, 
the Board has amended Sec.  226.9(c)(2)(ii) to identify these 
significant account terms by a cross-reference to the account-opening 
disclosure requirements in Sec.  226.6(b). Because the definition of 
outstanding balance in revised TILA Section 171(d) is expressly 
conditioned on the provision of the 45-day advance notice, the Board 
believes that it is consistent with the purposes of the Credit Card Act 
to limit the general prohibition in revised TILA Section 171(a) on 
increasing fees and finance charges to increases in fees and charges 
for which a 45-day notice is required under Sec.  226.9.
    Furthermore, because revised TILA Section 171(a) prohibits the 
application of increased fees and charges to outstanding balances 
rather than to new transactions or to the account as a whole, the Board 
believes that it is appropriate to apply that prohibition only to fees 
and charges that could be applied to an outstanding balance. For 
example, increased cash advance or balance transfer fees would apply 
only to new cash advances or balance transfers, not to existing 
balances. Similarly, increased penalty fees such as late payment fees, 
over-the-limit fees, and returned payment fees would apply to the 
account as a whole rather than any specific balance.\43\
---------------------------------------------------------------------------

    \43\ However, the Board notes that a consumer that does not want 
to accept an increase in these types of fees may reject the increase 
pursuant to Sec.  226.9(h).
---------------------------------------------------------------------------

    Accordingly, the Board proposed to use its authority under TILA 
Section 105(a) to limit the general prohibition in revised TILA Section 
171(a) to increases in annual percentage rates and in fees and charges 
required to be disclosed under Sec.  226.6(b)(2)(ii) (fees for the 
issuance or availability of credit), Sec.  226.6(b)(2)(iii) (fixed 
finance charges and minimum interest charges), or Sec.  
226.6(b)(2)(xii) (fees for required insurance, debt cancellation, or 
debt suspension coverage).\44\ Although consumer groups expressed 
concern that card issuers might develop new fees in order to evade the 
prohibition on applying increased fees to existing balances, the Board 
believes that these categories of fees are sufficiently broad to 
address any attempts at circumvention.
---------------------------------------------------------------------------

    \44\ As discussed below with respect to Sec.  226.55(b)(3), a 
card issuer may still increase these types of fees and charges so 
long as the increased fee or charge is not applied to the 
outstanding balance.
---------------------------------------------------------------------------

    In addition, for clarity and organizational purposes, proposed 
Sec.  226.55(a) generally prohibited increases in annual percentage 
rates and fees and charges required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to all 
transactions, rather than just increases on existing balances. As 
explained in the proposal, the Board does not intend to alter the 
substantive requirements in revised TILA Section 171. Instead, the 
Board believes that revised TILA Section 171 can be more clearly and 
effectively implemented if increases in rates, fees, and charges that 
apply to transactions that occur more than fourteen days after 
provision of a Sec.  226.9(c) or (g) notice are addressed in an 
exception to the general prohibition rather than placed outside that 
prohibition. The Board and the other Agencies adopted a similar 
approach in the January 2009 FTC Act Rule. See 12 CFR 227.24, 74 FR 
5560. The Board did not receive significant comment on this aspect of 
the proposal. Accordingly, Sec.  226.55(a) states that, except as 
provided in Sec.  226.55(b), a card issuer must not increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii).
    Proposed comment 55(a)-1 provided examples of the general 
application of Sec.  226.55(a) and the exceptions in Sec.  226.55(b). 
The Board has clarified these examples but no substantive change is 
intended. Additional examples illustrating specific aspects of the 
exceptions in Sec.  226.55(b) are provided in the commentary to those 
exceptions.
    Proposed comment 55(a)-2 clarified that nothing in Sec.  226.55 
prohibits a card issuer from assessing interest due to the loss of a 
grace period to the extent consistent with Sec.  226.54. In addition, 
the comment states that a card issuer has not reduced an annual 
percentage rate on a credit account for purposes of Sec.  226.55 if the 
card issuer does not charge interest on a balance or a portion thereof 
based on a payment received prior to the expiration of a grace period. 
For example, if the annual percentage rate for purchases on an account 
is 15% but the card issuer does not charge any interest on a $500 
purchase balance because that balance was paid in full prior to the 
expiration of the grace period, the card issuer has not reduced the 15% 
purchase rate to 0% for purposes of Sec.  226.55. The Board has revised 
this comment to clarify that any loss of a grace period must also be 
consistent with the requirements for mailing or delivering periodic 
statements in Sec.  226.5(b)(2)(ii)(B). Otherwise, it is adopted as 
proposed.
55(b) Exceptions
    Revised TILA Section 171(b) lists the exceptions to the general 
prohibition in revised Section 171(a). Similarly, Sec.  226.55(b) lists 
the exceptions to the general prohibition in Sec.  226.55(a). In 
addition, Sec.  226.55(b) clarifies that the listed exceptions are not 
mutually exclusive. In other words, a card issuer may increase an 
annual percentage rate or a fee or charge required to be disclosed 
under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to an 
exception set forth in Sec.  226.55(b) even if that increase would not 
be permitted under a different exception. Comment 55(b)-1 clarifies 
that, for example, although a card issuer cannot increase an annual 
percentage rate pursuant to Sec.  226.55(b)(1) unless that rate is 
provided for a specified period of at least six months, the card issuer 
may increase an annual percentage rate during a specified period due to 
an increase in an index consistent with Sec.  226.55(b)(2). Similarly, 
although Sec.  226.55(b)(3) does not permit a card issuer to increase 
an annual percentage rate during the first year after account opening, 
the card issuer may increase the rate during the first year after 
account opening pursuant to Sec.  226.55(b)(4) if the required minimum 
periodic payment is not received within 60 days after the due date. The 
Board did not receive significant comment on the prefatory language in 
Sec.  226.55(b) or on comment 55(b)-1, which are adopted as proposed. 
Similarly, except as noted below, comments 55(b)-2 through -6 are 
adopted as proposed.
    Proposed comment 55(b)-2 addressed circumstances where the date on 
which a rate, fee, or charge may be increased pursuant to an exception 
in Sec.  226.55(b) does not fall on the first day of a billing cycle. 
Because it may be operationally difficult for some card issuers to 
apply an increased rate, fee, or charge in the middle of a billing 
cycle, the comment clarifies that, in these circumstances, the card 
issuer may delay application of the increased rate, fee, or charge 
until the first day of the following billing cycle without 
relinquishing the ability to apply that rate, fee, or charge.
    Commenters generally supported this guidance, but requested 
additional clarification regarding mid-cycle increases. Because these 
increases can occur as a result of the interaction between the 
exceptions in Sec.  226.55(b) and the 45-day notice requirements in 
Sec.  226.9(c) and (g), the Board has incorporated into comment 55(b)-2 
the

[[Page 7734]]

guidance provided in proposed comment 55(b)-6 regarding that 
interaction.\45\ Specifically, proposed comment 55(b)-6 stated that 
nothing in Sec.  226.55 alters the requirements in Sec.  226.9(c) and 
(g) that creditors provide written notice at least 45 days prior to the 
effective date of certain increases in annual percentage rates, fees, 
and charges. For example, although Sec.  226.55(b)(3)(ii) permits a 
card issuer that discloses an increased rate pursuant to Sec.  226.9(c) 
or (g) to apply that rate to transactions that occurred more than 
fourteen days after provision of the notice, the card issuer cannot 
begin to accrue interest at the increased rate until that increase goes 
into effect, consistent with Sec.  226.9(c) or (g). The final rule 
adopts this guidance--with illustrative examples--in comment 55(b)-2.
---------------------------------------------------------------------------

    \45\ As a result, proposed comment 55(b)-6 is not adopted in 
this final rule.
---------------------------------------------------------------------------

    In addition, proposed comment 55(b)-6 clarified that, on or after 
the effective date, the card issuer cannot calculate interest charges 
for days before the effective date based on the increased rate. In 
response to requests from commenters for further clarification, the 
Board has added this guidance to comment 55(b)-2 and adopted additional 
guidance addressing the application of different balance computation 
methods when an increased rate goes into effect in the middle of a 
billing cycle.
    Comment 55(b)-3 clarifies that, although nothing in Sec.  226.55 
prohibits a card issuer from lowering an annual percentage rate or a 
fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii), a card issuer that does so cannot 
subsequently increase the rate, fee, or charge unless permitted by one 
of the exceptions in Sec.  226.55(b). The Board believes that this 
interpretation is consistent with the intent of revised TILA Section 
171 insofar as it ensures that consumers are informed of the key terms 
and conditions associated with a lowered rate, fee, or charge before 
relying on that rate, fee, or charge. For example, revised Section 
171(b)(1)(A) requires creditors to disclose how long a temporary rate 
will apply and the rate that will apply after the temporary rate 
expires before the consumer engages in transactions in reliance on the 
temporary rate. Similarly, revised Section 171(b)(3)(B) requires the 
creditor to disclose the terms of a workout or temporary hardship 
arrangement before the consumer agrees to the arrangement. The comment 
provides examples illustrating the application of Sec.  226.55 when an 
annual percentage rate is lowered. Comment 55(b)-3 is adopted as 
proposed, although the Board has made non-substantive clarifications 
and added additional examples in response to comments regarding the 
application of Sec.  226.55 when an existing temporary rate is extended 
and when a default occurs before a temporary rate expires.
    As discussed below, several of the exceptions in proposed Sec.  
226.55 require the creditor to determine when a transaction occurred. 
For example, consistent with revised TILA Section 171(d)'s definition 
of ``outstanding balance,'' Sec.  226.55(b)(3)(ii) provides that a card 
issuer that discloses an increased rate pursuant to Sec.  226.9(c) or 
(g) may not apply that increased rate to transactions that occurred 
prior to or within fourteen days after provision of the notice. 
Accordingly, comment 55(b)-4 clarifies that when a transaction occurred 
for purposes of Sec.  226.55 is generally determined by the date of the 
transaction.\46\ The Board understands that, in certain circumstances, 
a short delay can occur between the date of the transaction and the 
date on which the merchant charges that transaction to the account. As 
a general matter, the Board believes that these delays should not 
affect the application of Sec.  226.55. However, to address the 
operational difficulty for card issuers in the rare circumstance where 
a transaction that occurred within fourteen days after provision of a 
Sec.  226.9(c) or (g) notice is not charged to the account prior to the 
effective date of the increase or change, this comment clarifies that 
the card issuer may treat the transaction as occurring more than 
fourteen days after provision of the notice for purposes of Sec.  
226.55. In addition, the comment clarifies that, when a merchant places 
a ``hold'' on the available credit on an account for an estimated 
transaction amount because the actual transaction amount will not be 
known until a later date, the date of the transaction for purposes of 
Sec.  226.55 is the date on which the card issuer receives the actual 
transaction amount from the merchant. Illustrative examples are 
provided in comment 55(b)(3)-4.iii.
---------------------------------------------------------------------------

    \46\ This comment is based on comment 9(h)(3)(ii)-2, which was 
adopted in the July 2009 Regulation Z Interim Final Rule. See 74 FR 
36101.
---------------------------------------------------------------------------

    Comment 55(b)-5 clarifies the meaning of the term ``category of 
transactions,'' which is used in some of the exceptions in Sec.  
226.55(b). This comment states that, for purposes of Sec.  226.55, a 
``category of transactions'' is a type or group of transactions to 
which an annual percentage rate applies that is different than the 
annual percentage rate that applies to other transactions.\47\ For 
example, purchase transactions, cash advance transactions, and balance 
transfer transactions are separate categories of transactions for 
purposes of Sec.  226.55 if a card issuer applies different annual 
percentage rates to each. Furthermore, if, for example, the card issuer 
applies different annual percentage rates to different types of 
purchase transactions (such as one rate for purchases of gasoline or 
purchases over $100 and a different rate for all other purchases), each 
type constitutes a separate category of transactions for purposes of 
Sec.  226.55.
---------------------------------------------------------------------------

    \47\ Similarly, a type or group of transactions is a ``category 
of transactions'' for purposes of Sec.  226.55 if a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), 
or (b)(2)(xii) applies to those transactions that is different than 
the fee or charge that applies to other transactions.
---------------------------------------------------------------------------

55(b)(1) Temporary Rate Exception
    Revised TILA Section 171(b)(1) provides that a creditor may 
increase an annual percentage rate upon the expiration of a specified 
period of time, subject to three conditions. First, prior to 
commencement of the period, the creditor must have disclosed to the 
consumer, in a clear and conspicuous manner, the length of the period 
and the increased annual percentage rate that will apply after 
expiration of the period. Second, at the end of the period, the 
creditor must not apply a rate that exceeds the increased rate that was 
disclosed prior to commencement of the period. Third, at the end of the 
period, the creditor must not apply the previously-disclosed increased 
rate to transactions that occurred prior to commencement of the period. 
Thus, under this exception, a creditor that, for example, discloses at 
account opening that a 5% rate will apply to purchases for six months 
and that a 15% rate will apply thereafter is permitted to increase the 
rate on the purchase balance to 15% after six months.
    The Board proposed to implement the exception in revised TILA 
Section 171(b)(1) regarding temporary rates as well as the requirements 
in new TILA Section 172(b) regarding promotional rates in Sec.  
226.55(b)(1). As a general matter, commenters supported or did not 
address proposed Sec.  226.55(b)(1) and its commentary. Accordingly, 
except as discussed below, they are adopted as proposed.\48\
---------------------------------------------------------------------------

    \48\ Some industry commenters requested that the Board expand 
Sec.  226.55(b)(1) to apply to increases in fees to a pre-disclosed 
amount after a specified period of time. However, as discussed above 
with respect to Sec.  226.9(c) and (h), the Board believes that such 
an exception would be inconsistent with the Credit Card Act. In 
addition, some industry commenters requested that the Board exclude 
promotional programs under which no interest is charged for a 
specified period of time. However, the Board believes that, for 
purposes of Sec.  226.55, these programs do not differ in any 
material way from programs that offer annual percentage rate of 0% 
for a specified period of time.

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[[Page 7735]]

    New TILA Section 172(b) provides that ``[n]o increase in any * * * 
promotional rate (as that term is defined by the Board) shall be 
effective before the end of the 6-month period beginning on the date on 
which the promotional rate takes effect, subject to such reasonable 
exceptions as the Board may establish by rule.'' Pursuant to this 
authority, the Board believes that promotional rates should be subject 
to the same requirements and exceptions as other temporary rates that 
expire after a specified period of time. In particular, the Board 
believes that consumers who rely on promotional rates should receive 
the disclosures and protections set forth in revised TILA Section 
171(b)(1) and Sec.  226.55(b)(1). This will ensure that a consumer will 
receive disclosure of the terms of the promotional rate before engaging 
in transactions in reliance on that rate and that, at the expiration of 
the promotion, the rate will only be increased consistent with those 
terms. Accordingly, the Board has incorporated the requirement that 
promotional rates last at least six months into Sec.  226.55(b)(1), 
which would permit a card issuer to increase a temporary annual 
percentage rate upon the expiration of a specified period that is six 
months or longer.
    Furthermore, pursuant to its authority under new TILA Section 
172(b) to establish reasonable exceptions to the six-month requirement 
for promotional rates, the Board believes that it is appropriate to 
apply the other exceptions in revised TILA Section 171(b) and Sec.  
226.55(b) to promotional rate offers. For example, the Board believes 
that a card issuer should be permitted to offer a consumer a 
promotional rate that varies with an index consistent with revised TILA 
Section 171(b)(2) and Sec.  226.55(b)(2) (such as a rate that is one 
percentage point over a prime rate that is not under the card issuer's 
control). Similarly, the Board believes that a card issuer should be 
permitted to increase a promotional rate if the account becomes more 
than 60 days delinquent during the promotional period consistent with 
revised TILA Section 171(b)(4) and Sec.  226.55(b)(4). Thus, the Board 
has applied to promotional rates the general proposition in proposed 
Sec.  226.55(b) that a rate may be increased pursuant to an exception 
in Sec.  226.55(b) even if that increase would not be permitted under a 
different exception.
    Section 226.55(b)(1)(i) implements the requirement in revised TILA 
Section 171(b)(1)(A) that creditors disclose the length of the period 
and the annual percentage rate that will apply after the expiration of 
that period. This language tracks Sec.  226.9(c)(2)(v)(B)(1), which the 
Board adopted in the July 2009 Regulation Z Interim Final Rule as part 
of an exception to the general requirement that creditors provide 45 
days' notice before an increase in annual percentage rate. Because the 
disclosure requirements in Sec.  226.9(c)(2)(v)(B)(1) and Sec.  
226.55(b)(1)(i) implement the same statutory provision (revised TILA 
Section 171(b)(1)(A)), the Board believes a single set of disclosures 
should satisfy both requirements. Accordingly, comment 55(b)(1)-1 
clarifies that a card issuer that has complied with the disclosure 
requirements in Sec.  226.9(c)(2)(v)(B) has also complied with the 
disclosure requirements in Sec.  226.55(b)(2)(i).
    Section 226.55(b)(1)(ii) implements the limitations in revised TILA 
Section 171(b)(1)(B) and (C) on the application of increased rates 
following expiration of the specified period. First, Sec.  
226.55(b)(1)(ii)(A) states that, upon expiration of the specified 
period, a card issuer must not apply an annual percentage rate to 
transactions that occurred prior to the period that exceeds the rate 
that applied to those transactions prior to the period. In other words, 
the expiration of a temporary rate cannot be used as a reason to apply 
an increased rate to a balance that preceded application of the 
temporary rate. For example, assume that a credit card account has a 
$5,000 purchase balance at a 15% rate and that the card issuer reduces 
the rate that applies to all purchases (including the $5,000 balance) 
to 10% for six months with a 22% rate applying thereafter. Under Sec.  
226.55(b)(1)(ii)(A), the card issuer cannot apply the 22% rate to the 
$5,000 balance upon expiration of the six-month period (although the 
card issuer could apply the original 15% rate to that balance).
    Second, Sec.  226.55(b)(1)(ii)(B) states that, if the disclosures 
required by Sec.  226.55(b)(1)(i) are provided pursuant to Sec.  
226.9(c), the card issuer must not--upon expiration of the specified 
period--apply an annual percentage rate to transactions that occurred 
within fourteen days after provision of the notice that exceeds the 
rate that applied to that category of transactions prior to provision 
of the notice. The Board believes that this clarification is necessary 
to ensure that card issuers do not apply an increased rate to an 
outstanding balance (as defined in revised TILA Section 171(d)) upon 
expiration of the specified period. Accordingly, consistent with the 
purpose of revised TILA Section 171(d), Sec.  226.55(b)(1)(ii)(B) 
ensures that a consumer will have fourteen days to receive the Sec.  
226.9(c) notice and review the terms of the temporary rate (including 
the increased rate that will apply upon expiration of the specified 
period) before engaging in transactions to which that increased rate 
may eventually apply.
    Third, Sec.  226.55(b)(1)(ii)(C) states that, upon expiration of 
the specified period, the card issuer must not apply an annual 
percentage rate to transactions that occurred during the specified 
period that exceeds the increased rate disclosed pursuant to Sec.  
226.55(b)(1)(i). In other words, the card issuer can only increase the 
rate consistent with the previously-disclosed terms. Examples 
illustrating the application of Sec.  226.55(b)(1)(ii)(A), (B), and (C) 
are provided in comments 55(a)-1 and 55(b)-3.
    Comment 55(b)(1)-2 clarifies when the specified period begins for 
purposes of the six-month requirement in Sec.  226.55(b)(1). As a 
general matter, comment 55(b)(1)-2 states that the specified period 
must expire no less than six months after the date on which the 
creditor discloses to the consumer the length of the period and rate 
that will apply thereafter (as required by Sec.  226.55(b)(1)(i)). 
However, if the card issuer provides these disclosures before the 
consumer can use the account for transactions to which the temporary 
rate will apply, the temporary rate must expire no less than six months 
from the date on which it becomes available.
    For example, assume that on January 1 a card issuer offers a 5% 
annual percentage rate for six months on purchases (with a 15% rate 
applying thereafter). If a consumer may begin making purchases at the 
5% rate on January 1, Sec.  226.55(b)(1) permits the issuer to begin 
accruing interest at the 15% rate on July 1. However, if a consumer may 
not begin making purchases at the 5% rate until February 1, Sec.  
226.55(b)(1) does not permit the issuer to begin accruing interest at 
the 15% rate until August 1.
    The Board understands that card issuers often limit the application 
of a promotional rate to particular categories of transactions (such as 
balance transfers or purchases over $100). The Board does not believe 
that the six-month requirement in new TILA Section 172(b) was intended 
to prohibit

[[Page 7736]]

this practice so long as the consumer receives the benefit of the 
promotional rate for at least six months. Accordingly, proposed comment 
55(b)(1)-2 clarifies that Sec.  226.55(b)(1) does not prohibit these 
types of limitations. However, the comment also clarifies that, in 
circumstances where the card issuer limits application of the temporary 
rate to a particular transaction, the temporary rate must expire no 
less than six months after the date on which that transaction occurred. 
For example, if on January 1 a card issuer offers a 0% temporary rate 
on the purchase of an appliance and the consumer uses the account to 
purchase a $1,000 appliance on March 1, the card issuer cannot increase 
the rate on that $1,000 purchase until September 1.
    The Board believes that this application of the six-month 
requirement is consistent with the intent of new TILA Section 172(b). 
Although the six-month requirement could be interpreted as requiring a 
separate six-month period for every transaction to which the temporary 
rate applies, the Board believes this interpretation would create a 
level of complexity that would be not only confusing for consumers but 
also operationally burdensome for card issuers, potentially leading to 
a reduction in promotional rate offers that provide significant 
consumer benefit.
    As a general matter, commenters supported the guidance in comment 
55(b)(1)-2. Some industry commenters argued that the six-month 
requirement should not apply when the temporary rate is limited to a 
particular transaction, but the Board finds no support for such an 
exclusion in new TILA Section 172(b). Other industry commenters argued 
that, even if a temporary rate is limited to a particular transaction, 
the six-month period required by Sec.  226.55(b)(1) should always begin 
once the terms have been disclosed and the rate is available to 
consumers. However, because temporary rates that are limited to 
particular transactions are frequently offered in retail settings, the 
Board is concerned that many consumers would not receive the benefit of 
the six-month period mandated by Section 172(b) if that period began 
when the rate was available.
    For example, assume that a temporary rate of 0% is available on the 
purchase of a television from a particular retailer beginning on 
January 1. If the six-month period begins on January 1, a consumer who 
purchases a television on January 1 will receive the benefit of 0% rate 
for six months. However, a consumer who purchases a television on June 
1 will only receive the benefit of the 0% rate for one month. As 
discussed above, the Board believes that, as a general matter, the 
benefits of temporary rates that can be used for multiple transactions 
sufficiently outweigh the fact that a consumer will not receive the 
temporary rate for the full six months on every transaction and 
therefore justify interpreting the six-month period in new TILA Section 
172(b) as beginning when the rate becomes available. However, when the 
temporary rate applies only to a single transaction, the Board believes 
that Section 172(b) requires the card issuer to apply the temporary 
rate to that transaction for at least six months.
    Although some industry commenters cited the operational difficulty 
of tracking transaction-specific expiration dates for temporary rates, 
the Board notes that several card issuers do so today. Furthermore, as 
discussed in comment 55(b)-2, a card issuer is not required to increase 
the rate precisely six months after the date of the transaction. 
Instead, assuming monthly billing cycles, a card issuer could, for 
example, use a single expiration date of July 31 for all temporary rate 
transactions that occur during the month of January (although this 
would require the card issuer to extend the temporary rate for up to a 
month). Accordingly, in this respect, comment 55(b)(1)-2 is adopted as 
proposed.\49\
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    \49\ However, in order to address confusion regarding the 
application of comment 55(b)(1)-2 to balance transfer offers, the 
Board has added an example clarifying that the six-month period for 
temporary rates that apply to multiple balance transfers begins once 
the terms have been disclosed and the rate is available to 
consumers. The Board has also made non-substantive clarifications to 
the examples in comment 55(b)(1)-2.
---------------------------------------------------------------------------

    Comment 55(b)(1)-3 clarifies that the general prohibition in Sec.  
226.55(a) applies to the imposition of accrued interest upon the 
expiration of a deferred interest or similar promotional program under 
which the consumer is not obligated to pay interest that accrues on a 
balance if that balance is paid in full prior to the expiration of a 
specified period of time. As discussed in the January 2009 FTC Act 
Rule, the assessment of deferred interest is effectively an increase in 
rate on an existing balance. See 74 FR 5527-5528. However, if properly 
disclosed, deferred interest programs can provide substantial benefits 
to consumers. See 74 FR 20812-20813. Furthermore, as discussed above 
with respect to Sec.  226.54, the Board does not believe that the 
Credit Card Act was intended to ban properly-disclosed deferred 
interest programs. Accordingly, comment 55(b)(1)-3 further clarifies 
that card issuers may continue to offer such programs consistent with 
the requirements of Sec.  226.55(b)(1). In particular, Sec.  
226.55(b)(1) requires that the deferred interest or similar period be 
at least six months. Furthermore, prior to the commencement of the 
period, Sec.  226.55(b)(1)(i) requires the card issuer to disclose the 
length of the period and the rate that will apply to the balance 
subject to the deferred interest program if that balance is not paid in 
full prior to expiration of the period. The comment provides examples 
illustrating the application of Sec.  226.55 to deferred interest and 
similar programs.
    Some industry commenters requested that the Board exclude deferred 
interest and similar programs from the six-month requirement in Sec.  
226.55(b)(1). However, because the Board has concluded that these 
programs should be treated as promotional programs for purposes of 
revised TILA Section 171, the Board does believe there is a basis for 
excluding these programs from the six-month requirement in new TILA 
Section 172(b). However, in order to ensure consistent treatment of 
deferred interest programs across Regulation Z, the Board has revised 
comment 55(b)(1)-3 to clarify that ``deferred interest'' has the same 
meaning as in Sec.  226.16(h)(2) and associated commentary. In 
addition, the Board has added an example clarifying the application of 
the exception in Sec.  226.55(b)(4) for accounts that are more than 60 
days delinquent to deferred interest and similar programs.
    Comment 55(b)(1)-4 clarifies that Sec.  226.55(b)(1) does not 
permit a card issuer to apply an increased rate that is contingent on a 
particular event or occurrence or that may be applied at the card 
issuer's discretion. The comment provides examples of rate increases 
that are not permitted by Sec.  226.55. Some industry commenters 
requested that, when a reduced rate is provided to employees of a 
business, the Board permit application of an increased rate to existing 
balances when employment ends. However, the Board believes that such an 
exception would be inconsistent with revised TILA Section 171(b)(1) 
because it is based on a contingent event rather than a specified 
period of time.
55(b)(2) Variable Rate Exception
    Revised TILA Section 171(b)(2) provides that a card issuer may 
increase ``a variable annual percentage rate in accordance with a 
credit card agreement that provides for changes in the rate according 
to operation of an index that is not under the card issuer's control

[[Page 7737]]

and is available to the general public.'' The Board proposed to 
implement this exception in Sec.  226.55(b)(2), which states that a 
creditor may increase an annual percentage rate that varies according 
to an index that is not under the creditor's control and is available 
to the general public when the increase in rate is due to an increase 
in the index. Section 226.55(b)(2) is adopted as proposed.
    The proposed commentary to Sec.  226.55(b)(2) was modeled on 
commentary adopted by the Board and the other Agencies in the January 
2009 FTC Act Rule as well as Sec.  226.5b(f) and its commentary. See 12 
CFR 227.24 comments 24(b)(2)-1 through 6, 74 FR 5531, 5564; Sec.  
226.5b(f)(1), (3)(ii); comment 5b(f)(1)-1 and -2; comment 5b(f)(3)(ii)-
1. Proposed comment 55(b)(2)-1 clarified that Sec.  226.55(b)(2) does 
not permit a card issuer to increase a variable annual percentage rate 
by changing the method used to determine that rate (such as by 
increasing the margin), even if that change will not result in an 
immediate increase. However, consistent with existing comment 
5b(f)(3)(v)-2, the comment also clarifies that a card issuer may change 
the day of the month on which index values are measured to determine 
changes to the rate. This comment is generally adopted as proposed, 
although the Board has clarified that that changes to the day on which 
index values are measured are permitted from time to time. As discussed 
below, systematic changes in the date to capture the highest possible 
index value would be inconsistent with Sec.  226.55(b)(2).
    Proposed comment 55(b)(1)-2 further clarified that a card issuer 
may not increase a variable rate based on its own prime rate or cost of 
funds. A card issuer is permitted, however, to use a published prime 
rate, such as that in the Wall Street Journal, even if the card 
issuer's own prime rate is one of several rates used to establish the 
published rate. In addition, proposed comment 55(b)(2)-3 clarified that 
a publicly-available index need not be published in a newspaper, but it 
must be one the consumer can independently obtain (by telephone, for 
example) and use to verify the annual percentage rate applied to the 
credit card account. These comments are adopted as proposed, except 
that, as discussed below, the Board has provided additional 
clarification in comment 55(b)(2)-2 regarding what constitutes 
exercising control over the operation of an index for purposes of Sec.  
226.55(b)(2).
    Consumer groups and a member of Congress raised concerns about two 
industry practices that, in their view, exercise control over the 
variable rate in a manner that is inconsistent with revised TILA 
Section 171(b)(2). First, they noted that many card issuers set minimum 
rates or ``floors'' below which a variable rate cannot fall even if a 
decrease would be consistent with a change in the applicable index. For 
example, assume that a card issuer offers a variable rate of 17%, which 
is calculated by adding a margin of 12 percentage points to an index 
with a current value of 5%. However, the terms of the account provide 
that the variable rate will not decrease below 17%. As a result, the 
variable rate can only increase, and the consumer will not benefit if 
the value of the index falls below 5%. The Board agrees that this 
practice is inconsistent with Sec.  226.55(b)(2). Accordingly, the 
Board has revised comment 55(b)(2)-2 to clarify that a card issuer 
exercises control over the operation of the index if the variable rate 
based on that index is subject to a fixed minimum rate or similar 
requirement that does not permit the variable rate to decrease 
consistent with reductions in the index.\50\
---------------------------------------------------------------------------

    \50\ However, because there is no disadvantage to consumers, 
comment 55(b)(2)-2 clarifies that card issuers are permitted to set 
fixed maximum rates or ``ceilings'' that do not permit the variable 
rate to increase consistent with increases in an index.
---------------------------------------------------------------------------

    The second practice raised by consumer groups and a member of 
Congress relates to adjusting or resetting variable rates to account 
for changes in the index. Typically, card issuers do not reset variable 
rates on a daily basis. Instead, card issuers may reset variable rates 
monthly, every two months, or quarterly. When the rate is reset, some 
card issuers calculate the new rate by adding the margin to the value 
of the index on a particular day (such as the last day of a month or 
billing cycle). However, some issuers calculate the variable rate based 
on the highest index value during a period of time (such as the 90 days 
preceding the last day of a month or billing cycle). Consumer groups 
and a member of Congress argued that the latter practice is 
inconsistent with Sec.  226.55(b)(2) insofar as the consumer can be 
prevented from receiving the benefit of decreases in the index.
    The Board agrees that a card issuer exercises control over the 
operation of the index if the variable rate can be calculated based on 
any index value during a period of time. Accordingly, the Board has 
revised comment 55(b)(2)-2 to clarify that, if the terms of the account 
contain such a provision, the card issuer cannot apply increases in the 
variable rate to existing balances pursuant to Sec.  226.55(b)(2). 
However, the comment also clarifies that a card issuer can adjust the 
variable rate based on the value of the index on a particular day or, 
in the alternative, the average index value during a specified period.
    Because the conversion of a non-variable rate to a variable rate 
could lead to future increases in the rate that applies to an existing 
balance, comment 55(b)(2)-4 clarifies that a non-variable rate may be 
converted to a variable rate only when specifically permitted by one of 
the exceptions in Sec.  226.55(b). For example, under Sec.  
226.55(b)(1), a card issuer may convert a non-variable rate to a 
variable rate at the expiration of a specified period if this change 
was disclosed prior to commencement of the period. This comment is 
adopted as proposed.
    Because Sec.  226.55 applies only to increases in annual percentage 
rates, proposed comment 55(b)(2)-5 clarifies that nothing in Sec.  
226.55 prohibits a card issuer from changing a variable rate to an 
equal or lower non-variable rate. Whether the non-variable rate is 
equal to or lower than the variable rate is determined at the time the 
card issuer provides the notice required by Sec.  226.9(c). An 
illustrative example is provided. Consumer group commenters argued that 
the Board should prohibit issuers from converting a variable rate to a 
non-variable rate when the index used to calculate the variable rate 
has reached its peak value. However, it would be difficult or 
impossible to develop workable standards for determining when a 
variable rate has reached its peak value or for distinguishing between 
conversions that are done for legitimate reasons and those that are 
not. Furthermore, as the consumer group commenters acknowledged, non-
variable rates can be beneficial to consumers insofar as they provide 
increased predictability regarding the cost of credit. Accordingly, 
this comment is adopted as proposed.
    Proposed comment 55(b)(2)-6 clarified that a card issuer may change 
the index and margin used to determine a variable rate if the original 
index becomes unavailable, so long as historical fluctuations in the 
original and replacement indices were substantially similar and the 
replacement index and margin will produce a rate similar to the rate 
that was in effect at the time the original index became unavailable. 
This comment further clarified that, if the replacement index is newly 
established and therefore does not have any rate history, it may be 
used if it produces a rate substantially similar to the rate in effect 
when the original index became unavailable.

[[Page 7738]]

    Consumer group commenters raised concerns that card issuers could 
substitute indices in a manner that circumvents the requirements of 
Sec.  226.55(b)(2). Because comment 55(b)(2)-6 addresses the narrow 
circumstance in which an index becomes unavailable, the Board does not 
believe there is a significant risk of abuse. Indeed, this comment is 
substantively similar to long-standing guidance provided by the Board 
with respect to HELOCs (comment 5b(f)(3)(ii)-1), and the Board is not 
aware of any abuse in that context. Accordingly, the Board does not 
believe that revisions to comment 55(b)(2)-6 are warranted at this 
time.
55(b)(3) Advance Notice Exception
    Section 226.55(a) prohibits increases in annual percentage rates 
and fees and charges required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) with respect to both 
existing balances and new transactions. However, as discussed above, 
the prohibition on increases in rates, fees, and finance charges in 
revised TILA Section 171 applies only to ``outstanding balances'' as 
defined in Section 171(d). Accordingly, Sec.  226.55(b)(3) provides 
that a card issuer may generally increase an annual percentage rate or 
a fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) with respect to new transactions after 
complying with the notice requirements in Sec.  226.9(b), (c), or (g).
    Because Sec.  226.9 applies different notice requirements in 
different circumstances, Sec.  226.55(b)(3) clarifies that the 
transactions to which an increased rate, fee, or charge may be applied 
depend on the type of notice required. As a general matter, when an 
annual percentage rate, fee, or charge is increased pursuant to Sec.  
226.9(c) or (g), Sec.  226.55(b)(3)(ii) provides that the card issuer 
must not apply the increased rate, fee, or charge to transactions that 
occurred within fourteen days after provision of the notice. This is 
consistent with revised TILA Section 171(d), which defines the 
outstanding balance to which an increased rate, fee, or finance charge 
may not be applied as the amount due at the end of the fourteenth day 
after notice of the increase is provided.
    However, pursuant to its authority under TILA Section 105(a), the 
Board has adopted a different approach for increased rates, fees, and 
charges disclosed pursuant to Sec.  226.9(b). As discussed in the July 
2009 Regulation Z Interim Final Rule, the Board believes that the 
fourteen-day period is intended, in part, to ensure that an increased 
rate, fee, or charge will not apply to transactions that occur before 
the consumer has received the notice of the increase and had a 
reasonable amount of time to review it and decide whether to engage in 
transactions to which the increased rate, fee, or charge will apply. 
See 74 FR 36090. The Board does not believe that a fourteen-day period 
is necessary for increases disclosed pursuant to Sec.  226.9(b), which 
requires card issuers to disclose any new finance charge terms 
applicable to supplemental access devices (such as convenience checks) 
and additional features added to the account after account opening 
before the consumer uses the device or feature for the first time. For 
example, Sec.  226.9(b)(3)(i)(A) requires that card issuers providing 
checks that access a credit card account to which a temporary 
promotional rate applies disclose key terms on the front of the page 
containing the checks, including the promotional rate, the period 
during which the promotional rate will be in effect, and the rate that 
will apply after the promotional rate expires. Thus, unlike increased 
rates, fees, and charges disclosed pursuant to a Sec.  226.9(c) and (g) 
notice, the fourteen-day period is not necessary for increases 
disclosed pursuant to Sec.  226.9(b) because the device or feature will 
not be used before the consumer has received notice of the applicable 
terms. Accordingly, Sec.  226.55(b)(3)(i) provides that, if a card 
issuer discloses an increased annual percentage rate, fee, or charge 
pursuant to Sec.  226.9(b), the card issuer must not apply that rate, 
fee, or charge to transactions that occurred prior to provision of the 
notice.
    Finally, Sec.  226.55(b)(3)(iii) provides that the exception in 
Sec.  226.55(b)(3) does not permit a card issuer to increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year 
after the credit card account is opened. This provision implements new 
TILA Section 172(a), which generally prohibits increases in annual 
percentage rates, fees, and finance charges during the one-year period 
beginning on the date the account is opened.
    The Board did not receive significant comment regarding Sec.  
226.55(b)(3). Thus, the final rules adopt Sec.  226.55(b)(3) as 
proposed. Similarly, except as discussed below, the Board has generally 
adopted the commentary to Sec.  226.55(b)(3) as proposed, although the 
Board has made some non-substantive clarifications.
    Comment 55(b)(3)-1 clarifies that a card issuer may not increase a 
fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) pursuant to Sec.  226.55(b)(3) if the 
consumer has rejected the increased fee or charge pursuant to Sec.  
226.9(h). In addition, comment 55(b)(3)-2 clarifies that, if an 
increased annual percentage rate, fee, or charge is disclosed pursuant 
to both Sec.  226.9(b) and (c), the requirements in Sec.  
226.55(b)(3)(ii) control and the rate, fee, or charge may only be 
applied to transactions that occur more than fourteen days after 
provision of the Sec.  226.9(c) notice.
    Comment 55(b)(3)-3 clarifies whether certain changes to a credit 
card account constitute an ``account opening'' for purposes of the 
prohibition in Sec.  226.55(b)(3)(iii) on increasing annual percentage 
rates and fees and charges required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year 
after account opening. In particular, the comment distinguishes between 
circumstances in which a card issuer opens multiple accounts for the 
same consumer and circumstances in which a card issuer substitutes, 
replaces, or consolidates one account with another. As an initial 
matter, this comment clarifies that, when a consumer has a credit card 
account with a card issuer and the consumer opens a new credit card 
account with the same card issuer (or its affiliate or subsidiary), the 
opening of the new account constitutes the opening of a credit card 
account for purposes of Sec.  226.55(b)(3)(iii) if, more than 30 days 
after the new account is opened, the consumer has the option to obtain 
additional extensions of credit on each account. Thus, for example, if 
a consumer opens a credit card account with a card issuer on January 1 
of year one and opens a second credit card account with that card 
issuer on July 1 of year one, the opening of the second account 
constitutes an account opening for purposes of Sec.  226.55(b)(3)(iii) 
so long as, on August 1, the consumer has the option to engage in 
transactions using either account. This is the case even if the 
consumer transfers a balance from the first account to the second. 
Thus, because the card issuer has two separate account relationships 
with the consumer, the prohibition in Sec.  226.55(b)(3)(iii) on 
increasing annual percentage rates and fees and charges required to be 
disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
during the first year after account opening applies to the opening of 
the second account.\51\
---------------------------------------------------------------------------

    \51\ This comment is based on commentary to the January 2009 FTC 
Act Rule proposed by the Board and the other Agencies in May 2009. 
See 12 CFR 227.24, proposed comment 24-4, 74 FR 20816; see also 74 
FR 20809. In that proposal, the Board recognized that the process of 
replacing one account with another generally is not instantaneous. 
If, for example, a consumer requests that a credit card account with 
a $1,000 balance be upgraded to a credit card account that offers 
rewards on purchases, the second account may be opened immediately 
or within a few days but, for operational reasons, there may be a 
delay before the $1,000 balance can be transferred and the first 
account can be closed. For this reason, the Board sought comment on 
whether 15 or 30 days was the appropriate amount of time to complete 
this process. In response, industry commenters generally stated that 
at least 30 days was required. Accordingly, the Board proposed a 30-
day period in comment 55(b)(3)-3. The Board did not receive 
additional comment on this issue. Accordingly, the 30-day period is 
adopted in the final rule.

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[[Page 7739]]

    In contrast, the comment clarifies that an account has not been 
opened for purposes of Sec.  226.55(b)(3)(iii) when a card issuer 
substitutes or replaces one credit card account with another credit 
card account (such as when a retail credit card is replaced with a 
cobranded general purpose card that can be used at a wider number of 
merchants) or when a card issuer consolidates or combines a credit card 
account with one or more other credit card accounts into a single 
credit card account. As discussed below with respect to proposed Sec.  
226.55(d)(2), the Board believes that these transfers should be treated 
as a continuation of the existing account relationship rather than the 
creation of a new account relationship. Similarly, the comment also 
clarifies that the substitution or replacement of an acquired credit 
card account does not constitute an ``account opening'' for purposes of 
Sec.  226.55(b)(3)(iii). Thus, in these circumstances, the prohibition 
in Sec.  226.55(b)(3)(iii) does not apply. However, when a 
substitution, replacement or consolidation occurs during the first year 
after account opening, comment 55(b)(3)-3.ii.B clarifies that the card 
issuer may not increase an annual percentage rate, fee, or charge in a 
manner otherwise prohibited by Sec.  226.55.\52\
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    \52\ For example, assume that, on January 1 of year one, a 
consumer opens a credit card account with a purchase rate of 15%. On 
July 1 of year one, the account is replaced with a credit card 
account issued by the same card issuer, which offers different 
features (such as rewards on purchases). Under these circumstances, 
the card issuer could not increase the annual percentage rate for 
purchases to a rate that is higher than 15% pursuant to Sec.  
226.55(b)(3) until January 1 of year two (which is one year after 
the first account was opened).
---------------------------------------------------------------------------

    Comment 55(b)(3)-4 provides illustrative examples of the 
application of the exception in proposed Sec.  226.55(b)(3). Comment 
55(b)(3)-5 contains a cross-reference to comment 55(c)(1)-3, which 
clarifies the circumstances in which increased fees and charges 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) may be imposed consistent with Sec.  226.55.
55(b)(4) Delinquency Exception
    Revised TILA Section 171(b)(4) permits a creditor to increase an 
annual percentage rate, fee, or finance charge ``due solely to the fact 
that a minimum payment by the [consumer] has not been received by the 
creditor within 60 days after the due date for such payment.'' However, 
this exception is subject to two conditions. First, revised Section 
171(b)(4)(A) provides that the notice of the increase must include ``a 
clear and conspicuous written statement of the reason for the increase 
and that the increase will terminate not later than 6 months after the 
date on which it is imposed, if the creditor receives the required 
minimum payments on time from the [consumer] during that period.'' 
Second, revised Section 171(b)(4)(B) provides that the creditor must 
``terminate [the] increase not later than 6 months after the date on 
which it is imposed, if the creditor receives the required minimum 
payments on time during that period.''
    The Board has implemented this exception in Sec.  226.55(b)(4). The 
additional notice requirements in revised TILA Section 171(b)(4)(A) are 
set forth in Sec.  226.55(b)(4)(i). The requirement in revised Section 
171(b)(4)(B) that the increase be terminated if the card issuer 
receives timely payments during the six months following the increase 
is implemented in Sec.  226.55(b)(4)(ii), although the Board proposed 
to make four adjustments to the statutory requirement pursuant to its 
authority under TILA Section 105(a) to make adjustments to effectuate 
the purposes of TILA and to facilitate compliance therewith.
    First, proposed Sec.  226.55(b)(4)(ii) interpreted the requirement 
that the creditor ``terminate'' the increase as a requirement that the 
card issuer reduce the annual percentage rate, fee, or charge to the 
rate, fee, or charge that applied prior to the increase. The Board 
believes that this interpretation is consistent with the intent of 
revised TILA Section 171(b)(4)(B) insofar as the increased rate, fee, 
or charge will cease to apply once the consumer has met the statutory 
requirements. The Board does not interpret revised TILA Section 
171(b)(4)(B) to require the card issuer to refund or credit the account 
for amounts charged as a result of the increase prior to the 
termination or cessation. The Board did not receive significant comment 
on this aspect of the proposal, which is adopted in the final rule.
    Second, proposed Sec.  226.55(b)(4)(ii) provided that the card 
issuer must reduce the annual percentage rate, fee, or charge after 
receiving six consecutive required minimum periodic payments on or 
before the payment due date. The Board believes that shifting the focus 
from the number of months to the number of on-time payments provides 
more specificity and clarity for both consumers and card issuers as to 
what is required to obtain the reduction. Because credit card accounts 
typically require payment on a monthly basis,\53\ a consumer who makes 
six consecutive on-time payments will also generally have paid on time 
for six months. However, card issuers are permitted to adjust their due 
dates and billing cycles from time to time,\54\ which could create 
uncertainty regarding whether a consumer has complied with the 
statutory requirement to make on-time payments during the six-month 
period. The Board did not receive significant comment on this proposed 
adjustment. Accordingly, because the Board believes that this 
adjustment to TILA Section 171(b)(4) will facilitate compliance with 
that provision, it is adopted in the final rule.
---------------------------------------------------------------------------

    \53\ Although some creditors use quarterly billing cycles for 
other open-end products, the Board is not aware of any creditor that 
does so with respect to credit card accounts under open-end (not 
home-secured) consumer credit plans.
    \54\ See, e.g., comments 2(a)(4)-3 and 7(b)(11)-7.
---------------------------------------------------------------------------

    Third, proposed Sec.  226.55(b)(4)(ii) applied to the six 
consecutive required minimum periodic payments received on or before 
the payment due date beginning with the first payment due following the 
effective date of the increase. The Board believes that limiting this 
requirement to the period immediately following the increase is 
consistent with revised TILA Section 171(b)(4)(B), which requires a 
creditor to terminate an increase ``6 months after the date on which it 
is imposed, if the creditor receives the required minimum payments on 
time during that period.'' Thus, as clarified in comment 55(b)(4)-3 
(which is discussed below), Sec.  226.55(b)(4)(ii) does not require a 
card issuer to terminate an increase if, at some later point in time, 
the card issuer receives six consecutive required minimum periodic 
payments on or before the payment due date. The Board did not receive 
significant comment on this interpretation, which is adopted in the 
final rule.
    Fourth, proposed Sec.  226.55(b)(4)(ii) provided that the card 
issuer must also reduce the annual percentage rate, fee, or charge with 
respect to transactions that occurred within fourteen days after 
provision of the Sec.  226.9(c) or (g) notice. This requirement is 
consistent with the definition of ``outstanding balance'' in revised 
TILA Section 171(d), as applied in Sec.  226.55(b)(1)(ii)(B) and

[[Page 7740]]

Sec.  226.55(b)(3)(ii). As above, the Board did not receive significant 
comment on this aspect of the proposal, which is adopted in the final 
rule.
    Accordingly, for the reasons discussed above, Sec.  226.55(b)(4) is 
adopted as proposed. Similarly, except as discussed below, the Board 
has adopted the commentary to Sec.  226.55(b)(4) as proposed (with 
certain non-substantive clarifications).
    Comment 55(b)(4)-1 clarifies that, in order to satisfy the 
condition in Sec.  226.55(b)(4) that the card issuer has not received 
the consumer's required minimum periodic payment within 60 days after 
the payment due date, a card issuer that requires monthly minimum 
payments generally must not have received two consecutive minimum 
payments. The comment further clarifies that whether a required minimum 
periodic payment has been received for purposes of Sec.  226.55(b)(4) 
depends on whether the amount received is equal to or more than the 
first outstanding required minimum periodic payment. The comment 
provides the following example: Assume that the required minimum 
periodic payments for a credit card account are due on the fifteenth 
day of the month. On May 13, the card issuer has not received the $50 
required minimum periodic payment due on March 15 or the $150 required 
minimum periodic payment due on April 15. If the card issuer receives a 
$50 payment on May 14, Sec.  226.55(b)(4) does not apply because the 
payment is equal to the required minimum periodic payment due on March 
15 and therefore the account is not more than 60 days delinquent. 
However, if the card issuer instead received a $40 payment on May 14, 
Sec.  226.55(b)(4) does apply because the payment is less than the 
required minimum periodic payment due on March 15. Furthermore, if the 
card issuer received the $50 payment on May 15, Sec.  226.55(b)(4) 
applies because the card issuer did not receive the required minimum 
periodic payment due on March 15 within 60 days after the due date for 
that payment.
    As discussed above, Sec.  226.9(g)(3)(i)(B) requires that the 
written notice provided to consumers 45 days before an increase in rate 
due to delinquency or default or as a penalty include the information 
required by revised Section 171(b)(4)(A). Accordingly, comment 
55(b)(4)-2 clarifies that a card issuer that has complied with the 
disclosure requirements in Sec.  226.9(g)(3)(i)(B) has also complied 
with the disclosure requirements in Sec.  226.55(b)(4)(i).
    Comment 55(b)(4)-3 clarifies the requirements in Sec.  
226.55(b)(4)(ii) regarding the reduction of annual percentage rates, 
fees, or charges that have been increased pursuant to Sec.  
226.55(b)(4). First, as discussed above, the comment clarifies that 
Sec.  226.55(b)(4)(ii) does not apply if the card issuer does not 
receive six consecutive required minimum periodic payments on or before 
the payment due date beginning with the payment due immediately 
following the effective date of the increase, even if, at some later 
point in time, the card issuer receives six consecutive required 
minimum periodic payments on or before the payment due date.
    Second, the comment states that, although Sec.  226.55(b)(4)(ii) 
requires the card issuer to reduce an annual percentage rate, fee, or 
charge increased pursuant to Sec.  226.55(b)(4) to the annual 
percentage rate, fee, or charge that applied prior to the increase, 
this provision does not prohibit the card issuer from applying an 
increased annual percentage rate, fee, or charge consistent with any of 
the other exceptions in Sec.  226.55(b). For example, if a temporary 
rate applied prior to the Sec.  226.55(b)(4) increase and the temporary 
rate expired before a reduction in rate pursuant to Sec.  226.55(b)(4), 
the card issuer may apply an increased rate to the extent consistent 
with Sec.  226.55(b)(1). Similarly, if a variable rate applied prior to 
the Sec.  226.55(b)(4) increase, the card issuer may apply any increase 
in that variable rate to the extent consistent with Sec.  226.55(b)(2). 
This is consistent with Sec.  226.55(b), which provides that a card 
issuer may increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) pursuant to one of the exceptions in Sec.  226.55(b) even 
if that increase would not be permitted under a different exception.
    Third, the comment states that, if Sec.  226.55(b)(4)(ii) requires 
a card issuer to reduce an annual percentage rate, fee, or charge on a 
date that is not the first day of a billing cycle, the card issuer may 
delay application of the reduced rate, fee, or charge until the first 
day of the following billing cycle. As discussed above with respect to 
comment 55(b)-2, the Board understands that it may be operationally 
difficult for some card issuers to reduce a rate, fee, or charge in the 
middle of a billing cycle. Accordingly, this comment is consistent with 
comment 55(b)-2, which clarifies that a card issuer may delay 
application of an increase in a rate, fee, or charge until the start of 
the next billing cycle without relinquishing its ability to apply that 
rate, fee, or charge. Finally, the comment provides examples 
illustrating the application of Sec.  226.55(b)(4)(ii).\55\
---------------------------------------------------------------------------

    \55\ In response to requests for clarification, the Board has 
added an example to comment 55(b)(4)-3 illustrating the application 
of Sec.  226.55(b)(4)(ii) when a consumer qualifies for a reduction 
in rate while a temporary rate is still in effect. In addition, the 
Board has added a cross-reference to comment 55(b)(1)-3, which 
provides an illustrative example of the application of Sec.  
226.55(b)(4) to deferred interest or similar programs.
---------------------------------------------------------------------------

55(b)(5) Workout and Temporary Hardship Arrangement Exception
    Revised TILA Section 171(b)(3) permits a creditor to increase an 
annual percentage rate, fee, or finance charge ``due to the completion 
of a workout or temporary hardship arrangement by the [consumer] or the 
failure of a [consumer] to comply with the terms of a workout or 
temporary hardship arrangement.'' However, like the exception for 
delinquencies of more than 60 days in revised TILA Section 171(b)(4), 
this exception is subject to two conditions. First, revised Section 
171(b)(3)(A) provides that ``the annual percentage rate, fee, or 
finance charge applicable to a category of transactions following any 
such increase does not exceed the rate, fee, or finance charge that 
applied to that category of transactions prior to commencement of the 
arrangement.'' Second, revised Section 171(b)(3)(B) provides that the 
creditor must have ``provided the [consumer], prior to the commencement 
of such arrangement, with clear and conspicuous disclosure of the terms 
of the arrangement (including any increases due to such completion or 
failure).''
    The Board proposed to implement this exception in Sec.  
226.55(b)(5). The notice requirements in revised Section 171(b)(3)(B) 
were set forth in proposed Sec.  226.55(b)(5)(i). The limitation on 
increases following completion or failure of a workout or temporary 
hardship arrangement was set forth in proposed Sec.  226.55(b)(5)(ii). 
Section 226.55(b)(5) is generally adopted as proposed, although--as 
discussed below--the Board has revised Sec.  226.55(b)(5)(i) and 
comment 55(b)(5)-2 for consistency with the revisions to the notice 
requirements for workout and temporary hardship arrangements in Sec.  
226.9(c)(2)(v)(D). Otherwise, the commentary to Sec.  226.55(b)(5) is 
adopted as proposed.
    Comment 55(b)(5)-1 clarifies that nothing in Sec.  226.55(b)(5) 
permits a card issuer to alter the requirements of Sec.  226.55 
pursuant to a workout or temporary hardship arrangement. For example, a 
card issuer cannot increase

[[Page 7741]]

an annual percentage rate or a fee or charge required to be disclosed 
under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to a 
workout or temporary hardship arrangement unless otherwise permitted by 
Sec.  226.55. In addition, a card issuer cannot require the consumer to 
make payments with respect to a protected balance that exceed the 
payments permitted under Sec.  226.55(c).\56\
---------------------------------------------------------------------------

    \56\ The definition of ``protected balance'' and the permissible 
repayment methods for such a balance are discussed in detail below 
with respect to Sec.  226.55(c).
---------------------------------------------------------------------------

    Comment 55(b)(5)-2 clarifies that a card issuer that has complied 
with the disclosure requirements in Sec.  226.9(c)(2)(v)(D) has also 
complied with the disclosure requirements in Sec.  226.55(b)(5)(i). The 
comment also contains a cross-reference to proposed comment 9(c)(2)(v)-
10 (formerly comment 9(c)(2)(v)-8), which the Board adopted in the July 
2009 Regulation Z Interim Final Rule to clarify the terms a creditor is 
required to disclose prior to commencement of a workout or temporary 
hardship arrangement for purposes of Sec.  226.9(c)(2)(v)(D), which is 
an exception to the general requirement that a creditor provide 45 days 
advance notice of an increase in annual percentage rate. See 74 FR 
36099. Because the disclosure requirements in Sec.  226.9(c)(2)(v)(D) 
and Sec.  226.55(b)(5)(i) implement the same statutory provision 
(revised TILA Section 171(b)(3)(B)), the Board believes a single set of 
disclosures should satisfy the requirements of all three provisions. 
The Board has revised the disclosure requirement in Sec.  
226.55(b)(5)(i) and the guidance in comment 55(b)(5)-2 for consistency 
with the revisions to Sec.  226.9(c)(2)(v)(D), which permit creditors 
to disclose the terms of the workout or temporary hardship arrangement 
orally by telephone, provided that the creditor mails or delivers a 
written disclosure of the terms as soon as reasonably practicable after 
the oral disclosure is provided.
    Similar to the commentary to Sec.  226.55(b)(4), comment 55(b)(5)-3 
states that, although the card issuer may not apply an annual 
percentage rate, fee, or charge to transactions that occurred prior to 
commencement of the arrangement that exceeds the rate, fee, or charge 
that applied to those transactions prior to commencement of the 
arrangement, Sec.  226.55(b)(5)(ii) does not prohibit the card issuer 
from applying an increased rate, fee, or charge upon completion or 
failure of the arrangement to the extent consistent with any of the 
other exceptions in Sec.  226.55(b) (such as an increase in a variable 
rate consistent with Sec.  226.55(b)(2)). Finally, comment 55(b)(5)-4 
provides illustrative examples of the application of this 
exception.\57\
---------------------------------------------------------------------------

    \57\ In response to requests for clarifications, the Board has 
revised comment 55(b)(5)-4 to provide an example of the application 
of Sec.  226.55(b)(5) to fees.
---------------------------------------------------------------------------

55(b)(6) Servicemembers Civil Relief Act Exception
    In the October 2009 Regulation Z Proposal, the Board proposed to 
use its authority under TILA Section 105(a) to clarify the relationship 
between the general prohibition on increasing annual percentage rates 
in revised TILA Section 171 and certain provisions of the 
Servicemembers Civil Relief Act (SCRA), 50 U.S.C. app. 501 et seq. 
Specifically, 50 U.S.C. app. 527(a)(1) provides that ``[a]n obligation 
or liability bearing interest at a rate in excess of 6 percent per year 
that is incurred by a servicemember, or the servicemember and the 
servicemember's spouse jointly, before the servicemember enters 
military service shall not bear interest at a rate in excess of 6 
percent. * * *'' With respect to credit card accounts, this restriction 
applies during the period of military service. See 50 U.S.C. app. 
527(a)(1)(B).\58\
---------------------------------------------------------------------------

    \58\ 50 U.S.C. app. 527(a)(1)(B) applies to obligations or 
liabilities that do not consist of a mortgage, trust deed, or other 
security in the nature of a mortgage.
---------------------------------------------------------------------------

    Under revised TILA Section 171, a creditor that complies with the 
SCRA by lowering the annual percentage rate that applies to an existing 
balance on a credit card account when the consumer enters military 
service arguably would not be permitted to increase the rate for that 
balance once the period of military service ends and the protections of 
the SCRA no longer apply. In May 2009, the Board and the other Agencies 
proposed to create an exception to the general prohibition in the 
January 2009 FTC Act Rule on applying increased rates to existing 
balances for these circumstances, provided that the increased rate does 
not exceed the rate that applied prior to the period of military 
service. See 12 CFR 227.24(b)(6), 74 FR 20814; see also 74 FR 20812. 
Revised TILA Section 171 does not contain a similar exception.
    Nevertheless, the Board does not believe that Congress intended to 
prohibit creditors from returning an annual percentage rate that has 
been reduced by operation of the SCRA to its pre-military service level 
once the SCRA no longer applies. Accordingly, the Board proposed to 
create Sec.  226.55(b)(6), which states that, if an annual percentage 
rate has been decreased pursuant to the SCRA, a card issuer may 
increase that annual percentage rate once the SCRA no longer applies. 
However, the proposed rule would not have permitted the card issuer to 
apply an annual percentage rate to any transactions that occurred prior 
to the decrease that exceeds the rate that applied to those 
transactions prior to the decrease. Furthermore, because the Board 
believes that a consumer leaving military service should receive 45 
days advance notice of this increase in rate, the Board did not propose 
a corresponding exception to Sec.  226.9.
    Commenters were generally supportive of proposed Sec.  
226.55(b)(6). Accordingly, it is adopted as proposed. However, although 
industry commenters argued that a similar exception should be adopted 
in Sec.  226.9(c), the Board continues to believe--as discussed above 
with respect to Sec.  226.9(c)--that consumers who leave military 
service should receive 45 days advance notice of an increase in rate.
    The Board has also adopted the commentary to Sec.  226.55(b)(6) as 
proposed. Comment 55(b)(6)-1 clarifies that, although Sec.  
226.55(b)(6) requires the card issuer to apply to any transactions that 
occurred prior to a decrease in annual percentage rate pursuant to 50 
U.S.C. app. 527 a rate that does not exceed the rate that applied to 
those transactions prior to the decrease, the card issuer may apply an 
increased rate once 50 U.S.C. app 527 no longer applies, to the extent 
consistent with any of the other exceptions in Sec.  226.55(b). For 
example, if the rate that applied prior to the decrease was a variable 
rate, the card issuer may apply any increase in that variable rate to 
the extent consistent with Sec.  226.55(b)(2). This comment mirrors 
similar commentary to Sec.  226.55(b)(4) and (b)(5). An illustrative 
example is provided in comment 26(b)(6)-2.
55(c) Treatment of Protected Balances
    Revised TILA Section 171(c)(1) states that ``[t]he creditor shall 
not change the terms governing the repayment of any outstanding 
balance, except that the creditor may provide the [consumer] with one 
of the methods described in [revised Section 171(c)(2)] * * * or a 
method that is no less beneficial to the [consumer] than one of those 
methods.'' Revised TILA Section 171(c)(2) lists two methods of repaying 
an outstanding balance: first, an amortization period of not less than 
five years, beginning on the effective date of the increase set forth 
in the Section 127(i) notice; and, second, a required minimum periodic

[[Page 7742]]

payment that includes a percentage of the outstanding balance that is 
equal to not more than twice the percentage required before the 
effective date of the increase set forth in the Section 127(i) notice.
    For clarity, Sec.  226.55(c)(1) defines the balances subject to the 
protections in revised TILA Section 171(c) as ``protected balances.'' 
Under this definition, a ``protected balance'' is the amount owed for a 
category of transactions to which an increased annual percentage rate 
or an increased fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) cannot be applied after 
the annual percentage rate, fee, or charge for that category of 
transactions has been increased pursuant to Sec.  226.55(b)(3). For 
example, when a card issuer notifies a consumer of an increase in the 
annual percentage rate that applies to new purchases pursuant to Sec.  
226.9(c), the protected balance is the purchase balance at the end of 
the fourteenth day after provision of the notice. See Sec.  
226.55(b)(3)(ii). The Board and the other Agencies adopted a similar 
definition in the January 2009 FTC Act Rule. See 12 CFR 227.24(c), 74 
FR 5560; see also 74 FR 5532. The Board did not receive significant 
comment on Sec.  226.55(c)(1), which is adopted as proposed.
    Comment 55(c)(1)-1 provides an illustrative example of a protected 
balance. Comment 55(c)(1)-2 clarifies that, because Sec.  
226.55(b)(3)(iii) does not permit a card issuer to increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year 
after account opening, Sec.  226.55(c) does not apply to balances 
during the first year after account opening. These comments are adopted 
as proposed.
    Comment 55(c)(1)-3 clarifies that, although Sec.  226.55(b)(3) does 
not permit a card issuer to apply an increased fee or charge required 
to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) to a protected balance, a card issuer is not prohibited 
from increasing a fee or charge that applies to the account as a whole 
or to balances other than the protected balance. For example, a card 
issuer may add a new annual or a monthly maintenance fee to an account 
or increase such a fee so long as the fee is not based solely on the 
protected balance. However, if the consumer rejects an increase in a 
fee or charge pursuant to Sec.  226.9(h), the card issuer is prohibited 
from applying the increased fee or charge to the account and from 
imposing any other fee or charge solely as a result of the rejection. 
See Sec.  226.9(h)(2)(i) and (ii); comment 9(h)(2)(ii)-2.
    Proposed Sec.  226.55(c)(2) would have implemented the restrictions 
on accelerating the repayment of protected balances in revised TILA 
Section 171(c). As discussed above with respect to Sec.  226.9(h), the 
Board previously implemented these restrictions in the July 2009 
Regulation Z Interim Final Rule as Sec.  226.9(h)(2)(iii). However, for 
clarity and consistency, the Board proposed to move these restrictions 
to Sec.  226.55(c)(2). The Board did not propose to substantively alter 
the repayment methods in Sec.  226.9(h)(2)(iii), except that the 
repayment methods in Sec.  226.55(c)(2) focused on the effective date 
of the increase (rather than the date on which the card issuer is 
notified of the rejection pursuant to Sec.  226.9(h)). The Board did 
not receive significant comment on Sec.  226.55(c)(2), which is adopted 
as proposed.
    Similarly, for the reasons discussed above with respect to Sec.  
226.9(h), the Board proposed to move the commentary clarifying the 
application of the repayment methods from Sec.  226.9(h)(2)(iii) to 
Sec.  226.55(c) and to adjust that commentary for consistency with 
Sec.  226.55(c). In addition, proposed comment 55(c)(2)(iii)-1 
clarified that, although Sec.  226.55(c)(2)(iii) limits the extent to 
which the portion of the required minimum periodic payment based on the 
protected balance may be increased, it does not limit or otherwise 
address the creditor's ability to determine the amount of the required 
minimum periodic payment based on other balances on the account or to 
apply that portion of the minimum payment to the balances on the 
account. Proposed comment 55(c)(2)(iii)-2 provided an illustrative 
example. These comments are adopted as proposed.
55(d) Continuing Application of Sec.  226.55
    Pursuant to its authority under TILA Section 105(a), the Board 
proposed to adopt Sec.  226.55(d), which provided that the limitations 
in Sec.  226.55 continue to apply to a balance on a credit card account 
after the account is closed or acquired by another card issuer or the 
balance is transferred from a credit card account issued by a card 
issuer to another credit account issued by the same card issuer or its 
affiliate or subsidiary (unless the account to which the balance is 
transferred is subject to Sec.  226.5b). This provision is based on 
commentary to the January 2009 FTC Act Rule proposed by the Board and 
the other Agencies in May 2009, primarily in response to concerns that 
permitting card issuers to apply an increased rate to an existing 
balance in these circumstances could lead to circumvention of the 
general prohibition on such increases. See 12 CFR 227.21 comments 
21(c)-1 through -3, 74 FR 20814-20815; see also 74 FR 20805-20807. As 
discussed below, Sec.  226.55(d) and its commentary are adopted as 
proposed.
    Because the protections in revised TILA Section 171 and new TILA 
Section 172 cannot be waived or forfeited, Sec.  226.55(d) does not 
distinguish between closures or transfers initiated by the card issuer 
and closures or transfers initiated by the consumer. Although there may 
be circumstances in which individual consumers could make informed 
choices about the benefits and costs of waiving the protections in 
revised Section 171 and new Section 172, an exception for those 
circumstances would create a significant loophole that could be used to 
deny the protections to other consumers. For example, if a card issuer 
offered to transfer its cardholder's existing balance to a credit 
product that would reduce the rate on the balance for a period of time 
in exchange for the cardholder accepting a higher rate after that 
period, the cardholder would have to determine whether the savings 
created by the temporary reduction would offset the cost of the 
subsequent increase, which would depend on the amount of the balance, 
the amount and length of the reduction, the amount of the increase, and 
the length of time it would take the consumer to pay off the balance at 
the increased rate. Based on extensive consumer testing conducted 
during the preparation of the January 2009 Regulation Z Rule and the 
January 2009 FTC Act Rule, the Board believes that it would be very 
difficult to ensure that card issuers disclosed this information in a 
manner that will enable most consumers to make informed decisions about 
whether to accept the increase in rate. Although some approaches to 
disclosure may be effective, others may not and it would be impossible 
to distinguish among such approaches in a way that would provide clear 
guidance for card issuers. Furthermore, consumers might be presented 
with choices that are not meaningful (such as a choice between 
accepting a higher rate on an existing balance or losing credit 
privileges on the account).
    Section 226.55(d)(1) provides that Sec.  226.55 continues to apply 
to a balance on a credit card account after the account is closed or 
acquired by another card issuer. In some cases, the acquiring 
institution may elect to close the acquired account and replace it with 
its own credit card account. See comment

[[Page 7743]]

12(a)(2)-3. The acquisition of an account does not involve any choice 
on the part of the consumer, and the Board believes that consumers 
whose accounts are acquired should receive the same level of protection 
against increases in annual percentage rates after acquisition as they 
did beforehand.\59\ Comment 55(d)-1 clarifies that Sec.  226.55 
continues to apply regardless of whether the account is closed by the 
consumer or the card issuer and provides illustrative examples of the 
application of Sec.  226.55(d)(1). Comment 55(d)-2 clarifies the 
application of Sec.  226.55(d)(1) to circumstances in which a card 
issuer acquires a credit card account with a balance by, for example, 
merging with or acquiring another institution or by purchasing another 
institution's credit card portfolio.
---------------------------------------------------------------------------

    \59\ Thus, as discussed in the commentary to Sec.  226.55(b)(2), 
a card issuer that acquires a credit card account with a balance to 
which a variable rate applies generally would not be permitted to 
substitute a new index for the index used to determine the variable 
rate if the change could result in an increase in the annual 
percentage rate. However, the commentary to Sec.  226.55(b)(2) does 
clarify that a card issuer that does not utilize the index used to 
determine the variable rate for an acquired balance may convert that 
rate to an equal or lower non-variable rate, subject to the notice 
requirements of Sec.  226.9(c).
---------------------------------------------------------------------------

    Section 226.55(d)(2) provides that Sec.  226.55 continues to apply 
to a balance on a credit card account after the balance is transferred 
from a credit card account issued by a card issuer to another credit 
account issued by the same card issuer or its affiliate or subsidiary 
(unless the account to which the balance is transferred is subject to 
Sec.  226.5b). Comment 55(d)-3.i provides examples of circumstances in 
which balances may be transferred from one credit card account issued 
by a card issuer to another credit card account issued by the same card 
issuer (or its affiliate or subsidiary), such as when the consumer's 
account is converted from a retail credit card that may only be used at 
a single retailer or an affiliated group of retailers to a co-branded 
general purpose credit card which may be used at a wider number of 
merchants. Because of the concerns discussed above regarding 
circumvention and informed consumer choice and for consistency with the 
issuance rules regarding card renewals or substitutions for accepted 
credit cards under Sec.  226.12(a)(2), the Board believes--and Sec.  
226.55(d)(2) provides--that these transfers should be treated as a 
continuation of the existing account relationship rather than the 
creation of a new account relationship. See comment 12(a)(2)-2.
    Section 226.55(d)(2) does not apply to balances transferred from a 
credit card account issued by a card issuer to a credit account issued 
by the same card issuer (or its affiliate or subsidiary) that is 
subject to Sec.  226.5b (which applies to open-end credit plans secured 
by the consumer's dwelling). The Board believes that excluding 
transfers to such accounts is appropriate because Sec.  226.5b provides 
protections that are similar to--and, in some cases, more stringent 
than--the protections in Sec.  226.55. For example, a card issuer may 
not change the annual percentage rate on a home-equity plan unless the 
change is based on an index that is not under the card issuer's control 
and is available to the general public. See 12 CFR 226.5b(f)(1).
    Comment 55(d)-3.ii clarifies that, when a consumer chooses to 
transfer a balance to a credit card account issued by a different card 
issuer, Sec.  226.55 does not prohibit the card issuer to which the 
balance is transferred from applying its account terms to that balance, 
provided those terms comply with 12 CFR part 226. For example, if a 
credit card account issued by card issuer A has a $1,000 purchase 
balance at an annual percentage rate of 15% and the consumer transfers 
that balance to a credit card account with a purchase rate of 17% 
issued by card issuer B, card issuer B may apply the 17% rate to the 
$1,000 balance. However, card issuer B may not subsequently increase 
the rate that applies to that balance unless permitted by one of the 
exceptions in Sec.  226.55(b).
    Although balance transfers from one card issuer to another raise 
some of the same concerns as balance transfers involving the same card 
issuer, the Board believes that transfers between card issuers are not 
contrary to the intent of revised TILA Section 171 and Sec.  226.55 
because the card issuer to which the balance is transferred is not 
increasing the cost of credit it previously extended to the consumer. 
For example, assume that card issuer A has extended a consumer $1,000 
of credit at a rate of 15%. Because Sec.  226.55 generally prohibits 
card issuer A from increasing the rate that applies to that balance, it 
would be inconsistent with Sec.  226.55 to allow card issuer A to 
reprice that balance simply by transferring it to another of its 
accounts. In contrast, in order for the $1,000 balance to be 
transferred to card issuer B, card issuer B must provide the consumer 
with a new $1,000 extension of credit in an arms-length transaction and 
should be permitted to price that new extension consistent with its 
evaluation of prevailing market rates, the risk presented by the 
consumer, and other factors. Thus, the transfer from card issuer A to 
card issuer B does not appear to raise concerns about circumvention of 
proposed Sec.  226.55 because card issuer B is not increasing the cost 
of credit it previously extended.
    Consumer groups and some industry commenters supported proposed 
Sec.  226.55(d). However, the Board understands from industry comments 
received regarding both the May 2009 and October 2009 proposals that 
drawing a distinction between balance transfers involving the same card 
issuer and balance transfers involving different card issuers may limit 
a card issuer's ability to offer its existing cardholders the same 
terms that it would offer another issuer's cardholders. As noted in 
those proposals, however, the Board understands that currently card 
issuers generally do not make promotional balance transfer offers 
available to their existing cardholders for balances held by the issuer 
because it is not cost-effective to do so. Furthermore, although many 
card issuers do offer existing cardholders the opportunity to upgrade 
to accounts offering different terms or features (such as upgrading to 
an account that offers a particular type of rewards), the Board 
understands that these offers generally are not conditioned on a 
balance transfer, which indicates that it may be cost-effective for 
card issuers to make these offers without repricing an existing 
balance. The comments opposing Sec.  226.55(d) do not lead the Board to 
a different understanding. Accordingly, the Board continues to believe 
that Sec.  226.55(d) will benefit consumers overall.

Section 226.56 Requirements for Over-the-Limit Transactions

    When a consumer seeks to engage in a credit card transaction that 
may cause his or her credit limit to be exceeded, the creditor may, at 
its discretion, authorize the over-the-limit transaction. If the 
creditor pays an over-the-limit transaction, the consumer is typically 
assessed a fee or charge for the service.\60\ In addition, the over-
the-limit transaction may also be considered a default under the terms 
of the credit card agreement and trigger a rate

[[Page 7744]]

increase, in some cases up to the default, or penalty, rate on the 
account.
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    \60\ According to the GAO, the average over-the-limit fee 
assessed by issuers in 2005 was $30.81, an increase of 138 percent 
since 1995. See Credit Cards: Increased Complexity in Rates and Fees 
Heightens Need for More Effective Disclosures to Consumers, GAO 
Report 06-929, at 20 (September 2006) (citing data reported by 
CardWeb.com). The GAO also reported that among cards issued by the 
six largest issuers in 2005, most charged an over-the-limit fee 
amount between $35 and $39. Id. at 21.
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    The Credit Card Act adds new TILA Section 127(k) and requires a 
creditor to obtain a consumer's express election, or opt-in, before the 
creditor may impose any fees on a consumer's credit card account for 
making an extension of credit that exceeds the consumer's credit limit. 
15 U.S.C. 1637(k). TILA Section 127(k)(2) further provides that no 
election shall take effect unless the consumer, before making such 
election, has received a notice from the creditor of any fees that may 
be assessed for an over-the-limit transaction. If the consumer opts in 
to the service, the creditor is also required to provide notice of the 
consumer's right to revoke that election on any periodic statement that 
reflects the imposition of an over-the-limit fee during the relevant 
billing cycle. The Board is implementing the over-the-limit consumer 
consent requirements in Sec.  226.56.
    The Credit Card Act directs the Board to issue rules governing the 
disclosures required by TILA Section 127(k), including rules regarding 
(i) the form, manner and timing of the initial opt-in notice and (ii) 
the form of the subsequent notice describing how an opt-in may be 
revoked. See TILA Section 127(k)(2). In addition, the Board must 
prescribe rules to prevent unfair or deceptive acts or practices in 
connection with the manipulation of credit limits designed to increase 
over-the-limit fees or other penalty fees. See TILA Section 
127(k)(5)(B).
56(a) Definition
    Proposed Sec.  226.56(a) defined ``over-the-limit transaction'' to 
mean any extension of credit by a creditor to complete a transaction 
that causes a consumer's credit card account balance to exceed the 
consumer's credit limit. No comments were received on the proposed 
definition and it is adopted as proposed. The term is limited to 
extensions of credit required to complete a transaction that has been 
requested by a consumer (for example, to make a purchase at a point-of-
sale or on-line, or to transfer a balance from another account). The 
term is not intended to cover the assessment of fees or interest 
charges by the card issuer that may cause the consumer to exceed the 
credit limit.\61\ See, however, Sec.  226.56(j)(4), discussed below.
---------------------------------------------------------------------------

    \61\ As discussed below, Sec.  226.56 and the accompanying 
commentary have been revised to refer to a ``card issuer'' in place 
of ``creditor'' to reflect the scope of accounts to which the rule 
applies.
---------------------------------------------------------------------------

56(b) Opt-In Requirement
    General rule. Proposed Sec.  226.56(b)(1) set forth the general 
rule prohibiting a creditor from assessing a fee or charge on a 
consumer's account for paying an over-the-limit transaction unless the 
consumer is given notice and a reasonable opportunity to affirmatively 
consent, or opt in, to the creditor's payment of over-the-limit 
transactions and the consumer has opted in. If the consumer 
affirmatively consents, or ``opts in,'' to the service, the creditor 
must provide the consumer notice of the right to revoke that consent 
after assessing an over-the-limit fee or charge on the consumer's 
account.
    The Board adopts the opt-in requirement as proposed. Under the 
final rule, Sec.  226.56, including the requirement to provide notice 
and an opt-in right, applies only to a credit card account under an 
open-end (not home-secured) consumer credit plan, and therefore does 
not apply to credit cards that access a home equity line of credit or 
to debit cards linked to an overdraft line of credit. See Sec.  
226.2(a)(15)(ii). Section 226.56 and the accompanying commentary are 
also revised throughout to refer to a ``card issuer,'' rather than 
``creditor,'' to reflect that the rule applies only to credit card 
accounts.
    The opt-in notice may be provided by the card issuer orally, 
electronically, or in writing. See Sec.  226.56(b)(1)(i). Compliance 
with the consumer consent provisions or other requirements necessary to 
provide consumer disclosures electronically pursuant to the E-Sign Act 
is not required if the card issuer elects to provide the opt-in notice 
electronically. See also Sec.  226.5(a)(1)(ii)(A). However, as 
discussed below under Sec.  226.56(d)(1)(ii), before the consumer may 
consent orally or electronically, the card issuer must also have 
provided the opt-in notice immediately prior to obtaining that consent. 
In addition, while the opt-in notice may be provided orally, 
electronically, or in writing, the revocation notice must be provided 
to the consumer in writing, consistent with the statutory requirement 
that such notice appear on the periodic statement reflecting the 
assessment of an over-the-limit fee or charge on the consumer's 
account. See TILA Section 127(k)(2), and Sec.  226.56(d)(3), discussed 
below.
    Proposed comment 56(b)-1 clarified that a creditor that has a 
policy and practice of declining to authorize or pay any transactions 
that the creditor reasonably believes would cause the consumer to 
exceed the credit limit is not subject to the requirements of this 
section and would therefore not be required to provide the consumer 
notice or an opt-in right. This ``reasonable belief'' standard 
recognizes that creditors generally do not have real-time information 
regarding a consumer's prior transactions or credits that may have 
posted to the consumer's credit card account.
    Industry commenters asked the Board to clarify the aspects of the 
proposed rule that would not be applicable to a creditor that declined 
transactions if it reasonably believed that a transaction would cause 
the consumer to exceed the credit limit. In particular, industry 
commenters stated it was unclear whether a creditor would be permitted 
to charge an over-the-limit fee where a transaction was authorized on 
the creditor's reasonable belief that the consumer had sufficient 
available credit for a transaction, but the transaction nonetheless 
exceeded the consumer's credit limit when it later posts to the account 
(for example, because of an intervening charge). Industry commenters 
also requested additional guidance regarding the ``reasonable belief'' 
standard.
    Comment 56(b)-1 as revised in the final rule clarifies that Sec.  
226.56(b)(1)(i)-(v), including the requirements to provide notice and 
obtain a consumer's affirmative consent to a card issuer's payment of 
over-the-limit transactions, do not apply to any card issuer that has a 
policy and practice of declining to pay any over-the-limit transaction 
when the card issuer has a reasonable belief that completing the 
transaction will cause the consumer to exceed his or her credit limit. 
While the notice and opt-in requirements of the rule do not apply to 
such card issuers, the prohibition against assessing an over-the-limit 
fee or charge without the consumer's affirmative consent continues to 
apply. See also Sec.  226.56(b)(2). This clarification regarding 
application of the fee prohibition has been moved into the comment in 
response to consumer group suggestions. Thus, if an over-the-limit 
transaction is paid, for example, because of a must-pay transaction 
that was authorized by the card issuer on the belief that the consumer 
had sufficient available credit and which later causes the consumer's 
credit limit to be exceeded when it posts, the card issuer may not 
charge a fee for paying the transaction, absent the consumer's consent 
to the service. The revised comment also clarifies that a card issuer 
has a policy and practice of declining transactions on a ``reasonable 
belief'' that a consumer does not have sufficient available credit if 
it only authorizes those transactions that the card issuer reasonably 
believes, at the time of

[[Page 7745]]

authorization, would not cause the consumer to exceed a credit limit.
    Although a card issuer must obtain consumer consent before any 
over-the-limit fees or charges are assessed on a consumer's account, 
the final rule does not require that the card issuer obtain the 
consumer's separate consent for each extension of credit that causes 
the consumer to exceed his or her credit limit. Such an approach is not 
compelled by the Credit Card Act. Comment 56(b)-2, which is 
substantively unchanged from the proposal, also explains, however, that 
even if a consumer has affirmatively consented or opted in to a card 
issuer's over-the-limit service, the card issuer is not required to 
authorize or pay any over-the-limit transactions.
    Proposed comment 56(b)-3 would have provided that the opt-in 
requirement applies whether a creditor assesses over-the-limit fees or 
charges on a per transaction basis or as a periodic account or 
maintenance fee that is imposed each cycle for the creditor's payment 
of over-the-limit transactions regardless of whether the consumer has 
exceeded the credit limit during a particular cycle (for example, a 
monthly ``over-the-limit protection'' fee). As further discussed below 
under Sec.  226.56(j)(1), however, TILA Section 127(k)(7) prohibits the 
imposition of periodic or maintenance fees related to the payment of 
over-the-limit transactions, even with consumer consent, if the 
consumer has not engaged in an over-the-limit transaction during the 
particular cycle. Accordingly, the final rule does not adopt proposed 
comment 56(b)-3.
    Some industry commenters asserted that the new provisions, 
including the requirements to provide notice and obtain consumer 
consent to the payment of over-the-limit transactions, should not apply 
to existing accounts out of concern that transactions would otherwise 
be disrupted for consumers who may rely on the creditor's over-the-
limit service, but fail to provide affirmative consent by February 22, 
2010. By contrast, consumer groups strongly supported applying the new 
requirements to all credit card accounts, including existing accounts. 
Consumer groups urged the Board to explicitly state this fact in the 
rule or staff commentary. As the Board stated previously, nothing in 
the statute or the legislative history suggests that Congress intended 
that existing account-holders should not have the same rights regarding 
consumer choice for over-the-limit transactions as those afforded to 
new customers. Thus, Sec.  226.56 applies to all credit card accounts, 
including those opened prior to February 22, 2010.
    Reasonable opportunity to opt in. Proposed Sec.  226.56(b)(1)(ii) 
required a creditor to provide a reasonable opportunity for the 
consumer to affirmatively consent to the creditor's payment of over-
the-limit transactions. TILA Section 127(k)(3) provides that the 
consumer's affirmative consent (and revocation) may be made orally, 
electronically, or in writing, pursuant to regulations prescribed by 
the Board. See also Sec.  226.56(e), discussed below. Proposed comment 
56(b)-4 contained examples to illustrate methods of providing a 
consumer a reasonable opportunity to affirmatively consent using the 
specified methods. The rule and comment (which has been renumbered as 
comment 56(b)-3) are adopted, substantially as proposed with certain 
revisions for clarity.
    Final comment 56(b)-3 explains that a card issuer provides a 
consumer with a reasonable opportunity to provide affirmative consent 
when, among other things, it provides reasonable methods by which the 
consumer may affirmatively consent. The comment provides four examples 
of such reasonable methods.
    The first example provides that a card issuer may include the 
notice on an application form that a consumer may fill out to request 
the service as part of the application process. See comment 56(b)-3.i. 
Alternatively, after the consumer has been approved for the card, the 
card issuer could provide a form with the account-opening disclosures 
or the periodic statement that can be filled out separately and mailed 
to affirmatively request the service. See comment 56(b)-3.ii and Model 
Form G-25(A) in Appendix G, discussed below.
    Comment 56(b)-3.iii illustrates that a card issuer may obtain 
consumer consent through a readily available telephone line. The final 
rule does not require that the telephone number be toll-free, however, 
as card issuers have sufficient incentives to facilitate a consumer's 
opt-in choice. Of course, if a card issuer elects to establish a toll-
free number to obtain a consumer's opt-in, it must similarly make that 
number available for consumers to later revoke their opt-ins if the 
consumer so decides. See Sec.  226.56(c).
    Comment 56(b)-3.iv illustrates that a card issuer may provide an 
electronic means for the consumer to affirmatively consent. For 
example, a card issuer could provide a form on its Web site that 
enables the consumer to check a box to indicate his or her agreement to 
the over-the-limit service and confirm that choice by clicking on a 
button that affirms the consumer's consent. See also Sec.  
226.56(d)(1)(ii) (requiring the opt-in notice to be provided 
immediately prior to the consumer's consent). The final comment does 
not require that a card issuer direct consumers to a specific Web site 
address because issuers have an incentive to facilitate consumer opt-
ins.
    Segregation of notice and consent. The Board solicited comment in 
the proposal regarding whether creditors should be required to 
segregate the opt-in notice from other account disclosures. Some 
industry commenters argued that it was unnecessary to require that the 
opt-in notice be segregated from other disclosures because the proposed 
rule would also require that the consumer's consent be provided 
separately from other consents or acknowledgments obtained by the 
creditor. In addition, one industry commenter stated that the over-the-
limit opt-in notice was not more significant than other disclosures 
given to consumers and therefore the notice did not warrant a separate 
segregation requirement. Consumer groups and one state government 
agency, as well as one industry commenter, however, supported a 
segregation requirement to ensure that the information is highlighted 
and to help consumers understand the choice that is presented to them. 
One industry commenter asked whether it would be permissible to include 
a simplified notice on the credit application that provided certain key 
information about the opt-in right, but that referred the applicant to 
separate terms and conditions that included the remaining disclosures.
    The final rule requires that the opt-in notice be segregated from 
all other information given to the consumer. See Sec.  226.56(b)(1)(i). 
The Board believes such a requirement is necessary to ensure that the 
information is not obscured within other account documents and 
overlooked by the consumer, for example, in preprinted language in the 
account-opening disclosures, leading the consumer to inadvertently 
consent to having over-the-limit transactions paid or authorized by the 
card issuer. The rule would not prohibit card issuers from providing a 
simplified notice on an application regarding the opt-in right that 
referred the consumer to the full notice elsewhere in the application 
disclosures, provided that the full notice contains all of the required 
content segregated from all other information.
    As discussed above, Sec.  226.56(b)(1)(iii) of the final rule 
requires the card issuer to obtain the consumer's affirmative

[[Page 7746]]

consent, or opt-in, to the card issuer's payment of over-the-limit 
transactions. Proposed comment 56(b)-5 provided examples of ways in 
which a consumer's affirmative consent is or is not obtained. 
Specifically, the proposed comment clarified that the consumer's 
consent must be obtained separately from other consents or 
acknowledgments provided by the consumer. The proposal further provided 
that the consumer must initial, sign or otherwise make a separate 
request for the over-the-limit service. Thus, for example, a consumer's 
signature alone on an application for a credit card would not 
sufficiently evidence the consumer's consent to the creditor's payment 
of over-the-limit transactions. The final rule adopts the proposed 
comment, renumbered as comment 56(b)-4, substantially as proposed.
    One industry commenter agreed that it was appropriate to segregate 
consumer consent for over-the-limit transactions from other consents 
provided by the consumer. A state government agency believed, however, 
that the check box approach described in the proposal would not 
sufficiently ensure that consumers will understand that the over-the-
limit decision is not a required part of the credit card application. 
Accordingly, the agency urged the Board to explicitly require that both 
disclosures and written consents are presented separately from other 
account disclosures, with stand-alone plain language documents that 
clearly present the over-the-limit service as discretionary.
    Final comment 56(b)-4 clarifies that regardless of the means in 
which the notice of the opt-in right is provided, the consumer's 
consent must be obtained separately from other consents or 
acknowledgments provided by the consumer. Consent to the payment of 
over-the-limit transactions may not, for example, be obtained solely 
because the consumer signed a credit application to request a credit 
card. The final comment further provides that a card issuer could 
obtain a consumer's affirmative consent by providing a blank signature 
line or a check box on the application that the consumer can sign or 
select to request the over-the-limit coverage, provided that the 
signature line or check box is used solely for the purpose of 
evidencing the consumer's choice and not for any other purpose, such as 
to obtain consumer consents for other account services or features or 
to receive disclosures electronically. The Board believes that the need 
to obtain a consumer's consent separate from any other consents or 
acknowledgments, including from the request for the credit card account 
itself, sufficiently ensures that a consumer would understand that 
consenting to the payment of over-the-limit transactions is not a 
required part of the credit card application.\62\ See, however, Sec.  
226.56(j)(3) (prohibiting card issuers from conditioning the amount of 
credit provided on the consumer also opting in to over-the-limit 
coverage).
---------------------------------------------------------------------------

    \62\ Evidence of consumer consents (as well as revocations) must 
be retained for a period of at least two years under Regulation Z's 
record retention rules, regardless of the means by which consent is 
obtained. See Sec.  226.25.
---------------------------------------------------------------------------

    Written confirmation. The September 2009 Regulation Z Proposal also 
solicited comment on whether creditors should be required to provide 
the consumer with written confirmation once the consumer has opted in 
under proposed Sec.  226.56(b)(1)(iii) to verify that the consumer 
intended to make the election. Industry commenters opposed such a 
requirement, stating that it would impose considerable burden and costs 
on creditors, while resulting in little added protection for the 
consumer. In particular, industry commenters observed that the statute 
and proposed rule already require consumers to receive notices of their 
right to revoke a prior consent on each periodic statement reflecting 
an over-the-limit fee or charge. Thus, industry commenters argued that 
the revocation notice would provide sufficient confirmation of the 
consumer's opt-in choice. Industry commenters further noted that 
written confirmation is not required by the statute. In the event that 
written confirmation was required, industry commenters asked the Board 
to permit creditors to provide such notice on or with the next periodic 
statement provided to the consumer after the opt-in election.
    Consumer groups and one state government agency strongly supported 
a written confirmation requirement as a safeguard to ensure consumers 
that have opted in understand that they have consented to the payment 
of over-the-limit transactions. These commenters believed that written 
confirmation of the consumer's choice was critical where a consumer has 
opted in by a non-written method, such as by telephone or in person. In 
this regard, one consumer group asserted that oral opt-ins should be 
permitted only if written confirmation was also required to allow 
consumers time to examine the terms of the opt-in and make a considered 
determination whether the option is right for them.
    The final rule in Sec.  226.56(b)(1)(iv) requires that the card 
issuer provide the consumer with confirmation of the consumer's consent 
in writing, or if the consumer agrees, electronically. The Board 
believes that written confirmation will help ensure that a consumer 
intended to opt into the over-the-limit service by providing the 
consumer with a written record of his or her choice. The Board also 
anticipates that card issuers are most likely to attempt to obtain a 
consumer's opt-in by telephone, and thus in those circumstances in 
particular, written confirmation is appropriate to evidence the 
consumer's intent to opt in to the service.
    Under new comment 56(d)-5, a card issuer could comply with the 
written confirmation requirement, for example, by sending a letter to 
the consumer acknowledging that the consumer has elected to opt in to 
the card issuer's service, or, in the case of a mailed request, the 
card issuer could provide a copy of the consumer's completed opt-in 
form. The new comment also provides that a card issuer could satisfy 
the written confirmation requirement by providing notice on the first 
periodic statement sent after the consumer has opted in. See Sec.  
225.56(d)(2), discussed below. Comment 56(d)-5 further provides that a 
notice consistent with the revocation notice described in Sec.  
226.56(e)(2) would satisfy the requirement. Notwithstanding a 
consumer's consent, however, a card issuer would be prohibited from 
assessing over-the-limit fees or charges to the consumer's credit card 
account until the card issuer has sent the written confirmation. Thus, 
if a card issuer elects to provide written confirmation on the first 
periodic statement after the consumer has opted in, it would not be 
permitted to assess any over-the-limit fees or charges until the next 
statement cycle.
    Payment of over-the-limit transactions where consumer has not opted 
in. Proposed Sec.  226.56(b)(2) provided that a creditor may pay an 
over-the-limit transaction even if the consumer has not provided 
affirmative consent, so long as the creditor does not impose a fee or 
charge for paying the transaction. Proposed comment 56(b)(2)-1 
contained further guidance stating that the prohibition on imposing 
fees for paying an over-the-limit transaction where the consumer has 
not opted in applies even in circumstances where the creditor is unable 
to avoid paying a transaction that exceeds the consumer's credit limit. 
The proposed comment also set forth two illustrative examples of this 
provision.
    The first proposed example addressed circumstances where a merchant 
does not submit a credit card transaction to

[[Page 7747]]

the creditor for authorization. Such an event may occur, for instance, 
because the transaction is below the floor limits established by the 
card network rules requiring authorization or because the small dollar 
amount of the transaction does not pose significant payment risk to the 
merchant. Under the proposed example, if the transaction exceeds the 
consumer's credit limit, the creditor would not be permitted to assess 
an over-the-limit fee if the consumer has not consented to the 
creditor's payment of over-the-limit transactions.
    Under the second proposed example, a creditor could not assess a 
fee for an over-the-limit transaction that occurs because the final 
transaction amount exceeds the amount submitted for authorization. For 
example, a consumer may use his or her credit card at a pay-at-the-pump 
fuel dispenser to purchase $50 of fuel. At the time of authorization, 
the gas station may request an authorization hold of $1 to verify the 
validity of the card. Even if the subsequent $50 transaction amount 
exceeds the consumer's credit limit, proposed Sec.  226.56(b)(2) would 
prohibit the creditor from assessing an over-the-limit fee if the 
consumer has not opted in to the creditor's over-the-limit service.
    Industry commenters urged the Board to create exceptions for the 
circumstances described in the examples to allow creditors to impose 
over-the-limit fees or charges even if the consumer has not consented 
to the payment of over-the-limit transactions. These commenters argued 
that exceptions were warranted in these circumstances because creditors 
may not be able to block such transactions at the time of purchase. One 
industry commenter recommended that the Board create a broad exception 
to the fee prohibition for any transactions that are approved based on 
a reasonable belief that the transaction would not exceed the 
consumer's credit limit. Consumer group commenters strongly supported 
the proposed comment and the included examples.
    Comment 56(b)(2)-1 is adopted substantially as proposed and 
clarifies that the prohibition against assessing over-the-limit fees or 
charges without consumer consent to the payment of such transactions 
applies even in circumstances where the card issuer is unable to avoid 
paying a transaction that exceeds the consumer's credit limit. As the 
Board stated in the supplementary information to the proposal, nothing 
in the statute suggests that Congress intended to permit an exception 
to allow any over-the-limit fees to be charged in these circumstances 
absent consumer consent. See 74 FR at 54179.
    The final comment includes a third example of circumstances where a 
card issuer would not be permitted to assess any fees or charges on a 
consumer's account in connection with an over-the-limit transaction if 
the consumer has not opted in to the over-the-limit service. 
Specifically, the new example addresses circumstances where an 
intervening transaction (for example, a recurring charge) that is 
charged to the account before a previously authorized transaction is 
submitted for payment causes the consumer to exceed his or her credit 
limit with respect to the authorized transaction. Under these 
circumstances, the card issuer would not be permitted to assess an 
over-the-limit fee or charge for the previously authorized transaction 
absent consumer consent to the payment of over-the-limit transactions. 
See comment 56(b)(2)-1.iii.
    Proposed comment 56(b)(2)-2 clarified that a creditor is not 
precluded from assessing other fees and charges unrelated to the 
payment of the over-the-limit transaction itself even where the 
consumer has not provided consent to the creditor's over-the-limit 
service, to the extent permitted under applicable law. For example, if 
a consumer has not opted in, a creditor could permissibly assess a 
balance transfer fee for a balance transfer, provided that such a fee 
is assessed whether or not the transfer exceeds the credit limit. The 
proposed comment also clarified that a creditor could continue to 
assess interest charges for the over-the-limit transaction.
    Consumer groups opposed the proposed comment, expressing concern 
that the comment could enable creditors to potentially circumvent the 
statutory protections by charging consumers that have not opted in a 
fee substantively similar to an over-the-limit fee or charge, and using 
a different term to describe the fee. Consumer groups urged the Board 
to instead broadly prohibit any fee directly or indirectly caused by or 
resulting from the payment of an over-the-limit transaction unless the 
consumer has opted in. Specifically, consumer groups argued that 
creditors should be prohibited from paying an over-the-limit 
transaction if it might result in any type of fee, including any late 
fees that might arise if the consumer cannot make the increased minimum 
payment caused by the over-the-limit transaction.
    By its terms, TILA Section 127(k)(1) applies only to the assessment 
of any over-the-limit fees by the creditor as a result of an extension 
of credit that exceeds a consumer's credit limit where the consumer has 
not consented to the completion of such transactions. The protections 
in TILA Section 127(k)(1) apply to any such fees for paying an over-
the-limit transaction regardless of the term used to describe the fee. 
This provision does not, however, apply to other fees or charges that 
may be imposed as a result of the over-the-limit transaction, such as 
balance transfer fees or late payment fees. Nor does the statute 
require that a card issuer cease paying over-the-limit transactions 
altogether if the consumer has not opted in. Accordingly, the final 
rule adopts comment 56(b)(2)-2 substantively as proposed.\63\ The final 
comment has also been revised to clarify that a card issuer may debit 
the consumer's account for the amount of the transaction, provided that 
the card issuer is permitted to do so under applicable law. See comment 
56(b)(2)-2.
---------------------------------------------------------------------------

    \63\ The final rule does not prohibit a creditor from increasing 
the consumer's interest rate as a result of an over-the-limit 
transaction, subject to the creditor's compliance with the 45-day 
advance notice requirement in Sec.  226.9(g), the limitations on 
applying an increased rate to an existing balance in Sec.  226.55, 
and other provisions of the Credit Card Act.
---------------------------------------------------------------------------

56(c) Method of Election
    TILA Section 127(k)(2) provides that a consumer may consent or 
revoke consent to over-the-limit transactions orally, electronically, 
or in writing, and directs the Board to prescribe rules to ensure that 
the same options are available for both making and revoking such 
election. The Board proposed to implement this requirement in Sec.  
226.56(c). In addition, proposed comment 56(c)-1 clarified that the 
creditor may determine the means by which consumers may provide 
affirmative consent. The creditor could decide, for example, whether to 
obtain consumer consent in writing, electronically, by telephone, or to 
offer some or all of these options.
    In addition, proposed Sec.  226.56(c) would have required that 
whatever method a creditor provides for obtaining consent, such method 
must be equally available to the consumer to revoke the prior consent. 
See TILA Section 127(k)(3). In that regard, the Board requested comment 
on whether the rule should require creditors to allow consumers to opt 
in and to revoke that consent using any of the three methods (that is, 
orally, electronically, and in writing).
    Industry commenters stated that the final rule should not require 
creditors to provide all three methods of consent and revocation, 
citing the compliance

[[Page 7748]]

burden and costs of setting up separate systems for obtaining consumer 
consents and processing consumer revocations, particularly for small 
community banks and credit unions. Consumer groups agreed with the 
clarification in comment 56(c)-1 that a creditor should be required to 
accept revocations of consent made by the same methods made available 
to the consumer for providing consent. However, consumer groups 
believed that the proposed rule fell short of that goal because it did 
not similarly provide a form that consumers could fill out and mail in 
to revoke consent similar to the form for providing consent. Instead, 
consumer groups noted that the proposed model revocation notice 
directed the consumer to write a separate letter and mail it in to the 
creditor.
    Section 226.56(c) is adopted substantively as proposed and allows a 
card issuer to obtain a consumer's consent to the card issuer's payment 
of over-the-limit transactions in writing, orally, or electronically, 
at the card issuer's option. The rule recognizes that card issuers have 
a strong interest in facilitating a consumer's ability to opt in, and 
thus permits them to determine the most effective means in obtaining 
such consent. Regardless of which methods are provided to the consumer 
for obtaining consent, the final rule requires that the same methods 
must be made available to the consumer for revoking consent. As 
discussed below, Model Form G-25(B) has been revised to include a check 
box form that a card issuer may use to provide consumers for revoking a 
prior consent.
    Comment 56(c)-2 is adopted as proposed and provides that consumer 
consent or revocation requests are not consumer disclosures for 
purposes of the E-Sign Act. Accordingly, card issuers would not be 
required to comply with the consumer consent or other requirements for 
providing disclosures electronically pursuant to the E-Sign Act for 
consumer requests submitted electronically.
56(d) Timing
    Proposed Sec.  226.56(d)(1)(i) established a general requirement 
that a creditor provide an opt-in notice before the creditor assesses 
any fee or charge on the consumer's account for paying an over-the-
limit transaction. No comments were received regarding proposed Sec.  
226.56(d)(1)(i), and it is adopted as proposed. A card issuer may 
comply with the rule, for example, by including the notice as part of 
the credit card application. See comment 56(b)-3.i. Alternatively, the 
creditor could include the notice with other account-opening documents, 
either within the account-opening disclosures under Sec.  226.6 or in a 
stand-alone document. See comment 56(b)-3.ii.
    Proposed Sec.  226.56(d)(1)(ii) would have required a creditor to 
provide the opt-in notice immediately before and contemporaneously with 
a consumer's election where the consumer consents by oral or electronic 
means. For example, if a consumer calls the creditor to consent to the 
creditor's payment of over-the-limit transactions, the proposed rule 
would have required the creditor to provide the opt-in notice 
immediately prior to obtaining the consumer's consent. This proposed 
requirement recognized that creditors may wish to contact consumers by 
telephone or electronically as a more expeditious means of obtaining 
consumer consent to the payment of over-the-limit transactions. Thus, 
proposed Sec.  226.56(d)(1)(ii) was intended to ensure that a consumer 
would have full information regarding the opt-in right at the most 
meaningful time, that is, when the opt-in decision is made. Consumer 
groups strongly supported the proposed requirement for oral and 
electronic consents to ensure that consumers are able to make an 
informed decision regarding over-the-limit transactions. Industry 
commenters did not oppose this requirement. The final rule adopts Sec.  
226.56(d)(1)(ii), generally as proposed.
    New comment 56(d)-1 clarifies that the requirement to provide an 
opt-in notice immediately prior to obtaining consumer consent orally or 
electronically means that the card issuer must provide an opt-in notice 
prior to and as part of the process of obtaining the consumer's 
consent. That is, the issuer must provide an opt-in notice containing 
the content in Sec.  226.56(e)(1) as part of the same transaction in 
which the issuer obtains the consumer's oral or electronic consent.
    As discussed above, a card issuer must provide a consumer with 
written confirmation of the consumer's decision to opt in to the card 
issuer's payment of over-the-limit transactions. See Sec.  
226.56(b)(1)(iv). New Sec.  226.56(d)(2) requires that this written 
confirmation must be provided no later than the first periodic 
statement sent after the consumer has opted in. As discussed above, a 
card issuer could provide a notice consistent with the revocation 
notice described in Sec.  226.56(e)(2). See comment 56(b)-5. Consistent 
with Sec.  226.56(b)(1), however, a card issuer may not assess any 
over-the-limit fees or charges unless and until it has sent written 
confirmation of the consumer's opt-in decision.
    Proposed Sec.  226.56(d)(2) would have provided that notice of the 
consumer's right to revoke a prior election for the creditor's over-
the-limit service must appear on each periodic statement that reflects 
the assessment of an over-the-limit fee or charge on a consumer's 
account. See TILA Section 127(k)(2). A revocation notice would be 
required regardless of whether the fee was imposed due to an over-the-
limit transaction initiated by the consumer in the prior cycle or 
because the consumer failed to reduce the account balance below the 
credit limit in the next cycle. To ensure that the revocation notice is 
clear and conspicuous, the proposed rule required that the notice 
appear on the front of any page of the periodic statement. Proposed 
comment 56(d)-1 would have provided creditors flexibility in how often 
a revocation notice should be provided. Specifically, creditors, at 
their option, could, but were not required to, include the revocation 
notice on every periodic statement sent to the consumer, even if the 
consumer has not incurred an over-the-limit fee or charge during a 
particular billing cycle.
    One industry commenter stated that the periodic statement 
requirement would be overly burdensome and costly for financial 
institutions. This commenter believed that providing a consumer notice 
of his or her right to revoke consent at the time of the opt-in would 
sufficiently inform the consumer of that possibility without requiring 
creditors to bear the cost of providing a revocation notice on each 
statement reflecting an over-the-limit fee or charge. Consumer groups 
believed that the final rule should require that a standalone 
revocation notice be sent to a consumer after the incurrence of an 
over-the-limit fee to make it more likely that a consumer would see the 
notice, rather than placing the notice on the periodic statement with 
other disclosures. In the alternative, consumer groups stated that the 
revocation notice should be placed on the first page of the periodic 
statement or on the page reflecting the fee to enhance likelihood that 
the consumer would notice it. Consumer groups also argued that 
revocation notices should only be provided by a creditor when an over-
the-limit fee is assessed to a consumer's credit card account to avoid 
the possibility that consumers would ignore the notice as boilerplate 
language on the statement.
    In the final rule, the timing and placement requirements for the 
notice of the right of revocation has been adopted

[[Page 7749]]

in Sec.  226.56(d)(3), as proposed. The requirement to provide notice 
informing a consumer of the right to revoke a prior election regarding 
the payment of over-the-limit transactions following the imposition of 
an over-the-limit fee is statutory. TILA Section 127(k)(2) also 
provides that such notice must be on the periodic statement reflecting 
the fee. The final rule does not, however, mandate that the notice be 
placed on the front of the first page of the periodic statement or on 
the front of the page that indicates the over-the-limit fee or charge. 
The Board is concerned about the potential for information overload in 
light of other requirements elsewhere in the regulation regarding 
notices that must be on the front of the first page of the periodic 
statement or in proximity to disclosures regarding fees that have been 
assessed by the creditor during that cycle. See, e.g., Sec.  
226.7(b)(6)(i); Sec.  226.7(b)(13).
    Proposed comment 56(d)-1, which would have permitted creditors to 
include a revocation notice on each periodic statement whether or not a 
consumer has incurred an over-the-limit fee or charge, is not adopted 
in the final rule. The final rule does not expressly prohibit card 
issuers from providing a revocation notice on every statement 
regardless of whether a consumer has been assessed an over-the-limit 
fee or charge. Nonetheless, the Board believes that for some consumers, 
a notice appearing on each statement informing the consumer of the 
right to revoke a prior consent would not be as effective as a more 
targeted notice that is provided at a point in time when the consumer 
may be motivated to act, that is, after he or she has incurred an over-
the-limit fee or charge.
56(e) Content and Format
    TILA Section 127(k)(2) provides that a consumer's election to 
permit a creditor to extend credit that would exceed the credit limit 
may not take effect unless the consumer receives notice from the 
creditor of any over-the-limit fee ``in the form and manner, and at the 
time, determined by the Board.'' TILA Section 127(k)(2) also requires 
that the creditor provide notice to the consumer of the right to revoke 
the election, ``in the form prescribed by the Board,'' in any periodic 
statement reflecting the imposition of an over-the-limit fee. Proposed 
Sec.  226.56(e) set forth the content requirements for both notices. 
The proposal also included model forms that creditors could use to 
facilitate compliance with the new requirements. See proposed Model 
Forms G-25(A) and G-25(B) in Appendix G.
    Initial notice content. Proposed Sec.  226.56(e)(1) set forth 
content requirements for the opt-in notice provided to consumers before 
a creditor may assess any fees or charges for paying an over-the-limit 
transaction. In addition to the amount of the over-the-limit fee, the 
proposed rule prescribed certain other information regarding the opt-in 
right to be included in the opt-in notice pursuant to the Board's 
authority under TILA Section 105(a) to make adjustments that are 
necessary to effectuate the purposes of TILA. 15 U.S.C. 1604(a). The 
Board requested comment regarding whether the rule should permit or 
require any other information to be included in the opt-in notice.
    Consumer groups and one state government agency generally supported 
the proposed content and model opt-in form, but suggested the Board 
revise the form to include additional information about the opt-in 
right, including that a consumer is not required to sign up for over-
the-limit coverage and the minimum over-the-limit amount that could 
trigger a fee. Consumer groups and this agency also asserted that no 
other information should be permitted in the notice unless expressly 
specified or permitted under the rule. For example, these commenters 
believed that creditors should be precluded from including any 
marketing of the benefits that may be associated with over-the-limit 
coverage out of concern that the additional information could dilute 
consumer understanding of the opt-in disclosure. Industry commenters 
suggested various additions to the model form to enable creditors to 
provide more information that they deemed appropriate to enhance a 
consumer's understanding or the risks and benefits associated with the 
opt-in right. Industry commenters also stated that creditors should be 
able to include contractual terms or safeguards regarding the right.
    The Board is adopting Sec.  226.56(e)(1) largely as proposed, but 
with modified content based on the comments received and upon further 
consideration. The final rule does not permit card issuers to include 
any information in the opt-in notice that is not specified or otherwise 
permitted by Sec.  226.56(e)(1). The Board believes that the addition 
of other information would potentially overwhelm the required content 
in the notice and impede consumer understanding of the opt-in right. 
For the same reason, the final rule does not require card issuers to 
include any additional information regarding the opt-in right as 
suggested by consumer groups and others.
    Under Sec.  226.56(e)(1)(i), the opt-in notice must include 
information about the dollar amount of any fees or charges assessed on 
a consumer's credit card account for an over-the-limit transaction. The 
requirement to state the fee amount on the opt-in notice itself is 
separate from other required disclosures regarding the amount of the 
over-the-limit fee or charge. See, e.g., Sec.  226.5a(b)(10). Because a 
card issuer could comply with the opt-in notice requirement in several 
forms, such as providing the notice in the application or solicitation, 
in the account-opening disclosures, or as a stand-alone document, the 
Board believes that including the fee disclosure in the opt-in notice 
itself is necessary to ensure that consumers can easily determine the 
amounts they could be charged for an over-the-limit transaction.
    Some card issuers may vary the fee amount that may be imposed based 
upon the number of times the consumer has gone over the limit, the 
amount the consumer has exceeded the credit limit, or due to other 
factors. Under these circumstances, proposed comment 56(e)-1 would have 
permitted a creditor to disclose the maximum fee that may be imposed or 
a range of fees. The final comment does not include the reference to 
the range of fees. Card issuers that tier the amount of the fee could 
otherwise include a range from $0 to their maximum fee, which could 
lead consumers to underestimate the costs of exceeding their credit 
limit. To address tiered over-the-limit fees, comment 56(e)-1 provides 
that the card issuer may indicate that the consumer may be assessed a 
fee ``up to'' the maximum fee.
    In addition to disclosing the amount of the fee or charge that may 
be imposed for an over-the-limit transaction, Sec.  226.56(e)(1)(ii) 
requires card issuers to disclose any increased rate that may apply if 
consumers exceed their credit limit. The Board believes the additional 
requirement is necessary to ensure consumers fully understand the 
potential consequences of exceeding their credit limit, particularly as 
a rate increase can be more costly than the imposition of a fee. This 
requirement is consistent with the content required to be disclosed 
regarding the consequences of a late payment. See TILA Section 
127(b)(12); Sec.  226.7(b)(11) of the January 2009 Regulation Z Rule. 
Accordingly, if, under the terms of the account agreement, an over-the-
limit transaction could result in the loss of a promotional rate, the 
imposition of a penalty rate, or both, this fact must be included in 
the opt-in notice.
    Section 226.56(e)(1)(iii) requires card issuers to explain the 
consumer's right

[[Page 7750]]

to affirmatively consent to the card issuer's payment of over-the-limit 
transactions, including the method(s) that the card issuer may use to 
exercise the right to opt in. Comment 56(e)-2 provides guidance 
regarding how a card issuer may describe this right. For example, the 
card issuer could explain that any transactions that exceed the 
consumer's credit limit will be declined if the consumer does not 
consent to the service. In addition, a card issuer should explain that 
even if a consumer consents, the payment of over-the-limit transactions 
is at the card issuer's discretion. In this regard, the card issuer may 
indicate that it may decline a transaction for any reason, such as if 
the consumer is past due or significantly over the limit. The card 
issuer may also disclose the consumer's right to revoke consent.
    Under the comment as proposed, a creditor would have been permitted 
to also describe the benefits of the payment of over-the-limit 
transactions. Upon further analysis, the Board believes that including 
discussion of any such benefits could dilute the core purpose of the 
form, which is to explain the opt-in right in a clear and readily 
understandable manner. Of course, a card issuer may provide additional 
discussion about the over-the-limit service, including the potential 
benefits of the service, in a separate document.
    Notice of right of revocation. Section 226.56(e)(2) implements the 
requirement in TILA Section 127(k)(2) that a creditor must provide 
notice of the right to revoke consent that was previously granted for 
paying over-the-limit transactions. Under the final rule, the notice 
must describe the consumer's right to revoke any consent previously 
granted, including the method(s) by which the consumer may revoke the 
service. The Board did not receive any comment on proposed Sec.  
226.56(e)(2), and it is adopted without any substantive changes.
    Model forms. Model Forms G-25(A) and (B) include sample language 
that card issuers may use to comply with the notice content 
requirement. Use of the model forms, or substantially similar notices, 
provides card issuers a safe harbor for compliance under Sec.  
226.56(e)(3). The Model Forms have been revised from the proposal for 
clarity, and in response to comments received. To facilitate consumer 
understanding, a card issuer may, but is not required, to provide a 
signature line or check box on the opt-in form where the consumer can 
indicate that they decline to opt in. See Model Form G-25(A). 
Nonetheless, if the consumer does not check any box or provide a 
signature, the card issuer must assume that the consumer does not opt 
in.
    Model Form G-25(B) contains language that card issuers may use to 
satisfy both the revocation notice and written confirmation 
requirements in Sec.  226.56(b)(1)(iv) and (v). The model form has been 
revised to include a form that consumers may fill out and send back to 
the card issuer to cancel or revoke a prior consent.
56(f)-(i) Additional Provisions Addressing Consumer Opt-In Right
    Joint accounts. Proposed Sec.  226.56(f) would have required a 
creditor to treat affirmative consent provided by any joint consumer of 
a credit card account as affirmative consent for the account from all 
of the joint consumers. The proposed provision also provided that a 
creditor must treat a revocation of affirmative consent by any of the 
joint consumers as revocation of consent for that account. Consumer 
groups urged the Board to require creditors to obtain consent from all 
account-holders on a joint account before any over-the-limit fees or 
charges could be assessed on the account so that each account-holder 
would have an equal opportunity to avoid the imposition of such fees or 
charges.
    The Board is adopting Sec.  226.56(f) substantively as proposed. 
This provision recognizes that it may not be operationally feasible for 
a card issuer to determine which account-holder was responsible for a 
particular transaction and then decide whether to authorize or pay an 
over-the-limit transaction based on that account-holder's opt-in 
choice. Moreover, because the same credit limit presumably applies to a 
joint account, one joint account-holder's decision to opt in to the 
payment of over-the-limit transactions would also necessarily impact 
the other account-holder. Accordingly, if one joint consumer opts in to 
the creditor's payment of over-the-limit transactions, the card issuer 
must treat the consent as applying to all over-the-limit transactions 
for that account. The final rule would similarly provide that if one 
joint consumer elects to cancel the over-the-limit coverage for the 
account, the card issuer must treat the revocation as applying to all 
over-the-limit transactions for that account.
    Section 226.56(f) applies only to consumer consent and revocation 
requests from consumers that are jointly liable on a credit card 
account. Accordingly, card issuers are not required or permitted to 
honor a request by an authorized user on an account to opt in or revoke 
a prior consent with respect to the card issuer's over-the-limit 
transaction. Comment 56(f)-1 provides this guidance.
    Continuing right to opt in or revoke opt-in. Proposed Sec.  
226.56(g) provided that a consumer may affirmatively consent to a 
creditor's payment of over-the-limit transactions at any time in the 
manner described in the opt-in notice. This provision would allow 
consumers to decide later in the account relationship whether they want 
to opt in to the creditor's payment of over-the-limit transactions. 
Similarly, a consumer may revoke a prior consent at any time in the 
manner described in the revocation notice. See TILA Section 127(k)(4). 
No comments were received on Sec.  226.56(g), and it is adopted 
substantively as proposed.
    Comment 56(g)-1 has been revised to clarify that a consumer's 
decision to revoke a prior consent would not require the card issuer to 
waive or reverse any over-the-limit fee or charges assessed to the 
consumer's account for transactions that occurred prior to the card 
issuer's implementation of the consumer's revocation request. Thus, the 
comment permits a card issuer to impose over-the-limit fees or charges 
for transactions that the card issuer authorized prior to implementing 
the revocation request, even if the transaction is not charged to the 
account until after implementation. In addition, the final rule does 
not prevent the card issuer from assessing over-the-limit fees in a 
subsequent cycle if the consumer's account balance continues to exceed 
the credit limit after the payment due date as a result of an over-the-
limit transaction that occurred prior to the consumer's revocation of 
consent. See Sec.  226.56(j)(1).
    Duration of opt-in. Section 226.56(h) provides that a consumer's 
affirmative consent is generally effective until revoked by the 
consumer. Comment 56(h)-1 clarifies, however, that a card issuer may 
cease paying over-the-limit transactions at any time and for any reason 
even if the consumer has consented to the service. For example, a card 
issuer may wish to stop providing the service in response to changes in 
the credit risk presented by the consumer. Section 226.56(h) and 
comment 56(h)-1 are adopted substantively as proposed.
    Time to implement consumer revocation. Proposed Sec.  226.56(i) 
would have required a creditor to implement a consumer's revocation 
request as soon as reasonably practicable after the creditor receives 
the request. The proposed requirement recognized that while creditors 
will presumably want to implement a consumer's consent request as soon 
as possible, the same incentives may not apply if the

[[Page 7751]]

consumer subsequently decides to revoke that request.
    The proposal also solicited comment whether a safe harbor for 
implementing revocation requests would be useful to facilitate 
compliance with the proposed rule, such as five business days from the 
date of the request. In addition, comment was requested on an 
alternative approach which would require creditors to implement 
revocation requests within the same time period that a creditor 
generally takes to implement opt-in requests. For example, under the 
alternative approach, if the creditor typically takes three business 
days to implement a consumer's written opt-in request, it should take 
no more than three business days to implement the consumer's later 
written request to revoke that consent.
    Consumer groups supported the alternative approach of requiring 
creditors to implement a consumer's revocation request within the same 
period taken to implement the consumer's opt-in request, but believed 
that a firm number of days would provide greater certainty for 
consumers regarding when their revocation requests will be implemented. 
Specifically, consumer groups urged the Board to establish a safe 
harbor of three days from when the creditor receives the revocation 
request.
    Industry commenters varied in their recommendations of an 
appropriate safe harbor for implementing a revocation request, ranging 
from five to 20 days or the creditor's normal billing cycle. In 
general, industry commenters generally believed that the Board should 
provide flexibility for creditors in processing revocation requests 
because the appropriate amount of time will vary due to a number of 
factors, including the volume of requests and the channel in which the 
creditor receives the request. One industry commenter supported the 
alternative approach stating that there was little reason opt-in and 
revocation requests could not be processed in the same period of time. 
Another industry commenter stated, however, that the rule should 
provide creditors a reasonable period of time to implement a revocation 
request to prevent a consumer from engaging in transactions that may 
exceed the consumer's credit limit before a creditor can update its 
systems to decline the transactions.
    The final rule requires a card issuer to implement a consumer's 
revocation request as soon as reasonably practicable after the creditor 
receives it, as proposed. Accordingly, Sec.  226.56(i) does not 
prescribe a specific period of time within which a card issuer must 
honor a consumer's revocation request because the appropriate time 
period may depend on a number of variables, including the method used 
by the consumer to communicate the revocation request (for example, in 
writing or orally) and the channel in which the request is received 
(for example, if a consumer sends a written request to the card 
issuer's general address for receiving correspondence or to an address 
specifically designated to receive consumer opt-in and revocation 
requests). The Board also notes that the approach taken in the final 
rule mirrors the same rule adopted in the Board's recently issued final 
rule on overdraft services for processing revocation requests relating 
to consumer opt-ins to ATM and one-time debit card overdraft services. 
See 74 FR 59033 (Nov. 17, 2009). The Board believes that in light of 
the similar opt-in and revocation regimes adopted in both rules, 
consistency across the regulations would facilitate compliance for 
institutions that offer both debit and credit card products.
56(j) Prohibited Practices
    Section 226.56(j) prohibits certain card issuer practices in 
connection with the assessment of over-the-limit fees or charges. These 
prohibitions implement separate requirements set forth in TILA Sections 
127(k)(5) and 127(k)(7), and apply even if the consumer has 
affirmatively consented to the card issuer's payment of over-the-limit 
transactions.
56(j)(1) Fees Imposed Per Billing Cycle
    New TILA Section 127(k)(7) provides that a creditor may not impose 
more than one over-the-limit fee during a billing cycle. In addition, 
Section 127(k)(7) generally provides that an over-the-limit fee may be 
imposed ``only once in each of the 2 subsequent billing cycles'' for 
the same over-the-limit transaction. The Board proposed to implement 
these restrictions in Sec.  226.56(j)(1).
    Proposed Sec.  226.56(j)(1)(i) would have prohibited a creditor 
from imposing more than one over-the-limit fee or charge on a 
consumer's credit card account in any billing cycle. The proposed rule 
also prohibited a creditor from imposing an over-the-limit fee or 
charge on the account for the same over-the-limit transaction or 
transactions in more than three billing cycles. Proposed Sec.  
226.56(j)(1)(ii) would have provided, however, that the limitation on 
imposing over-the-limit fees for more than three billing cycles does 
not apply if a consumer engages in an additional over-the-limit 
transaction in either of the two billing cycles following the cycle in 
which the consumer is first assessed a fee for exceeding the credit 
limit. No comments were received on the proposed restrictions in Sec.  
226.56(j)(1) and the final rule adopts Sec.  226.56(j)(1) substantively 
as proposed.
    Section 226.56(j)(1)(i) in the final rule further prohibits a card 
issuer from imposing any over-the-limit fees or charges for the same 
transaction in the second or third cycle unless the consumer has failed 
to reduce the account balance below the credit limit by the payment due 
date of either cycle. The Board believes that this interpretation of 
TILA Section 127(k)(7) is consistent with Congress's general intent to 
limit a creditor's ability to impose multiple over-the-limit fees for 
the same transaction as well as the requirement in TILA Section 106(b) 
that consumers be given a sufficient amount of time to make 
payments.\64\
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    \64\ In the supplementary information accompanying the proposed 
rule, the Board noted that a creditor's failure to provide a 
consumer sufficient time to reduce his or her balance below the 
credit limit would appear to be an unfair or deceptive act or 
practice. Because the Board has used its authority under TILA 
Section 105(a) to adjust the requirements in TILA Section 127(k)(7) 
in order to ensure that the consumer has at least until the payment 
due date to reduce his or her balance below the credit limit, the 
Board believes it is unnecessary to address this concern using its 
separate authority under TILA Section 127(k)(5).
---------------------------------------------------------------------------

    One possible interpretation of new TILA Section 127(k)(7) would 
provide consumers until the end of the billing cycle, rather than the 
payment due date, to make a payment that reduces the account balance 
below the credit limit. The Board understands, however, that under 
current billing practices, the end of the billing cycle serves as the 
statement cut-off date and occurs a certain number of days after the 
due date for payment on the prior cycle's activity. The time period 
between the payment due date and the end of the billing cycle allows 
the card issuer sufficient time to reflect timely payments on the 
subsequent periodic statement and to determine the fees and interest 
charges for the statement period. Thus, if the rule were to give 
consumers until the end of the billing cycle to reduce the account 
balance below the credit limit, card issuers would have difficulty 
determining whether or not they could impose another over-the-limit fee 
for the statement cycle, which could delay the generation and mailing 
of the periodic statement and impede their ability to comply with the 
21-day requirement for mailing statements in advance of the payment due 
date. See TILA Section 163(a); Sec.  226.5(b)(2)(ii).

[[Page 7752]]

    Moreover, because a consumer is likely to make payment by the due 
date to avoid other adverse financial consequences (such as a late 
payment fee or increased APRs for new transactions), the additional 
time to make payment to avoid successive over-the-limit fees would 
appear to be unnecessary from a consumer protection perspective. Such a 
date also could confuse consumers by providing two distinct dates, each 
with different consequences (that is, penalties for late payment or the 
assessment of over-the-limit fees). For these reasons, the Board is 
exercising its TILA Section 105(a) authority to provide that a card 
issuer may not impose an over-the-limit fee or charge on the account 
for a consumer's failure to reduce the account balance below the credit 
limit during the second or third billing cycle unless the consumer has 
not done so by the payment due date.
    New comment 56(j)-1 clarifies that an over-the-limit fee or charge 
may be assessed on a consumer's account only if the consumer has 
exceeded the credit limit during the billing cycle. Thus, a card issuer 
may not impose any recurring or periodic fees for paying over-the-limit 
transactions (for example, a monthly ``over-the-limit protection'' 
service fee), even if the consumer has affirmatively consented to or 
opted in to the service, unless the consumer has in fact exceeded the 
credit limit during that cycle. The new comment is adopted in response 
to a consumer group comment that TILA Section 127(k)(7) only permits an 
over-the-limit fee to be charged during a billing cycle ``if the credit 
limit on the account is exceeded.''
    Section 226.56(j)(1)(ii) of the final rule provides that the 
limitation on imposing over-the-limit fees for more than three billing 
cycles in Sec.  226.56(j)(1)(i) does not apply if a consumer engages in 
an additional over-the-limit transaction in either of the two billing 
cycles following the cycle in which the consumer is first assessed a 
fee for exceeding the credit limit. The assessment of fees or interest 
charges by the card issuer would not constitute an additional over-the-
limit transaction for purposes of this exception, consistent with the 
definition of ``over-the-limit transaction'' under Sec.  226.56(a). In 
addition, the exception would not permit a card issuer to impose fees 
for both the initial over-the-limit transaction as well as the 
additional over-the-limit transaction(s), as the general restriction on 
assessing more than one over-the-limit fee in the same billing cycle 
would continue to apply. Comment 56(j)-2 contains examples illustrating 
the general rule and the exception.
Proposed Prohibitions on Unfair or Deceptive Over-the-Limit Acts or 
Practices
    Section 226.56(j) includes additional substantive limitations and 
restrictions on certain creditor acts or practices regarding the 
imposition of over-the-limit fees. These limitations and restrictions 
are based on the Board's authority under TILA Section 127(k)(5)(B) 
which directs the Board to prescribe regulations that prevent unfair or 
deceptive acts or practices in connection with the manipulation of 
credit limits designed to increase over-the-limit fees or other penalty 
fees.
Legal Authority
    The Credit Card Act does not set forth a standard for what is an 
``unfair or deceptive act or practice'' and the legislative history for 
the Credit Card Act is similarly silent. Congress has elsewhere 
codified standards developed by the Federal Trade Commission for 
determining whether acts or practices are unfair under Section 5(a) of 
the Federal Trade Commission Act, 15 U.S.C. 45(a).\65\ Specifically, 
the FTC Act provides that an act or practice is unfair when it causes 
or is likely to cause substantial injury to consumers which is not 
reasonably avoidable by consumers themselves and not outweighed by 
countervailing benefits to consumers or to competition. In addition, in 
determining whether an act or practice is unfair, the FTC may consider 
established public policy, but public policy considerations may not 
serve as the primary basis for its determination that an act or 
practice is unfair. 15 U.S.C. 45(a).
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    \65\ See 15 U.S.C. 45(n); Letter from FTC to the Hon. Wendell H. 
Ford and the Hon. John C. Danforth, S. Comm. On Commerce, Science & 
Transp. (Dec. 17, 1980) (FTC Policy Statement on Unfairness) 
(available at http://www.ftc.gov/bcp/policystmt/ad-unfair.htm).
---------------------------------------------------------------------------

    According to the FTC, an unfair act or practice will almost always 
represent a market failure or market imperfection that prevents the 
forces of supply and demand from maximizing benefits and minimizing 
costs.\66\ Not all market failures or imperfections constitute unfair 
acts or practices, however. Instead, the central focus of the FTC's 
unfairness analysis is whether the act or practice causes substantial 
consumer injury.\67\
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    \66\ Statement of Basis and Purpose and Regulatory Analysis for 
Federal Trade Commission Credit Practices Rule (Statement for FTC 
Credit Practices Rule), 49 FR 7740, 7744 (Mar. 1, 1984).
    \67\ Id. at 7743.
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    The FTC has also adopted standards for determining whether an act 
or practice is deceptive, although these standards, unlike unfairness 
standards, have not been incorporated into the FTC Act.\68\ Under the 
FTC's standards, an act or practice is deceptive where: (1) There is a 
representation or omission of information that is likely to mislead 
consumers acting reasonably under the circumstances; and (2) that 
information is material to consumers.\69\
---------------------------------------------------------------------------

    \68\ Letter from the FTC to the Hon. John H. Dingell, H. Comm. 
on Energy & Commerce (Oct. 14, 1983) (FTC Policy Statement on 
Deception) (available at http://www.ftc.gov/bcp/policystmt/ad-decept.html).
    \69\ Id. at 1-2. The FTC views deception as a subset of 
unfairness but does not apply the full unfairness analysis because 
deception is very unlikely to benefit consumers or competition and 
consumers cannot reasonably avoid being harmed by deception.
---------------------------------------------------------------------------

    Many states also have adopted statutes prohibiting unfair or 
deceptive acts or practices, and these statutes may employ standards 
that are different from the standards currently applied to the FTC 
Act.\70\ In adopting rules under TILA Section 127(k)(5), the Board has 
considered the standards currently applied to the FTC Act's prohibition 
against unfair or deceptive acts or practices, as well as the standards 
applied to similar state statutes.
---------------------------------------------------------------------------

    \70\ For example, a number of states follow an unfairness 
standard formerly used by the FTC. Under this standard, an act or 
practice is unfair where it offends public policy; or is immoral, 
unethical, oppressive, or unscrupulous; and causes substantial 
injury to consumers. See, e.g., Kenai Chrysler Ctr., Inc. v. 
Denison, 167 P.3d 1240, 1255 (Alaska 2007) (quoting FTC v. Sperry & 
Hutchinson Co., 405 U.S. 233, 244-45 n.5 (1972)); State v. Moran, 
151 N.H. 450, 452, 861 A.2d 763, 755-56 (N.H. 2004); Robinson v. 
Toyota Motor Credit Corp., 201 Ill. 2d 403, 417-418, 775, N.E.2d 
951, 961-62 (2002).
---------------------------------------------------------------------------

56(j)(2) Failure To Promptly Replenish
    Section 226.10 of Regulation Z generally requires creditors to 
credit consumer payments as of the date of receipt, except when a delay 
in crediting does not result in a finance or other charge. This 
provision does not address, however, when a creditor must replenish the 
consumer's credit limit after receiving payment. Thus, a consumer may 
submit payment sufficient to reduce his or her account balance below 
the credit limit and make additional purchases during the next cycle on 
the assumption that the credit line will be replenished once the 
payment is credited. If the creditor does not promptly replenish the 
credit line, the additional transactions may cause the consumer to 
exceed the credit limit and incur fees.
    In the September 2009 Regulation Z Proposal, the Board proposed to 
prohibit creditors from assessing an over-the-limit fee or charge that 
is caused by the creditor's failure to

[[Page 7753]]

promptly replenish the consumer's available credit. Section 
226.56(j)(2) of the final rule adopts the prohibition substantively as 
proposed.
Public Comments
    Consumer groups supported the proposed prohibition against 
assessing over-the-limit fees or charges caused by a creditor's failure 
to promptly replenish the consumer's available credit. Industry 
commenters generally did not oppose the proposed prohibition, but asked 
the Board to provide additional guidance regarding what it considered 
to be ``prompt'' replenishment of the consumer's available credit. One 
industry commenter asked the Board to specifically permit a creditor to 
wait a reasonable amount of time after receiving payment before 
replenishing the consumer's available credit. This commenter noted that 
while creditors will typically credit payments as of the date of 
receipt, the rule should not expose creditors to possible fraud or 
nonpayment by requiring them to make credit available in connection 
with a payment that has not cleared.
    In response to the Board's request for comment regarding whether 
the rule should provide a safe harbor specifying the number of days 
following the crediting of a consumer's payment by which a creditor 
must replenish a consumer's available credit, industry commenters 
offered suggestions ranging from three to ten days in order to provide 
creditors sufficient time to mitigate any losses due to fraud or 
returned payments. One industry commenter cautioned that establishing 
any parameters regarding replenishment could contribute to a higher 
cost of credit if the established time period did not permit sufficient 
time for payments to clear.
Legal Analysis
    The Board finds that the imposition of fees or charges for an over-
the-limit transaction caused solely by a card issuer's failure to 
promptly replenish the consumer's available credit after the card 
issuer has credited the consumer's payment is an unfair practice.
    Potential injury that is not reasonably avoidable. A 2006 
Government Accountability Office (GAO) report on credit cards indicates 
that the average cost to consumers resulting from over-the-limit 
transactions exceeded $30 in 2005.\71\ The GAO also reported that in 
the majority of credit card agreements that it surveyed, default rates 
could apply if a consumer exceeded the credit limit on the card.\72\
---------------------------------------------------------------------------

    \71\ See U.S. Gov't Accountability Office, Credit Cards: 
Increased Complexity in Rates and Fees Heightens Need for More 
Effective Disclosures to Consumers at 20-21 (Sept. 2006) (GAO Credit 
Card Report) (available at http://www.gao.gov/new.items/d06929.pdf).
    \72\ See id. at 25.
---------------------------------------------------------------------------

    In most cases, card issuers replenish the available credit on a 
credit card account shortly after the payment has been credited to the 
account to enable the cardholder to make new transactions on the 
account. As a result, a consumer that has used all or most of the 
available credit during one billing cycle would again be able to make 
transactions using the credit card account once the consumer has made 
payments on the account balance and the available credit is restored to 
the account. If, however, the card issuer delays replenishment on the 
account after crediting the payment to the consumer's account, the 
consumer could inadvertently exceed the credit limit if the consumer 
uses the credit card account for new transactions and such transactions 
are authorized by the card issuer. In such event, the consumer could 
incur substantial monetary injury due to the fees assessed and 
potential interest rate increases in connection with the card issuer's 
payment of over-the-limit transactions.
    Because the consumer will generally be unaware when the card issuer 
has delayed replenishing the available credit on the account after 
crediting the payment to the account, the Board concludes that 
consumers cannot reasonably avoid the injury caused by over-the-limit 
fees and rate increases triggered by transactions that exceed the limit 
as a result of the delay in replenishment.
    Potential costs and benefits. The Board also finds that the 
prohibited practice does not create benefits for consumers and 
competition that outweigh the injury. While a card issuer may 
reasonably decide to delay replenishing a consumer's available credit, 
for example, to ensure the payment clears or in cases of suspected 
fraud on the account, there is minimal if any benefit to the consumer 
from permitting the card issuer to assess over-the-limit fees that may 
be incurred as a result of the delay in replenishment.
Final Rule
    Section 226.56(j)(2) is adopted substantively as proposed and 
prohibits a card issuer from imposing any over-the-limit fee or charge 
solely because of the card issuer's failure to promptly replenish the 
consumer's available credit after the card issuer has credited the 
consumer's payment under Sec.  226.10.
    Comment 56(j)-3 clarifies that the final rule does not require card 
issuer to immediately replenish the consumer's available credit upon 
crediting the consumer's payment under Sec.  226.10. Rather, the 
creditor is only prohibited from assessing any over-the-limit fees or 
charges caused by the creditor's decision not to replenish the 
available credit after posting the consumer's payment to the account. 
Thus, a card issuer may continue to delay replenishment as necessary to 
allow the consumer's payment to clear or to prevent potential fraud, 
provided that it does not assess any over-the-limit fees or charges 
because of its delay in restoring the consumer's available credit. 
Comment 56(j)-3 also clarifies that the rule does not require a card 
issuer to decline all transactions for consumers who have opted in to 
the card issuer's payment of over-the-limit transactions until the 
available credit has been restored.
    As discussed above, Sec.  226.56(j)(2) solely prohibits the 
assessment of an over-the-limit fee or charge due to a card issuer's 
failure to promptly replenish a consumer's available credit following 
the crediting of the consumer's payment under Sec.  226.10. Thus, the 
final rule does not establish a number of days within which a 
consumer's available credit must be replenished by a card issuer after 
a payment has been credited. Because the time in which a payment may 
take to clear may vary greatly depending on the type of payment, the 
Board believes that the determination of when the available credit 
should be replenished should rest with the individual card issuer, so 
long as the consumer does not incur over-the-limit fees or charges as a 
result of the card issuer's delay in replenishment.
56(j)(3) Conditioning
    The Board proposed to prohibit a creditor from conditioning the 
amount of available credit provided on the consumer's affirmative 
consent to the creditor's payment of over-the-limit transactions. 
Proposed Sec.  226.56(j)(3) was intended to address concerns that a 
creditor may seek to tie the amount of credit provided to the consumer 
affirmatively consenting to the creditor's payment of over-the-limit 
transactions. The final rule adopts the prohibition as proposed.
Public Comments
    Consumer groups and one federal banking agency supported the 
proposed prohibition to help ensure that consumers can freely choose 
whether or not to opt in. However, these commenters believed that 
greater

[[Page 7754]]

protections were needed to prevent other creditor actions that could 
compel a consumer to opt in or that otherwise discriminated against a 
consumer that elected not to opt in. Specifically, these commenters 
urged the Board to prohibit any differences in credit card accounts 
based upon whether the consumer elects to opt in to the payment of 
over-the-limit transactions. These commenters were concerned that 
issuers might otherwise offer other less favorable terms to consumers 
who do not opt in, such as a higher interest rate or a higher annual 
fee. Or, creditors might induce consumers to opt in by waiving a fee or 
lowering applicable APRs. Consumer groups further observed that the 
Board has recently taken a similar approach in the Board's recent final 
rules under Regulation E addressing overdraft services to prohibit 
financial institutions from varying the account terms, conditions, or 
features for consumers that do not opt in to overdraft services for ATM 
and one-time debit card transactions. See 74 FR 59033 (Nov. 17, 2009). 
Consumer groups also urged the Board to prohibit issuers from imposing 
fees, such as denied transaction fees, that could be designed to coerce 
consumers to opt in to over-the-limit coverage.
    Both consumer groups and the federal banking agency agreed with the 
Board's observation in the supplementary information to the proposal 
that conditioning the amount of credit provided based on whether the 
consumer opts in to the creditor's payment of over-the-limit 
transactions raised significant concerns under the Equal Credit 
Opportunity Act (ECOA). See 15 U.S.C. 1691(a)(3). The federal banking 
agency expressed concern, however, that the Board's failure to 
similarly state that providing other adverse credit terms, such as 
higher fees or rates, based on the consumer's decision not to opt in 
could suggest that such variances were in fact permissible under ECOA 
and Regulation B (12 CFR 205).
Legal Analysis
    The Board finds that conditioning or linking the amount of credit 
available to the consumer based on the consumer consenting to the card 
issuer's payment of over-the-limit transactions is an unfair practice.
    Potential injury that is not reasonably avoidable. As the Board has 
previously stated elsewhere, consumers receive considerable benefits 
from receiving credit cards that provide a meaningful amount of 
available credit. For example, credit cards enable consumers to engage 
in certain types of transactions, such as making purchases by telephone 
or on-line, or renting a car or hotel room. Given these benefits, some 
consumers might be compelled to opt in to a card issuer's payment of 
over-the-limit transactions if not doing so may result in the consumer 
otherwise obtaining a minimal amount of credit or failing to qualify 
for credit altogether. Thus, it appears that such consumers would be 
prevented from exercising a meaningful choice regarding the card 
issuer's payment of over-the-limit transactions.
    Potential costs and benefits. The Board concludes that there are 
few if any benefits to consumers or competition from conditioning or 
linking the amount of credit available to the consumer based on the 
consumer consenting to the card issuer's payment of over-the-limit 
transactions. While some card issuers may seek to replace the revenue 
from over-the-limit fees by charging consumers higher annual percentage 
rates or fees, the Board believes that consumers will benefit overall 
from having a meaningful choice regarding whether to have over-the-
limit transactions approved by the card issuer.
Final Rule
    Section 226.56(j)(3) prohibits a card issuer from conditioning or 
otherwise linking the amount of credit granted on the consumer opting 
in to the card issuer's payment of over-the-limit transactions. Thus, 
the final rule is intended to prevent card issuers from effectively 
circumventing the consumer choice requirement by tying the amount of a 
consumer's credit limit to the consumer's opt-in decision.
    Under the final rule, a card issuer may not, for example, require a 
consumer to opt in to the card issuer's fee-based over-the-limit 
service in order to receive a higher credit limit for the account. 
Similarly, a card issuer would be prohibited from denying a consumer's 
credit card application solely because the consumer did not opt in to 
the card issuer's over-the-limit service. The final rule is illustrated 
by way of example in comment 56(j)-4.
    The final rule does not address other card issuer actions that may 
also lead a consumer to opt in to the card issuer's payment of over-
the-limit transactions contrary to the consumer's preferences. As 
discussed above, TILA Section 127(k)(5)(B) directs the Board to 
prescribe regulations preventing unfair or deceptive acts or practices 
``in connection with the manipulation of credit limits designed to 
increase over-the-limit fees or other penalty fees.'' Nonetheless, the 
Board notes this rule is not intended to identify all unfair or 
deceptive acts or practices that may arise in connection with the opt-
in requirement. To the extent that specific practices raise concerns 
regarding unfairness or deception under the FTC Act with respect to 
this requirement, this rule would not limit the ability of the Board or 
any other agency to make any such determination on a case-by-case 
basis. This rule also does not preclude any action by the Board or any 
other agency to address creditor practices with respect to a consumer's 
exercise of the opt-in right that may raise significant concerns under 
ECOA and Regulation B.
56(j)(4) Over-the-Limit Fees Attributed to Fees or Interest
    The Board proposed to prohibit the imposition of any over-the-limit 
fees or charges if the credit limit is exceeded solely because of the 
creditor's assessment of accrued interest charges or fees on the 
consumer's credit card account. Section 226.56(j)(4) adopts this 
prohibition substantively as proposed.
Public Comments
    Consumer groups supported the proposed prohibition. In contrast, 
one industry trade association representing community banks believed 
that the proposed prohibition would require extensive programming of 
data systems and urged the Board not to adopt the prohibition in light 
of the significant operational burden and costs that would be incurred. 
Another industry commenter questioned whether the proposed prohibition 
was sufficiently tied to a creditor's manipulation of credit limits as 
contemplated by TILA Section 127(k)(5).
Legal Analysis
    The Board finds the imposition of any over-the-limit fees or 
charges if a consumer's credit limit is exceeded solely because of the 
card issuer's assessment of accrued interest charges or fees on the 
consumer's credit card account is an unfair practice.
    Potential injury that is not reasonably avoidable. As discussed 
above, consumers may incur substantial monetary injury due to the fees 
assessed in connection with the payment of over-the-limit transactions. 
In addition to per transaction fees, consumers may also trigger rate 
increases if the over-the-limit transaction is deemed to be a violation 
of the credit card contract.
    The Board concludes that the injury from over-the-limit fees and 
potential rate increases is not reasonably avoidable in these 
circumstances because consumers are, as a general matter, unlikely to 
be aware of the

[[Page 7755]]

amount of interest charges or fees that may be added to their account 
balance when deciding whether or not to engage in a credit card 
transaction. With respect to accrued interest charges, these additional 
amounts are typically added to a consumer's account balance at the end 
of the billing cycle after the consumer has completed his or her 
transactions for the cycle and thus are unlikely to have been taken 
into account when the consumer engages in the transactions.
    Potential costs and benefits. Although prohibition of the 
assessment of over-the-limit fees caused by accrued finance charges and 
fees may reduce card issuer revenues and lead card issuers to replace 
lost revenue by charging consumers higher rates or fees, the Board 
believes the final rule will result in a net benefit to consumers 
because some consumers are likely to benefit substantially while the 
adverse effects on others are likely to be small. Because permitting 
fees and interest charges to trigger over-the-limit fees may have the 
effect of retroactively reducing a consumer's available credit for 
prior transactions, prohibiting such a practice would protect consumers 
against unexpected over-the-limit fees and rate increases which could 
substantially add to their cost of credit. Moreover, consumers will be 
able to more accurately manage their credit lines without having to 
factor additional costs that cannot be easily determined. While some 
consumers may pay higher fees and initial rates, consumers are likely 
to benefit overall through more transparent pricing.
Final Rule
    Section 226.56(j)(4) in the final rule prohibits card issuers from 
imposing an over-the-limit fee or charge if a consumer exceeds a credit 
limit solely because of fees or interest charged by the card issuer to 
the consumer's account during the billing cycle, as proposed. For 
purposes of this prohibition, the fees or interest charges that may not 
trigger the imposition of an over-the-limit fee or charge are 
considered charges imposed as part of the plan under Sec.  
226.6(b)(3)(i). Thus, the final rule also prohibits the assessment of 
an over-the-limit fee or charge even if the credit limit was exceeded 
due to fees for services requested by the consumer if such fees 
constitute charges imposed as part of the plan (for example, fees for 
voluntary debt cancellation or suspension coverage). The prohibition in 
the final rule does not, however, restrict card issuers from assessing 
over-the-limit fees due to accrued finance charges or fees from prior 
cycles that have subsequently been added to the account balance. New 
comment 56(j)-5 includes this additional guidance and illustrative 
examples.

Section 226.57 Reporting and Marketing Rules for College Student Open-
End Credit

    New TILA Section 140(f), as added by Section 304 of the Credit Card 
Act, requires the public disclosure of contracts or other agreements 
between card issuers and institutions of higher education for the 
purpose of marketing a credit card and imposes new restrictions related 
to marketing open-end credit to college students. 15 U.S.C. 1650(f). 
The Board proposed to implement these provisions in new Sec.  226.57.
    The Board also proposed to implement provisions related to new TILA 
Section 127(r) in Sec.  226.57. TILA Section 127(r), which was added by 
Section 305 of the Credit Card Act, requires card issuers to submit an 
annual report to the Board containing the terms and conditions of 
business, marketing, promotional agreements, and college affinity card 
agreements with an institution of higher education, or other related 
entities, with respect to any college student credit card issued to a 
college student at such institution. 15 U.S.C. 1637(r).
57(a) Definitions
    New TILA Section 127(r) provides definitions for terms that are 
also used in new TILA Section 140(f). See 15 U.S.C. 1650(f). To ensure 
the use of these terms is consistent throughout these sections, the 
Board proposed to incorporate the definitions set forth in TILA Section 
127(r) in Sec.  226.57(a) and apply them to regulations implementing 
both TILA Sections 127(r) and 140(f).
    Proposed Sec.  226.57(a)(1) defined ``college student credit card'' 
as a credit card issued under a credit card account under an open-end 
(not home-secured) consumer credit plan to any college student. This 
definition is similar to TILA Section 127(r)(1)(B), which defines 
``college student credit card account'' as a credit card account under 
an open-end consumer credit plan established or maintained for or on 
behalf of any college student. The Board received no comments on this 
definition, and the definition is adopted as proposed with one non-
substantive wording change. As proposed, Sec.  226.57(a)(1) defines 
``college student credit card'' rather than ``college student credit 
card account'' because the statute and regulation use the former term 
but not the latter. Consistent with the approach the Board is 
implementing for other sections of the Credit Card Act, the definition 
uses the proposed term ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' as defined in Sec.  226.2(a)(15). 
The term ``college student credit card'' therefore excludes home-equity 
lines of credit accessed by credit cards and overdraft lines of credit 
accessed by debit cards, which the Board believes are not typical types 
of college student credit cards.
    TILA Section 127(r)(1)(A) defines ``college affinity card'' as a 
credit card issued under an open end consumer credit plan in 
conjunction with an agreement between the issuer and an institution of 
higher education or an alumni organization or a foundation affiliated 
with or related to an institution of higher education under which cards 
are issued to college students having an affinity with the institution, 
organization or foundation where at least one of three criteria also is 
met. These three criteria are: (1) The creditor has agreed to donate a 
portion of the proceeds of the credit card to the institution, 
organization, or foundation (including a lump-sum or one-time payment 
of money for access); (2) the creditor has agreed to offer discounted 
terms to the consumer; or (3) the credit card bears the name, emblem, 
mascot, or logo of such institution, organization, or foundation, or 
other words, pictures or symbols readily identified with such 
institution or affiliated organization. In connection with the proposed 
rule, the Board solicited comment on whether Sec.  226.57 should 
include a regulatory definition of ``college affinity card.'' One card 
issuer commenter requested that the Board include such a definition in 
the final rule. The Board continues to believe, however, that the 
definition of ``college student credit card,'' discussed above, is 
broad enough to encompass any ``college affinity card'' as defined in 
TILA Section 127(r)(1)(A), and that a definition of ``college affinity 
card'' therefore is unnecessary. As proposed, the Board is not adopting 
a regulatory definition comparable to this definition in the statute.
    Comment 57(a)(1)-1 is adopted as proposed. Comment 57(a)(1)-1 
clarifies that a college student credit card includes a college 
affinity card, as discussed above, and that, in addition, a card may 
fall within the scope of the definition regardless of the fact that it 
is not intentionally targeted at or marketed to college students.
    Proposed Sec.  226.57(a)(2) defined ``college student'' as an 
individual who is a full-time or a part-time student attending an 
institution of higher

[[Page 7756]]

education. This definition is consistent with the definition of 
``college student'' in TILA Section 127(r)(1)(C). An industry commenter 
suggested that the Board limit the definition to students who are under 
the age of 21. As the Board discussed in the October 2009 Regulation Z 
Proposal, the definition is intended to be broad and would apply to 
students of any age attending an institution of higher education and 
applies to all students, including those enrolled in graduate programs 
or joint degree programs. The Board believes that it was Congress's 
intent to apply this term broadly, and is adopting Sec.  226.57(a)(2) 
as proposed with one non-substantive wording change.
    As discussed in the October 2009 Regulation Z Proposal, the Board 
proposed to adopt a definition of ``institution of higher education'' 
in Sec.  226.57(a)(3) that would be consistent with the definition of 
the term in TILA Section 127(r)(1)(D) and in Sec.  226.46(b)(2) for 
private education loans. The proposed definition provided that the term 
has the same meaning as in sections 101 and 102 of the Higher Education 
Act of 1965. 20 U.S.C. 1001 and 1002. In proposing the definition, the 
Board proposed to use its authority under TILA Section 105(a) to apply 
the definition in TILA Section 127(r)(1)(D) to TILA Section 140(f) in 
order to have a consistent definition of the term for all sections 
added by the Credit Card Act and to facilitate compliance. 15 U.S.C. 
1604(a). The Board received no comment on the proposed definition, and 
Sec.  226.57(a)(3) is adopted as proposed.
    Proposed Sec.  226.57(a)(4) defined ``affiliated organization'' as 
an alumni organization or foundation affiliated with or related to an 
institution of higher education, to provide a conveniently shorter term 
to be used to refer to such organizations and foundations in various 
provisions of the proposed regulations. The Board received no comment 
regarding this definition, and Sec.  226.57(a)(4) is adopted as 
proposed with one non-substantive wording change.
    Proposed Sec.  226.57(a)(5) delineated the types of agreements for 
which creditors must provide annual reports to the Board, under the 
defined term ``college credit card agreement.'' The term was defined to 
include any business, marketing or promotional agreement between a card 
issuer and an institution of higher education or an affiliated 
organization in connection with which college student credit cards are 
issued to college students currently enrolled at that institution. In 
connection with the proposed rule, the Board noted that the proposed 
definition did not incorporate the concept of a college affinity card 
agreement used in TILA Section 127(r)(1)(A) and solicited comment on 
whether language referring to college affinity card agreements also 
should be included in the regulations. The Board received no comments 
on this issue. The Board continues to believe that the definition of 
``college credit card agreement'' is broad enough to include agreements 
concerning college affinity cards. Section 226.57(a)(5) therefore is 
adopted as proposed with one non-substantive wording change.
    Comment 57(a)(5)-1 is adopted as proposed. Comment 57(a)(5)-1 
clarifies that business, marketing and promotional agreements may 
include a broad range of arrangements between a creditor and an 
institution of higher education or affiliated organization, including 
arrangements that do not fall within the concept of a college affinity 
card agreement as discussed in TILA Section 127(r)(1)(A). For example, 
TILA Section 127(r)(1)(A) specifies that under a college affinity card 
agreement, the card issuer has agreed to make a donation to the 
institution or affiliated organization, the card issuer has agreed to 
offer discounted terms to the consumer, or the credit card will display 
pictures, symbols, or words identified with the institution or 
affiliated organization; even if these conditions are not met, an 
agreement may qualify as a college credit card agreement, if the 
agreement is a business, marketing or promotional agreement that 
contemplates the issuance of college student credit cards to college 
students currently enrolled at the institution. An agreement may 
qualify as a college credit card agreement even if marketing of cards 
under the agreement is targeted at alumni, faculty, staff, and other 
non-student consumers, as long as cards may also be issued to students 
in connection with the agreement.
57(b) Public Disclosure of Agreements
    In the October 2009 Regulation Z Proposal the Board proposed to 
implement new TILA Section 140(f)(1) in Sec.  226.57(b). Consistent 
with the statute, proposed Sec.  226.57(b) requires an institution of 
higher education to publicly disclose any credit card marketing 
contract or other agreement made with a card issuer or creditor. The 
Board also proposed comment 57(b)-1 to specify that an institution of 
higher education may fulfill its duty to publicly disclose any contract 
or other agreement made with a card issuer or creditor for the purposes 
of marketing a credit card by posting such contract or agreement on its 
Web site. Comment 57(b)-1 also provided that the institution of higher 
education may alternatively make such contract or agreement available 
upon request, provided the procedures for requesting the documents are 
reasonable and free of cost to the requestor, and the contract or 
agreement is provided within a reasonable time frame. As discussed in 
the October 2009 Regulation Z Proposal the list in proposed comment 
57(b)-1 was not meant to be exhaustive, and the Board noted that an 
institution of higher education may publicly disclose these contracts 
or agreements in other ways.
    Consumer group commenters suggested that the Board clarify that the 
term ``any contracts or agreements'' includes a memorandum of 
understanding or other amendment, interpretation or understanding 
between the parties that directly or indirectly relates to a college 
credit agreement. The Board does not believe such amendments are 
necessary. If, as a matter of contract law, any amendment or memorandum 
of understanding constitutes a part of a contract, the Board believes 
that the language in the regulation would require its disclosure. As a 
result, the Board is adopting comment 57(b)-1 as proposed.
    The Board also proposed comment 57(b)-2 in the October 2009 
Regulation Z Proposal to bar institutions of higher education from 
redacting any contracts or agreements they are required to publicly 
disclose under proposed Sec.  226.57(b). As a result, any clauses in 
existing contract or agreements addressing the confidentiality of such 
contracts or agreements would be invalid to the extent they prevent 
institutions of higher education from publicly disclosing such 
contracts or agreements in accordance with proposed Sec.  226.57(b). 
The Board did not receive any significant comments on comment 57(b)-2. 
Furthermore, the Board continues to believe that it is important that 
all provisions of these contracts or agreements be available to college 
students and other interested parties, and comment 57(b)-2 is adopted 
as proposed.
57(c) Prohibited Inducements
    TILA Section 140(f)(2) prohibits card issuers and creditors from 
offering to a student at an institution of higher education any 
tangible item to induce such student to apply for or participate in an 
open-end consumer credit plan offered by such card issuer or creditor, 
if such offer is made on the campus of an institution of higher 
education, near the campus of an institution of higher education, or at 
an event sponsored by

[[Page 7757]]

or related to an institution of higher education. Proposed Sec.  
226.57(c) generally followed the statutory language. As the Board noted 
in the October 2009 Regulation Z Proposal, TILA Section 140(f)(2) 
applies not only to credit card accounts, but also other open-end 
consumer credit plans, such as lines of credit. The Board received 
comment from some industry commenters requesting that the Board limit 
this provision to credit card accounts only. The statute specifically 
includes other open-end consumer credit plans other than credit card 
accounts, and the Board believes Congress intended to cover all open-
end consumer credit plans. Therefore, the Board is adopting Sec.  
226.57(c) as proposed.
    One industry commenter requested an exception to the restrictions 
on offering a tangible item in exchange for introducing a wide range of 
financial services to a college student. The Board notes that the 
restriction in Sec.  226.57(c) applies to inducements to apply for or 
participate in an open-end consumer credit plan only. Consequently, if 
a financial institution were to offer a tangible item to induce a 
college student to open a deposit account, for example, such item would 
not be prohibited because a deposit account is not an open-end credit 
plan. However, if a financial institution were to offer a tangible item 
to induce a college student to apply for or participate in a package of 
financial services that includes any open-end consumer credit plans, 
such items would be prohibited under Sec.  226.57(c).
    Proposed comment 57(c)-1 in the October 2009 Regulation Z Proposal 
clarified that a tangible item under Sec.  226.57(c) includes any 
physical item, such as a gift card, a t-shirt, or a magazine 
subscription, that a card issuer or creditor offers to induce a college 
student to apply for or open an open-end consumer credit plan offered 
by such card issuer or creditor. The proposed comment also provided 
some examples of non-physical inducements that would not be considered 
tangible items, such as discounts, rewards points, or promotional 
credit terms.
    Consumer group commenters suggested that while the Board's 
interpretation of ``tangible'' item was valid, there is an alternate 
definition of ``tangible'' item as an item that is real, as opposed to 
visionary or imagined. The Board believes interpreting the term 
``tangible'' as these commenters' suggest would be inappropriate. Since 
it would be impossible for a creditor to offer an imagined item, 
defining ``tangible'' as something real would render the term 
superfluous. The Board believes that Congress meant to limit this 
prohibition to a certain class of items; otherwise, the statute would 
have prohibited the offering any kind of inducement, rather than a 
``tangible'' one. Proposed comment 57(c)-1 is therefore adopted as 
proposed.
    Under TILA Section 140(f)(2), offering tangible items to college 
students is prohibited only if the items are offered to induce the 
student to apply for or open an open-end consumer credit plan. As a 
result, the Board proposed comment 57(c)-2 to clarify that if a 
tangible item is offered to a college student whether or not that 
student applies for or opens an open-end consumer credit plan, the item 
is not an inducement. Consumer group commenters opposed the Board's 
interpretation and stated that any tangible item offered to a college 
student, even if it is not conditioned on the college student applying 
for or opening an open-end consumer credit plan, is an inducement. The 
Board disagrees with this interpretation. In addition, the Board 
believes the approach suggested by consumer group commenters could 
produce unintended consequences and practical complications. For 
example, under the interpretation suggested by commenters, even a 
simple candy dish in the lobby of a bank branch or at a retailer that 
has a retail credit card program could be prohibited because of the 
possibility a college student may walk into the branch or the store and 
take a piece of candy. Therefore, the Board is adopting comment 57(c)-2 
as proposed.
    TILA Section 140(f)(2)(B) requires the Board to determine what is 
considered near the campus of an institution of higher education. As 
discussed in the October 2009 Regulation Z Proposal, the Board proposed 
comment 57(c)-3 to provide that a location that is within 1,000 feet of 
the border of the campus of an institution of higher education, as 
defined by the institution of higher education, be considered near the 
campus of an institution of higher education. The Board based its 
proposal on the distances used in state and federal laws for other 
restricted activities near a school,\73\ and solicited comment on other 
appropriate ways to determine a location that is considered near the 
campus of an institution of higher education.
---------------------------------------------------------------------------

    \73\ See, e.g., 18 U.S.C. 922(q)(2) (making it unlawful for an 
individual to possess an unlicensed firearm in a school zone, 
defined in 18 U.S.C. 921(a)(25) as within 1,000 feet of the school); 
the Family Smoking Prevention and Tobacco Control Act (Pub. L. 111-
31, June 22, 2009) (requiring regulations to ban outdoor tobacco 
advertisements within 1,000 feet of a school or playground); and 
Mass. Gen. Laws ch. 94C, Sec.  32J (requiring mandatory minimum term 
of imprisonment for drug violations committed within 1,000 feet of a 
school).
---------------------------------------------------------------------------

    The Board received support for its proposal from various types of 
commenters, but many industry commenters thought the Board's definition 
for what is considered near campus to be too broad. Several of these 
commenters suggested that the Board provide exceptions from the 
prohibition in Sec.  226.57(c) for either retailer-creditors or bank 
branches on or near campus. Another industry commenter requested that 
the Board provide guidance on defining the campus of an institution of 
higher education. One industry commenter also suggested that the Board 
exempt on-line universities to avoid interpretations that a student's 
home might constitute a part of the ``campus.''
    The Board is adopting comment 57(c)-3 as proposed. The statute 
provides that creditors are subject to the restrictions on offering 
tangible items to college students in particular locations and makes no 
exceptions for creditors that may already be established in such 
locations. Furthermore, the Board believes that institutions of higher 
education would be the proper entities to determine the borders of 
their respective campuses. In addition, it is the Board's understanding 
that on-line universities do not define their campuses as inclusive of 
a student's home. Therefore, the Board believes it would be unnecessary 
to provide an exemption for such institutions.
    Proposed comment 57(c)-4 clarified that offers of tangible items 
mailed to a college student at an address on or near the campus of an 
institution of higher education would be subject to the restrictions in 
Sec.  226.57(c). Proposed comment 57(c)-4 clarified that offers of 
tangible items made on or near the campus of an institution of higher 
education for purposes of Sec.  226.57(c) include offers of tangible 
items that are sent to those locations through the mail. Some industry 
commenters opposed the Board's proposed comment to include offers of 
tangible items that are mailed to a college student at an address on or 
near campus. Another industry commenter requested the Board clarify 
whether e-mailed offers constituted offers mailed to an address on or 
near campus.
    Comment 57(c)-4 is adopted as proposed. As the Board discussed in 
the October 2009 Regulation Z Proposal, the statute does not 
distinguish between different methods of making offers of tangible 
items, but clearly delineates the locations where such offers may not 
be

[[Page 7758]]

made. The Board notes that the prohibition in Sec.  226.57(c) focuses 
on offering a tangible item. Therefore, creditors are not prohibited by 
the rule from mailing applications and solicitations to college 
students at an address that is on or near campus. Such mailings may 
even advertise the possibility of a tangible item for any applicant who 
is not a college student, so long as the credit has reasonable 
procedures for determining whether an applicant is a college student, 
consistent with comment 57(c)-6. Moreover, the Board does not believe 
that comment 57(c)-4 as adopted would include mailings to an e-mail 
address as it encompasses only mailings to an address that is on or 
near campus. An e-mail address does not physically exist anywhere, and 
therefore, cannot be considered an address on or near campus.
    Furthermore, under Sec.  226.57(c), an offer of a tangible item to 
induce a college student to apply for or open an open-end consumer 
credit plan may not be made at an event sponsored by or related to an 
institution of higher education. The Board proposed comment 57(c)-5 to 
provide that an event is related to an institution of higher education 
if the marketing of such event uses the name, emblem, mascot, or logo 
of an institution of higher education, or other words, pictures, or 
symbols identified with an institution of higher education in a way 
that implies that the institution of higher education endorses or 
otherwise sponsors the event. The proposed comment was adapted from 
guidance the Board recently adopted in Sec.  226.48 regarding co-
branding restrictions for certain private education loans.
    A credit union commenter suggested that the Board's proposal was 
too broad, particularly for credit unions that may share a similar name 
to an institution of higher education. While the Board understands the 
difficulty in complying with Sec.  226.57(c) for such creditors, the 
Board believes that the potential for confusion that a particular event 
or function is endorsed by the institution of higher education is too 
great. The Board, however, notes that comment 57(c)-6, as discussed 
below, provides guidance for procedures such creditors can put in place 
to mitigate the impact of the rule.
    Proposed comment 57(c)-6 requires creditors to have reasonable 
procedures for determining whether an applicant is a college student. 
Since the prohibition in Sec.  226.57(c) applies solely to offering a 
tangible item to a college student at specified locations, a card 
issuer or creditor would be permitted to offer any person who is not a 
college student a tangible item to induce such person to apply for or 
open an open-end consumer credit plan offered by such card issuer or 
creditor at such locations. Proposed comment 57(c)-6 illustrated one 
way in which a card issuer or creditor might meet this standard and 
provided that the card issuer or creditor may rely on the 
representations made by the applicant.
    The Board did not receive significant comment on this provision, 
and the proposed comment is adopted in final. As the Board discussed in 
the October 2009 Regulation Z Proposal, Sec.  226.57(c) would not 
prohibit card issuers and creditors from instituting marketing programs 
on or near the campus of an institution of higher education, or at an 
event sponsored by or related to an institution of higher education, 
where a tangible item will be offered to induce people to apply for or 
open an open-end consumer credit plan. However, those card issuers or 
creditors that do so must have reasonable procedures for determining 
whether an applicant or participant is a college student before giving 
the applicant or participant the tangible item.
57(d) Annual Report to the Board
    The Board proposed to implement new TILA Section 127(r)(2) in Sec.  
226.57(d). Consistent with the statute, proposed Sec.  226.57(d) 
required card issuers that are a party to one or more college credit 
card agreements to submit annual reports to the Board regarding those 
agreements. Section 226.57(d) is adopted with modifications as 
discussed below.
    Proposed Sec.  226.57(d) required creditors that were a party to 
one or more college credit card agreements to register with the Board 
before submitting their first annual report. The Board is eliminating 
the registration requirement from the final rule because of technical 
changes to the Board's submission process. Proposed Sec.  226.57(d)(1) 
therefore is not included in the final rule. The Board will capture the 
identifying information that would have been captured from each issuer 
during the registration process (e.g., the issuer's name, address, and 
identifying number (such as an RSSD ID number or tax identification 
number), and the name, phone number and email address of a contact 
person at the issuer) at the time the issuer submits its annual report 
to the Board. Under the final rule, there is no requirement to register 
with the Board prior to submitting an annual report regarding college 
credit card agreements. As proposed, issuers must submit their initial 
annual report on college credit card agreements, providing information 
for the 2009 calendar year, to the Board by February 22, 2010. For each 
subsequent calendar year, issuers must submit annual reports by the 
first business day on or after March 31 of the following calendar year.
    Proposed Sec.  226.57(d) required that annual reports include a 
copy of each college credit card agreement to which the card issuer was 
a party that was in effect during the period covered by the report, as 
well as certain related information specified in new TILA Section 
127(r)(2), including the total dollar amount of payments pursuant to 
the agreement from the card issuer to the institution (or affiliated 
organization) during the period covered by the report, and how such 
amount is determined; the total number of credit card accounts opened 
pursuant to the agreement during the period; and the total number of 
such credit card accounts that were open at the end of the period. The 
final rule specifies that annual reports must include ``the method or 
formula used to determine'' the amount of payments from an issuer to an 
institution of higher education or affiliated organization during the 
reporting period, rather than ``how such amount is determined'' as 
proposed. The Board believes this more precisely describes the 
information intended to be captured under new TILA Section 127(r)(2).
    In connection with the proposal, the Board solicited comment on 
whether issuers should be required to submit additional information on 
the terms and conditions of college credit card agreements in the 
annual report, such as identifying specific terms that differentiate 
between student and non-student accounts (for example, that provide for 
difference in payments based on whether an account is a student or non-
student account), identifying specific terms that relate to advertising 
or marketing (such as provisions on mailing lists, on-line advertising, 
or on-campus marketing), and the terms and conditions of credit card 
accounts (for example, rates and fees) that may be opened in connection 
with the college credit card agreement. One card issuer commenter 
argued that such additional information should not be required, citing 
the additional burden on issuers. Some consumer group commenters urged 
the Board to collect additional information including the items 
identified by the Board in the proposal as well as other information 
such as the differences in comparative rates of default and average 
outstanding balances between student and non-student accounts. The 
Board believes

[[Page 7759]]

that requiring issuers to track, assemble, and submit this information 
would impose significant costs and administrative burdens on issuers, 
and the Board does not believe that requiring issuers to submit 
additional information is necessary to achieve the purposes of new TILA 
Section 127(r)(2). Thus, no additional information requirements are 
adopted in the final rule.
    As proposed, Sec.  226.57(d) requires that each annual report 
include a copy of any memorandum of understanding that ``directly or 
indirectly relates to the college credit card agreement or that 
controls or directs any obligations or distribution of benefits between 
any such entities.'' Proposed comment 57(d)(3)-1 clarified what types 
of documents would be considered memoranda of understanding for 
purposes of this requirement, by providing that a memorandum of 
understanding includes any document that amends the college credit card 
agreement, or that constitutes a further agreement between the parties 
as to the interpretation or administration of the agreement, and by 
providing of examples of documents that would or would not be included. 
The Board received no comments regarding what types of documents should 
be considered memoranda of understanding, and comment 57(d)(3)-1, 
redesignated as comment 57(d)(2)-1, is adopted as proposed.
    Additional details regarding the submission process are provided in 
the Consumer and College Credit Card Agreement Submission Technical 
Specifications Document, which is published as Attachment I to this 
Federal Register notice and which will be available on the Board's 
public Web site.

Section 226.58 Internet Posting of Credit Card Agreements

    Section 204 of the Credit Card Act adds new TILA Section 122(d) to 
require creditors to post agreements for open-end consumer credit card 
plans on the creditors' Web sites and to submit those agreements to the 
Board for posting on a publicly-available Web site established and 
maintained by the Board. 15 U.S.C. 1632(d). The Board proposed to 
implement these provisions in proposed Sec.  226.58 with additional 
guidance included in proposed Appendix N. As discussed below, proposed 
Sec.  226.58 is adopted with modifications. Proposed Appendix N has 
been eliminated from the final rule, but the provisions of proposed 
Appendix N, with certain modifications, have been incorporated into 
Sec.  226.58.
    The final rule requires that card issuers post on their Web sites, 
so as to be available to the public generally, the credit card 
agreements they offer to the public. Issuers must also submit these 
agreements to the Board quarterly for posting on the Board's public Web 
site. However, under the final rule, as proposed, issuers are not 
required to post on their publicly available Web sites, or to submit to 
the Board, credit card agreements that are no longer offered to the 
public, even if the issuer still has credit card accounts open under 
such agreements.
    In addition, the final rule requires that issuers post on their Web 
sites, or otherwise make available upon request by the cardholder, all 
of their agreements for open credit card accounts, whether or not such 
agreements are currently offered to the public. Thus, any cardholder 
will be able to access a copy of his or her own credit card agreement. 
Agreements posted (or otherwise made available) under this provision in 
the final rule may contain personally identifiable information relating 
to the cardholder, provided that the issuer takes appropriate measures 
to make the agreement accessible only to the cardholder or other 
authorized persons. In contrast, the agreements that are currently 
offered to the public and that must be posted on the issuer's Web site 
(and submitted to the Board) may not contain personally identifiable 
information.
    The final rule also contains, as proposed, a de minimis exception 
from the requirement to post on issuers' publicly available Web sites, 
and submit to the Board for posting on the Board's public Web site, 
agreements currently offered to the public. The de minimis exception 
applies to issuers with fewer than 10,000 open credit card accounts. 
The final rule also contains exceptions for private label plans offered 
on behalf of a single merchant or a group of affiliated merchants and 
for plans that are offered in order to test a new credit card product, 
provided that in each case the plan involves no more than 10,000 credit 
card accounts. However, none of these exceptions applies to the 
requirement that issuers make available by some means upon request all 
of their credit card agreements for their open credit card accounts, 
whether or not currently offered to the public.
58(a) Applicability
    The Board proposed to make Sec.  226.58 applicable to any card 
issuer that issues credit cards under a credit card account under an 
open-end (not home-secured) consumer credit plan, as defined in 
proposed Sec.  226.2(a)(15). The Board received no comments on proposed 
Sec.  226.58(a) and therefore is adopting this section as proposed. 
Thus, consistent with the approach the Board is implementing with 
respect to other sections of the Credit Card Act, home-equity lines of 
credit accessible by credit cards and overdraft lines of credit 
accessed by debit cards are not covered by Sec.  226.58.
58(b) Definitions
58(b)(1) Agreement
    Proposed Sec.  226.58(b)(1) defined ``agreement'' or ``credit card 
agreement'' as a written document or documents evidencing the terms of 
the legal obligation or the prospective legal obligation between a card 
issuer and a consumer for a credit card account under an open-end (not 
home-secured) consumer credit plan. Proposed Sec.  226.58(b)(1) further 
provided that an agreement includes the information listed under the 
defined term ``pricing information.''
    Commenters generally were supportive of the Board's proposed 
definition of agreement, and the Board is adopting Sec.  226.58(b)(1) 
as proposed. One card issuer commenter stated that creditors should not 
be required to provide pricing information as part of agreements 
submitted to the Board. The Board disagrees. The Board continues to 
believe that, to enable consumers to shop for credit cards and compare 
information about various credit card plans in an effective manner, it 
is necessary that the credit card agreements posted on the Board's Web 
site include rates, fees, and other pricing information.
    The Board proposed two comments clarifying the definition of 
agreement under Sec.  226.58(b)(1). Proposed comment 58(b)(1)-1 
clarified that an agreement is deemed to include the information listed 
under the defined term ``pricing information,'' even if the issuer does 
not otherwise include this information in the document evidencing the 
terms of the obligation. Comment 58(b)(1)-1 is adopted as proposed.
    Proposed comment 58(b)(1)-2 clarified that an agreement would not 
include documents sent to the consumer along with the credit card or 
credit card agreement such as a cover letter, a validation sticker on 
the card, other information about card security, offers for credit 
insurance or other optional products, advertisements, and disclosures 
required under federal or state law. The Board received no comments on 
proposed comment 58(b)(1)-2. For organizational reasons,

[[Page 7760]]

proposed comment 58(b)(1)-2 has been eliminated and the guidance 
contained in proposed comment 58(b)(1)-2 has been moved to Sec.  
228.58(c)(8), discussed below.
    The final rule adds new comment 58(b)(1)-2, which clarifies that an 
agreement may consist of multiple documents that, taken together, 
define the legal obligation between the issuer and the consumer. As an 
example, comment 58(b)(1)-2 notes that provisions that mandate 
arbitration or allow an issuer to unilaterally alter the terms of the 
issuer's or consumer's obligation are part of the agreement even if 
they are provided to the consumer in a document separate from the basic 
credit contract. The definition of agreement under Sec.  226.58(b)(1) 
indicates that an agreement may consist of a ``document or documents'' 
(emphasis added). However, several commenters indicated that it would 
be helpful for the Board to emphasize this point, and the Board agrees 
that further clarity may assist issuers in complying with Sec.  226.58.
58(b)(2) Amends
    In connection with the proposed rule, the Board solicited comment 
on whether issuers should be required to resubmit agreements to the 
Board following minor, technical changes. Commenters overwhelmingly 
indicated that the Board should only require resubmission of agreements 
following substantive changes. Commenters including both large and 
small card issuers noted that issuers frequently make non-substantive 
changes without simultaneously making substantive changes and that 
requiring resubmission following technical changes would impose a 
significant burden on issuers while providing little or no benefit to 
consumers. The Board agrees that requiring resubmission of agreements 
following minor, technical changes would impose a significant 
administrative burden with no corresponding benefit of increased 
transparency.
    The final rule therefore includes a new definition of ``amends'' as 
Sec.  226.58(b)(2). The definition specifies that an issuer amends an 
agreement if it makes a substantive change to the agreement. A change 
is substantive if it alters the rights or obligations of the card 
issuer or the consumer under the agreement. Any change in the pricing 
information, as defined in Sec.  226.58(b)(6), is deemed to be a 
substantive change, and therefore an amendment. Under Sec.  226.58(c), 
discussed below, an issuer is only required to resubmit an agreement to 
the Board following a change to the agreement if that change 
constitutes an amendment as defined in Sec.  226.58(b)(2).
    To provide additional clarity regarding what types of changes would 
be considered amendments, the final rule includes two new comments, 
comment 58(b)(2)-1 and 58(b)(2)-2. Comment 58(b)(2)-1 gives examples of 
changes that generally would be considered substantive, such as: (i) 
Addition or deletion of a provision giving the issuer or consumer a 
right under the agreement, such as a clause that allows an issuer to 
unilaterally change the terms of an agreement; (ii) addition or 
deletion of a provision giving the issuer or consumer an obligation 
under the agreement, such as a clause requiring the consumer to pay an 
additional fee; (iii) changes that may affect the cost of credit to the 
consumer, such as changes in a clause describing how the minimum 
payment will be calculated; (iv) changes that may affect how the terms 
of the agreement are construed or applied, such as changes in a choice-
of-law provision; and (v) changes that may affect the parties to whom 
the agreement may apply, such as changes in a provision regarding 
authorized users or assignment of the agreement.
    Comment 58(b)(2)-2 gives examples of changes that generally would 
not be considered substantive, such as: (i) Correction of typographical 
errors that do not affect the meaning of any terms of the agreement; 
(ii) changes to the issuer's corporate name, logo, or tagline; (iii) 
changes to the format of the agreement, such as conversion to a booklet 
from a full-sheet format, changes in font, or changes in margins; (iv) 
changes to the name of the credit card to which the program applies; 
(v) reordering sections of the agreement without affecting the meaning 
of any terms of the agreement; (vi) adding, removing, or modifying a 
table of contents or index; and (vii) changes to titles, headings, 
section numbers, or captions.
58(b)(3) Business Day
    As proposed, Sec.  226.58(b)(3) of the final rule, corresponding to 
proposed Sec.  226.58(b)(2), defines ``business day'' as a day on which 
the creditor's offices are open to the public for carrying on 
substantially all of its business functions. This is consistent with 
the definition of business day used in most other sections of 
Regulation Z. The Board received no comments regarding proposed Sec.  
226.58(b)(2).
58(b)(4) Offers
    The proposed rule provided that an issuer ``offers'' or ``offers to 
the public'' an agreement if the issuer is soliciting or accepting 
applications for new accounts that would be subject to that agreement. 
The Board received no comments regarding the definition of offers, and 
the Sec.  226.58(b)(4) definition, corresponding to proposed Sec.  
226.58(b)(3), is adopted as proposed.
    Several credit union commenters argued that credit cards issued by 
credit unions are not offered to the public under this definition 
because such cards are available only to credit union members. These 
commenters concluded that credit unions therefore should not be 
required to submit agreements to the Board for posting on the Board's 
Web site. The Board disagrees. The Board understands that, of the one 
hundred largest Visa and MasterCard credit card issuers in the United 
States, several dozen are credit unions, including some with hundreds 
of thousands of open credit card accounts and at least one with over 
one million open credit card accounts. In addition, credit union 
membership criteria have relaxed in recent years, in some cases 
significantly. Credit cards issued by credit unions are a significant 
source of open-end consumer credit, and exempting credit unions from 
submitting agreements to the Board would significantly lessen the 
usefulness of the Board's Web site as a comparison shopping tool for 
consumers. The final rule therefore includes new language in comment 
58(b)(4)-1, corresponding to proposed comment 58(b)(3)-1, clarifying 
that agreements for credit cards issued by credit unions are considered 
to be offered to the public even though they are available only to 
credit union members.
    The two proposed comments to the definition of offers are otherwise 
adopted as proposed. Comment 58(b)(4)-1, corresponding to proposed 
comment 58(b)(3)-1, clarifies that a card issuer is deemed to offer a 
credit card agreement to the public even if the issuer solicits, or 
accepts applications from, only a limited group of persons. For 
example, an issuer may market affinity cards to students and alumni of 
a particular educational institution or solicit only high-net-worth 
individuals for a particular card, but the corresponding agreements 
would be considered to be offered to the public. Comment 58(b)(4)-2, 
corresponding to proposed comment 58(b)(3)-2, clarifies that a card 
issuer is deemed to offer a credit card agreement to the public even if 
the terms of the agreement are

[[Page 7761]]

changed immediately upon opening of an account to terms not offered to 
the public.
58(b)(5) Open Account
    The proposed rule provided guidance in proposed comment 58(e)-2 
regarding the definition of open accounts for purposes of the de 
minimis exception. Proposed comment 58(e)-2 stated that, for purposes 
of the de minimis exception, a credit card account is considered to be 
open even if the account is inactive, as long as the account has not 
been closed by the cardholder or the card issuer and the cardholder can 
obtain extensions of credit on the account. In addition, if an account 
has only temporarily been suspended (for example, due to a report of 
unauthorized use), the account is considered open. However, if an 
account has been closed for new activity (for example, due to default 
by the cardholder), but the cardholder is still making payments to pay 
off the outstanding balance, the account need not be considered open.
    The final rule eliminates this comment and adds a new definition of 
``open account'' as Sec.  226.58(b)(5). Under Sec.  226.58(b)(5), an 
account is an ``open account'' or ``open credit card account'' if it is 
a credit card account under an open-end (not home-secured) consumer 
credit plan and either: (i) The cardholder can obtain extensions of 
credit on the account; or (ii) there is an outstanding balance on the 
account that has not been charged off. An account that has been 
suspended only temporarily (for example, due to a report by the 
cardholder of unauthorized use of the card) is considered an open 
account or open credit card account. The term open account is used in 
the de minimis, private label, and product testing exceptions under 
Sec.  226.58(c) and in Sec.  226.58(e), regarding availability of 
agreements to existing cardholders. These sections are discussed below.
    The final rule also includes new comment 58(b)(5)-1. This comment 
clarifies that, under the Sec.  226.58(b)(5) definition of open 
account, an account is considered open if either of the two conditions 
set forth in the definition are met even if the account is inactive. 
Similarly, the comment clarifies that an account is considered open if 
an account has been closed for new activity (for example, due to 
default by the cardholder) but the cardholder is still making payments 
to pay off the outstanding balance.
    The definition of open account included in the final rule differs 
from the guidance provided in proposed comment 58(e)-2. In particular, 
accounts closed to new activity are considered open accounts under 
Sec.  226.58(b)(5), but were not considered open accounts under the 
proposed comment. The Board is aware that, under the new definition of 
open accounts, some issuers that may have qualified for the de minimis 
exception under the proposed rule will not qualify for the exception 
under the final rule. The Board believes that the approach to accounts 
closed for new activity under the final rule more accurately reflects 
the size of an issuer's portfolio. This approach also is more 
consistent with the treatment of such accounts under other sections of 
Regulation Z.
    In addition, the proposed comment applied only to the de minimis 
exception and did not provide guidance on the meaning of open accounts 
for other purposes, including for purposes of determining availability 
of agreements to existing cardholders. Because the definition of open 
account applies to all subsections of Sec.  226.58, the addition of the 
defined term clarifies that issuers must provide a cardholder with a 
copy of his or her particular credit card agreement under Sec.  
226.58(e) even if his or her account has been closed to new activity.
58(b)(6) Pricing Information
    Proposed Sec.  226.58(b)(4) defined the term ``pricing 
information'' to include: (1) the information under Sec.  
226.6(b)(2)(i) through (b)(2)(xii), (b)(3) and (b)(4) that is required 
to be disclosed in writing pursuant to Sec.  226.5(a)(1)(ii); (2) the 
credit limit; and (3) the method used to calculate required minimum 
payments. The Board received a number of comments on the proposed 
definition of pricing information, and the definition is adopted with 
modifications, as discussed below, as Sec.  226.58(b)(6).
    Section 226.58(b)(6) defines the pricing information as the 
information listed in Sec.  226.6(b)(2)(i) through (b)(2)(xii) and 
(b)(4). The definition specifies that the pricing information does not 
include temporary or promotional rates and terms or rates and terms 
that apply only to protected balances.
    Under Sec.  226.58(b)(6), the pricing information continues to 
include the information listed in Sec.  226.6(b)(2)(i) through 
(b)(2)(xii), as proposed. The information listed in Sec.  226.6(b)(3) 
has been omitted from the final rule, as information listed under Sec.  
226.6(b)(3) required to be disclosed in writing pursuant to Sec.  
226.5(a)(1)(ii) is, by definition, included in Sec.  226.6(b)(2). The 
information listed in Sec.  226.6(b)(4) is included as proposed.
    The credit limit is not included in the definition of pricing 
information under the final rule. Many card issuer commenters stated 
that the Board should not include the credit limit as an element of the 
pricing information. These commenters argued that the range of credit 
limits offered in connection with a particular agreement is likely to 
be so broad that it would not assist consumers in shopping for a credit 
card and noted that existing cardholders are notified of their 
individual credit limit on their periodic statements. These commenters 
also noted that credit limits are individually tailored and change 
frequently. They argued that including the credit limit as part of the 
pricing information therefore would require issuers to update and 
resubmit agreements frequently, imposing a significant burden on card 
issuers. The Board agrees with these commenters.
    The method used to calculate minimum payments also is not included 
in the definition of pricing information under the final rule. Methods 
used to calculate minimum payments are often complex and may be 
difficult to explain in a form that is readily understandable but still 
accurate. Upon further consideration, the Board believes that including 
this information in the pricing information likely would cause 
confusion among consumers and is unlikely to assist consumers in 
shopping for a credit card.
    The Sec.  226.58(b)(6) definition of pricing information also 
excludes temporary or promotional rates and terms or rates and terms 
that apply only to protected balances. Several card issuer commenters 
noted that promotional terms change frequently and therefore become 
outdated quickly. They also noted that these terms may be offered only 
to targeted groups of consumers. Including such terms as part of the 
pricing information likely would lead to confusion, as consumers often 
would be misled into believing they could apply for a particular set of 
terms when in fact they could not. The Board agrees that including 
these terms likely would lead to substantial consumer confusion about 
the terms available from a particular issuer. Similarly, including 
rates and terms that apply only to protected balances likely would 
mislead consumers about the terms that would apply to an account 
generally.
    Consumer groups commented that the Board should require issuers to 
disclose as part of the pricing information how the credit limit is set 
and under what circumstances it may be reduced and how issuers allocate 
the minimum payment. The Board does not believe that this information 
would assist

[[Page 7762]]

consumers in shopping for a credit card. The Board has conducted 
extensive consumer testing to develop account opening disclosures that 
are meaningful and understandable to consumers. The Board believes that 
these disclosures are an appropriate basis for the pricing information 
to be submitted to the Board and provided to cardholders under Sec.  
226.58. This additional information therefore is not included in the 
definition of pricing information under the final rule.
    Other commenters suggested that the Board should use the disclosure 
requirements for credit and charge card applications and solicitations 
under Sec.  226.5a, rather than the account-opening disclosures under 
Sec.  226.6, as the basis for the pricing information definition. The 
Board continues to believe that the account-opening disclosures under 
Sec.  226.6 are a more appropriate basis for the pricing information to 
be submitted to the Board and provided to cardholders under Sec.  
226.58. For example, the Board believes that the more robust disclosure 
regarding rates required by Sec.  226.6(b)(4) would be of substantial 
assistance to consumers in comparing credit cards among different 
issuers. As proposed, the final rule continues to use Sec.  226.6 as 
the basis for the definition of pricing information.
    As proposed, the definition of pricing information makes reference 
to the provisions of Sec.  226.6 as revised by the January 2009 
Regulation Z Rule. As discussed elsewhere in this supplementary 
information, the Board has decided to retain the July 1, 2010, 
mandatory compliance date for revised Sec.  226.6, while the effective 
date of Sec.  226.58 is February 22, 2010. The definition of pricing 
information for purposes of Sec.  226.58 conforms to the requirements 
of revised Sec.  226.6(b)(2)(i) through (b)(2)(xii) and (b)(4) 
beginning on February 22, 2010, even though compliance with portions of 
revised Sec.  226.6(b) is not mandatory until July 1, 2010.
58(b)(7) Private Label Credit Card Account and Private Label Credit 
Card Plan
    In connection with the proposed rule, the Board solicited comment 
on whether the Board should create an exception applicable to small 
credit card plans offered by an issuer of any size. The Board is 
adopting in Sec.  226.58(c)(6) an exception for small private label 
credit card plans, discussed below. The final rule includes as Sec.  
226.58(b)(7) definitions for two new defined terms, ``private label 
credit card account'' and ``private label credit card plan,'' used in 
connection with that exception.
    Section 226.58(b)(7) defines a private label credit card account as 
a credit card account under an open-end (not home-secured) consumer 
credit plan with a credit card that can be used to make purchases only 
at a single merchant or an affiliated group of merchants and defines a 
private label credit card plan as all of the private label credit card 
accounts issued by a particular issuer with credit cards usable at the 
same single merchant or affiliated group of merchants.
    The final rule includes additional guidance regarding these 
definitions in four comments. Comment 58(b)(7)-1 clarifies that the 
term private label credit card account applies to any credit card 
account that meets the terms of the definition, regardless of whether 
the account is issued by the merchant or its affiliate or by an 
unaffiliated third party.
    Comment 58(b)(7)-2 clarifies that accounts with so-called co-
branded credit cards are not considered private label credit card 
accounts. Credit cards that display the name, mark, or logo of a 
merchant or affiliated group of merchants as well as the mark, logo, or 
brand of payment network are generally referred to as co-branded cards. 
While these credit cards may display the brand of the merchant or 
affiliated group of merchants as the dominant brand on the card, such 
credit cards are usable at any merchant that participates in the 
payment network. Because these credit cards can be used at multiple 
unaffiliated merchants, they are not considered private label credit 
cards under Sec.  226.58(b)(7).
    Comment 58(b)(7)-3 clarifies that an ``affiliated group of 
merchants'' means two or more affiliated merchants or other persons 
that are related by common ownership or common corporate control. For 
example, the term would include franchisees that are subject to a 
common set of corporate policies or practices under the terms of their 
franchise licenses. The term also applies to two or more merchants or 
other persons that agree among each other, by contract or otherwise, to 
accept a credit card bearing the same name, mark, or logo (other than 
the mark, logo, or brand of a payment network such as Visa or 
MasterCard), for the purchase of goods or services solely at such 
merchants or persons. For example, several local clothing retailers 
jointly agree to issue credit cards called the ``Main Street Fashion 
Card'' that can be used to make purchases only at those retailers. For 
purposes of this section, these retailers would be considered an 
affiliated group of merchants.
    Comment 58(b)(7)-4 provides examples of which credit card accounts 
constitute a private label credit card plan under Sec.  226.58(b)(7). 
As comment 58(b)(7)-4 indicates, which credit card accounts issued by a 
particular issuer constitute a private label credit card plan is 
determined by where the credit cards can be used. All of the private 
label credit card accounts issued by a particular issuer with credit 
cards that are usable at the same merchant or affiliated group of 
merchants constitute a single private label credit card plan, 
regardless of whether the rates, fees, or other terms applicable to the 
individual credit card accounts differ. Comment 58(b)(7)-4 provides the 
following example: an issuer has 3,000 open private label credit card 
accounts with credit cards usable only at Merchant A and 5,000 open 
private label credit card accounts with credit cards usable only at 
Merchant B and its affiliates. The issuer has two separate private 
label credit card plans, as defined by Sec.  226.58(b)(7)--one plan 
consisting of 3,000 open accounts with credit cards usable only at 
Merchant A and another plan consisting of 5,000 open accounts with 
credit cards usable only at Merchant B and its affiliates.
    Comment 58(b)(7)-4 notes that the example above remains the same 
regardless of whether (or the extent to which) the terms applicable to 
the individual open accounts differ. For example, assume that, with 
respect to the issuer's 3,000 open accounts with credit cards usable 
only at Merchant A in the example above, 1,000 of the open accounts 
have a purchase APR of 12 percent, 1,000 of the open accounts have a 
purchase APR of 15 percent, and 1,000 of the open accounts have a 
purchase APR of 18 percent. All of the 5,000 open accounts with credit 
cards usable only at Merchant B and Merchant B's affiliates have the 
same 15 percent purchase APR. The issuer still has only two separate 
private label credit card plans, as defined by Sec.  226.58(b)(7). The 
open accounts with credit cards usable only at Merchant A do not 
constitute three separate private label credit card plans under Sec.  
226.58(b)(7), even though the accounts are subject to different terms.
Proposed 58(c) Registration With Board
    Proposed Sec.  226.58(c) required any card issuer that offered one 
or more credit card agreements as of December 31, 2009 to register with 
the Board, in the form and manner prescribed by the Board, no later 
than February 1, 2010. The proposed rule required issuers that had not 
previously registered with the Board (such as new issuers formed after

[[Page 7763]]

December 31, 2009) to register before the deadline for their first 
quarterly submission.
    Proposed Sec.  226.58(c) is not included in the final rule. The 
Board is eliminating the registration requirement from the final rule 
because of technical changes to the Board's submission process. The 
Board instead plans to capture the identifying information about each 
issuer that would have been captured during the registration process 
(e.g., the issuer's name, address, and identifying number (such as an 
RSSD ID number or tax identification number), and the name, phone 
number and e-mail address of a contact person at the issuer) at the 
time of each issuer's first submission of agreements to the Board. 
Under the final rule, there is no requirement to register with the 
Board prior to submitting credit card agreements.
58(c) Submission of Agreements to Board
    Proposed Sec.  226.58(d) required that each card issuer 
electronically submit to the Board on a quarterly basis the credit card 
agreements that the issuer offers to the public. Commenters did not 
oppose the general requirements of proposed Sec.  226.58(d), and the 
Board is adopting the proposed provision, redesignated as Sec.  
226.58(c), with certain modifications, as discussed below. Consistent 
with new TILA Section 122(d)(3), the Board will post the credit card 
agreements it receives on its Web site.
    The Board proposed to use its exemptive authority under Sections 
105(a) and 122(d)(5) of TILA to require issuers to submit to the Board 
only agreements currently offered to the public. Commenters generally 
were supportive of this proposed use of the Board's exemptive 
authority, and the Board received no comments indicating that issuers 
should be required to submit agreements not offered to the public. The 
Board continues to believe that, with respect to credit card agreements 
that are not currently offered to the public, the administrative burden 
on issuers of preparing and submitting agreements for posting on the 
Board's Web site would outweigh the benefit of increased transparency 
for consumers. The Board also continues to believe that providing an 
exception for agreements not currently offered to the public is 
appropriate both to effectuate the purposes of TILA and to facilitate 
compliance with TILA.
    As stated in the proposal, the Board is aware that the number of 
credit card agreements currently in effect but no longer offered to the 
public is extremely large, and the Board believes that requiring 
issuers to prepare and submit these agreements would impose a 
significant burden on issuers. The Board also believes that the primary 
benefit of making credit card agreements available on the Board's Web 
site is to assist consumers in comparing credit card agreements offered 
by various issuers when shopping for a new credit card. Including 
agreements that are no longer offered to the public would not 
facilitate comparison shopping by consumers because consumers could not 
apply for cards subject to these agreements. In addition, including 
agreements no longer offered to the public would significantly increase 
the number of agreements included on the Board's Web site, possibly to 
include hundreds of thousands of agreements (or more). This volume of 
data would render the amount of data provided through the Web site too 
large to be helpful to most consumers. Thus, as proposed, Sec.  
226.58(c) requires issuers to submit to the Board only those agreements 
the issuer currently offers to the public.
58(c)(1) Quarterly Submissions
    Proposed Sec.  226.58(d)(1) required issuers to send quarterly 
submissions to the Board no later than the first business day on or 
after January 31, April 30, July 31, and October 31 of each year. The 
proposed rule required issuers to submit: (i) The credit card 
agreements that the issuer offered to the public as of the last 
business day of the preceding calendar quarter that the issuer has not 
previously submitted to the Board; (ii) any credit card agreement 
previously submitted to the Board that was modified or amended during 
the preceding calendar quarter; and (iii) notification regarding any 
credit card agreement previously submitted to the Board that the issuer 
is withdrawing. Proposed comment Sec.  226.58(d)-1 provided an example 
of the submission requirements as applied to a hypothetical issuer. 
Proposed comment 58(d)-2 clarified that an issuer is not required to 
make any submission to the Board if, during the previous calendar 
quarter, the issuer did not take any of the following actions: (1) 
Offering a new credit card agreement that was not submitted to the 
Board previously; (2) revising or amending an agreement previously 
submitted to the Board; and (3) ceasing to offer an agreement 
previously submitted to the Board.
    Commenters did not oppose the Board's approach to submission of 
agreements as described in proposed Sec.  226.58(d)(1). The Board 
therefore is adopting proposed Sec.  226.58(d)(1) and proposed comments 
58(d)-1 and 58(d)-2, redesignated in the final rule as Sec.  
226.58(c)(1) and comments 58(c)(1)-1 and 58(c)(1)-2, with certain 
modifications.
    As discussed above, the Board is eliminating from the final rule 
the requirement that issuers register with the Board before submitting 
agreements to the Board. Section 226.58(c)(1) therefore includes a new 
requirement that issuers submit along with their quarterly submissions 
identifying information relating to the card issuer and the agreements 
submitted, including the issuer's name, address, and identifying number 
(such as an RSSD ID number or tax identification number).
    In addition, Sections 226.58(c)(1) and comments 58(c)(1)-1 and 
(c)(1)-2 reflect, through use of the defined term ``amend,'' that 
issuers are required to resubmit agreements only following substantive 
changes. As discussed above, commenters overwhelmingly indicated that 
the Board should only require resubmission of agreements following 
substantive changes. The Board agrees that requiring resubmission of 
agreements following minor, technical changes would impose a 
significant administrative burden with no corresponding benefit of 
transparency. This is reflected in the final rule by requiring that 
issuers resubmit agreements under Sec.  226.58(c)(1) only when an 
agreement has been amended as defined in Sec.  226.58(b)(2).
    Several commenters asked that issuers be permitted to submit a 
complete, updated set of credit card agreements on a quarterly basis, 
rather than tracking which agreements are being modified, withdrawn, or 
added. These commenters argued that requiring issuers to track which 
agreements are being modified, withdrawn, or amended could impose a 
substantial burden on some issuers with no corresponding benefit to 
consumers. The Board agrees. The final rule therefore includes new 
comment 58(c)(1)-3, which clarifies that Sec.  226.58(c)(1) permits an 
issuer to submit to the Board on a quarterly basis a complete, updated 
set of the credit card agreements the issuer offers to the public. The 
comment gives the following example: An issuer offers agreements A, B 
and C to the public as of March 31. The issuer submits each of these 
agreements to the Board by April 30 as required by Sec.  226.58(c)(1). 
On May 15, the issuer amends agreement A, but does not make any changes 
to agreements B or C. As of June 30, the issuer continues to offer 
amended agreement A and agreements B and C to the public. At the next 
quarterly submission deadline, July 31, the issuer

[[Page 7764]]

must submit the entire amended agreement A and is not required to make 
any submission with respect to agreements B and C. The issuer may 
either: (i) Submit the entire amended agreement A and make no 
submission with respect to agreements B and C; or (ii) submit the 
entire amended agreement A and also resubmit agreements B and C. The 
comment also states that an issuer may choose to resubmit to the Board 
all of the agreements it offered to the public as of a particular 
quarterly submission deadline even if the issuer has not introduced any 
new agreements or amended any agreements since its last submission and 
continues to offer all previously submitted agreements.
    Additional details regarding the submission process are provided in 
the Consumer and College Credit Card Agreement Submission Technical 
Specifications Document, which is published as Attachment I to this 
Federal Register notice and which will be available on the Board's 
public Web site.
58(c)(2) Timing of First Two Submissions
    Proposed Sec.  226.58(d)(2), redesignated as Sec.  226.58(c)(2), is 
adopted as proposed. Section 3 of the Credit Card Act provides that new 
TILA Section 122(d) becomes effective on February 22, 2010, nine months 
after the date of enactment of the Credit Card Act. Thus, consistent 
with Section 3 of the Credit Card Act and as proposed, the final rule 
requires issuers to send their initial submissions, containing credit 
card agreements offered to the public as of December 31, 2009, to the 
Board no later than February 22, 2010. The next submission must be sent 
to the Board no later than August 2, 2010 (the first business day on or 
after July 31, 2010), and must contain: (1) Any credit card agreement 
that the card issuer offered to the public as of June 30, 2010, that 
the card issuer has not previously submitted to the Board; (2) any 
credit card agreement previously submitted to the Board that was 
modified or amended after December 31, 2009, and on or before June 30, 
2010, as described in Sec.  226.58(c)(3); and (3) notification 
regarding any credit card agreement previously submitted to the Board 
that the issuer is withdrawing as of June 30, 2010, as described in 
Sec.  226.58(c)(4) and (5).
    For example, as of December 31, 2009, a card issuer offers three 
agreements. The issuer is required to submit these agreements to the 
Board no later than February 22, 2010. On March 10, 2010, the issuer 
begins offering a new agreement. In general, an issuer that begins 
offering a new agreement on March 10 of a given year would be required 
to submit that agreement to the Board no later than April 30 of that 
year. However, under Sec.  226.58(c)(2), no submission to the Board is 
due on April 30, 2010, and the issuer instead must submit the new 
agreement no later than August 2, 2010.
    Several card issuer commenters suggested that issuers' initial 
submission should be due on a date later than February 22, 2010. The 
Board is aware that many issuers are likely to make changes to their 
agreements related to other provisions of the Credit Card Act before 
the February 22, 2010, effective date and that agreements as of 
December 31, 2009, therefore will be somewhat outdated by the time they 
are sent to the Board on February 22, 2010. The Board believes, 
however, that it is important to provide consumers with access to 
issuer's credit card agreements promptly following the statutory 
effective date.
58(c)(3) Amended Agreements
    Proposed Sec.  226.58(d)(3) required that, if an issuer makes 
changes to an agreement previously submitted to the Board, the issuer 
must submit the entire revised agreement to the Board by the first 
quarterly submission deadline after the last day of the calendar 
quarter in which the change became effective. The proposed rule also 
specified that, if a credit card agreement has been submitted to the 
Board, no changes have been made to the agreement, and the card issuer 
continues to offer the agreement to the public, no additional 
submission with respect to that agreement is required. Two proposed 
comments, proposed comments 58(d)-3 and 58(d)-4, provided examples of 
situations in which resubmission would not and would be required, 
respectively. Proposed comment 58(d)-5 clarified that an issuer could 
not fulfill the requirement to submit the entire revised agreement to 
the Board by submitting a change-in-terms or similar notice covering 
only the changed terms and that revisions could not be submitted as 
separate riders.
    The proposed rule required credit card issuers to resubmit 
agreements following any change, regardless of whether that change 
affects the substance of the agreement. As discussed above, the Board 
solicited comment on whether issuers should be required to resubmit 
agreements to the Board following minor, technical changes. Commenters 
overwhelmingly indicated that the Board should only require 
resubmission of agreements following substantive changes.
    The Board agrees with these commenters that requiring resubmission 
of agreements following minor, technical changes would impose a 
significant administrative burden with no corresponding benefit of 
increased transparency to consumers. The final rule therefore includes 
a new definition of ``amends'' in Sec.  226.58(b)(2), as discussed 
above. Under the final rule, an issuer is only required to resubmit an 
agreement to the Board following a change to the agreement if that 
change constitutes an amendment as defined in Sec.  226.58(b)(2). The 
definition in Sec.  226.58(b)(2) specifies that an issuer amends an 
agreement if it makes a substantive change to the agreement. A change 
is substantive if it alters the rights or obligations of the card 
issuer or the consumer under the agreement. The definition specifies 
that any change in the pricing information is deemed to be a 
substantive change and therefore an amendment. Section 226.58(c)(3) and 
comments 58(c)(3)-1, 58(c)(3)-2, and 58(c)(3)-3 (corresponding to 
proposed Sec.  226.58(d)(3) and proposed comments 58(d)-3, 58(d)-4, and 
58(d)-5) have been revised to incorporate the defined term ``amend'' 
but otherwise are adopted as proposed with several technical changes.
    Under Sec.  226.58(c)(3), corresponding to proposed Sec.  
226.58(d)(3), if a credit card agreement has been submitted to the 
Board, the agreement has not been amended as defined in Sec.  
226.58(b)(2) and the card issuer continues to offer the agreement to 
the public, no additional submission regarding that agreement is 
required. For example, as described in comment 58(c)(3)-1, 
corresponding to proposed comment 58(d)-3, a credit card issuer begins 
offering an agreement in October and submits the agreement to the Board 
the following January 31, as required by Sec.  226.58(c)(1). As of 
March 31, the issuer has not amended the agreement and is still 
offering the agreement to the public. The issuer is not required to 
submit anything to the Board regarding that agreement by April 30.
    If a credit card agreement that previously has been submitted to 
the Board is amended, as defined in Sec.  226.58(b)(2), the final rule 
provides that the card issuer must submit the entire amended agreement 
to the Board by the first quarterly submission deadline after the last 
day of the calendar quarter in which the change became effective. 
Comment 58(c)(3)-2, corresponding to proposed comment 58(d)-4, gives 
the following example: an issuer submits an agreement to the

[[Page 7765]]

Board on October 31. On November 15, the issuer changes the balance 
computation method used under the agreement. Because an element of the 
pricing information has changed, the agreement has been amended and the 
issuer must submit the entire amended agreement to the Board no later 
than January 31.
    Comment 58(c)(3)-3, corresponding to proposed comment 58(d)-5, 
explains that an issuer may not fulfill the requirement to submit the 
entire amended agreement to the Board by submitting a change-in-terms 
or similar notice covering only the terms that have changed. In 
addition, the comment emphasizes that, as required by Sec.  
226.58(c)(8)(iv), amendments must be integrated into the text of the 
agreement (or the addenda described in Sec.  226.58(c)(8)), not 
provided as separate riders. For example, an issuer changes the 
purchase APR associated with an agreement the issuer has previously 
submitted to the Board. The purchase APR for that agreement was 
included in the addendum of pricing information, as required by Sec.  
226.58(c)(8). The issuer may not submit a change-in-terms or similar 
notice reflecting the change in APR, either alone or accompanied by the 
original text of the agreement and original pricing information 
addendum. Instead, the issuer must revise the pricing information 
addendum to reflect the change in APR and submit to the Board the 
entire text of the agreement and the entire revised addendum, even 
though no changes have been made to the provisions of the agreement and 
only one item on the pricing information addendum has changed.
58(c)(4) Withdrawal of Agreements
    Proposed Sec.  226.58(d)(4), redesignated as Sec.  226.58(c)(4), 
and proposed comment 58(d)-6, redesignated as comment 58(c)(4)-1, are 
adopted as proposed with one technical change. The Board received no 
comments regarding this section and the accompanying commentary. As 
proposed, Sec.  226.58(c)(4) requires an issuer to notify the Board if 
the issuer ceases to offer any agreement previously submitted to the 
Board by the first quarterly submission deadline after the last day of 
the calendar quarter in which the issuer ceased to offer the agreement. 
For example, as described in comment 58(c)(4)-1, on January 5 an issuer 
stops offering to the public an agreement it previously submitted to 
the Board. The issuer must notify the Board that the agreement is being 
withdrawn by April 30, the first quarterly submission deadline after 
March 31, the last day of the calendar quarter in which the issuer 
stopped offering the agreement.
58(c)(5) De Minimis Exception
    Proposed Sec.  226.58(e) provided an exception to the requirement 
that credit card agreements be submitted to the Board for issuers with 
fewer than 10,000 open credit card accounts under open-end (not home-
secured) consumer credit plans. Commenters generally were supportive of 
this provision, and proposed Sec.  226.58(e) is incorporated into the 
final rule as Sec.  226.58(c)(5) with certain modifications as 
discussed below.
    The proposal noted that TILA Section 122(d)(5) provides that the 
Board may establish exceptions to the requirements that credit card 
agreements be posted on creditors' Web sites and submitted to the Board 
for posting on the Board's Web site in any case where the 
administrative burden outweighs the benefit of increased transparency, 
such as where a credit card plan has a de minimis number of consumer 
account holders. The Board expressed its belief that a de minimis 
exception should be created, but noted that it might not be feasible to 
base such an exception on the number of accounts under a credit card 
plan. In particular, the Board stated that it was unaware of a way to 
define ``credit card plan'' that would not divide issuers' portfolios 
into such small units that large numbers of credit card agreements 
could fall under the de minimis exception. The Board therefore proposed 
a de minimis exception for issuers with fewer than 10,000 open credit 
card accounts. Under the proposed exception, such issuers were not 
required to submit any credit card agreements to the Board.
    As described below, the Board is adopting as part of the final rule 
two exceptions based on the number of accounts under a credit card 
plan--the private label credit card exception and the product testing 
exception. The Board continues to believe, however, that the 
administrative burden on small issuers of preparing and submitting 
agreements would outweigh the benefit of increased transparency from 
including those agreements on the Board's Web site. The final rule 
therefore includes the proposed Sec.  226.58(e) de minimis exception 
for issuers with fewer than 10,000 open accounts substantially as 
proposed, redesignated as Sec.  226.58(c)(5).
    In connection with the proposed rule, the Board solicited comment 
on the 10,000 open account threshold for the de minimis exception. 
Several commenters supported the 10,000 account threshold. Several 
other commenters stated that the threshold should be raised to 25,000 
open accounts. The Board continues to believe that 10,000 open accounts 
is an appropriate threshold for the de minimis exception, and that 
threshold is retained in the final rule. One commenter stated that 
accounts with terms and conditions that are no longer offered to the 
public should not be counted toward the 10,000 account threshold. The 
Board believes that this exception is unworkable and could bring large 
numbers of issuers within the de minimis exception. The final rule 
therefore does not incorporate this approach.
    Proposed Sec.  226.58(e)(1) has been modified to incorporate the 
defined term ``open account,'' discussed above, and redesignated as 
Sec.  226.58(c)(5)(i), but otherwise is adopted as proposed. Under 
Sec.  226.58(c)(5)(i), a card issuer is not required to submit any 
credit card agreements to the Board if the card issuer has fewer than 
10,000 open credit card accounts as of the last business day of the 
calendar quarter.
    The final rule includes new comment 58(c)(5)-1, which clarifies the 
relationship between the de minimis exception and the private label 
credit card and product testing exceptions. As comment 58(c)(5)-1 
explains, the de minimis exception is distinct from the private label 
credit card exception under Sec.  226.58(c)(6) and the product testing 
exception under Sec.  226.58(c)(7). The de minimis exception provides 
that an issuer with fewer than 10,000 open credit card accounts is not 
required to submit any agreements to the Board, regardless of whether 
those agreements qualify for the private label credit card exception or 
the product testing exception. In contrast, the private label credit 
card exception and the product testing exception provide that an issuer 
is not required to submit to the Board agreements offered solely in 
connection with certain types of credit card plans with fewer than 
10,000 open accounts, regardless of the issuer's total number of open 
accounts.
    Proposed comments 58(e)-1 and 58(e)-3, redesignated as comments 
58(c)(5)-2 and 58(c)(5)-3, have been modified to incorporate the 
defined term ``open account,'' but otherwise are adopted as proposed. 
Comment 58(c)(5)-2 gives the following example of an issuer that 
qualifies for the de minimis exception: an issuer offers five credit 
card agreements to the public as of September 30. However, the issuer 
has only 2,000 open credit card accounts as of September 30. The issuer 
is not required to submit any agreements to the Board by October 31

[[Page 7766]]

because the issuer qualifies for the de minimis exception. Comment 
58(c)(5)-3 clarifies that whether an issuer qualifies for the de 
minimis exception is determined as of the last business day of the 
calendar quarter and gives the following example: as of December 31, an 
issuer offers three agreements to the public and has 9,500 open credit 
card accounts. As of January 30, the issuer still offers three 
agreements, but has 10,100 open accounts. As of March 31, the issuer 
still offers three agreements, but has only 9,700 open accounts. Even 
though the issuer had 10,100 open accounts at one time during the 
calendar quarter, the issuer qualifies for the de minimis exception 
because the number of open accounts was less than 10,000 as of March 
31. The issuer therefore is not required to submit any agreements to 
the Board under Sec.  226.58(c)(1) by April 30.
    Proposed comment 58(e)-2 provided guidance regarding the definition 
of open accounts for purposes of the de minimis exception. As discussed 
above, the Board has eliminated proposed comment 58(e)-2 from the final 
rule and added a definition of ``open account'' as Sec.  226.58(b)(5).
    Proposed Sec.  226.58(e)(2), redesignated as Sec.  
226.58(c)(5)(ii), is adopted as proposed. Section 226.58(c)(5)(ii) 
specifies that if an issuer that previously qualified for the de 
minimis exception ceases to qualify, the card issuer must begin making 
quarterly submissions to the Board no later than the first quarterly 
submission deadline after the date as of which the issuer ceased to 
qualify. Proposed comment 58(e)-4, redesignated as comment 58(c)(5)-4, 
has been modified to incorporate the defined term ``open account,'' but 
otherwise is adopted as proposed. Comment 58(c)(5)-4 clarifies that 
whether an issuer has ceased to qualify for the de minimis exception is 
determined as of the last business day of the calendar quarter and 
provides the following example: As of June 30, an issuer offers three 
agreements to the public and has 9,500 open credit card accounts. The 
issuer is not required to submit any agreements to the Board under 
Sec.  226.58(c)(1) because the issuer qualifies for the de minimis 
exception. As of July 15, the issuer still offers the same three 
agreements, but now has 10,000 open accounts. The issuer is not 
required to take any action at this time, because whether an issuer 
qualifies for the de minimis exception under Sec.  226.58(c)(5) is 
determined as of the last business day of the calendar quarter. As of 
September 30, the issuer still offers the same three agreements and 
still has 10,000 open accounts. Because the issuer had 10,000 open 
accounts as of September 30, the issuer ceased to qualify for the de 
minimis exception and must submit the three agreements it offers to the 
Board by October 31, the next quarterly submission deadline.
    Proposed Sec.  226.58(e)(3), redesignated as Sec.  
226.58(c)(5)(iii), has been modified to reflect the elimination of the 
requirement to register with the Board, as discussed above, but 
otherwise is adopted substantively as proposed. Section 
226.58(c)(5)(iii) provides that if an issuer that did not previously 
qualify for the de minimis exception qualifies for the de minimis 
exception, the card issuer must continue to make quarterly submissions 
to the Board until the issuer notifies the Board that the issuer is 
withdrawing all agreements it previously submitted to the Board.
    Proposed comment 58(e)-5, redesignated as comment 58(c)(5)-5, is 
similarly modified to reflect the elimination of the registration 
requirement, but otherwise is adopted substantively as proposed. 
Comment 58(c)(5)-5 gives the following example of the option to 
withdraw agreements under Sec.  226.58(c)(5)(iii): An issuer has 10,001 
open accounts and offers three agreements to the public as of December 
31. The issuer has submitted each of the three agreements to the Board 
as required under Sec.  226.58(c)(1). As of March 31, the issuer has 
only 9,999 open accounts. The issuer has two options. First, the issuer 
may notify the Board that the issuer is withdrawing each of the three 
agreements it previously submitted. Once the issuer has notified the 
Board, the issuer is no longer required to make quarterly submissions 
to the Board under Sec.  226.58(c)(1). Alternatively, the issuer may 
choose not to notify the Board that it is withdrawing its agreements. 
In this case, the issuer must continue making quarterly submissions to 
the Board as required by Sec.  226.58(c)(1). The issuer might choose 
not to withdraw its agreements if, for example, the issuer believes 
that it likely will cease to qualify for the de minimis exception again 
in the near future.
58(c)(6) Private Label Credit Card Exception
    The final rule includes new section Sec.  226.58(c)(6), which 
provides an exception to the requirement that credit card agreements be 
submitted to the Board for private label credit card plans with fewer 
than 10,000 open accounts. TILA Section 122(d)(5) provides that the 
Board may establish exceptions to the requirements that credit card 
agreements be posted on creditors' Web sites and submitted to the Board 
for posting on the Board's Web site in any case where the 
administrative burden outweighs the benefit of increased transparency, 
such as where a credit card plan has a de minimis number of consumer 
account holders. As discussed above, the final rule includes a de 
minimis exception for issuers with fewer than 10,000 total open credit 
card accounts as Sec.  226.58(c)(5). As also disclosed above, the Board 
solicited comment in connection with the proposed rule regarding 
whether the Board should create a de minimis exception applicable to 
small credit card plans offered by an issuer of any size and, if so, 
how the Board should define a credit card plan. Commenters generally 
supported creating such an exception. One card issuer commenter 
suggested that the Board create an exception for credit cards that can 
only be used for purchases at a single merchant or affiliated group of 
merchants, commonly referred to as private label credit cards, 
regardless of issuer size.
    The Board is adopting such an exception. The Board believes that 
the administrative burden on issuers of preparing and submitting to the 
Board agreements for private label credit card plans with a de minimis 
number of consumer account holders outweighs the benefit of increased 
transparency of including these agreements on the Board's Web site. The 
small size of these credit card plans suggests that it is unlikely that 
most consumers would regard these products as comparable alternatives 
to other credit card products. In addition, the Board is aware that the 
number of small private label credit card programs is very large. 
Including agreements associated with these plans on the Board's Web 
site would significantly increase the number of agreements, potentially 
making the Web site less useful to consumers as a comparison shopping 
tool. Also, the Board believes that, with respect to private label 
credit cards, a credit card plan can be defined sufficiently narrowly 
to avoid dividing issuers' portfolios into units so small that large 
numbers of credit card agreements would fall under the exception.
    Under Sec.  226.58(c)(6)(i), a card issuer is not required to 
submit to the Board a credit card agreement if, as of the last business 
day of the calendar quarter, the agreement: (A) Is offered for accounts 
under one or more private label credit card plans each of which has 
fewer than 10,000 open accounts; and (B) is not offered to the public 
other than for accounts under such a plan.

[[Page 7767]]

    As discussed above, a private label credit card plan is defined in 
Sec.  226.58(b)(7) as all of the private label credit card accounts 
issued by a particular issuer with credit cards usable at the same 
single merchant or affiliated group of merchants. For example, all of 
the private label credit card accounts issued by Issuer A with credit 
cards usable only at Merchant B and Merchant B's affiliates constitute 
a single private label credit card plan under Sec.  226.58(b)(7).
    The exception is limited to agreements that are ``not offered to 
the public other than for accounts under [one or more private label 
credit card plans each of which has fewer than 10,000 open accounts]'' 
in order to ensure that issuers are required to submit to the Board 
agreements that are offered in connection with general purpose credit 
card accounts or credit card accounts under large (i.e., 10,000 or more 
open accounts) private label plans, regardless of whether those 
agreements also are used in connection with a small (i.e., fewer than 
10,000 open accounts) private label credit card plan. The Board is 
concerned that, without this limitation, large numbers of credit card 
agreements could fall under the private label credit card exception.
    Section 226.58(c)(6)(ii) provides that if an agreement that 
previously qualified for the private label credit card exception ceases 
to qualify, the card issuer must submit the agreement to the Board no 
later than the first quarterly submission deadline after the date as of 
which the agreement ceased to qualify. Section 226.58(c)(6)(iii) 
provides that if an agreement that did not previously qualify for the 
private label credit card exception qualifies for the exception, the 
card issuer must continue to make quarterly submissions to the Board 
with respect to that agreement until the issuer notifies the Board that 
the agreement is being withdrawn.
    The final rule includes six related comments. Comment 58(c)(6)-1 
gives the following two examples of how the exception applies. In the 
first example, an issuer offers to the public a credit card agreement 
offered solely for private label credit card accounts with credit cards 
that can be used only at Merchant A. The issuer has 8,000 open accounts 
with such credit cards usable only at Merchant A. The issuer is not 
required to submit this agreement to the Board under Sec.  226.58(c)(1) 
because the agreement is offered for accounts under a private label 
credit card plan (i.e., the 8,000 private label credit card accounts 
with credit cards usable only at Merchant A), that private label credit 
card plan has fewer than 10,000 open accounts, and the credit card 
agreement is not offered to the public other than for accounts under 
that private label credit card plan.
    In the second example, in contrast, the same issuer also offers to 
the public a different credit card agreement that is offered solely for 
private label credit card accounts with credit cards usable only at 
Merchant B. The issuer has 12,000 open accounts with such credit cards 
usable only at Merchant B. The private label credit card exception does 
not apply. Although this agreement is offered for a private label 
credit card plan (i.e., the 12,000 private label credit card accounts 
with credit cards usable only at Merchant B), and the agreement is not 
offered to the public other than for accounts under that private label 
credit card plan, the private label credit card plan has more than 
10,000 open accounts. (The issuer still is not required to submit to 
the Board the agreement offered in connection with credit cards usable 
only at Merchant A, as each agreement is evaluated separately under the 
private label credit card exception.)
    Comment 58(c)(6)-2 clarifies that whether the private label credit 
card exception applies is determined on an agreement-by-agreement 
basis. Therefore, some agreements offered by an issuer may qualify for 
the private label credit card exception even though the issuer also 
offers other agreements that do not qualify, such as agreements offered 
for accounts with cards usable at multiple unaffiliated merchants or 
agreements offered for accounts under private label credit card plans 
with 10,000 or more open accounts.
    Comment 58(c)(6)-3 clarifies the relationship between the private 
label credit card exception and the Sec.  226.58(c)(5) de minimis 
exception. The comment notes that the two exceptions are distinct. The 
private label credit card exception exempts an issuer from submitting 
certain agreements under a private label plan to the Board, regardless 
of the issuer's overall size as measured by the issuer's total number 
of open accounts. In contrast, the de minimis exception exempts an 
issuer from submitting any credit card agreements to the Board if the 
issuer has fewer than 10,000 total open accounts. For example, an 
issuer offers to the public two credit card agreements. Agreement A is 
offered solely for private label credit card accounts with credit cards 
usable only at Merchant A. The issuer has 5,000 open credit card 
accounts with such credit cards usable only at Merchant A. Agreement B 
is offered solely for credit card accounts with cards usable at 
multiple unaffiliated merchants that participate in a major payment 
network. The issuer has 40,000 open credit card accounts with such 
payment network cards. The issuer is not required to submit agreement A 
to the Board under Sec.  226.58(c)(1) because agreement A qualifies for 
the private label credit card exception under Sec.  226.58(c)(6). 
Agreement A is offered for accounts under a private label credit card 
plan with fewer than 10,000 open accounts (i.e., the 5,000 private 
label credit card accounts with credit cards usable only at Merchant A) 
and is not otherwise offered to the public. The issuer is required to 
submit agreement B to the Board under Sec.  226.58(c)(1). The issuer 
does not qualify for the de minimis exception under Sec.  226.58(c)(5) 
because it has more than 10,000 open accounts, and agreement B does not 
qualify for the private label credit card exception under Sec.  
226.58(c)(6) because it is not offered solely for accounts under a 
private label credit card plan with fewer than 10,000 open accounts.
    Comment 58(c)(6)-4 gives the following example of when an agreement 
would not qualify for the private label credit card exception because 
it is offered to the public other than for accounts under a private 
label credit card plan with fewer than 10,000 open accounts. An issuer 
offers an agreement for private label credit card accounts with credit 
cards usable only at Merchant A. This private label plan has 9,000 such 
open accounts. The same agreement also is offered for credit card 
accounts with credit cards usable at multiple unaffiliated merchants 
that participate in a major payment network. The agreement does not 
qualify for the private label credit card exception. The agreement is 
offered for accounts under a private label credit card plan with fewer 
than 10,000 open accounts. However, the agreement also is offered to 
the public for accounts that are not part of a private label credit 
card plan, and therefore does not qualify for the private label credit 
card exception.
    Comment 58(c)(6)-4 notes that, similarly, an agreement does not 
qualify for the private label credit card exception if it is offered in 
connection with one private label credit card plan with fewer than 
10,000 open accounts and one private label credit card plan with 10,000 
or more open accounts. For example, an issuer offers a single credit 
card agreement to the public. The agreement is offered for two types of 
accounts. The first type of account is a private label credit card 
account with a credit card usable only at Merchant A. The second type 
of account is a private label credit card account with a credit

[[Page 7768]]

card usable only at Merchant B. The issuer has 10,000 such open 
accounts with credit cards usable only at Merchant A and 5,000 such 
open accounts with credit cards usable only at Merchant B. The 
agreement does not qualify for the private label credit card exception. 
While the agreement is offered for accounts under a private label 
credit card plan with fewer than 10,000 open accounts (i.e., the 5,000 
open accounts with credit cards usable only at Merchant B), the 
agreement is also offered for accounts not under such a plan (i.e., the 
10,000 open accounts with credit cards usable only at Merchant A).
    Comment 58(c)(6)-5 clarifies that the private label exception 
applies even if the same agreement is used for more than one private 
label credit card plan with fewer than 10,000 open accounts. For 
example, a card issuer has 15,000 total open private label credit card 
accounts. Of these, 7,000 accounts have credit cards usable only at 
Merchant A, 5,000 accounts have credit cards usable only at Merchant B, 
and 3,000 accounts have credit cards usable only at Merchant C. The 
card issuer offers to the public a single credit card agreement that is 
offered for all three types of accounts and is not offered for any 
other type of account. The issuer is not required to submit the 
agreement to the Board under Sec.  226.58(c)(1). The agreement is used 
for three different private label credit card plans (i.e., the accounts 
with credit cards usable at Merchant A, the accounts with credit cards 
usable at Merchant B, and the accounts with credit cards usable at 
Merchant C), each of which has fewer than 10,000 open accounts, and the 
issuer does not offer the agreement for any other type of account. The 
agreement therefore qualifies for the private label credit card 
exception under Sec.  226.58(c)(6).
    Comment 58(c)(6)-6 clarifies that the private label credit card 
exception applies even if an issuer offers more than one agreement in 
connection with a particular private label credit card plan. For 
example, an issuer has 5,000 open private label credit card accounts 
with credit cards usable only at Merchant A. The issuer offers to the 
public three different agreements each of which may be used in 
connection with private label credit card accounts with credit cards 
usable only at Merchant A. The agreements are not offered for any other 
type of credit card account. The issuer is not required to submit any 
of the three agreements to the Board under Sec.  226.58(c)(1) because 
each of the agreements is used for a private label credit card plan 
which has fewer than 10,000 open accounts and none of the three is 
offered to the public other than for accounts under such a plan.
58(c)(7) Product Testing Exception
    The final rule includes new section Sec.  226.58(c)(7), which 
provides an exception to the requirement that credit card agreements be 
submitted to the Board for certain agreements offered to the public 
solely as part of product test by an issuer. As described above, TILA 
Section 122(d)(5) provides that the Board may establish exceptions to 
the requirements that credit card agreements be posted on creditors' 
Web sites and submitted to the Board for posting on the Board's Web 
site in any case where the administrative burden outweighs the benefit 
of increased transparency, such as where a credit card plan has a de 
minimis number of consumer account holders. As discussed above, the 
final rule includes a de minimis exception for issuers with fewer than 
10,000 open credit card accounts as Sec.  226.58(c)(5). As also 
discussed above, the Board solicited comment in connection with the 
proposed rule regarding whether the Board should create a de minimis 
exception applicable to small credit card plans offered by an issuer of 
any size and, if so, how the Board should define a credit card plan. 
Commenters generally supported creating such an exception. One card 
issuer commenter suggested that the Board create an exception for 
agreements offered to limited groups of consumers in connection with 
product testing by an issuer, regardless of issuer size.
    The Board is adopting such an exception. The Board believes that 
the administrative burden on issuers of preparing and submitting to the 
Board agreements used for a small number of consumer account holders in 
connection with a product test by an issuer outweighs the benefit of 
increased transparency of including these agreements on the Board's Web 
site. The Board understands that issuers test new credit card 
strategies and products by offering credit cards to discrete, targeted 
groups of consumers for a limited time. Posting these agreements on the 
Board's and issuers' Web sites would not facilitate comparison shopping 
by consumers, as these terms are offered only to a limited group of 
consumers for a short period of time. Including these agreements could 
mislead consumers into believing that these terms are available more 
generally. In addition, posting these agreements would make issuer 
testing strategies transparent to competitors. Also, the Board believes 
that, with respect to product tests, a credit card plan can be defined 
sufficiently narrowly to avoid dividing issuers' portfolios into units 
so small that large numbers of credit card agreements would fall under 
the exception.
    Under Sec.  226.58(c)(7)(i), an issuer is not required to submit to 
the Board a credit card agreement if, as of the last day of the 
calendar quarter, the agreement: (A) Is offered as part of a product 
test offered to only a limited group of consumers for a limited period 
of time; (B) is used for fewer than 10,000 open accounts; and (C) is 
not offered to the public other than in connection with such a product 
test. Section 226.58(c)(7)(ii) provides that if an agreement that 
previously qualified for the product testing exception ceases to 
qualify, the card issuer must submit the agreement to the Board no 
later than the first quarterly submission deadline after the date as of 
which the agreement ceased to qualify. Section 226.58(c)(7)(iii) 
provides that if an agreement that did not previously qualify for the 
product testing exception qualifies for the exception, the card issuer 
must continue to make quarterly submissions to the Board with respect 
to that agreement until the issuer notifies the Board that the 
agreement is being withdrawn.
58(c)(8) Form and Content of Agreements Submitted to the Board
    Many commenters on the proposed rule expressed confusion about the 
form and content requirements for agreements submitted to the Board. In 
order to make this information more readily noticeable and 
understandable, the Board is eliminating proposed Appendix N and 
incorporating the form and content requirements for agreements 
submitted to the Board as new Sec.  226.58(c)(8). The form and content 
requirements under Sec.  226.58(c)(8) are organized into four 
subsections, discussed below: (i) Form and content generally; (ii) 
pricing information; (iii) optional variable terms addendum; and (iv) 
integrated agreement. Form and content requirements included in 
proposed Appendix N for agreements posted on issuers' Web sites under 
proposed Sec.  226.58(f)(1), redesignated as Sec.  226.58(d), and 
individual cardholders' agreements provided under proposed Sec.  
226.58(f)(2), redesignated as Sec.  226.58(e), have similarly been 
incorporated into those sections and are discussed below.

[[Page 7769]]

58(c)(8)(i) Form and Content Generally
    Section 226.58(c)(8)(i)(A) states that each agreement must contain 
the provisions of the agreement and the pricing information in effect 
as of the last business day of the preceding calendar quarter, as 
proposed in Appendix N, paragraph 1. One commenter questioned whether a 
change-in-terms notice should be integrated into an agreement where the 
change-in-terms notice is not yet effective. The final rule therefore 
includes new comment 58(c)(8)-1, which gives the following example of 
the application of Sec.  226.5(c)(8)(i)(A): on June 1, an issuer 
decides to decrease the purchase APR associated with one of the 
agreements it offers to the public. The change in the APR will become 
effective on August 1. If the issuer submits the agreement to the Board 
on July 31 (for example, because the agreement has been otherwise 
amended), the agreement submitted should not include the new lower APR 
because that APR was not in effect on June 30, the last business day of 
the preceding calendar quarter.
    Section 226.58(c)(8)(i)(B) states that agreements submitted to the 
Board must not include any personally identifiable information relating 
to any cardholder, such as name, address, telephone number, or account 
number, as proposed in Appendix N, paragraph 1.
    Section 226.58(c)(8)(i)(C) identifies certain items that are not 
deemed to be part of the agreement for purposes of Sec.  226.58, and 
therefore are not required to be included in submissions to the Board. 
These items are as follows: (i) Disclosures required by state or 
federal law, such as affiliate marketing notices, privacy policies, or 
disclosures under the E-Sign Act; (ii) solicitation materials; (iii) 
periodic statements; (iv) ancillary agreements between the issuer and 
the consumer, such as debt cancellation contracts or debt suspension 
agreements; (v) offers for credit insurance or other optional products 
and other similar advertisements; and (vi) documents that may be sent 
to the consumer along with the credit card or credit card agreement, 
such as a cover letter, a validation sticker on the card, or other 
information about card security.
    This list incorporates items identified as excluded from agreements 
in proposed Appendix N, paragraph 1, and proposed comment 58(b)(1)-2. 
In addition, one commenter asked that Board clarify that the agreement 
does not include ancillary agreements between the issuer and the 
consumer, such as debt cancellation contracts or debt suspension 
agreements. Because the Board agrees that including such ancillary 
agreements would not assist consumers in shopping for a credit card, 
this item is included in Sec.  226.58(c)(8)(i)(C).
    The final rule also includes new Sec.  226.58(c)(8)(i)(D), which 
provides that agreements submitted to the Board must be presented in a 
clear and legible font.
58(c)(8)(ii) Pricing Information
    Section 226.58(c)(8)(ii)(A) of the final rule specifies that 
pricing information must be set forth in a single addendum to the 
agreement that contains only the pricing information. This differs from 
proposed Appendix N, paragraph 1, which required issuers to set forth 
any information not uniform for all cardholders, including the pricing 
information, in an addendum to the agreement.
    The Board believes, on the basis of consumer testing conducted in 
the context of developing the requirements for account-opening 
disclosures, that the pricing information (which is defined by 
reference to the requirements for account-opening disclosures under 
Sec.  226.6) is particularly relevant to consumers in choosing a credit 
card. Upon further consideration, the Board has concluded that this 
information could be difficult for consumers to find if it is 
integrated into the text of the credit card agreement. The Board 
believes that requiring pricing information to be attached as a 
separate addendum would ensure that this information is easily 
accessible to consumers. The Board understands that cardholder 
agreements may be complex and densely worded, and the Board is 
concerned that including pricing information within such a document 
could hamper the ability of consumers to find and comprehend it. The 
Board therefore is requiring under Sec.  226.58(c)(8)(ii)(A) that this 
information be provided in a separate addendum.
    The final rule also includes comment 58(c)(8)-2, which clarifies 
that pricing information must be set forth in the separate addendum 
described in Sec.  226.58(c)(8)(ii)(A) even if it is also stated 
elsewhere in the agreement.
    Section 226.58(c)(8)(ii)(B) of the final rule provides that pricing 
information that may vary from one cardholder to another depending on 
the cardholder's creditworthiness or state of residence or other 
factors must be disclosed either by setting forth all the possible 
variations (such as purchase APRs of 13 percent, 15 percent, 17 
percent, and 19 percent) or by providing a range of possible variations 
(such as purchase APRs ranging from 13 percent to 19 percent). This 
corresponds with a provision from proposed Appendix N, paragraph 1.
    One commenter stated that issuers should have the flexibility to 
either provide pricing information and other varying information in an 
addendum or to provide each variation as a separate agreement. The 
Board's final rule does not provide this flexibility with respect to 
pricing information. The Board understands that issuers offer a range 
of terms and conditions and that issuers may make these terms and 
conditions available in a variety of different combinations, 
particularly with respect to items included in the pricing information. 
The Board is aware that the number of variations of pricing information 
is extremely large, and believes that including each of these 
variations on the Board's Web site likely would render the number of 
agreements provided on the Web site too large to be helpful to most 
consumers. For example, an issuer might offer credit cards with a 
purchase APR of 12 percent, 13 percent, 14 percent, 15 percent, 16 
percent or 17 percent, an annual fee of $0, $20, or $40, and one of 
three debt suspension coverage fees. Including each of the 54 possible 
combinations of these terms as a separate agreement on the Board's Web 
site would likely be overwhelming to consumers shopping for a credit 
card.
    The final rule includes comment 58(c)(8)-3, which clarifies that 
variations in pricing information do not constitute a separate 
agreement for purposes of Sec.  226.58(c). The comment provides the 
following example: an issuer offers two types of credit card accounts 
that differ only with respect to the purchase APR. The purchase APR for 
one type of account is 15 percent, while the purchase APR for the other 
type of account is 18 percent. The provisions of the agreement and 
pricing information for the two types of accounts are otherwise 
identical. The issuer should not submit to the Board one agreement with 
a pricing information addendum listing a 15 percent purchase APR and 
another agreement with a pricing information addendum listing an 18 
percent purchase APR. Instead, the issuer should submit to the Board 
one agreement with a pricing information addendum listing possible 
purchase APRs of 15 percent and 18 percent.
    Section 226.58(c)(8)(ii)(C) of the final rule provides that if a 
rate included in the pricing information is a variable rate, the issuer 
must identify the index or formula used in setting the rate and the 
margin. Rates that may vary from one cardholder to another must be

[[Page 7770]]

disclosed by providing the index and the possible margins (such as the 
prime rate plus 5 percent, 8 percent, 10 percent, or 12 percent) or the 
range of possible margins (such as the prime rate plus from 5 percent 
to 12 percent). The value of the rate and the value of the index are 
not required to be disclosed.
    Several card issuer commenters requested that issuers be permitted 
to provide interest rate information as an index and range of margins. 
These commenters argued that updating and resubmitting agreements every 
time an underlying index changes would be a substantial burden on 
issuers that would not provide a corresponding benefit to consumers. 
The Board agrees with these commenters. For purposes of comparison 
shopping for credit cards using the Board's Web site, consumers would 
be able to compare the margins offered by issuers using the same index 
and would be able to reference other on-line resources that provide the 
current values of financial indices to compare the rates offered by 
issuers using different indices. To provide uniformity in how variable 
rates are disclosed, the Board is requiring that such rates be provided 
as an index and margin, list of possible margins or range of possible 
margins.
58(c)(8)(iii) Optional Variable Terms Addendum
    Section 226.58(c)(8)(iii) of the final rule provides that 
provisions of the agreement other than the pricing information that may 
vary from one cardholder to another depending on the cardholder's 
creditworthiness or state of residence or other factors may be set 
forth in a single addendum to the agreement separate from the pricing 
information addendum. This differs from the provisions of proposed 
Appendix N, paragraph 1, which required issuers to set forth any 
information not uniform for all cardholders in a single addendum to the 
agreement.
    As noted above, one commenter stated that issuers should have the 
flexibility to either provide pricing information and other varying 
information in an addendum or to provide each variation as a separate 
agreement. The Board's final rule provides this flexibility with 
respect to provisions of the agreement other than the pricing 
information. The Board understands that there is substantially less 
variation in the credit card agreements offered by a particular issuer 
with respect to terms other than pricing information. The Board 
therefore believes that providing issuers with flexibility regarding 
how these terms are disclosed is unlikely to result in a volume of data 
on the Board's Web site that is overwhelming to consumers.
    The final rule also includes comment 58(c)(8)-4, which gives 
examples of provisions that might be included in the optional variable 
terms addendum. For example, the addendum might include a clause that 
is required by law to be included in credit card agreements in a 
particular state but not in other states (unless, for example, a clause 
is included in the agreement used for all cardholders under a heading 
such as ``For State X Residents''), the name of the credit card plan to 
which the agreement applies (if this information is included in the 
agreement), or the name of a charitable organization to which donations 
will be made in connection with a particular card (if this information 
is included in the agreement).
58(c)(8)(iv) Integrated Agreement
    Section 226.58(c)(8)(iv) incorporates provisions of proposed 
Appendix N, paragraph 1, stating that issuers may not provide 
provisions of the agreement or pricing information in the form of 
change-in-terms notices or riders (other than the pricing information 
addendum and optional variable terms addendum described in Sec.  
226.58(c)(8)(ii) and (c)(8)(iii)). Changes in the provisions or pricing 
information must be integrated into the body of the agreement, the 
pricing information addendum or the optional variable terms addendum, 
as appropriate.
    The final rule also includes new comment 58(c)(8)-5, which provides 
clarification regarding the integrated agreement requirement. Comment 
58(c)(8)-5 explains that only two addenda may be submitted as part of 
an agreement--the pricing information addendum and optional variable 
terms addendum described in Sec.  226.58(c)(8). Changes in provisions 
or pricing information must be integrated into the body of the 
agreement, pricing information addendum, or optional variable terms 
addendum. For example, it would be impermissible for an issuer to 
submit to the Board an agreement in the form of a terms and conditions 
document dated January 1, 2005, four subsequent change in terms 
notices, and two addenda showing variations in pricing information. 
Instead, the issuer must submit a document that integrates the changes 
made by each of the change-in-terms notices into the body of the 
original terms and conditions document and a single addendum displaying 
variations in pricing information.
    As the Board stated in connection with the proposal, the Board 
believes that permitting issuers to submit agreements that include 
change-in-terms notices or riders containing amendments and revisions 
would be confusing for consumers and would greatly lessen the 
usefulness of the agreements posted on the Board's Web site. Consumers 
would be required to sift through change-in-terms notices and riders in 
an attempt to assemble a coherent picture of the terms currently 
offered. The Board believes that this would impose a significant burden 
on consumers attempting to shop for credit cards. The Board also 
believes that consumers in many instances would draw incorrect 
conclusions about which terms have been changed or superseded, causing 
these consumers to be misled regarding the credit card terms that are 
currently available. This would hinder the ability of consumers to 
understand and to effectively compare the terms offered by various 
issuers. The Board believes that issuers are better placed than 
consumers to assemble this information correctly. While the Board 
understands that this requirement may significantly increase the burden 
on issuers, the Board believes that the corresponding benefit of 
increased transparency for consumers outweighs this burden.
58(d) Posting of Agreements Offered to the Public
    New TILA Section 122(d) requires that, in addition to submitting 
credit card agreements to the Board for posting on the Board's Web 
site, each card issuer must post the credit card agreements to which it 
is a party on its own Web site. The Board proposed to implement this 
requirement in proposed Sec.  226.58(f). Proposed Sec.  226.58(f)(1) 
required each issuer to post on its publicly available Web site the 
same agreements it submitted to the Board (i.e., the agreements the 
issuer offered to the public). The Board proposed additional guidance 
regarding the posting requirement in proposed Appendix N, paragraph 2.
    Commenters did not oppose the general requirements of proposed 
Sec.  226.58(f)(1), and the Board is adopting the proposed provision in 
final form, with certain modifications, as discussed below. In the 
final rule, proposed Sec.  226.58(f)(1) is redesignated Sec.  
226.58(d), and the content of Appendix N, paragraph 2, is incorporated 
into this section of the regulation, in order to ensure that the 
guidance provided is more readily noticeable and conveniently located 
for readers.
    Comment 58(d)-1 is added in the final rule to clarify that issuers 
are only

[[Page 7771]]

required to post and maintain on their publicly available Web site the 
credit card agreements that the issuer must submit to the Board under 
Sec.  226.58(c). If, for example, an issuer is not required to submit 
any agreements to the Board because the issuer qualifies for the de 
minimis exception under Sec.  226.58(c)(5), the issuer is not required 
to post and maintain any agreements on its Web site under Sec.  
226.58(d). Similarly, if an issuer is not required to submit a specific 
agreement to the Board, such as an agreement that qualifies for the 
private label exception under Sec.  226.58(c)(6), the issuer is not 
required to post and maintain that agreement under Sec.  226.58(d) 
(either on the issuer's publicly available Web site or on the publicly 
available Web sites of merchants at which private label credit cards 
can be used). The comment also emphasizes that the issuer in both of 
these cases is still required to provide each individual cardholder 
with access to his or her specific credit card agreement under Sec.  
226.58(e) by posting and maintaining the agreement on the issuer's Web 
site or by providing a copy of the agreement upon the cardholder's 
request.
    Comment 58(d)-2 is added to the final rule to clarify that, unlike 
Sec.  226.58(e), discussed below, Sec.  226.58(d) does not include a 
special rule for issuers that do not otherwise maintain a Web site. If 
an issuer is required to submit one or more agreements to the Board 
under Sec.  226.58(c), that issuer must post those agreements on a 
publicly available Web site it maintains (or, with respect to an 
agreement for a private label credit card, on the publicly available 
Web site of at least one of the merchants at which the card may be 
used, as provided in Sec.  226.58(d)(1)).
    Some card issuer commenters suggested that issuers should be 
permitted to post agreements for private label or co-branded cards on 
the Web site of a retailer that accepts the card, rather than the 
issuer's own Web site; the commenters noted that consumers are more 
likely to find such agreements if posted on the retailer's Web site. 
The Board agrees with these commenters, and accordingly Sec.  
226.58(d)(1) provides that an issuer may comply by posting and 
maintaining an agreement offered solely for accounts under one or more 
private label credit card plans in accordance with the requirements of 
Sec.  226.58(d) on the publicly available Web site of at least one of 
the merchants at which credit cards issued under each private label 
credit card plan with 10,000 or more open accounts may be used.
    Comment 58(d)-3 is included in the final rule to clarify how this 
provision would apply. The comment provides the following example: A 
card issuer has 100,000 open private label credit card accounts. Of 
these, 75,000 open accounts have credit cards usable only at Merchant A 
and 25,000 open accounts have credit cards usable only at Merchant B 
and Merchant B's affiliates, Merchants C and D. The card issuer offers 
to the public a single credit card agreement that is offered for both 
of these types of accounts and is not offered for any other type of 
account.
    The issuer is required to submit the agreement to the Board under 
Sec.  226.58(c)(1). Because the issuer is required to submit the 
agreement to the Board under Sec.  226.58(c)(1), the issuer is required 
to post and maintain the agreement on the issuer's publicly available 
Web site under Sec.  226.58(d). However, because the agreement is 
offered solely for accounts under one or more private label credit card 
plans, the issuer may comply with Sec.  226.58(d) in either of two 
ways. First, the issuer may comply by posting and maintaining the 
agreement on the issuer's own publicly available Web site. 
Alternatively, the issuer may comply by posting and maintaining the 
agreement on the publicly available Web site of Merchant A and the 
publicly available Web site of at least one of Merchants B, C and D. It 
would not be sufficient for the issuer to post the agreement on 
Merchant A's Web site alone because Sec.  226.58(d) requires the issuer 
to post the agreement on the publicly available Web site of ``at least 
one of the merchants at which cards issued under each private label 
credit card plan may be used'' (emphasis added).
    The comment also provides an additional, contrasting example, as 
follows: Assume that an issuer has 100,000 open private label credit 
card accounts. Of these, 5,000 open accounts have credit cards usable 
only at Merchant A and 95,000 open accounts have credit cards usable 
only at Merchant B and Merchant B's affiliates, Merchants C and D. The 
card issuer offers to the public a single credit card agreement that is 
offered for both of these types of accounts and is not offered for any 
other type of account.
    The issuer is required to submit the agreement to the Board under 
Sec.  226.58(c)(1). Because the issuer is required to submit the 
agreement to the Board under Sec.  226.58(c)(1), the issuer is required 
to post and maintain the agreement on the issuer's publicly available 
Web site under Sec.  226.58(d). However, because the agreement is 
offered solely for accounts under one or more private label credit card 
plans, the issuer may comply with Sec.  226.58(d) in either of two 
ways. First, the issuer may comply by posting and maintaining the 
agreement on the issuer's own publicly available Web site. 
Alternatively, the issuer may comply by posting and maintaining the 
agreement on the publicly available Web site of at least one of 
Merchants B, C and D. The issuer is not required to post and maintain 
the agreement on the publicly available Web site of Merchant A because 
the issuer's private label credit card plan consisting of accounts with 
cards usable only at Merchant A has fewer than 10,000 open accounts.
    Section 226.58(d)(2) incorporates provisions from proposed Appendix 
N, paragraph 2, stating that agreements posted pursuant to this section 
must conform to the form and content requirements for agreements 
submitted to the Board specified in Sec.  226.58(c)(8), except as 
provided in Sec.  226.58(d) (for example, as provided in Sec.  
226.58(d)(3), agreements posted on an issuer's Web site need not 
conform to the electronic format required for submission to the Board, 
as discussed below).
    Proposed Appendix N clarified that the agreements posted on an 
issuer's Web site need not conform to the electronic format required 
for submission to the Board. This clarification is incorporated into 
the final rule as Sec.  226.58(d)(3), which states that agreements 
posted pursuant to this section may be posted in any electronic format 
that is readily usable by the general public. For example, when posting 
the agreements on its own Web site, an issuer may post the agreements 
in plain text format, in PDF format, in HTML format, or in some other 
electronic format, provided the format is readily usable by the general 
public.
    Consumer group comments suggested that the rule should ensure that 
consumers are able to access credit card agreements offered to the 
public through an issuer's Web site without being required to provide 
personal information. The Board believes that the intent of the statute 
is to allow access to credit card agreements offered to the public 
without having to provide such information; accordingly, Sec.  
226.58(d)(3) also includes language setting forth this requirement, as 
well as a requirement that agreements posted on the issuer's Web site 
must be placed in a location that is prominent and readily accessible 
by the public, moved from proposed Appendix N, paragraph 2.
    Section 226.58(d)(4) incorporates provisions from proposed Appendix 
N, paragraph 2, stating that an issuer must update the agreements 
posted on its

[[Page 7772]]

Web site at least as frequently as the quarterly schedule required for 
submission of agreements to the Board. If the issuer chooses to update 
the agreements on its Web site more frequently, the agreements posted 
on the issuer's Web site may contain the provisions of the agreement 
and the pricing information in effect as of a date other than the last 
business day of the preceding calendar quarter.
    Consumer group commenters suggested that the final rule clarify 
that any member of the public may have access to the agreement for any 
open account, whether or not currently offered to the public. The Board 
is not adopting such a requirement because, as discussed above, the 
Board believes the administrative burden associated with providing 
access to all open accounts would outweigh the benefit to consumers. A 
consumer group commenter asked that the rule require that, when a 
change is made to an agreement, the on-line version of that agreement 
be updated within a specific period of time no greater than 72 hours. 
The final rule does not include this requirement because the Board 
believes the burden to card issuers of updating agreements in such a 
short time would outweigh the benefit. In addition, if a consumer 
applies or is solicited for a credit card, the consumer will receive 
updated disclosures under Sec.  226.5a. Finally, the same commenter 
suggested that issuers should be required to archive previous versions 
of credit card agreements and allow on-line access to them for purposes 
of comparison. The Board believes the burden to card issuers of being 
required to archive and make available all previous versions of its 
credit card agreements would outweigh the benefit to consumers.
58(e) Agreements for All Open Accounts
    In addition to the requirements under proposed Sec.  226.58(f)(1), 
proposed Sec.  226.58(f)(2) required each issuer to provide each 
individual cardholder with access to his or her specific credit card 
agreement, by either: (1) Posting and maintaining the individual 
cardholder's agreement on the issuer's Web site; or (2) making a copy 
of each cardholder's agreement available to the cardholder upon that 
cardholder's request. Proposed Appendix N, paragraph 3, provided 
further guidance on these requirements. Proposed Sec.  226.58(f)(2), 
along with material from proposed Appendix N, paragraph 3, is 
incorporated into the final rule as Sec.  226.58(e), with certain 
modifications, as discussed below.
    As discussed above, the Board is exercising its authority to create 
exceptions from the requirements of new TILA Section 122(d) with 
respect to the submission of certain agreements to the Board for 
posting on the Board's Web site. However, the Board believes that it 
would not be appropriate to apply these exceptions to the requirement 
that issuers provide cardholders with access to their specific credit 
card agreement through the issuer's Web site. In particular, the Board 
believes that, for the reasons discussed above, posting credit card 
agreements that are not currently offered to the public on the Board's 
Web site would not be beneficial to consumers. However, the Board 
believes that the benefit of increased transparency of providing an 
individual cardholder access to his or her specific credit card 
agreement is substantial regardless of whether the cardholder's 
agreement continues to be offered by the issuer. The Board believes 
that this benefit outweighs the administrative burden on issuers of 
providing such access, and the final rule therefore does not exempt 
agreements that are not offered to the public from the requirements of 
Sec.  226.58(e).
    Similarly, the final rule provides that card issuers with fewer 
than 10,000 open credit card accounts are not required to submit 
agreements to the Board, and provides for other exceptions from the 
requirement to submit agreements. However, the Board believes that the 
benefit of increased transparency associated with providing an 
individual cardholder with access to his or her specific credit card 
agreement is substantial regardless of the whether the card issuer is 
required to submit the agreement to the Board for posting on the 
Board's Web site. The Board believes that this benefit of increased 
transparency for consumers outweighs the administrative burden on 
issuers of providing such access, and therefore Sec.  226.58(e) in the 
final rule does not include the exceptions from the requirement to 
submit agreements to the Board under Sec.  226.58(c).
    Comment 58(e)-1 clarifies that the requirement to provide access to 
credit card agreements under Sec.  226.58(e) applies to all open credit 
card accounts, regardless of whether such agreements are required to be 
submitted to the Board pursuant to Sec.  226.58(c) (or posted on the 
issuer's Web site pursuant to Sec.  226.58(d)). For example, an issuer 
that is not required to submit agreements to the Board because it 
qualifies for the de minimis exception under Sec.  226.58(c)(5) still 
is required to provide cardholders with access to their specific 
agreements under Sec.  226.58(e). Similarly, an agreement that is no 
longer offered to the public is not required to be submitted to the 
Board under Sec.  226.58(c), but nevertheless must be provided to the 
cardholder to whom it applies under Sec.  226.58(e). This comment 
corresponds to proposed comment 58(f)(2)-2.
    Section 226.58(e)(1)(ii) provides issuers with the option to make 
copies of cardholder agreements available on request because the Board 
believes that the benefit of increased transparency associated with 
immediate access to cardholder agreements, as compared to access after 
a brief waiting period, does not outweigh the administrative burden on 
issuers of providing immediate access. The Board believes that the 
administrative burden associated with posting each cardholder's credit 
card agreement on the issuer's Web site may be substantial for some 
issuers. In particular, the Board notes that some smaller institutions 
with limited information technology resources could find a requirement 
to post all cardholder's agreements to be a significant burden. The 
Board understands that it is important that all cardholders be able to 
obtain copies of their credit card agreements promptly, and Sec.  
226.58(e)(1)(ii) ensures that this will occur.
    Under proposed Sec.  226.58(f)(2)(ii), a card issuer that chose to 
make agreements available upon request was required to provide the 
cardholder with the ability to request a copy of the agreement both: 
(1) By using the issuer's Web site (such as by clicking on a clearly 
identified box to make the request); and (2) by calling a toll-free 
telephone number displayed on the Web site and clearly identified as to 
purpose. Commenters suggested that an exception should be created for 
issuers that do not maintain toll-free telephone numbers; the 
commenters contended that maintaining a toll-free telephone number 
could be a substantial burden for small issuers, and noted that issuers 
that currently do not maintain toll-free telephone numbers likely have 
a primarily local customer base. The final rule, in Sec.  
226.58(e)(1)(ii), does not require that the telephone number for 
cardholders to call to request copies of their agreements be toll-free, 
but instead provides that the telephone line must be ``readily 
available.''
    Comment 58(e)-2 provides guidance on the ``readily available'' 
standard, stating that to satisfy the readily available standard, the 
card issuer must provide enough telephone lines so that cardholders get 
a reasonably prompt response, but that the issuer need only provide 
telephone service during normal business hours. The comment

[[Page 7773]]

further states that, within its primary service area, the issuer must 
provide a local or toll-free telephone number, but that the issuer need 
not provide a toll-free number or accept collect long-distance calls 
from outside the area where it normally conducts business. This 
standard is based on a comparable requirement under Regulation E, 12 
CFR Part 205, that requires financial institutions to provide a 
telephone line for consumers to call for certain purposes. See 
Regulation E, Sec.  205.10(a)(1)(iii), 12 CFR 205.10(a)(1)(iii), and 
comment 10(a)(1)-7 in the Regulation E Official Staff Commentary, 12 
CFR Part 205, Supplement I, paragraph 10(a)(1)-7.
    A number of commenters addressed the requirement to provide 
cardholders the ability to request a copy of their agreement by using 
the issuer's Web site (under proposed Sec.  226.58(f)(2)(ii)(A), 
redesignated Sec.  226.58(e)(1)(ii)(A) in the final rule), in addition 
to the ability to request a copy by calling a telephone number. The 
commenters noted that many card issuers do not have interactive Web 
sites, and that some may not have Web sites of any kind; they contended 
that permitting cardholders to request copies of their particular 
agreements through a Web site would require creating and maintaining an 
interactive Web site and complying with privacy and data security 
requirements, which could represent a significant compliance burden, 
especially for smaller issuers. The commenters suggested various 
alternative means for providing cardholders the means to request copies 
of their agreements.
    Based on information received from financial institution trade 
associations and service providers, it appears that a substantial 
number of card issuers do not maintain interactive Web sites, and that 
some issuers (for example, more than 250 credit unions) do not have Web 
sites of any kind. The Board believes that cardholders should be 
provided with convenient means to request copies of their credit card 
agreements, but that there are alternative methods that would serve 
this purpose and would not require issuers that do not have interactive 
Web sites to incur the expense to create and maintain such Web sites; 
the Board believes that the burden of creating and maintaining such Web 
sites would not be outweighed by the convenience to cardholders of 
being able to request a copy of their agreements directly through a Web 
site, as opposed to using an alternative means.
    Accordingly, in the final rule, Sec.  226.58(e)(2) sets forth a 
special rule for card issuers that do not have a Web site or that have 
a Web site that is not interactive (i.e., a Web site from which a 
cardholder cannot access specific information about his or her 
individual account). Section 226.58(e)(2) provides that, instead of 
complying with Sec.  226.58(e)(1), such an issuer may make agreements 
available upon request by providing the cardholder with the ability to 
request a copy of the agreement by calling a readily available 
telephone line, the number for which is: (i) Displayed on the issuer's 
Web site and clearly identified as to purpose; or (ii) included on each 
periodic statement sent to the cardholder and clearly identified as to 
purpose.
    The final rule includes comment 58(e)-3, which further clarifies 
how this special rule applies. Comment 58(e)-3 clarifies that an issuer 
that does not maintain a Web site from which cardholders can access 
specific information about their individual accounts is not required to 
provide a cardholder with the ability to request a copy of the 
agreement by using the issuer's Web site. The comment further clarifies 
that an issuer without a Web site of any kind could comply by 
disclosing the telephone number on each periodic statement; an issuer 
with a non-interactive Web site could comply in the same way, or 
alternatively could comply by displaying the telephone number on the 
issuer's Web site.
    Under proposed Sec.  226.58(f)(2)(ii), if a cardholder requested a 
copy of his or her credit card agreement (either using the issuer's Web 
site or by calling the telephone number provided), the issuer was 
required to send, or otherwise make available to, the cardholder a copy 
of the agreement within 10 business days after receiving the request. 
The Board solicited comments on whether issuers should have a shorter 
or longer period in which to respond to cardholder requests. Some 
commenters contended that 10 business days would not provide sufficient 
time to respond to a request; the commenters noted that they will be 
required to integrate changes in terms into the agreement and provide 
pricing information, which, particularly for older agreements that may 
have had many changes in terms over the years, could require more time. 
The commenters suggested various longer time periods to respond to a 
cardholder request, including 30 business days or 60 calendar days.
    The Board believes that it would be reasonable to provide more time 
for an issuer to respond to a cardholder request for a copy of the 
credit card agreement. Although cardholders should be able to obtain a 
copy of their agreement promptly, integrating changes in terms may 
require more time for older agreements; for newer agreements with fewer 
changes since the account was opened, the cardholder is more likely to 
still have a copy of the agreement and therefore less likely to need to 
request a copy. For all agreements, the pricing information has been 
disclosed to cardholders at the time the account is opened, and much of 
the pricing information is disclosed again on periodic statements. 
Accordingly, the final rule, in Sec. Sec.  226.58(e)(1)(ii) and (e)(2), 
provides that the issuer must send or otherwise make available to the 
cardholder the agreement in electronic or paper form within 30 calendar 
days after receiving the cardholder's request.
    Proposed comment 58(f)(2)-3 provided guidance on the deadline for 
providing agreements upon request. In the final rule, the comment is 
redesignated comment 58(e)-4. The comment states that if an issuer 
chooses to respond to a cardholder's request by mailing a paper copy of 
the cardholder's agreement, the issuer would be required to mail the 
agreement no later than 30 days after receipt of the cardholder's 
request. Alternatively, if an issuer chooses to respond to a 
cardholder's request by posting the cardholder's agreement on the 
issuer's Web site, the issuer must post the agreement on its Web site 
no later than 30 days after receipt of the cardholder's request. The 
comment further notes that, under Sec.  226.58(e)(3)(v), issuers are 
permitted to provide copies of agreements in either paper or electronic 
form, regardless of the form of the cardholder's request, as discussed 
below.
    Section 226.58(e)(3) states requirements for the form and content 
of agreements, and is drawn largely from proposed Appendix N, paragraph 
3, and proposed staff commentary. Section 226.58(e)(3)(i) corresponds 
to part of paragraph 3(b) of proposed Appendix N, and states that 
except as elsewhere provided, agreements posted on the card issuer's 
Web site pursuant to Sec.  226.58(e)(1)(i) or made available upon the 
cardholder's request pursuant to Sec.  226.58(e)(1)(ii) or (e)(2) must 
conform to the form and content requirements for agreements submitted 
to the Board specified in Sec.  226.58(c)(8).
    Section 226.58(e)(3)(ii) corresponds to proposed Appendix N, 
paragraph 3(a), and states that if a card issuer posts an agreement on 
its Web site or otherwise provides an agreement to a cardholder 
electronically pursuant to Sec.  226.58(e), the agreement may be posted 
in any electronic format that is readily usable

[[Page 7774]]

by the general public and must be placed in a location that is 
prominent and readily accessible to the cardholder.
    Section 226.58(e)(1)(iii) is drawn from part of paragraph 3(b) of 
proposed Appendix N and provides that agreements posted or otherwise 
provided pursuant to Sec.  226.58(e) may contain personally 
identifiable information relating to the cardholder, such as name, 
address, telephone number, or account number, provided that the issuer 
takes appropriate measures to make the agreement accessible only to the 
cardholder or other authorized persons.
    Section 226.58(e)(1)(iv) corresponds generally to proposed Appendix 
N, paragraph (c), and states that agreements must set forth the 
specific provisions and pricing information applicable to the 
particular cardholder, and that agreement provisions and pricing 
information must be complete and accurate as of a date no more than 60 
days prior to the date on which the agreement is posted on the card 
issuer's Web site or the cardholder's request is received.
    Finally, Sec.  226.58(e)(1)(v) is drawn from proposed comment 
58(f)(2)-1, and provides that agreements provided upon request may be 
provided by the issuer in either electronic or paper form, regardless 
of the form of the cardholder's request.
    Paragraph 3(d) of proposed Appendix N clarified that issuers may 
not provide provisions of the agreement or pricing information in the 
form of change-in-terms notices or riders. This language is not 
incorporated into the text of the final rule as part of Sec.  
226.58(e), but the requirement nevertheless applies because Sec.  
226.58(e) provides that agreements posted on the card issuer's Web site 
or made available upon the cardholder's request must conform to the 
form and content requirements for agreements submitted to the Board 
specified in Sec.  226.58(c)(8), and Sec.  226.58(c)(8) imposes this 
requirement. Thus, changes in provisions or pricing information must be 
integrated into the text of the agreement (or into the pricing 
information described in Sec.  226.58(c)(8)(ii)). For example, it is 
not permissible for an issuer to send to a cardholder under Sec.  
226.58(e)(1)(ii) an agreement consisting of a terms and conditions 
document dated January 1, 2005, and four subsequent change-in-terms 
notices. Instead, the issuer is required to send to the cardholder a 
single document that integrates the changes made by each of the change-
in-terms notices into the body of the terms and conditions document or 
the pricing information addendum.
    The Board believes that it is important for consumers be able to 
accurately assess the terms of a credit card agreement to which they 
are a party. As described above in connection with the integrated 
agreement requirement for agreements submitted to the Board, the Board 
believes that requiring consumers to sift through change-in-terms 
notices and riders in an attempt to assemble the current version of a 
credit card agreement imposes a significant burden on consumers, is 
likely to lead to consumer confusion, and would greatly lessen the 
usefulness of making credit card agreements available under the final 
rule. The Board believes that these arguments apply with even more 
force in the context of providing an individual cardholder with access 
to his or her specific credit card agreement. Permitting issuers to 
provide provisions of the agreement or pricing information as change-
in-terms notices or riders would require consumers to bear the burden 
of assembling a coherent picture of the terms to which they are 
currently subject. The Board believes that this likely would hinder the 
ability of many consumers to understand the terms applicable to them. 
The Board also believes that consumers in many instances would draw 
incorrect conclusions about which terms have been changed or 
superseded, causing these consumers to be misled regarding the terms of 
their credit card agreement. The Board believes that issuers are better 
placed than consumers to assemble this information correctly. While the 
Board understands that this may significantly increase the burden on 
issuers, the Board believes that the corresponding benefit of increased 
transparency for consumers outweighs this burden.
    Some commenters suggested that the final rule provide an exception 
from the requirements of Sec.  226.58(e) for accounts purchased from 
another issuer. Similarly, commenters suggested an exception for older 
accounts. Commenters argued that in such cases, issuers may not have 
the agreements and therefore may find it difficult or impossible to 
comply. The final rule does not contain the suggested exceptions. The 
Board believes that cardholders need to be able to obtain the credit 
card agreements to which they are parties.
    Finally, some commenters suggested that the final rule provide a 
grace period during which issuers would not be required to provide an 
integrated agreement upon request, but could instead send the 
cardholder the initial agreement and all subsequent change in terms 
notices. Alternatively, it was suggested that such a grace period be 
provided for accounts opened prior to a specific date. The final rule 
does not provide such a grace period. As discussed above, it likely 
would be difficult in many cases for cardholders to understand a 
complex credit card agreement supplemented by change in terms notices. 
In addition, as discussed above, the final rule allows 30 days (as 
opposed to 10 business days, as proposed) for issuers to respond to 
cardholder requests, in part in order to provide issuers sufficient 
time to integrate change in terms notices with the initial agreement 
before sending it to the cardholder.
58(f) E-Sign Act Requirements
    Section Sec.  226.58(f), corresponding to proposed Sec.  
226.58(f)(3), provides that card issuers may provide credit card 
agreements in electronic form under Sec.  226.58(d) and (e) without 
regard to the consumer notice and consent requirements of section 
101(c) of the Electronic Signatures in Global and National Commerce Act 
(E-Sign Act) (15 U.S.C. 7001 et seq.). Because new TILA Section 122(d) 
specifies that credit card issuers must provide access to cardholder 
agreements on the issuer's Web site, the Board believes that the 
requirements of the E-Sign Act do not apply.
Appendix M1--Repayment Disclosures
    As discussed in the section-by-section analysis to Sec.  
226.7(b)(12), TILA Section 127(b)(11), as added by Section 1301(a) of 
the Bankruptcy Act, required creditors, the FTC and the Board to 
establish and maintain toll-free telephone numbers in certain instances 
in order to provide consumers with an estimate of the time it will take 
to repay the consumer's outstanding balance, assuming the consumer 
makes only minimum payments on the account and the consumer does not 
make any more draws on the account. 15 U.S.C. 1637(b)(11)(F). The Act 
required creditors, the FTC and the Board to provide estimates that are 
based on tables created by the Board that estimate repayment periods 
for different minimum monthly payment amounts, interest rates, and 
outstanding balances. In the January 2009 Regulation Z Rule, instead of 
issuing a table, the Board issued guidance in Appendix M1 to part 226 
to card issuers and the FTC for how to calculate this generic repayment 
estimate. The Board would use the same guidance to calculate the 
generic repayment estimates given through its toll-free telephone 
number.
    TILA Section 127(b)(11), as added by Section 1301(a) of the 
Bankruptcy Act,

[[Page 7775]]

provided that a creditor may use a toll-free telephone number to 
provide the actual number of months that it will take consumers to 
repay their outstanding balance instead of providing an estimate based 
on the Board-created table (``actual repayment disclosure''). 15 U.S.C. 
1637(b)(11)(I)-(K). In the January 2009 Regulation Z Rule, the Board 
implemented that statutory provision and also provided card issuers 
with the option to provide the actual repayment disclosure on the 
periodic statement instead of through a toll-free telephone number. In 
the January 2009 Regulation Z Rule, the Board adopted new Appendix M2 
to part 226 to provide guidance to issuers on how to calculate the 
actual repayment disclosure.
    As discussed in more detail in the section-by-section analysis to 
Sec.  226.7(b)(12), the Credit Card Act substantially revised Section 
127(b)(11) of TILA. Specifically, Section 201 of the Credit Card Act 
amends TILA Section 127(b)(11) to provide that creditors that extend 
open-end credit must provide the following disclosures on each periodic 
statement: (1) A ``warning'' statement indicating that making only the 
minimum payment will increase the interest the consumer pays and the 
time it takes to repay the consumer's balance; (2) the number of months 
that it would take to repay the outstanding balance if the consumer 
pays only the required minimum monthly payments and if no further 
advances are made; (3) the total cost to the consumer, including 
interest and principal payments, of paying that balance in full, if the 
consumer pays only the required minimum monthly payments and if no 
further advances are made; (4) the monthly payment amount that would be 
required for the consumer to pay off the outstanding balance in 36 
months, if no further advances are made, and the total cost to the 
consumer, including interest and principal payments, of paying that 
balance in full if the consumer pays the balance over 36 months; and 
(5) a toll-free telephone number at which the consumer may receive 
information about credit counseling and debt management services. For 
ease of reference, this supplementary information will refer to the 
above disclosures in the Credit Card Act as ``the repayment 
disclosures.''
    As discussed in more detail in the section-by-section analysis to 
Sec.  226.7(b)(12), the final rule limits the repayment disclosure 
requirements to credit card accounts under open-end (not home-secured) 
consumer credit plans, as that term is defined in proposed Sec.  
226.2(a)(15)(ii). As proposed, Appendix M1 to part 226 provides 
guidance for calculating the repayment disclosures.
    Calculating the minimum payment repayment estimate. As proposed in 
the October 2009 Regulation Z Proposal, the minimum payment repayment 
estimate would have been an estimate of the number of months that it 
would take to pay the outstanding balance shown on the periodic 
statement, if the consumer pays only the required minimum monthly 
payments and if no further advances are made. The final rule adopts 
guidance in Appendix M1 to part 226 for calculating the minimum payment 
repayment estimate as proposed with several modifications as discussed 
below. The guidance in Appendix M1 to part 226 for calculating the 
minimum payment repayment estimate is similar to the guidance that the 
Board adopted in Appendix M2 to part 226 in the January 2009 Regulation 
Z Rule for calculating the actual repayment disclosure. Under Appendix 
M1 to part 226, credit card issuers generally must calculate the 
minimum payment repayment estimate for a consumer based on the minimum 
payment formula(s), the APRs and the outstanding balance currently 
applicable to a consumer's account. For other terms that may impact the 
calculation of the minimum payment repayment estimate, issuers are 
allowed to make certain assumption about these terms.
    1. Minimum payment formulas. When calculating the minimum payment 
repayment estimate, in the October 2009 Regulation Z Proposal, the 
Board proposed that credit card issuers generally must use the minimum 
payment formula(s) that apply to a cardholder's account. The final rule 
retains this provision as proposed. Appendix M1 to part 226 provides 
that in calculating the minimum payment repayment estimate, if more 
than one minimum payment formula applies to an account, the issuer must 
apply each minimum payment formula to the portion of the balance to 
which the formula applies. In providing the minimum payment repayment 
estimate, an issuer must disclose the longest repayment period 
calculated. For example, assume that an issuer uses one minimum payment 
formula to calculate the minimum payment amount for a general revolving 
feature, and another minimum payment formula to calculate the minimum 
payment amount for special purchases, such as a ``club plan purchase.'' 
Also, assume that based on a consumer's balances in these features, the 
repayment period calculated pursuant to Appendix M1 to part 226 for the 
general revolving feature is 5 years, while the repayment period 
calculated for the special purchase feature is 3 years. This issuer 
must disclose 5 years as the repayment period for the entire balance to 
the consumer. This provision of the final rule differs from the 
approach adopted in the January 2009 Regulation Z Rule, which gave card 
issuers the option of disclosing either the longest repayment period 
calculated or the repayment period calculated for each minimum payment 
formula, when disclosing the actual repayment disclosures through a 
toll-free telephone number. The Board believes that allowing card 
issuers to disclose on the periodic statement the repayment period 
calculated for each minimum payment formula might create ``information 
overload'' for consumers and might distract the consumer from other 
important information that is contained on the periodic statement.
    Under proposed Appendix M1 to part 226, card issuers would have 
been allowed to disregard promotional terms related to payments, such 
as deferred billing promotional plans and skip payment features. In 
response to the October 2009 Regulation Z Proposal, several industry 
commenters requested clarification on how to handle promotional 
programs that involve a reduction in the requirement minimum payment 
for a limited time period, such as may occur with fixed payment 
programs. These commenters suggested that the Board provide a card 
issuer with flexibility to choose whether the repayment disclosures are 
based only on the promotional minimum payment or on the minimum 
payments as they will be calculated over the duration of the account.
    The final rule retains the provision in Appendix M1 to part 226 
that if any promotional terms related to payments apply to a 
cardholder's account, such as a deferred billing plan where minimum 
payments are not required for 12 months, credit card issuers may assume 
no promotional terms apply to the account. In Appendix M1 to part 226, 
the term ``promotional terms'' is defined as terms of a cardholder's 
account that will expire in a fixed period of time, as set forth by the 
card issuer. Appendix M1 to part 226 clarifies that issuers have two 
alternatives for handling promotional minimum payments. Under the first 
alternative, an issuer may disregard the promotional minimum payment 
during the promotional period, and instead calculated the minimum 
payment repayment estimate using the standard minimum payment formula 
that is applicable to the account. For example, assume that a 
promotional

[[Page 7776]]

minimum payment of $10 applies to an account for six months, and then 
after the promotional period expires, the minimum payment is calculated 
as 2 percent of the outstanding balance on the account or $20 whichever 
is greater. An issuer may assume during the promotional period that the 
$10 promotional minimum payment does not apply, and instead calculate 
the minimum payment disclosures based on the minimum payment formula of 
2 percent of the outstanding balance or $20, whichever is greater. The 
Board notes that allowing issuers to disregard promotional payment 
terms on accounts where the promotional payment terms apply only for a 
limited amount of time eases compliance burden on issuers, without a 
significant impact on the accuracy of the repayment estimates for 
consumers.
    Under the second alternative, an issuer in calculating the minimum 
payment repayment estimate during the promotional period may choose not 
to disregard the promotional minimum payment but instead may calculate 
the minimum payments as they will be calculated over the duration of 
the account. In the above example, an issuer could calculate the 
minimum payment repayment estimate during the promotional period by 
assuming the $10 promotional minimum payment will apply for the first 
six months and then assuming the 2 percent or $20 (whichever is 
greater) minimum payment formula will apply until the balance is 
repaid. Appendix M1 to part 226 clarifies, however, that in calculating 
the minimum payment repayment estimate during a promotional period, an 
issuer may not assume that the promotional minimum payment will apply 
until the outstanding balance is paid off by making only minimum 
payments (assuming the repayment estimate is longer than the 
promotional period.) In the above example, the issuer may not calculate 
the minimum payment repayment estimate during the promotional period by 
assuming that the $10 promotional minimum payment will apply beyond the 
six months until the outstanding balance is repaid. The Board believes 
that allowing the card issuer to assume during the promotional period 
that the promotional minimum payment will apply indefinitely would 
distort the repayment disclosures provided to consumers.
    2. Annual percentage rates. Generally, when calculating the minimum 
payment repayment estimate, the October 2009 Regulation Z Proposal 
would have required credit card issuers to use each of the APRs that 
currently apply to a consumer's account, based on the portion of the 
balance to which that rate applies.
    TILA Section 127(b)(11), as revised by the Credit Card Act, 
specifically requires that in calculating the minimum payment repayment 
estimate, if the interest rate in effect on the date on which the 
disclosure is made is a temporary rate that will change under a 
contractual provision applying an index or formula for subsequent 
interest rate adjustments, the creditor must apply the interest rate in 
effect on the date on which the disclosure is made for as long as that 
interest rate will apply under that contractual provision, and then 
apply an interest rate based on the index or formula in effect on the 
applicable billing date.
    Consistent with TILA Section 127(b)(11), as revised by the Credit 
Card Act, under proposed Appendix M1 to part 226, the term 
``promotional terms'' would have been defined as ``terms of a 
cardholder's account that will expire in a fixed period of time, as set 
forth by the card issuer.'' The term ``deferred interest or similar 
plan'' would have meant a plan where a consumer will not be obligated 
to pay interest that accrues on balances or transactions if those 
balances or transactions are paid in full prior to the expiration of a 
specified period of time. If any promotional APRs apply to a 
cardholder's account, other than deferred interest or similar plans, a 
credit card issuer in calculating the minimum payment repayment 
estimate during the promotional period would have been required to 
apply the promotional APR(s) until it expires and then must apply the 
rate that applies after the promotional rate(s) expires. If the rate 
that applies after the promotional rate(s) expires is a variable rate, 
a card issuer would have been required to calculate that rate based on 
the applicable index or formula. This variable rate would have been 
considered accurate if it was in effect within the last 30 days before 
the minimum payment repayment estimate is provided. The final rule 
retains these provisions as proposed.
    For deferred interest or similar plans, under the October 2009 
Regulation Z Proposal, if minimum payments under the plan will repay 
the balances or transactions prior to the expiration of the specified 
period of time, a card issuer would have been required to assume that 
the consumer will not be obligated to pay the accrued interest. This 
means, in calculating the minimum payment repayment estimate, the card 
issuer must apply a zero percent APR to the balance subject to the 
deferred interest or similar plan. If, however, minimum payments under 
the deferred interest or similar plan may not repay the balances or 
transactions in full prior to the expiration of the specified period of 
time, a credit card issuer would have been required to assume that a 
consumer will not repay the balances or transactions in full prior to 
the expiration of the specified period and thus the consumer will be 
obligated to pay the accrued interest. This means, in calculating the 
minimum payment repayment estimate, the card issuer must apply the APR 
at which interest is accruing to the balance subject to the deferred 
interest or similar plan. The final rule retains these provisions as 
proposed. This approach with respect to deferred interest or similar 
plans is consistent with the assumption that only minimum payments are 
made in repaying the balance on the account.
    For example, assume under a deferred interest plan, a card issuer 
will not charge interest on a certain purchase if the consumer repays 
that purchase amount within 12 months. Also, assume that under the 
account agreement, the minimum payments for the deferred interest plan 
are calculated as 1/12 of the purchase amount, such that if the 
consumer makes timely minimum payments each month for 12 months, the 
purchase amount will be paid off by the end of the deferred interest 
period. In this case, the card issuer must assume that the consumer 
will not be obligated to pay the deferred interest. This means, in 
calculating the minimum payment repayment estimate, the card issuer 
must apply a zero percent APR to the balance subject to the deferred 
interest plan. On the other hand, if under the account agreement, the 
minimum payments for the deferred interest plan may not necessarily 
repay the purchase balance within the deferred interest period (such as 
where the minimum payments are calculated as 3 percent of the 
outstanding balance), a credit card issuer must assume that a consumer 
will not repay the balances or transactions in full by the specified 
date and thus the consumer will be obligated to pay the deferred 
interest. This means, in calculating the minimum payment repayment 
estimate, the card issuer must apply the APR at which deferred interest 
is accruing to the balance subject to the deferred interest plan.
    3. Outstanding balance. When calculating the minimum payment 
repayment estimate, the Board proposed that credit card issuers must 
use the outstanding balance on a consumer's account as of the closing 
date of the last billing cycle. The final rule retains this provision 
as proposed. Issuers would not be required to take into account any

[[Page 7777]]

transactions consumers may have made since the last billing cycle. The 
Board believes that this approach would make it easier for consumers to 
understand the minimum payment repayment estimate, because the 
outstanding balance used to calculate the minimum payment repayment 
estimate would be the same as the outstanding balance shown on the 
periodic statement. Issuers would be allowed to round the outstanding 
balance to the nearest whole dollar to calculate the minimum payment 
repayment estimate.
    4. Other terms. As discussed above, the Board proposed in Appendix 
M1 to part 226 that issuers must calculate the minimum payment 
repayment estimate for a consumer based on the minimum payment 
formula(s), the APRs and the outstanding balance currently applicable 
to a consumer's account. For other terms that may impact the 
calculation of the minimum payment repayment estimate, the Board 
proposed to allow issuers to make certain assumptions about these 
terms. The final rule retains this approach.
    a. Balance computation method. The Board proposed to allow issuers 
to use the average daily balance method for purposes of calculating the 
minimum payment repayment estimate. The average daily balance method is 
commonly used by issuers to compute the balance on credit card 
accounts. Nonetheless, requiring use of the average daily balance 
method makes other assumptions necessary, including the length of the 
billing cycle, and when payments are made. The Board proposed to allow 
an issuer to assume a monthly or daily periodic rate applies to the 
account. If a daily periodic rate is used, the issuer would be allowed 
to assume either (1) a year is 365 days long, and all months are 
30.41667 days long, or (2) a year is 360 days long, and all months are 
30 days long. Both sets of assumptions about the length of the year and 
months would yield the same repayment estimates. The Board also 
proposed to allow issuers to assume that payments are credited on the 
last day of the month. The final rule retains these provisions with one 
modification. Based on comments received in response to the October 
2009 Regulation Z Proposal, Appendix M1 to part 226 is revised to allow 
card issuers to assume either that payments are credited on the last 
day of the month or the last day of the billing cycle.
    b. Grace period. In proposed Appendix M1 to part 226, the Board 
proposed to allow issuers to assume that no grace period exists. The 
final rule retains this provision as proposed. The required disclosures 
about the effect of making minimum payments are based on the assumption 
that the consumer will be ``revolving'' or carrying a balance. Thus, it 
seems reasonable to assume that the account is already in a revolving 
condition at the time the minimum payment repayment estimate is 
disclosed on the periodic statement, and that no grace period applies. 
This assumption about the grace period is also consistent with the rule 
to exempt issuers from providing the minimum payment repayment estimate 
to consumers that have paid their balances in full for two consecutive 
months.
    c. Residual interest. When the consumer's account balance at the 
end of a billing cycle is less than the required minimum payment, the 
Board proposed to allow an issuer to assume that no additional 
transactions occurred after the end of the billing cycle, that the 
account balance will be paid in full, and that no additional finance 
charges will be applied to the account between the date the statement 
was issued and the date of the final payment. The final rule retains 
these provisions as proposed. These assumptions are necessary to have a 
finite solution to the repayment period calculation. Without these 
assumptions, the repayment period could be infinite.
    d. Minimum payments are made each month. In proposed Appendix M1 to 
part 226, issuers would have been allowed to assume that minimum 
payments are made each month and any debt cancellation or suspension 
agreements or skip payment features do not apply to a consumer's 
account. The final rule retains this provision as proposed. The Board 
believes that this assumption will ease compliance burden on issuers, 
without a significant impact on the accuracy of the repayment estimates 
for consumers.
    e. APR will not change. TILA Section 127(b)(11), as revised by the 
Credit Card Act, provides that in calculating the minimum payment 
repayment estimate, a creditor must apply the interest rate or rates in 
effect on the date on which the disclosure is made until the date on 
which the balance would be paid in full. Nonetheless, if the interest 
rate in effect on the date on which the disclosure is made is a 
temporary rate that will change under a contractual provision applying 
an index or formula for subsequent interest rate adjustment, the 
creditor must apply the interest rate in effect on the date on which 
the disclosure is made for as long as that interest rate will apply 
under that contractual provision, and then apply an interest rate based 
on the index or formula in effect on the applicable billing date. As 
discussed above, if any promotional APRs apply to a cardholder's 
account, other than deferred interest or similar plans, a credit card 
issuer in calculating the minimum payment repayment estimate during the 
promotional period would be required to apply the promotional APR(s) 
until it expires and then must apply the rate that applies after the 
promotional rate(s) expires. If the rate that applies after the 
promotional rate(s) expires is a variable rate, a card issuer would be 
required to calculate that rate based on the applicable index or 
formula. This variable rate would be considered accurate if it was in 
effect within the last 30 days before the minimum payment repayment 
estimate is provided. For deferred interest or similar plans, if 
minimum payments under the plan will repay the balances or transactions 
in full prior to the expiration of the specified period of time, a card 
issuer must assume that the consumer will not be obligated to pay the 
accrued interest. This means, in calculating the minimum payment 
repayment estimate, the card issuer must apply a zero percent APR to 
the balance subject to the deferred interest or similar plan. If, 
however, minimum payments under the deferred interest or similar plan 
may not repay the balances or transactions in full by the expiration of 
the specified period of time, a credit card issuer must assume that a 
consumer will not repay the balances or transactions in full prior to 
the expiration of the specified period of time and thus the consumer 
will be obligated to pay the accrued interest. This means, in 
calculating the minimum payment repayment estimate, the card issuer 
must apply the APR at which interest is accruing (or deferred interest 
is accruing) to the balance subject to the deferred interest or 
interest waiver plan.
    Consistent with TILA Section 127(b)(11), as revised by the Credit 
Card Act, the Board proposed to allow issuers to assume that the APR on 
the account will not change either through the operation of a variable 
rate or the change to a rate, except with respect to promotional APRs 
as discussed above. The final rule retains this provision as proposed. 
For example, if a penalty APR currently applies to a consumer's 
account, an issuer would be allowed to assume that the penalty APR will 
apply to the consumer's account indefinitely, even if the consumer may 
potentially return to a non-penalty APR in the future under the account 
agreement.
    f. Payment allocation. In proposed Appendix M1 to part 226, the 
Board proposed to allow issuers to assume that payments are allocated 
to lower APR balances before higher APR balances

[[Page 7778]]

when multiple APRs apply to an account. The final rule retains this 
provision as proposed. As discussed in the section-by-section analysis 
to Sec.  226.53, the rule permits issuers to allocate minimum payment 
amounts as they choose; however, issuers are restricted in how they may 
allocate payments above the minimum payment amount. The Board assumes 
that issuers are likely to allocate the minimum payment amount to lower 
APR balances before higher APR balances, and issuers may assume that is 
the case in calculating the minimum payment repayment estimate.
    g. Account not past due and the account balance does not exceed the 
credit limit. The proposed rule would have allowed issuers to assume 
that the consumer's account is not past due and the account balance is 
not over the credit limit. The final rule retains this provision as 
proposed. The Board believes that this assumption will ease compliance 
burden on issuers, without a significant impact on the accuracy of the 
repayment estimates for consumers. In response to the October 2009 
Regulation Z Proposal, one commenter asked for confirmation that if the 
account terms operate such that the past due amount will be added to 
the minimum payment due in the next billing cycle, the card issuer may 
assume that the consumer will pay that higher minimum payment amount in 
the next billing cycle in calculating the minimum payment repayment 
estimate. The Board notes that while issuers are allowed to assume that 
an account is not past due, the issuer is not required to assume that 
fact. The Board notes that under Appendix M1 to part 226, when 
calculating the minimum payment repayment estimate, a credit card 
issuer may make certain assumptions about account terms (as set forth 
in paragraph (b)(4) of Appendix M1 to part 226) or may use the account 
term that applies to a consumer's account.
    h. Rounding assumed payments, current balance and interest charges 
to the nearest cent. Under proposed Appendix M1 to part 226, when 
calculating the minimum payment repayment estimate, an issuer would 
have been permitted to round to the nearest cent the assumed payments, 
current balance and interest charges for each month, as shown in 
proposed Appendix M2 to part 226. The final rule retains this provision 
as proposed.
    5. Tolerances. The Board proposed to provide that the minimum 
payment repayment estimate calculated by an issuer will be considered 
accurate if it is not more than 2 months above or below the minimum 
payment repayment estimate determined in accordance with the guidance 
in proposed Appendix M1 to part 226, prior to rounding. The final rule 
retains this provision with one technical revision as discussed below. 
This tolerance would prevent small variations in the calculation of the 
minimum payment repayment estimate from causing a disclosure to be 
inaccurate. Take, for example, a minimum payment formula of the greater 
of 2 percent or $20 and two separate amortization calculations that, at 
the end of 28 months, arrived at remaining balances of $20 and $20.01 
respectively. The $20 remaining balance would be paid off in the 29th 
month, resulting in the disclosure of a 2-year repayment period due to 
the Board's rounding rule set forth in Sec.  226.7(b)(12)(i)(B). The 
$20.01 remaining balance would be paid off in the 30th month, resulting 
in the disclosure of a 3-year repayment period due to the Board's 
rounding rule. Thus, in the example above, an issuer would be in 
compliance with the guidance in Appendix M1 to part 226 by disclosing 3 
years, instead of 2 years, because the issuer's estimate is within the 
2 months' tolerance, prior to rounding. In addition, the rule also 
provides that even if an issuer's estimate is more than 2 months above 
or below the minimum payment repayment estimate calculated using the 
guidance in Appendix M1 to part 226, so long as the issuer discloses 
the correct number of years to the consumer based on the rounding rule 
set forth in Sec.  226.7(b)(12)(i)(B), the issuer would be in 
compliance with the guidance in Appendix M1 to part 226. For example, 
assume the minimum payment repayment estimate calculated using the 
guidance in Appendix M1 to part 226 is 32 months (2 years, 8 months), 
and the minimum payment repayment estimate calculated by the issuer is 
38 months (3 years, 2 months). Under the rounding rule set forth in 
Sec.  226.7(b)(12)(i)(B), both of these estimates would be rounded and 
disclosed to the consumer as 3 years. Thus, if the issuer disclosed 3 
years to the consumer, the issuer would be in compliance with the 
guidance in Appendix M1 to part 226 even through the minimum payment 
repayment estimate calculated by the issuer is outside the 2 months' 
tolerance amount.
    In response to comments received on the October 2009 Regulation Z 
Proposal, Appendix M1 to part 226 is revised to clarify that the 2-
month tolerance described above will apply even if the card issuer uses 
the consumer's account terms in calculating the minimum payment 
repayment estimate (instead of the listed assumptions set forth in 
paragraph (b)(4) of Appendix M1 to part 226).
    The Board recognizes that the minimum payment repayment estimates, 
the minimum payment total cost estimates, the estimated monthly 
payments for repayment in 36 months, and the total cost estimates for 
repayment in 36 months, as calculated in Appendix M1 to part 226, are 
estimates. The Board would expect that issuers would not be liable 
under federal or State unfair or deceptive practices laws for providing 
inaccurate or misleading information, when issuers provide to consumers 
these disclosures calculated according to guidance provided in Appendix 
M1 to part 226, as required by TILA.
    Calculating the minimum payment total cost estimate. Under proposed 
Appendix M1 to part 226, when calculating the minimum payment total 
cost estimate, a credit card issuer would have been required to total 
the dollar amount of the interest and principal that the consumer would 
pay if he or she made minimum payments for the length of time 
calculated as the minimum payment repayment estimate using the guidance 
in proposed Appendix M1 to part 226. Under the proposal, the minimum 
payment total cost estimate would have been deemed to be accurate if it 
is based on a minimum payment repayment estimate that is within the 
tolerance guidance set forth in proposed Appendix M1 to part 226, as 
discussed above. The final rule adopts these provisions as proposed. 
For example, assume the minimum payment repayment estimate calculated 
using the guidance in Appendix M1 to part 226 is 28 months (2 years, 4 
months), and the minimum payment repayment estimate calculated by the 
issuer is 30 months (2 years, 6 months). The minimum payment total cost 
estimate will be deemed accurate even if it is based on the 30 month 
estimate for length of repayment, because the issuer's minimum payment 
repayment estimate is within the 2 months' tolerance, prior to 
rounding. In addition, assume the minimum payment repayment estimate 
calculated using the guidance in Appendix M1 to part 226 is 32 months 
(2 years, 8 months), and the minimum payment repayment estimate 
calculated by the issuer is 38 months (3 years, 2 months). Under the 
rounding rule set forth in Sec.  226.7(b)(12)(i)(B), both of these 
estimates would be rounded and disclosed to the consumer as 3 years. If 
the issuer based the minimum payment total cost estimate on 38 months 
(or any other minimum payment repayment estimate that would be rounded 
to 3

[[Page 7779]]

years), the minimum payment total cost estimate would be deemed to be 
accurate.
    Calculating the estimated monthly payment for repayment in 36 
months. Under proposed Appendix M1 to part 226, when calculating the 
estimated monthly payment for repayment in 36 months, a credit card 
issuer would have been required to calculate the estimated monthly 
payment amount that would be required to pay off the outstanding 
balance shown on the statement within 36 months, assuming the consumer 
paid the same amount each month for 36 months.
    In calculating the estimated monthly payment for repayment in 36 
months, the Board proposed to require an issuer to use a weighted APR 
that is based on the APRs that apply to a cardholder's account and the 
portion of the balance to which the rate applies, as shown in proposed 
Appendix M2 to part 226. In response to the October 2009 Regulation Z 
Proposal, several industry commenters requested that the Board allow 
issuers to utilize other methods of calculating the estimated monthly 
payment for repayment in 36 months (other than a weighted average). 
These commenters indicate that use of the weighted average does not 
seem to provide the most accurate calculation in all circumstances and 
other methods of calculating the estimated monthly payment for 
repayment in 36 months, which do not use the weighted average, provide 
less variance and are arguably more accurate.
    Based on these comments, Appendix M1 to part 226 is revised to 
permit card issuers to use methods of calculating the estimated monthly 
payment for repayment in 36 months other than a weighted average, so 
long as the calculation results in the same payment amount each month 
and so long as the total of the payments would pay off the outstanding 
balance shown on the periodic statement within 36 months. The Board 
believes this approach will provide card issuers with the flexibility 
to use calculation methods other than a weighed APR that provide more 
accurate estimates of the monthly payment for repayment in 36 months.
    Nonetheless, Appendix M1 to part 226 would still permit, but not 
require, card issuers to use a weighted APR to calculate the estimated 
monthly payment for repayment in 36 months. The Board believes that 
permitting card issuers to use a weighted APR to calculate the 
estimated monthly payment for repayment in 36 months when multiple APRs 
apply to an account will ease compliance burden on issuers by 
significantly simplifying the calculation of the estimated monthly 
payment, without a significant impact on the accuracy of the estimated 
monthly payments for consumers.
    Appendix M1 to part 226 provides guidance on how to calculate the 
weighted APR if promotional APRs apply. If any promotional terms 
related to APRs apply to a cardholder's account, other than deferred 
interest or similar plans, in calculating the weighted APR, the issuer 
must calculate a weighted average of the promotional rate and the rate 
that will apply after the promotional rate expires based on the 
percentage of 36 months each rate will apply, as shown in Appendix M2 
to part 226.
    Under Appendix M1 to part 226, for deferred interest or similar 
plans, if minimum payments under the plan will repay the balances or 
transactions in full prior to the expiration of the specified period of 
time, a card issuer in calculating the weighted APR must assume that 
the consumer will not be obligated to pay the accrued interest. This 
means, in calculating the weighted APR, the card issuer must apply a 
zero percent APR to the balance subject to the deferred interest or 
similar plan. If, however, minimum payments under the deferred interest 
or similar plan may not repay the balances or transactions in full 
prior to the expiration of the specified period of time, a credit card 
issuer in calculating the weighted APR must assume that a consumer will 
not repay the balances or transactions in full prior to the expiration 
of the specified period and thus the consumer will be obligated to pay 
the accrued interest. This means, in calculating the weighted APR, the 
card issuer must apply the APR at which interest is accruing to the 
balance subject to the deferred interest or similar plan. To simplify 
the calculation of the repayment estimates, this approach focuses on 
whether minimum payments will repay the balances or transactions in 
full prior to the expiration of the specified period of time instead of 
whether the estimated monthly payment for repayment in 36 months will 
repay the balances or transaction prior to the expiration of the 
specified period. The Board believes that if minimum payments under the 
deferred interest or similar plan will not repay the balances or 
transactions in full prior to the expiration of the specified period of 
time, it is not likely that the estimated monthly payment for repayment 
in 36 months will repay the balances or transactions in full prior to 
the expiration of the specified period, given that (1) under Sec.  
226.53, card issuers generally may not allocate payments in excess of 
the minimum payment to deferred interest or similar balances before 
other balances on which interest is being charged except in the last 
two months before a deferred interest or similar period is set to 
expire (unless the card issuer is complying with a consumer request), 
and (2) deferred interest or similar periods typically are shorter than 
3 years.
    In the October 2009 Regulation Z Proposal, the Board requested 
comment on whether the Board should adopt specific tolerances for 
calculation and disclosure of the estimated monthly payment for 
repayment in 36 months, and if so, what those tolerances should be. In 
response to the October 2009 Regulation Z Proposal, one industry 
commenter suggested the Board adopt a tolerance of 10 percent, such 
that the estimated monthly payment for repayment in 36 months that is 
disclosed to the consumer would be considered accurate if it is not 
more than 10 percent above or below the estimated monthly payment for 
repayment in 36 months determined in accordance with the guidance in 
Appendix M1 to part 226. Another industry commenter suggested 5 percent 
as the tolerance amount. The final rule adopts 10 percent as the 
tolerance amount for accuracy of the estimated monthly payment for 
repayment in 36 months, to account for complexity in calculating that 
disclosure.
    Calculating the total cost estimate for repayment in 36 months. 
Under proposed Appendix M1 to part 226, when calculating the total cost 
estimate for repayment in 36 months, a credit card issuer would have 
been required to total the dollar amount of the interest and principal 
that the consumer would pay if he or she made the estimated monthly 
payment for repayment in 36 months calculated under proposed Appendix 
M1 to part 226 each month for 36 months. The final rule retains this 
provision as proposed.
    In the October 2009 Regulation Z Proposal, the Board requested 
comment on whether the Board should adopt specific tolerances for 
calculation and disclosure of the total cost estimate for repayment in 
36 months, and if so, what those tolerances should be. In response to 
the October 2009 Regulation Z Proposal, one industry commenter 
suggested that the Board amend Appendix M1 to part 226 to provide that 
the total cost estimate for repayment in 36 months is deemed accurate 
if it is based on the estimated monthly payment for repayment in 36 
months that is calculated in accordance with paragraph (d) of Appendix 
M1 to part 226. The Board recognizes that the total cost estimate for 
repayment in 36

[[Page 7780]]

months is an estimate. Accordingly, the Board revises Appendix M1 to 
part 226 to incorporate the above accuracy standard for the total cost 
estimate for repayment in 36 months.
    Calculating savings estimate for repayment in 36 months. Under 
proposed Appendix M1 to part 226, when calculating the savings estimate 
for repayment in 36 months, a credit card issuer would be required to 
subtract the total cost estimate for repayment in 36 months calculated 
under paragraph (e) of Appendix M1 (rounded to the nearest whole dollar 
as set forth in proposed Sec.  226.7(b)(12)(i)(F)(3)) from the minimum 
payment total cost estimate calculated under paragraph (c) of Appendix 
M1 (rounded to the nearest whole dollar as set forth in proposed Sec.  
226.7(b)(12)(i)(C)). The final rule retains this provision as proposed.
    In the October 2009 Regulation Z Proposal, the Board requested 
comment on whether the Board should adopt specific tolerances for 
calculation and disclosure of the savings estimate for repayment in 36 
months, and if so, what those tolerances should be. In response to the 
October 2009 Regulation Z Proposal, one industry commenter suggested 
that the Board amend Appendix M1 to part 226 to provide that the 
savings estimate for repayment in 36 months is deemed to be accurate if 
it is based on the total cost estimate for repayment in 36 months that 
is calculated in accordance with paragraph (e) of Appendix M1 to part 
226 and the minimum payment total cost estimate calculated under 
paragraph (c) of Appendix M1 to part 226. The Board recognizes that the 
savings estimate for repayment in 36 months is an estimate. 
Accordingly, the Board revises Appendix M1 to part 226 to incorporate 
the above accuracy standard for the saving estimate.
Appendix M2--Sample Calculations of Repayment Disclosures
    In proposed Appendix M2, the Board proposed to provide sample 
calculations for the minimum payment repayment estimate, the total cost 
repayment estimate, the estimated monthly payment for repayment in 36 
months, the total cost estimate for repayment in 36 months, and the 
savings estimate for repayment in 36 months discussed in proposed 
Appendix M1 to part 226. The final rule retains Appendix M2 to part 226 
as proposed.
Additional Issues Raised by Commenters
Circumvention or Evasion
    Consumer groups and a member of Congress requested that the Board 
adopt a provision specifically prohibiting creditors from circumventing 
or evading Regulation Z. However, this request seems to suggest that 
circumvention or evasion of Regulation Z is permitted unless 
specifically prohibited by the Board when, in fact, the opposite is 
true. Nothing in TILA or Regulation Z permits a creditor to circumvent 
or evade their provisions. Thus, although the Board agrees that 
circumvention or evasion of Regulation Z is prohibited, the Board does 
not believe that it is necessary or appropriate to adopt a provision 
specifically prohibiting circumvention or evasion. Furthermore, because 
the requested provision would be broad and general, the Board is 
concerned that it would produce uncertainty for creditors regarding 
compliance with Regulation Z and for the agencies that supervise 
compliance with Regulation Z without producing compensating benefits 
for consumers.
    Accordingly, it appears that the better approach is for the Board 
to continue using its authority under TILA Section 105(a) to prevent 
circumvention or evasion by prohibiting specific practices that--
although arguably not expressly prohibited by TILA--are nevertheless 
clearly inconsistent with its provisions. For example, in this 
rulemaking, the Board has:
     Provided that the restrictions in revised TILA Section 171 
and new TILA Section 172 on increasing annual percentage rates and 
certain fees continue to apply after an account is closed or acquired 
by another creditor or after the balance is transferred to another 
credit account issued by the same creditor or its affiliate or 
subsidiary. See Sec.  226.55(d).
     Provided that a card issuer that uses fixed ``floors'' to 
exercise control over the operation of an index cannot utilize the 
exception for variable rates in revised TILA Section 171(b)(2). See 
comment 55(b)(2)-2.
     Provided that the restrictions in new TILA Section 127(n) 
apply not only to fees charged to a credit card account but also to 
fees that the consumer is required to pay with respect to that account 
through other means (such as through a payment from the consumer to the 
card issuer or from another credit account provided by the card 
issuer). See comment 52(a)(1)-1.
    The Board will continue to monitor industry practices and take 
action when appropriate. In addition, Section 502 of the Credit Card 
Act requires that--at least every two years--the Board conduct a review 
of, among other things, the terms of credit card agreements, the 
practices of card issuers, the effectiveness of credit card 
disclosures, and the adequacy of protections against unfair or 
deceptive acts or practices relating to credit cards.
Waiver or Forfeiture of Protections
    Consumer groups also requested that--in order to prevent creditors 
from misleading consumers into consenting to practices prohibited by 
Regulation Z--the Board adopt a provision affirmatively stating that 
the protections in Regulation Z cannot be waived or forfeited. However, 
as above, this request incorrectly assumes that creditors are generally 
permitted to engage in practices prohibited by Regulation Z in these 
circumstances. There is no such general exception to the provisions in 
Regulation Z. Instead, the Board has expressly and narrowly defined the 
circumstances in which a consumer's consent or request alters the 
requirements in Regulation Z.\74\ For this reason, the Board does not 
believe that the requested provision is necessary.
---------------------------------------------------------------------------

    \74\ See, e.g., comment 53(b)-5 (clarifying that preprinted 
language in an account agreement or on a payment coupon does not 
constitute a consumer request for purposes of allocating a payment 
in excess of the minimum pursuant to Sec.  226.53(b)(2)); revised 
Sec.  226.9(c)(2)(i) (clarifying that the statement in Sec.  
226.9(c)(2)(i) that the 45-day timing requirement does not apply if 
the consumer has agreed to a particular change is solely intended 
for use in the unusual instance when a consumer substitutes 
collateral or when the creditor can advance additional credit only 
if a change relatively unique to that consumer is made).
---------------------------------------------------------------------------

VI. Mandatory Compliance Dates

    A. Mandatory compliance dates--in general. The mandatory compliance 
date for the portion of Sec.  226.5(a)(2)(iii) regarding use of the 
term ``fixed'' and for Sec. Sec.  226.5(b)(2)(ii), 226.7(b)(11), 
226.7(b)(12), 226.7(b)(13), 226.9(c)(2) (except for 
226.9(c)(2)(iv)(D)), 226.9(e), 226.9(g) (except for 226.9(g)(3)(ii)), 
226.9(h), 226.10, 226.11(c), 226.16(f), and Sec. Sec.  226.51-226.58 is 
February 22, 2010. The mandatory compliance date for all other 
provisions of this final rule is July 1, 2010. For those provisions 
that are effective July 1, 2010, except to the extent that early 
compliance with this final rule is permitted, creditors generally must 
comply with the existing requirements of Regulation Z until July 1, 
2010.
    B. Prospective application of new rules. The final rule is 
prospective in application. The following paragraphs set forth 
additional guidance and examples as to how a creditor must

[[Page 7781]]

comply with the final rule by the relevant mandatory compliance date.
    C. Tabular summaries that accompany applications or solicitations 
(Sec.  226.5a). Credit and charge card applications provided or made 
available to consumers on or after July 1, 2010 must comply with the 
final rule, including format and terminology requirements. For example, 
if a direct-mail application or solicitation is mailed to a consumer on 
June 30, 2010, it is not required to comply with the new requirements, 
even if the consumer does not receive it until July 7, 2010. If a 
direct-mail application or solicitation is mailed to consumers on or 
after July 1, 2010, however, it must comply with the final rule. If a 
card issuer makes an application or solicitation available to the 
general public, such as ``take-one'' applications, any new applications 
or solicitations issued by the creditor on or after July 1, 2010 must 
comply with the new rule. However, if a card issuer issues an 
application or solicitation by making it available to the public prior 
to July 1, 2010, for example by restocking an in-store display of 
``take-one'' applications on June 15, 2010, those applications need not 
comply with the new rule, even if a consumer may pick up one of the 
applications from the display after July 1, 2010. Any ``take-one'' 
applications that the card issuer uses to restock the display on or 
after July 1, 2010, however, must comply with the final rule.
    D. Account-opening disclosures (Sec.  226.6). Account-opening 
disclosures furnished on or after July 1, 2010 must comply with the 
final rule, including format and terminology requirements. The relevant 
date for purposes of this requirement is the date on which the 
disclosures are furnished, not when the consumer applies for the 
account. For example, if a consumer applies for an account on June 30, 
2010, but the account-opening disclosures are not mailed until July 2, 
2010, those disclosures must comply with the final rule. In addition, 
if the disclosures are furnished by mail, the relevant date is the day 
on which the disclosures were sent, not the date on which the consumer 
receives the disclosures. Thus, if a creditor mails the account-opening 
disclosures on June 30, 2010, even if the consumer receives those 
disclosures on July 7, 2010, the disclosures are not required to comply 
with the final rule.
    E. Periodic statements (Sec.  Sec.  226.7 and 226.5(b)(2)).
    Timing requirements (Sec.  226.5(b)(2)). As discussed in the July 
2009 Regulation Z Interim Final Rule, revised TILA Section 163 (as 
amended by the Credit Card Act) became effective on August 20, 2009. 
Accordingly, the interim final rule's revisions to Sec.  
226.5(b)(2)(ii) also became effective on August 22, 2009. In the 
interim final rule, the Board recognized that, with respect to open-end 
consumer credit plans other than credit cards, it could be difficult 
for some creditors to update their systems to produce periodic 
statements by August 20, 2009 that disclosed payment due dates and 
grace period expiration dates (if applicable) that were consistent with 
the 21-day requirement in revised Sec.  226.5(b)(2)(ii). As a result, 
the Board noted the possibility that, for a short period of time after 
August 20, some periodic statements for open-end consumer credit plans 
other than credit cards might disclose payment due dates and grace 
period expiration dates (if applicable) that were technically 
inconsistent with the interim final rule. In these circumstances, the 
Board stated that the creditor could remedy this technical issue by 
prominently disclosing elsewhere on or with the periodic statement that 
the consumer's payment will not be treated as late for any purpose if 
received within 21 days after the statement was mailed or delivered.
    However, on November 6, 2009, the Technical Corrections Act amended 
Section 163(a) to remove the requirement that creditors provide 
periodic statements at least 21 days before the payment due date with 
respect to open-end consumer credit plans other than credit card 
accounts. Thus, effective November 6, 2009, creditors were no longer 
required to comply with Sec.  226.5(b)(2)(ii) to the extent 
inconsistent with TILA Section 163(a), as amended by the Technical 
Corrections Act.
    As noted above, the final rule's revisions to Sec.  226.5(b)(2)(ii) 
and its commentary are intended to implement the Technical Corrections 
Act and to clarify certain aspects of the interim final rule. These 
revisions are not intended to impose any new substantive requirements 
on creditors. Nevertheless, to the extent that these revisions require 
creditors to make any changes to their systems or processes for 
providing periodic statements, the relevant date for purposes of 
determining when a creditor must comply with the final rule is the date 
on which the periodic statement is mailed or delivered, not the due 
date or grace period expiration date reflected on the statement. Thus, 
if a periodic statement is mailed or delivered on February 22, the 
creditor must have reasonable procedures designed to ensure that the 
payment due date and the grace period expiration date are not earlier 
than March 15, consistent with the revisions to Sec.  226.5(b)(2)(ii) 
in this final rule. However, if a periodic statement is mailed or 
delivered on February 21, the revisions to Sec.  226.5(b)(2)(ii) in 
this final rule do not apply to that statement.
    Content requirements (Sec.  226.7). Periodic statements mailed or 
delivered on or after February 22, 2010 must comply with Sec.  
226.7(b)(11), (b)(12), and (b)(13) of the final rule. The requirement 
in Sec.  226.7(b)(11)(i)(A) that the due date for a credit card account 
under an open-end (not home-secured) consumer credit plan be the same 
day each month applies beginning with the first statement for an 
account that is mailed or delivered on or after February 22, 2010. The 
due date disclosed on the last statement for an account mailed or 
delivered prior to February 22, 2010 need not be the same day of the 
month as the due date disclosed on the first statement for that account 
that is mailed or delivered on or after February 22, 2010.
    For all other requirements of Sec.  226.7(b), periodic statements 
mailed or delivered on or after July 1, 2010 must comply with the final 
rule. For example, if a creditor mails a periodic statement to the 
consumer on June 30, 2010, that statement is not required to comply 
with the final rule, even if the consumer does not receive the 
statement until July 7, 2010.
    For periodic statements mailed on or after July 1, 2010, fees and 
interest charges must be disclosed for the statement period and year-
to-date. For the year-to-date figure, creditors comply with the final 
rule by aggregating fees and interest charges beginning with the first 
periodic statement mailed on or after July 1, 2010. The first statement 
mailed on or after July 1, 2010 need not disclose aggregated fees and 
interest charges from prior cycles in the year. At the creditor's 
option, however, the year-to-date figure may reflect amounts computed 
in accordance with comment 7(b)(6)-3 for prior cycles in the year.
    The Board recognizes that a creditor may wish to comply with 
certain provisions of the final rule for periodic statements that are 
mailed prior to July 1, 2010. A creditor may phase in disclosures 
required on the periodic statement under the final rule that are not 
currently required prior to July 1, 2010. A creditor also may generally 
omit from the periodic statement any disclosures that are not required 
under the final rule prior to July 1, 2010. However, a creditor must 
continue to disclose an effective APR unless and until that creditor 
provides disclosures

[[Page 7782]]

of fees and interest that comply with Sec.  226.7(b)(6) of the final 
rule. Similarly, as provided in Sec.  226.7(a), in connection with a 
HELOC, a creditor must continue to disclose an effective APR unless and 
until that creditor provides fee and interest disclosures under Sec.  
226.7(b)(6).
    F. Checks that access a credit card account (Sec.  226.9(b)). A 
creditor must comply with the disclosure requirements of Sec.  
226.9(b)(3) of the final rule for checks that access a credit account 
that are provided on or after July 1, 2010. Thus, for example, if a 
creditor mails access checks to a consumer on June 30, 2010, these 
checks are not required to comply with new Sec.  226.9(b)(3), even if 
the consumer receives them on July 7, 2010.
    G. Notices of changes in terms and penalty rate increases for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan (Sec.  226.9(c)(2) and (g)).
    In general. With the exception of the formatting requirements in 
Sec.  226.9(c)(2)(iv)(D) and (g)(3)(ii), compliance with Sec.  
226.9(c)(2) and (g) is mandatory on the effective date of this final 
rule, February 22, 2010. Compliance with the formatting requirements 
set forth in Sec.  226.9(c)(2)(iv)(D) and (g)(3)(ii) is mandatory on 
July 1, 2010.
    Change in terms notices. The relevant date for determining whether 
a change-in-terms notice must comply with the new requirements of 
revised Sec.  226.9(c)(2) is generally the date on which the notice is 
provided, not the effective date of the change. Therefore, if a card 
issuer provides a notice of a change in terms for a credit card account 
under an open-end (not home-secured) consumer credit plan pursuant to 
Sec.  226.9(c)(2) of the July 2009 Regulation Z Interim Final Rule 
prior to February 22, 2010, the notice generally is required to comply 
with the requirements of Sec.  226.9(c)(2) of the Board's July 2009 
Regulation Z Interim Final Rule rather than the final rule.
    Accordingly, a card issuer may provide a notice in accordance with 
the July 2009 Regulation Z Interim Final Rule on February 20, 2010 
disclosing a change-in-terms effective April 6, 2009. This notice would 
not be required to comply with the revised requirements of this final 
rule. For example, if the change being disclosed is a rate increase due 
to the consumer's failure to make a required minimum payment within 60 
days of the due date, a notice provided prior to February 22, 2010 is 
not required to disclose the consumer's right to cure the rate increase 
by making the first six minimum payments on time following the 
effective date of the rate increase.
    This transition guidance is similar to the guidance the Board 
provided with the July 2009 Regulation Z Interim Final Rule. The Board 
believes that this is the appropriate way to implement the February 22, 
2010 effective date in order to ensure that institutions are provided 
the full implementation period provided under the Credit Card Act. In 
the alternative, the Credit Card Act could be construed to require 
creditors to provide notices, pursuant to new Sec.  226.9(c)(2), 45 
days in advance of changes occurring on or after February 22. However, 
this reading would create uncertainty regarding compliance with the 
rule by requiring creditors to begin providing change-in-terms notices 
in accordance with revised Sec.  226.9(c)(2) prior to the publication 
of this final rule. Accordingly, for clarity and consistency, the Board 
believes the better interpretation is that creditors must begin to 
comply with amended TILA Section 127(i) (as implemented in amended 
Sec.  226.9(c)(2)) for change-in-terms notices provided on or after 
February 22, 2010.
    Penalty rate increases. For rate increases due to the consumer's 
default or delinquency or as a penalty, the 45-day timing requirement 
of Sec.  226.9(g) of the July 2009 Regulation Z Interim Final Rule 
currently applies to credit card accounts under an open-end (not home-
secured) consumer credit plan.
    The Board is adopting an amended Sec.  226.9(g) in this final rule, 
which retains the 45-day notice requirement from the July 2009 
Regulation Z Interim Final Rule, with several changes. For example, for 
rate increases due to the consumer's failure to make a required minimum 
payment within 60 days of the due date, the final rule requires 
disclosure of the consumer's right to cure the rate increase by making 
the first six minimum payments on time following the effective date of 
the rate increase. Similar to, and for the reasons discussed in 
connection with, the transition guidance for Sec.  226.9(c)(2), the 
relevant date for determining whether a change-in-terms notice must 
comply with the new requirements of revised Sec.  226.9(g) is generally 
the date on which the notice is provided, not the effective date of the 
rate increase. Therefore, if a card issuer provides a notice of a rate 
increase due to delinquency, default, or as a penalty for a credit card 
account under an open-end (not home-secured) consumer credit plan 
pursuant to Sec.  226.9(g) of the July 2009 Regulation Z Interim Final 
Rule prior to February 22, 2010, the notice generally is required to 
comply with the requirements of Sec.  226.9(g) of the Board's July 2009 
Regulation Z Interim Final Rule rather than the final rule.
    Workout and temporary hardship arrangements. The Board's July 2009 
Regulation Z Interim Final Rule amended Sec.  226.9(c)(2) and (g) to 
provide that creditors are not required to provide 45 days advance 
notice when a rate is increased due to the completion or failure of a 
workout or temporary hardship arrangement, provided that, among other 
things, the creditor had provided the consumer prior to commencement of 
the arrangement with a clear and conspicuous written disclosure of the 
terms of the arrangement (including any increases due to completion or 
failure of the arrangement). This final rule further amends Sec.  
226.9(c)(2)(v)(D) to provide that, although this disclosure must 
generally be in writing, a creditor may disclose the terms of the 
arrangement orally by telephone, provided that the creditor mails or 
delivers a written disclosure of the terms to the consumer as soon as 
reasonably practicable after the oral disclosure is provided.
    The revision to Sec.  226.9(c)(2)(v)(D) recognizes that workout and 
temporary hardship arrangements are frequently established over the 
telephone and that creditors often apply the reduced rate immediately. 
Accordingly, to the extent that a creditor disclosed the terms of a 
workout or temporary hardship arrangement orally by telephone prior to 
February 22, 2010, the creditor may increase a rate to the extent 
consistent with Sec.  226.9(c)(2)(v)(D)(1) on or after February 22 so 
long as the creditor has mailed or delivered written disclosure of the 
terms to the consumer by February 22.
    Changes necessary to comply with final rule. The Board understands 
that, in order to comply with the final rule by February 22, 2010, card 
issuers may have to make changes to the account terms set forth in a 
consumer's credit agreement or similar legal documents. The Board also 
understands that, in some circumstances, the terms of the account may 
be inconsistent with the final rule on February 22, 2010 because those 
terms have not yet been amended consistent with the 45-day notice 
requirement in Sec.  226.9(c)(2). For example, if a card issuer 
provides a notice on January 30, 2010 informing the consumer of changes 
to the method used to calculate a variable rate necessary to comply 
with Sec.  226.55(b)(2), changes to the balance computation method 
necessary to comply with Sec.  226.54, Sec.  226.9(c)(2) technically 
prohibits the issuer from applying those changes to the account until 
March 16,

[[Page 7783]]

2010. In these circumstances, however, the card issuer must comply with 
the provisions of the final rule on February 22, 2010, even if the 
terms of the account have not yet been amended consistent with Sec.  
226.9(c)(2). Otherwise, card issuers could continue to, for example, 
calculate variable rates in a manner that is inconsistent with Sec.  
226.55(b)(2) after February 22, which would not be consistent with 
Congress' intent.
    Accordingly, if on February 22, 2010 the terms of an account are 
inconsistent with the final rule, the card issuer is prohibited from 
enforcing those terms, even if those terms have not yet been amended 
consistent with the 45-day notice requirement in Sec.  226.9(c)(2). 
Illustrative examples are provided below in the transition guidance for 
Sec.  226.55(b)(2).
    Right to reject. The Board's July 2009 Regulation Z Interim Final 
Rule adopted Sec.  226.9(h), which provides consumers with the right to 
reject certain significant changes in account terms. Under Sec.  
226.9(h), the right to reject applies when the card issuer is required 
to disclose that right in a Sec.  226.9 notice. Current Sec.  226.9(c) 
and (g) generally require disclosure of the right to reject when a rate 
is increased and when certain other significant account terms are 
changed. However, under the final rule, disclosure of the right to 
reject will no longer be required for rate increases because Sec.  
226.55 generally prohibits application of increased rates to existing 
balances. Thus, card issuers are not required to provide consumers with 
the right to reject a rate increase that is subject to Sec.  226.55, 
consistent with the transition guidance for Sec.  226.55 (discussed 
below).
    Furthermore, as discussed above with respect to Sec.  226.9(c)(2), 
the Board understands that card issuers will have to make significant 
changes in account terms in order to comply with the final rule by 
February 22, 2010. Because it would not be appropriate to permit 
consumers to reject changes that are mandated by the Credit Card Act 
and this final rule, card issuers are not required to provide consumers 
with the right to reject a change that is necessary to comply with the 
final rule. For example, card issuers are not required to provide a 
right to reject for changes to a balance computation method necessary 
to comply with Sec.  226.54 or changes to the method used to calculate 
a variable rate necessary to comply with Sec.  226.55(b)(2).
    H. Notices of changes in terms and penalty rate increases for other 
open-end (not home-secured) plans (Sec.  226.9(c)(2) and (g)).
    Change in terms notices--in general. Compliance with Sec.  
226.9(c)(2) of the final rule (except for the formatting requirements 
of Sec.  226.9(c)(2)(iv)(D)) is mandatory on February 22, 2010 for 
open-end (not home-secured) plans that are not credit card accounts 
under an open-end (not home-secured) consumer credit plan. Prior to 
February 22, 2010, such creditors may provide change-in-terms notices 
15 days in advance of a change, consistent with Sec.  226.9(c)(1) of 
the July 2009 Interim Final Rule. For example, such a creditor may mail 
a change-in-terms notice to a consumer on February 20, 2010 disclosing 
a change effective on March 7, 2010. In contrast, a notice of a rate 
increase sent on February 22, 2010 would be required to comply with 
Sec.  226.9(c)(2) of the final rule (except for the formatting 
requirements of Sec.  226.9(c)(2)(iv)(D)), and thus the change 
disclosed in the notice could have an effective date no earlier than 
April 8, 2010.
    Promotional rates.\75\ Some creditors that are not card issuers may 
have outstanding promotional rate programs that were in place before 
the effective date of this final rule, but under which the promotional 
rate will not expire until after February 22, 2010. For example, a 
creditor may have offered its consumers a 5% promotional rate on 
transactions beginning on September 1, 2009 that will be increased to 
15% effective as of September 1, 2010. Such creditors may have concerns 
about whether the disclosures that they have provided to consumers in 
accordance with these arrangements are sufficient to qualify for the 
exception in Sec.  226.9(c)(2)(v)(B). The Board notes that Sec.  
226.9(c)(2)(v)(B) of this final rule requires written disclosures of 
the term of the promotional rate and the rate that will apply when the 
promotional rate expires. The final rule further requires that the term 
of the promotional rate and the rate that will apply when the 
promotional rate expires be disclosed in close proximity and equally 
prominent to the disclosure of the promotional rate. The Board 
anticipates that many creditors offering such a promotional rate 
program may already have complied with these advance notice 
requirements in connection with offering the promotional program.
---------------------------------------------------------------------------

    \75\ For simplicity, the Board refers in this transition 
guidance to ``promotional rates.'' However, pursuant to new comment 
9(c)(2)(v)-9, this transition guidance is intended to apply equally 
to deferred interest or similar programs.
---------------------------------------------------------------------------

    The Board is nonetheless aware that some other creditors may be 
uncertain whether written disclosures provided at the time an existing 
promotional rate program was offered are sufficient to comply with the 
exception in Sec.  226.9(c)(2)(v)(B). For example, for promotional rate 
offers provided after February 22, 2010, the disclosure under Sec.  
226.9(c)(2)(v)(B)(1) must include the rate that will apply after the 
expiration of the promotional period. For an existing promotional rate 
program, a creditor might instead have disclosed this rate narratively, 
for example by stating that the rate that will apply after expiration 
of the promotional rate is the standard annual percentage rate 
applicable to purchases. The Board does not believe that it is 
appropriate to require a creditor that generally provided disclosures 
consistent with Sec.  226.9(c)(2)(v)(B), but that are technically not 
compliant because they described the post-promotional rate narratively, 
to provide consumers with 45 days' advance notice before expiration of 
the promotional period. This would have the impact of imposing the 
requirements of this final rule retroactively, to disclosures given 
prior to the February 22, 2010 effective date. Therefore, a creditor 
that generally made disclosures in connection with an open-end (not 
home-secured) plan that is not a credit card account under an open-end 
(not home-secured) consumer credit plan prior to February 22, 2010 
complying with Sec.  226.9(c)(2)(v)(B) but that describe the type of 
post-promotional rate rather than disclosing the actual rate is not 
required to provide an additional notice pursuant to Sec.  226.9(c)(2) 
before expiration of the promotional rate in order to use the 
exception.
    Similarly, the Board acknowledges that there may be some creditors 
with outstanding promotional rate programs that did not make, or, 
without conducting extensive research, are not aware if they made, 
written disclosures of the length of the promotional period and the 
post-promotional rate. For example, some creditors may have made these 
disclosures orally. For the same reasons described in the foregoing 
paragraph, the Board believes that it would be inappropriate to 
preclude use of the Sec.  226.9(c)(2)(v)(B) exception by creditors 
offering these promotional rate programs. That interpretation of the 
rule would in effect require creditors to have complied with the 
precise requirements of the exception before the February 22, 2010 
effective date. However, the Board believes at the same time that it 
would be inconsistent with the intent of the Credit Card Act for 
creditors that provided no advance notice of the term of the promotion 
and the post-promotional rate to receive an

[[Page 7784]]

exemption from the general notice requirements of Sec.  229.9(c)(2).
    Consequently, any creditor that is not a card issuer that provides 
a written disclosure to consumers subject to an existing promotional 
rate program, prior to February 22, 2010, stating the length of the 
promotional period and the rate or type of rate that will apply after 
that promotional rate expires is not required to provide an additional 
notice pursuant to Sec.  226.9(c)(2) prior to applying the post-
promotional rate. In addition, any creditor that is not a card issuer 
that provided, prior to February 22, 2010, oral disclosures of the 
length of the promotional period and the rate or type of rate that will 
apply after the promotional period also need not provide an additional 
notice under Sec.  226.9(c)(2). However, any creditor subject to Sec.  
226.9(c)(2) that is not a card issuer and has not provided advance 
notice of the term of a promotion and the rate that will apply upon 
expiration of that promotion in the manner described above prior to 
February 22, 2010 will be required to provide 45 days' advance notice 
containing the content set forth in this final rule before raising the 
rate.
    Penalty rate increases. For open-end (not home-secured) plans that 
are not credit card accounts under an open-end (not home-secured) 
consumer credit plan, Sec.  226.9(c)(1) of the July 2009 Regulation Z 
Interim Final Rule requires only that notice of an increase due to the 
consumer's default, delinquency, or as a penalty must be given before 
the effective date of the change. Therefore, the relevant date for 
purposes of such penalty rate increases generally is the date on which 
the increase becomes effective. For example, if a consumer makes a late 
payment on February 15, 2010 that triggers penalty pricing, a creditor 
that is not a card issuer may increase the rate effective on or before 
February 21, 2010 in compliance with Sec.  226.9(c)(1) of the July 2009 
Regulation Z Interim Final Rule, and need not provide 45 days' advance 
notice of the change.
    The Board is aware that there may be some circumstances in which a 
consumer's actions prior to February 22, 2010 trigger a penalty rate, 
but a creditor that is not a card issuer may be unable to implement 
that rate increase prior to February 22, 2010. For example, a consumer 
may make a late payment on February 15, 2010 that triggers a penalty 
rate, but the creditor may not be able to implement that rate increase 
until March 1, 2010 for operational reasons. In these circumstances, 
the Board believes that requiring 45 days' advance notice prior to the 
imposition of the penalty rate would not be appropriate, because it 
would in effect require compliance with new Sec.  226.9(g) prior to the 
February 22 effective date. Therefore, for such penalty rate increases 
that are triggered, but cannot be implemented, prior to February 22, 
2010, a creditor must either provide the consumer, prior to February 
22, 2010, with a written notice disclosing the impending rate increase 
and its effective date, or must comply with new Sec.  226.9(g). In the 
example described above, therefore, a creditor could mail to the 
consumer a notice on February 20, 2010 disclosing that the consumer has 
triggered a penalty rate increase that will be effective on March 1, 
2010. If the creditor mailed such a notice, it would not be required to 
comply with new Sec.  226.9(g). This transition guidance applies only 
to penalty rate increases triggered prior to February 22, 2010; if a 
consumer engages in actions that trigger penalty pricing on February 
22, 2010, the creditor must comply with new Sec.  226.9(g) and, 
accordingly, must provide the consumer with a notice at least 45 days 
in advance of the effective date of the increase.
    I. Renewal disclosures (Sec.  226.9(e)). Amended Sec.  226.9(e) is 
effective February 22, 2010. Accordingly, renewal notices provided on 
or after February 22, 2010 must be provided 30 days in advance of 
renewal and must comply with Sec.  226.9(e). If a creditor provides a 
renewal notice prior to February 22, 2010, even if the renewal occurs 
after the effective date, that notice need not comply with the final 
rule. For example, a card issuer may impose an annual fee and provide a 
renewal notice on February 21, 2010 consistent with the alternative 
timing rule currently in Sec.  226.9(e)(2). In addition, the 
requirement to provide a renewal notice based on an undisclosed change 
in a term required to be disclosed pursuant to Sec.  226.6(b)(1) and 
(b)(2) applies only if the change occurred on or after February 22, 
2010. The Board believes that this is appropriate because card issuers 
may not have systems in place to track whether undisclosed changes of 
the type subject to Sec.  226.9(e) have occurred prior to the effective 
date of this rule.
    J. Advertising rules (Sec.  226.16). Advertisements occurring on or 
after February 22, 2010, such as an advertisement broadcast on the 
radio, published in a newspaper, or mailed on February 22, 2010 or 
later, must comply with the new rules regarding the use of the term 
``fixed.'' Thus, an advertisement mailed on February 21, 2010 is not 
required to comply with the final rule regarding use of the term 
``fixed'' even if that advertisement is received by the consumer on 
February 28, 2010. Advertisements occurring on or after July 1, 2010, 
such as an advertisement broadcast on the radio, published in a 
newspaper, or mailed on July 1, 2010 or later, must comply with the 
remainder of the final rule regarding advertisements.
    K. Additional rules regarding disclosures. The final rule contains 
additional new rules, such as revisions to certain definitions, that 
differ from current interpretations and are prospective. For example, 
creditors may rely on current interpretations on the definition of 
``finance charge'' in Sec.  226.4 regarding the treatment of fees for 
cash advances obtained from automatic teller machines (ATMs) until July 
1, 2010. On or after that date, however, such fees must be treated as a 
finance charge. For example, for account-opening disclosures provided 
on or after July 1, 2010, a creditor will need to disclose fees to 
obtain cash advances at ATMs in accordance with the requirements Sec.  
226.6 of the final rule for disclosing finance charges. In addition, a 
HELOC creditor that chooses to continue to disclose an effective APR on 
the periodic statement will need to treat fees for obtaining cash 
advances at ATMs as finance charges for purposes of computing the 
effective APR on or after July 1, 2010. Similarly, foreign transaction 
fees must be treated as a finance charge on or after July 1, 2010.
    L. Definition of open-end credit. As discussed in the section-by-
section analysis to Sec.  226.2(a)(20), all creditors must provide 
closed-end or open-end disclosures, as appropriate in light of revised 
Sec.  226.2(a)(20) and the associated commentary, as of July 1, 2010.
    M. Implementation of disclosure rules in stages. As noted above, 
commenters indicated creditors will likely implement the disclosure 
requirements of the final rule for which compliance is mandatory by 
July 1, 2010 in stages. As a result, some disclosures may contain 
existing terminology required currently under Regulation Z while other 
disclosures may contain new terminology required in this final rule. 
For example, the final rule requires creditors to use the term 
``penalty rate'' when referring to a rate that can be increased due to 
a consumer's delinquency or default or as a penalty. In addition, 
creditors are required under the final rule to use a phrase other than 
the term ``grace period'' in describing whether a grace period is 
offered for purchases or other transactions. The final rule also 
requires in some circumstances that a creditor use a term other than 
``finance charge,'' such as

[[Page 7785]]

``interest charge.'' As discussed in the section-by-section analysis to 
the January 2009 Regulation Z Rule, during the implementation period, 
terminology need not be consistent across all disclosures. For example, 
if a creditor uses terminology required by the final rule in the 
disclosures given with applications or solicitations, that creditor may 
continue to use existing terminology in the disclosures it provides at 
account-opening or on periodic statements until July 1, 2010. 
Similarly, a creditor may use one of the new terms or phrases required 
by the final rule in a certain disclosure but is not required to use 
other terminology required by the final rule in that disclosure prior 
to the mandatory compliance date. For example, the creditor may use new 
terminology to describe the grace period, consistent with the final 
rule, in the disclosures it provides at account-opening, but may 
continue to use other terminology currently permitted under the rules 
to describe a penalty rate in the same account-opening disclosure. By 
the mandatory compliance date of this rule, however, all disclosures 
must have consistent terminology.
    N. Ability to pay rules (Sec.  226.51). Section 226.51 applies to 
the opening of all accounts on or after February 22, 2010 as well as to 
all credit line increases occurring on or after February 22, 2010 for 
existing accounts. Industry commenters suggested that the Board apply 
the provisions of Sec.  226.51 to applications received on or after 
February 22, 2010. The Board is concerned, however, that if the rule is 
applied only to applications received on or after February 22, 2010, it 
will be possible for a consumer whose application is received before 
February 22, 2010 but whose account is not opened until after February 
22, 2010 to be deprived of the protections afforded by the statute. 
TILA Section 150 states, in part, that a card issuer may not open a 
credit card account unless the card issuer has considered the 
consumer's ability to make the required payments. Similarly, for 
consumer under 21 years old, TILA Section 127(c)(8) prohibits the 
issuance of a credit card without the submission of a written 
application meeting the requirements set forth in the statute. 
Therefore, the Board believes the relevant date is the date the account 
is opened.
    Industry commenters also requested that the Board provide an 
exception to Sec.  226.51 for accounts opened in response to 
solicitations and applications mailed before February 22, 2010. For the 
same reasons associated with the Board's decision to apply Sec.  226.51 
to applications received on or after February 22, 2010, the Board 
declines to make such an exception. The Board, however, is providing a 
limited exception for firm offers of credit made before February 22, 
2010. The Fair Credit Reporting Act prohibits conditioning an offer on 
the consumer's income if income was not previously established as one 
of the card issuer's specific criteria prior to prescreening. 15. 
U.S.C. 1681a(l)(1)(A). Consequently, the Board does not believe Sec.  
226.51 should apply to accounts opened in response to firm offers of 
credit made before February 22, 2010 where income was not previously 
established as a specific criteria prior to prescreening.
    The Board also received requests that the provisions of Sec.  
226.51 not apply to credit line increases on accounts in existence 
before February 22, 2010. The Board believes that grandfathering such 
accounts would be contrary to the Credit Card Act's purpose, and 
therefore declines to make such an exception. The Board notes, however, 
that Sec.  226.51(b)(2) only applies to accounts that have been opened 
pursuant to Sec.  226.51(b)(1)(ii). As a result, if a consumer under 
the age of 21 has an existing account that was opened before February 
22, 2010 without a cosigner, guarantor, or joint accountholder, the 
issuer need not obtain the written consent required under Sec.  
226.51(b)(2) before increasing the credit limit. The issuer, however, 
must still evaluate the consumer's ability to make the required 
payments under the credit line increase, consistent with Sec.  
226.51(a). If the consumer under the age of 21 is not able to make the 
required payments under the credit line increase, the issuer may either 
refrain from granting the credit line increase or have the consumer 
obtain a cosigner, guarantor, or joint accountholder on the account, 
consistent with the procedures set forth in Sec.  226.51(b)(1)(ii), for 
the increased credit line. Moreover, if a consumer under the age of 21 
has an existing account that was opened before February 22, 2010 with a 
cosigner, guarantor, or joint accountholder, the issuer must comply 
with Sec.  226.51(b)(2) before increasing the credit limit, whether or 
not such cosigner, guarantor, or joint accountholder is at least 21 
years old.
    O. Limitations on fees (Sec.  226.52). The effective date for new 
TILA Section 127(n) is February 22, 2010. Accordingly, card issuers 
must comply with Sec.  226.52(a) beginning on February 22, 2010. 
However, Sec.  226.52(a) does not apply to accounts opened prior to 
February 22, 2010.
    Some commenters suggested that the limitations in new TILA Section 
127(n) should apply to accounts opened less than one year before the 
statutory effective date. Although the Board has generally taken the 
position that the provisions of the Credit Card Act apply to existing 
accounts as of the effective date, the Board has also generally 
attempted to avoid applying those provisions retroactively. Section 
127(n) is different than most provisions of the Credit Card Act because 
it applies only during a specified period of time (the first year after 
account opening). Thus, if the Board were to apply Sec.  226.52(a) to 
any account opened on or after February 23, 2009, card issuers could be 
in violation of the 25 percent limit as a result of fees that were 
permissible at the time they were imposed.\76\
---------------------------------------------------------------------------

    \76\ For example, if the Board interpreted new TILA Section 
127(n) as applying retroactively, a card issuer that opened an 
account with a $500 limit and $150 dollars in fees for the issuance 
or availability of credit on March 1, 2009 would be in violation of 
the Credit Card Act, despite the fact that the legislation was not 
enacted until May 22, 2009. Similarly, a card issuer that opened an 
account with a $500 limit and $125 dollars in fees for the issuance 
or availability of credit on June 1, 2009 would be prohibited from 
charging any fees to the account (other than those exempted by Sec.  
226.52(a)(2)) until June 1, 2010 as a result of imposing fees that 
were permitted at the time of imposition.
---------------------------------------------------------------------------

    The Board believes that limiting application of new TILA Section 
127(n) and Sec.  226.52(a) to accounts opened on or after February 22, 
2010 is consistent with Congress' intent. The Credit Card Act expressly 
provides that certain requirements in revised TILA Section 148(b) apply 
retroactively. Specifically, although the Credit Card Act was enacted 
on May 22, 2009, revised TILA Section 148(b)(2) states that the 
requirement that card issuers review rate increases no less frequently 
than once every six months applies to ``accounts as to which the annual 
percentage rate has been increased since January 1, 2009.'' However, 
Congress did not include any language in new TILA Section 127(n) 
suggesting that it should apply retroactively.
    P. Payment allocation (Sec.  226.53). The effective date for 
revised TILA Section 164(b) is February 22, 2010. Accordingly, card 
issuers must comply with Sec.  226.53 beginning on February 22, 2010. 
As of that date, Sec.  226.53 applies to existing as well as new 
accounts and balances. Thus, if a card issuer receives a payment that 
exceeds the required minimum periodic payment on or after February 22, 
2010, the card issuer must apply the excess amount consistent with 
Sec.  226.53.
    Q. Limitations on the imposition of finance charges (Sec.  226.54). 
The effective

[[Page 7786]]

date for new TILA Section 127(j) is February 22, 2010. Accordingly, 
card issuers must comply with Sec.  226.54 beginning on February 22, 
2010. The Board understands that card issuers generally calculate 
finance charges imposed with respect to transactions that occur during 
a billing cycle at the end of that cycle. Accordingly, if Sec.  226.54 
were applied to billing cycles that end on or after February 22, 2010, 
card issuers would be required to comply with its requirements with 
respect to transactions that occurred before February 22, 2010. 
However, for the reasons discussed above, the Board does not believe 
that Congress intended the provisions of the Credit Card Act to apply 
retroactively unless expressly provided. Accordingly, Sec.  226.54 
applies to the imposition of finance charges with respect to billing 
cycles that begin on or after February 22, 2010.
    R. Limitations on increasing annual percentage rates, fees, and 
charges (Sec.  226.55). The effective date for revised TILA Section 171 
and new TILA Section 172 is February 22, 2010. Accordingly, compliance 
with Sec.  226.55 is mandatory beginning on February 22, 2010.
    Prohibition on increases in rates and fees (Sec.  226.55(a)). 
Beginning on February 22, 2010, Sec.  226.55(a) prohibits a card issuer 
from increasing an annual percentage rate or a fee or charge required 
to be disclosed under Sec.  226.6(b)(2)(ii), (iii), or (xii) unless the 
increase is consistent with one of the exceptions in Sec.  226.55(b) or 
the implementation guidance discussed below. The prohibition in Sec.  
226.55(a) applies to both existing accounts and accounts opened after 
February 22, 2010.
    Temporary rates--generally (Sec.  226.55(b)(1)).\77\ If a rate that 
will increase upon the expiration of a specified period of time applies 
to a balance on February 22, 2010, Sec.  226.55(b)(1) permits the card 
issuer to apply an increased rate to that balance at expiration of the 
period so long as the card issuer previously disclosed to the consumer 
the length of the period and the rate that would apply upon expiration 
of the period. For example, if on February 22, 2010 a 5% rate applies 
to a $1,000 purchase balance and that rate is scheduled to increase to 
15% on June 1, 2010, the card issuer may apply the 15% rate to any 
remaining portion of the $1,000 balance on June 1, provided that the 
card issuer previously disclosed that the 15% rate would apply on June 
1.
---------------------------------------------------------------------------

    \77\ For simplicity, this implementation guidance refers to 
rates subject to Sec.  226.55(b)(1) as ``temporary rates.'' However, 
pursuant to comment 55(b)(1)-3, this guidance is intended to apply 
equally to deferred interest or similar programs.
---------------------------------------------------------------------------

    A card issuer has satisfied the disclosure requirement in Sec.  
226.55(b)(1)(i) if it has provided disclosures consistent with Sec.  
226.9(c)(2)(v)(B), as adopted by the Board in the July 2009 Regulation 
Z Interim Final Rule. Because Sec.  226.9(c)(2)(v)(B) became effective 
on August 20, 2009, the Board expects that card issuers will have 
satisfied the disclosure requirement in Sec.  226.55(b)(1)(i) with 
respect to any temporary rate offered on or after that date. However, 
the Board understands that, with respect to temporary rates offered 
prior to August 20, 2009, card issuers may be uncertain whether the 
disclosures provided at the time those rates were offered are 
sufficient to comply with Sec.  226.9(c)(2)(v)(B) and Sec.  
226.55(b)(1)(i). The Board addressed this issue in the implementation 
guidance for Sec.  226.9(c)(2)(v)(B) in the July 2009 Regulation Z 
Interim Final Rule. See 74 FR 36091-36092. That guidance applies 
equally with respect to Sec.  226.55(b)(1)(i).
    Specifically, the Board stated in the July 2009 Regulation Z 
Interim Final Rule that, if prior to August 20, 2009 a creditor 
provided disclosures that generally complied with Sec.  
226.9(c)(2)(v)(B) but described the type of increased rate that would 
apply upon expiration of the period instead of disclosing the actual 
rate,\78\ the creditor could utilize the exception in Sec.  
226.9(c)(2)(v)(B). See 74 FR 36092. In these circumstances, a card 
issuer has also satisfied the requirements of Sec.  226.55(b)(1)(i).
---------------------------------------------------------------------------

    \78\ For example: ``After six months, the standard annual 
percentage rate applicable to purchases will apply.''
---------------------------------------------------------------------------

    In addition, the Board acknowledged in the July 2009 Regulation Z 
Interim Final Rule that, prior to August 20, 2009, some creditors may 
not have provided written disclosures of the period during which the 
temporary rate would apply and the increased rate that would apply 
thereafter or may not be able to determine if they provided such 
disclosures without conducting extensive research.\79\ The Board stated 
that, in these circumstances, a creditor could utilize the exception in 
Sec.  226.9(c)(2)(v)(B) if it provided written disclosures that met the 
requirements in Sec.  226.9(c)(2)(v)(B) prior to August 20, 2009 or if 
it can demonstrate that it provided oral disclosures that otherwise 
meet the requirements in Sec.  226.9(c)(2)(v)(B). See 74 FR 36092. 
Similarly, in these circumstances, a card issuer that satisfies either 
of these criteria has also satisfied the requirements of Sec.  
226.55(b)(1)(i).
---------------------------------------------------------------------------

    \79\ For example, some creditors may have provided these 
disclosures orally.
---------------------------------------------------------------------------

    Temporary rates--six-month requirement (Sec.  226.55(b)(1)). The 
requirement in Sec.  226.55(b)(1) that temporary rates expire after a 
period of no less than six months applies to temporary rates offered on 
or after February 22, 2010. Thus, for example, if a card issuer offered 
a temporary rate on December 1, 2009 that applies to purchases until 
March 1, 2010, Sec.  226.55(b)(1) would not prohibit the card issuer 
from applying an increased rate to the purchase balance on March 1 so 
long as the card issuer previously disclosed the period during which 
the temporary rate would apply and the increased rate that would apply 
thereafter. Some commenters suggested that the six-month requirement in 
Sec.  226.55(b)(1) (which implements new TILA Section 172(b)) should 
apply to temporary rates offered less than six months before the 
statutory effective date (in other words, any temporary rate offered 
after September 22, 2009). However, as discussed above with respect to 
the restrictions on fees during the first year after account opening in 
new TILA Section 127(n) and new Sec.  226.52(a), the Board believes 
that limiting application of the six-month requirement in new TILA 
Section 172(b) to temporary rates offered on or after February 22, 2010 
is consistent with Congress' intent because--in contrast to revised 
TILA Section 148--Congress did not expressly provide that new TILA 
Section 172(b) applies retroactively.
    Variable rates (Sec.  226.55(b)(2)). If a rate that varies 
according to a publicly-available index applies to a balance on 
February 22, 2010, the card issuer may continue to adjust that rate due 
to changes in the relevant index consistent with Sec.  226.55(b)(2). 
However, if on February 22, 2010 the account terms governing the 
variable rate permit the card issuer to exercise control over the 
operation of the index in a manner that is inconsistent with Sec.  
226.55(b)(2) or its commentary, the card issuer is prohibited from 
enforcing those terms with respect to subsequent adjustments to the 
variable rate, even if the terms of the account have not yet been 
amended consistent with the 45-day notice requirement in Sec.  
226.9(c). The following examples illustrate the application of this 
guidance:
     Assume that the billing cycles for a credit card account 
begin on the first day of the month and end on the last day of the 
month. The terms of the account provide that, at the beginning of each 
billing cycle, the card issuer will

[[Page 7787]]

calculate the variable rate by adding a margin of 10 percentage points 
to the value of a publicly-available index on the last day of the prior 
billing cycle. However, contrary to Sec.  226.55(b)(2), the terms of 
the account also provide that the variable rate will not decrease below 
15%. See comment 55(b)(2)-2. On January 30, 2010, the card issuer 
provides a notice pursuant to Sec.  226.9(c)(2) informing the consumer 
that, effective March 16, the 15% fixed minimum rate will be removed 
from the account terms. On January 31, the value of the index is 3% 
but, consistent with the fixed minimum rate, the card issuer applies a 
15% rate beginning on February 1. The card issuer is not required to 
adjust the variable rate on February 22 because the terms of the 
account do not provide for a rate adjustment until the beginning of the 
March billing cycle. However, if the value of the index is 3% on 
February 28, the card issuer must apply a 13% rate beginning on March 
1, even though the amendment to the account terms is not effective 
until March 16.
     Assume that the billing cycles for a credit card account 
begin on the first day of the month and end on the last day of the 
month. The terms of the account provide that, at the beginning of each 
billing cycle, the card issuer will calculate the variable rate by 
adding a margin of 10 percentage points to the value of a publicly-
available index. However, contrary to Sec.  226.55(b)(2), the terms of 
the account also provide that the variable rate will be calculated 
based on the highest index value during the prior billing cycle. See 
comment 55(b)(2)-2. On January 30, 2010, the card issuer provides a 
notice pursuant to Sec.  226.9(c)(2) informing the consumer that, 
effective March 16, the terms of the account will be amended to provide 
that the variable rate will be calculated based on the value of the 
index on the last day of the prior billing cycle. On January 31, the 
value of the index is 4.9% but, because the highest value for the index 
during the January billing cycle was 5.1%, the card issuer applies a 
15.1% rate beginning on February 1. The card issuer is not required to 
adjust the variable rate on February 22 because the terms of the 
account do not provide for a rate adjustment until the beginning of the 
March billing cycle. However, if the value of the index is 4.9% on 
February 28, the card issuer complies with Sec.  226.55(b)(2) if it 
applies a 14.9% rate beginning on March 1, even though the amendment to 
the account terms is not effective until March 16.
    Increases in rates and certain fees and charges that apply to new 
transactions (Sec.  226.55(b)(3)). Section 226.55(b)(3) applies to any 
increase in a rate or in a fee or charge required to be disclosed under 
Sec.  226.6(b)(2)(ii), (iii), or (xii) that is effective on or after 
February 22, 2010. Some commenters argued that the Board should adopt 
guidance similar to that in the July 2009 Regulation Z Interim Final 
Rule, where the Board determined that the relevant date for purposes of 
compliance with revised Sec.  226.9(c)(2) and new Sec.  226.9(g) was 
generally the date on which the notice was provided. That guidance, 
however, was based in large part on concerns about requiring creditors 
to comply with revised TILA Section 127(i) with respect to notices 
provided as much as 45 days prior to the statutory effective date. See 
74 FR 36091.
    In contrast, under this guidance, card issuers are only required to 
comply with revised TILA Section 171 with respect to increases that 
take effect after the statutory effective date. Furthermore, if the 
relevant date for compliance with Sec.  226.55(b)(3) was the date on 
which a Sec.  226.9(c) or (g) notice was provided, card issuers would 
be permitted to apply increased rates, fees, or charges to existing 
balances until April 7, 2010 so long as the notice was sent before the 
Credit Card Act's February 22, 2010 effective date. The Board does not 
believe that this was Congress' intent.
    The following examples illustrate the application of this guidance:
     On January 7, 2010, a card issuer provides a notice of an 
increase in the purchase rate pursuant to Sec.  226.9(c). Consistent 
with Sec.  226.9(c), the increased rate is effective on February 21, 
2010. Therefore, Sec.  226.55(b)(3) does not apply. Accordingly, on 
February 21, 2010, the card issuer may apply the increased rate to both 
new purchases and the existing purchase balance (provided the consumer 
has not rejected application of the increased rate to the existing 
balance pursuant to Sec.  226.9(h)).
     On January 8, 2010, a card issuer provides a notice of an 
increase in the purchase rate pursuant to Sec.  226.9(c). Consistent 
with Sec.  226.9(c), the increased rate is effective on February 22, 
2010. Therefore, Sec.  226.55(b)(3) applies. Accordingly, on February 
22, 2010, the card issuer cannot apply the increased rate to purchases 
that occurred on or before January 22, 2010 (which is the fourteenth 
day after provision of the notice) but may apply the increased rate to 
purchases that occurred after that date.
    Prohibition on increasing rates and certain fees and charges during 
first year after account opening (Sec.  226.55(b)(3)(iii)). The 
prohibition in Sec.  226.55(b)(3)(iii) on increasing rates and certain 
fees and charges during the first year after account opening applies to 
accounts opened on or after February 22, 2010. Some commenters 
suggested that this provision (which implements new TILA Section 
172(a)) should apply to accounts opened less than one year before the 
statutory effective date. However, as discussed above with respect to 
new TILA Section 172(b), the Board believes that limiting application 
of new TILA Section 172(a) to accounts opened on or after February 22, 
2010 is consistent with Congress' intent because Congress did not 
expressly provide that new TILA Section 172(a) applies retroactively.
    Delinquencies of more than 60 days (Sec.  226.55(b)(4)). Section 
226.55(b)(4) applies once an account becomes more than 60 days 
delinquent even if the delinquency began prior to February 22, 2010. 
For example, if the required minimum periodic payment due on January 1, 
2010 has not been received by March 3, 2010, Sec.  226.55(b)(4) permits 
the card issuer to apply an increased rate, fee, or charge to existing 
balances on the account after providing notice pursuant to Sec.  
226.9(c) or (g).
    Workout and temporary hardship arrangements (Sec.  226.55(b)(5)). 
Section 226.55(b)(5) applies to workout and temporary hardship 
arrangements that apply to an account on February 22, 2010. A card 
issuer that has complied with Sec.  226.9(c)(2)(v)(D) or the transition 
guidance for that provision has satisfied the disclosure requirement in 
Sec.  226.55(b)(5)(i).
    If a workout or temporary hardship arrangement applies to an 
account on February 22, 2010 and the consumer completes or fails to 
comply with the terms of the arrangement on or after that date, Sec.  
226.55(b)(5)(ii) only permits the card issuer to apply an increased 
rate, fee, or charge that does not exceed the rate, fee, or charge that 
applied prior to commencement of the workout arrangement. For example, 
assume that, on January 1, 2010, a card issuer decreases the rate that 
applies to a $5,000 balance from 30% to 5% pursuant to a workout or 
temporary hardship arrangement between the issuer and the consumer. 
Under this arrangement, the consumer must pay by the fifteenth of each 
month in order to retain the 5% rate. The card issuer does not receive 
the payment due on March 15 until March 20. In these circumstances, 
Sec.  226.55(b)(5)(ii) does not permit the card issuer to apply a rate 
to any remaining portion of the $5,000 balance that exceeds the 30% 
penalty rate.
    Servicemembers Civil Relief Act (Sec.  226.55(b)(6)). If a card 
issuer reduced an annual percentage rate pursuant to

[[Page 7788]]

50 U.S.C. app. 527 prior to February 22, 2010 and the consumer leaves 
military service on or after that date, Sec.  226.55(b)(6) only permits 
the card issuer to apply an increased rate that does not exceed the 
rate that applied prior to the reduction.
    Closed or acquired accounts and transferred balances (Sec.  
226.55(d)). Section 226.55(d) applies to any credit card account under 
an open-end (not home-secured) consumer credit plan that is closed on 
or after February 22, 2010 or acquired by another creditor on or after 
February 22, 2010. Section 226.55(d) also applies to any balance that 
is transferred from a credit card account under an open-end (not home-
secured) consumer credit plan issued by a creditor to another credit 
account issued by the same creditor or its affiliate or subsidiary on 
or after February 22, 2010. Thus, beginning on February 22, 2010, card 
issuers are prohibited from increasing rates, fees, or charges in these 
circumstances to the extent inconsistent with Sec.  226.55, its 
commentary, and this guidance.
    S. Over-the-limit transactions (Sec.  226.56). For credit card 
accounts opened prior to February 22, 2010, a card issuer may elect to 
provide an opt-in notice to all of its account-holders on or with the 
first periodic statement sent after the effective date of the final 
rule. Card issuers that choose to do so are prohibited from assessing 
any over-the-limit fees or charges after the effective date of the rule 
and prior to providing the opt-in notice, and subsequently could not 
assess any such fees or charges unless and until the consumer opts in 
and the card issuer sends written confirmation of the opt-in. The final 
rule does not, however, require that a card issuer waive fees that are 
incurred in connection with over-the-limit transactions that occur 
prior to February 22, 2010 even if the consumer has not opted in by the 
effective date. Thus, for example, a card issuer may assess fees if the 
consumer engages in an over-the-limit transaction prior to February 22, 
2010, but the transaction posts or is charged to the account after that 
date, even if the consumer has not opted in by the effective date.
    Early compliance. For existing accounts, an opt-in requirement 
could potentially result in a disruption in a consumer's ability to 
complete transactions if card issuers could not send notices, and 
obtain consumer opt-ins, until February 22, 2010. Accordingly, the 
Board solicited comment regarding whether a creditor should be 
permitted to obtain consumer consent for the payment of over-the-limit 
transactions prior to that date. Allowing creditors to obtain consumer 
consent prior to February 22, 2010 could also allow creditors to phase 
in their delivery of opt-in notices and processing of consumer 
consents.
    Industry commenters agreed that the rule should permit creditors to 
obtain consents prior to February 22, 2010 to enable both creditors and 
consumers to avoid a flood of opt-in notices and transaction denials on 
or after that date. One industry commenter urged the Board to permit 
creditors to obtain valid consumer consents so long as they follow the 
requirements set forth in the proposed rule and provide the proposed 
model form. In contrast, consumer groups and one state government 
agency argued that creditors should not be permitted to obtain consumer 
consents prior to the effective date of the rule because they did not 
believe that the rule as proposed afforded consumers adequate 
protections.
    Under the final rule, card issuers may provide the notice and 
obtain the consumer's affirmative consent prior to the effective date, 
provided that the card issuer complies with all the requirements in 
Sec.  226.56, including the requirements to segregate the notice and 
provide written confirmation of the consumer's choice. The opt-in 
notice must also include the specified content in Sec.  226.56(e)(1). 
Use of Model Form G-25(A), or a substantially similar notice, 
constitutes compliance with the notice requirements in Sec.  
226.56(e)(1). See Sec.  226.56(e)(3). If an existing account-holder 
responds to an opt-in notice provided before February 22, 2010 and 
expresses a desire not to opt in, the Board expects that the card 
issuer would honor the consumer's choice at that time, unless the card 
issuer has clearly and conspicuously explained in the opt-in notice 
that the opt-in protections do not apply until that date.
    In addition, in order to minimize potential disruptions to the 
payment systems that may otherwise result if card issuers could not 
send notices or obtain consumer consents until near the effective date 
of the rule, the Board believes that it is appropriate to treat opt-in 
notices that follow the model form as proposed as a substantially 
similar notice to the final model form for purposes of Sec.  
226.56(e)(3). That is, card issuers that provide opt-in notices based 
on the proposed model form would be deemed to be in compliance with the 
over-the-limit opt-in provisions, provided that the other requirements 
of the rule, including the written confirmation requirement, are 
satisfied. The Board anticipates that such relief would be temporary, 
however, and expects that card issuers will transition to the final 
Model Form G-25(A) as soon as reasonably practicable after February 22, 
2010 in order to retain the safe harbor.
    Prohibited practices. Sections 226.56(j)(2)-(4) prohibit certain 
credit card acts or practices regarding the imposition of over-the-
limit fees. These prohibitions are based on the Board's authority under 
TILA Section 127(k)(5)(B) to prescribe regulations that prevent unfair 
or deceptive acts or practices in connection with the manipulation of 
credit limits designed to increase over-the-limit fees or other penalty 
fees. However, compliance with the provisions of the final rule is not 
required before February 22, 2010. Thus, the final rule and the Board's 
accompanying analysis should have no bearing on whether or not acts or 
practices restricted or prohibited under this rule are unfair or 
deceptive before the effective date of this rule.
    Unfair acts or practices can be addressed through case-by-case 
enforcement actions against specific institutions, through regulations 
applying to all institutions, or both. An enforcement action concerns a 
specific institution's conduct and is based on all of the facts and 
circumstances surrounding that conduct. By contrast, a regulation is 
prospective and applies to the market as a whole, drawing bright lines 
that distinguish broad categories of conduct.
    Moreover, as part of the Board's unfairness analysis, the Board has 
considered that broad regulations, such as the prohibitions in 
connection with over-the-limit practices in the final rule, can require 
large numbers of institutions to make major adjustments to their 
practices, and that there could be more harm to consumers than benefit 
if the regulations were effective earlier than the effective date. If 
institutions were not provided a reasonable time to make changes to 
their operations and systems to comply with the final rule, they would 
either incur excessively large expenses, which would be passed on to 
consumers, or cease engaging in the regulated activity altogether, to 
the detriment of consumers. For example, card issuers may be required 
to make significant systems changes in order to ensure that fees and 
interest charges assessed during a billing cycle did not cause an over-
the-limit fee or charge to be imposed on a consumer's account. Thus, 
because the Board finds an act or practice unfair only when the harm 
outweighs the benefits to consumers or to competition, the 
implementation period preceding the effective date set forth in the 
final rule is integral to the

[[Page 7789]]

Board's decision to restrict or prohibit certain acts or practices by 
regulation.
    For these reasons, acts or practices occurring before the effective 
date of the final rule will be judged on the totality of the 
circumstances under applicable laws or regulations. Similarly, acts or 
practices occurring after the rule's effective date that are not 
governed by these rules will be judged on the totality of the 
circumstances under applicable laws or regulations. Consequently, only 
acts or practices covered by the rule that occur on or after the 
effective date would be prohibited by the regulation.
    T. Reporting and marketing rules for college student open-end 
credit (Sec.  226.57).
    Prohibited inducements (Sec.  226.57(c)). All tangible items 
offered to induce a college student to apply for or participate in an 
open end consumer credit plan, on or near the campus of an institution 
of higher education or at an event sponsored by or related to an 
institution of higher education, are prohibited on or after February 
22, 2010 pursuant to Sec.  226.57(c). If a college student has 
submitted an application for, or agreed to participate in, an open-end 
consumer credit plan prior to February 22, 2010, in reliance on the 
offer of a tangible item, such item may still be provided to the 
student on or after February 22, 2010.
    Submission of reports to Board (Sec.  226.57(d)). Section 
226.57(d)(3) provides that card issuers must submit the first report 
regarding college credit card agreements for the 2009 calendar year to 
the Board by February 22, 2010.
    U. Internet posting of credit card agreements (Sec.  226.58). 
Section 226.58(c)(2) provides that card issuers must submit credit card 
agreements offered to the public as of December 31, 2009 to the Board 
no later than February 22, 2010.
    V. Open-End Credit Secured by Real Property.
    In the May 2009 Regulation Z Proposed Clarifications, the Board 
solicited comment on whether additional transition guidance is needed 
for creditors that offer open-end credit secured by real property, 
where it is unclear whether that property is, or remains, the 
consumer's dwelling. The issue arose because the January 2009 
Regulation Z Rule preserved certain existing rules, for example the 
rules under Sec. Sec.  226.6, 226.7, and 226.9, for home-equity plans 
subject to Sec.  226.5b pending the completion of the Board's separate 
review of the rules applicable to home-secured credit. The Board noted 
that creditors offering open-end credit secured by real property may be 
uncertain how they should comply with the January 2009 Regulation Z 
Rule. Financial institution commenters suggested that creditors be 
permitted to treat all open-end credit secured by residential property 
as covered by Sec.  226.5b, rather than the rules for open-end (not 
home-secured) credit, regardless of whether the property is the 
consumer's dwelling. Consumer group commenters did not address this 
issue.
    In the August 2009 Regulation Z HELOC Proposal, the Board proposed 
to adopt a new comment 5-1 that would provide guidance in situations 
where a creditor is uncertain whether an open-end credit plan is 
covered by the Sec.  226.5b rules for HELOCs or the rules for open-end 
(not home-secured) credit. The comment period on this proposal closed 
on December 24, 2009, and the Board is still considering the comments 
it received.
    Accordingly, the Board believes that until the August 2009 
Regulation Z HELOC Proposal is finalized, it is appropriate to permit 
creditors that offer open-end credit secured by real property that are 
uncertain whether the plan is covered by Sec.  226.5b to comply with 
this final rule by complying with, at their option, either the new 
rules that apply to open-end (not home-secured) credit, or the existing 
rules applicable to home-equity plans. Therefore, if a creditor that 
offers open-end credit secured by real property is uncertain whether 
that property is, or remains, the consumer's dwelling, that creditor 
may comply with either the new rules regarding account-opening 
disclosures in Sec.  226.6(b), periodic statement disclosures in Sec.  
226.7(b), and change-in-terms notices in Sec.  226.9(c)(2), or the 
existing rules as preserved in Sec. Sec.  226.6(a), 226.7(a), and 
226.9(c)(1). However, such a creditor must treat the product 
consistently for the purpose of the disclosures in Sec. Sec.  226.6, 
226.7, and 226.9(c); for example, a creditor may not provide account-
opening disclosures consistent with the new requirements of Sec.  
226.6(b) and periodic statement disclosures consistent with the 
existing requirements for HELOCs under Sec.  226.7(a). In addition, as 
of the mandatory compliance date for this final rule, creditors must 
comply with any requirements of this final rule that apply to all open-
end credit regardless of whether it is home-secured, such as the 
provision in Sec.  226.10(d) regarding weekend or holiday due dates. 
This transition guidance applies only to provisions of Regulation Z 
that are amended by this rulemaking; accordingly, this transition 
guidance does not address creditors' responsibilities under other 
sections of Regulation Z, such as Sec. Sec.  226.5b and 226.15.

VII. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires an agency to perform an initial and final regulatory 
flexibility analysis on the impact a rule is expected to have on small 
entities.
    Prior to the October 2009 Regulation Z Proposal, the Board 
conducted initial and final regulatory flexibility analyses and 
ultimately concluded that the rules in the Board's January 2009 
Regulation Z Rule and July 2009 Regulation Z Interim Final Rule would 
have a significant economic impact on a substantial number of small 
entities. See 72 FR 33033-33034 (June 14, 2007); 74 FR 5390-5392; 74 FR 
36092-36093. As discussed in I. Background and Implementation of the 
Credit Card Act and V. Section-by-Section Analysis, several of the 
provisions of the Credit Card Act are similar to provisions in the 
Board's January 2009 Regulation Z Rule and July 2009 Regulation Z 
Interim Final Rule. To the extent that the provisions in the October 
2009 Regulation Z Proposal were substantially similar to provisions in 
those rules, the Board continued to rely on the regulatory flexibility 
analyses conducted for the Board's January 2009 Regulation Z Rule and 
July 2009 Regulation Z Interim Final Rule. The Credit Card Act, 
however, also addressed practices or mandated disclosures that were not 
addressed in the Board's January 2009 Regulation Z Rules and July 2009 
Regulation Z Interim Final Rule. The Board prepared an initial 
regulatory flexibility analysis in connection with the October 2009 
Regulation Z Proposal, which reached the preliminary conclusion that 
the proposed rule would impose additional requirements and burden on 
small entities. See 74 FR 54198-54200 (October 21, 2009). The Board 
received no significant comments addressing the initial regulatory 
flexibility analysis. Therefore, based on its prior analyses and for 
the reasons stated below, the Board has concluded that the final rule 
will have a significant economic impact on a substantial number of 
small entities. Accordingly, the Board has prepared the following final 
regulatory flexibility analysis pursuant to section 604 of the RFA.
    1. Statement of the need for, and objectives of, the rule. The 
final rule implements a number of new substantive and disclosure 
provisions required by the Credit Card Act, which establishes fair and 
transparent practices relating to the extension of

[[Page 7790]]

open-end consumer credit plans. The supplementary information above 
describes in detail the reasons, objectives, and legal basis for each 
component of the final rule.
    2. Summary of the significant issues raised by public comment in 
response to the Board's initial analysis, the Board's assessment of 
such issues, and a statement of any changes made as a result of such 
comments. As discussed above, the Board's initial regulatory 
flexibility analysis reached the preliminary conclusion that the 
proposed rule would have a significant economic impact on a substantial 
number of small entities. See 74 FR 54199 (October 21, 2009). The Board 
received no comments specifically addressing this analysis.
    3. Small entities affected by the proposed rule. All creditors that 
offer open-end credit plans are subject to the final rule, although 
several provisions apply only to credit card accounts under an open-end 
(not home-secured) plan. In addition, institutions of higher education 
are subject to Sec.  226.57(b), regarding public disclosure of 
agreements for purposes of marketing a credit card. The Board is 
relying on its analysis in the January 2009 Regulation Z Rule, in which 
the Board provided data on the number of entities which may be affected 
because they offer open-end credit plans. The Board acknowledges, 
however, that the total number of small entities likely to be affected 
by the final rule is unknown, because the open-end credit provisions of 
the Credit Card Act and Regulation Z have broad applicability to 
individuals and businesses that extend even small amounts of consumer 
credit. In addition, the total number of institutions of higher 
education likely to be affected by the final rule is unknown because 
the number of institutions of higher education that are small entities 
and have a credit card marketing contract or agreement with a card 
issuer or creditor cannot be determined. (For a detailed description of 
the Board's analysis of small entities subject to the January 2009 
Regulation Z Rule, see 74 FR 5391.)
    4. Recordkeeping, reporting, and compliance requirements. The final 
rule does not impose any new recordkeeping requirements. The final rule 
does, however, impose new reporting and compliance requirements. The 
reporting and compliance requirements of this rule are described above 
in V. Section-by-Section Analysis. The Board notes that the precise 
costs to small entities to conform their open-end credit disclosures to 
the final rule and the costs of updating their systems to comply with 
the rule are difficult to predict. These costs will depend on a number 
of factors that are unknown to the Board, including, among other 
things, the specifications of the current systems used by such entities 
to prepare and provide disclosures and administer open-end accounts, 
the complexity of the terms of the open-end credit products that they 
offer, and the range of such product offerings.
Provisions Regarding Consumer Credit Card Accounts
    This subsection summarizes several of the amendments to Regulation 
Z and their likely impact on small entities that are card issuers. More 
information regarding these and other changes can be found in V. 
Section-by-Section Analysis.
    Section 226.7(b)(11) generally requires the payment due date for 
credit card accounts under an open-end (not home-secured) consumer 
credit plan be the same day of the month for each billing cycle. Small 
entities that are card issuers may be required to update their systems 
to comply with this provision.
    Section 226.7(b)(12) generally requires card issuers that are small 
entities to include on each periodic statement certain disclosures 
regarding repayment, such as a minimum payment warning statement, a 
minimum payment repayment estimate, and the monthly payment based on 
repayment in 36 months. Compliance with this provision will require 
card issuers that are small entities to calculate certain minimum 
payment estimates for each account. The Board, however, will reduce the 
burden on small entities by providing model forms which can be used to 
ease compliance with the Board's final rule.
    Section 226.9(g)(3) requires card issuers that are small entities 
to provide notice regarding an increase in rate based on a consumer's 
failure to make a minimum periodic payment within 60 days from the due 
date and disclose that the increase will cease to apply if the small 
entity is a card issuer and receives six consecutive required minimum 
period payments on or before the payment due date. The Board 
anticipates that small entities subject to Sec.  226.9(g), with little 
additional burden, will incorporate the final rule's disclosure 
requirement with the disclosure already required under Sec.  226.9(g).
    Section 226.10(e) limits fees related to certain methods of payment 
for credit card accounts under an open-end (not home-secured) consumer 
credit plan, with the exception of payments involving expedited service 
by a customer service representative. Section 226.10(e) will reduce 
revenue that some small entities derive from fees associated with 
certain payment methods.
    Section 226.52 generally limits the imposition of fees by card 
issuers during the first year after account opening. This provision 
will reduce revenue that some entities derive from fees.
    Section 226.54 prohibits a card issuer from imposing certain 
finance charges as a result of the loss of a grace period on a credit 
card account, except in certain circumstances. This provision will 
reduce revenue that some small entities derive from finance charges.
    Section 226.55(a) generally prohibits small entities that are card 
issuers from increasing an annual percentage rate or any fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) on a credit card account unless specifically permitted by 
one of the exceptions in Sec.  226.55(b). This provision will reduce 
interest revenue and other revenue that certain small entities derive 
from fees and charges.
    Section 226.55(b)(3) requires small entities that are card issuers 
to disclose, prior to the commencement of a specified period of time, 
an increased annual percentage rate that would apply after the period 
as a condition for an exception to Sec.  226.55(a). However, Sec.  
226.9(c)(2)(v)(B) as adopted in the July 2009 Regulation Z Interim 
Final Rule already requires card issuers to disclose this information 
so the Board does not anticipate any significant additional burden on 
small entities.
    Section 226.55(b)(5) requires small entities that are card issuers 
to disclose, prior to commencement of the arrangement, the terms of a 
workout and temporary hardship arrangement as a condition for an 
exception to Sec.  226.55(a). However, Sec.  226.9(c)(2)(v)(D) and 
(g)(4)(i) as adopted in the July 2009 Regulation Z Interim Final Rule 
already require card issuers to disclose this information so the Board 
does not anticipate any significant additional burden on small 
entities.
    Section 226.56 prohibits small entities that are card issuers from 
imposing fees or charges for an over-the-limit transaction unless the 
card issuer provides the consumer with notice and obtains the 
consumer's affirmative consent, or opt-in. Compliance with this 
provision will impose additional costs on small entities in order to 
provide notice and obtain consent, if the small entity elects to impose 
fees or charges for over-the-limit transactions. Section 226.56 may 
reduce revenue that certain small entities derive from fees and

[[Page 7791]]

charges related to over-the-limit transaction. In addition, Sec.  
226.56 will require some small entities to alter their systems in order 
to comply with the provision. The cost of such change will depend on 
the size of the institution and the composition of its portfolio.
    Section 226.58 requires small entities that are card issuers to 
post agreements for open-end consumer credit card plans on the card 
issuer's Web site and to submit those agreements to the Board for 
posting in a publicly-available on-line repository established and 
maintained by the Board. The cost of compliance will depend on the size 
of the institution and the composition of its portfolio. Section 
226.58(c)(5), however, provides a de minimis exception, which will 
reduce the economic impact and compliance burden on small entities. 
Under Sec.  226.58(c)(5), a card issuer is not required to submit an 
agreement to the Board if the card issuer has fewer than 10,000 open 
accounts under open-end consumer credit card plans subject to Sec.  
226.5a as of the last business day of the calendar quarter.
    Accordingly, the Board believes that, in the aggregate, the 
provisions of its final rule would have a significant economic impact 
on a substantial number of small entities.
    5. Other federal rules. Other than the January 2009 FTC Act Rule 
and similar rules adopted by other Agencies, the Board has not 
identified any federal rules that duplicate, overlap, or conflict with 
the Board's revisions to TILA. As discussed in the supplementary 
information to the final rule, the Board is withdrawing its January 
2009 FTC Act Rule, which is published elsewhere in today's Federal 
Register.
    6. Significant alternatives to the final revisions. The provisions 
of the final rule implement the statutory requirements of the Credit 
Card Act that go into effect on February 22, 2010. The Board sought to 
avoid imposing additional burden, while effectuating the statute in a 
manner that is beneficial to consumers. The Board did not receive any 
comment on any significant alternatives, consistent with the Credit 
Card Act, which would minimize impact of the final rule on small 
entities.

VIII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the 
final rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). The collection of information that is 
required by this final rule is found in 12 CFR part 226. The Federal 
Reserve may not conduct or sponsor, and an organization is not required 
to respond to, this information collection unless the information 
collection displays a currently valid OMB control number. The OMB 
control number is 7100-0199.\80\
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    \80\ The information collection will be re-titled--Reporting, 
Recordkeeping and Disclosure Requirements associated with Regulation 
Z (Truth in Lending) and Regulation AA (Unfair or Deceptive Acts or 
Practices).
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    This information collection is required to provide benefits for 
consumers and is mandatory (15 U.S.C. 1601 et seq.). The respondents/
recordkeepers are creditors and other entities subject to Regulation Z, 
including for-profit financial institutions, small businesses, and 
institutions of higher education. TILA and Regulation Z are intended to 
ensure effective disclosure of the costs and terms of credit to 
consumers. For open-end credit, creditors are required to, among other 
things, disclose information about the initial costs and terms and to 
provide periodic statements of account activity, notices of changes in 
terms, and statements of rights concerning billing error procedures. 
Regulation Z requires specific types of disclosures for credit and 
charge card accounts and home-equity plans. For closed-end loans, such 
as mortgage and installment loans, cost disclosures are required to be 
provided prior to consummation. Special disclosures are required in 
connection with certain products, such as reverse mortgages, certain 
variable-rate loans, and certain mortgages with rates and fees above 
specified thresholds. TILA and Regulation Z also contain rules 
concerning credit advertising. Creditors are required to retain 
evidence of compliance for twenty-four months (Sec.  226.25), but 
Regulation Z does not specify the types of records that must be 
retained.
    Under the PRA, the Federal Reserve accounts for the paperwork 
burden associated with Regulation Z for the state member banks and 
other creditors supervised by the Federal Reserve that engage in 
lending covered by Regulation Z and, therefore, are respondents under 
the PRA. Appendix I of Regulation Z defines the Federal Reserve-
regulated institutions as: state member banks, branches and agencies of 
foreign banks (other than federal branches, federal agencies, and 
insured state branches of foreign banks), commercial lending companies 
owned or controlled by foreign banks, and organizations operating under 
section 25 or 25A of the Federal Reserve Act. Other federal agencies 
account for the paperwork burden on other entities subject to 
Regulation Z. To ease the burden and cost of complying with Regulation 
Z (particularly for small entities), the Federal Reserve provides model 
forms, which are appended to the regulation.
    As discussed in I. Background and Implementation of the Credit Card 
Act, a notice of proposed rulemaking (NPR) was published in the Federal 
Register on October 21, 2009 (74 FR 54124). The comment period for this 
notice expired on November 20, 2009. No comments specifically 
addressing the paperwork burden estimates were received; therefore, the 
estimates will remain unchanged as published in the NPR.
    Based on the adjustments to the Board's prior estimates in the 
October 2009 Regulation Z Proposal and the Board's PRA analysis in the 
January 2009 Regulation Z Rule, the final rule will impose a one-time 
increase in the total annual burden under Regulation Z for all 
respondents regulated by the Federal Reserve by 575,452 hours. The 
total one-time burden increase represents averages for all respondents 
regulated by the Federal Reserve. The Federal Reserve expects that the 
amount of time required to implement each of the changes adopted by the 
final rule for a given financial institution or entity may vary based 
on the size and complexity of the respondent. In addition, the Federal 
Reserve estimates that, on a continuing basis, the final rule will 
increase the total annual burden on a continuing basis by 70,400 hours. 
The total annual burden will therefore increase by 645,852 hours from 
1,008,962 to 1,654,814 hours.\81\
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    \81\ The burden estimate for this final rule does not include 
the burden addressing changes to implement provisions of Closed-End 
Mortgages (Docket No. R-1366) or the Home-Equity Lines of Credit 
(Docket No. R-1367), as announced in separate proposed rulemakings. 
See 74 FR 43232 and 74 FR 43428. In addition, the burden estimate 
for this final rule does not include the burden addressing changes 
to implement the notification of sale or transfer of mortgage loans 
(Docket No. R-1378), as announced in an interim final rulemaking. 
See 74 FR 60143.
---------------------------------------------------------------------------

    The Board has a continuing interest in the public's opinion of the 
collection of information. Comments on the collection of information 
should be sent to Michelle Shore, Federal Reserve Board Clearance 
Officer, Division of Research and Statistics, Mail Stop 95-A, Board of 
Governors of the Federal Reserve System, Washington, DC 20551, with 
copies of such comments sent to the Office of Management and Budget, 
Paperwork Reduction Project (7100-0199), Washington, DC 20503.

[[Page 7792]]

List of Subjects in 12 CFR Part 226

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

Text of Final Revisions

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

PART 226--TRUTH IN LENDING (REGULATION Z)

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

    Authority:  12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and 
1639(l); Pub. L. No. 111-24 Sec.  2, 123 Stat. 1734.

Subpart A--General

0
2. Section 226.1 is revised to read as follows:


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

    (a) Authority. This regulation, known as Regulation Z, is issued by 
the Board of Governors of the Federal Reserve System to implement the 
federal Truth in Lending Act, which is contained in title I of the 
Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et seq.). 
This regulation also implements title XII, section 1204 of the 
Competitive Equality Banking Act of 1987 (Pub. L. 100-86, 101 Stat. 
552). Information-collection requirements contained in this regulation 
have been approved by the Office of Management and Budget under the 
provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB No. 
7100-0199.
    (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 generally govern charges for consumer 
credit, except that several provisions in Subpart G set forth special 
rules addressing certain charges applicable to credit card accounts 
under an open-end (not home-secured) consumer credit plan. The 
regulation requires a maximum interest rate to be stated in variable-
rate contracts secured by the consumer's dwelling. It also imposes 
limitations on home-equity plans that are subject to the requirements 
of Sec.  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).
    (c) Coverage. (1) In general, this regulation applies to each 
individual or business that offers or extends credit when four 
conditions are met:
    (i) The credit is offered or extended to consumers;
    (ii) The offering or extension of credit is done regularly; \1\
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    \1\ [Reserved].
---------------------------------------------------------------------------

    (iii) The credit is subject to a finance charge or is payable by a 
written agreement in more than four installments; and
    (iv) The credit is primarily for personal, family, or household 
purposes.
    (2) If a credit card is involved, however, certain provisions apply 
even if the credit is not subject to a finance charge, or is not 
payable by a written agreement in more than four installments, or if 
the credit card is to be used for business purposes.
    (3) In addition, certain requirements of Sec.  226.5b apply to 
persons who are not creditors but who provide applications for home-
equity plans to consumers.
    (4) Furthermore, certain requirements of Sec.  226.57 apply to 
institutions of higher education.
    (d) Organization. The regulation is divided into subparts and 
appendices as follows:
    (1) Subpart A contains general information. It sets forth:
    (i) The authority, purpose, coverage, and organization of the 
regulation;
    (ii) The definitions of basic terms;
    (iii) The transactions that are exempt from coverage; and
    (iv) The method of determining the finance charge.
    (2) Subpart B contains the rules for open-end credit. It requires 
that account-opening disclosures and periodic statements be provided, 
as well as additional disclosures for credit and charge card 
applications and solicitations and for home-equity plans subject to the 
requirements of Sec.  226.5a and Sec.  226.5b, respectively. It also 
describes special rules that apply to credit card transactions, 
treatment of payments and credit balances, procedures for resolving 
credit billing errors, annual percentage rate calculations, rescission 
requirements, and advertising.
    (3) Subpart C relates to closed-end credit. It contains rules on 
disclosures, treatment of credit balances, annual percentages rate 
calculations, rescission requirements, and advertising.
    (4) Subpart D contains rules on oral disclosures, disclosures in 
languages other than English, record retention, effect on state laws, 
state exemptions, and rate limitations.
    (5) Subpart E contains special rules for certain mortgage 
transactions. Section 226.32 requires certain disclosures and provides 
limitations for loans that have rates and fees above specified amounts. 
Section 226.33 requires disclosures, including the total annual loan 
cost rate, for reverse mortgage transactions. Section 226.34 prohibits 
specific acts and practices in connection with mortgage transactions 
that are subject to Sec.  226.32. Section 226.35 prohibits specific 
acts and practices in connection with higher-priced mortgage loans, as 
defined in Sec.  226.35(a). Section 226.36 prohibits specific acts and 
practices in connection with credit secured by a consumer's principal 
dwelling.
    (6) Subpart F relates to private education loans. It contains rules 
on disclosures, limitations on changes in terms after approval, the 
right to cancel the loan, and limitations on co-branding in the 
marketing of private education loans.
    (7) Subpart G relates to credit card accounts under an open-end 
(not home-secured) consumer credit plan (except for Sec.  226.57(c), 
which applies to all open-end credit plans). Section 226.51 contains 
rules on evaluation of a consumer's ability to make the required 
payments under the terms of an account. Section 226.52 limits the fees 
that a consumer can be required to pay with respect to an open-end (not 
home-secured) consumer credit plan during the first year after account 
opening. Section 226.53 contains rules on allocation of payments in 
excess of the minimum payment. Section 226.54 sets forth certain 
limitations on the imposition of finance charges as the result of a 
loss of a grace period. Section 226.55 contains limitations on 
increases in annual percentage rates, fees, and charges for credit card 
accounts. Section 226.56 prohibits the assessment of fees or charges 
for over-the-limit transactions unless the consumer affirmatively 
consents to the creditor's payment of over-the-limit transactions. 
Section 226.57 sets forth rules for reporting and marketing of college 
student open-end credit. Section 226.58 sets forth requirements for the 
Internet posting of credit card accounts under an open-end (not home-
secured) consumer credit plan.
    (8) Several appendices contain information such as the procedures 
for

[[Page 7793]]

determinations about state laws, state exemptions and issuance of staff 
interpretations, special rules for certain kinds of credit plans, a 
list of enforcement agencies, and the rules for computing annual 
percentage rates in closed-end credit transactions and total-annual-
loan-cost rates for reverse mortgage transactions.
    (e) Enforcement and liability. Section 108 of the act contains the 
administrative enforcement provisions. Sections 112, 113, 130, 131, and 
134 contain provisions relating to liability for failure to comply with 
the requirements of the act and the regulation. Section 1204 (c) of 
title XII of the Competitive Equality Banking Act of 1987, Public Law 
100-86, 101 Stat. 552, incorporates by reference administrative 
enforcement and civil liability provisions of sections 108 and 130 of 
the act.

0
3. Section 226.2 is revised to read as follows:


Sec.  226.2  Definitions and rules of construction.

    (a) Definitions. For purposes of this regulation, the following 
definitions apply:
    (1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.).
    (2) Advertisement means a commercial message in any medium that 
promotes, directly or indirectly, a credit transaction.
    (3) [Reserved] \2\
---------------------------------------------------------------------------

    \2\ [Reserved].
---------------------------------------------------------------------------

    (4) Billing cycle or cycle means the interval between the days or 
dates of regular periodic statements. These intervals shall be equal 
and no longer than a quarter of a year. An interval will be considered 
equal if the number of days in the cycle does not vary more than four 
days from the regular day or date of the periodic statement.
    (5) Board means the Board of Governors of the Federal Reserve 
System.
    (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. Sec.  226.19(a)(1)(ii), 
226.19(a)(2), 226.31, and 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.
    (7) Card issuer means a person that issues a credit card or that 
person's agent with respect to the card.
    (8) Cardholder means a natural person to whom a credit card is 
issued for consumer credit purposes, or a natural person who has agreed 
with the card issuer to pay consumer credit obligations arising from 
the issuance of a credit card to another natural person. For purposes 
of Sec.  226.12(a) and (b), the term includes any person to whom a 
credit card is issued for any purpose, including business, commercial 
or agricultural use, or a person who has agreed with the card issuer to 
pay obligations arising from the issuance of such a credit card to 
another person.
    (9) Cash price means the price at which a creditor, in the ordinary 
course of business, offers to sell for cash property or service that is 
the subject of the transaction. At the creditor's option, the term may 
include the price of accessories, services related to the sale, service 
contracts and taxes and fees for license, title, and registration. The 
term does not include any finance charge.
    (10) Closed-end credit means consumer credit other than ``open-end 
credit'' as defined in this section.
    (11) Consumer means a cardholder or natural person to whom consumer 
credit is offered or extended. However, for purposes of rescission 
under Sec. Sec.  226.15 and 226.23, the term also includes a natural 
person in whose principal dwelling a security interest is or will be 
retained or acquired, if that person's ownership interest in the 
dwelling is or will be subject to the security interest.
    (12) Consumer credit means credit offered or extended to a consumer 
primarily for personal, family, or household purposes.
    (13) Consummation means the time that a consumer becomes 
contractually obligated on a credit transaction.
    (14) Credit means the right to defer payment of debt or to incur 
debt and defer its payment.
    (15)(i) Credit card means any card, plate, or other single credit 
device that may be used from time to time to obtain credit.
    (ii) Credit card account under an open-end (not home-secured) 
consumer credit plan means any open-end credit account accessed by a 
credit card, except:
    (A) A credit card that accesses a home-equity plan subject to the 
requirements of Sec.  226.5b; or
    (B) An overdraft line of credit accessed by a debit card.
    (iii) Charge card means a credit card on an account for which no 
periodic rate is used to compute a finance charge.
    (16) Credit sale means a sale in which the seller is a creditor. 
The term includes a bailment or lease (unless terminable without 
penalty at any time by the consumer) under which the consumer--
    (i) Agrees to pay as compensation for use a sum substantially 
equivalent to, or in excess of, the total value of the property and 
service involved; and
    (ii) Will become (or has the option to become), for no additional 
consideration or for nominal consideration, the owner of the property 
upon compliance with the agreement.
    (17) Creditor means:
    (i) A person who regularly extends consumer credit \3\ that is 
subject to a finance charge or is payable by written agreement in more 
than four installments (not including a down payment), and to whom the 
obligation is initially payable, either on the face of the note or 
contract, or by agreement when there is no note or contract.
---------------------------------------------------------------------------

    \3\ [Reserved].
---------------------------------------------------------------------------

    (ii) For purposes of Sec. Sec.  226.4(c)(8) (Discounts), 226.9(d) 
(Finance charge imposed at time of transaction), and 226.12(e) (Prompt 
notification of returns and crediting of refunds), a person that honors 
a credit card.
    (iii) For purposes of subpart B, any card issuer that extends 
either open-end credit or credit that is not subject to a finance 
charge and is not payable by written agreement in more than four 
installments.
    (iv) For purposes of subpart B (except for the credit and charge 
card disclosures contained in Sec. Sec.  226.5a and 226.9(e) and (f), 
the finance charge disclosures contained in Sec.  226.6(a)(1) and 
(b)(3)(i) and Sec.  226.7(a)(4) through (7) and (b)(4) through (6) and 
the right of rescission set forth in Sec.  226.15) and subpart C, any 
card issuer that extends closed-end credit that is subject to a finance 
charge or is payable by written agreement in more than four 
installments.
    (v) A person regularly extends consumer credit only if it extended 
credit (other than credit subject to the requirements of Sec.  226.32) 
more than 25 times (or more than 5 times for transactions secured by a 
dwelling) in the preceding calendar year. If a person did not meet 
these numerical standards in the preceding calendar year, the numerical 
standards shall be applied to the current calendar year. A person 
regularly extends consumer credit if, in any 12-month period, the 
person originates more than one credit extension that is subject to the 
requirements of Sec.  226.32 or one or more

[[Page 7794]]

such credit extensions through a mortgage broker.
    (18) Downpayment means an amount, including the value of property 
used as a trade-in, paid to a seller to reduce the cash price of goods 
or services purchased in a credit sale transaction. A deferred portion 
of a downpayment may be treated as part of the downpayment if it is 
payable not later than the due date of the second otherwise regularly 
scheduled payment and is not subject to a finance charge.
    (19) Dwelling means a residential structure that contains one to 
four units, whether or not that structure is attached to real property. 
The term includes an individual condominium unit, cooperative unit, 
mobile home, and trailer, if it is used as a residence.
    (20) Open-end credit means consumer credit extended by a creditor 
under a plan in which:
    (i) The creditor reasonably contemplates repeated transactions;
    (ii) The creditor may impose a finance charge from time to time on 
an outstanding unpaid balance; and
    (iii) The amount of credit that may be extended to the consumer 
during the term of the plan (up to any limit set by the creditor) is 
generally made available to the extent that any outstanding balance is 
repaid.
    (21) Periodic rate means a rate of finance charge that is or may be 
imposed by a creditor on a balance for a day, week, month, or other 
subdivision of a year.
    (22) Person means a natural person or an organization, including a 
corporation, partnership, proprietorship, association, cooperative, 
estate, trust, or government unit.
    (23) Prepaid finance charge means any finance charge paid 
separately in cash or by check before or at consummation of a 
transaction, or withheld from the proceeds of the credit at any time.
    (24) Residential mortgage transaction means a transaction in which 
a mortgage, deed of trust, purchase money security interest arising 
under an installment sales contract, or equivalent consensual security 
interest is created or retained in the consumer's principal dwelling to 
finance the acquisition or initial construction of that dwelling.
    (25) Security interest means an interest in property that secures 
performance of a consumer credit obligation and that is recognized by 
state or federal law. It does not include incidental interests such as 
interests in proceeds, accessions, additions, fixtures, insurance 
proceeds (whether or not the creditor is a loss payee or beneficiary), 
premium rebates, or interests in after-acquired property. For purposes 
of disclosures under Sec. Sec.  226.6 and 226.18, the term does not 
include an interest that arises solely by operation of law. However, 
for purposes of the right of rescission under Sec. Sec.  226.15 and 
226.23, the term does include interests that arise solely by operation 
of law.
    (26) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, and any territory or possession of the 
United States.
    (b) Rules of construction. For purposes of this regulation, the 
following rules of construction apply:
    (1) Where appropriate, the singular form of a word includes the 
plural form and plural includes singular.
    (2) Where the words obligation and transaction are used in the 
regulation, they refer to a consumer credit obligation or transaction, 
depending upon the context. Where the word credit is used in the 
regulation, it means consumer credit unless the context clearly 
indicates otherwise.
    (3) Unless defined in this regulation, the words used have the 
meanings given to them by state law or contract.
    (4) Footnotes have the same legal effect as the text of the 
regulation.
    (5) Where the word amount is used in this regulation to describe 
disclosure requirements, it refers to a numerical amount.

0
4. Section 226.3 is revised to read as follows:


Sec.  226.3  Exempt transactions.

    This regulation does not apply to the following: \4\
---------------------------------------------------------------------------

    \4\ [Reserved].
---------------------------------------------------------------------------

    (a) Business, commercial, agricultural, or organizational credit.
    (1) An extension of credit primarily for a business, commercial or 
agricultural purpose.
    (2) An extension of credit to other than a natural person, 
including credit to government agencies or instrumentalities.
    (b) Credit over $25,000 not secured by real property or a dwelling. 
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).
    (c) Public utility credit. An extension of credit that involves 
public utility services provided through pipe, wire, other connected 
facilities, or radio or similar transmission (including extensions of 
such facilities), if the charges for service, delayed payment, or any 
discounts for prompt payment are filed with or regulated by any 
government unit. The financing of durable goods or home improvements by 
a public utility is not exempt.
    (d) Securities or commodities accounts. Transactions in securities 
or commodities accounts in which credit is extended by a broker-dealer 
registered with the Securities and Exchange Commission or the Commodity 
Futures Trading Commission.
    (e) Home fuel budget plans. An installment agreement for the 
purchase of home fuels in which no finance charge is imposed.
    (f) Student loan programs. Loans made, insured, or guaranteed 
pursuant to a program authorized by title IV of the Higher Education 
Act of 1965 (20 U.S.C. 1070 et seq.).
    (g) Employer-sponsored retirement plans. An extension of credit to 
a participant in an employer-sponsored retirement plan qualified under 
Section 401(a) of the Internal Revenue Code, a tax-sheltered annuity 
under Section 403(b) of the Internal Revenue Code, or an eligible 
governmental deferred compensation plan under Section 457(b) of the 
Internal Revenue Code (26 U.S.C. 401(a); 26 U.S.C. 403(b); 26 U.S.C. 
457(b)), provided that the extension of credit is comprised of fully 
vested funds from such participant's account and is made in compliance 
with the Internal Revenue Code (26 U.S.C. 1 et seq.).

0
5. Section 226.4 is revised to read as follows:


Sec.  226.4  Finance charge.

    (a) Definition. The finance charge is the cost of consumer credit 
as a dollar amount. It includes any charge payable directly or 
indirectly by the consumer and imposed directly or indirectly by the 
creditor as an incident to or a condition of the extension of credit. 
It does not include any charge of a type payable in a comparable cash 
transaction.
    (1) Charges by third parties. The finance charge includes fees and 
amounts charged by someone other than the creditor, unless otherwise 
excluded under this section, if the creditor:
    (i) Requires the use of a third party as a condition of or an 
incident to the extension of credit, even if the consumer can choose 
the third party; or
    (ii) Retains a portion of the third-party charge, to the extent of 
the portion retained.
    (2) Special rule; closing agent charges. Fees charged by a third 
party that

[[Page 7795]]

conducts the loan closing (such as a settlement agent, attorney, or 
escrow or title company) are finance charges only if the creditor--
    (i) Requires the particular services for which the consumer is 
charged;
    (ii) Requires the imposition of the charge; or
    (iii) Retains a portion of the third-party charge, to the extent of 
the portion retained.
    (3) Special rule; mortgage broker fees. Fees charged by a mortgage 
broker (including fees paid by the consumer directly to the broker or 
to the creditor for delivery to the broker) are finance charges even if 
the creditor does not require the consumer to use a mortgage broker and 
even if the creditor does not retain any portion of the charge.
    (b) Examples of finance charges. The finance charge includes the 
following types of charges, except for charges specifically excluded by 
paragraphs (c) through (e) of this section:
    (1) Interest, time price differential, and any amount payable under 
an add-on or discount system of additional charges.
    (2) Service, transaction, activity, and carrying charges, including 
any charge imposed on a checking or other transaction account to the 
extent that the charge exceeds the charge for a similar account without 
a credit feature.
    (3) Points, loan fees, assumption fees, finder's fees, and similar 
charges.
    (4) Appraisal, investigation, and credit report fees.
    (5) Premiums or other charges for any guarantee or insurance 
protecting the creditor against the consumer's default or other credit 
loss.
    (6) Charges imposed on a creditor by another person for purchasing 
or accepting a consumer's obligation, if the consumer is required to 
pay the charges in cash, as an addition to the obligation, or as a 
deduction from the proceeds of the obligation.
    (7) Premiums or other charges for credit life, accident, health, or 
loss-of-income insurance, written in connection with a credit 
transaction.
    (8) Premiums or other charges for insurance against loss of or 
damage to property, or against liability arising out of the ownership 
or use of property, written in connection with a credit transaction.
    (9) Discounts for the purpose of inducing payment by a means other 
than the use of credit.
    (10) Charges or premiums paid for debt cancellation or debt 
suspension coverage written in connection with a credit transaction, 
whether or not the coverage is insurance under applicable law.
    (c) Charges excluded from the finance charge. The following charges 
are not finance charges:
    (1) Application fees charged to all applicants for credit, whether 
or not credit is actually extended.
    (2) Charges for actual unanticipated late payment, for exceeding a 
credit limit, or for delinquency, default, or a similar occurrence.
    (3) Charges imposed by a financial institution for paying items 
that overdraw an account, unless the payment of such items and the 
imposition of the charge were previously agreed upon in writing.
    (4) Fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis.
    (5) Seller's points.
    (6) Interest forfeited as a result of an interest reduction 
required by law on a time deposit used as security for an extension of 
credit.
    (7) Real-estate related fees. The following fees in a transaction 
secured by real property or in a residential mortgage transaction, if 
the fees are bona fide and reasonable in amount:
    (i) Fees for title examination, abstract of title, title insurance, 
property survey, and similar purposes.
    (ii) Fees for preparing loan-related documents, such as deeds, 
mortgages, and reconveyance or settlement documents.
    (iii) Notary and credit-report fees.
    (iv) Property appraisal fees or fees for inspections to assess the 
value or condition of the property if the service is performed prior to 
closing, including fees related to pest-infestation or flood-hazard 
determinations.
    (v) Amounts required to be paid into escrow or trustee accounts if 
the amounts would not otherwise be included in the finance charge.
    (8) Discounts offered to induce payment for a purchase by cash, 
check, or other means, as provided in section 167(b) of the Act.
    (d) Insurance and debt cancellation and debt suspension coverage. 
(1) Voluntary credit insurance premiums. Premiums for credit life, 
accident, health, or loss-of-income insurance may be excluded from the 
finance charge if the following conditions are met:
    (i) The insurance coverage is not required by the creditor, and 
this fact is disclosed in writing.
    (ii) The premium for the initial term of insurance coverage is 
disclosed in writing. If the term of insurance is less than the term of 
the transaction, the term of insurance also shall be disclosed. The 
premium may be disclosed on a unit-cost basis only in open-end credit 
transactions, closed-end credit transactions by mail or telephone under 
Sec.  226.17(g), and certain closed-end credit transactions involving 
an insurance plan that limits the total amount of indebtedness subject 
to coverage.
    (iii) The consumer signs or initials an affirmative written request 
for the insurance after receiving the disclosures specified in this 
paragraph, except as provided in paragraph (d)(4) of this section. Any 
consumer in the transaction may sign or initial the request.
    (2) Property insurance premiums. Premiums for insurance against 
loss of or damage to property, or against liability arising out of the 
ownership or use of property, including single interest insurance if 
the insurer waives all right of subrogation against the consumer,\5\ 
may be excluded from the finance charge if the following conditions are 
met:
---------------------------------------------------------------------------

    \5\ [Reserved].
---------------------------------------------------------------------------

    (i) The insurance coverage may be obtained from a person of the 
consumer's choice,\6\ and this fact is disclosed. (A creditor may 
reserve the right to refuse to accept, for reasonable cause, an insurer 
offered by the consumer.)
---------------------------------------------------------------------------

    \6\ [Reserved].
---------------------------------------------------------------------------

    (ii) If the coverage is obtained from or through the creditor, the 
premium for the initial term of insurance coverage shall be disclosed. 
If the term of insurance is less than the term of the transaction, the 
term of insurance shall also be disclosed. The premium may be disclosed 
on a unit-cost basis only in open-end credit transactions, closed-end 
credit transactions by mail or telephone under Sec.  226.17(g), and 
certain closed-end credit transactions involving an insurance plan that 
limits the total amount of indebtedness subject to coverage.
    (3) Voluntary debt cancellation or debt suspension fees. Charges or 
premiums paid for debt cancellation coverage for amounts exceeding the 
value of the collateral securing the obligation or for debt 
cancellation or debt suspension coverage in the event of the loss of 
life, health, or income or in case of accident may be excluded from the 
finance charge, whether or not the coverage is insurance, if the 
following conditions are met:
    (i) The debt cancellation or debt suspension agreement or coverage 
is not required by the creditor, and this fact is disclosed in writing;
    (ii) The fee or premium for the initial term of coverage is 
disclosed in writing. If the term of coverage is less than the term of 
the credit transaction, the term

[[Page 7796]]

of coverage also shall be disclosed. The fee or premium may be 
disclosed on a unit-cost basis only in open-end credit transactions, 
closed-end credit transactions by mail or telephone under Sec.  
226.17(g), and certain closed-end credit transactions involving a debt 
cancellation agreement that limits the total amount of indebtedness 
subject to coverage;
    (iii) The following are disclosed, as applicable, for debt 
suspension coverage: That the obligation to pay loan principal and 
interest is only suspended, and that interest will continue to accrue 
during the period of suspension.
    (iv) The consumer signs or initials an affirmative written request 
for coverage after receiving the disclosures specified in this 
paragraph, except as provided in paragraph (d)(4) of this section. Any 
consumer in the transaction may sign or initial the request.
    (4) Telephone purchases. If a consumer purchases credit insurance 
or debt cancellation or debt suspension coverage for an open-end (not 
home-secured) plan by telephone, the creditor must make the disclosures 
under paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through (iii) of this 
section, as applicable, orally. In such a case, the creditor shall:
    (i) Maintain evidence that the consumer, after being provided the 
disclosures orally, affirmatively elected to purchase the insurance or 
coverage; and
    (ii) Mail the disclosures under paragraphs (d)(1)(i) and (ii) or 
(d)(3)(i) through (iii) of this section, as applicable, within three 
business days after the telephone purchase.
    (e) Certain security interest charges. If itemized and disclosed, 
the following charges may be excluded from the finance charge:
    (1) Taxes and fees prescribed by law that actually are or will be 
paid to public officials for determining the existence of or for 
perfecting, releasing, or satisfying a security interest.
    (2) The premium for insurance in lieu of perfecting a security 
interest to the extent that the premium does not exceed the fees 
described in paragraph (e)(1) of this section that otherwise would be 
payable.
    (3) Taxes on security instruments. Any tax levied on security 
instruments or on documents evidencing indebtedness if the payment of 
such taxes is a requirement for recording the instrument securing the 
evidence of indebtedness.
    (f) Prohibited offsets. Interest, dividends, or other income 
received or to be received by the consumer on deposits or investments 
shall not be deducted in computing the finance charge.

Subpart B--Open-End Credit

0
6. Section 226.5 is revised to read as follows:


Sec.  226.5  General disclosure requirements.

    (a) Form of disclosures. (1) General. (i) The creditor shall make 
the disclosures required by this subpart clearly and conspicuously.
    (ii) The creditor shall make the disclosures required by this 
subpart in writing,\7\ in a form that the consumer may keep,\8\ except 
that:
---------------------------------------------------------------------------

    \7\ [Reserved].
    \8\ [Reserved].
---------------------------------------------------------------------------

    (A) The following disclosures need not be written: Disclosures 
under Sec.  226.6(b)(3) of charges that are imposed as part of an open-
end (not home-secured) plan that are not required to be disclosed under 
Sec.  226.6(b)(2) and related disclosures of charges under Sec.  
226.9(c)(2)(iii)(B); disclosures under Sec.  226.9(c)(2)(vi); 
disclosures under Sec.  226.9(d) when a finance charge is imposed at 
the time of the transaction; and disclosures under Sec.  
226.56(b)(1)(i).
    (B) The following disclosures need not be in a retainable form: 
Disclosures that need not be written under paragraph (a)(1)(ii)(A) of 
this section; disclosures for credit and charge card applications and 
solicitations under Sec.  226.5a; home-equity disclosures under Sec.  
226.5b(d); the alternative summary billing-rights statement under Sec.  
226.9(a)(2); the credit and charge card renewal disclosures required 
under Sec.  226.9(e); and the payment requirements under Sec.  
226.10(b), except as provided in Sec.  226.7(b)(13).
    (iii) The disclosures required by this subpart may be provided to 
the consumer in electronic form, subject to compliance with the 
consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.). The disclosures required by Sec. Sec.  226.5a, 226.5b, 
and 226.16 may be provided to the consumer in electronic form without 
regard to the consumer consent or other provisions of the E-Sign Act in 
the circumstances set forth in those sections.
    (2) Terminology. (i) Terminology used in providing the disclosures 
required by this subpart shall be consistent.
    (ii) For home-equity plans subject to Sec.  226.5b, the terms 
finance charge and annual percentage rate, when required to be 
disclosed with a corresponding amount or percentage rate, shall be more 
conspicuous than any other required disclosure.\9\ The terms need not 
be more conspicuous when used for periodic statement disclosures under 
Sec.  226.7(a)(4) and for advertisements under Sec.  226.16.
---------------------------------------------------------------------------

    \9\ [Reserved].
---------------------------------------------------------------------------

    (iii) If disclosures are required to be presented in a tabular 
format pursuant to paragraph (a)(3) of this section, the term penalty 
APR shall be used, as applicable. The term penalty APR need not be used 
in reference to the annual percentage rate that applies with the loss 
of a promotional rate, assuming the annual percentage rate that applies 
is not greater than the annual percentage rate that would have applied 
at the end of the promotional period; or if the annual percentage rate 
that applies with the loss of a promotional rate is a variable rate, 
the annual percentage rate is calculated using the same index and 
margin as would have been used to calculate the annual percentage rate 
that would have applied at the end of the promotional period. If credit 
insurance or debt cancellation or debt suspension coverage is required 
as part of the plan, the term required shall be used and the program 
shall be identified by its name. If an annual percentage rate is 
required to be presented in a tabular format pursuant to paragraph 
(a)(3)(i) or (a)(3)(iii) of this section, the term fixed, or a similar 
term, may not be used to describe such rate unless the creditor also 
specifies a time period that the rate will be fixed and the rate will 
not increase during that period, or if no such time period is provided, 
the rate will not increase while the plan is open.
    (3) Specific formats. (i) Certain disclosures for credit and charge 
card applications and solicitations must be provided in a tabular 
format in accordance with the requirements of Sec.  226.5a(a)(2).
    (ii) Certain disclosures for home-equity plans must precede other 
disclosures and must be given in accordance with the requirements of 
Sec.  226.5b(a).
    (iii) Certain account-opening disclosures must be provided in a 
tabular format in accordance with the requirements of Sec.  
226.6(b)(1).
    (iv) Certain disclosures provided on periodic statements must be 
grouped together in accordance with the requirements of Sec.  
226.7(b)(6) and (b)(13).
    (v) Certain disclosures provided on periodic statements must be 
given in accordance with the requirements of Sec.  226.7(b)(12).

[[Page 7797]]

    (vi) Certain disclosures accompanying checks that access a credit 
card account must be provided in a tabular format in accordance with 
the requirements of Sec.  226.9(b)(3).
    (vii) Certain disclosures provided in a change-in-terms notice must 
be provided in a tabular format in accordance with the requirements of 
Sec.  226.9(c)(2)(iv)(D).
    (viii) Certain disclosures provided when a rate is increased due to 
delinquency, default or as a penalty must be provided in a tabular 
format in accordance with the requirements of Sec.  226.9(g)(3)(ii).
    (b) Time of disclosures. (1) Account-opening disclosures. (i) 
General rule. The creditor shall furnish account-opening disclosures 
required by Sec.  226.6 before the first transaction is made under the 
plan.
    (ii) Charges imposed as part of an open-end (not home-secured) 
plan. Charges that are imposed as part of an open-end (not home-
secured) plan and are not required to be disclosed under Sec.  
226.6(b)(2) may be disclosed after account opening but before the 
consumer agrees to pay or becomes obligated to pay for the charge, 
provided they are disclosed at a time and in a manner that a consumer 
would be likely to notice them. This provision does not apply to 
charges imposed as part of a home-equity plan subject to the 
requirements of Sec.  226.5b.
    (iii) Telephone purchases. Disclosures required by Sec.  226.6 may 
be provided as soon as reasonably practicable after the first 
transaction if:
    (A) The first transaction occurs when a consumer contacts a 
merchant by telephone to purchase goods and at the same time the 
consumer accepts an offer to finance the purchase by establishing an 
open-end plan with the merchant or third-party creditor;
    (B) The merchant or third-party creditor permits consumers to 
return any goods financed under the plan and provides consumers with a 
sufficient time to reject the plan and return the goods free of cost 
after the merchant or third-party creditor has provided the written 
disclosures required by Sec.  226.6; and
    (C) The consumer's right to reject the plan and return the goods is 
disclosed to the consumer as a part of the offer to finance the 
purchase.
    (iv) Membership fees. (A) General. In general, a creditor may not 
collect any fee before account-opening disclosures are provided. A 
creditor may collect, or obtain the consumer's agreement to pay, 
membership fees, including application fees excludable from the finance 
charge under Sec.  226.4(c)(1), before providing account-opening 
disclosures if, after receiving the disclosures, the consumer may 
reject the plan and have no obligation to pay these fees (including 
application fees) or any other fee or charge. A membership fee for 
purposes of this paragraph has the same meaning as a fee for the 
issuance or availability of credit described in Sec.  226.5a(b)(2). If 
the consumer rejects the plan, the creditor must promptly refund the 
membership fee if it has been paid, or take other action necessary to 
ensure the consumer is not obligated to pay that fee or any other fee 
or charge.
    (B) Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec.  226.5b are not subject to the requirements 
of paragraph (b)(1)(iv)(A) of this section.
    (v) Application fees. A creditor may collect an application fee 
excludable from the finance charge under Sec.  226.4(c)(1) before 
providing account-opening disclosures. However, if a consumer rejects 
the plan after receiving account-opening disclosures, the consumer must 
have no obligation to pay such an application fee, or if the fee was 
paid, it must be refunded. See Sec.  226.5(b)(1)(iv)(A).
    (2) Periodic statements. (i) Statement required. The creditor shall 
mail or deliver a periodic statement as required by Sec.  226.7 for 
each billing cycle at the end of which an account has a debit or credit 
balance of more than $1 or on which a finance charge has been imposed. 
A periodic statement need not be sent for an account if the creditor 
deems it uncollectible, if delinquency collection proceedings have been 
instituted, if the creditor has charged off the account in accordance 
with loan-loss provisions and will not charge any additional fees or 
interest on the account, or if furnishing the statement would violate 
federal law.
    (ii) Timing requirements. (A) Payment due date. For credit card 
accounts under an open-end (not home-secured) consumer credit plan, a 
card issuer must adopt reasonable procedures designed to ensure that:
    (1) Periodic statements are mailed or delivered at least 21 days 
prior to the payment due date disclosed on the statement pursuant to 
Sec.  226.7(b)(11)(i)(A); and
    (2) The card issuer does not treat as late for any purpose a 
required minimum periodic payment received by the card issuer within 21 
days after mailing or delivery of the periodic statement disclosing the 
due date for that payment.
    (B) Grace period expiration date. For open-end consumer credit 
plans, a creditor must adopt reasonable procedures designed to ensure 
that:
    (1) Periodic statements are mailed or delivered at least 21 days 
prior to the date on which any grace period expires; and
    (2) The creditor does not impose finance charges as a result of the 
loss of a grace period if a payment that satisfies the terms of the 
grace period is received by the creditor within 21 days after mailing 
or delivery of the periodic statement.
    (3) For purposes of paragraph (b)(2)(ii)(B) of this section, 
``grace period'' means a period within which any credit extended may be 
repaid without incurring a finance charge due to a periodic interest 
rate.\10\
---------------------------------------------------------------------------

    \10\ [Reserved].
---------------------------------------------------------------------------

    (3) Credit and charge card application and solicitation 
disclosures. The card issuer shall furnish the disclosures for credit 
and charge card applications and solicitations in accordance with the 
timing requirements of Sec.  226.5a.
    (4) Home-equity plans. Disclosures for home-equity plans shall be 
made in accordance with the timing requirements of Sec.  226.5b(b).
    (c) Basis of disclosures and use of estimates. Disclosures shall 
reflect the terms of the legal obligation between the parties. If any 
information necessary for accurate disclosure is unknown to the 
creditor, it shall make the disclosure based on the best information 
reasonably available and shall state clearly that the disclosure is an 
estimate.
    (d) Multiple creditors; multiple consumers. If the credit plan 
involves more than one creditor, only one set of disclosures shall be 
given, and the creditors shall agree among themselves which creditor 
must comply with the requirements that this regulation imposes on any 
or all of them. If there is more than one consumer, the disclosures may 
be made to any consumer who is primarily liable on the account. If the 
right of rescission under Sec.  226.15 is applicable, however, the 
disclosures required by Sec. Sec.  226.6 and 226.15(b) shall be made to 
each consumer having the right to rescind.
    (e) Effect of subsequent events. If a disclosure becomes inaccurate 
because of an event that occurs after the creditor mails or delivers 
the disclosures, the resulting inaccuracy is not a violation of this 
regulation, although new disclosures may be required under Sec.  
226.9(c).
0
7. Section 226.5a is revised to read as follows:

[[Page 7798]]

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

    (a) General rules. The card issuer shall provide the disclosures 
required under this section on or with a solicitation or an application 
to open a credit or charge card account.
    (1) Definition of solicitation. For purposes of this section, the 
term solicitation means an offer by the card issuer to open a credit or 
charge card account that does not require the consumer to complete an 
application. A ``firm offer of credit'' as defined in section 603(l) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(l)) for a credit or 
charge card is a solicitation for purposes of this section.
    (2) Form of disclosures; tabular format. (i) The disclosures in 
paragraphs (b)(1) through (5) (except for (b)(1)(iv)(B)) and (b)(7) 
through (15) of this section made pursuant to paragraph (c), (d)(2), 
(e)(1) or (f) of this section generally shall be in the form of a table 
with headings, content, and format substantially similar to any of the 
applicable tables found in G-10 in appendix G to this part.
    (ii) The table described in paragraph (a)(2)(i) of this section 
shall contain only the information required or permitted by this 
section. Other information may be presented on or with an application 
or solicitation, provided such information appears outside the required 
table.
    (iii) Disclosures required by paragraphs (b)(1)(iv)(B) and (b)(6) 
of this section must be placed directly beneath the table.
    (iv) When a tabular format is required, any annual percentage rate 
required to be disclosed pursuant to paragraph (b)(1) of this section, 
any introductory rate required to be disclosed pursuant to paragraph 
(b)(1)(ii) of this section, any rate that will apply after a premium 
initial rate expires required to be disclosed under paragraph 
(b)(1)(iii) of this section, and any fee or percentage amounts required 
to be disclosed pursuant to paragraphs (b)(2), (b)(4), (b)(8) through 
(b)(13) of this section must be disclosed in bold text. However, bold 
text shall not be used for: Any maximum limits on fee amounts disclosed 
in the table that do not relate to fees that vary by state; the amount 
of any periodic fee disclosed pursuant to paragraph (b)(2) of this 
section that is not an annualized amount; and other annual percentage 
rates or fee amounts disclosed in the table.
    (v) For an application or a solicitation that is accessed by the 
consumer in electronic form, the disclosures required under this 
section may be provided to the consumer in electronic form on or with 
the application or solicitation.
    (vi)(A) Except as provided in paragraph (a)(2)(vi)(B) of this 
section, the table described in paragraph (a)(2)(i) of this section 
must be provided in a prominent location on or with an application or a 
solicitation.
    (B) If the table described in paragraph (a)(2)(i) of this section 
is provided electronically, it must be provided in close proximity to 
the application or solicitation.
    (3) Fees based on a percentage. If the amount of any fee required 
to be disclosed under this section is determined on the basis of a 
percentage of another amount, the percentage used and the 
identification of the amount against which the percentage is applied 
may be disclosed instead of the amount of the fee.
    (4) Fees that vary by state. Card issuers that impose fees referred 
to in paragraphs (b)(8) through (12) of this section that vary by state 
may, at the issuer's option, disclose in the table required by 
paragraph (a)(2)(i) of this section: the specific fee applicable to the 
consumer's account; or the range of the fees, if the disclosure 
includes a statement that the amount of the fee varies by state and 
refers the consumer to a disclosure provided with the table where the 
amount of the fee applicable to the consumer's account is disclosed. A 
card issuer may not list fees for multiple states in the table.
    (5) Exceptions. This section does not apply to:
    (i) Home-equity plans accessible by a credit or charge card that 
are subject to the requirements of Sec.  226.5b;
    (ii) Overdraft lines of credit tied to asset accounts accessed by 
check-guarantee cards or by debit cards;
    (iii) Lines of credit accessed by check-guarantee cards or by debit 
cards that can be used only at automated teller machines;
    (iv) Lines of credit accessed solely by account numbers;
    (v) Additions of a credit or charge card to an existing open-end 
plan;
    (vi) General purpose applications unless the application, or 
material accompanying it, indicates that it can be used to open a 
credit or charge card account; or
    (vii) Consumer-initiated requests for applications.
    (b) Required disclosures. The card issuer shall disclose the items 
in this paragraph on or with an application or a solicitation in 
accordance with the requirements of paragraphs (c), (d), (e)(1) or (f) 
of this section. A credit card issuer shall disclose all applicable 
items in this paragraph except for paragraph (b)(7) of this section. A 
charge card issuer shall disclose the applicable items in paragraphs 
(b)(2), (4), (7) through (12), and (15) of this section.
    (1) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer, expressed as an annual percentage 
rate (as determined by Sec.  226.14(b)). When more than one rate 
applies for a category of transactions, the range of balances to which 
each rate is applicable shall also be disclosed. The annual percentage 
rate for purchases disclosed pursuant to this paragraph shall be in at 
least 16-point type, except for the following: Oral disclosures of the 
annual percentage rate for purchases; or a penalty rate that may apply 
upon the occurrence of one or more specific events.
    (i) Variable rate information. If a rate disclosed under paragraph 
(b)(1) of this section is a variable rate, the card issuer shall also 
disclose the fact that the rate may vary and how the rate is 
determined. In describing how the applicable rate will be determined, 
the card issuer must identify the type of index or formula that is used 
in setting the rate. The value of the index and the amount of the 
margin that are used to calculate the variable rate shall not be 
disclosed in the table. A disclosure of any applicable limitations on 
rate increases or decreases shall not be included in the table.
    (ii) Discounted initial rate. If the initial rate is an 
introductory rate, as that term is defined in Sec.  226.16(g)(2)(ii), 
the card issuer must disclose in the table the introductory rate, the 
time period during which the introductory rate will remain in effect, 
and must use the term ``introductory'' or ``intro'' in immediate 
proximity to the introductory rate. The card issuer also must disclose 
the rate that would otherwise apply to the account pursuant to 
paragraph (b)(1) of this section. Where the rate is not tied to an 
index or formula, the card issuer must disclose the rate that will 
apply after the introductory rate expires. In a variable-rate account, 
the card issuer must disclose a rate based on the applicable index or 
formula in accordance with the accuracy requirements set forth in 
paragraphs (c)(2), (d)(3), or (e)(4) of this section, as applicable.
    (iii) Premium initial rate. If the initial rate is temporary and is 
higher than the rate that will apply after the temporary rate expires, 
the card issuer must disclose the premium initial rate pursuant to 
paragraph (b)(1) of this section and the time period during which the 
premium initial rate will

[[Page 7799]]

remain in effect. Consistent with paragraph (b)(1) of this section, the 
premium initial rate for purchases must be in at least 16-point type. 
The issuer must also disclose in the table the rate that will apply 
after the premium initial rate expires, in at least 16-point type.
    (iv) Penalty rates. (A) In general. Except as provided in paragraph 
(b)(1)(iv)(B) of this section, if a rate may increase as a penalty for 
one or more events specified in the account agreement, such as a late 
payment or an extension of credit that exceeds the credit limit, the 
card issuer must disclose pursuant to paragraph (b)(1) of this section 
the increased rate that may apply, a brief description of the event or 
events that may result in the increased rate, and a brief description 
of how long the increased rate will remain in effect.
    (B) Introductory rates. If the issuer discloses an introductory 
rate, as that term is defined in Sec.  226.16(g)(2)(ii), in the table 
or in any written or electronic promotional materials accompanying 
applications or solicitations subject to paragraph (c) or (e) of this 
section, the issuer must briefly disclose directly beneath the table 
the circumstances, if any, under which the introductory rate may be 
revoked, and the type of rate that will apply after the introductory 
rate is revoked.
    (v) Rates that depend on consumer's creditworthiness. If a rate 
cannot be determined at the time disclosures are given because the rate 
depends, at least in part, on a later determination of the consumer's 
creditworthiness, the card issuer must disclose the specific rates or 
the range of rates that could apply and a statement that the rate for 
which the consumer may qualify at account opening will depend on the 
consumer's creditworthiness, and other factors if applicable. If the 
rate that depends, at least in part, on a later determination of the 
consumer's creditworthiness is a penalty rate, as described in 
paragraph (b)(1)(iv) of this section, the card issuer at its option may 
disclose the highest rate that could apply, instead of disclosing the 
specific rates or the range of rates that could apply.
    (vi) APRs that vary by state. Issuers imposing annual percentage 
rates that vary by state may, at the issuer's option, disclose in the 
table: the specific annual percentage rate applicable to the consumer's 
account; or the range of the annual percentage rates, if the disclosure 
includes a statement that the annual percentage rate varies by state 
and refers the consumer to a disclosure provided with the table where 
the annual percentage rate applicable to the consumer's account is 
disclosed. A card issuer may not list annual percentage rates for 
multiple states in the table.
    (2) Fees for issuance or availability. (i) Any annual or other 
periodic fee that may be imposed for the issuance or availability of a 
credit or charge card, including any fee based on account activity or 
inactivity; how frequently it will be imposed; and the annualized 
amount of the fee.
    (ii) Any non-periodic fee that relates to opening an account. A 
card issuer must disclose that the fee is a one-time fee.
    (3) Fixed finance charge; minimum interest charge. Any fixed 
finance charge and a brief description of the charge. Any minimum 
interest charge if it exceeds $1.00 that could be imposed during a 
billing cycle, and a brief description of the charge. The $1.00 
threshold amount shall be adjusted periodically by the Board to reflect 
changes in the Consumer Price Index. The Board shall calculate each 
year a price level adjusted minimum interest charge using the Consumer 
Price Index in effect on June 1 of that year. When the cumulative 
change in the adjusted minimum value derived from applying the annual 
Consumer Price level to the current minimum interest charge threshold 
has risen by a whole dollar, the minimum interest charge will be 
increased by $1.00. The issuer may, at its option, disclose in the 
table minimum interest charges below this threshold.
    (4) Transaction charges. Any transaction charge imposed by the card 
issuer for the use of the card for purchases.
    (5) Grace period. The date by which or the period within which any 
credit extended for purchases may be repaid without incurring a finance 
charge due to a periodic interest rate and any conditions on the 
availability of the grace period. If no grace period is provided, that 
fact must be disclosed. If the length of the grace period varies, the 
card issuer may disclose the range of days, the minimum number of days, 
or the average number of days in the grace period, if the disclosure is 
identified as a range, minimum, or average. In disclosing in the 
tabular format a grace period that applies to all types of purchases, 
the phrase ``How to Avoid Paying Interest on Purchases'' shall be used 
as the heading for the row describing the grace period. If a grace 
period is not offered on all types of purchases, in disclosing this 
fact in the tabular format, the phrase ``Paying Interest'' shall be 
used as the heading for the row describing this fact.
    (6) Balance computation method. The name of the balance computation 
method listed in paragraph (g) of this section that is used to 
determine the balance for purchases on which the finance charge is 
computed, or an explanation of the method used if it is not listed. In 
determining which balance computation method to disclose, the card 
issuer shall assume that credit extended for purchases will not be 
repaid within the grace period, if any.
    (7) Statement on charge card payments. A statement that charges 
incurred by use of the charge card are due when the periodic statement 
is received.
    (8) Cash advance fee. Any fee imposed for an extension of credit in 
the form of cash or its equivalent.
    (9) Late payment fee. Any fee imposed for a late payment.
    (10) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (11) Balance transfer fee. Any fee imposed to transfer an 
outstanding balance.
    (12) Returned-payment fee. Any fee imposed by the card issuer for a 
returned payment.
    (13) Required insurance, debt cancellation or debt suspension 
coverage. (i) A fee for insurance described in Sec.  226.4(b)(7) or 
debt cancellation or suspension coverage described in Sec.  
226.4(b)(10), if the insurance or debt cancellation or suspension 
coverage is required as part of the plan; and
    (ii) A cross reference to any additional information provided about 
the insurance or coverage accompanying the application or solicitation, 
as applicable.
    (14) Available credit. If a card issuer requires fees for the 
issuance or availability of credit described in paragraph (b)(2) of 
this section, or requires a security deposit for such credit, and the 
total amount of those required fees and/or security deposit that will 
be imposed and charged to the account when the account is opened is 15 
percent or more of the minimum credit limit for the card, a card issuer 
must disclose the available credit remaining after these fees or 
security deposit are debited to the account, assuming that the consumer 
receives the minimum credit limit. In determining whether the 15 
percent threshold test is met, the issuer must only consider fees for 
issuance or availability of credit, or a security deposit, that are 
required. If fees for issuance or availability are optional, these fees 
should not be considered in determining whether the disclosure must be 
given. Nonetheless, if the 15 percent threshold test is met, the issuer 
in providing the disclosure must disclose the amount of available

[[Page 7800]]

credit calculated by excluding those optional fees, and the available 
credit including those optional fees. This paragraph does not apply 
with respect to fees or security deposits that are not debited to the 
account.
    (15) Web site reference. A reference to the Web site established by 
the Board and a statement that consumers may obtain on the Web site 
information about shopping for and using credit cards.
    (c) Direct mail and electronic applications and solicitations. (1) 
General. The card issuer shall disclose the applicable items in 
paragraph (b) of this section on or with an application or solicitation 
that is mailed to consumers or provided to consumers in electronic 
form.
    (2) Accuracy. (i) Disclosures in direct mail applications and 
solicitations must be accurate as of the time the disclosures are 
mailed. An accurate variable annual percentage rate is one in effect 
within 60 days before mailing.
    (ii) Disclosures provided in electronic form must be accurate as of 
the time they are sent, in the case of disclosures sent to a consumer's 
e-mail address, or as of the time they are viewed by the public, in the 
case of disclosures made available at a location such as a card 
issuer's Web site. An accurate variable annual percentage rate provided 
in electronic form is one in effect within 30 days before it is sent to 
a consumer's e-mail address, or viewed by the public, as applicable.
    (d) Telephone applications and solicitations. (1) Oral disclosure. 
The card issuer shall disclose orally the information in paragraphs 
(b)(1) through (7) and (b)(14) of this section, to the extent 
applicable, in a telephone application or solicitation initiated by the 
card issuer.
    (2) Alternative disclosure. The oral disclosure under paragraph 
(d)(1) of this section need not be given if the card issuer either:
    (i)(A) Does not impose a fee described in paragraph (b)(2) of this 
section; or
    (B) Imposes such a fee but provides the consumer with a right to 
reject the plan consistent with Sec.  226.5(b)(1)(iv); and
    (ii) The card issuer discloses in writing within 30 days after the 
consumer requests the card (but in no event later than the delivery of 
the card) the following:
    (A) The applicable information in paragraph (b) of this section; 
and
    (B) As applicable, the fact that the consumer has the right to 
reject the plan and not be obligated to pay fees described in paragraph 
(b)(2) or any other fees or charges until the consumer has used the 
account or made a payment on the account after receiving a billing 
statement.
    (3) Accuracy. (i) The oral disclosures under paragraph (d)(1) of 
this section must be accurate as of the time they are given.
    (ii) The alternative disclosures under paragraph (d)(2) of this 
section generally must be accurate as of the time they are mailed or 
delivered. A variable annual percentage rate is one that is accurate if 
it was:
    (A) In effect at the time the disclosures are mailed or delivered; 
or
    (B) In effect as of a specified date (which rate is then updated 
from time to time, but no less frequently than each calendar month).
    (e) Applications and solicitations made available to general 
public. The card issuer shall provide disclosures, to the extent 
applicable, on or with an application or solicitation that is made 
available to the general public, including one contained in a catalog, 
magazine, or other generally available publication. The disclosures 
shall be provided in accordance with paragraph (e)(1) or (e)(2) of this 
section.
    (1) Disclosure of required credit information. The card issuer may 
disclose in a prominent location on the application or solicitation the 
following:
    (i) The applicable information in paragraph (b) of this section;
    (ii) The date the required information was printed, including a 
statement that the required information was accurate as of that date 
and is subject to change after that date; and
    (iii) A statement that the consumer should contact the card issuer 
for any change in the required information since it was printed, and a 
toll-free telephone number or a mailing address for that purpose.
    (2) No disclosure of credit information. If none of the items in 
paragraph (b) of this section is provided on or with the application or 
solicitation, the card issuer may state in a prominent location on the 
application or solicitation the following:
    (i) There are costs associated with the use of the card; and
    (ii) The consumer may contact the card issuer to request specific 
information about the costs, along with a toll-free telephone number 
and a mailing address for that purpose.
    (3) Prompt response to requests for information. Upon receiving a 
request for any of the information referred to in this paragraph, the 
card issuer shall promptly and fully disclose the information 
requested.
    (4) Accuracy. The disclosures given pursuant to paragraph (e)(1) of 
this section must be accurate as of the date of printing. A variable 
annual percentage rate is accurate if it was in effect within 30 days 
before printing.
    (f) In-person applications and solicitations. A card issuer shall 
disclose the information in paragraph (b) of this section, to the 
extent applicable, on or with an application or solicitation that is 
initiated by the card issuer and given to the consumer in person. A 
card issuer complies with the requirements of this paragraph if the 
issuer provides disclosures in accordance with paragraph (c)(1) or 
(e)(1) of this section.
    (g) Balance computation methods defined. The following methods may 
be described by name. Methods that differ due to variations such as the 
allocation of payments, whether the finance charge begins to accrue on 
the transaction date or the date of posting the transaction, the 
existence or length of a grace period, and whether the balance is 
adjusted by charges such as late payment fees, annual fees and unpaid 
finance charges do not constitute separate balance computation methods.
    (1)(i) Average daily balance (including new purchases). This 
balance is figured by adding the outstanding balance (including new 
purchases and deducting payments and credits) for each day in the 
billing cycle, and then dividing by the number of days in the billing 
cycle.
    (ii) Average daily balance (excluding new purchases). This balance 
is figured by adding the outstanding balance (excluding new purchases 
and deducting payments and credits) for each day in the billing cycle, 
and then dividing by the number of days in the billing cycle.
    (2) Adjusted balance. This balance is figured by deducting payments 
and credits made during the billing cycle from the outstanding balance 
at the beginning of the billing cycle.
    (3) Previous balance. This balance is the outstanding balance at 
the beginning of the billing cycle.
    (4) Daily balance. For each day in the billing cycle, this balance 
is figured by taking the beginning balance each day, adding any new 
purchases, and subtracting any payment and credits.

0
8. Revise Sec.  226.6 to read as follows:


Sec.  226.6  Account-opening disclosures.

    (a) Rules affecting home-equity plans. The requirements of this 
paragraph (a) apply only to home-equity plans subject to the 
requirements of Sec.  226.5b. A creditor shall disclose the items in 
this section, to the extent applicable:
    (1) Finance charge. The circumstances under which a finance charge 
will be

[[Page 7801]]

imposed and an explanation of how it will be determined, as follows:
    (i) A statement of when finance charges begin to accrue, including 
an explanation of whether or not any time period exists within which 
any credit extended may be repaid without incurring a finance charge. 
If such a time period is provided, a creditor may, at its option and 
without disclosure, impose no finance charge when payment is received 
after the time period's expiration.
    (ii) A disclosure of each periodic rate that may be used to compute 
the finance charge, the range of balances to which it is 
applicable,\11\ and the corresponding annual percentage rate.\12\ If a 
creditor offers a variable-rate plan, the creditor shall also disclose: 
the circumstances under which the rate(s) may increase; any limitations 
on the increase; and the effect(s) of an increase. When different 
periodic rates apply to different types of transactions, the types of 
transactions to which the periodic rates shall apply shall also be 
disclosed. A creditor is not required to adjust the range of balances 
disclosure to reflect the balance below which only a minimum charge 
applies.
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    \11\ [Reserved].
    \12\ [Reserved].
---------------------------------------------------------------------------

    (iii) An explanation of the method used to determine the balance on 
which the finance charge may be computed.
    (iv) An explanation of how the amount of any finance charge will be 
determined,\13\ including a description of how any finance charge other 
than the periodic rate will be determined.
---------------------------------------------------------------------------

    \13\ [Reserved].
---------------------------------------------------------------------------

    (2) Other charges. The amount of any charge other than a finance 
charge that may be imposed as part of the plan, or an explanation of 
how the charge will be determined.
    (3) Home-equity plan information. The following disclosures 
described in Sec.  226.5b(d), as applicable:
    (i) A statement of the conditions under which the creditor may take 
certain action, as described in Sec.  226.5b(d)(4)(i), such as 
terminating the plan or changing the terms.
    (ii) The payment information described in Sec.  226.5b(d)(5)(i) and 
(ii) for both the draw period and any repayment period.
    (iii) A statement that negative amortization may occur as described 
in Sec.  226.5b(d)(9).
    (iv) A statement of any transaction requirements as described in 
Sec.  226.5b(d)(10).
    (v) A statement regarding the tax implications as described in 
Sec.  226.5b(d)(11).
    (vi) A statement that the annual percentage rate imposed under the 
plan does not include costs other than interest as described in Sec.  
226.5b(d)(6) and (d)(12)(ii).
    (vii) The variable-rate disclosures described in Sec.  
226.5b(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well 
as the disclosure described in Sec.  226.5b(d)(5)(iii), unless the 
disclosures provided with the application were in a form the consumer 
could keep and included a representative payment example for the 
category of payment option chosen by the consumer.
    (4) Security interests. The fact that the creditor has or will 
acquire a security interest in the property purchased under the plan, 
or in other property identified by item or type.
    (5) Statement of billing rights. A statement that outlines the 
consumer's rights and the creditor's responsibilities under Sec. Sec.  
226.12(c) and 226.13 and that is substantially similar to the statement 
found in Model Form G-3 or, at the creditor's option, G-3(A), in 
appendix G to this part.
    (b) Rules affecting open-end (not home-secured) plans. The 
requirements of paragraph (b) of this section apply to plans other than 
home-equity plans subject to the requirements of Sec.  226.5b.
    (1) Form of disclosures; tabular format for open-end (not home-
secured) plans. Creditors must provide the account-opening disclosures 
specified in paragraph (b)(2)(i) through (b)(2)(v) (except for 
(b)(2)(i)(D)(2)) and (b)(2)(vii) through (b)(2)(xiv) of this section in 
the form of a table with the headings, content, and format 
substantially similar to any of the applicable tables in G-17 in 
appendix G.
    (i) Highlighting. In the table, any annual percentage rate required 
to be disclosed pursuant to paragraph (b)(2)(i) of this section; any 
introductory rate permitted to be disclosed pursuant to paragraph 
(b)(2)(i)(B) or required to be disclosed under paragraph (b)(2)(i)(F) 
of this section, any rate that will apply after a premium initial rate 
expires permitted to be disclosed pursuant to paragraph (b)(2)(i)(C) or 
required to be disclosed pursuant to paragraph (b)(2)(i)(F), and any 
fee or percentage amounts required to be disclosed pursuant to 
paragraphs (b)(2)(ii), (b)(2)(iv), (b)(2)(vii) through (b)(2)(xii) of 
this section must be disclosed in bold text. However, bold text shall 
not be used for: Any maximum limits on fee amounts disclosed in the 
table that do not relate to fees that vary by state; the amount of any 
periodic fee disclosed pursuant to paragraph (b)(2) of this section 
that is not an annualized amount; and other annual percentage rates or 
fee amounts disclosed in the table.
    (ii) Location. Only the information required or permitted by 
paragraphs (b)(2)(i) through (b)(2)(v) (except for (b)(2)(i)(D)(2)) and 
(b)(2)(vii) through (b)(2)(xiv) of this section shall be in the table. 
Disclosures required by paragraphs (b)(2)(i)(D)(2), (b)(2)(vi) and 
(b)(2)(xv) of this section shall be placed directly below the table. 
Disclosures required by paragraphs (b)(3) through (b)(5) of this 
section that are not otherwise required to be in the table and other 
information may be presented with the account agreement or account-
opening disclosure statement, provided such information appears outside 
the required table.
    (iii) Fees that vary by state. Creditors that impose fees referred 
to in paragraphs (b)(2)(vii) through (b)(2)(xi) of this section that 
vary by state and that provide the disclosures required by paragraph 
(b) of this section in person at the time the open-end (not home-
secured) plan is established in connection with financing the purchase 
of goods or services may, at the creditor's option, disclose in the 
account-opening table the specific fee applicable to the consumer's 
account, or the range of the fees, if the disclosure includes a 
statement that the amount of the fee varies by state and refers the 
consumer to the account agreement or other disclosure provided with the 
account-opening table where the amount of the fee applicable to the 
consumer's account is disclosed. A creditor may not list fees for 
multiple states in the account-opening summary table.
    (iv) Fees based on a percentage. If the amount of any fee required 
to be disclosed under this section is determined on the basis of a 
percentage of another amount, the percentage used and the 
identification of the amount against which the percentage is applied 
may be disclosed instead of the amount of the fee.
    (2) Required disclosures for account-opening table for open-end 
(not home-secured) plans. A creditor shall disclose the items in this 
section, to the extent applicable:
    (i) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer, expressed as an annual percentage 
rate (as determined by Sec.  226.14(b)). When more than one rate 
applies for a category of transactions, the range of balances to which 
each rate is applicable shall also be disclosed. The annual percentage 
rate for purchases disclosed pursuant to this paragraph shall be in at 
least 16-point type, except for the following: A penalty

[[Page 7802]]

rate that may apply upon the occurrence of one or more specific events.
    (A) Variable-rate information. If a rate disclosed under paragraph 
(b)(2)(i) of this section is a variable rate, the creditor shall also 
disclose the fact that the rate may vary and how the rate is 
determined. In describing how the applicable rate will be determined, 
the creditor must identify the type of index or formula that is used in 
setting the rate. The value of the index and the amount of the margin 
that are used to calculate the variable rate shall not be disclosed in 
the table. A disclosure of any applicable limitations on rate increases 
or decreases shall not be included in the table.
    (B) Discounted initial rates. If the initial rate is an 
introductory rate, as that term is defined in Sec.  226.16(g)(2)(ii), 
the creditor must disclose the rate that would otherwise apply to the 
account pursuant to paragraph (b)(2)(i) of this section. Where the rate 
is not tied to an index or formula, the creditor must disclose the rate 
that will apply after the introductory rate expires. In a variable-rate 
account, the card issuer must disclose a rate based on the applicable 
index or formula in accordance with the accuracy requirements of 
paragraph (b)(4)(ii)(G) of this section. Except as provided in 
paragraph (b)(2)(i)(F) of this section, the creditor is not required 
to, but may disclose in the table the introductory rate along with the 
rate that would otherwise apply to the account if the creditor also 
discloses the time period during which the introductory rate will 
remain in effect, and uses the term ``introductory'' or ``intro'' in 
immediate proximity to the introductory rate.
    (C) Premium initial rate. If the initial rate is temporary and is 
higher than the rate that will apply after the temporary rate expires, 
the creditor must disclose the premium initial rate pursuant to 
paragraph (b)(2)(i) of this section. Consistent with paragraph 
(b)(2)(i) of this section, the premium initial rate for purchases must 
be in at least 16-point type. Except as provided in paragraph 
(b)(2)(i)(F) of this section, the creditor is not required to, but may 
disclose in the table the rate that will apply after the premium 
initial rate expires if the creditor also discloses the time period 
during which the premium initial rate will remain in effect. If the 
creditor also discloses in the table the rate that will apply after the 
premium initial rate for purchases expires, that rate also must be in 
at least 16-point type.
    (D) Penalty rates. (1) In general. Except as provided in paragraph 
(b)(2)(i)(D)(2) of this section, if a rate may increase as a penalty 
for one or more events specified in the account agreement, such as a 
late payment or an extension of credit that exceeds the credit limit, 
the creditor must disclose pursuant to paragraph (b)(2)(i) of this 
section the increased rate that may apply, a brief description of the 
event or events that may result in the increased rate, and a brief 
description of how long the increased rate will remain in effect. If 
more than one penalty rate may apply, the creditor at its option may 
disclose the highest rate that could apply, instead of disclosing the 
specific rates or the range of rates that could apply.
    (2) Introductory rates. If the creditor discloses in the table an 
introductory rate, as that term is defined in Sec.  226.16(g)(2)(ii), 
creditors must briefly disclose directly beneath the table the 
circumstances under which the introductory rate may be revoked, and the 
rate that will apply after the introductory rate is revoked.
    (E) Point of sale where APRs vary by state or based on 
creditworthiness. Creditors imposing annual percentage rates that vary 
by state or based on the consumer's creditworthiness and providing the 
disclosures required by paragraph (b) of this section in person at the 
time the open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may, at the creditor's 
option, disclose pursuant to paragraph (b)(2)(i) of this section in the 
account-opening table:
    (1) The specific annual percentage rate applicable to the 
consumer's account; or
    (2) The range of the annual percentage rates, if the disclosure 
includes a statement that the annual percentage rate varies by state or 
will be determined based on the consumer's creditworthiness and refers 
the consumer to the account agreement or other disclosure provided with 
the account-opening table where the annual percentage rate applicable 
to the consumer's account is disclosed. A creditor may not list annual 
percentage rates for multiple states in the account-opening table.
    (F) Credit card accounts under an open-end (not home-secured) 
consumer credit plan. Notwithstanding paragraphs (b)(2)(i)(B) and 
(b)(2)(i)(C) of this section, for credit card accounts under an open-
end (not home-secured) plan, issuers must disclose in the table--
    (1) Any introductory rate as that term is defined in Sec.  
226.16(g)(2)(ii) that would apply to the account, consistent with the 
requirements of paragraph (b)(2)(i)(B) of this section, and
    (2) Any rate that would apply upon the expiration of a premium 
initial rate, consistent with the requirements of paragraph 
(b)(2)(i)(C) of this section.
    (ii) Fees for issuance or availability. (A) Any annual or other 
periodic fee that may be imposed for the issuance or availability of an 
open-end plan, including any fee based on account activity or 
inactivity; how frequently it will be imposed; and the annualized 
amount of the fee.
    (B) Any non-periodic fee that relates to opening the plan. A 
creditor must disclose that the fee is a one-time fee.
    (iii) Fixed finance charge; minimum interest charge. Any fixed 
finance charge and a brief description of the charge. Any minimum 
interest charge if it exceeds $1.00 that could be imposed during a 
billing cycle, and a brief description of the charge. The $1.00 
threshold amount shall be adjusted periodically by the Board to reflect 
changes in the Consumer Price Index. The Board shall calculate each 
year a price level adjusted minimum interest charge using the Consumer 
Price Index in effect on the June 1 of that year. When the cumulative 
change in the adjusted minimum value derived from applying the annual 
Consumer Price level to the current minimum interest charge threshold 
has risen by a whole dollar, the minimum interest charge will be 
increased by $1.00. The creditor may, at its option, disclose in the 
table minimum interest charges below this threshold.
    (iv) Transaction charges. Any transaction charge imposed by the 
creditor for use of the open-end plan for purchases.
    (v) Grace period. The date by which or the period within which any 
credit extended may be repaid without incurring a finance charge due to 
a periodic interest rate and any conditions on the availability of the 
grace period. If no grace period is provided, that fact must be 
disclosed. If the length of the grace period varies, the creditor may 
disclose the range of days, the minimum number of days, or the average 
number of the days in the grace period, if the disclosure is identified 
as a range, minimum, or average. In disclosing in the tabular format a 
grace period that applies to all features on the account, the phrase 
``How to Avoid Paying Interest'' shall be used as the heading for the 
row describing the grace period. If a grace period is not offered on 
all features of the account, in disclosing this fact in the tabular 
format, the phrase ``Paying Interest'' shall be used as the heading for 
the row describing this fact.
    (vi) Balance computation method. The name of the balance 
computation method listed in Sec.  226.5a(g) that is used

[[Page 7803]]

to determine the balance on which the finance charge is computed for 
each feature, or an explanation of the method used if it is not listed, 
along with a statement that an explanation of the method(s) required by 
paragraph (b)(4)(i)(D) of this section is provided with the account-
opening disclosures. In determining which balance computation method to 
disclose, the creditor shall assume that credit extended will not be 
repaid within any grace period, if any.
    (vii) Cash advance fee. Any fee imposed for an extension of credit 
in the form of cash or its equivalent.
    (viii) Late payment fee. Any fee imposed for a late payment.
    (ix) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (x) Balance transfer fee. Any fee imposed to transfer an 
outstanding balance.
    (xi) Returned-payment fee. Any fee imposed by the creditor for a 
returned payment.
    (xii) Required insurance, debt cancellation or debt suspension 
coverage. (A) A fee for insurance described in Sec.  226.4(b)(7) or 
debt cancellation or suspension coverage described in Sec.  
226.4(b)(10), if the insurance, or debt cancellation or suspension 
coverage is required as part of the plan; and
    (B) A cross reference to any additional information provided about 
the insurance or coverage, as applicable.
    (xiii) Available credit. If a creditor requires fees for the 
issuance or availability of credit described in paragraph (b)(2)(ii) of 
this section, or requires a security deposit for such credit, and the 
total amount of those required fees and/or security deposit that will 
be imposed and charged to the account when the account is opened is 15 
percent or more of the minimum credit limit for the plan, a creditor 
must disclose the available credit remaining after these fees or 
security deposit are debited to the account. The determination whether 
the 15 percent threshold is met must be based on the minimum credit 
limit for the plan. However, the disclosure provided under this 
paragraph must be based on the actual initial credit limit provided on 
the account. In determining whether the 15 percent threshold test is 
met, the creditor must only consider fees for issuance or availability 
of credit, or a security deposit, that are required. If fees for 
issuance or availability are optional, these fees should not be 
considered in determining whether the disclosure must be given. 
Nonetheless, if the 15 percent threshold test is met, the creditor in 
providing the disclosure must disclose the amount of available credit 
calculated by excluding those optional fees, and the available credit 
including those optional fees. The creditor shall also disclose that 
the consumer has the right to reject the plan and not be obligated to 
pay those fees or any other fee or charges until the consumer has used 
the account or made a payment on the account after receiving a periodic 
statement. This paragraph does not apply with respect to fees or 
security deposits that are not debited to the account.
    (xiv) Web site reference. For issuers of credit cards that are not 
charge cards, a reference to the Web site established by the Board and 
a statement that consumers may obtain on the Web site information about 
shopping for and using credit cards.
    (xv) Billing error rights reference. A statement that information 
about consumers' right to dispute transactions is included in the 
account-opening disclosures.
    (3) Disclosure of charges imposed as part of open-end (not home-
secured) plans. A creditor shall disclose, to the extent applicable:
    (i) For charges imposed as part of an open-end (not home-secured) 
plan, the circumstances under which the charge may be imposed, 
including the amount of the charge or an explanation of how the charge 
is determined. For finance charges, a statement of when the charge 
begins to accrue and an explanation of whether or not any time period 
exists within which any credit that has been extended may be repaid 
without incurring the charge. If such a time period is provided, a 
creditor may, at its option and without disclosure, elect not to impose 
a finance charge when payment is received after the time period 
expires.
    (ii) Charges imposed as part of the plan are:
    (A) Finance charges identified under Sec.  226.4(a) and Sec.  
226.4(b).
    (B) Charges resulting from the consumer's failure to use the plan 
as agreed, except amounts payable for collection activity after 
default, attorney's fees whether or not automatically imposed, and 
post-judgment interest rates permitted by law.
    (C) Taxes imposed on the credit transaction by a state or other 
governmental body, such as documentary stamp taxes on cash advances.
    (D) Charges for which the payment, or nonpayment, affect the 
consumer's access to the plan, the duration of the plan, the amount of 
credit extended, the period for which credit is extended, or the timing 
or method of billing or payment.
    (E) Charges imposed for terminating a plan.
    (F) Charges for voluntary credit insurance, debt cancellation or 
debt suspension.
    (iii) Charges that are not imposed as part of the plan include:
    (A) Charges imposed on a cardholder by an institution other than 
the card issuer for the use of the other institution's ATM in a shared 
or interchange system.
    (B) A charge for a package of services that includes an open-end 
credit feature, if the fee is required whether or not the open-end 
credit feature is included and the non-credit services are not merely 
incidental to the credit feature.
    (C) Charges under Sec.  226.4(e) disclosed as specified.
    (4) Disclosure of rates for open-end (not home-secured) plans. A 
creditor shall disclose, to the extent applicable:
    (i) For each periodic rate that may be used to calculate interest:
    (A) Rates. The rate, expressed as a periodic rate and a 
corresponding annual percentage rate.
    (B) Range of balances. The range of balances to which the rate is 
applicable; however, a creditor is not required to adjust the range of 
balances disclosure to reflect the balance below which only a minimum 
charge applies.
    (C) Type of transaction. The type of transaction to which the rate 
applies, if different rates apply to different types of transactions.
    (D) Balance computation method. An explanation of the method used 
to determine the balance to which the rate is applied.
    (ii) Variable-rate accounts. For interest rate changes that are 
tied to increases in an index or formula (variable-rate accounts) 
specifically set forth in the account agreement:
    (A) The fact that the annual percentage rate may increase.
    (B) How the rate is determined, including the margin.
    (C) The circumstances under which the rate may increase.
    (D) The frequency with which the rate may increase.
    (E) Any limitation on the amount the rate may change.
    (F) The effect(s) of an increase.
    (G) Except as specified in paragraph (b)(4)(ii)(H) of this section, 
a rate is accurate if it is a rate as of a specified date and this rate 
was in effect within the last 30 days before the disclosures are 
provided.
    (H) Creditors imposing annual percentage rates that vary according 
to an index that is not under the creditor's

[[Page 7804]]

control that provide the disclosures required by paragraph (b) of this 
section in person at the time the open-end (not home-secured) plan is 
established in connection with financing the purchase of goods or 
services may disclose in the table a rate, or range of rates to the 
extent permitted by Sec.  226.6(b)(2)(i)(E), that was in effect within 
the last 90 days before the disclosures are provided, along with a 
reference directing the consumer to the account agreement or other 
disclosure provided with the account-opening table where an annual 
percentage rate applicable to the consumer's account in effect within 
the last 30 days before the disclosures are provided is disclosed.
    (iii) Rate changes not due to index or formula. For interest rate 
changes that are specifically set forth in the account agreement and 
not tied to increases in an index or formula:
    (A) The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate) required under paragraph 
(b)(4)(i)(A) of this section.
    (B) How long the initial rate will remain in effect and the 
specific events that cause the initial rate to change.
    (C) The rate (expressed as a periodic rate and a corresponding 
annual percentage rate) that will apply when the initial rate is no 
longer in effect and any limitation on the time period the new rate 
will remain in effect.
    (D) The balances to which the new rate will apply.
    (E) The balances to which the current rate at the time of the 
change will apply.
    (5) Additional disclosures for open-end (not home-secured) plans. A 
creditor shall disclose, to the extent applicable:
    (i) Voluntary credit insurance, debt cancellation or debt 
suspension. The disclosures in Sec. Sec.  226.4(d)(1)(i) and (d)(1)(ii) 
and (d)(3)(i) through (d)(3)(iii) if the creditor offers optional 
credit insurance or debt cancellation or debt suspension coverage that 
is identified in Sec.  226.4(b)(7) or (b)(10).
    (ii) Security interests. The fact that the creditor has or will 
acquire a security interest in the property purchased under the plan, 
or in other property identified by item or type.
    (iii) Statement of billing rights. A statement that outlines the 
consumer's rights and the creditor's responsibilities under Sec. Sec.  
226.12(c) and 226.13 and that is substantially similar to the statement 
found in Model Form G-3(A) in appendix G to this part.

0
9. Revise Sec.  226.7 to read as follows:


Sec.  226.7  Periodic statement.

    The creditor shall furnish the consumer with a periodic statement 
that discloses the following items, to the extent applicable:
    (a) Rules affecting home-equity plans. The requirements of 
paragraph (a) of this section apply only to home-equity plans subject 
to the requirements of Sec.  226.5b. Alternatively, a creditor subject 
to this paragraph may, at its option, comply with any of the 
requirements of paragraph (b) of this section; however, any creditor 
that chooses not to provide a disclosure under paragraph (a)(7) of this 
section must comply with paragraph (b)(6) of this section.
    (1) Previous balance. The account balance outstanding at the 
beginning of the billing cycle.
    (2) Identification of transactions. An identification of each 
credit transaction in accordance with Sec.  226.8.
    (3) Credits. Any credit to the account during the billing cycle, 
including the amount and the date of crediting. The date need not be 
provided if a delay in accounting does not result in any finance or 
other charge.
    (4) Periodic rates. (i) Except as provided in paragraph (a)(4)(ii) 
of this section, each periodic rate that may be used to compute the 
finance charge, the range of balances to which it is applicable,\14\ 
and the corresponding annual percentage rate.\15\ If no finance charge 
is imposed when the outstanding balance is less than a certain amount, 
the creditor is not required to disclose that fact, or the balance 
below which no finance charge will be imposed. If different periodic 
rates apply to different types of transactions, the types of 
transactions to which the periodic rates apply shall also be disclosed. 
For variable-rate plans, the fact that the periodic rate(s) may vary.
---------------------------------------------------------------------------

    \14\ [Reserved].
    \15\ [Reserved].
---------------------------------------------------------------------------

    (ii) Exception. An annual percentage rate that differs from the 
rate that would otherwise apply and is offered only for a promotional 
period need not be disclosed except in periods in which the offered 
rate is actually applied.
    (5) Balance on which finance charge computed. The amount of the 
balance to which a periodic rate was applied and an explanation of how 
that balance was determined. When a balance is determined without first 
deducting all credits and payments made during the billing cycle, the 
fact and the amount of the credits and payments shall be disclosed.
    (6) Amount of finance charge and other charges. Creditors may 
comply with paragraphs (a)(6) of this section, or with paragraph (b)(6) 
of this section, at their option.
    (i) Finance charges. The amount of any finance charge debited or 
added to the account during the billing cycle, using the term finance 
charge. The components of the finance charge shall be individually 
itemized and identified to show the amount(s) due to the application of 
any periodic rates and the amounts(s) of any other type of finance 
charge. If there is more than one periodic rate, the amount of the 
finance charge attributable to each rate need not be separately 
itemized and identified.
    (ii) Other charges. The amounts, itemized and identified by type, 
of any charges other than finance charges debited to the account during 
the billing cycle.
    (7) Annual percentage rate. At a creditor's option, when a finance 
charge is imposed during the billing cycle, the annual percentage 
rate(s) determined under Sec.  226.14(c) using the term annual 
percentage rate.
    (8) Grace period. The date by which or the time period within which 
the new balance or any portion of the new balance must be paid to avoid 
additional finance charges. If such a time period is provided, a 
creditor may, at its option and without disclosure, impose no finance 
charge if payment is received after the time period's expiration.
    (9) Address for notice of billing errors. The address to be used 
for notice of billing errors. Alternatively, the address may be 
provided on the billing rights statement permitted by Sec.  
226.9(a)(2).
    (10) Closing date of billing cycle; new balance. The closing date 
of the billing cycle and the account balance outstanding on that date.
    (b) Rules affecting open-end (not home-secured) plans. The 
requirements of paragraph (b) of this section apply only to plans other 
than home-equity plans subject to the requirements of Sec.  226.5b.
    (1) Previous balance. The account balance outstanding at the 
beginning of the billing cycle.
    (2) Identification of transactions. An identification of each 
credit transaction in accordance with Sec.  226.8.
    (3) Credits. Any credit to the account during the billing cycle, 
including the amount and the date of crediting. The date need not be 
provided if a delay in crediting does not result in any finance or 
other charge.
    (4) Periodic rates. (i) Except as provided in paragraph (b)(4)(ii) 
of this section, each periodic rate that may be used to compute the 
interest charge expressed as an annual percentage rate and using the 
term Annual Percentage Rate, along with the range of balances to which 
it is applicable. If no interest

[[Page 7805]]

charge is imposed when the outstanding balance is less than a certain 
amount, the creditor is not required to disclose that fact, or the 
balance below which no interest charge will be imposed. The types of 
transactions to which the periodic rates apply shall also be disclosed. 
For variable-rate plans, the fact that the annual percentage rate may 
vary.
    (ii) Exception. A promotional rate, as that term is defined in 
Sec.  226.16(g)(2)(i), is required to be disclosed only in periods in 
which the offered rate is actually applied.
    (5) Balance on which finance charge computed. The amount of the 
balance to which a periodic rate was applied and an explanation of how 
that balance was determined, using the term Balance Subject to Interest 
Rate. When a balance is determined without first deducting all credits 
and payments made during the billing cycle, the fact and the amount of 
the credits and payments shall be disclosed. As an alternative to 
providing an explanation of how the balance was determined, a creditor 
that uses a balance computation method identified in Sec.  226.5a(g) 
may, at the creditor's option, identify the name of the balance 
computation method and provide a toll-free telephone number where 
consumers may obtain from the creditor more information about the 
balance computation method and how resulting interest charges were 
determined. If the method used is not identified in Sec.  226.5a(g), 
the creditor shall provide a brief explanation of the method used.
    (6) Charges imposed. (i) The amounts of any charges imposed as part 
of a plan as stated in Sec.  226.6(b)(3), grouped together, in 
proximity to transactions identified under paragraph (b)(2) of this 
section, substantially similar to Sample G-18(A) in appendix G to this 
part.
    (ii) Interest. Finance charges attributable to periodic interest 
rates, using the term Interest Charge, must be grouped together under 
the heading Interest Charged, itemized and totaled by type of 
transaction, and a total of finance charges attributable to periodic 
interest rates, using the term Total Interest, must be disclosed for 
the statement period and calendar year to date, using a format 
substantially similar to Sample G-18(A) in appendix G to this part.
    (iii) Fees. Charges imposed as part of the plan other than charges 
attributable to periodic interest rates must be grouped together under 
the heading Fees, identified consistent with the feature or type, and 
itemized, and a total of charges, using the term Fees, must be 
disclosed for the statement period and calendar year to date, using a 
format substantially similar to Sample G-18(A) in appendix G to this 
part.
    (7) Change-in-terms and increased penalty rate summary for open-end 
(not home-secured) plans. Creditors that provide a change-in-terms 
notice required by Sec.  226.9(c), or a rate increase notice required 
by Sec.  226.9(g), on or with the periodic statement, must disclose the 
information in Sec.  226.9(c)(2)(iv)(A) and (c)(2)(iv)(B) (if 
applicable) or Sec.  226.9(g)(3)(i) on the periodic statement in 
accordance with the format requirements in Sec.  226.9(c)(2)(iv)(D), 
and Sec.  226.9(g)(3)(ii). See Forms G-18(F) and G-18(G) in appendix G 
to this part.
    (8) Grace period. The date by which or the time period within which 
the new balance or any portion of the new balance must be paid to avoid 
additional finance charges. If such a time period is provided, a 
creditor may, at its option and without disclosure, impose no finance 
charge if payment is received after the time period's expiration.
    (9) Address for notice of billing errors. The address to be used 
for notice of billing errors. Alternatively, the address may be 
provided on the billing rights statement permitted by Sec.  
226.9(a)(2).
    (10) Closing date of billing cycle; new balance. The closing date 
of the billing cycle and the account balance outstanding on that date. 
The new balance must be disclosed in accordance with the format 
requirements of paragraph (b)(13) of this section.
    (11) Due date; late payment costs. (i) Except as provided in 
paragraph (b)(11)(ii) of this section and in accordance with the format 
requirements in paragraph (b)(13) of this section, for a credit card 
account under an open-end (not home-secured) consumer credit plan, a 
card issuer must provide on each periodic statement:
    (A) The due date for a payment. The due date disclosed pursuant to 
this paragraph shall be the same day of the month for each billing 
cycle.
    (B) The amount of any late payment fee and any increased periodic 
rate(s) (expressed as an annual percentage rate(s)) that may be imposed 
on the account as a result of a late payment. If a range of late 
payment fees may be assessed, the card issuer may state the range of 
fees, or the highest fee and at the issuer's option with the highest 
fee an indication that the fee imposed could be lower. If the rate may 
be increased for more than one feature or balance, the card issuer may 
state the range of rates or the highest rate that could apply and at 
the issuer's option an indication that the rate imposed could be lower.
    (ii) Exception. The requirements of paragraph (b)(11)(i) of this 
section do not apply to the following:
    (A) Periodic statements provided solely for charge card accounts; 
and
    (B) Periodic statements provided for a charged-off account where 
payment of the entire account balance is due immediately.
    (12) Repayment disclosures. (i) In general. Except as provided in 
paragraphs (b)(12)(ii) and (b)(12)(v) of this section, for a credit 
card account under an open-end (not home-secured) consumer credit plan, 
a card issuer must provide the following disclosures on each periodic 
statement:
    (A) The following statement with a bold heading: ``Minimum Payment 
Warning: If you make only the minimum payment each period, you will pay 
more in interest and it will take you longer to pay off your balance;''
    (B) The minimum payment repayment estimate, as described in 
Appendix M1 to this part. If the minimum payment repayment estimate is 
less than 2 years, the card issuer must disclose the estimate in 
months. Otherwise, the estimate must be disclosed in years and rounded 
to the nearest whole year;
    (C) The minimum payment total cost estimate, as described in 
Appendix M1 to this part. The minimum payment total cost estimate must 
be rounded to the nearest whole dollar;
    (D) A statement that the minimum payment repayment estimate and the 
minimum payment total cost estimate are based on the current 
outstanding balance shown on the periodic statement. A statement that 
the minimum payment repayment estimate and the minimum payment total 
cost estimate are based on the assumption that only minimum payments 
are made and no other amounts are added to the balance;
    (E) A toll-free telephone number where the consumer may obtain from 
the card issuer information about credit counseling services consistent 
with paragraph (b)(12)(iv) of this section; and
    (F)(1) Except as provided in paragraph (b)(12)(i)(F)(2) of this 
section, the following disclosures:
    (i) The estimated monthly payment for repayment in 36 months, as 
described in Appendix M1 to this part. The estimated monthly payment 
for repayment in 36 months must be rounded to the nearest whole dollar;
    (ii) A statement that the card issuer estimates that the consumer 
will repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years;

[[Page 7806]]

    (iii) The total cost estimate for repayment in 36 months, as 
described in Appendix M1 to this part. The total cost estimate for 
repayment in 36 months must be rounded to the nearest whole dollar; and
    (iv) The savings estimate for repayment in 36 months, as described 
in Appendix M1 to this part. The savings estimate for repayment in 36 
months must be rounded to the nearest whole dollar.
    (2) The requirements of paragraph (b)(12)(i)(F)(1) of this section 
do not apply to a periodic statement in any of the following 
circumstances:
    (i) The minimum payment repayment estimate that is disclosed on the 
periodic statement pursuant to paragraph (b)(12)(i)(B) of this section 
after rounding is three years or less;
    (ii) The estimated monthly payment for repayment in 36 months, as 
described in Appendix M1 to this part, rounded to the nearest whole 
dollar that is calculated for a particular billing cycle is less than 
the minimum payment required for the plan for that billing cycle; and
    (iii) A billing cycle where an account has both a balance in a 
revolving feature where the required minimum payments for this feature 
will not amortize that balance in a fixed amount of time specified in 
the account agreement and a balance in a fixed repayment feature where 
the required minimum payment for this fixed repayment feature will 
amortize that balance in a fixed amount of time specified in the 
account agreement which is less than 36 months.
    (ii) Negative or no amortization. If negative or no amortization 
occurs when calculating the minimum payment repayment estimate as 
described in Appendix M1 of this part, a card issuer must provide the 
following disclosures on the periodic statement instead of the 
disclosures set forth in paragraph (b)(12)(i) of this section:
    (A) The following statement: ``Minimum Payment Warning: Even if you 
make no more charges using this card, if you make only the minimum 
payment each month we estimate you will never pay off the balance shown 
on this statement because your payment will be less than the interest 
charged each month'';
    (B) The following statement: ``If you make more than the minimum 
payment each period, you will pay less in interest and pay off your 
balance sooner'';
    (C) The estimated monthly payment for repayment in 36 months, as 
described in Appendix M1 to this part. The estimated monthly payment 
for repayment in 36 months must be rounded to the nearest whole dollar;
    (D) A statement that the card issuer estimates that the consumer 
will repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years; and
    (E) A toll-free telephone number where the consumer may obtain from 
the card issuer information about credit counseling services consistent 
with paragraph (b)(12)(iv) of this section.
    (iii) Format requirements. A card issuer must provide the 
disclosures required by paragraph (b)(12)(i) or (b)(12)(ii) of this 
section in accordance with the format requirements of paragraph (b)(13) 
of this section, and in a format substantially similar to Samples G-
18(C)(1), G-18(C)(2) and G-18(C)(3) in Appendix G to this part, as 
applicable.
    (iv) Provision of information about credit counseling services. (A) 
Required information. To the extent available from the United States 
Trustee or a bankruptcy administrator, a card issuer must provide 
through the toll-free telephone number disclosed pursuant to paragraphs 
(b)(12)(i) or (b)(12)(ii) of this section the name, street address, 
telephone number, and Web site address for at least three organizations 
that have been approved by the United States Trustee or a bankruptcy 
administrator pursuant to 11 U.S.C. 111(a)(1) to provide credit 
counseling services in, at the card issuer's option, either the state 
in which the billing address for the account is located or the state 
specified by the consumer.
    (B) Updating required information. At least annually, a card issuer 
must update the information provided pursuant to paragraph 
(b)(12)(iv)(A) of this section for consistency with the information 
available from the United States Trustee or a bankruptcy administrator.
    (v) Exemptions. Paragraph (b)(12) of this section does not apply 
to:
    (A) Charge card accounts that require payment of outstanding 
balances in full at the end of each billing cycle;
    (B) A billing cycle immediately following two consecutive billing 
cycles in which the consumer paid the entire balance in full, had a 
zero outstanding balance or had a credit balance; and
    (C) A billing cycle where paying the minimum payment due for that 
billing cycle will pay the entire outstanding balance on the account 
for that billing cycle.
    (13) Format requirements. The due date required by paragraph 
(b)(11) of this section shall be disclosed on the front of the first 
page of the periodic statement. The amount of the late payment fee and 
the annual percentage rate(s) required by paragraph (b)(11) of this 
section shall be stated in close proximity to the due date. The ending 
balance required by paragraph (b)(10) of this section and the 
disclosures required by paragraph (b)(12) of this section shall be 
disclosed closely proximate to the minimum payment due. The due date, 
late payment fee and annual percentage rate, ending balance, minimum 
payment due, and disclosures required by paragraph (b)(12) of this 
section shall be grouped together. Sample G-18(D) in Appendix G to this 
part sets forth an example of how these terms may be grouped.
    (14) Deferred interest or similar transactions. For accounts with 
an outstanding balance subject to a deferred interest or similar 
program, the date by which that outstanding balance must be paid in 
full in order to avoid the obligation to pay finance charges on such 
balance must be disclosed on the front of each periodic statement 
issued during the deferred interest period beginning with the first 
periodic statement issued during the deferred interest period that 
reflects the deferred interest or similar transaction. The disclosure 
provided pursuant to this paragraph must be substantially similar to 
Sample G-18(H) in Appendix G to this part.

0
10. Section 226.8 is revised to read as follows:


Sec.  226.8  Identifying transactions on periodic statements.

    The creditor shall identify credit transactions on or with the 
first periodic statement that reflects the transaction by furnishing 
the following information, as applicable.\16\
---------------------------------------------------------------------------

    \16\ [Reserved].
---------------------------------------------------------------------------

    (a) Sale credit. (1) Except as provided in paragraph (a)(2) of this 
section, for each credit transaction involving the sale of property or 
services, the creditor must disclose the amount and date of the 
transaction, and either:
    (i) A brief identification \17\ of the property or services 
purchased, for creditors and sellers that are the same or related; \18\ 
or
---------------------------------------------------------------------------

    \17\ [Reserved].
    \18\ [Reserved].
---------------------------------------------------------------------------

    (ii) The seller's name; and the city and state or foreign country 
where the transaction took place.\19\ The creditor may omit the address 
or provide any suitable designation that helps the consumer to identify 
the transaction when the transaction took place at a location that is 
not fixed; took place in

[[Page 7807]]

the consumer's home; or was a mail, Internet, or telephone order.
---------------------------------------------------------------------------

    \19\ [Reserved].
---------------------------------------------------------------------------

    (2) Creditors need not comply with paragraph (a)(1) of this section 
if an actual copy of the receipt or other credit document is provided 
with the first periodic statement reflecting the transaction, and the 
amount of the transaction and either the date of the transaction to the 
consumer's account or the date of debiting the transaction are 
disclosed on the copy or on the periodic statement.
    (b) Nonsale credit. For each credit transaction not involving the 
sale of property or services, the creditor must disclose a brief 
identification of the transaction;\20\ the amount of the transaction; 
and at least one of the following dates: The date of the transaction, 
the date the transaction was debited to the consumer's account, or, if 
the consumer signed the credit document, the date appearing on the 
document. If an actual copy of the receipt or other credit document is 
provided and that copy shows the amount and at least one of the 
specified dates, the brief identification may be omitted.
---------------------------------------------------------------------------

    \20\ [Reserved].
---------------------------------------------------------------------------

    (c) Alternative creditor procedures; consumer inquiries for 
clarification or documentation. The following procedures apply to 
creditors that treat an inquiry for clarification or documentation as a 
notice of a billing error, including correcting the account in 
accordance with Sec.  226.13(e):
    (1) Failure to disclose the information required by paragraphs (a) 
and (b) of this section is not a failure to comply with the regulation, 
provided that the creditor also maintains procedures reasonably 
designed to obtain and provide the information. This applies to 
transactions that take place outside a state, as defined in Sec.  
226.2(a)(26), whether or not the creditor maintains procedures 
reasonably adapted to obtain the required information.
    (2) As an alternative to the brief identification for sale or 
nonsale credit, the creditor may disclose a number or symbol that also 
appears on the receipt or other credit document given to the consumer, 
if the number or symbol reasonably identifies that transaction with 
that creditor.

0
11. Revise Sec.  226.9 to read as follows:


Sec.  226.9  Subsequent disclosure requirements.

    (a) Furnishing statement of billing rights. (1) Annual statement. 
The creditor shall mail or deliver the billing rights statement 
required by Sec.  226.6(a)(5) and (b)(5)(iii) at least once per 
calendar year, at intervals of not less than 6 months nor more than 18 
months, either to all consumers or to each consumer entitled to receive 
a periodic statement under Sec.  226.5(b)(2) for any one billing cycle.
    (2) Alternative summary statement. As an alternative to paragraph 
(a)(1) of this section, the creditor may mail or deliver, on or with 
each periodic statement, a statement substantially similar to Model 
Form G-4 or Model Form G-4(A) in appendix G to this part, as 
applicable. Creditors offering home-equity plans subject to the 
requirements of Sec.  226.5b may use either Model Form, at their 
option.
    (b) Disclosures for supplemental credit access devices and 
additional features. (1) If a creditor, within 30 days after mailing or 
delivering the account-opening disclosures under Sec.  226.6(a)(1) or 
(b)(3)(ii)(A), as applicable, adds a credit feature to the consumer's 
account or mails or delivers to the consumer a credit access device, 
including but not limited to checks that access a credit card account, 
for which the finance charge terms are the same as those previously 
disclosed, no additional disclosures are necessary. Except as provided 
in paragraph (b)(3) of this section, after 30 days, if the creditor 
adds a credit feature or furnishes a credit access device (other than 
as a renewal, resupply, or the original issuance of a credit card) on 
the same finance charge terms, the creditor shall disclose, before the 
consumer uses the feature or device for the first time, that it is for 
use in obtaining credit under the terms previously disclosed.
    (2) Except as provided in paragraph (b)(3) of this section, 
whenever a credit feature is added or a credit access device is mailed 
or delivered to the consumer, and the finance charge terms for the 
feature or device differ from disclosures previously given, the 
disclosures required by Sec.  226.6(a)(1) or (b)(3)(ii)(A), as 
applicable, that are applicable to the added feature or device shall be 
given before the consumer uses the feature or device for the first 
time.
    (3) Checks that access a credit card account. (i) Disclosures. For 
open-end plans not subject to the requirements of Sec.  226.5b, if 
checks that can be used to access a credit card account are provided 
more than 30 days after account-opening disclosures under Sec.  
226.6(b) are mailed or delivered, or are provided within 30 days of the 
account-opening disclosures and the finance charge terms for the checks 
differ from the finance charge terms previously disclosed, the creditor 
shall disclose on the front of the page containing the checks the 
following terms in the form of a table with the headings, content, and 
form substantially similar to Sample G-19 in appendix G to this part:
    (A) If a promotional rate, as that term is defined in Sec.  
226.16(g)(2)(i) applies to the checks:
    (1) The promotional rate and the time period during which the 
promotional rate will remain in effect;
    (2) The type of rate that will apply (such as whether the purchase 
or cash advance rate applies) after the promotional rate expires, and 
the annual percentage rate that will apply after the promotional rate 
expires. For a variable-rate account, a creditor must disclose an 
annual percentage rate based on the applicable index or formula in 
accordance with the accuracy requirements set forth in paragraph 
(b)(3)(ii) of this section; and
    (3) The date, if any, by which the consumer must use the checks in 
order to qualify for the promotional rate. If the creditor will honor 
checks used after such date but will apply an annual percentage rate 
other than the promotional rate, the creditor must disclose this fact 
and the type of annual percentage rate that will apply if the consumer 
uses the checks after such date.
    (B) If no promotional rate applies to the checks:
    (1) The type of rate that will apply to the checks and the 
applicable annual percentage rate. For a variable-rate account, a 
creditor must disclose an annual percentage rate based on the 
applicable index or formula in accordance with the accuracy 
requirements set forth in paragraph (b)(3)(ii) of this section.
    (2) [Reserved]
    (C) Any transaction fees applicable to the checks disclosed under 
Sec.  226.6(b)(2)(iv); and
    (D) Whether or not a grace period is given within which any credit 
extended by use of the checks may be repaid without incurring a finance 
charge due to a periodic interest rate. When disclosing whether there 
is a grace period, the phrase ``How to Avoid Paying Interest on Check 
Transactions'' shall be used as the row heading when a grace period 
applies to credit extended by the use of the checks. When disclosing 
the fact that no grace period exists for credit extended by use of the 
checks, the phrase ``Paying Interest'' shall be used as the row 
heading.
    (ii) Accuracy. The disclosures in paragraph (b)(3)(i) of this 
section must be accurate as of the time the disclosures are mailed or 
delivered. A variable annual percentage rate is accurate if it was in 
effect within 60

[[Page 7808]]

days of when the disclosures are mailed or delivered.
    (c)(1) Rules affecting home-equity plans. (i) Written notice 
required. For home-equity plans subject to the requirements of Sec.  
226.5b, whenever any term required to be disclosed under Sec.  226.6(a) 
is changed or the required minimum periodic payment is increased, the 
creditor shall mail or deliver written notice of the change to each 
consumer who may be affected. The notice shall be mailed or delivered 
at least 15 days prior to the effective date of the change. The 15-day 
timing requirement does not apply if the change has been agreed to by 
the consumer; the notice shall be given, however, before the effective 
date of the change.
    (ii) Notice not required. For home-equity plans subject to the 
requirements of Sec.  226.5b, a creditor is not required to provide 
notice under this section when the change involves a reduction of any 
component of a finance or other charge or when the change results from 
an agreement involving a court proceeding.
    (iii) Notice to restrict credit. For home-equity plans subject to 
the requirements of Sec.  226.5b, if the creditor prohibits additional 
extensions of credit or reduces the credit limit pursuant to Sec.  
226.5b(f)(3)(i) or (f)(3)(vi), the creditor shall mail or deliver 
written notice of the action to each consumer who will be affected. The 
notice must be provided not later than three business days after the 
action is taken and shall contain specific reasons for the action. If 
the creditor requires the consumer to request reinstatement of credit 
privileges, the notice also shall state that fact.
    (2) Rules affecting open-end (not home-secured) plans. (i) Changes 
where written advance notice is required. (A) General. For plans other 
than home-equity plans subject to the requirements of Sec.  226.5b, 
except as provided in paragraphs (c)(2)(i)(B), (c)(2)(iii) and 
(c)(2)(v) of this section, when a significant change in account terms 
as described in paragraph (c)(2)(ii) of this section is made to a term 
required to be disclosed under Sec.  226.6(b)(3), (b)(4) or (b)(5) or 
the required minimum periodic payment is increased, a creditor must 
provide a written notice of the change at least 45 days prior to the 
effective date of the change to each consumer who may be affected. The 
45-day timing requirement does not apply if the consumer has agreed to 
a particular change; the notice shall be given, however, before the 
effective date of the change. Increases in the rate applicable to a 
consumer's account due to delinquency, default or as a penalty 
described in paragraph (g) of this section that are not due to a change 
in the contractual terms of the consumer's account must be disclosed 
pursuant to paragraph (g) of this section instead of paragraph (c)(2) 
of this section.
    (B) Changes agreed to by the consumer. A notice of change in terms 
is required, but it may be mailed or delivered as late as the effective 
date of the change if the consumer agrees to the particular change. 
This paragraph (c)(2)(i)(B) applies only when a consumer substitutes 
collateral or when the creditor can advance additional credit only if a 
change relatively unique to that consumer is made, such as the 
consumer's providing additional security or paying an increased minimum 
payment amount. The following are not considered agreements between the 
consumer and the creditor for purposes of this paragraph (c)(2)(i)(B): 
The consumer's general acceptance of the creditor's contract 
reservation of the right to change terms; the consumer's use of the 
account (which might imply acceptance of its terms under state law); 
the consumer's acceptance of a unilateral term change that is not 
particular to that consumer, but rather is of general applicability to 
consumers with that type of account; and the consumer's request to 
reopen a closed account or to upgrade an existing account to another 
account offered by the creditor with different credit or other 
features.
    (ii) Significant changes in account terms. For purposes of this 
section, a ``significant change in account terms'' means a change to a 
term required to be disclosed under Sec.  226.6(b)(1) and (b)(2), an 
increase in the required minimum periodic payment, or the acquisition 
of a security interest.
    (iii) Charges not covered by Sec.  226.6(b)(1) and (b)(2). Except 
as provided in paragraph (c)(2)(vi) of this section, if a creditor 
increases any component of a charge, or introduces a new charge, 
required to be disclosed under Sec.  226.6(b)(3) that is not a 
significant change in account terms as described in paragraph 
(c)(2)(ii) of this section, a creditor may either, at its option:
    (A) Comply with the requirements of paragraph (c)(2)(i) of this 
section; or
    (B) Provide notice of the amount of the charge before the consumer 
agrees to or becomes obligated to pay the charge, at a time and in a 
manner that a consumer would be likely to notice the disclosure of the 
charge. The notice may be provided orally or in writing.
    (iv) Disclosure requirements. (A) Significant changes in account 
terms. If a creditor makes a significant change in account terms as 
described in paragraph (c)(2)(ii) of this section, the notice provided 
pursuant to paragraph (c)(2)(i) of this section must provide the 
following information:
    (1) A summary of the changes made to terms required by Sec.  
226.6(b)(1) and (b)(2), a description of any increase in the required 
minimum periodic payment, and a description of any security interest 
being acquired by the creditor;
    (2) A statement that changes are being made to the account;
    (3) For accounts other than credit card accounts under an open-end 
(not home-secured) consumer credit plan subject to Sec.  
226.9(c)(2)(iv)(B), a statement indicating the consumer has the right 
to opt out of these changes, if applicable, and a reference to 
additional information describing the opt-out right provided in the 
notice, if applicable;
    (4) The date the changes will become effective;
    (5) If applicable, a statement that the consumer may find 
additional information about the summarized changes, and other changes 
to the account, in the notice;
    (6) If the creditor is changing a rate on the account, other than a 
penalty rate, a statement that if a penalty rate currently applies to 
the consumer's account, the new rate described in the notice will not 
apply to the consumer's account until the consumer's account balances 
are no longer subject to the penalty rate; and
    (7) If the change in terms being disclosed is an increase in an 
annual percentage rate, the balances to which the increased rate will 
be applied. If applicable, a statement identifying the balances to 
which the current rate will continue to apply as of the effective date 
of the change in terms.
    (B) Right to reject for credit card accounts under an open-end (not 
home-secured) consumer credit plan. In addition to the disclosures in 
paragraph (c)(2)(iv)(A) of this section, if a card issuer makes a 
significant change in account terms on a credit card account under an 
open-end (not home-secured) consumer credit plan, the creditor must 
generally provide the following information on the notice provided 
pursuant to paragraph (c)(2)(i) of this section. This information is 
not required to be provided in the case of an increase in the required 
minimum periodic payment, a change in an annual percentage rate 
applicable to a consumer's account, a change in the balance computation 
method applicable to consumer's account necessary to comply with Sec.  
226.54, or when the change results from the creditor not

[[Page 7809]]

receiving the consumer's required minimum periodic payment within 60 
days after the due date for that payment:
    (1) A statement that the consumer has the right to reject the 
change or changes prior to the effective date of the changes, unless 
the consumer fails to make a required minimum periodic payment within 
60 days after the due date for that payment;
    (2) Instructions for rejecting the change or changes, and a toll-
free telephone number that the consumer may use to notify the creditor 
of the rejection; and
    (3) If applicable, a statement that if the consumer rejects the 
change or changes, the consumer's ability to use the account for 
further advances will be terminated or suspended.
    (C) Changes resulting from failure to make minimum periodic payment 
within 60 days from due date for credit card accounts under an open-end 
(not home-secured) consumer credit plan. For a credit card account 
under an open-end (not home-secured) consumer credit plan, if the 
significant change required to be disclosed pursuant to paragraph 
(c)(2)(i) of this section is an increase in an annual percentage rate 
or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) based on the consumer's 
failure to make a minimum periodic payment within 60 days from the due 
date for that payment, the notice provided pursuant to paragraph 
(c)(2)(i) of this section must also contain the following information:
    (1) A statement of the reason for the increase; and
    (2) That the increase will cease to apply to transactions that 
occurred prior to or within 14 days of provision of the notice, if the 
creditor receives six consecutive required minimum periodic payments on 
or before the payment due date, beginning with the first payment due 
following the effective date of the increase.
    (D) Format requirements. (1) Tabular format. The summary of changes 
described in paragraph (c)(2)(iv)(A)(1) of this section must be in a 
tabular format (except for a summary of any increase in the required 
minimum periodic payment), with headings and format substantially 
similar to any of the account-opening tables found in G-17 in appendix 
G to this part. The table must disclose the changed term and 
information relevant to the change, if that relevant information is 
required by Sec.  226.6(b)(1) and (b)(2). The new terms shall be 
described in the same level of detail as required when disclosing the 
terms under Sec.  226.6(b)(2).
    (2) Notice included with periodic statement. If a notice required 
by paragraph (c)(2)(i) of this section is included on or with a 
periodic statement, the information described in paragraph 
(c)(2)(iv)(A)(1) of this section must be disclosed on the front of any 
page of the statement. The summary of changes described in paragraph 
(c)(2)(iv)(A)(1) of this section must immediately follow the 
information described in paragraph (c)(2)(iv)(A)(2) through 
(c)(2)(iv)(A)(7) and, if applicable, paragraphs (c)(2)(iv)(B) and 
(c)(2)(iv)(C) of this section, and be substantially similar to the 
format shown in Sample G-20 or G-21 in appendix G to this part.
    (3) Notice provided separately from periodic statement. If a notice 
required by paragraph (c)(2)(i) of this section is not included on or 
with a periodic statement, the information described in paragraph 
(c)(2)(iv)(A)(1) of this section must, at the creditor's option, be 
disclosed on the front of the first page of the notice or segregated on 
a separate page from other information given with the notice. The 
summary of changes required to be in a table pursuant to paragraph 
(c)(2)(iv)(A)(1) of this section may be on more than one page, and may 
use both the front and reverse sides, so long as the table begins on 
the front of the first page of the notice and there is a reference on 
the first page indicating that the table continues on the following 
page. The summary of changes described in paragraph (c)(2)(iv)(A)(1) of 
this section must immediately follow the information described in 
paragraph (c)(2)(iv)(A)(2) through (c)(2)(iv)(A)(7) and, if applicable, 
paragraphs (c)(2)(iv)(B) and (c)(2)(iv)(C), of this section, 
substantially similar to the format shown in Sample G-20 or G-21 in 
appendix G to this part.
    (v) Notice not required. For open-end plans (other than home equity 
plans subject to the requirements of Sec.  226.5b) a creditor is not 
required to provide notice under this section:
    (A) When the change involves charges for documentary evidence; a 
reduction of any component of a finance or other charge; suspension of 
future credit privileges (except as provided in paragraph (c)(2)(vi) of 
this section) or termination of an account or plan; when the change 
results from an agreement involving a court proceeding; when the change 
is an extension of the grace period; or if the change is applicable 
only to checks that access a credit card account and the changed terms 
are disclosed on or with the checks in accordance with paragraph (b)(3) 
of this section;
    (B) When the change is an increase in an annual percentage rate 
upon the expiration of a specified period of time, provided that:
    (1) Prior to commencement of that period, the creditor disclosed in 
writing to the consumer, in a clear and conspicuous manner, the length 
of the period and the annual percentage rate that would apply after 
expiration of the period;
    (2) The disclosure of the length of the period and the annual 
percentage rate that would apply after expiration of the period are set 
forth in close proximity and in equal prominence to the first listing 
of the disclosure of the rate that applies during the specified period 
of time; and
    (3) The annual percentage rate that applies after that period does 
not exceed the rate disclosed pursuant to paragraph (c)(2)(v)(B)(1) of 
this paragraph or, if the rate disclosed pursuant to paragraph 
(c)(2)(v)(B)(1) of this section was a variable rate, the rate following 
any such increase is a variable rate determined by the same formula 
(index and margin) that was used to calculate the variable rate 
disclosed pursuant to paragraph (c)(2)(v)(B)(1);
    (C) When the change is an increase in a variable annual percentage 
rate in accordance with a credit card agreement that provides for 
changes in the rate according to operation of an index that is not 
under the control of the creditor and is available to the general 
public; or
    (D) When the change is an increase in an annual percentage rate, a 
fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii), or the required minimum periodic payment 
due to the completion of a workout or temporary hardship arrangement by 
the consumer or the consumer's failure to comply with the terms of such 
an arrangement, provided that:
    (1) The annual percentage rate or fee or charge applicable to a 
category of transactions or the required minimum periodic payment 
following any such increase does not exceed the rate or fee or charge 
or required minimum periodic payment that applied to that category of 
transactions prior to commencement of the arrangement or, if the rate 
that applied to a category of transactions prior to the commencement of 
the workout or temporary hardship arrangement was a variable rate, the 
rate following any such increase is a variable rate determined by the 
same formula (index and margin) that applied to the category of 
transactions prior to commencement of the workout or temporary hardship 
arrangement; and

[[Page 7810]]

    (2) The creditor has provided the consumer, prior to the 
commencement of such arrangement, with a clear and conspicuous 
disclosure of the terms of the arrangement (including any increases due 
to such completion or failure). This disclosure must generally be 
provided in writing. However, a creditor may provide the disclosure of 
the terms of the arrangement orally by telephone, provided that the 
creditor mails or delivers a written disclosure of the terms of the 
arrangement to the consumer as soon as reasonably practicable after the 
oral disclosure is provided.
    (vi) Reduction of the credit limit. For open-end plans that are not 
subject to the requirements of Sec.  226.5b, if a creditor decreases 
the credit limit on an account, advance notice of the decrease must be 
provided before an over-the-limit fee or a penalty rate can be imposed 
solely as a result of the consumer exceeding the newly decreased credit 
limit. Notice shall be provided in writing or orally at least 45 days 
prior to imposing the over-the-limit fee or penalty rate and shall 
state that the credit limit on the account has been or will be 
decreased.
    (d) Finance charge imposed at time of transaction. (1) Any person, 
other than the card issuer, who imposes a finance charge at the time of 
honoring a consumer's credit card, shall disclose the amount of that 
finance charge prior to its imposition.
    (2) The card issuer, other than the person honoring the consumer's 
credit card, shall have no responsibility for the disclosure required 
by paragraph (d)(1) of this section, and shall not consider any such 
charge for the purposes of Sec. Sec.  226.5a, 226.6 and 226.7.
    (e) Disclosures upon renewal of credit or charge card. (1) Notice 
prior to renewal. A card issuer that imposes any annual or other 
periodic fee to renew a credit or charge card account of the type 
subject to Sec.  226.5a, including any fee based on account activity or 
inactivity or any card issuer that has changed or amended any term of a 
cardholder's account required to be disclosed under Sec.  226.6(b)(1) 
and (b)(2) that has not previously been disclosed to the consumer, 
shall mail or deliver written notice of the renewal to the cardholder. 
If the card issuer imposes any annual or other periodic fee for 
renewal, the notice shall be provided at least 30 days or one billing 
cycle, whichever is less, before the mailing or the delivery of the 
periodic statement on which any renewal fee is initially charged to the 
account. If the card issuer has changed or amended any term required to 
be disclosed under Sec.  226.6(b)(1) and (b)(2) and such changed or 
amended term has not previously been disclosed to the consumer, the 
notice shall be provided at least 30 days prior to the scheduled 
renewal date of the consumer's credit or charge card. The notice shall 
contain the following information:
    (i) The disclosures contained in Sec.  226.5a(b)(1) through (b)(7) 
that would apply if the account were renewed; \20a\ and
---------------------------------------------------------------------------

    \20a\ [Reserved].
---------------------------------------------------------------------------

    (ii) How and when the cardholder may terminate credit availability 
under the account to avoid paying the renewal fee, if applicable.
    (2) Notification on periodic statements. The disclosures required 
by this paragraph may be made on or with a periodic statement. If any 
of the disclosures are provided on the back of a periodic statement, 
the card issuer shall include a reference to those disclosures on the 
front of the statement.
    (f) Change in credit card account insurance provider. (1) Notice 
prior to change. If a credit card issuer plans to change the provider 
of insurance for repayment of all or part of the outstanding balance of 
an open-end credit card account of the type subject to Sec.  226.5a, 
the card issuer shall mail or deliver to the cardholder written notice 
of the change not less than 30 days before the change in provider 
occurs. The notice shall also include the following items, to the 
extent applicable:
    (i) Any increase in the rate that will result from the change;
    (ii) Any substantial decrease in coverage that will result from the 
change; and
    (iii) A statement that the cardholder may discontinue the 
insurance.
    (2) Notice when change in provider occurs. If a change described in 
paragraph (f)(1) of this section occurs, the card issuer shall provide 
the cardholder with a written notice no later than 30 days after the 
change, including the following items, to the extent applicable:
    (i) The name and address of the new insurance provider;
    (ii) A copy of the new policy or group certificate containing the 
basic terms of the insurance, including the rate to be charged; and
    (iii) A statement that the cardholder may discontinue the 
insurance.
    (3) Substantial decrease in coverage. For purposes of this 
paragraph, a substantial decrease in coverage is a decrease in a 
significant term of coverage that might reasonably be expected to 
affect the cardholder's decision to continue the insurance. Significant 
terms of coverage include, for example, the following:
    (i) Type of coverage provided;
    (ii) Age at which coverage terminates or becomes more restrictive;
    (iii) Maximum insurable loan balance, maximum periodic benefit 
payment, maximum number of payments, or other term affecting the dollar 
amount of coverage or benefits provided;
    (iv) Eligibility requirements and number and identity of persons 
covered;
    (v) Definition of a key term of coverage such as disability;
    (vi) Exclusions from or limitations on coverage; and
    (vii) Waiting periods and whether coverage is retroactive.
    (4) Combined notification. The notices required by paragraph (f)(1) 
and (2) of this section may be combined provided the timing requirement 
of paragraph (f)(1) of this section is met. The notices may be provided 
on or with a periodic statement.
    (g) Increase in rates due to delinquency or default or as a 
penalty. (1) Increases subject to this section. For plans other than 
home-equity plans subject to the requirements of Sec.  226.5b, except 
as provided in paragraph (g)(4) of this section, a creditor must 
provide a written notice to each consumer who may be affected when:
    (i) A rate is increased due to the consumer's delinquency or 
default; or
    (ii) A rate is increased as a penalty for one or more events 
specified in the account agreement, such as making a late payment or 
obtaining an extension of credit that exceeds the credit limit.
    (2) Timing of written notice. Whenever any notice is required to be 
given pursuant to paragraph (g)(1) of this section, the creditor shall 
provide written notice of the increase in rates at least 45 days prior 
to the effective date of the increase. The notice must be provided 
after the occurrence of the events described in paragraphs (g)(1)(i) 
and (g)(1)(ii) of this section that trigger the imposition of the rate 
increase.
    (3)(i) Disclosure requirements for rate increases. (A) General. If 
a creditor is increasing the rate due to delinquency or default or as a 
penalty, the creditor must provide the following information on the 
notice sent pursuant to paragraph (g)(1) of this section:
    (1) A statement that the delinquency or default rate or penalty 
rate, as applicable, has been triggered;
    (2) The date on which the delinquency or default rate or penalty 
rate will apply;
    (3) The circumstances under which the delinquency or default rate 
or penalty rate, as applicable, will cease to

[[Page 7811]]

apply to the consumer's account, or that the delinquency or default 
rate or penalty rate will remain in effect for a potentially indefinite 
time period;
    (4) A statement indicating to which balances the delinquency or 
default rate or penalty rate will be applied; and
    (5) If applicable, a description of any balances to which the 
current rate will continue to apply as of the effective date of the 
rate increase, unless a consumer fails to make a minimum periodic 
payment within 60 days from the due date for that payment.
    (B) Rate increases resulting from failure to make minimum periodic 
payment within 60 days from due date. For a credit card account under 
an open-end (not home-secured) consumer credit plan, if the rate 
increase required to be disclosed pursuant to paragraph (g)(1) of this 
section is an increase pursuant to Sec.  226.55(b)(4) based on the 
consumer's failure to make a minimum periodic payment within 60 days 
from the due date for that payment, the notice provided pursuant to 
paragraph (g)(1) of this section must also contain the following 
information:
    (1) A statement of the reason for the increase; and
    (2) That the increase will cease to apply to transactions that 
occurred prior to or within 14 days of provision of the notice, if the 
creditor receives six consecutive required minimum periodic payments on 
or before the payment due date, beginning with the first payment due 
following the effective date of the increase.
    (ii) Format requirements. (A) If a notice required by paragraph 
(g)(1) of this section is included on or with a periodic statement, the 
information described in paragraph (g)(3)(i) of this section must be in 
the form of a table and provided on the front of any page of the 
periodic statement, above the notice described in paragraph (c)(2)(iv) 
of this section if that notice is provided on the same statement.
    (B) If a notice required by paragraph (g)(1) of this section is not 
included on or with a periodic statement, the information described in 
paragraph (g)(3)(i) of this section must be disclosed on the front of 
the first page of the notice. Only information related to the increase 
in the rate to a penalty rate may be included with the notice, except 
that this notice may be combined with a notice described in paragraph 
(c)(2)(iv) or (g)(4) of this section.
    (4) Exception for decrease in credit limit. A creditor is not 
required to provide a notice pursuant to paragraph (g)(1) of this 
section prior to increasing the rate for obtaining an extension of 
credit that exceeds the credit limit, provided that:
    (i) The creditor provides at least 45 days in advance of imposing 
the penalty rate a notice, in writing, that includes:
    (A) A statement that the credit limit on the account has been or 
will be decreased.
    (B) A statement indicating the date on which the penalty rate will 
apply, if the outstanding balance exceeds the credit limit as of that 
date;
    (C) A statement that the penalty rate will not be imposed on the 
date specified in paragraph (g)(4)(i)(B) of this section, if the 
outstanding balance does not exceed the credit limit as of that date;
    (D) The circumstances under which the penalty rate, if applied, 
will cease to apply to the account, or that the penalty rate, if 
applied, will remain in effect for a potentially indefinite time 
period;
    (E) A statement indicating to which balances the penalty rate may 
be applied; and
    (F) If applicable, a description of any balances to which the 
current rate will continue to apply as of the effective date of the 
rate increase, unless the consumer fails to make a minimum periodic 
payment within 60 days from the due date for that payment; and
    (ii) The creditor does not increase the rate applicable to the 
consumer's account to the penalty rate if the outstanding balance does 
not exceed the credit limit on the date set forth in the notice and 
described in paragraph (g)(4)(i)(B) of this section.
    (iii) (A) If a notice provided pursuant to paragraph (g)(4)(i) of 
this section is included on or with a periodic statement, the 
information described in paragraph (g)(4)(i) of this section must be in 
the form of a table and provided on the front of any page of the 
periodic statement; or
    (B) If a notice required by paragraph (g)(4)(i) of this section is 
not included on or with a periodic statement, the information described 
in paragraph (g)(4)(i) of this section must be disclosed on the front 
of the first page of the notice. Only information related to the 
reduction in credit limit may be included with the notice, except that 
this notice may be combined with a notice described in paragraph 
(c)(2)(iv) or (g)(1) of this section.
    (h) Consumer rejection of certain significant changes in terms. (1) 
Right to reject. If paragraph (c)(2)(iv)(B) of this section requires 
disclosure of the consumer's right to reject a significant change to an 
account term, the consumer may reject that change by notifying the 
creditor of the rejection before the effective date of the change.
    (2) Effect of rejection. If a creditor is notified of a rejection 
of a significant change to an account term as provided in paragraph 
(h)(1) of this section, the creditor must not:
    (i) Apply the change to the account;
    (ii) Impose a fee or charge or treat the account as in default 
solely as a result of the rejection; or
    (iii) Require repayment of the balance on the account using a 
method that is less beneficial to the consumer than one of the methods 
listed in Sec.  226.55(c)(2).
    (3) Exception. Section 226.9(h) does not apply when the creditor 
has not received the consumer's required minimum periodic payment 
within 60 days after the due date for that payment.

0
12. Section 226.10 is revised to read as follows:


Sec.  226.10  Payments.

    (a) General rule. A creditor shall credit a payment to the 
consumer's account as of the date of receipt, except when a delay in 
crediting does not result in a finance or other charge or except as 
provided in paragraph (b) of this section.
    (b) Specific requirements for payments. (1) General rule. A 
creditor may specify reasonable requirements for payments that enable 
most consumers to make conforming payments.
    (2) Examples of reasonable requirements for payments. Reasonable 
requirements for making payment may include:
    (i) Requiring that payments be accompanied by the account number or 
payment stub;
    (ii) Setting reasonable cut-off times for payments to be received 
by mail, by electronic means, by telephone, and in person (except as 
provided in paragraph (b)(3) of this section), provided that such cut-
off times shall be no earlier than 5 p.m. on the payment due date at 
the location specified by the creditor for the receipt of such 
payments;
    (iii) Specifying that only checks or money orders should be sent by 
mail;
    (iv) Specifying that payment is to be made in U.S. dollars; or
    (v) Specifying one particular address for receiving payments, such 
as a post office box.
    (3) In-person payments on credit card accounts. (i) General. 
Notwithstanding Sec.  226.10(b), payments on a credit card account 
under an open-end (not home-secured) consumer credit plan made in 
person at a branch or office of a card issuer that is a financial 
institution prior to the close of business of that branch or office 
shall be considered received on the date on which the consumer makes 
the payment. A card issuer that is a financial institution shall not 
impose a

[[Page 7812]]

cut-off time earlier than the close of business for any such payments 
made in person at any branch or office of the card issuer at which such 
payments are accepted. Notwithstanding Sec.  226.10(b)(2)(ii), a card 
issuer may impose a cut-off time earlier than 5 p.m. for such payments, 
if the close of business of the branch or office is earlier than 5 p.m.
    (ii) Financial institution. For purposes of paragraph (b)(3) of 
this section, ``financial institution'' shall mean a bank, savings 
association, or credit union.
    (4) Nonconforming payments. If a creditor specifies, on or with the 
periodic statement, requirements for the consumer to follow in making 
payments as permitted under this Sec.  226.10, but accepts a payment 
that does not conform to the requirements, the creditor shall credit 
the payment within five days of receipt.
    (c) Adjustment of account. If a creditor fails to credit a payment, 
as required by paragraphs (a) or (b) of this section, in time to avoid 
the imposition of finance or other charges, the creditor shall adjust 
the consumer's account so that the charges imposed are credited to the 
consumer's account during the next billing cycle.
    (d) Crediting of payments when creditor does not receive or accept 
payments on due date. (1) General. Except as provided in paragraph 
(d)(2) of this section, if a creditor does not receive or accept 
payments by mail on the due date for payments, the creditor may 
generally not treat a payment received the next business day as late 
for any purpose. For purposes of this paragraph (d), the ``next 
business day'' means the next day on which the creditor accepts or 
receives payments by mail.
    (2) Payments accepted or received other than by mail. If a creditor 
accepts or receives payments made on the due date by a method other 
than mail, such as electronic or telephone payments, the creditor is 
not required to treat a payment made by that method on the next 
business day as timely, even if it does not accept mailed payments on 
the due date.
    (e) Limitations on fees related to method of payment. For credit 
card accounts under an open-end (not home-secured) consumer credit 
plan, a creditor may not impose a separate fee to allow consumers to 
make a payment by any method, such as mail, electronic, or telephone 
payments, unless such payment method involves an expedited service by a 
customer service representative of the creditor.
    (f) Changes by card issuer. If a card issuer makes a material 
change in the address for receiving payments or procedures for handling 
payments, and such change causes a material delay in the crediting of a 
payment to the consumer's account during the 60-day period following 
the date on which such change took effect, the card issuer may not 
impose any late fee or finance charge for a late payment on the credit 
card account during the 60-day period following the date on which the 
change took effect.

0
13. Section 226.11 is revised to read as follows:


Sec.  226.11  Treatment of credit balances; account termination.

    (a) Credit balances. When a credit balance in excess of $1 is 
created on a credit account (through transmittal of funds to a creditor 
in excess of the total balance due on an account, through rebates of 
unearned finance charges or insurance premiums, or through amounts 
otherwise owed to or held for the benefit of the consumer), the 
creditor shall--
    (1) Credit the amount of the credit balance to the consumer's 
account;
    (2) Refund any part of the remaining credit balance within seven 
business days from receipt of a written request from the consumer;
    (3) Make a good faith effort to refund to the consumer by cash, 
check, or money order, or credit to a deposit account of the consumer, 
any part of the credit balance remaining in the account for more than 
six months. No further action is required if the consumer's current 
location is not known to the creditor and cannot be traced through the 
consumer's last known address or telephone number.
    (b) Account termination. (1) A creditor shall not terminate an 
account prior to its expiration date solely because the consumer does 
not incur a finance charge.
    (2) Nothing in paragraph (b)(1) of this section prohibits a 
creditor from terminating an account that is inactive for three or more 
consecutive months. An account is inactive for purposes of this 
paragraph if no credit has been extended (such as by purchase, cash 
advance or balance transfer) and if the account has no outstanding 
balance.
    (c) Timely settlement of estate debts. (1) General rule. (i) 
Reasonable policies and procedures required. For credit card accounts 
under an open-end (not home-secured) consumer credit plan, card issuers 
must adopt reasonable written policies and procedures designed to 
ensure that an administrator of an estate of a deceased accountholder 
can determine the amount of and pay any balance on the account in a 
timely manner.
    (ii) Application to joint accounts. Paragraph (c) of this section 
does not apply to the account of a deceased consumer if a joint 
accountholder remains on the account.
    (2) Timely statement of balance. (i) Requirement. Upon request by 
the administrator of an estate, a card issuer must provide the 
administrator with the amount of the balance on a deceased consumer's 
account in a timely manner.
    (ii) Safe harbor. For purposes of paragraph (c)(2)(i) of this 
section, providing the amount of the balance on the account within 30 
days of receiving the request is deemed to be timely.
    (3) Limitations after receipt of request from administrator. (i) 
Limitation on fees and increases in annual percentage rates. After 
receiving a request from the administrator of an estate for the amount 
of the balance on a deceased consumer's account, a card issuer must not 
impose any fees on the account (such as a late fee, annual fee, or 
over-the-limit fee) or increase any annual percentage rate, except as 
provided by Sec.  226.55(b)(2).
    (ii) Limitation on trailing or residual interest. A card issuer 
must waive or rebate any additional finance charge due to a periodic 
interest rate if payment in full of the balance disclosed pursuant to 
paragraph (c)(2) of this section is received within 30 days after 
disclosure.

0
14. Section 226.12 is revised to read as follows:


Sec.  226.12  Special credit card provisions.

    (a) Issuance of credit cards. Regardless of the purpose for which a 
credit card is to be used, including business, commercial, or 
agricultural use, no credit card shall be issued to any person except--
    (1) In response to an oral or written request or application for 
the card; or
    (2) As a renewal of, or substitute for, an accepted credit 
card.\21\
---------------------------------------------------------------------------

    \21\ [Reserved].
---------------------------------------------------------------------------

    (b) Liability of cardholder for unauthorized use. (1)(i) Definition 
of unauthorized use. For purposes of this section, the term 
``unauthorized use'' means the use of a credit card by a person, other 
than the cardholder, who does not have actual, implied, or apparent 
authority for such use, and from which the cardholder receives no 
benefit.
    (ii) Limitation on amount. The liability of a cardholder for 
unauthorized use \22\ of a credit card shall not exceed the lesser of 
$50 or the

[[Page 7813]]

amount of money, property, labor, or services obtained by the 
unauthorized use before notification to the card issuer under paragraph 
(b)(3) of this section.
---------------------------------------------------------------------------

    \22\ [Reserved].
---------------------------------------------------------------------------

    (2) Conditions of liability. A cardholder shall be liable for 
unauthorized use of a credit card only if:
    (i) The credit card is an accepted credit card;
    (ii) The card issuer has provided adequate notice \23\ of the 
cardholder's maximum potential liability and of means by which the card 
issuer may be notified of loss or theft of the card. The notice shall 
state that the cardholder's liability shall not exceed $50 (or any 
lesser amount) and that the cardholder may give oral or written 
notification, and shall describe a means of notification (for example, 
a telephone number, an address, or both); and
---------------------------------------------------------------------------

    \23\ [Reserved].
---------------------------------------------------------------------------

    (iii) The card issuer has provided a means to identify the 
cardholder on the account or the authorized user of the card.
    (3) Notification to card issuer. Notification to a card issuer is 
given when steps have been taken as may be reasonably required in the 
ordinary course of business to provide the card issuer with the 
pertinent information about the loss, theft, or possible unauthorized 
use of a credit card, regardless of whether any particular officer, 
employee, or agent of the card issuer does, in fact, receive the 
information. Notification may be given, at the option of the person 
giving it, in person, by telephone, or in writing. Notification in 
writing is considered given at the time of receipt or, whether or not 
received, at the expiration of the time ordinarily required for 
transmission, whichever is earlier.
    (4) Effect of other applicable law or agreement. If state law or an 
agreement between a cardholder and the card issuer imposes lesser 
liability than that provided in this paragraph, the lesser liability 
shall govern.
    (5) Business use of credit cards. If 10 or more credit cards are 
issued by one card issuer for use by the employees of an organization, 
this section does not prohibit the card issuer and the organization 
from agreeing to liability for unauthorized use without regard to this 
section. However, liability for unauthorized use may be imposed on an 
employee of the organization, by either the card issuer or the 
organization, only in accordance with this section.
    (c) Right of cardholder to assert claims or defenses against card 
issuer.\24\ (1) General rule. When a person who honors a credit card 
fails to resolve satisfactorily a dispute as to property or services 
purchased with the credit card in a consumer credit transaction, the 
cardholder may assert against the card issuer all claims (other than 
tort claims) and defenses arising out of the transaction and relating 
to the failure to resolve the dispute. The cardholder may withhold 
payment up to the amount of credit outstanding for the property or 
services that gave rise to the dispute and any finance or other charges 
imposed on that amount.\25\
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    \24\ [Reserved].
    \25\ [Reserved].
---------------------------------------------------------------------------

    (2) Adverse credit reports prohibited. If, in accordance with 
paragraph (c)(1) of this section, the cardholder withholds payment of 
the amount of credit outstanding for the disputed transaction, the card 
issuer shall not report that amount as delinquent until the dispute is 
settled or judgment is rendered.
    (3) Limitations. (i) General. The rights stated in paragraphs 
(c)(1) and (c)(2) of this section apply only if:
    (A) The cardholder has made a good faith attempt to resolve the 
dispute with the person honoring the credit card; and
    (B) The amount of credit extended to obtain the property or 
services that result in the assertion of the claim or defense by the 
cardholder exceeds $50, and the disputed transaction occurred in the 
same state as the cardholder's current designated address or, if not 
within the same state, within 100 miles from that address.\26\
---------------------------------------------------------------------------

    \26\ [Reserved].
---------------------------------------------------------------------------

    (ii) Exclusion. The limitations stated in paragraph (c)(3)(i)(B) of 
this section shall not apply when the person honoring the credit card:
    (A) Is the same person as the card issuer;
    (B) Is controlled by the card issuer directly or indirectly;
    (C) Is under the direct or indirect control of a third person that 
also directly or indirectly controls the card issuer;
    (D) Controls the card issuer directly or indirectly;
    (E) Is a franchised dealer in the card issuer's products or 
services; or
    (F) Has obtained the order for the disputed transaction through a 
mail solicitation made or participated in by the card issuer.
    (d) Offsets by card issuer prohibited. (1) A card issuer may not 
take any action, either before or after termination of credit card 
privileges, to offset a cardholder's indebtedness arising from a 
consumer credit transaction under the relevant credit card plan against 
funds of the cardholder held on deposit with the card issuer.
    (2) This paragraph does not alter or affect the right of a card 
issuer acting under state or federal law to do any of the following 
with regard to funds of a cardholder held on deposit with the card 
issuer if the same procedure is constitutionally available to creditors 
generally: Obtain or enforce a consensual security interest in the 
funds; attach or otherwise levy upon the funds; or obtain or enforce a 
court order relating to the funds.
    (3) This paragraph does not prohibit a plan, if authorized in 
writing by the cardholder, under which the card issuer may periodically 
deduct all or part of the cardholder's credit card debt from a deposit 
account held with the card issuer (subject to the limitations in Sec.  
226.13(d)(1)).
    (e) Prompt notification of returns and crediting of refunds. (1) 
When a creditor other than the card issuer accepts the return of 
property or forgives a debt for services that is to be reflected as a 
credit to the consumer's credit card account, that creditor shall, 
within 7 business days from accepting the return or forgiving the debt, 
transmit a credit statement to the card issuer through the card 
issuer's normal channels for credit statements.
    (2) The card issuer shall, within 3 business days from receipt of a 
credit statement, credit the consumer's account with the amount of the 
refund.
    (3) If a creditor other than a card issuer routinely gives cash 
refunds to consumers paying in cash, the creditor shall also give 
credit or cash refunds to consumers using credit cards, unless it 
discloses at the time the transaction is consummated that credit or 
cash refunds for returns are not given. This section does not require 
refunds for returns nor does it prohibit refunds in kind.
    (f) Discounts; tie-in arrangements. No card issuer may, by contract 
or otherwise:
    (1) Prohibit any person who honors a credit card from offering a 
discount to a consumer to induce the consumer to pay by cash, check, or 
similar means rather than by use of a credit card or its underlying 
account for the purchase of property or services; or
    (2) Require any person who honors the card issuer's credit card to 
open or maintain any account or obtain any other service not essential 
to the operation of the credit card plan from the card issuer or any 
other person, as a condition of participation in a credit card plan. If 
maintenance of an account for clearing purposes is determined to be 
essential to the operation of the

[[Page 7814]]

credit card plan, it may be required only if no service charges or 
minimum balance requirements are imposed.
    (g) Relation to Electronic Fund Transfer Act and Regulation E. For 
guidance on whether Regulation Z (12 CFR part 226) or Regulation E (12 
CFR part 205) applies in instances involving both credit and electronic 
fund transfer aspects, refer to Regulation E, 12 CFR 205.12(a) 
regarding issuance and liability for unauthorized use. On matters other 
than issuance and liability, this section applies to the credit aspects 
of combined credit/electronic fund transfer transactions, as 
applicable.

0
15. Section 226.13 is revised to read as follows:


Sec.  226.13  Billing error resolution.\27\
---------------------------------------------------------------------------

    \27\ [Reserved].
---------------------------------------------------------------------------

    (a) Definition of billing error. For purposes of this section, the 
term billing error means:
    (1) A reflection on or with a periodic statement of an extension of 
credit that is not made to the consumer or to a person who has actual, 
implied, or apparent authority to use the consumer's credit card or 
open-end credit plan.
    (2) A reflection on or with a periodic statement of an extension of 
credit that is not identified in accordance with the requirements of 
Sec. Sec.  226.7(a)(2) or (b)(2), as applicable, and 226.8.
    (3) A reflection on or with a periodic statement of an extension of 
credit for property or services not accepted by the consumer or the 
consumer's designee, or not delivered to the consumer or the consumer's 
designee as agreed.
    (4) A reflection on a periodic statement of the creditor's failure 
to credit properly a payment or other credit issued to the consumer's 
account.
    (5) A reflection on a periodic statement of a computational or 
similar error of an accounting nature that is made by the creditor.
    (6) A reflection on a periodic statement of an extension of credit 
for which the consumer requests additional clarification, including 
documentary evidence.
    (7) The creditor's failure to mail or deliver a periodic statement 
to the consumer's last known address if that address was received by 
the creditor, in writing, at least 20 days before the end of the 
billing cycle for which the statement was required.
    (b) Billing error notice.\28\ A billing error notice is a written 
notice \29\ from a consumer that:
---------------------------------------------------------------------------

    \28\ [Reserved].
    \29\ [Reserved].
---------------------------------------------------------------------------

    (1) Is received by a creditor at the address disclosed under Sec.  
226.7(a)(9) or (b)(9), as applicable, no later than 60 days after the 
creditor transmitted the first periodic statement that reflects the 
alleged billing error;
    (2) Enables the creditor to identify the consumer's name and 
account number; and
    (3) To the extent possible, indicates the consumer's belief and the 
reasons for the belief that a billing error exists, and the type, date, 
and amount of the error.
    (c) Time for resolution; general procedures. (1) The creditor shall 
mail or deliver written acknowledgment to the consumer within 30 days 
of receiving a billing error notice, unless the creditor has complied 
with the appropriate resolution procedures of paragraphs (e) and (f) of 
this section, as applicable, within the 30-day period; and
    (2) The creditor shall comply with the appropriate resolution 
procedures of paragraphs (e) and (f) of this section, as applicable, 
within 2 complete billing cycles (but in no event later than 90 days) 
after receiving a billing error notice.
    (d) Rules pending resolution. Until a billing error is resolved 
under paragraph (e) or (f) of this section, the following rules apply:
    (1) Consumer's right to withhold disputed amount; collection action 
prohibited. The consumer need not pay (and the creditor may not try to 
collect) any portion of any required payment that the consumer believes 
is related to the disputed amount (including related finance or other 
charges).\30\ If the cardholder has enrolled in an automatic payment 
plan offered by the card issuer and has agreed to pay the credit card 
indebtedness by periodic deductions from the cardholder's deposit 
account, the card issuer shall not deduct any part of the disputed 
amount or related finance or other charges if a billing error notice is 
received any time up to 3 business days before the scheduled payment 
date.
---------------------------------------------------------------------------

    \30\ [Reserved].
---------------------------------------------------------------------------

    (2) Adverse credit reports prohibited. The creditor or its agent 
shall not (directly or indirectly) make or threaten to make an adverse 
report to any person about the consumer's credit standing, or report 
that an amount or account is delinquent, because the consumer failed to 
pay the disputed amount or related finance or other charges.
    (3) Acceleration of debt and restriction of account prohibited. A 
creditor shall not accelerate any part of the consumer's indebtedness 
or restrict or close a consumer's account solely because the consumer 
has exercised in good faith rights provided by this section. A creditor 
may be subject to the forfeiture penalty under 15 U.S.C. 1666(e) for 
failure to comply with any of the requirements of this section.
    (4) Permitted creditor actions. A creditor is not prohibited from 
taking action to collect any undisputed portion of the item or bill; 
from deducting any disputed amount and related finance or other charges 
from the consumer's credit limit on the account; or from reflecting a 
disputed amount and related finance or other charges on a periodic 
statement, provided that the creditor indicates on or with the periodic 
statement that payment of any disputed amount and related finance or 
other charges is not required pending the creditor's compliance with 
this section.
    (e) Procedures if billing error occurred as asserted. If a creditor 
determines that a billing error occurred as asserted, it shall within 
the time limits in paragraph (c)(2) of this section:
    (1) Correct the billing error and credit the consumer's account 
with any disputed amount and related finance or other charges, as 
applicable; and
    (2) Mail or deliver a correction notice to the consumer.
    (f) Procedures if different billing error or no billing error 
occurred. If, after conducting a reasonable investigation,\31\ a 
creditor determines that no billing error occurred or that a different 
billing error occurred from that asserted, the creditor shall within 
the time limits in paragraph (c)(2) of this section:
---------------------------------------------------------------------------

    \31\ [Reserved].
---------------------------------------------------------------------------

    (1) Mail or deliver to the consumer an explanation that sets forth 
the reasons for the creditor's belief that the billing error alleged by 
the consumer is incorrect in whole or in part;
    (2) Furnish copies of documentary evidence of the consumer's 
indebtedness, if the consumer so requests; and
    (3) If a different billing error occurred, correct the billing 
error and credit the consumer's account with any disputed amount and 
related finance or other charges, as applicable.
    (g) Creditor's rights and duties after resolution. If a creditor, 
after complying with all of the requirements of this section, 
determines that a consumer owes all or part of the disputed amount and 
related finance or other charges, the creditor:
    (1) Shall promptly notify the consumer in writing of the time when 
payment is due and the portion of the disputed amount and related 
finance or

[[Page 7815]]

other charges that the consumer still owes;
    (2) Shall allow any time period disclosed under Sec.  226.6(a)(1) 
or (b)(2)(v), as applicable, and Sec.  226.7(a)(8) or (b)(8), as 
applicable, during which the consumer can pay the amount due under 
paragraph (g)(1) of this section without incurring additional finance 
or other charges;
    (3) May report an account or amount as delinquent because the 
amount due under paragraph (g)(1) of this section remains unpaid after 
the creditor has allowed any time period disclosed under Sec.  
226.6(a)(1) or (b)(2)(v), as applicable, and Sec.  226.7(a)(8) or 
(b)(8), as applicable or 10 days (whichever is longer) during which the 
consumer can pay the amount; but
    (4) May not report that an amount or account is delinquent because 
the amount due under paragraph (g)(1) of the section remains unpaid, if 
the creditor receives (within the time allowed for payment in paragraph 
(g)(3) of this section) further written notice from the consumer that 
any portion of the billing error is still in dispute, unless the 
creditor also:
    (i) Promptly reports that the amount or account is in dispute;
    (ii) Mails or delivers to the consumer (at the same time the report 
is made) a written notice of the name and address of each person to 
whom the creditor makes a report; and
    (iii) Promptly reports any subsequent resolution of the reported 
delinquency to all persons to whom the creditor has made a report.
    (h) Reassertion of billing error. A creditor that has fully 
complied with the requirements of this section has no further 
responsibilities under this section (other than as provided in 
paragraph (g)(4) of this section) if a consumer reasserts substantially 
the same billing error.
    (i) Relation to Electronic Fund Transfer Act and Regulation E. If 
an extension of credit is incident to an electronic fund transfer, 
under an agreement between a consumer and a financial institution to 
extend credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, the creditor shall 
comply with the requirements of Regulation E, 12 CFR 205.11 governing 
error resolution rather than those of paragraphs (a), (b), (c), (e), 
(f), and (h) of this section.

0
16. Section 226.14 is revised to read as follows:


Sec.  226.14  Determination of annual percentage rate.

    (a) General rule. The annual percentage rate is a measure of the 
cost of credit, expressed as a yearly rate. An annual percentage rate 
shall be considered accurate if it is not more than \1/8\th of 1 
percentage point above or below the annual percentage rate determined 
in accordance with this section.\31a\ An error in disclosure of the 
annual percentage rate or finance charge shall not, in itself, be 
considered a violation of this regulation if:
---------------------------------------------------------------------------

    \31a\ [Reserved].
---------------------------------------------------------------------------

    (1) The error resulted from a corresponding error in a calculation 
tool used in good faith by the creditor; and
    (2) Upon discovery of the error, the creditor promptly discontinues 
use of that calculation tool for disclosure purposes, and notifies the 
Board in writing of the error in the calculation tool.
    (b) Annual percentage rate--in general. Where one or more periodic 
rates may be used to compute the finance charge, the annual percentage 
rate(s) to be disclosed for purposes of Sec. Sec.  226.5a, 226.5b, 
226.6, 226.7(a)(4) or (b)(4), 226.9, 226.15, 226.16, 226.26, 226.55, 
and 226.56 shall be computed by multiplying each periodic rate by the 
number of periods in a year.
    (c) Optional effective annual percentage rate for periodic 
statements for creditors offering open-end plans subject to the 
requirements of Sec.  226.5b. A creditor offering an open-end plan 
subject to the requirements of Sec.  226.5b need not disclose an 
effective annual percentage rate. Such a creditor may, at its option, 
disclose an effective annual percentage rate(s) pursuant to Sec.  
226.7(a)(7) and compute the effective annual percentage rate as 
follows:
    (1) Solely periodic rates imposed. If the finance charge is 
determined solely by applying one or more periodic rates, at the 
creditor's option, either:
    (i) By multiplying each periodic rate by the number of periods in a 
year; or
    (ii) By dividing the total finance charge for the billing cycle by 
the sum of the balances to which the periodic rates were applied and 
multiplying the quotient (expressed as a percentage) by the number of 
billing cycles in a year.
    (2) Minimum or fixed charge, but not transaction charge, imposed. 
If the finance charge imposed during the billing cycle is or includes a 
minimum, fixed, or other charge not due to the application of a 
periodic rate, other than a charge with respect to any specific 
transaction during the billing cycle, by dividing the total finance 
charge for the billing cycle by the amount of the balance(s) to which 
it is applicable \32\ and multiplying the quotient (expressed as a 
percentage) by the number of billing cycles in a year.\33\ If there is 
no balance to which the finance charge is applicable, an annual 
percentage rate cannot be determined under this section. Where the 
finance charge imposed during the billing cycle is or includes a loan 
fee, points, or similar charge that relates to opening, renewing, or 
continuing an account, the amount of such charge shall not be included 
in the calculation of the annual percentage rate.
---------------------------------------------------------------------------

    \32\ [Reserved].
    \33\ [Reserved].
---------------------------------------------------------------------------

    (3) Transaction charge imposed. If the finance charge imposed 
during the billing cycle is or includes a charge relating to a specific 
transaction during the billing cycle (even if the total finance charge 
also includes any other minimum, fixed, or other charge not due to the 
application of a periodic rate), by dividing the total finance charge 
imposed during the billing cycle by the total of all balances and other 
amounts on which a finance charge was imposed during the billing cycle 
without duplication, and multiplying the quotient (expressed as a 
percentage) by the number of billing cycles in a year,\34\ except that 
the annual percentage rate shall not be less than the largest rate 
determined by multiplying each periodic rate imposed during the billing 
cycle by the number of periods in a year.\35\ Where the finance charge 
imposed during the billing cycle is or includes a loan fee, points, or 
similar charge that relates to the opening, renewing, or continuing an 
account, the amount of such charge shall not be included in the 
calculation of the annual percentage rate. See appendix F to this part 
regarding determination of the denominator of the fraction under this 
paragraph.
---------------------------------------------------------------------------

    \34\ [Reserved].
    \35\ [Reserved].
---------------------------------------------------------------------------

    (4) If the finance charge imposed during the billing cycle is or 
includes a minimum, fixed, or other charge not due to the application 
of a periodic rate and the total finance charge imposed during the 
billing cycle does not exceed 50 cents for a monthly or longer billing 
cycle, or the pro rata part of 50 cents for a billing cycle shorter 
than monthly, at the creditor's option, by multiplying each applicable 
periodic rate by the number of periods in a year, notwithstanding the 
provisions of paragraphs (c)(2) and (c)(3) of this section.
    (d) Calculations where daily periodic rate applied. If the 
provisions of

[[Page 7816]]

paragraph (c)(1)(ii) or (c)(2) of this section apply and all or a 
portion of the finance charge is determined by the application of one 
or more daily periodic rates, the annual percentage rate may be 
determined either:
    (1) By dividing the total finance charge by the average of the 
daily balances and multiplying the quotient by the number of billing 
cycles in a year; or
    (2) By dividing the total finance charge by the sum of the daily 
balances and multiplying the quotient by 365.

0
17. Section 226.16 is revised to read as follows:


Sec.  226.16  Advertising.

    (a) Actually available terms. If an advertisement for credit states 
specific credit terms, it shall state only those terms that actually 
are or will be arranged or offered by the creditor.
    (b) Advertisement of terms that require additional disclosures. (1) 
Any term required to be disclosed under Sec.  226.6(b)(3) set forth 
affirmatively or negatively in an advertisement for an open-end (not 
home-secured) credit plan triggers additional disclosures under this 
section. Any term required to be disclosed under Sec.  226.6(a)(1) or 
(a)(2) set forth affirmatively or negatively in an advertisement for a 
home-equity plan subject to the requirements of Sec.  226.5b triggers 
additional disclosures under this section. If any of the terms that 
trigger additional disclosures under this paragraph is set forth in an 
advertisement, the advertisement shall also clearly and conspicuously 
set forth the following: \36d\
---------------------------------------------------------------------------

    \36d\ [Reserved].
---------------------------------------------------------------------------

    (i) Any minimum, fixed, transaction, activity or similar charge 
that is a finance charge under Sec.  226.4 that could be imposed.
    (ii) Any periodic rate that may be applied expressed as an annual 
percentage rate as determined under Sec.  226.14(b). If the plan 
provides for a variable periodic rate, that fact shall be disclosed.
    (iii) Any membership or participation fee that could be imposed.
    (2) If an advertisement for credit to finance the purchase of goods 
or services specified in the advertisement states a periodic payment 
amount, the advertisement shall also state the total of payments and 
the time period to repay the obligation, assuming that the consumer 
pays only the periodic payment amount advertised. The disclosure of the 
total of payments and the time period to repay the obligation must be 
equally prominent to the statement of the periodic payment amount.
    (c) Catalogs or other multiple-page advertisements; electronic 
advertisements. (1) If a catalog or other multiple-page advertisement, 
or an electronic advertisement (such as an advertisement appearing on 
an Internet Web site), gives information in a table or schedule in 
sufficient detail to permit determination of the disclosures required 
by paragraph (b) of this section, it shall be considered a single 
advertisement if:
    (i) The table or schedule is clearly and conspicuously set forth; 
and
    (ii) Any statement of terms set forth in Sec.  226.6 appearing 
anywhere else in the catalog or advertisement clearly refers to the 
page or location where the table or schedule begins.
    (2) A catalog or other multiple-page advertisement or an electronic 
advertisement (such as an advertisement appearing on an Internet Web 
site) complies with this paragraph if the table or schedule of terms 
includes all appropriate disclosures for a representative scale of 
amounts up to the level of the more commonly sold higher-priced 
property or services offered.
    (d) Additional requirements for home-equity plans. (1) 
Advertisement of terms that require additional disclosures. If any of 
the terms required to be disclosed under Sec.  226.6(a)(1) or (a)(2) or 
the payment terms of the plan are set forth, affirmatively or 
negatively, in an advertisement for a home-equity plan subject to the 
requirements of Sec.  226.5b, the advertisement also shall clearly and 
conspicuously set forth the following:
    (i) Any loan fee that is a percentage of the credit limit under the 
plan and an estimate of any other fees imposed for opening the plan, 
stated as a single dollar amount or a reasonable range.
    (ii) Any periodic rate used to compute the finance charge, 
expressed as an annual percentage rate as determined under Sec.  
226.14(b).
    (iii) The maximum annual percentage rate that may be imposed in a 
variable-rate plan.
    (2) Discounted and premium rates. If an advertisement states an 
initial annual percentage rate that is not based on the index and 
margin used to make later rate adjustments in a variable-rate plan, the 
advertisement also shall state with equal prominence and in close 
proximity to the initial rate:
    (i) The period of time such initial rate will be in effect; and
    (ii) A reasonably current annual percentage rate that would have 
been in effect using the index and margin.
    (3) Balloon payment. If an advertisement contains a statement of 
any minimum periodic payment and a balloon payment may result if only 
the minimum periodic payments are made, even if such a payment is 
uncertain or unlikely, the advertisement also shall state with equal 
prominence and in close proximity to the minimum periodic payment 
statement that a balloon payment may result, if applicable.\36e\ A 
balloon payment results if paying the minimum periodic payments does 
not fully amortize the outstanding balance by a specified date or time, 
and the consumer is required to repay the entire outstanding balance at 
such time. If a balloon payment will occur when the consumer makes only 
the minimum payments required under the plan, an advertisement for such 
a program which contains any statement of any minimum periodic payment 
shall also state with equal prominence and in close proximity to the 
minimum periodic payment statement:
---------------------------------------------------------------------------

    \36e\ [Reserved].
---------------------------------------------------------------------------

    (i) That a balloon payment will result; and
    (ii) The amount and timing of the balloon payment that will result 
if the consumer makes only the minimum payments for the maximum period 
of time that the consumer is permitted to make such payments.
    (4) Tax implications. An advertisement that states that any 
interest expense incurred under the home-equity plan is or may be tax 
deductible may not be misleading in this regard. If an advertisement 
distributed in paper form or through the Internet (rather than by radio 
or television) is for a home-equity plan secured by the consumer's 
principal dwelling, and the advertisement states that the advertised 
extension of credit may exceed the fair market value of the dwelling, 
the advertisement shall clearly and conspicuously state that:
    (i) The interest on the portion of the credit extension that is 
greater than the fair market value of the dwelling is not tax 
deductible for Federal income tax purposes; and
    (ii) The consumer should consult a tax adviser for further 
information regarding the deductibility of interest and charges.
    (5) Misleading terms. An advertisement may not refer to a home-
equity plan as ``free money'' or contain a similarly misleading term.
    (6) Promotional rates and payments. (i) Definitions. The following 
definitions apply for purposes of paragraph (d)(6) of this section:

[[Page 7817]]

    (A) Promotional rate. The term ``promotional rate'' means, in a 
variable-rate plan, any annual percentage rate that is not based on the 
index and margin that will be used to make rate adjustments under the 
plan, if that rate is less than a reasonably current annual percentage 
rate that would be in effect under the index and margin that will be 
used to make rate adjustments under the plan.
    (B) Promotional payment. The term ``promotional payment'' means:
    (1) For a variable-rate plan, any minimum payment applicable for a 
promotional period that:
    (i) Is not derived by applying the index and margin to the 
outstanding balance when such index and margin will be used to 
determine other minimum payments under the plan; and
    (ii) Is less than other minimum payments under the plan derived by 
applying a reasonably current index and margin that will be used to 
determine the amount of such payments, given an assumed balance.
    (2) For a plan other than a variable-rate plan, any minimum payment 
applicable for a promotional period if that payment is less than other 
payments required under the plan given an assumed balance.
    (C) Promotional period. A ``promotional period'' means a period of 
time, less than the full term of the loan, that the promotional rate or 
promotional payment may be applicable.
    (ii) Stating the promotional period and post-promotional rate or 
payments. If any annual percentage rate that may be applied to a plan 
is a promotional rate, or if any payment applicable to a plan is a 
promotional payment, the following must be disclosed in any 
advertisement, other than television or radio advertisements, in a 
clear and conspicuous manner with equal prominence and in close 
proximity to each listing of the promotional rate or payment:
    (A) The period of time during which the promotional rate or 
promotional payment will apply;
    (B) In the case of a promotional rate, any annual percentage rate 
that will apply under the plan. If such rate is variable, the annual 
percentage rate must be disclosed in accordance with the accuracy 
standards in Sec. Sec.  226.5b or 226.16(b)(1)(ii) as applicable; and
    (C) In the case of a promotional payment, the amounts and time 
periods of any payments that will apply under the plan. In variable-
rate transactions, payments that will be determined based on 
application of an index and margin shall be disclosed based on a 
reasonably current index and margin.
    (iii) Envelope excluded. The requirements in paragraph (d)(6)(ii) 
of this section do not apply to an envelope in which an application or 
solicitation is mailed, or to a banner advertisement or pop-up 
advertisement linked to an application or solicitation provided 
electronically.
    (e) Alternative disclosures--television or radio advertisements. An 
advertisement made through television or radio stating any of the terms 
requiring additional disclosures under paragraphs (b)(1) or (d)(1) of 
this section may alternatively comply with paragraphs (b)(1) or (d)(1) 
of this section by stating the information required by paragraphs 
(b)(1)(ii) or (d)(1)(ii) of this section, as applicable, and listing a 
toll-free telephone number, or any telephone number that allows a 
consumer to reverse the phone charges when calling for information, 
along with a reference that such number may be used by consumers to 
obtain the additional cost information.
    (f) Misleading terms. An advertisement may not refer to an annual 
percentage rate as ``fixed,'' or use a similar term, unless the 
advertisement also specifies a time period that the rate will be fixed 
and the rate will not increase during that period, or if no such time 
period is provided, the rate will not increase while the plan is open.
    (g) Promotional rates. (1) Scope. The requirements of this 
paragraph apply to any advertisement of an open-end (not home-secured) 
plan, including promotional materials accompanying applications or 
solicitations subject to Sec.  226.5a(c) or accompanying applications 
or solicitations subject to Sec.  226.5a(e).
    (2) Definitions. (i) Promotional rate means any annual percentage 
rate applicable to one or more balances or transactions on an open-end 
(not home-secured) plan for a specified period of time that is lower 
than the annual percentage rate that will be in effect at the end of 
that period on such balances or transactions.
    (ii) Introductory rate means a promotional rate offered in 
connection with the opening of an account.
    (iii) Promotional period means the maximum time period for which 
the promotional rate may be applicable.
    (3) Stating the term ``introductory''. If any annual percentage 
rate that may be applied to the account is an introductory rate, the 
term introductory or intro must be in immediate proximity to each 
listing of the introductory rate in a written or electronic 
advertisement.
    (4) Stating the promotional period and post-promotional rate. If 
any annual percentage rate that may be applied to the account is a 
promotional rate under paragraph (g)(2)(i) of this section, the 
information in paragraphs (g)(4)(i) and (g)(4)(ii) of this section must 
be stated in a clear and conspicuous manner in the advertisement. If 
the rate is stated in a written or electronic advertisement, the 
information in paragraphs (g)(4)(i) and (g)(4)(ii) of this section must 
also be stated in a prominent location closely proximate to the first 
listing of the promotional rate.
    (i) When the promotional rate will end; and
    (ii) The annual percentage rate that will apply after the end of 
the promotional period. If such rate is variable, the annual percentage 
rate must comply with the accuracy standards in Sec. Sec.  
226.5a(c)(2), 226.5a(d)(3), 226.5a(e)(4), or 226.16(b)(1)(ii), as 
applicable. If such rate cannot be determined at the time disclosures 
are given because the rate depends at least in part on a later 
determination of the consumer's creditworthiness, the advertisement 
must disclose the specific rates or the range of rates that might 
apply.
    (5) Envelope excluded. The requirements in paragraph (g)(4) of this 
section do not apply to an envelope or other enclosure in which an 
application or solicitation is mailed, or to a banner advertisement or 
pop-up advertisement, linked to an application or solicitation provided 
electronically.
    (h) Deferred interest or similar offers. (1) Scope. The 
requirements of this paragraph apply to any advertisement of an open-
end credit plan not subject to Sec.  226.5b, including promotional 
materials accompanying applications or solicitations subject to Sec.  
226.5a(c) or accompanying applications or solicitations subject to 
Sec.  226.5a(e).
    (2) Definitions. ``Deferred interest'' means finance charges, 
accrued on balances or transactions, that a consumer is not obligated 
to pay or that will be waived or refunded to a consumer if those 
balances or transactions are paid in full by a specified date. The 
maximum period from the date the consumer becomes obligated for the 
balance or transaction until the specified date by which the consumer 
must pay the balance or transaction in full in order to avoid finance 
charges, or receive a waiver or refund of finance charges, is the 
``deferred interest period.'' ``Deferred interest'' does not include 
any finance charges the consumer avoids paying in connection with any 
recurring grace period.
    (3) Stating the deferred interest period. If a deferred interest 
offer is advertised, the deferred interest period

[[Page 7818]]

must be stated in a clear and conspicuous manner in the advertisement. 
If the phrase ``no interest'' or similar term regarding the possible 
avoidance of interest obligations under the deferred interest program 
is stated, the term ``if paid in full'' must also be stated in a clear 
and conspicuous manner preceding the disclosure of the deferred 
interest period in the advertisement. If the deferred interest offer is 
included in a written or electronic advertisement, the deferred 
interest period and, if applicable, the term ``if paid in full'' must 
also be stated in immediate proximity to each statement of ``no 
interest,'' ``no payments,'' ``deferred interest,'' ``same as cash,'' 
or similar term regarding interest or payments during the deferred 
interest period.
    (4) Stating the terms of the deferred interest or similar offer. If 
any deferred interest offer is advertised, the information in 
paragraphs (h)(4)(i) and (h)(4)(ii) of this section must be stated in 
the advertisement, in language similar to Sample G-24 in Appendix G to 
this part. If the deferred interest offer is included in a written or 
electronic advertisement, the information in paragraphs (h)(4)(i) and 
(h)(4)(ii) of this section must also be stated in a prominent location 
closely proximate to the first statement of ``no interest,'' ``no 
payments,'' ``deferred interest,'' ``same as cash,'' or similar term 
regarding interest or payments during the deferred interest period.
    (i) A statement that interest will be charged from the date the 
consumer becomes obligated for the balance or transaction subject to 
the deferred interest offer if the balance or transaction is not paid 
in full within the deferred interest period; and
    (ii) A statement, if applicable, that interest will be charged from 
the date the consumer incurs the balance or transaction subject to the 
deferred interest offer if the account is in default before the end of 
the deferred interest period.
    (5) Envelope excluded. The requirements in paragraph (h)(4) of this 
section do not apply to an envelope or other enclosure in which an 
application or solicitation is mailed, or to a banner advertisement or 
pop-up advertisement linked to an application or solicitation provided 
electronically.

0
18. Section 226.30 is revised to read as follows:


Sec.  226.30  Limitation on rates.

    A creditor shall include in any consumer credit contract secured by 
a dwelling and subject to the act and this regulation the maximum 
interest rate that may be imposed during the term of the obligation 
\50\ when:
---------------------------------------------------------------------------

    \50\ [Reserved].
---------------------------------------------------------------------------

    (a) In the case of closed-end credit, the annual percentage rate 
may increase after consummation, or
    (b) In the case of open-end credit, the annual percentage rate may 
increase during the plan.

0
19. A new subpart G consisting of Sec. Sec.  226.51 through 226.58 is 
added to read as follows:
Subpart G--Special Rules Applicable to Credit Card Accounts and Open-
End Credit Offered to College Students
Sec.
226.51 Ability to pay.
226.52 Limitations on fees.
226.53 Allocation of payments.
226.54 Limitations on the imposition of finance charges.
226.55 Limitations on increasing annual percentage rates, fees, and 
charges.
226.56 Requirements for over-the-limit transactions.
226.57 Reporting and marketing rules for college student open-end 
credit.
226.58 Internet posting of credit card agreements.

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students


Sec.  226.51  Ability to Pay.

    (a) General rule. (1)(i) Consideration of ability to pay. A card 
issuer must not open a credit card account for a consumer under an 
open-end (not home-secured) consumer credit plan, or increase any 
credit limit applicable to such account, unless the card issuer 
considers the ability of the consumer to make the required minimum 
periodic payments under the terms of the account based on the 
consumer's income or assets and current obligations.
    (ii) Reasonable policies and procedures. Card issuers must 
establish and maintain reasonable written policies and procedures to 
consider a consumer's income or assets and current obligations. 
Reasonable policies and procedures to consider a consumer's ability to 
make the required payments include a consideration of at least one of 
the following: The ratio of debt obligations to income; the ratio of 
debt obligations to assets; or the income the consumer will have after 
paying debt obligations. It would be unreasonable for a card issuer to 
not review any information about a consumer's income, assets, or 
current obligations, or to issue a credit card to a consumer who does 
not have any income or assets.
    (2) Minimum periodic payments. (i) Reasonable method. For purposes 
of paragraph (a)(1) of this section, a card issuer must use a 
reasonable method for estimating the minimum periodic payments the 
consumer would be required to pay under the terms of the account.
    (ii) Safe harbor. A card issuer complies with paragraph (a)(2)(i) 
of this section if it estimates required minimum periodic payments 
using the following method:
    (A) The card issuer assumes utilization, from the first day of the 
billing cycle, of the full credit line that the issuer is considering 
offering to the consumer; and
    (B) The card issuer uses a minimum payment formula employed by the 
issuer for the product the issuer is considering offering to the 
consumer or, in the case of an existing account, the minimum payment 
formula that currently applies to that account, provided that:
    (1) If the applicable minimum payment formula includes interest 
charges, the card issuer estimates those charges using an interest rate 
that the issuer is considering offering to the consumer for purchases 
or, in the case of an existing account, the interest rate that 
currently applies to purchases; and
    (2) If the applicable minimum payment formula includes mandatory 
fees, the card issuer must assume that such fees have been charged to 
the account.
    (b) Rules affecting young consumers. (1) Applications from young 
consumers. A card issuer may not open a credit card account under an 
open-end (not home-secured) consumer credit plan for a consumer less 
than 21 years old, unless the consumer has submitted a written 
application and the card issuer has:
    (i) Financial information indicating the consumer has an 
independent ability to make the required minimum periodic payments on 
the proposed extension of credit in connection with the account, 
consistent with paragraph (a) of this section; or
    (ii)(A) A signed agreement of a cosigner, guarantor, or joint 
applicant who is at least 21 years old to be either secondarily liable 
for any debt on the account incurred by the consumer before the 
consumer has attained the age of 21 or jointly liable with the consumer 
for any debt on the account, and
    (B) Financial information indicating such cosigner, guarantor, or 
joint applicant has the ability to make the required minimum periodic 
payments on such debts, consistent with paragraph (a) of this section.
    (2) Credit line increases for young consumers. If a credit card 
account has been opened pursuant to paragraph

[[Page 7819]]

(b)(1)(ii) of this section, no increase in the credit limit may be made 
on such account before the consumer attains the age of 21 unless the 
cosigner, guarantor, or joint accountholder who assumed liability at 
account opening agrees in writing to assume liability on the increase.


Sec.  226.52   Limitations on fees.

    (a) Limitations during first year after account opening. (1) 
General rule. Except as provided in paragraph (a)(2) of this section, 
if a card issuer charges any fees to a credit card account under an 
open-end (not home-secured) consumer credit plan during the first year 
after the account is opened, the total amount of fees the consumer is 
required to pay with respect to the account during that year must not 
exceed 25 percent of the credit limit in effect when the account is 
opened.
    (2) Fees not subject to limitations. Paragraph (a) of this section 
does not apply to:
    (i) Late payment fees, over-the-limit fees, and returned-payment 
fees; or
    (ii) Fees that the consumer is not required to pay with respect to 
the account.
    (3) Rule of construction. This paragraph (a) does not authorize the 
imposition or payment of fees or charges otherwise prohibited by law.
    (b) [Reserved].


Sec.  226.53  Allocation of payments.

    (a) General rule. Except as provided in paragraph (b) of this 
section, when a consumer makes a payment in excess of the required 
minimum periodic payment for a credit card account under an open-end 
(not home-secured) consumer credit plan, the card issuer must allocate 
the excess amount first to the balance with the highest annual 
percentage rate and any remaining portion to the other balances in 
descending order based on the applicable annual percentage rate.
    (b) Special rule for accounts with balances subject to deferred 
interest or similar programs. When a balance on a credit card account 
under an open-end (not home-secured) consumer credit plan is subject to 
a deferred interest or similar program that provides that a consumer 
will not be obligated to pay interest that accrues on the balance if 
the balance is paid in full prior to the expiration of a specified 
period of time:
    (1) Last two billing cycles. The card issuer must allocate any 
amount paid by the consumer in excess of the required minimum periodic 
payment consistent with paragraph (a) of this section, except that, 
during the two billing cycles immediately preceding expiration of the 
specified period, the excess amount must be allocated first to the 
balance subject to the deferred interest or similar program and any 
remaining portion allocated to any other balances consistent with 
paragraph (a) of this section; or
    (2) Consumer request. The card issuer may at its option allocate 
any amount paid by the consumer in excess of the required minimum 
periodic payment among the balances on the account in the manner 
requested by the consumer.


Sec.  226.54  Limitations on the imposition of finance charges.

    (a) Limitations on imposing finance charges as a result of the loss 
of a grace period. (1) General rule. Except as provided in paragraph 
(b) of this section, a card issuer must not impose finance charges as a 
result of the loss of a grace period on a credit card account under an 
open-end (not home-secured) consumer credit plan if those finance 
charges are based on:
    (i) Balances for days in billing cycles that precede the most 
recent billing cycle; or
    (ii) Any portion of a balance subject to a grace period that was 
repaid prior to the expiration of the grace period.
    (2) Definition of grace period. For purposes of paragraph (a)(1) of 
this section, ``grace period'' has the same meaning as in Sec.  
226.5(b)(2)(ii)(B)(3).
    (b) Exceptions. Paragraph (a) of this section does not apply to:
    (1) Adjustments to finance charges as a result of the resolution of 
a dispute under Sec.  226.12 or Sec.  226.13; or
    (2) Adjustments to finance charges as a result of the return of a 
payment.


Sec.  226.55  Limitations on increasing annual percentage rates, fees, 
and charges.

    (a) General rule. Except as provided in paragraph (b) of this 
section, a card issuer must not increase an annual percentage rate or a 
fee or charge required to be disclosed under Sec.  226.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) on a credit card account under an open-end 
(not home-secured) consumer credit plan.
    (b) Exceptions. A card issuer may increase an annual percentage 
rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to an exception 
set forth in this paragraph even if that increase would not be 
permitted under a different exception.
    (1) Temporary rate exception. A card issuer may increase an annual 
percentage rate upon the expiration of a specified period of six months 
or longer, provided that:
    (i) Prior to the commencement of that period, the card issuer 
disclosed in writing to the consumer, in a clear and conspicuous 
manner, the length of the period and the annual percentage rate that 
would apply after expiration of the period; and
    (ii) Upon expiration of the specified period:
    (A) The card issuer must not apply an annual percentage rate to 
transactions that occurred prior to the period that exceeds the annual 
percentage rate that applied to those transactions prior to the period;
    (B) If the disclosures required by paragraph (b)(1)(i) of this 
section are provided pursuant to Sec.  226.9(c), the card issuer must 
not apply an annual percentage rate to transactions that occurred 
within 14 days after provision of the notice that exceeds the annual 
percentage rate that applied to that category of transactions prior to 
provision of the notice; and
    (C) The card issuer must not apply an annual percentage rate to 
transactions that occurred during the period that exceeds the increased 
annual percentage rate disclosed pursuant to paragraph (b)(1)(i) of 
this section.
    (2) Variable rate exception. A card issuer may increase an annual 
percentage rate when:
    (i) The annual percentage rate varies according to an index that is 
not under the card issuer's control and is available to the general 
public; and
    (ii) The increase in the annual percentage rate is due to an 
increase in the index.
    (3) Advance notice exception. A card issuer may increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) after complying with the 
applicable notice requirements in Sec.  226.9(b), (c), or (g), provided 
that:
    (i) If a card issuer discloses an increased annual percentage rate, 
fee, or charge pursuant to Sec.  226.9(b), the card issuer must not 
apply that rate, fee, or charge to transactions that occurred prior to 
provision of the notice;
    (ii) If a card issuer discloses an increased annual percentage 
rate, fee, or charge pursuant to Sec.  226.9(c) or (g), the card issuer 
must not apply that rate, fee, or charge to transactions that occurred 
prior to or within 14 days after provision of the notice; and
    (iii) This exception does not permit a card issuer to increase an 
annual percentage rate or a fee or charge required to be disclosed 
under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the 
first year after the account is opened.
    (4) Delinquency exception. A card issuer may increase an annual

[[Page 7820]]

percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) due to the card issuer not 
receiving the consumer's required minimum periodic payment within 60 
days after the due date for that payment, provided that:
    (i) The card issuer must disclose in a clear and conspicuous manner 
in the notice of the increase pursuant to Sec.  226.9(c) or (g):
    (A) A statement of the reason for the increase; and
    (B) That the increased annual percentage rate, fee, or charge will 
cease to apply if the card issuer receives six consecutive required 
minimum periodic payments on or before the payment due date beginning 
with the first payment due following the effective date of the 
increase; and
    (ii) If the card issuer receives six consecutive required minimum 
periodic payments on or before the payment due date beginning with the 
first payment due following the effective date of the increase, the 
card issuer must reduce any annual percentage rate, fee, or charge 
increased pursuant to this exception to the annual percentage rate, 
fee, or charge that applied prior to the increase with respect to 
transactions that occurred prior to or within 14 days after provision 
of the Sec.  226.9(c) or (g) notice.
    (5) Workout and temporary hardship arrangement exception. A card 
issuer may increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) due to the consumer's completion of a workout or temporary 
hardship arrangement or the consumer's failure to comply with the terms 
of such an arrangement, provided that:
    (i) Prior to commencement of the arrangement (except as provided in 
Sec.  226.9(c)(2)(v)(D)), the card issuer has provided the consumer 
with a clear and conspicuous written disclosure of the terms of the 
arrangement (including any increases due to the completion or failure 
of the arrangement); and
    (ii) Upon the completion or failure of the arrangement, the card 
issuer must not apply to any transactions that occurred prior to 
commencement of the arrangement an annual percentage rate, fee, or 
charge that exceeds the annual percentage rate, fee, or charge that 
applied to those transactions prior to commencement of the arrangement.
    (6) Servicemembers Civil Relief Act exception. If an annual 
percentage rate has been decreased pursuant to 50 U.S.C. app. 527, a 
card issuer may increase that annual percentage rate once 50 U.S.C. 
app. 527 no longer applies, provided that the card issuer must not 
apply to any transactions that occurred prior to the decrease an annual 
percentage rate that exceeds the annual percentage rate that applied to 
those transactions prior to the decrease.
    (c) Treatment of protected balances. (1) Definition of protected 
balance. For purposes of this paragraph, ``protected balance'' means 
the amount owed for a category of transactions to which an increased 
annual percentage rate or an increased fee or charge required to be 
disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
cannot be applied after the annual percentage rate, fee, or charge for 
that category of transactions has been increased pursuant to paragraph 
(b)(3) of this section.
    (2) Repayment of protected balance. The card issuer must not 
require repayment of the protected balance using a method that is less 
beneficial to the consumer than one of the following methods:
    (i) The method of repayment for the account before the effective 
date of the increase;
    (ii) An amortization period of not less than five years, beginning 
no earlier than the effective date of the increase; or
    (iii) A required minimum periodic payment that includes a 
percentage of the balance that is equal to no more than twice the 
percentage required before the effective date of the increase.
    (d) Continuing application. This section continues to apply to a 
balance on a credit card account under an open-end (not home-secured) 
consumer credit plan after:
    (1) The account is closed or acquired by another creditor; or
    (2) The balance is transferred from a credit card account under an 
open-end (not home-secured) consumer credit plan issued by a creditor 
to another credit account issued by the same creditor or its affiliate 
or subsidiary (unless the account to which the balance is transferred 
is subject to Sec.  226.5b).


Sec.  226.56  Requirements for over-the-limit transactions.

    (a) Definition. For purposes of this section, the term ``over-the-
limit transaction'' means any extension of credit by a card issuer to 
complete a transaction that causes a consumer's credit card account 
balance to exceed the credit limit.
    (b) Opt-in requirement. (1) General. A card issuer shall not assess 
a fee or charge on a consumer's credit card account under an open-end 
(not home-secured) consumer credit plan for an over-the-limit 
transaction unless the card issuer:
    (i) Provides the consumer with an oral, written or electronic 
notice, segregated from all other information, describing the 
consumer's right to affirmatively consent, or opt in, to the card 
issuer's payment of an over-the-limit transaction;
    (ii) Provides a reasonable opportunity for the consumer to 
affirmatively consent, or opt in, to the card issuer's payment of over-
the-limit transactions;
    (iii) Obtains the consumer's affirmative consent, or opt-in, to the 
card issuer's payment of such transactions;
    (iv) Provides the consumer with confirmation of the consumer's 
consent in writing, or if the consumer agrees, electronically; and
    (v) Provides the consumer notice in writing of the right to revoke 
that consent following the assessment of an over-the-limit fee or 
charge.
    (2) Completion of over-the-limit transactions without consumer 
consent. Notwithstanding the absence of a consumer's affirmative 
consent under paragraph (b)(1)(iii) of this section, a card issuer may 
pay any over-the-limit transaction on a consumer's account provided 
that the card issuer does not impose any fee or charge on the account 
for paying that over-the-limit transaction.
    (c) Method of election. A card issuer may permit a consumer to 
consent to the card issuer's payment of any over-the-limit transaction 
in writing, orally, or electronically, at the card issuer's option. The 
card issuer must also permit the consumer to revoke his or her consent 
using the same methods available to the consumer for providing consent.
    (d) Timing and placement of notices. (1) Initial notice. (i) 
General. The notice required by paragraph (b)(1)(i) of this section 
shall be provided prior to the assessment of any over-the-limit fee or 
charge on a consumer's account.
    (ii) Oral or electronic consent. If a consumer consents to the card 
issuer's payment of any over-the-limit transaction by oral or 
electronic means, the card issuer must provide the notice required by 
paragraph (b)(1)(i) of this section immediately prior to obtaining that 
consent.
    (2) Confirmation of opt-in. The notice required by paragraph 
(b)(1)(iv) of this section may be provided no later than the first 
periodic statement sent after the consumer has consented to the card 
issuer's payment of over-the-limit transactions.
    (3) Notice of right of revocation. The notice required by paragraph 
(b)(1)(v) of

[[Page 7821]]

this section shall be provided on the front of any page of each 
periodic statement that reflects the assessment of an over-the-limit 
fee or charge on a consumer's account.
    (e) Content. (1) Initial notice. The notice required by paragraph 
(b)(1)(i) of this section shall include all applicable items in this 
paragraph (e)(1) and may not contain any information not specified in 
or otherwise permitted by this paragraph.
    (i) Fees. The dollar amount of any fees or charges assessed by the 
card issuer on a consumer's account for an over-the-limit transaction;
    (ii) APRs. Any increased periodic rate(s) (expressed as an annual 
percentage rate(s)) that may be imposed on the account as a result of 
an over-the-limit transaction; and
    (iii) Disclosure of opt-in right. An explanation of the consumer's 
right to affirmatively consent to the card issuer's payment of over-
the-limit transactions, including the method(s) by which the consumer 
may consent.
    (2) Subsequent notice. The notice required by paragraph (b)(1)(v) 
of this section shall describe the consumer's right to revoke any 
consent provided under paragraph (b)(1)(iii) of this section, including 
the method(s) by which the consumer may revoke.
    (3) Safe harbor. Use of Model Forms G-25(A) or G-25(B) of Appendix 
G to this part, or substantially similar notices, constitutes 
compliance with the notice content requirements of paragraph (e) of 
this section.
    (f) Joint relationships. If two or more consumers are jointly 
liable on a credit card account under an open-end (not home-secured) 
consumer credit plan, the card issuer shall treat the affirmative 
consent of any of the joint consumers as affirmative consent for that 
account. Similarly, the card issuer shall treat a revocation of consent 
by any of the joint consumers as revocation of consent for that 
account.
    (g) Continuing right to opt in or revoke opt-in. A consumer may 
affirmatively consent to the card issuer's payment of over-the-limit 
transactions at any time in the manner described in the notice required 
by paragraph (b)(1)(i) of this section. Similarly, the consumer may 
revoke the consent at any time in the manner described in the notice 
required by paragraph (b)(1)(v) of this section.
    (h) Duration of opt-in. A consumer's affirmative consent to the 
card issuer's payment of over-the-limit transactions is effective until 
revoked by the consumer, or until the card issuer decides for any 
reason to cease paying over-the-limit transactions for the consumer.
    (i) Time to comply with revocation request. A card issuer must 
comply with a consumer's revocation request as soon as reasonably 
practicable after the card issuer receives it.
    (j) Prohibited practices. Notwithstanding a consumer's affirmative 
consent to a card issuer's payment of over-the-limit transactions, a 
card issuer is prohibited from engaging in the following practices:
    (1) Fees or charges imposed per cycle. (i) General rule. A card 
issuer may not impose more than one over-the-limit fee or charge on a 
consumer's credit card account per billing cycle, and, in any event, 
only if the credit limit was exceeded during the billing cycle. In 
addition, except as provided in paragraph (j)(1)(ii) of this section, a 
card issuer may not impose an over-the-limit fee or charge on the 
consumer's credit card account for more than three billing cycles for 
the same over-the-limit transaction where the consumer has not reduced 
the account balance below the credit limit by the payment due date for 
either of the last two billing cycles.
    (ii) Exception. The prohibition in paragraph (j)(1)(i) of this 
section on imposing an over-the-limit fee or charge in more than three 
billing cycles for the same over-the-limit transaction(s) does not 
apply if another over-the-limit transaction occurs during either of the 
last two billing cycles.
    (2) Failure to promptly replenish. A card issuer may not impose an 
over-the-limit fee or charge solely because of the card issuer's 
failure to promptly replenish the consumer's available credit following 
the crediting of the consumer's payment under Sec.  226.10.
    (3) Conditioning. A card issuer may not condition the amount of a 
consumer's credit limit on the consumer affirmatively consenting to the 
card issuer's payment of over-the-limit transactions if the card issuer 
assesses a fee or charge for such service.
    (4) Over-the-limit fees attributed to fees or interest. A card 
issuer may not impose an over-the-limit fee or charge for a billing 
cycle if a consumer exceeds a credit limit solely because of fees or 
interest charged by the card issuer to the consumer's account during 
that billing cycle. For purposes of this paragraph (j)(4), the relevant 
fees or interest charges are charges imposed as part of the plan under 
Sec.  226.6(b)(3).


Sec.  226.57  Reporting and marketing rules for college student open-
end credit.

    (a) Definitions:
    (1) College student credit card. The term ``college student credit 
card'' as used in this section means a credit card issued under a 
credit card account under an open-end (not home-secured) consumer 
credit plan to any college student.
    (2) College student. The term ``college student'' as used in this 
section means a consumer who is a full-time or part-time student of an 
institution of higher education.
    (3) Institution of higher education. The term ``institution of 
higher education'' as used in this section has the same meaning as in 
sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 
1001 and 1002).
    (4) Affiliated organization. The term ``affiliated organization'' 
as used in this section means an alumni organization or foundation 
affiliated with or related to an institution of higher education.
    (5) College credit card agreement. The term ``college credit card 
agreement'' as used in this section means any business, marketing or 
promotional agreement between a card issuer and an institution of 
higher education or an affiliated organization in connection with which 
college student credit cards are issued to college students currently 
enrolled at that institution.
    (b) Public disclosure of agreements. An institution of higher 
education shall publicly disclose any contract or other agreement made 
with a card issuer or creditor for the purpose of marketing a credit 
card.
    (c) Prohibited inducements. No card issuer or creditor may offer a 
college student any tangible item to induce such student to apply for 
or open an open-end consumer credit plan offered by such card issuer or 
creditor, if such offer is made:
    (1) On the campus of an institution of higher education;
    (2) Near the campus of an institution of higher education; or
    (3) At an event sponsored by or related to an institution of higher 
education.
    (d) Annual report to the Board. (1) Requirement to report. Any card 
issuer that was a party to one or more college credit card agreements 
in effect at any time during a calendar year must submit to the Board 
an annual report regarding those agreements in the form and manner 
prescribed by the Board.
    (2) Contents of report. The annual report to the Board must include 
the following:
    (i) Identifying information about the card issuer and the 
agreements submitted, including the issuer's name, address, and 
identifying number (such as an RSSD ID number or tax identification 
number);
    (ii) A copy of any college credit card agreement to which the card 
issuer was

[[Page 7822]]

a party that was in effect at any time during the period covered by the 
report;
    (iii) A copy of any memorandum of understanding in effect at any 
time during the period covered by the report between the card issuer 
and an institution of higher education or affiliated organization that 
directly or indirectly relates to the college credit card agreement or 
that controls or directs any obligations or distribution of benefits 
between any such entities;
    (iv) The total dollar amount of any payments pursuant to a college 
credit card agreement from the card issuer to an institution of higher 
education or affiliated organization during the period covered by the 
report, and the method or formula used to determine such amounts;
    (v) The total number of credit card accounts opened pursuant to any 
college credit card agreement during the period covered by the report; 
and
    (vi) The total number of credit card accounts opened pursuant to 
any such agreement that were open at the end of the period covered by 
the report.
    (3) Timing of reports. Except for the initial report described in 
this Sec.  226.57(d)(3), a card issuer must submit its annual report 
for each calendar year to the Board by the first business day on or 
after March 31 of the following calendar year. Card issuers must submit 
the first report following the effective date of this section, 
providing information for the 2009 calendar year, to the Board by 
February 22, 2010.


Sec.  226.58  Internet posting of credit card agreements.

    (a) Applicability. The requirements of this section apply to any 
card issuer that issues credit cards under a credit card account under 
an open-end (not home-secured) consumer credit plan.
    (b) Definitions. (1) Agreement. For purposes of this section, 
``agreement'' or ``credit card agreement'' means the written document 
or documents evidencing the terms of the legal obligation, or the 
prospective legal obligation, between a card issuer and a consumer for 
a credit card account under an open-end (not home-secured) consumer 
credit plan. ``Agreement'' or ``credit card agreement'' also includes 
the pricing information, as defined in Sec.  226.58(b)(6).
    (2) Amends. For purposes of this section, an issuer ``amends'' an 
agreement if it makes a substantive change (an ``amendment'') to the 
agreement. A change is substantive if it alters the rights or 
obligations of the card issuer or the consumer under the agreement. Any 
change in the pricing information, as defined in Sec.  226.58(b)(6), is 
deemed to be substantive.
    (3) Business day. For purposes of this section, ``business day'' 
means a day on which the creditor's offices are open to the public for 
carrying on substantially all of its business functions.
    (4) Offers. For purposes of this section, an issuer ``offers'' or 
``offers to the public'' an agreement if the issuer is soliciting or 
accepting applications for accounts that would be subject to that 
agreement.
    (5) Open account. For purposes of this section, an account is an 
``open account'' or ``open credit card account'' if it is a credit card 
account under an open-end (not home-secured) consumer credit plan and 
either:
    (i) The cardholder can obtain extensions of credit on the account; 
or
    (ii) There is an outstanding balance on the account that has not 
been charged off. An account that has been suspended temporarily (for 
example, due to a report by the cardholder of unauthorized use of the 
card) is considered an ``open account'' or ``open credit card 
account.''
    (6) Pricing information. For purposes of this section, ``pricing 
information'' means the information listed in Sec.  226.6(b)(2)(i) 
through (b)(2)(xii) and (b)(4). Pricing information does not include 
temporary or promotional rates and terms or rates and terms that apply 
only to protected balances.
    (7) Private label credit card account and private label credit card 
plan. For purposes of this section:
    (i) ``private label credit card account'' means a credit card 
account under an open-end (not home-secured) consumer credit plan with 
a credit card that can be used to make purchases only at a single 
merchant or an affiliated group of merchants; and
    (ii) ``private label credit card plan'' means all of the private 
label credit card accounts issued by a particular issuer with credit 
cards usable at the same single merchant or affiliated group of 
merchants.
    (c) Submission of agreements to Board. (1) Quarterly submissions. A 
card issuer must make quarterly submissions to the Board, in the form 
and manner specified by the Board, that contain:
    (i) Identifying information about the card issuer and the 
agreements submitted, including the issuer's name, address, and 
identifying number (such as an RSSD ID number or tax identification 
number);
    (ii) The credit card agreements that the card issuer offered to the 
public as of the last business day of the preceding calendar quarter 
that the card issuer has not previously submitted to the Board;
    (iii) Any credit card agreement previously submitted to the Board 
that was amended during the preceding calendar quarter, as described in 
Sec.  226.58(c)(3); and
    (iv) Notification regarding any credit card agreement previously 
submitted to the Board that the issuer is withdrawing, as described in 
Sec.  226.58(c)(4) and (c)(5).
    (2) Timing of first two submissions. The first submission following 
the effective date of this section must be sent to the Board no later 
than February 22, 2010, and must contain the credit card agreements 
that the card issuer offered to the public as of December 31, 2009. The 
next submission must be sent to the Board no later than August 2, 2010, 
and must contain:
    (i) Any credit card agreement that the card issuer offered to the 
public as of June 30, 2010, that the card issuer has not previously 
submitted to the Board;
    (ii) Any credit card agreement previously submitted to the Board 
that was amended after December 31, 2009, and on or before June 30, 
2010, as described in Sec.  226.58(c)(3); and
    (iii) Notification regarding any credit card agreement previously 
submitted to the Board that the issuer is withdrawing as of June 30, 
2010, as described in Sec.  226.58(c)(4) and (c)(5).
    (3) Amended agreements. If a credit card agreement has been 
submitted to the Board, the agreement has not been amended and the card 
issuer continues to offer the agreement to the public, no additional 
submission regarding that agreement is required. If a credit card 
agreement that previously has been submitted to the Board is amended, 
the card issuer must submit the entire amended agreement to the Board, 
in the form and manner specified by the Board, by the first quarterly 
submission deadline after the last day of the calendar quarter in which 
the change became effective.
    (4) Withdrawal of agreements. If a card issuer no longer offers to 
the public a credit card agreement that previously has been submitted 
to the Board, the card issuer must notify the Board, in the form and 
manner specified by the Board, by the first quarterly submission 
deadline after the last day of the calendar quarter in which the issuer 
ceased to offer the agreement.
    (5) De minimis exception. (i) A card issuer is not required to 
submit any credit card agreements to the Board if the card issuer had 
fewer than 10,000 open credit card accounts as of the last business day 
of the calendar quarter.

[[Page 7823]]

    (ii) If an issuer that previously qualified for the de minimis 
exception ceases to qualify, the card issuer must begin making 
quarterly submissions to the Board no later than the first quarterly 
submission deadline after the date as of which the issuer ceased to 
qualify.
    (iii) If a card issuer that did not previously qualify for the de 
minimis exception qualifies for the de minimis exception, the card 
issuer must continue to make quarterly submissions to the Board until 
the issuer notifies the Board that the card issuer is withdrawing all 
agreements it previously submitted to the Board.
    (6) Private label credit card exception. (i) A card issuer is not 
required to submit to the Board a credit card agreement if, as of the 
last business day of the calendar quarter, the agreement:
    (A) is offered for accounts under one or more private label credit 
card plans each of which has fewer than 10,000 open accounts; and
    (B) is not offered to the public other than for accounts under such 
a plan.
    (ii) If an agreement that previously qualified for the private 
label credit card exception ceases to qualify, the card issuer must 
submit the agreement to the Board no later than the first quarterly 
submission deadline after the date as of which the agreement ceased to 
qualify.
    (iii) If an agreement that did not previously qualify for the 
private label credit card exception qualifies for the exception, the 
card issuer must continue to make quarterly submissions to the Board 
with respect to that agreement until the issuer notifies the Board that 
the agreement is being withdrawn.
    (7) Product testing exception. (i) A card issuer is not required to 
submit to the Board a credit card agreement if, as of the last business 
day of the calendar quarter, the agreement:
    (A) is offered as part of a product test offered to only a limited 
group of consumers for a limited period of time;
    (B) is used for fewer than 10,000 open accounts; and
    (C) is not offered to the public other than in connection with such 
a product test.
    (ii) If an agreement that previously qualified for the product 
testing exception ceases to qualify, the card issuer must submit the 
agreement to the Board no later than the first quarterly submission 
deadline after the date as of which the agreement ceased to qualify.
    (iii) If an agreement that did not previously qualify for the 
product testing exception qualifies for the exception, the card issuer 
must continue to make quarterly submissions to the Board with respect 
to that agreement until the issuer notifies the Board that the 
agreement is being withdrawn.
    (8) Form and content of agreements submitted to the Board. (i) Form 
and content generally. (A) Each agreement must contain the provisions 
of the agreement and the pricing information in effect as of the last 
business day of the preceding calendar quarter.
    (B) Agreements must not include any personally identifiable 
information relating to any cardholder, such as name, address, 
telephone number, or account number.
    (C) The following are not deemed to be part of the agreement for 
purposes of Sec.  226.58, and therefore are not required to be included 
in submissions to the Board:
    (1) disclosures required by state or federal law, such as affiliate 
marketing notices, privacy policies, or disclosures under the E-Sign 
Act;
    (2) solicitation materials;
    (3) periodic statements;
    (4) ancillary agreements between the issuer and the consumer, such 
as debt cancellation contracts or debt suspension agreements;
    (5) offers for credit insurance or other optional products and 
other similar advertisements; and
    (6) documents that may be sent to the consumer along with the 
credit card or credit card agreement such as a cover letter, a 
validation sticker on the card, or other information about card 
security.
    (D) Agreements must be presented in a clear and legible font.
    (ii) Pricing information. (A) Pricing information must be set forth 
in a single addendum to the agreement that contains only the pricing 
information.
    (B) Pricing information that may vary from one cardholder to 
another depending on the cardholder's creditworthiness or state of 
residence or other factors must be disclosed either by setting forth 
all the possible variations (such as purchase APRs of 13 percent, 15 
percent, 17 percent, and 19 percent) or by providing a range of 
possible variations (such as purchase APRs ranging from 13 percent to 
19 percent).
    (C) If a rate included in the pricing information is a variable 
rate, the issuer must identify the index or formula used in setting the 
rate and the margin. Rates that may vary from one cardholder to another 
must be disclosed by providing the index and the possible margins (such 
as the prime rate plus 5 percent, 8 percent, 10 percent, or 12 percent) 
or range of margins (such as the prime rate plus from 5 to 12 percent). 
The value of the rate and the value of the index are not required to be 
disclosed.
    (iii) Optional variable terms addendum. Provisions of the agreement 
other than the pricing information that may vary from one cardholder to 
another depending on the cardholder's creditworthiness or state of 
residence or other factors may be set forth in a single addendum to the 
agreement separate from the pricing information addendum.
    (iv) Integrated agreement. Issuers may not provide provisions of 
the agreement or pricing information in the form of change-in-terms 
notices or riders (other than the pricing information addendum and the 
optional variable terms addendum). Changes in provisions or pricing 
information must be integrated into the text of the agreement, the 
pricing information addendum or the optional variable terms addendum, 
as appropriate.
    (d) Posting of agreements offered to the public. (1) Except as 
provided below, a card issuer must post and maintain on its publicly 
available Web site the credit card agreements that the issuer is 
required to submit to the Board under Sec.  226.58(c). With respect to 
an agreement offered solely for accounts under one or more private 
label credit card plans, an issuer may fulfill this requirement by 
posting and maintaining the agreement in accordance with the 
requirements of this section on the publicly available Web site of at 
least one of the merchants at which credit cards issued under each 
private label credit card plan with 10,000 or more open accounts may be 
used.
    (2) Except as provided in Sec.  226.58(d), agreements posted 
pursuant to Sec.  226.58(d) must conform to the form and content 
requirements for agreements submitted to the Board specified in Sec.  
226.58(c)(8).
    (3) Agreements posted pursuant to Sec.  226.58(d) may be posted in 
any electronic format that is readily usable by the general public. 
Agreements must be placed in a location that is prominent and readily 
accessible by the public and must be accessible without submission of 
personally identifiable information.
    (4) The card issuer must update the agreements posted on its Web 
site pursuant to Sec.  226.58(d) at least as frequently as the 
quarterly schedule required for submission of agreements to the Board 
under Sec.  226.58(c). If the issuer chooses to update the agreements 
on its Web site more frequently, the agreements posted on the issuer's 
Web site may contain the provisions of the agreement and the pricing 
information in effect as of a date other than the last business day of 
the preceding calendar quarter.
    (e) Agreements for all open accounts. (1) Availability of 
individual cardholder's agreement. With respect to

[[Page 7824]]

any open credit card account, a card issuer must either:
    (i) Post and maintain the cardholder's agreement on its Web site; 
or
    (ii) Promptly provide a copy of the cardholder's agreement to the 
cardholder upon the cardholder's request. If the card issuer makes an 
agreement available upon request, the issuer must provide the 
cardholder with the ability to request a copy of the agreement both by 
using the issuer's Web site (such as by clicking on a clearly 
identified box to make the request) and by calling a readily available 
telephone line the number for which is displayed on the issuer's Web 
site and clearly identified as to purpose. The card issuer must send to 
the cardholder or otherwise make available to the cardholder a copy of 
the cardholder's agreement in electronic or paper form no later than 30 
days after the issuer receives the cardholder's request.
    (2) Special rule for issuers without interactive Web sites. An 
issuer that does not maintain a Web site from which cardholders can 
access specific information about their individual accounts, instead of 
complying with Sec.  226.58(e)(1), may make agreements available upon 
request by providing the cardholder with the ability to request a copy 
of the agreement by calling a readily available telephone line, the 
number for which is displayed on the issuer's Web site and clearly 
identified as to purpose or included on each periodic statement sent to 
the cardholder and clearly identified as to purpose. The issuer must 
send to the cardholder or otherwise make available to the cardholder a 
copy of the cardholder's agreement in electronic or paper form no later 
than 30 days after the issuer receives the cardholder's request.
    (3) Form and content of agreements. (i) Except as provided in Sec.  
226.58(e), agreements posted on the card issuer's Web site pursuant to 
Sec.  226.58(e)(1)(i) or made available upon the cardholder's request 
pursuant to Sec.  226.58(e)(1)(ii) or (e)(2) must conform to the form 
and content requirements for agreements submitted to the Board 
specified in Sec.  226.58(c)(8).
    (ii) If the card issuer posts an agreement on its Web site or 
otherwise provides an agreement to a cardholder electronically under 
Sec.  226.58(e), the agreement may be posted or provided in any 
electronic format that is readily usable by the general public and must 
be placed in a location that is prominent and readily accessible to the 
cardholder.
    (iii) Agreements posted or otherwise provided pursuant to Sec.  
226.58(e) may contain personally identifiable information relating to 
the cardholder, such as name, address, telephone number, or account 
number, provided that the issuer takes appropriate measures to make the 
agreement accessible only to the cardholder or other authorized 
persons.
    (iv) Agreements posted or otherwise provided pursuant to Sec.  
226.58(e) must set forth the specific provisions and pricing 
information applicable to the particular cardholder. Provisions and 
pricing information must be complete and accurate as of a date no more 
than 60 days prior to: (1) the date on which the agreement is posted on 
the card issuer's Web site under Sec.  226.58(e)(1)(i); or (2) the date 
the cardholder's request is received under Sec.  226.58(e)(1)(ii) or 
(e)(2).
    (v) Agreements provided upon cardholder request pursuant to Sec.  
226.58(e)(1)(ii) or (e)(2) may be provided by the issuer in either 
electronic or paper form, regardless of the form of the cardholder's 
request.
    (f) E-Sign Act requirements. Card issuers may provide credit card 
agreements in electronic form under Sec.  226.58(d) and (e) without 
regard to the consumer notice and consent requirements of section 
101(c) of the Electronic Signatures in Global and National Commerce Act 
(E-Sign Act) (15 U.S.C. 7001 et seq.).

0
20. Appendix E to part 226 is revised to read as follows:

Appendix E to Part 226--Rules for Card Issuers That Bill on a 
Transaction-by-Transaction Basis

    The following provisions of Subpart B apply if credit cards are 
issued and the card issuer and the seller are the same or related 
persons; no finance charge is imposed; consumers are billed in full 
for each use of the card on a transaction-by-transaction basis, by 
means of an invoice or other statement reflecting each use of the 
card; and no cumulative account is maintained which reflects the 
transactions by each consumer during a period of time, such as a 
month. The term ``related person'' refers to, for example, a 
franchised or licensed seller of a creditor's product or service or 
a seller who assigns or sells sales accounts to a creditor or 
arranges for credit under a plan that allows the consumer to use the 
credit only in transactions with that seller. A seller is not 
related to the creditor merely because the seller and the creditor 
have an agreement authorizing the seller to honor the creditor's 
credit card.
    1. Section 226.6(a)(5) or Sec.  226.6(b)(5)(iii).
    2. Section 226.6(a)(2) or Sec.  226.6(b)(3)(ii)(B), as 
applicable. The disclosure required by Sec.  226.6(a)(2) or Sec.  
226.6(b)(3)(ii)(B) shall be limited to those charges that are or may 
be imposed as a result of the deferral of payment by use of the 
card, such as late payment or delinquency charges. A tabular format 
is not required.
    3. Section 226.6(a)(4) or Sec.  226.6(b)(5)(ii).
    4. Section 226.7(a)(2) or Sec.  226.7(b)(2), as applicable; 
Sec.  226.7(a)(9) or Sec.  226.7(b)(9), as applicable. Creditors may 
comply by placing the required disclosures on the invoice or 
statement sent to the consumer for each transaction.
    5. Section 226.9(a). Creditors may comply by mailing or 
delivering the statement required by Sec.  226.6(a)(5) or Sec.  
226.6(b)(5)(iii) (see appendix G-3 and G-3(A) to this part) to each 
consumer receiving a transaction invoice during a one-month period 
chosen by the card issuer or by sending either the statement 
prescribed by Sec.  226.6(a)(5) or Sec.  226.6(b)(5)(iii), or an 
alternative billing error rights statement substantially similar to 
that in appendix G-4 and G-4(A) to this part, with each invoice sent 
to a consumer.
    6. Section 226.9(c). A tabular format is not required.
    7. Section 226.10.
    8. Section 226.11(a). This section applies when a card issuer 
receives a payment or other credit that exceeds by more than $1 the 
amount due, as shown on the transaction invoice. The requirement to 
credit amounts to an account may be complied with by other 
reasonable means, such as by a credit memorandum. Since no periodic 
statement is provided, a notice of the credit balance shall be sent 
to the consumer within a reasonable period of time following its 
occurrence unless a refund of the credit balance is mailed or 
delivered to the consumer within seven business days of its receipt 
by the card issuer.
    9. Section 226.12 including Sec.  226.12(c) and (d), as 
applicable. Section 226.12(e) is inapplicable.
    10. Section 226.13, as applicable. All references to ``periodic 
statement'' shall be read to indicate the invoice or other statement 
for the relevant transaction. All actions with regard to correcting 
and adjusting a consumer's account may be taken by issuing a refund 
or a new invoice, or by other appropriate means consistent with the 
purposes of the section.
    11. Section 226.15, as applicable.


0
21. Appendix F to part 226 is revised to read as follows:

Appendix F to Part 226--Optional Annual Percentage Rate Computations 
for Creditors Offering Open-End Plans Subject to the Requirements of 
Sec.  226.5b

    In determining the denominator of the fraction under Sec.  
226.14(c)(3), no amount will be used more than once when adding the 
sum of the balances \1\ subject to periodic rates to the sum of the 
amounts subject to specific transaction charges. (Where a portion of 
the finance charge is determined by application of one or more daily 
periodic rates, the phrase ``sum of the balances'' shall also mean 
the ``average of daily balances.'') In every case, the full amount 
of transactions subject to specific transaction charges shall be 
included in the denominator. Other balances or parts of balances 
shall be included

[[Page 7825]]

according to the manner of determining the balance subject to a 
periodic rate, as illustrated in the following examples of accounts 
on monthly billing cycles:
---------------------------------------------------------------------------

    \1\ [Reserved].
---------------------------------------------------------------------------

    1. Previous balance--none.
    A specific transaction of $100 occurs on the first day of the 
billing cycle. The average daily balance is $100. A specific 
transaction charge of 3 percent is applicable to the specific 
transaction. The periodic rate is 1\1/2\ percent applicable to the 
average daily balance. The numerator is the amount of the finance 
charge, which is $4.50. The denominator is the amount of the 
transaction (which is $100), plus the amount by which the balance 
subject to the periodic rate exceeds the amount of the specific 
transactions (such excess in this case is 0), totaling $100.
    The annual percentage rate is the quotient (which is 4\1/2\ 
percent) multiplied by 12 (the number of months in a year), i.e., 54 
percent.
    2. Previous balance--$100.
    A specific transaction of $100 occurs at the midpoint of the 
billing cycle. The average daily balance is $150. A specific 
transaction charge of 3 percent is applicable to the specific 
transaction. The periodic rate is 1\1/2\ percent applicable to the 
average daily balance. The numerator is the amount of the finance 
charge which is $5.25. The denominator is the amount of the 
transaction (which is $100), plus the amount by which the balance 
subject to the periodic rate exceeds the amount of the specific 
transaction (such excess in this case is $50), totaling $150. As 
explained in example 1, the annual percentage rate is 3\1/2\ percent 
x 12 = 42 percent.
    3. If, in example 2, the periodic rate applies only to the 
previous balance, the numerator is $4.50 and the denominator is $200 
(the amount of the transaction, $100, plus the balance subject only 
to the periodic rate, the $100 previous balance). As explained in 
example 1, the annual percentage rate is 2\1/4\ percent x 12 = 27 
percent.
    4. If, in example 2, the periodic rate applies only to an 
adjusted balance (previous balance less payments and credits) and 
the consumer made a payment of $50 at the midpoint of the billing 
cycle, the numerator is $3.75 and the denominator is $150 (the 
amount of the transaction, $100, plus the balance subject to the 
periodic rate, the $50 adjusted balance). As explained in example 1, 
the annual percentage rate is 2\1/2\ percent x 12 = 30 percent.
    5. Previous balance--$100.
    A specific transaction (check) of $100 occurs at the midpoint of 
the billing cycle. The average daily balance is $150. The specific 
transaction charge is $.25 per check. The periodic rate is 1\1/2\ 
percent applied to the average daily balance. The numerator is the 
amount of the finance charge, which is $2.50 and includes the $.25 
check charge and the $2.25 resulting from the application of the 
periodic rate. The denominator is the full amount of the specific 
transaction (which is $100) plus the amount by which the average 
daily balance exceeds the amount of the specific transaction (which 
in this case is $50), totaling $150. As explained in example 1, the 
annual percentage rate would be 1\2/3\ percent x 12 = 20 percent.
    6. Previous balance--none.
    A specific transaction of $100 occurs at the midpoint of the 
billing cycle. The average daily balance is $50. The specific 
transaction charge is 3 percent of the transaction amount or $3.00. 
The periodic rate is 1\1/2\ percent per month applied to the average 
daily balance. The numerator is the amount of the finance charge, 
which is $3.75, including the $3.00 transaction charge and $.75 
resulting from application of the periodic rate. The denominator is 
the full amount of the specific transaction ($100) plus the amount 
by which the balance subject to the periodic rate exceeds the amount 
of the transaction ($0). Where the specific transaction amount 
exceeds the balance subject to the periodic rate, the resulting 
number is considered to be zero rather than a negative number ($50 - 
$100 = -$50). The denominator, in this case, is $100. As explained 
in example 1, the annual percentage rate is 3\3/4\ percent x 12 = 45 
percent.

0
22. Appendix G to part 226 is amended by:
0
A. Revising the table of contents at the beginning of the appendix;
0
B. Revising Forms G-1, G-2, G-3, G-4, G-10(A), G-10(B), G-10(C), G-11, 
and G-13(A) and (B);
0
D. Adding new Forms G-1(A), G-2(A), G-3(A), G-4(A), G-10(D) and (E), G-
16(A) and (B), G-17(A) through (D), G-18(A) through (D), and G-18(F) 
through (H), G-19, G-20, G-21, G-22, G-23, G-24, G-25(A) and (B) in 
numerical order; and
0
E. Removing and reserving Form G-12.
0
F. Adding and reserving Form G-18(E).

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

G-1 Balance Computation Methods Model Clauses (Home-equity Plans) 
(Sec. Sec.  226.6 and 226.7)
G-1(A) Balance Computation Methods Model Clauses (Plans other than 
Home-equity Plans) (Sec. Sec.  226.6 and 226.7)
G-2 Liability for Unauthorized Use Model Clause (Home-equity Plans) 
(Sec.  226.12)
G-2(A) Liability for Unauthorized Use Model Clause (Plans Other Than 
Home-equity Plans) (Sec.  226.12)
G-3 Long-Form Billing-Error Rights Model Form (Home-equity Plans) 
(Sec. Sec.  226.6 and 226.9)
G-3(A) Long-Form Billing-Error Rights Model Form (Plans Other Than 
Home-equity Plans) (Sec. Sec.  226.6 and 226.9)
G-4 Alternative Billing-Error Rights Model Form (Home-equity Plans) 
(Sec.  226.9)
G-4(A) Alternative Billing-Error Rights Model Form (Plans Other Than 
Home-equity Plans) (Sec.  226.9)
G-5 Rescission Model Form (When Opening an Account) (Sec.  226.15)
G-6 Rescission Model Form (For Each Transaction) (Sec.  226.15)
G-7 Rescission Model Form (When Increasing the Credit Limit) (Sec.  
226.15)
G-8 Rescission Model Form (When Adding a Security Interest) (Sec.  
226.15)
G-9 Rescission Model Form (When Increasing the Security) (Sec.  
226.15)
G-10(A) Applications and Solicitations Model Form (Credit Cards) 
(Sec.  226.5a(b))
G-10(B) Applications and Solicitations Sample (Credit Cards) (Sec.  
226.5a(b))
G-10(C) Applications and Solicitations Sample (Credit Cards) (Sec.  
226.5a(b))
G-10(D) Applications and Solicitations Model Form (Charge Cards) 
(Sec.  226.5a(b))
G-10(E) Applications and Solicitations Sample (Charge Cards) (Sec.  
226.5a(b))
G-11 Applications and Solicitations Made Available to General Public 
Model Clauses (Sec.  226.5a(e))
G-12 Reserved
G-13(A) Change in Insurance Provider Model Form (Combined Notice) 
(Sec.  226.9(f))
G-13(B) Change in Insurance Provider Model Form (Sec.  226.9(f)(2))
G-14A Home-equity Sample
G-14B Home-equity Sample
G-15 Home-equity Model Clauses
G-16(A) Debt Suspension Model Clause (Sec.  226.4(d)(3))
G-16(B) Debt Suspension Sample (Sec.  226.4(d)(3))
G-17(A) Account-opening Model Form (Sec.  226.6(b)(2))
G-17(B) Account-opening Sample (Sec.  226.6(b)(2))
G-17(C) Account-opening Sample (Sec.  226.6(b)(2))
G-17(D) Account-opening Sample (Sec.  226.6(b)(2))
G-18(A) Transactions; Interest Charges; Fees Sample (Sec.  226.7(b))
G-18(B) Late Payment Fee Sample (Sec.  226.7(b))
G-18(C)(1) Minimum Payment Warning (When Amortization Occurs and the 
36-Month Disclosures Are Required) (Sec.  226.7(b))
G-18(C)(2) Minimum Payment Warning (When Amortization Occurs and the 
36-Month Disclosures Are Not Required) (Sec.  226.7(b))
G-18(C)(3) Minimum Payment Warning (When Negative or No Amortization 
Occurs) (Sec.  226.7(b))
G-18(D) Periodic Statement New Balance, Due Date, Late Payment and 
Minimum Payment Sample (Credit cards) (Sec.  226.7(b))
G-18(E) [Reserved]
G-18(F) Periodic Statement Form
G-18(G) Periodic Statement Form
G-18(H) Deferred Interest Periodic Statement Clause
G-19 Checks Accessing a Credit Card Account Sample (Sec.  
226.9(b)(3))
G-20 Change-in-Terms Sample (Increase in Annual Percentage Rate) 
(Sec.  226.9(c)(2))
G-21 Change-in-Terms Sample (Increase in Fees) (Sec.  226.9(c)(2))
G-22 Penalty Rate Increase Sample (Payment 60 or Fewer Days Late) 
(Sec.  226.9(g)(3))
G-23 Penalty Rate Increase Sample (Payment More Than 60 Days Late) 
(Sec.  226.9(g)(3))
G-24 Deferred Interest Offer Clauses (Sec.  226.16(h))
G-25(A) Consent Form for Over-the-Limit Transactions (Sec.  226.56)

[[Page 7826]]

G-25(B) Revocation Notice for Periodic Statement Regarding Over-the-
Limit Transactions (Sec.  226.56)

G-1--Balance Computation Methods Model Clauses (Home-Equity Plans)

    (a) Adjusted balance method
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``adjusted balance'' of your 
account. We get the ``adjusted balance'' by taking the balance you 
owed at the end of the previous billing cycle and subtracting [any 
unpaid finance charges and] any payments and credits received during 
the present billing cycle.
    (b) Previous balance method
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the beginning of 
each billing cycle [minus any unpaid finance charges]. We do not 
subtract any payments or credits received during the billing cycle. 
[The amount of payments and credits to your account this billing 
cycle was $ ------.]
    (c) Average daily balance method (excluding current 
transactions)
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (excluding current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day and 
subtract any payments or credits [and any unpaid finance charges]. 
We do not add in any new [purchases/advances/loans]. This gives us 
the daily balance. Then, we add all the daily balances for the 
billing cycle together and divide the total by the number of days in 
the billing cycle. This gives us the ``average daily balance.''
    (d) Average daily balance method (including current 
transactions)
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (including current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day, 
add any new [purchases/advances/loans], and subtract any payments or 
credits, [and unpaid finance charges]. This gives us the daily 
balance. Then, we add up all the daily balances for the billing 
cycle and divide the total by the number of days in the billing 
cycle. This gives us the ``average daily balance.''
    (e) Ending balance method
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the end of each 
billing cycle (including new purchases and deducting payments and 
credits made during the billing cycle).
    (f) Daily balance method (including current transactions)
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``daily balance'' of your account 
for each day in the billing cycle. To get the ``daily balance'' we 
take the beginning balance of your account each day, add any new 
[purchases/advances/fees], and subtract [any unpaid finance charges 
and] any payments or credits. This gives us the daily balance.

G-1(A)--Balance Computation Methods Model Clauses (Plans Other Than 
Home-Equity Plans)

    (a) Adjusted balance method
    We figure the interest charge on your account by applying the 
periodic rate to the ``adjusted balance'' of your account. We get 
the ``adjusted balance'' by taking the balance you owed at the end 
of the previous billing cycle and subtracting [any unpaid interest 
or other finance charges and] any payments and credits received 
during the present billing cycle.
    (b) Previous balance method
    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the beginning of each billing 
cycle. We do not subtract any payments or credits received during 
the billing cycle.
    (c) Average daily balance method (excluding current 
transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To 
get the ``average daily balance'' we take the beginning balance of 
your account each day and subtract [any unpaid interest or other 
finance charges and] any payments or credits. We do not add in any 
new [purchases/advances/fees]. This gives us the daily balance. 
Then, we add all the daily balances for the billing cycle together 
and divide the total by the number of days in the billing cycle. 
This gives us the ``average daily balance.''
    (d) Average daily balance method (including current 
transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To 
get the ``average daily balance'' we take the beginning balance of 
your account each day, add any new [purchases/advances/fees], and 
subtract [any unpaid interest or other finance charges and] any 
payments or credits. This gives us the daily balance. Then, we add 
up all the daily balances for the billing cycle and divide the total 
by the number of days in the billing cycle. This gives us the 
``average daily balance.''
    (e) Ending balance method
    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the end of each billing cycle 
(including new [purchases/advances/fees] and deducting payments and 
credits made during the billing cycle).
    (f) Daily balance method (including current transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``daily balance'' of your account for each day 
in the billing cycle. To get the ``daily balance'' we take the 
beginning balance of your account each day, add any new [purchases/
advances/fees], and subtract [any unpaid interest or other finance 
charges and] any payments or credits. This gives us the daily 
balance.

G-2--Liability for Unauthorized Use Model Clause (Home-Equity Plans)

    You may be liable for the unauthorized use of your credit card 
[or other term that describes the credit card]. You will not be 
liable for unauthorized use that occurs after you notify [name of 
card issuer or its designee] at [address], orally or in writing, of 
the loss, theft, or possible unauthorized use. [You may also contact 
us on the Web: [Creditor Web or email address]] In any case, your 
liability will not exceed [insert $50 or any lesser amount under 
agreement with the cardholder].

G-2(A)--Liability for Unauthorized Use Model Clause (Plans Other Than 
Home-Equity Plans)

    If you notice the loss or theft of your credit card or a 
possible unauthorized use of your card, you should write to us 
immediately at: [address] [address listed on your bill],
or call us at [telephone number].
    [You may also contact us on the Web: [Creditor Web or email 
address]]
    You will not be liable for any unauthorized use that occurs 
after you notify us. You may, however, be liable for unauthorized 
use that occurs before your notice to us. In any case, your 
liability will not exceed [insert $50 or any lesser amount under 
agreement with the cardholder].

G-3--Long-Form Billing-Error Rights Model Form (Home-Equity Plans)

YOUR BILLING RIGHTS

KEEP THIS NOTICE FOR FUTURE USE

    This notice contains important information about your rights and 
our responsibilities under the Fair Credit Billing Act.

Notify Us in Case of Errors or Questions About Your Bill

    If you think your bill is wrong, or if you need more information 
about a transaction on your bill, write us [on a separate sheet] at 
[address] [the address listed on your bill]. Write to us as soon as 
possible. We must hear from you no later than 60 days after we sent 
you the first bill on which the error or problem appeared. [You may 
also contact us on the Web: [Creditor Web or email address]] You can 
telephone us, but doing so will not preserve your rights.
    In your letter, give us the following information:
     Your name and account number.
     The dollar amount of the suspected error.
     Describe the error and explain, if you can, why you 
believe there is an error. If you need more information, describe 
the item you are not sure about.
    If you have authorized us to pay your credit card bill 
automatically from your savings or checking account, you can stop 
the payment on any amount you think is wrong. To stop the payment 
your letter must reach us three business days before the automatic 
payment is scheduled to occur.

Your Rights and Our Responsibilities After We Receive Your Written 
Notice

    We must acknowledge your letter within 30 days, unless we have 
corrected the error by then. Within 90 days, we must either correct 
the error or explain why we believe the bill was correct.
    After we receive your letter, we cannot try to collect any 
amount you question, or report you as delinquent. We can continue to 
bill

[[Page 7827]]

you for the amount you question, including finance charges, and we 
can apply any unpaid amount against your credit limit. You do not 
have to pay any questioned amount while we are investigating, but 
you are still obligated to pay the parts of your bill that are not 
in question.
    If we find that we made a mistake on your bill, you will not 
have to pay any finance charges related to any questioned amount. If 
we didn't make a mistake, you may have to pay finance charges, and 
you will have to make up any missed payments on the questioned 
amount. In either case, we will send you a statement of the amount 
you owe and the date that it is due.
    If you fail to pay the amount that we think you owe, we may 
report you as delinquent. However, if our explanation does not 
satisfy you and you write to us within ten days telling us that you 
still refuse to pay, we must tell anyone we report you to that you 
have a question about your bill. And, we must tell you the name of 
anyone we reported you to. We must tell anyone we report you to that 
the matter has been settled between us when it finally is.
    If we don't follow these rules, we can't collect the first $50 
of the questioned amount, even if your bill was correct.

Special Rule for Credit Card Purchases

    If you have a problem with the quality of property or services 
that you purchased with a credit card, and you have tried in good 
faith to correct the problem with the merchant, you may have the 
right not to pay the remaining amount due on the property or 
services.
    There are two limitations on this right:
    (a) You must have made the purchase in your home state or, if 
not within your home state within 100 miles of your current mailing 
address; and
    (b) The purchase price must have been more than $50.
    These limitations do not apply if we own or operate the 
merchant, or if we mailed you the advertisement for the property or 
services.

G-3(A)--Long-Form Billing-Error Rights Model Form (Plans Other Than 
Home-Equity Plans)

Your Billing Rights: Keep This Document For Future Use

    This notice tells you about your rights and our responsibilities 
under the Fair Credit Billing Act.

What To Do If You Find A Mistake On Your Statement

    If you think there is an error on your statement, write to us 
at:
    [Creditor Name]
    [Creditor Address]
[You may also contact us on the Web: [Creditor Web or email 
address]]
    In your letter, give us the following information:
     Account information: Your name and account number.
     Dollar amount: The dollar amount of the suspected 
error.
     Description of problem: If you think there is an error 
on your bill, describe what you believe is wrong and why you believe 
it is a mistake.
    You must contact us:
     Within 60 days after the error appeared on your 
statement.
     At least 3 business days before an automated payment is 
scheduled, if you want to stop payment on the amount you think is 
wrong.
    You must notify us of any potential errors in writing [or 
electronically]. You may call us, but if you do we are not required 
to investigate any potential errors and you may have to pay the 
amount in question.

What Will Happen After We Receive Your Letter

When we receive your letter, we must do two things:
    1. Within 30 days of receiving your letter, we must tell you 
that we received your letter. We will also tell you if we have 
already corrected the error.
    2. Within 90 days of receiving your letter, we must either 
correct the error or explain to you why we believe the bill is 
correct.
While we investigate whether or not there has been an error:
     We cannot try to collect the amount in question, or 
report you as delinquent on that amount.
     The charge in question may remain on your statement, 
and we may continue to charge you interest on that amount.
     While you do not have to pay the amount in question, 
you are responsible for the remainder of your balance.
     We can apply any unpaid amount against your credit 
limit.
After we finish our investigation, one of two things will happen:
     If we made a mistake: You will not have to pay the 
amount in question or any interest or other fees related to that 
amount.
     If we do not believe there was a mistake: You will have 
to pay the amount in question, along with applicable interest and 
fees. We will send you a statement of the amount you owe and the 
date payment is due. We may then report you as delinquent if you do 
not pay the amount we think you owe.
    If you receive our explanation but still believe your bill is 
wrong, you must write to us within 10 days telling us that you still 
refuse to pay. If you do so, we cannot report you as delinquent 
without also reporting that you are questioning your bill. We must 
tell you the name of anyone to whom we reported you as delinquent, 
and we must let those organizations know when the matter has been 
settled between us.
    If we do not follow all of the rules above, you do not have to 
pay the first $50 of the amount you question even if your bill is 
correct.

Your Rights If You Are Dissatisfied With Your Credit Card Purchases

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

G-4--Alternative Billing-Error Rights Model Form (Home-Equity Plans)

BILLING RIGHTS SUMMARY

In Case of Errors or Questions About Your Bill

    If you think your bill is wrong, or if you need more information 
about a transaction on your bill, write us [on a separate sheet] at 
[address] [the address shown on your bill] as soon as possible. [You 
may also contact us on the Web: [Creditor Web or e-mail address]] We 
must hear from you no later than 60 days after we sent you the first 
bill on which the error or problem appeared. You can telephone us, 
but doing so will not preserve your rights.
    In your letter, give us the following information:
     Your name and account number.
     The dollar amount of the suspected error.
     Describe the error and explain, if you can, why you 
believe there is an error. If you need more information, describe 
the item you are unsure about.
    You do not have to pay any amount in question while we are 
investigating, but you are still obligated to pay the parts of your 
bill that are not in question. While we investigate your question, 
we cannot report you as delinquent or take any action to collect the 
amount you question.

Special Rule for Credit Card Purchases

    If you have a problem with the quality of goods or services that 
you purchased with a credit card, and you have tried in good faith 
to correct the problem with the merchant, you may not have to pay 
the remaining amount due on the goods or services. You have this 
protection only when the purchase price was more than $50 and the 
purchase was made in your home state or within 100 miles of your 
mailing address. (If we own or operate the merchant, or if we mailed 
you the advertisement for the property or services, all purchases 
are covered regardless of amount or location of purchase.)

[[Page 7828]]

G-4(A)--Alternative Billing-Error Rights Model Form (Plans Other Than 
Home-Equity Plans)

What To Do If You Think You Find A Mistake On Your Statement

    If you think there is an error on your statement, write to us 
at:

[Creditor Name]
[Creditor Address]

    [You may also contact us on the Web: [Creditor Web or e-mail 
address]]
    In your letter, give us the following information:
     Account information: Your name and account number.
     Dollar amount: The dollar amount of the suspected 
error.
     Description of Problem: If you think there is an error 
on your bill, describe what you believe is wrong and why you believe 
it is a mistake.
    You must contact us within 60 days after the error appeared on 
your statement.
    You must notify us of any potential errors in writing [or 
electronically]. You may call us, but if you do we are not required 
to investigate any potential errors and you may have to pay the 
amount in question.
    While we investigate whether or not there has been an error, the 
following are true:
     We cannot try to collect the amount in question, or 
report you as delinquent on that amount.
     The charge in question may remain on your statement, 
and we may continue to charge you interest on that amount. But, if 
we determine that we made a mistake, you will not have to pay the 
amount in question or any interest or other fees related to that 
amount.
     While you do not have to pay the amount in question, 
you are responsible for the remainder of your balance.
     We can apply any unpaid amount against your credit 
limit.

Your Rights If You Are Dissatisfied With Your Credit Card Purchases

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

[Creditor Name]
[Creditor Address]
[[Creditor Web address]]

    While we investigate, the same rules apply to the disputed 
amount as discussed above. After we finish our investigation, we 
will tell you our decision. At that point, if we think you owe an 
amount and you do not pay we may report you as delinquent.
* * * * *
BILLING CODE 6210-01-P

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BILLING CODE 6210-01-C

G-11--Applications and Solicitations Made Available to the General 
Public Model Clauses

(a) Disclosure of Required Credit Information

    The information about the costs of the card described in this 
[application]/[solicitation] is accurate as of (month/year). This 
information may have changed after that date. To find out what may 
have changed, [call us at (telephone number)][write to us at 
(address)].

(b) No Disclosure of Credit Information

    There are costs associated with the use of this card. To obtain 
information about these costs, call us at (telephone number) or 
write to us at (address).

G-12 [Reserved]

G-13(A)--Change in Insurance Provider Model Form (Combined Notice)

    The credit card account you have with us is insured. This is to 
notify you that we plan to replace your current coverage with 
insurance coverage from a different insurer.
    If we obtain insurance for your account from a different 
insurer, you may cancel the insurance.
[Your premium rate will increase to $ ---- per ----.]
    [Your coverage will be affected by the following:
    [ ] The elimination of a type of coverage previously provided to 
you. [(explanation)] [See ---- of the attached policy for details.]
    [ ] A lowering of the age at which your coverage will terminate 
or will become more restrictive. [(explanation)] [See ---- of the 
attached policy or certificate for details.]
    [ ] A decrease in your maximum insurable loan balance, maximum 
periodic benefit payment, maximum number of payments, or any other 
decrease in the dollar amount of your coverage or benefits. 
[(explanation)] [See ---- of the attached policy or certificate for 
details.]
    [ ] A restriction on the eligibility for benefits for you or 
others. [(explanation)] [See ---- of the attached policy or 
certificate for details.]
    [ ] A restriction in the definition of ``disability'' or other 
key term of coverage. [(explanation)] [See ---- of the attached 
policy or certificate for details.]
    [ ] The addition of exclusions or limitations that are broader 
or other than those under the current coverage. [(explanation)] [See 
---- of the attached policy or certificate for details.]
    [ ] An increase in the elimination (waiting) period or a change 
to nonretroactive coverage. [(explanation)] [See ---- of the 
attached policy or certificate for details).]

[[Page 7833]]

    [The name and mailing address of the new insurer providing the 
coverage for your account is (name and address).]

G-13(B)--Change in Insurance Provider Model Form

    We have changed the insurer providing the coverage for your 
account. The new insurer's name and address are (name and address). 
A copy of the new policy or certificate is attached.
    You may cancel the insurance for your account.
* * * * *

G-16(A) Debt Suspension Model Clause

    Please enroll me in the optional [insert name of program], and 
bill my account the fee of [how cost is determined]. I understand 
that enrollment is not required to obtain credit. I also understand 
that depending on the event, the protection may only temporarily 
suspend my duty to make minimum payments, not reduce the balance I 
owe. I understand that my balance will actually grow during the 
suspension period as interest continues to accumulate.

[To Enroll, Sign Here]/[To Enroll, Initial Here]. X--------------------

G-16(B) Debt Suspension Sample

    Please enroll me in the optional [name of program], and bill my 
account the fee of $.83 per $100 of my month-end account balance. I 
understand that enrollment is not required to obtain credit. I also 
understand that depending on the event, the protection may only 
temporarily suspend my duty to make minimum payments, not reduce the 
balance I owe. I understand that my balance will actually grow 
during the suspension period as interest continues to accumulate.

To Enroll, Initial Here. X---------------------------------------------
BILLING CODE 6210-01-P

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BILLING CODE 6210-01-C

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

    [You must pay your promotional balance in full by [date] to 
avoid paying accrued interest charges.]
BILLING CODE 6210-01-P
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BILLING CODE 6210-01-C

G-24--Deferred Interest Offer Clauses

    (a) For Credit Card Accounts Under an Open-End (Not Home-
Secured) Consumer Credit Plan
    [Interest will be charged to your account from the purchase date 
if the purchase balance is not paid in full within the/by [deferred 
interest period/date] or if you make a late payment.]
    (b) For Other Open-End Plans
    [Interest will be charged to your account from the purchase date 
if the purchase balance is not paid in full within the/by [deferred 
interest period/date] or if your account is otherwise in default.]

G-25(A)--Consent Form for Over-the-Credit Limit Transactions

Your choice regarding over-the-credit limit coverage

    Unless you tell us otherwise, we will decline any transaction 
that causes you to go over your credit limit. If you want us to 
authorize these transactions, you can request over-the-credit limit 
coverage.
    If you have over-the-credit limit coverage and you go over your 
credit limit, we will charge you a fee of $XX and may increase your 
APRs to the Penalty APR of XX.XX%. You will only pay one fee per 
billing cycle, even if you go over your limit multiple times in the 
same cycle.
    Even if you request over-the-credit limit coverage, in some 
cases we may still decline a transaction that would cause you to go 
over your limit, such as if you are past due or significantly over 
your credit limit.
    If you want over-the-limit coverage and to allow us to authorize 
transactions that go over your credit limit, please:

--Call us at [telephone number];
--Visit [Web site]; or
--Check or initial the box below, and return the form to us at 
[address].

    -- I want over-the-limit coverage. I understand that if I go 
over my credit limit, I will be charged a fee of $-- and my APRs may 
be increased. [I have the right to cancel this coverage at any 
time.]
    [-- I do not want over-the-limit coverage. I understand that 
transactions that exceed my credit limit will not be authorized.]

Printed Name:----------------------------------------------------------
Date:------------------------------------------------------------------
[Account Number]:------------------------------------------------------

G-25(B)--Revocation Notice for Periodic Statement Regarding Over-the-
Credit Limit Transactions

    You currently have over-the-credit limit coverage on your 
account, which means that we pay transactions that cause you go to 
over your credit limit. If you do go over your credit limit, we will 
charge you a fee of $XX and your APRs may be increased. To remove 
over-the-credit-limit coverage from your account, call us at 1-800-
xxxxxxx or visit [insert Web site]. [You may also write us at: 
[insert address].]
    [You may also check or initial the box below and return this 
form to us at: [insert address].]
    -- I want to cancel over-the-limit coverage for my account.

Printed Name:----------------------------------------------------------
Date:------------------------------------------------------------------
[Account Number]:------------------------------------------------------


0
23. Appendix H to part 226 is amended by revising the table of

[[Page 7846]]

contents, and adding new forms H-17(A) and H-17(B) to read as follows:

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

H-1 Credit Sale Model Form (Sec.  226.18)
H-2 Loan Model Form (Sec.  226.18)
H-3 Amount Financed Itemization Model Form (Sec.  226.18(c))
H-4(A) Variable-Rate Model Clauses (Sec.  226.18(f)(1))
H-4(B) Variable-Rate Model Clauses (Sec.  226.18(f)(2))
H-4(C) Variable-Rate Model Clauses (Sec.  226.19(b))
H-4(D) Variable-Rate Model Clauses (Sec.  226.20(c))
H-5 Demand Feature Model Clauses (Sec.  226.18(i))
H-6 Assumption Policy Model Clause (Sec.  226.18(q))
H-7 Required Deposit Model Clause (Sec.  226.18(r))
H-8 Rescission Model Form (General) (Sec.  226.23)
H-9 Rescission Model Form (Refinancing (with Original Creditor)) 
(Sec.  226.23)
H-10 Credit Sale Sample
H-11 Installment Loan Sample
H-12 Refinancing Sample
H-13 Mortgage with Demand Feature Sample
H-14 Variable-Rate Mortgage Sample (Sec.  226.19(b))
H-15 Graduated-Payment Mortgage Sample
H-16 Mortgage Sample
H-17(A) Debt Suspension Model Clause
H-17(B) Debt Suspension Sample
* * * * *

H-17(A) Debt Suspension Model Clause

    Please enroll me in the optional [insert name of program], and 
bill my account the fee of [insert charge for the initial term of 
coverage]. I understand that enrollment is not required to obtain 
credit. I also understand that depending on the event, the 
protection may only temporarily suspend my duty to make minimum 
payments, not reduce the balance I owe. I understand that my balance 
will actually grow during the suspension period as interest 
continues to accumulate.
    [To Enroll, Sign Here]/[To Enroll, Initial Here]. X ------------
--------

H-17(B) Debt Suspension Sample

    Please enroll me in the optional [name of program], and bill my 
account the fee of $200.00. I understand that enrollment is not 
required to obtain credit. I also understand that depending on the 
event, the protection may only temporarily suspend my duty to make 
minimum payments, not reduce the balance I owe. I understand that my 
balance will actually grow during the suspension period as interest 
continues to accumulate.
    To Enroll, Initial Here. X --------------------


0
24. Appendix M1 is added to part 226 to read as follows:

Appendix M1 to Part 226--Repayment Disclosures

    (a) Definitions. (1) ``Promotional terms'' means terms of a 
cardholder's account that will expire in a fixed period of time, as 
set forth by the card issuer.
    (2) ``Deferred interest or similar plan'' means a plan where a 
consumer will not be obligated to pay interest that accrues on 
balances or transactions if those balances or transactions are paid 
in full prior to the expiration of a specified period of time.
    (b) Calculating minimum payment repayment estimates. (1) Minimum 
payment formulas. When calculating the minimum payment repayment 
estimate, card issuers must use the minimum payment formula(s) that 
apply to a cardholder's account. If more than one minimum payment 
formula applies to an account, the issuer must apply each minimum 
payment formula to the portion of the balance to which the formula 
applies. In this case, the issuer must disclose the longest 
repayment period calculated. For example, assume that an issuer uses 
one minimum payment formula to calculate the minimum payment amount 
for a general revolving feature, and another minimum payment formula 
to calculate the minimum payment amount for special purchases, such 
as a ``club plan purchase.'' Also, assume that based on a consumer's 
balances in these features and the annual percentage rates that 
apply to such features, the repayment period calculated pursuant to 
this Appendix for the general revolving feature is 5 years, while 
the repayment period calculated for the special purchase feature is 
3 years. This issuer must disclose 5 years as the repayment period 
for the entire balance to the consumer. If any promotional terms 
related to payments apply to a cardholder's account, such as a 
deferred billing plan where minimum payments are not required for 12 
months, card issuers may assume no promotional terms apply to the 
account. For example, assume that a promotional minimum payment of 
$10 applies to an account for six months, and then after the 
promotional period expires, the minimum payment is calculated as 2 
percent of the outstanding balance on the account or $20 whichever 
is greater. An issuer may assume during the promotional period that 
the $10 promotional minimum payment does not apply, and instead 
calculate the minimum payment disclosures based on the minimum 
payment formula of 2 percent of the outstanding balance or $20, 
whichever is greater. Alternatively, during the promotional period, 
an issuer in calculating the minimum payment repayment estimate may 
apply the promotional minimum payment until it expires and then 
apply the minimum payment formula that applies after the promotional 
minimum payment expires. In the above example, an issuer could 
calculate the minimum payment repayment estimate during the 
promotional period by applying the $10 promotional minimum payment 
for the first six months and then applying the 2 percent or $20 
(whichever is greater) minimum payment formula after the promotional 
minimum payment expires. In calculating the minimum payment 
repayment estimate during a promotional period, an issuer may not 
assume that the promotional minimum payment will apply until the 
outstanding balance is paid off by making only minimum payments 
(assuming the repayment estimate is longer than the promotional 
period). In the above example, the issuer may not calculate the 
minimum payment repayment estimate during the promotional period by 
assuming that the $10 promotional minimum payment will apply beyond 
the six months until the outstanding balance is repaid.
    (2) Annual percentage rate. When calculating the minimum payment 
repayment estimate, a card issuer must use the annual percentage 
rates that apply to a cardholder's account, based on the portion of 
the balance to which the rate applies. If any promotional terms 
related to annual percentage rates apply to a cardholder's account, 
other than deferred interest or similar plans, a card issuer in 
calculating the minimum payment repayment estimate during the 
promotional period must apply the promotional annual percentage 
rate(s) until it expires and then must apply the rate that applies 
after the promotional rate(s) expires. If the rate that applies 
after the promotional rate(s) expires is a variable rate, a card 
issuer must calculate that rate based on the applicable index or 
formula. This variable rate is accurate if it was in effect within 
the last 30 days before the minimum payment repayment estimate is 
provided. For deferred interest plans or similar plans, if minimum 
payments under the deferred interest or similar plan will repay the 
balances or transactions in full prior to the expiration of the 
specified period of time, a card issuer must assume that the 
consumer will not be obligated to pay the accrued interest. This 
means, in calculating the minimum payment repayment estimate, the 
card issuer must apply a zero percent annual percentage rate to the 
balance subject to the deferred interest or similar plan. If, 
however, minimum payments under the deferred interest plan or 
similar plan may not repay the balances or transactions in full 
prior to the expiration of the specified period of time, a card 
issuer must assume that a consumer will not repay the balances or 
transactions in full prior to the expiration of the specified period 
of time and thus the consumer will be obligated to pay the accrued 
interest. This means, in calculating the minimum payment repayment 
estimate, the card issuer must apply the annual percentage rate at 
which interest is accruing to the balance subject to the deferred 
interest or similar plan.
    (3) Beginning balance. When calculating the minimum payment 
repayment estimate, a card issuer must use as the beginning balance 
the outstanding balance on a consumer's account as of the closing 
date of the last billing cycle. When calculating the minimum payment 
repayment estimate, a card issuer may round the beginning balance as 
described above to the nearest whole dollar.
    (4) Assumptions. When calculating the minimum payment repayment 
estimate, a card issuer for each of the terms below, may either make 
the following assumption about that term, or use the account term 
that applies to a consumer's account.
    (i) Only minimum monthly payments are made each month. In 
addition, minimum monthly payments are made each month--for example, 
a debt cancellation or suspension agreement, or skip payment feature 
does not apply to the account.

[[Page 7847]]

    (ii) No additional extensions of credit are obtained, such as 
new purchases, transactions, fees, charges or other activity. No 
refunds or rebates are given.
    (iii) The annual percentage rate or rates that apply to a 
cardholder's account will not change, through either the operation 
of a variable rate or the change to a rate, except as provided in 
paragraph (b)(2) of this Appendix. For example, if a penalty annual 
percentage rate currently applies to a consumer's account, a card 
issuer may assume that the penalty annual percentage rate will apply 
to the consumer's account indefinitely, even if the consumer may 
potentially return to a non-penalty annual percentage rate in the 
future under the account agreement.
    (iv) There is no grace period.
    (v) The final payment pays the account in full (i.e., there is 
no residual finance charge after the final month in a series of 
payments).
    (vi) The average daily balance method is used to calculate the 
balance.
    (vii) All months are the same length and leap year is ignored. A 
monthly or daily periodic rate may be assumed. If a daily periodic 
rate is assumed, the issuer may either assume (1) a year is 365 days 
long, and all months are 30.41667 days long, or (2) a year is 360 
days long, and all months are 30 days long.
    (viii) Payments are credited either on the last day of the month 
or the last day of the billing cycle.
    (ix) Payments are allocated to lower annual percentage rate 
balances before higher annual percentage rate balances.
    (x) The account is not past due and the account balance does not 
exceed the credit limit.
    (xi) When calculating the minimum payment repayment estimate, 
the assumed payments, current balance and interest charges for each 
month may be rounded to the nearest cent, as shown in Appendix M2 to 
this part.
    (5) Tolerance. A minimum payment repayment estimate shall be 
considered accurate if it is not more than 2 months above or below 
the minimum payment repayment estimate determined in accordance with 
the guidance in this Appendix (prior to rounding described in Sec.  
226.7(b)(12)(i)(B) and without use of the assumptions listed in 
paragraph (b)(4) of this Appendix to the extent a card issuer 
chooses instead to use the account terms that apply to a consumer's 
account). For example, assume the minimum payment repayment estimate 
calculated using the guidance in this Appendix is 28 months (2 
years, 4 months), and the minimum payment repayment estimate 
calculated by the issuer is 30 months (2 years, 6 months). The 
minimum payment repayment estimate should be disclosed as 2 years, 
due to the rounding rule set forth in Sec.  226.7(b)(12)(i)(B). 
Nonetheless, based on the 30-month estimate, the issuer disclosed 3 
years, based on that rounding rule. The issuer would be in 
compliance with this guidance by disclosing 3 years, instead of 2 
years, because the issuer's estimate is within the 2 months' 
tolerance, prior to rounding. In addition, even if an issuer's 
estimate is more than 2 months above or below the minimum payment 
repayment estimate calculated using the guidance in this Appendix, 
so long as the issuer discloses the correct number of years to the 
consumer based on the rounding rule set forth in Sec.  
226.7(b)(12)(i)(B), the issuer would be in compliance with this 
guidance. For example, assume the minimum payment repayment estimate 
calculated using the guidance in this Appendix is 32 months (2 
years, 8 months), and the minimum payment repayment estimate 
calculated by the issuer is 38 months (3 years, 2 months). Under the 
rounding rule set forth in Sec.  226.7(b)(12)(i)(B), both of these 
estimates would be rounded and disclosed to the consumer as 3 years. 
Thus, if the issuer disclosed 3 years to the consumer, the issuer 
would be in compliance with this guidance even though the minimum 
payment repayment estimate calculated by the issuer is outside the 2 
months' tolerance amount.
    (c) Calculating the minimum payment total cost estimate. When 
calculating the minimum payment total cost estimate, a card issuer 
must total the dollar amount of the interest and principal that the 
consumer would pay if he or she made minimum payments for the length 
of time calculated as the minimum payment repayment estimate under 
paragraph (b) of this Appendix. The minimum payment total cost 
estimate is deemed to be accurate if it is based on a minimum 
payment repayment estimate that is within the tolerance guidance set 
forth in paragraph (b)(5) of this Appendix. For example, assume the 
minimum payment repayment estimate calculated using the guidance in 
this Appendix is 28 months (2 years, 4 months), and the minimum 
payment repayment estimate calculated by the issuer is 30 months (2 
years, 6 months). The minimum payment total cost estimate will be 
deemed accurate even if it is based on the 30 month estimate for 
length of repayment, because the issuer's minimum payment repayment 
estimate is within the 2 months' tolerance, prior to rounding. In 
addition, assume the minimum payment repayment estimate calculated 
under this Appendix is 32 months (2 years, 8 months), and the 
minimum payment repayment estimate calculated by the issuer is 38 
months (3 years, 2 months). Under the rounding rule set forth in 
Sec.  226.7(b)(12)(i)(B), both of these estimates would be rounded 
and disclosed to the consumer as 3 years. If the issuer based the 
minimum payment total cost estimate on 38 months (or any other 
minimum payment repayment estimate that would be rounded to 3 
years), the minimum payment total cost estimate would be deemed to 
be accurate.
    (d) Calculating the estimated monthly payment for repayment in 
36 months. (1) In general. When calculating the estimated monthly 
payment for repayment in 36 months, a card issuer must calculate the 
estimated monthly payment amount that would be required to pay off 
the outstanding balance shown on the statement within 36 months, 
assuming the consumer paid the same amount each month for 36 months.
    (2) Weighted annual percentage rate. In calculating the 
estimated monthly payment for repayment in 36 months, an issuer may 
use a weighted annual percentage rate that is based on the annual 
percentage rates that apply to a cardholder's account and the 
portion of the balance to which the rate applies, as shown in 
Appendix M2 to this part. If a card issuer uses a weighted annual 
percentage rate and any promotional terms related to annual 
percentage rates apply to a cardholder's account, other than 
deferred interest plans or similar plans, in calculating the 
weighted annual percentage rate, the issuer must calculate a 
weighted average of the promotional rate and the rate that will 
apply after the promotional rate expires based on the percentage of 
36 months each rate will apply, as shown in Appendix M2 to this 
part. For deferred interest plans or similar plans, if minimum 
payments under the deferred interest or similar plan will repay the 
balances or transactions in full prior to the expiration of the 
specified period of time, if a card issuer uses a weighted annual 
percentage rate, the card issuer must assume that the consumer will 
not be obligated to pay the accrued interest. This means, in 
calculating the weighted annual percentage rate, the card issuer 
must apply a zero percent annual percentage rate to the balance 
subject to the deferred interest or similar plan. If, however, 
minimum payments under the deferred interest plan or similar plan 
may not repay the balances or transactions in full prior to the 
expiration of the specified period of time, a card issuer in 
calculating the weighted annual percentage rate must assume that a 
consumer will not repay the balances or transactions in full prior 
to the expiration of the specified period of time and thus the 
consumer will be obligated to pay the accrued interest. This means, 
in calculating the weighted annual percentage rate, the card issuer 
must apply the annual percentage rate at which interest is accruing 
to the balance subject to the deferred interest or similar plan. A 
card issuer may use a method of calculating the estimated monthly 
payment for repayment in 36 months other than a weighted annual 
percentage rate, so long as the calculation results in the same 
payment amount each month and so long as the total of the payments 
would pay off the outstanding balance shown on the periodic 
statement within 36 months.
    (3) Assumptions. In calculating the estimated monthly payment 
for repayment in 36 months, a card issuer must use the same terms 
described in paragraph (b) of this Appendix, as appropriate.
    (4) Tolerance. An estimated monthly payment for repayment in 36 
months shall be considered accurate if it is not more than 10 
percent above or below the estimated monthly payment for repayment 
in 36 months determined in accordance with the guidance in this 
Appendix (after rounding described in Sec.  
226.7(b)(12)(i)(F)(1)(i)).
    (e) Calculating the total cost estimate for repayment in 36 
months. When calculating the total cost estimate for repayment in 36 
months, a card issuer must total the dollar amount of the interest 
and principal that the consumer would pay if he or she made the 
estimated monthly payment calculated under paragraph (d) of this 
Appendix each month for 36 months. The total cost estimate for 
repayment in 36 months shall be considered accurate if it is based 
on the estimated

[[Page 7848]]

monthly payment for repayment in 36 months that is calculated in 
accordance with paragraph (d) of this Appendix.
    (f) Calculating the savings estimate for repayment in 36 months. 
When calculating the saving estimate for repayment in 36 months, a 
card issuer must subtract the total cost estimate for repayment in 
36 months calculated under paragraph (e) of this Appendix (rounded 
to the nearest whole dollar as set forth in Sec.  
226.7(b)(12)(i)(F)(1)(iii)) from the minimum payment total cost 
estimate calculated under paragraph (c) of this Appendix (rounded to 
the nearest whole dollar as set forth in Sec.  226.7(b)(12)(i)(C)). 
The savings estimate for repayment in 36 months shall be considered 
accurate if it is based on the total cost estimate for repayment in 
36 months that is calculated in accordance with paragraph (e) of 
this Appendix and the minimum payment total cost estimate calculated 
under paragraph (c) of this Appendix.


0
24a. Appendix M2 is added to part 226 to read as follows:

Appendix M2 to Part 226--Sample Calculations of Repayment Disclosures

    The following is an example of how to calculate the minimum 
payment repayment estimate, the minimum payment total cost estimate, 
the estimated monthly payment for repayment in 36 months, the total 
cost estimate for repayment in 36 months, and the savings estimate 
for repayment in 36 months using the guidance in Appendix M1 to this 
part where three annual percentage rates apply (where one of the 
rates is a promotional APR), the total outstanding balance is $1000, 
and the minimum payment formula is 2 percent of the outstanding 
balance or $20, whichever is greater. The following calculation is 
written in SAS code.

data one;
/*

Note: pmt01 = estimated monthly payment to repay balance in 36 
months sumpmts36 = sum of payments for repayment in 36 months

month = number of months to repay total balance if making only 
minimum payments
pmt = minimum monthly payment
fc = monthly finance charge
sumpmts = sum of payments for minimum payments

*/
* inputs;

* annual percentage rates; apr1=0.0; apr2=0.17; apr3=0.21; * insert 
in ascending order;
* outstanding balances; cbal1=500; cbal2=250; cbal3=250;
* dollar minimum payment; dmin=20;
* percent minimum payment; pmin=0.02; * (0.02+perrate);

* promotional rate information;
* last month for promotional rate; expm=6; * = 0 if no promotional 
rate;
* regular rate; rrate=.17; * = 0 if no promotional rate;

array apr(3); array perrate(3);

days=365/12; * calculate days in month;

* calculate estimated monthly payment to pay off balances in 36 
months, and total cost of repaying balance in 36 months;

array xperrate(3);
do I=1 to 3;
xperrate(I)=(apr(I)/365)*days; * calculate periodic rate;
end;
if expm gt 0 then xperrate1a=(expm/36)*xperrate1+(1-(expm/
36))*(rrate/365)*days; else xperrate1a=xperrate1;

tbal=cbal1+cbal2+cbal3;
perrate36=(cbal1*xperrate1a+ cbal2*xperrate2+cbal3*xperrate3)/ 
(cbal1+cbal2+cbal3);

* months to repay; dmonths=36;

* initialize counters for sum of payments for repayment in 36 
months; Sumpmts36=0;

pvaf=(1-(1+perrate36)**-dmonths)/perrate36; * calculate present 
value of annuity factor;
pmt01=round(tbal/pvaf,0.01); * calculate monthly payment for 
designated number of months;
sumpmts36 = pmt01 * 36;

* calculate time to repay and total cost of making minimum payments 
each month;
* initialize counter for months, and sum of payments;
month=0;
sumpmts=0;

do I=1 to 3;
perrate(I)=(apr(I)/365)*days; * calculate periodic rate;

end;
put perrate1=perrate2=perrate3=;

eins:
month=month+1; * increment month counter;
pmt=round(pmin*tbal,0.01); * calculate payment as percentage of 
balance;
if month ge expm and expm ne 0 then perrate1=(rrate/365)*days;

if pmt lt dmin then pmt=dmin; * set dollar minimum payment;

array xxxbal(3); array cbal(3);
do I=1 to 3;
xxxbal(I)=round(cbal(I)*(1+perrate(I)),0.01);
end;

fc=xxxbal1+xxxbal2+xxxbal3-tbal;

if pmt gt (tbal+fc) then do;
do I=1 to 3;
if cbal(I) gt 0 then pmt=round(cbal(I)*(1+perrate(I)),0.01); * set 
final payment amount;
end;
end;

if pmt le xxxbal1 then do;
cbal1=xxxbal1-pmt;
cbal2=xxxbal2;
cbal3=xxxbal3;
end;

if pmt gt xxxbal1 and xxxbal2 gt 0 and pmt le (xxxbal1+xxxbal2) then 
do;
cbal2=xxxbal2-(pmt-xxxbal1);
cbal1=0;
cbal3=xxxbal3;
end;

if pmt gt xxxbal2 and xxxbal3 gt 0 then do;
cbal3=xxxbal3-(pmt-xxxbal1-xxxbal2);
cbal2=0;
end;

sumpmts=sumpmts+pmt; * increment sum of payments;
tbal=cbal1+cbal2+cbal3; * calculate new total balance;

* print month, balance, payment amount, and finance charge;
put month=tbal=cbal1=cbal2=cbal3=pmt= fc=;

if tbal gt 0 then go to eins; * go to next month if balance is 
greater than zero;

* initialize total cost savings;
savtot=0;
savtot= round(sumpmts,1)--round (sumpmts36,1);

* print number of months to repay debt if minimum payments made, 
final balance (zero), total cost if minimum payments made, estimated 
monthly payment for repayment in 36 months, total cost for repayment 
in 36 months, and total savings if repaid in 36 months;

put title=` ';
put title=`number of months to repay debt if minimum payment made, 
final balance, total cost if minimum payments made, estimated 
monthly payment for repayment in 36 months, total cost for repayment 
in 36 months, and total savings if repaid in 36 months';
put month=tbal=sumpmts=pmt01= sumpmts36=savtot=;
put title=` ';
run;


0
25. In Supplement I to Part 226:
0
A. Revise the Introduction.
0
B. Revise Subpart A.
0
C. In Subpart B, revise sections 226.5 and 226.5a and sections 226.6 
through 226.14 and section 226.16.
0
D. Under Section 226.5b--Requirements for Home-equity Plans, under 
5b(a) Form of Disclosures, under 5b(a)(1) General, paragraph 1. is 
revised.
0
E. Under Section 226.5b--Requirements for Home-equity Plans, under 
5b(f) Limitations on Home-equity Plans, under 5b(f)(3)(vi), paragraph 
4. is revised.
0
F. Under Section 226.26--Use of Annual Percentage Rate in Oral 
Disclosures, under 26(a) Open-end credit., paragraph 1. is revised.
0
G. Under Section 226.27--Language of Disclosures, paragraph 1. is 
revised.
0
H. Under Section 226.28--Effect on State Laws, under 28(a) Inconsistent 
disclosure requirements., paragraph 6. is revised.
0
I. Under Section 226.30--Limitation on Rates, paragraph 8. is revised 
and paragraph 13. is removed.
0
J. Add a new Subpart G, consisting of sections 226.51 through 226.58.
0
K. Revise Appendix F.
0
L. Amend Appendix G by revising paragraphs 1. through 3. and 5. and 6., 
and adding paragraphs 8. through 12.
0
M. Remove the References paragraph at the end of sections 226.1, 226.2, 
226.3, 226.4, 226.5, 226.6, 226.7, 226.8,

[[Page 7849]]

226.9, 226.10, 226.11, 226.12, 226.13, 226.14, 226.16, and Appendix F.
    The additions and revisions read as follows:

Supplement I to Part 226--Official Staff Interpretations

Introduction

    1. Official status. This commentary is the vehicle by which the 
staff of the Division of Consumer and Community Affairs of the 
Federal Reserve Board issues official staff interpretations of 
Regulation Z. Good faith compliance with this commentary affords 
protection from liability under 130(f) of the Truth in Lending Act. 
Section 130(f) (15 U.S.C. 1640) protects creditors from civil 
liability for any act done or omitted in good faith in conformity 
with any interpretation issued by a duly authorized official or 
employee of the Federal Reserve System.
    2. Procedure for requesting interpretations. Under appendix C of 
the regulation, anyone may request an official staff interpretation. 
Interpretations that are adopted will be incorporated in this 
commentary following publication in the Federal Register. No 
official staff interpretations are expected to be issued other than 
by means of this commentary.
    3. Rules of construction. (a) Lists that appear in the 
commentary may be exhaustive or illustrative; the appropriate 
construction should be clear from the context. In most cases, 
illustrative lists are introduced by phrases such as ``including, 
but not limited to,'' ``among other things,'' ``for example,'' or 
``such as.''
    (b) Throughout the commentary, reference to ``this section'' or 
``this paragraph'' means the section or paragraph in the regulation 
that is the subject of the comment.
    4. Comment designations. Each comment in the commentary is 
identified by a number and the regulatory section or paragraph which 
it interprets. The comments are designated with as much specificity 
as possible according to the particular regulatory provision 
addressed. For example, some of the comments to Sec.  226.18(b) are 
further divided by subparagraph, such as comment 18(b)(1)-1 and 
comment 18(b)(2)-1. In other cases, comments have more general 
application and are designated, for example, as comment 18-1 or 
comment 18(b)-1. This introduction may be cited as comments I-1 
through I-4. Comments to the appendices may be cited, for example, 
as comment app. A-1.

Subpart A--General

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

    1(c) Coverage.
    1. Foreign applicability. Regulation Z applies to all persons 
(including branches of foreign banks and sellers located in the 
United States) that extend consumer credit to residents (including 
resident aliens) of any state as defined in Sec.  226.2. If an 
account is located in the United States and credit is extended to a 
U.S. resident, the transaction is subject to the regulation. This 
will be the case whether or not a particular advance or purchase on 
the account takes place in the United States and whether or not the 
extender of credit is chartered or based in the United States or a 
foreign country. For example, if a U.S. resident has a credit card 
account located in the consumer's state issued by a bank (whether 
U.S. or foreign-based), the account is covered by the regulation, 
including extensions of credit under the account that occur outside 
the United States. In contrast, if a U.S. resident residing or 
visiting abroad, or a foreign national abroad, opens a credit card 
account issued by a foreign branch of a U.S. bank, the account is 
not covered by the regulation.
    1(d) Organization.
    Paragraph 1(d)(1).
    1. [Reserved].
    Paragraph 1(d)(2).
    1. [Reserved].
    Paragraph 1(d)(3).
    1. Effective date. The Board's amendments to Regulation Z 
published on May 19, 2009 apply to covered loans (including 
refinance loans and assumptions considered new transactions under 
Sec.  226.20) for which the creditor receives an application on or 
after July 30, 2009.
    Paragraph 1(d)(4).
    1. [Reserved].
    Paragraph 1(d)(5).
    1. Effective dates. The Board's revisions published on July 30, 
2008 (the ``final rules'') apply to covered loans (including 
refinance loans and assumptions considered new transactions under 
Sec.  226.20) for which the creditor receives an application on or 
after October 1, 2009, except for the final rules on advertising, 
escrows, and loan servicing. But see comment 1(d)(3)-1. The final 
rules on escrow in Sec.  226.35(b)(3) are effective for covered 
loans (including refinancings and assumptions in Sec.  226.20) for 
which the creditor receives an application on or after April 1, 
2010; but for such loans secured by manufactured housing on or after 
October 1, 2010. The final rules applicable to servicers in Sec.  
226.36(c) apply to all covered loans serviced on or after October 1, 
2009. The final rules on advertising apply to advertisements 
occurring on or after October 1, 2009. For example, a radio ad 
occurs on the date it is first broadcast; a solicitation occurs on 
the date it is mailed to the consumer. The following examples 
illustrate the application of the effective dates for the final 
rules.
    i. General. A refinancing or assumption as defined in Sec.  
226.20(a) or (b) is a new transaction and is covered by a provision 
of the final rules if the creditor receives an application for the 
transaction on or after that provision's effective date. For 
example, if a creditor receives an application for a refinance loan 
covered by Sec.  226.35(a) on or after October 1, 2009, and the 
refinance loan is consummated on October 15, 2009, the provision 
restricting prepayment penalties in Sec.  226.35(b)(2) applies. 
However, if the transaction were a modification of an existing 
obligation's terms that does not constitute a refinance loan under 
Sec.  226.20(a), the final rules, including for example the 
restriction on prepayment penalties, would not apply.
    ii. Escrows. Assume a consumer applies for a refinance loan to 
be secured by a dwelling (that is not a manufactured home) on March 
15, 2010, and the loan is consummated on April 2, 2010. The escrow 
rule in Sec.  226.35(b)(3) does not apply.
    iii. Servicing. Assume that a consumer applies for a new loan on 
August 1, 2009. The loan is consummated on September 1, 2009. The 
servicing rules in Sec.  226.36(c) apply to the servicing of that 
loan as of October 1, 2009.
    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)(2) Advertisement.
    1. Coverage. Only commercial messages that promote consumer 
credit transactions requiring disclosures are advertisements. 
Messages inviting, offering, or otherwise announcing generally to 
prospective customers the availability of credit transactions, 
whether in visual, oral, or print media, are covered by Regulation Z 
(12 CFR part 226).
    i. Examples include:
    A. Messages in a newspaper, magazine, leaflet, promotional 
flyer, or catalog.

[[Page 7850]]

    B. Announcements on radio, television, or public address system.
    C. Electronic advertisements, such as on the Internet.
    D. Direct mail literature or other printed material on any 
exterior or interior sign.
    E. Point of sale displays.
    F. Telephone solicitations.
    G. Price tags that contain credit information.
    H. Letters sent to customers or potential customers as part of 
an organized solicitation of business.
    I. Messages on checking account statements offering auto loans 
at a stated annual percentage rate.
    J. Communications promoting a new open-end plan or closed-end 
transaction.
    ii. The term does not include:
    A. Direct personal contacts, such as follow-up letters, cost 
estimates for individual consumers, or oral or written communication 
relating to the negotiation of a specific transaction.
    B. Informational material, for example, interest-rate and loan-
term memos, distributed only to business entities.
    C. Notices required by federal or state law, if the law mandates 
that specific information be displayed and only the information so 
mandated is included in the notice.
    D. News articles the use of which is controlled by the news 
medium.
    E. Market-research or educational materials that do not solicit 
business.
    F. Communications about an existing credit account (for example, 
a promotion encouraging additional or different uses of an existing 
credit card account).
    2. Persons covered. All persons must comply with the advertising 
provisions in Sec. Sec.  226.16 and 226.24, not just those that meet 
the definition of creditor in Sec.  226.2(a)(17). Thus, home 
builders, merchants, and others who are not themselves creditors 
must comply with the advertising provisions of the regulation if 
they advertise consumer credit transactions. However, under section 
145 of the act, the owner and the personnel of the medium in which 
an advertisement appears, or through which it is disseminated, are 
not subject to civil liability for violations.
    2(a)(3) Reserved.
    2(a)(4) Billing cycle or cycle.
    1. Intervals. In open-end credit plans, the billing cycle 
determines the intervals for which periodic disclosure statements 
are required; these intervals are also used as measuring points for 
other duties of the creditor. Typically, billing cycles are monthly, 
but they may be more frequent or less frequent (but not less 
frequent than quarterly).
    2. Creditors that do not bill. The term cycle is interchangeable 
with billing cycle for definitional purposes, since some creditors' 
cycles do not involve the sending of bills in the traditional sense 
but only statements of account activity. This is commonly the case 
with financial institutions when periodic payments are made through 
payroll deduction or through automatic debit of the consumer's asset 
account.
    3. Equal cycles. Although cycles must be equal, there is a 
permissible variance to account for weekends, holidays, and 
differences in the number of days in months. If the actual date of 
each statement does not vary by more than four days from a fixed 
``day'' (for example, the third Thursday of each month) or ``date'' 
(for example, the 15th of each month) that the creditor regularly 
uses, the intervals between statements are considered equal. The 
requirement that cycles be equal applies even if the creditor 
applies a daily periodic rate to determine the finance charge. The 
requirement that intervals be equal does not apply to the first 
billing cycle on an open-end account (i.e., the time period between 
account opening and the generation of the first periodic statement) 
or to a transitional billing cycle that can occur if the creditor 
occasionally changes its billing cycles so as to establish a new 
statement day or date. (See comments 9(c)(1)-3 and 9(c)(2)-3.)
    4. Payment reminder. The sending of a regular payment reminder 
(rather than a late payment notice) establishes a cycle for which 
the creditor must send periodic statements.
    2(a)(6) Business day.
    1. Business function test. Activities that indicate that the 
creditor is open for substantially all of its business functions 
include the availability of personnel to make loan disbursements, to 
open new accounts, and to handle credit transaction inquiries. 
Activities that indicate that the creditor is not open for 
substantially all of its business functions include a retailer's 
merely accepting credit cards for purchases or a bank's having its 
customer-service windows open only for limited purposes such as 
deposits and withdrawals, bill paying, and related services.
    2. Rule for rescission, disclosures for certain mortgage 
transactions, and private education loans. A more precise rule for 
what is a business day (all calendar days except Sundays and the 
Federal legal holidays specified in 5 U.S.C. 6103(a)) applies when 
the right of rescission, the receipt of disclosures for certain 
dwelling-secured mortgage transactions under Sec. Sec.  
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.
    2(a)(7) Card issuer.
    1. Agent. An agent of a card issuer is considered a card issuer. 
Because agency relationships are traditionally defined by contract 
and by state or other applicable law, the regulation does not define 
agent. Merely providing services relating to the production of 
credit cards or data processing for others, however, does not make 
one the agent of the card issuer. In contrast, a financial 
institution may become the agent of the card issuer if an agreement 
between the institution and the card issuer provides that the 
cardholder may use a line of credit with the financial institution 
to pay obligations incurred by use of the credit card.
    2(a)(8) Cardholder.
    1. General rule. A cardholder is a natural person at whose 
request a card is issued for consumer credit purposes or who is a 
co-obligor or guarantor for such a card issued to another. The 
second category does not include an employee who is a co-obligor or 
guarantor on a card issued to the employer for business purposes, 
nor does it include a person who is merely the authorized user of a 
card issued to another.
    2. Limited application of regulation. For the limited purposes 
of the rules on issuance of credit cards and liability for 
unauthorized use, a cardholder includes any person, including an 
organization, to whom a card is issued for any purpose--including a 
business, agricultural, or commercial purpose.
    3. Issuance. See the commentary to Sec.  226.12(a).
    4. Dual-purpose cards and dual-card systems. Some card issuers 
offer dual-purpose cards that are for business as well as consumer 
purposes. If a card is issued to an individual for consumer 
purposes, the fact that an organization has guaranteed to pay the 
debt does not make it business credit. On the other hand, if a card 
is issued for business purposes, the fact that an individual 
sometimes uses it for consumer purchases does not subject the card 
issuer to the provisions on periodic statements, billing-error 
resolution, and other protections afforded to consumer credit. Some 
card issuers offer dual-card systems--that is, they issue two cards 
to the same individual, one intended for business use, the other for 
consumer or personal use. With such a system, the same person may be 
a cardholder for general purposes when using the card issued for 
consumer use, and a cardholder only for the limited purposes of the 
restrictions on issuance and liability when using the card issued 
for business purposes.
    2(a)(9) Cash price.
    1. Components. This amount is a starting point in computing the 
amount financed and the total sale price under Sec.  226.18 for 
credit sales. Any charges imposed equally in cash and credit 
transactions may be included in the cash price, or they may be 
treated as other amounts financed under Sec.  226.18(b)(2).
    2. Service contracts. Service contracts include contracts for 
the repair or the servicing of goods, such as mechanical breakdown 
coverage, even if such a contract is characterized as insurance 
under state law.
    3. Rebates. The creditor has complete flexibility in the way it 
treats rebates for purposes of disclosure and calculation. (See the 
commentary to Sec.  226.18(b).)
    2(a)(10) Closed-end credit.
    1. General. The coverage of this term is defined by exclusion. 
That is, it includes any credit arrangement that does not fall 
within the definition of open-end credit. Subpart C contains the 
disclosure rules for closed-end credit when the obligation is 
subject to a finance charge or is payable by written agreement in 
more than four installments.
    2(a)(11) Consumer.
    1. Scope. Guarantors, endorsers, and sureties are not generally 
consumers for

[[Page 7851]]

purposes of the regulation, but they may be entitled to rescind 
under certain circumstances and they may have certain rights if they 
are obligated on credit card plans.
    2. Rescission rules. For purposes of rescission under Sec. Sec.  
226.15 and 226.23, a consumer includes any natural person whose 
ownership interest in his or her principal dwelling is subject to 
the risk of loss. Thus, if a security interest is taken in A's 
ownership interest in a house and that house is A's principal 
dwelling, A is a consumer for purposes of rescission, even if A is 
not liable, either primarily or secondarily, on the underlying 
consumer credit transaction. An ownership interest does not include, 
for example, leaseholds or inchoate rights, such as dower.
    3. Land trusts. Credit extended to land trusts, as described in 
the commentary to Sec.  226.3(a), is considered to be extended to a 
natural person for purposes of the definition of consumer.
    2(a)(12) Consumer credit.
    1. Primary purpose. There is no precise test for what 
constitutes credit offered or extended for personal, family, or 
household purposes, nor for what constitutes the primary purpose. 
(See, however, the discussion of business purposes in the commentary 
to Sec.  226.3(a).)
    2(a)(13) Consummation.
    1. State law governs. When a contractual obligation on the 
consumer's part is created is a matter to be determined under 
applicable law; Regulation Z does not make this determination. A 
contractual commitment agreement, for example, that under applicable 
law binds the consumer to the credit terms would be consummation. 
Consummation, however, does not occur merely because the consumer 
has made some financial investment in the transaction (for example, 
by paying a nonrefundable fee) unless, of course, applicable law 
holds otherwise.
    2. Credit v. sale. Consummation does not occur when the consumer 
becomes contractually committed to a sale transaction, unless the 
consumer also becomes legally obligated to accept a particular 
credit arrangement. For example, when a consumer pays a 
nonrefundable deposit to purchase an automobile, a purchase contract 
may be created, but consummation for purposes of the regulation does 
not occur unless the consumer also contracts for financing at that 
time.
    2(a)(14) Credit.
    1. Exclusions. The following situations are not considered 
credit for purposes of the regulation:
    i. Layaway plans, unless the consumer is contractually obligated 
to continue making payments. Whether the consumer is so obligated is 
a matter to be determined under applicable law. The fact that the 
consumer is not entitled to a refund of any amounts paid towards the 
cash price of the merchandise does not bring layaways within the 
definition of credit.
    ii. Tax liens, tax assessments, court judgments, and court 
approvals of reaffirmation of debts in bankruptcy. However, third-
party financing of such obligations (for example, a bank loan 
obtained to pay off a tax lien) is credit for purposes of the 
regulation.
    iii. Insurance premium plans that involve payment in 
installments with each installment representing the payment for 
insurance coverage for a certain future period of time, unless the 
consumer is contractually obligated to continue making payments.
    iv. Home improvement transactions that involve progress 
payments, if the consumer pays, as the work progresses, only for 
work completed and has no contractual obligation to continue making 
payments.
    v. Borrowing against the accrued cash value of an insurance 
policy or a pension account, if there is no independent obligation 
to repay.
    vi. Letters of credit.
    vii. The execution of option contracts. However, there may be an 
extension of credit when the option is exercised, if there is an 
agreement at that time to defer payment of a debt.
    viii. Investment plans in which the party extending capital to 
the consumer risks the loss of the capital advanced. This includes, 
for example, an arrangement with a home purchaser in which the 
investor pays a portion of the downpayment and of the periodic 
mortgage payments in return for an ownership interest in the 
property, and shares in any gain or loss of property value.
    ix. Mortgage assistance plans administered by a government 
agency in which a portion of the consumer's monthly payment amount 
is paid by the agency. No finance charge is imposed on the subsidy 
amount, and that amount is due in a lump-sum payment on a set date 
or upon the occurrence of certain events. (If payment is not made 
when due, a new note imposing a finance charge may be written, which 
may then be subject to the regulation.)
    2. Payday loans; deferred presentment. Credit includes a 
transaction in which a cash advance is made to a consumer in 
exchange for the consumer's personal check, or in exchange for the 
consumer's authorization to debit the consumer's deposit account, 
and where the parties agree either that the check will not be cashed 
or deposited, or that the consumer's deposit account will not be 
debited, until a designated future date. This type of transaction is 
often referred to as a ``payday loan'' or ``payday advance'' or 
``deferred-presentment loan.'' A fee charged in connection with such 
a transaction may be a finance charge for purposes of Sec.  226.4, 
regardless of how the fee is characterized under state law. Where 
the fee charged constitutes a finance charge under Sec.  226.4 and 
the person advancing funds regularly extends consumer credit, that 
person is a creditor and is required to provide disclosures 
consistent with the requirements of Regulation Z. (See Sec.  
226.2(a)(17).)
    2(a)(15) Credit card.
    1. Usable from time to time. A credit card must be usable from 
time to time. Since this involves the possibility of repeated use of 
a single device, checks and similar instruments that can be used 
only once to obtain a single credit extension are not credit cards.
    2. Examples. i. Examples of credit cards include:
    A. A card that guarantees checks or similar instruments, if the 
asset account is also tied to an overdraft line or if the instrument 
directly accesses a line of credit.
    B. A card that accesses both a credit and an asset account (that 
is, a debit-credit card).
    C. An identification card that permits the consumer to defer 
payment on a purchase.
    D. An identification card indicating loan approval that is 
presented to a merchant or to a lender, whether or not the consumer 
signs a separate promissory note for each credit extension.
    E. A card or device that can be activated upon receipt to access 
credit, even if the card has a substantive use other than credit, 
such as a purchase-price discount card. Such a card or device is a 
credit card notwithstanding the fact that the recipient must first 
contact the card issuer to access or activate the credit feature.
    ii. In contrast, credit card does not include, for example:
    A. A check-guarantee or debit card with no credit feature or 
agreement, even if the creditor occasionally honors an inadvertent 
overdraft.
    B. Any card, key, plate, or other device that is used in order 
to obtain petroleum products for business purposes from a wholesale 
distribution facility or to gain access to that facility, and that 
is required to be used without regard to payment terms.
    3. Charge card. Generally, charge cards are cards used in 
connection with an account on which outstanding balances cannot be 
carried from one billing cycle to another and are payable when a 
periodic statement is received. Under the regulation, a reference to 
credit cards generally includes charge cards. The term charge card 
is, however, distinguished from credit card in Sec. Sec.  226.5a, 
226.7(b)(11), 226.7(b)(12), 226.9(e), 226.9(f) and 226.28(d), and 
appendices G-10 through G-13. When the term credit card is used in 
those provisions, it refers to credit cards other than charge cards.
    2(a)(16) Credit sale.
    1. Special disclosure. If the seller is a creditor in the 
transaction, the transaction is a credit sale and the special credit 
sale disclosures (that is, the disclosures under Sec.  226.18(j)) 
must be given. This applies even if there is more than one creditor 
in the transaction and the creditor making the disclosures is not 
the seller. (See the commentary to Sec.  226.17(d).)
    2. Sellers who arrange credit. If the seller of the property or 
services involved arranged for financing but is not a creditor as to 
that sale, the transaction is not a credit sale. Thus, if a seller 
assists the consumer in obtaining a direct loan from a financial 
institution and the consumer's note is payable to the financial 
institution, the transaction is a loan and only the financial 
institution is a creditor.
    3. Refinancings. Generally, when a credit sale is refinanced 
within the meaning of Sec.  226.20(a), loan disclosures should be 
made. However, if a new sale of goods or services is also involved, 
the transaction is a credit sale.
    4. Incidental sales. Some lenders sell a product or service--
such as credit, property, or health insurance--as part of a loan

[[Page 7852]]

transaction. Section 226.4 contains the rules on whether the cost of 
credit life, disability or property insurance is part of the finance 
charge. If the insurance is financed, it may be disclosed as a 
separate credit-sale transaction or disclosed as part of the primary 
transaction; if the latter approach is taken, either loan or credit-
sale disclosures may be made. (See the commentary to Sec.  
226.17(c)(1) for further discussion of this point.)
    5. Credit extensions for educational purposes. A credit 
extension for educational purposes in which an educational 
institution is the creditor may be treated as either a credit sale 
or a loan, regardless of whether the funds are given directly to the 
student, credited to the student's account, or disbursed to other 
persons on the student's behalf. The disclosure of the total sale 
price need not be given if the transaction is treated as a loan.
    2(a)(17) Creditor.
    1. General. The definition contains four independent tests. If 
any one of the tests is met, the person is a creditor for purposes 
of that particular test.
    Paragraph 2(a)(17)(i).
    1. Prerequisites. This test is composed of two requirements, 
both of which must be met in order for a particular credit extension 
to be subject to the regulation and for the credit extension to 
count towards satisfaction of the numerical tests mentioned in Sec.  
226.2(a)(17)(v).
    i. First, there must be either or both of the following:
    A. A written (rather than oral) agreement to pay in more than 
four installments. A letter that merely confirms an oral agreement 
does not constitute a written agreement for purposes of the 
definition.
    B. A finance charge imposed for the credit. The obligation to 
pay the finance charge need not be in writing.
    ii. Second, the obligation must be payable to the person in 
order for that person to be considered a creditor. If an obligation 
is made payable to bearer, the creditor is the one who initially 
accepts the obligation.
    2. Assignees. If an obligation is initially payable to one 
person, that person is the creditor even if the obligation by its 
terms is simultaneously assigned to another person. For example:
    i. An auto dealer and a bank have a business relationship in 
which the bank supplies the dealer with credit sale contracts that 
are initially made payable to the dealer and provide for the 
immediate assignment of the obligation to the bank. The dealer and 
purchaser execute the contract only after the bank approves the 
creditworthiness of the purchaser. Because the obligation is 
initially payable on its face to the dealer, the dealer is the only 
creditor in the transaction.
    3. Numerical tests. The examples below illustrate how the 
numerical tests of Sec.  226.2(a)(17)(v) are applied. The examples 
assume that consumer credit with a finance charge or written 
agreement for more than 4 installments was extended in the years in 
question and that the person did not extend such credit in 2006.
    4. Counting transactions. For purposes of closed-end credit, the 
creditor counts each credit transaction. For open-end credit, 
transactions means accounts, so that outstanding accounts are 
counted instead of individual credit extensions. Normally the number 
of transactions is measured by the preceding calendar year; if the 
requisite number is met, then the person is a creditor for all 
transactions in the current year. However, if the person did not 
meet the test in the preceding year, the number of transactions is 
measured by the current calendar year. For example, if the person 
extends consumer credit 26 times in 2007, it is a creditor for 
purposes of the regulation for the last extension of credit in 2007 
and for all extensions of consumer credit in 2008. On the other 
hand, if a business begins in 2007 and extends consumer credit 20 
times, it is not a creditor for purposes of the regulation in 2007. 
If it extends consumer credit 75 times in 2008, however, it becomes 
a creditor for purposes of the regulation (and must begin making 
disclosures) after the 25th extension of credit in that year and is 
a creditor for all extensions of consumer credit in 2009.
    5. Relationship between consumer credit in general and credit 
secured by a dwelling. Extensions of credit secured by a dwelling 
are counted towards the 25-extensions test. For example, if in 2007 
a person extends unsecured consumer credit 23 times and consumer 
credit secured by a dwelling twice, it becomes a creditor for the 
succeeding extensions of credit, whether or not they are secured by 
a dwelling. On the other hand, extensions of consumer credit not 
secured by a dwelling are not counted towards the number of credit 
extensions secured by a dwelling. For example, if in 2007 a person 
extends credit not secured by a dwelling 8 times and credit secured 
by a dwelling 3 times, it is not a creditor.
    6. Effect of satisfying one test. Once one of the numerical 
tests is satisfied, the person is also a creditor for the other type 
of credit. For example, in 2007 a person extends consumer credit 
secured by a dwelling 5 times. That person is a creditor for all 
succeeding credit extensions, whether they involve credit secured by 
a dwelling or not.
    7. Trusts. In the case of credit extended by trusts, each 
individual trust is considered a separate entity for purposes of 
applying the criteria. For example:
    i. A bank is the trustee for three trusts. Trust A makes 15 
extensions of consumer credit annually; Trust B makes 10 extensions 
of consumer credit annually; and Trust C makes 30 extensions of 
consumer credit annually. Only Trust C is a creditor for purposes of 
the regulation.
    Paragraph 2(a)(17)(ii). [Reserved]
    Paragraph 2(a)(17)(iii).
    1. Card issuers subject to Subpart B. Section 226.2(a)(17)(iii) 
makes certain card issuers creditors for purposes of the open-end 
credit provisions of the regulation. This includes, for example, the 
issuers of so-called travel and entertainment cards that expect 
repayment at the first billing and do not impose a finance charge. 
Since all disclosures are to be made only as applicable, such card 
issuers would omit finance charge disclosures. Other provisions of 
the regulation regarding such areas as scope, definitions, 
determination of which charges are finance charges, Spanish language 
disclosures, record retention, and use of model forms, also apply to 
such card issuers.
    Paragraph 2(a)(17)(iv).
    1. Card issuers subject to Subparts B and C. Section 
226.2(a)(17)(iv) includes as creditors card issuers extending 
closed-end credit in which there is a finance charge or an agreement 
to pay in more than four installments. These card issuers are 
subject to the appropriate provisions of Subparts B and C, as well 
as to the general provisions.
    2(a)(18) Downpayment.
    1. Allocation. If a consumer makes a lump-sum payment, partially 
to reduce the cash price and partially to pay prepaid finance 
charges, only the portion attributable to reducing the cash price is 
part of the downpayment. (See the commentary to Sec.  226.2(a)(23).)
    2. Pick-up payments. i. Creditors may treat the deferred portion 
of the downpayment, often referred to as pick-up payments, in a 
number of ways. If the pick-up payment is treated as part of the 
downpayment:
    A. It is subtracted in arriving at the amount financed under 
Sec.  226.18(b).
    B. It may, but need not, be reflected in the payment schedule 
under Sec.  226.18(g).
    ii. If the pick-up payment does not meet the definition (for 
example, if it is payable after the second regularly scheduled 
payment) or if the creditor chooses not to treat it as part of the 
downpayment:
    A. It must be included in the amount financed.
    B. It must be shown in the payment schedule.
    iii. Whichever way the pick-up payment is treated, the total of 
payments under Sec.  226.18(h) must equal the sum of the payments 
disclosed under Sec.  226.18(g).
    3. Effect of existing liens.
    i. No cash payment. In a credit sale, the ``downpayment'' may 
only be used to reduce the cash price. For example, when a trade-in 
is used as the downpayment and the existing lien on an automobile to 
be traded in exceeds the value of the automobile, creditors must 
disclose a zero on the downpayment line rather than a negative 
number. To illustrate, assume a consumer owes $10,000 on an existing 
automobile loan and that the trade-in value of the automobile is 
only $8,000, leaving a $2,000 deficit. The creditor should disclose 
a downpayment of $0, not -$2,000.
    ii. Cash payment. If the consumer makes a cash payment, 
creditors may, at their option, disclose the entire cash payment as 
the downpayment, or apply the cash payment first to any excess lien 
amount and disclose any remaining cash as the downpayment. In the 
above example:
    A. If the downpayment disclosed is equal to the cash payment, 
the $2,000 deficit must be reflected as an additional amount 
financed under Sec.  226.18(b)(2).
    B. If the consumer provides $1,500 in cash (which does not 
extinguish the $2,000 deficit), the creditor may disclose a 
downpayment of $1,500 or of $0.
    C. If the consumer provides $3,000 in cash, the creditor may 
disclose a downpayment of $3,000 or of $1,000.

[[Page 7853]]

    2(a)(19) Dwelling.
    1. Scope. A dwelling need not be the consumer's principal 
residence to fit the definition, and thus a vacation or second home 
could be a dwelling. However, for purposes of the definition of 
residential mortgage transaction and the right to rescind, a 
dwelling must be the principal residence of the consumer. (See the 
commentary to Sec. Sec.  226.2(a)(24), 226.15, and 226.23.)
    2. Use as a residence. Mobile homes, boats, and trailers are 
dwellings if they are in fact used as residences, just as are 
condominium and cooperative units. Recreational vehicles, campers, 
and the like not used as residences are not dwellings.
    3. Relation to exemptions. Any transaction involving a security 
interest in a consumer's principal dwelling (as well as in any real 
property) remains subject to the regulation despite the general 
exemption in Sec.  226.3(b) for credit extensions over $25,000.
    2(a)(20) Open-end credit.
    1. General. This definition describes the characteristics of 
open-end credit (for which the applicable disclosure and other rules 
are contained in Subpart B), as distinct from closed-end credit. 
Open-end credit is consumer credit that is extended under a plan and 
meets all 3 criteria set forth in the definition.
    2. Existence of a plan. The definition requires that there be a 
plan, which connotes a contractual arrangement between the creditor 
and the consumer. Some creditors offer programs containing a number 
of different credit features. The consumer has a single account with 
the institution that can be accessed repeatedly via a number of sub-
accounts established for the different program features and rate 
structures. Some features of the program might be used repeatedly 
(for example, an overdraft line) while others might be used 
infrequently (such as the part of the credit line available for 
secured credit). If the program as a whole is subject to prescribed 
terms and otherwise meets the definition of open-end credit, such a 
program would be considered a single, multifeatured plan.
    3. Repeated transactions. Under this criterion, the creditor 
must reasonably contemplate repeated transactions. This means that 
the credit plan must be usable from time to time and the creditor 
must legitimately expect that there will be repeat business rather 
than a one-time credit extension. The creditor must expect repeated 
dealings with consumers under the credit plan as a whole and need 
not believe a consumer will reuse a particular feature of the plan. 
The determination of whether a creditor can reasonably contemplate 
repeated transactions requires an objective analysis. Information 
that much of the creditor's customer base with accounts under the 
plan make repeated transactions over some period of time is relevant 
to the determination, particularly when the plan is opened primarily 
for the financing of infrequently purchased products or services. A 
standard based on reasonable belief by a creditor necessarily 
includes some margin for judgmental error. The fact that particular 
consumers do not return for further credit extensions does not 
prevent a plan from having been properly characterized as open-end. 
For example, if much of the customer base of a clothing store makes 
repeat purchases, the fact that some consumers use the plan only 
once would not affect the characterization of the store's plan as 
open-end credit. The criterion regarding repeated transactions is a 
question of fact to be decided in the context of the creditor's type 
of business and the creditor's relationship with its customers. For 
example, it would be more reasonable for a bank or depository 
institution to contemplate repeated transactions with a customer 
than for a seller of aluminum siding to make the same assumption 
about its customers.
    4. Finance charge on an outstanding balance. The requirement 
that a finance charge may be computed and imposed from time to time 
on the outstanding balance means that there is no specific amount 
financed for the plan for which the finance charge, total of 
payments, and payment schedule can be calculated. A plan may meet 
the definition of open-end credit even though a finance charge is 
not normally imposed, provided the creditor has the right, under the 
plan, to impose a finance charge from time to time on the 
outstanding balance. For example, in some plans, a finance charge is 
not imposed if the consumer pays all or a specified portion of the 
outstanding balance within a given time period. Such a plan could 
meet the finance charge criterion, if the creditor has the right to 
impose a finance charge, even though the consumer actually pays no 
finance charges during the existence of the plan because the 
consumer takes advantage of the option to pay the balance (either in 
full or in installments) within the time necessary to avoid finance 
charges.
    5. Reusable line. The total amount of credit that may be 
extended during the existence of an open-end plan is unlimited 
because available credit is generally replenished as earlier 
advances are repaid. A line of credit is self-replenishing even 
though the plan itself has a fixed expiration date, as long as 
during the plan's existence the consumer may use the line, repay, 
and reuse the credit. The creditor may occasionally or routinely 
verify credit information such as the consumer's continued income 
and employment status or information for security purposes but, to 
meet the definition of open-end credit, such verification of credit 
information may not be done as a condition of granting a consumer's 
request for a particular advance under the plan. In general, a 
credit line is self-replenishing if the consumer can take further 
advances as outstanding balances are repaid without being required 
to separately apply for those additional advances. A credit card 
account where the plan as a whole replenishes meets the self-
replenishing criterion, notwithstanding the fact that a credit card 
issuer may verify credit information from time to time in connection 
with specific transactions. This criterion of unlimited credit 
distinguishes open-end credit from a series of advances made 
pursuant to a closed-end credit loan commitment. For example:
    i. Under a closed-end commitment, the creditor might agree to 
lend a total of $10,000 in a series of advances as needed by the 
consumer. When a consumer has borrowed the full $10,000, no more is 
advanced under that particular agreement, even if there has been 
repayment of a portion of the debt. (See Sec.  226.2(a)(17)(iv) for 
disclosure requirements when a credit card is used to obtain the 
advances.)
    ii. This criterion does not mean that the creditor must 
establish a specific credit limit for the line of credit or that the 
line of credit must always be replenished to its original amount. 
The creditor may reduce a credit limit or refuse to extend new 
credit in a particular case due to changes in the creditor's 
financial condition or the consumer's creditworthiness. (The rules 
in Sec.  226.5b(f), however, limit the ability of a creditor to 
suspend credit advances for home equity plans.) While consumers 
should have a reasonable expectation of obtaining credit as long as 
they remain current and within any preset credit limits, further 
extensions of credit need not be an absolute right in order for the 
plan to meet the self-replenishing criterion.
    6. Verifications of collateral value. Creditors that otherwise 
meet the requirements of Sec.  226.2(a)(20) extend open-end credit 
notwithstanding the fact that the creditor must verify collateral 
values to comply with federal, state, or other applicable law or 
verifies the value of collateral in connection with a particular 
advance under the plan.
    7. Open-end real estate mortgages. Some credit plans call for 
negotiated advances under so-called open-end real estate mortgages. 
Each such plan must be independently measured against the definition 
of open-end credit, regardless of the terminology used in the 
industry to describe the plan. The fact that a particular plan is 
called an open-end real estate mortgage, for example, does not, by 
itself, mean that it is open-end credit under the regulation.
    2(a)(21) Periodic rate.
    1. Basis. The periodic rate may be stated as a percentage (for 
example, 1\1/2\% per month) or as a decimal equivalent (for example, 
.015 monthly). It may be based on any portion of a year the creditor 
chooses. Some creditors use 1/360 of an annual rate as their 
periodic rate. These creditors:
    i. May disclose a 1/360 rate as a daily periodic rate, without 
further explanation, if it is in fact only applied 360 days per 
year. But if the creditor applies that rate for 365 days, the 
creditor must note that fact and, of course, disclose the true 
annual percentage rate.
    ii. Would have to apply the rate to the balance to disclose the 
annual percentage rate with the degree of accuracy required in the 
regulation (that is, within \1/8\th of 1 percentage point of the 
rate based on the actual 365 days in the year).
    2. Transaction charges. Periodic rate does not include initial 
one-time transaction charges, even if the charge is computed as a 
percentage of the transaction amount.
    2(a)(22) Person.
    1. Joint ventures. A joint venture is an organization and is 
therefore a person.
    2. Attorneys. An attorney and his or her client are considered 
to be the same person

[[Page 7854]]

for purposes of this regulation when the attorney is acting within 
the scope of the attorney-client relationship with regard to a 
particular transaction.
    3. Trusts. A trust and its trustee are considered to be the same 
person for purposes of this regulation.
    2(a)(23) Prepaid finance charge.
    1. General. Prepaid finance charges must be taken into account 
under Sec.  226.18(b) in computing the disclosed amount financed, 
and must be disclosed if the creditor provides an itemization of the 
amount financed under Sec.  226.18(c).
    2. Examples. i. Common examples of prepaid finance charges 
include:
    A. Buyer's points.
    B. Service fees.
    C. Loan fees.
    D. Finder's fees.
    E. Loan-guarantee insurance.
    F. Credit-investigation fees.
    ii. However, in order for these or any other finance charges to 
be considered prepaid, they must be either paid separately in cash 
or check or withheld from the proceeds. Prepaid finance charges 
include any portion of the finance charge paid prior to or at 
closing or settlement.
    3. Exclusions. Add-on and discount finance charges are not 
prepaid finance charges for purposes of this regulation. Finance 
charges are not prepaid merely because they are precomputed, whether 
or not a portion of the charge will be rebated to the consumer upon 
prepayment. (See the commentary to Sec.  226.18(b).)
    4. Allocation of lump-sum payments. In a credit sale transaction 
involving a lump-sum payment by the consumer and a discount or other 
item that is a finance charge under Sec.  226.4, the discount or 
other item is a prepaid finance charge to the extent the lump-sum 
payment is not applied to the cash price. For example, a seller 
sells property to a consumer for $10,000, requires the consumer to 
pay $3,000 at the time of the purchase, and finances the remainder 
as a closed-end credit transaction. The cash price of the property 
is $9,000. The seller is the creditor in the transaction and 
therefore the $1,000 difference between the credit and cash prices 
(the discount) is a finance charge. (See the commentary to Sec.  
226.4(b)(9) and (c)(5).) If the creditor applies the entire $3,000 
to the cash price and adds the $1,000 finance charge to the interest 
on the $6,000 to arrive at the total finance charge, all of the 
$3,000 lump-sum payment is a downpayment and the discount is not a 
prepaid finance charge. However, if the creditor only applies $2,000 
of the lump-sum payment to the cash price, then $2,000 of the $3,000 
is a downpayment and the $1,000 discount is a prepaid finance 
charge.
    2(a)(24) Residential mortgage transaction.
    1. Relation to other sections. This term is important in five 
provisions in the regulation:
    i. Section 226.4(c)(7)--exclusions from the finance charge.
    ii. Section 226.15(f)--exemption from the right of rescission.
    iii. Section 226.18(q)--whether or not the obligation is 
assumable.
    iv. Section 226.20(b)--disclosure requirements for assumptions.
    v. Section 226.23(f)--exemption from the right of rescission.
    2. Lien status. The definition is not limited to first lien 
transactions. For example, a consumer might assume a paid-down first 
mortgage (or borrow part of the purchase price) and borrow the 
balance of the purchase price from a creditor who takes a second 
mortgage. The second mortgage transaction is a residential mortgage 
transaction if the dwelling purchased is the consumer's principal 
residence.
    3. Principal dwelling. A consumer can have only one principal 
dwelling at a time. Thus, a vacation or other second home would not 
be a principal dwelling. However, if a consumer buys or builds a new 
dwelling that will become the consumer's principal dwelling within a 
year or upon the completion of construction, the new dwelling is 
considered the principal dwelling for purposes of applying this 
definition to a particular transaction. (See the commentary to 
Sec. Sec.  226.15(a) and 226.23(a).)
    4. Construction financing. If a transaction meets the definition 
of a residential mortgage transaction and the creditor chooses to 
disclose it as several transactions under Sec.  226.17(c)(6), each 
one is considered to be a residential mortgage transaction, even if 
different creditors are involved. For example:
    i. The creditor makes a construction loan to finance the initial 
construction of the consumer's principal dwelling, and the loan will 
be disbursed in five advances. The creditor gives six sets of 
disclosures (five for the construction phase and one for the 
permanent phase). Each one is a residential mortgage transaction.
    ii. One creditor finances the initial construction of the 
consumer's principal dwelling and another creditor makes a loan to 
satisfy the construction loan and provide permanent financing. Both 
transactions are residential mortgage transactions.
    5. Acquisition. i. A residential mortgage transaction finances 
the acquisition of a consumer's principal dwelling. The term does 
not include a transaction involving a consumer's principal dwelling 
if the consumer had previously purchased and acquired some interest 
to the dwelling, even though the consumer had not acquired full 
legal title.
    ii. Examples of new transactions involving a previously acquired 
dwelling include the financing of a balloon payment due under a land 
sale contract and an extension of credit made to a joint owner of 
property to buy out the other joint owner's interest. In these 
instances, disclosures are not required under Sec.  226.18(q) 
(assumability policies). However, the rescission rules of Sec. Sec.  
226.15 and 226.23 do apply to these new transactions.
    iii. In other cases, the disclosure and rescission rules do not 
apply. For example, where a buyer enters into a written agreement 
with the creditor holding the seller's mortgage, allowing the buyer 
to assume the mortgage, if the buyer had previously purchased the 
property and agreed with the seller to make the mortgage payments, 
Sec.  226.20(b) does not apply (assumptions involving residential 
mortgages).
    6. Multiple purpose transactions. A transaction meets the 
definition of this section if any part of the loan proceeds will be 
used to finance the acquisition or initial construction of the 
consumer's principal dwelling. For example, a transaction to finance 
the initial construction of the consumer's principal dwelling is a 
residential mortgage transaction even if a portion of the funds will 
be disbursed directly to the consumer or used to satisfy a loan for 
the purchase of the land on which the dwelling will be built.
    7. Construction on previously acquired vacant land. A 
residential mortgage transaction includes a loan to finance the 
construction of a consumer's principal dwelling on a vacant lot 
previously acquired by the consumer.
    2(a)(25) Security interest.
    1. Threshold test. The threshold test is whether a particular 
interest in property is recognized as a security interest under 
applicable law. The regulation does not determine whether a 
particular interest is a security interest under applicable law. If 
the creditor is unsure whether a particular interest is a security 
interest under applicable law (for example, if statutes and case law 
are either silent or inconclusive on the issue), the creditor may at 
its option consider such interests as security interests for Truth 
in Lending purposes. However, the regulation and the commentary do 
exclude specific interests, such as after-acquired property and 
accessories, from the scope of the definition regardless of their 
categorization under applicable law, and these named exclusions may 
not be disclosed as security interests under the regulation. (But 
see the discussion of exclusions elsewhere in the commentary to 
Sec.  226.2(a)(25).)
    2. Exclusions. The general definition of security interest 
excludes three groups of interests: incidental interests, interests 
in after-acquired property, and interests that arise solely by 
operation of law. These interests may not be disclosed with the 
disclosures required under Sec.  226.18, but the creditor is not 
precluded from preserving these rights elsewhere in the contract 
documents, or invoking and enforcing such rights, if it is otherwise 
lawful to do so. If the creditor is unsure whether a particular 
interest is one of the excluded interests, the creditor may, at its 
option, consider such interests as security interests for Truth in 
Lending purposes.
    3. Incidental interests. i. Incidental interests in property 
that are not security interests include, among other things:
    A. Assignment of rents.
    B. Right to condemnation proceeds.
    C. Interests in accessories and replacements.
    D. Interests in escrow accounts, such as for taxes and 
insurance.
    E. Waiver of homestead or personal property rights.
    ii. The notion of an incidental interest does not encompass an 
explicit security interest in an insurance policy if that policy is 
the primary collateral for the transaction--for example, in an 
insurance premium financing transaction.
    4. Operation of law. Interests that arise solely by operation of 
law are excluded from the general definition. Also excluded are

[[Page 7855]]

interests arising by operation of law that are merely repeated or 
referred to in the contract. However, if the creditor has an 
interest that arises by operation of law, such as a vendor's lien, 
and takes an independent security interest in the same property, 
such as a UCC security interest, the latter interest is a 
disclosable security interest unless otherwise provided.
    5. Rescission rules. Security interests that arise solely by 
operation of law are security interests for purposes of rescission. 
Examples of such interests are mechanics' and materialmen's liens.
    6. Specificity of disclosure. A creditor need not separately 
disclose multiple security interests that it may hold in the same 
collateral. The creditor need only disclose that the transaction is 
secured by the collateral, even when security interests from prior 
transactions remain of record and a new security interest is taken 
in connection with the transaction. In disclosing the fact that the 
transaction is secured by the collateral, the creditor also need not 
disclose how the security interest arose. For example, in a closed-
end credit transaction, a rescission notice need not specifically 
state that a new security interest is ``acquired'' or an existing 
security interest is ``retained'' in the transaction. The 
acquisition or retention of a security interest in the consumer's 
principal dwelling instead may be disclosed in a rescission notice 
with a general statement such as the following: ``Your home is the 
security for the new transaction.''
    2(b) Rules of construction.
    1. Footnotes. Footnotes are used extensively in the regulation 
to provide special exceptions and more detailed explanations and 
examples. Material that appears in a footnote has the same legal 
weight as material in the body of the regulation.
    2. Amount. The numerical amount must be a dollar amount unless 
otherwise indicated. For example, in a closed-end transaction 
(Subpart C), the amount financed and the amount of any payment must 
be expressed as a dollar amount. In some cases, an amount should be 
expressed as a percentage. For example, in disclosures provided 
before the first transaction under an open-end plan (Subpart B), 
creditors are permitted to explain how the amount of any finance 
charge will be determined; where a cash-advance fee (which is a 
finance charge) is a percentage of each cash advance, the amount of 
the finance charge for that fee is expressed as a percentage.

Section 226.3--Exempt Transactions

    1. Relationship to Sec.  226.12. The provisions in Sec.  
226.12(a) and (b) governing the issuance of credit cards and the 
limitations on liability for their unauthorized use apply to all 
credit cards, even if the credit cards are issued for use in 
connection with extensions of credit that otherwise are exempt under 
this section.
    3(a) Business, commercial, agricultural, or organizational 
credit.
    1. Primary purposes. A creditor must determine in each case if 
the transaction is primarily for an exempt purpose. If some question 
exists as to the primary purpose for a credit extension, the 
creditor is, of course, free to make the disclosures, and the fact 
that disclosures are made under such circumstances is not 
controlling on the question of whether the transaction was exempt. 
(See comment 3(a)-2, however, with respect to credit cards.)
    2. Business purpose purchases.
    i. Business-purpose credit cards--extensions of credit for 
consumer purposes. If a business-purpose credit card is issued to a 
person, the provisions of the regulation do not apply, other than as 
provided in Sec. Sec.  226.12(a) and 226.12(b), even if extensions 
of credit for consumer purposes are occasionally made using that 
business-purpose credit card. For example, the billing error 
provisions set forth in Sec.  226.13 do not apply to consumer-
purpose extensions of credit using a business-purpose credit card.
    ii. Consumer-purpose credit cards--extensions of credit for 
business purposes. If a consumer-purpose credit card is issued to a 
person, the provisions of the regulation apply, even to occasional 
extensions of credit for business purposes made using that consumer-
purpose credit card. For example, a consumer may assert a billing 
error with respect to any extension of credit using a consumer-
purpose credit card, even if the specific extension of credit on 
such credit card or open-end credit plan that is the subject of the 
dispute was made for business purposes.
    3. Factors. In determining whether credit to finance an 
acquisition--such as securities, antiques, or art--is primarily for 
business or commercial purposes (as opposed to a consumer purpose), 
the following factors should be considered:
    i. General.
    A. The relationship of the borrower's primary occupation to the 
acquisition. The more closely related, the more likely it is to be 
business purpose.
    B. The degree to which the borrower will personally manage the 
acquisition. The more personal involvement there is, the more likely 
it is to be business purpose.
    C. The ratio of income from the acquisition to the total income 
of the borrower. The higher the ratio, the more likely it is to be 
business purpose.
    D. The size of the transaction. The larger the transaction, the 
more likely it is to be business purpose.
    E. The borrower's statement of purpose for the loan.
    ii. Business-purpose examples. Examples of business-purpose 
credit include:
    A. A loan to expand a business, even if it is secured by the 
borrower's residence or personal property.
    B. A loan to improve a principal residence by putting in a 
business office.
    C. A business account used occasionally for consumer purposes.
    iii. Consumer-purpose examples. Examples of consumer-purpose 
credit include:
    A. Credit extensions by a company to its employees or agents if 
the loans are used for personal purposes.
    B. A loan secured by a mechanic's tools to pay a child's 
tuition.
    C. A personal account used occasionally for business purposes.
    4. Non-owner-occupied rental property. Credit extended to 
acquire, improve, or maintain rental property (regardless of the 
number of housing units) that is not owner-occupied is deemed to be 
for business purposes. This includes, for example, the acquisition 
of a warehouse that will be leased or a single-family house that 
will be rented to another person to live in. If the owner expects to 
occupy the property for more than 14 days during the coming year, 
the property cannot be considered non-owner-occupied and this 
special rule will not apply. For example, a beach house that the 
owner will occupy for a month in the coming summer and rent out the 
rest of the year is owner occupied and is not governed by this 
special rule. (See comment 3(a)-5, however, for rules relating to 
owner-occupied rental property.)
    5. Owner-occupied rental property. If credit is extended to 
acquire, improve, or maintain rental property that is or will be 
owner-occupied within the coming year, different rules apply:
    i. Credit extended to acquire the rental property is deemed to 
be for business purposes if it contains more than 2 housing units.
    ii. Credit extended to improve or maintain the rental property 
is deemed to be for business purposes if it contains more than 4 
housing units. Since the amended statute defines dwelling to include 
1 to 4 housing units, this rule preserves the right of rescission 
for credit extended for purposes other than acquisition. Neither of 
these rules means that an extension of credit for property 
containing fewer than the requisite number of units is necessarily 
consumer credit. In such cases, the determination of whether it is 
business or consumer credit should be made by considering the 
factors listed in comment 3(a)-3.
    6. Business credit later refinanced. Business-purpose credit 
that is exempt from the regulation may later be rewritten for 
consumer purposes. Such a transaction is consumer credit requiring 
disclosures only if the existing obligation is satisfied and 
replaced by a new obligation made for consumer purposes undertaken 
by the same obligor.
    7. Credit card renewal. A consumer-purpose credit card that is 
subject to the regulation may be converted into a business-purpose 
credit card at the time of its renewal, and the resulting business-
purpose credit card would be exempt from the regulation. Conversely, 
a business-purpose credit card that is exempt from the regulation 
may be converted into a consumer-purpose credit card at the time of 
its renewal, and the resulting consumer-purpose credit card would be 
subject to the regulation.
    8. Agricultural purpose. An agricultural purpose includes the 
planting, propagating, nurturing, harvesting, catching, storing, 
exhibiting, marketing, transporting, processing, or manufacturing of 
food, beverages (including alcoholic beverages), flowers, trees, 
livestock, poultry, bees, wildlife, fish, or shellfish by a natural 
person engaged in farming, fishing, or growing crops, flowers, 
trees, livestock, poultry, bees, or wildlife. The exemption also 
applies to a transaction involving real property that includes a 
dwelling (for example, the purchase of a farm with a homestead) if 
the

[[Page 7856]]

transaction is primarily for agricultural purposes.
    9. Organizational credit. The exemption for transactions in 
which the borrower is not a natural person applies, for example, to 
loans to corporations, partnerships, associations, churches, unions, 
and fraternal organizations. The exemption applies regardless of the 
purpose of the credit extension and regardless of the fact that a 
natural person may guarantee or provide security for the credit.
    10. Land trusts. Credit extended for consumer purposes to a land 
trust is considered to be credit extended to a natural person rather 
than credit extended to an organization. In some jurisdictions, a 
financial institution financing a residential real estate 
transaction for an individual uses a land trust mechanism. Title to 
the property is conveyed to the land trust for which the financial 
institution itself is trustee. The underlying installment note is 
executed by the financial institution in its capacity as trustee and 
payment is secured by a trust deed, reflecting title in the 
financial institution as trustee. In some instances, the consumer 
executes a personal guaranty of the indebtedness. The note provides 
that it is payable only out of the property specifically described 
in the trust deed and that the trustee has no personal liability on 
the note. Assuming the transactions are for personal, family, or 
household purposes, these transactions are subject to the regulation 
since in substance (if not form) consumer credit is being extended.
    3(b) Credit over $25,000 not secured by real property or a 
dwelling.
    1. Coverage. Since a mobile home can be a dwelling under Sec.  
226.2(a)(19), this exemption does not apply to a credit extension 
secured by a mobile home used or expected to be used as the 
principal dwelling of the consumer, even if the credit exceeds 
$25,000. A loan commitment for closed-end credit in excess of 
$25,000 is exempt even though the amounts actually drawn never 
actually reach $25,000.
    2. Open-end credit. i. An open-end credit plan is exempt under 
Sec.  226.3(b) (unless secured by real property or personal property 
used or expected to be used as the consumer's principal dwelling) if 
either of the following conditions is met:
    A. The creditor makes a firm commitment to lend over $25,000 
with no requirement of additional credit information for any 
advances (except as permitted from time to time pursuant to Sec.  
226.2(a)(20)).
    B. The initial extension of credit on the line exceeds $25,000.
    ii. If a security interest is taken at a later time in any real 
property, or in personal property used or expected to be used as the 
consumer's principal dwelling, the plan would no longer be exempt. 
The creditor must comply with all of the requirements of the 
regulation including, for example, providing the consumer with an 
initial disclosure statement. If the security interest being added 
is in the consumer's principal dwelling, the creditor must also give 
the consumer the right to rescind the security interest. (See the 
commentary to Sec.  226.15 concerning the right of rescission.)
    3. Closed-end credit--subsequent changes. A closed-end loan for 
over $25,000 may later be rewritten for $25,000 or less, or a 
security interest in real property or in personal property used or 
expected to be used as the consumer's principal dwelling may be 
added to an extension of credit for over $25,000. Such a transaction 
is consumer credit requiring disclosures only if the existing 
obligation is satisfied and replaced by a new obligation made for 
consumer purposes undertaken by the same obligor. (See the 
commentary to Sec.  226.23(a)(1) regarding the right of rescission 
when a security interest in a consumer's principal dwelling is added 
to a previously exempt transaction.)
    3(c) Public utility credit.
    1. Examples. Examples of public utility services include:
    i. General.
    A. Gas, water, or electrical services.
    B. Cable television services.
    C. Installation of new sewer lines, water lines, conduits, 
telephone poles, or metering equipment in an area not already 
serviced by the utility.
    ii. Extensions of credit not covered. The exemption does not 
apply to extensions of credit, for example:
    A. To purchase appliances such as gas or electric ranges, 
grills, or telephones.
    B. To finance home improvements such as new heating or air 
conditioning systems.
    3(d) Securities or commodities accounts.
    1. Coverage. This exemption does not apply to a transaction with 
a broker registered solely with the state, or to a separate credit 
extension in which the proceeds are used to purchase securities.
    3(e) Home fuel budget plans.
    1. Definition. Under a typical home fuel budget plan, the fuel 
dealer estimates the total cost of fuel for the season, bills the 
customer for an average monthly payment, and makes an adjustment in 
the final payment for any difference between the estimated and the 
actual cost of the fuel. Fuel is delivered as needed, no finance 
charge is assessed, and the customer may withdraw from the plan at 
any time. Under these circumstances, the arrangement is exempt from 
the regulation, even if a charge to cover the billing costs is 
imposed.
    3(f) Student loan programs.
    1. Coverage. This exemption applies to loans made, insured, or 
guaranteed under title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070 et seq.). This exemption does not apply to private 
education loans as defined by Sec.  226.46(b)(5).

Section 226.4--Finance Charge

    4(a) Definition.
    1. Charges in comparable cash transactions. Charges imposed 
uniformly in cash and credit transactions are not finance charges. 
In determining whether an item is a finance charge, the creditor 
should compare the credit transaction in question with a similar 
cash transaction. A creditor financing the sale of property or 
services may compare charges with those payable in a similar cash 
transaction by the seller of the property or service.
    i. For example, the following items are not finance charges:
    A. Taxes, license fees, or registration fees paid by both cash 
and credit customers.
    B. Discounts that are available to cash and credit customers, 
such as quantity discounts.
    C. Discounts available to a particular group of consumers 
because they meet certain criteria, such as being members of an 
organization or having accounts at a particular financial 
institution. This is the case even if an individual must pay cash to 
obtain the discount, provided that credit customers who are members 
of the group and do not qualify for the discount pay no more than 
the nonmember cash customers.
    D. Charges for a service policy, auto club membership, or policy 
of insurance against latent defects offered to or required of both 
cash and credit customers for the same price.
    ii. In contrast, the following items are finance charges:
    A. Inspection and handling fees for the staged disbursement of 
construction-loan proceeds.
    B. Fees for preparing a Truth in Lending disclosure statement, 
if permitted by law (for example, the Real Estate Settlement 
Procedures Act prohibits such charges in certain transactions 
secured by real property).
    C. Charges for a required maintenance or service contract 
imposed only in a credit transaction.
    iii. If the charge in a credit transaction exceeds the charge 
imposed in a comparable cash transaction, only the difference is a 
finance charge. For example:
    A. If an escrow agent is used in both cash and credit sales of 
real estate and the agent's charge is $100 in a cash transaction and 
$150 in a credit transaction, only $50 is a finance charge.
    2. Costs of doing business. Charges absorbed by the creditor as 
a cost of doing business are not finance charges, even though the 
creditor may take such costs into consideration in determining the 
interest rate to be charged or the cash price of the property or 
service sold. However, if the creditor separately imposes a charge 
on the consumer to cover certain costs, the charge is a finance 
charge if it otherwise meets the definition. For example:
    i. A discount imposed on a credit obligation when it is assigned 
by a seller-creditor to another party is not a finance charge as 
long as the discount is not separately imposed on the consumer. (See 
Sec.  226.4(b)(6).)
    ii. A tax imposed by a state or other governmental body on a 
creditor is not a finance charge if the creditor absorbs the tax as 
a cost of doing business and does not separately impose the tax on 
the consumer. (For additional discussion of the treatment of taxes, 
see other commentary to Sec.  226.4(a).)
    3. Forfeitures of interest. If the creditor reduces the interest 
rate it pays or stops paying interest on the consumer's deposit 
account or any portion of it for the term of a credit transaction 
(including, for example, an overdraft on a checking account or a 
loan secured by a certificate of deposit), the interest lost is a 
finance charge. (See the commentary to Sec.  226.4(c)(6).) For 
example:
    A. A consumer borrows $5,000 for 90 days and secures it with a 
$10,000 certificate of

[[Page 7857]]

deposit paying 15% interest. The creditor charges the consumer an 
interest rate of 6% on the loan and stops paying interest on $5,000 
of the $10,000 certificate for the term of the loan. The interest 
lost is a finance charge and must be reflected in the annual 
percentage rate on the loan.
    B. However, the consumer must be entitled to the interest that 
is not paid in order for the lost interest to be a finance charge. 
For example:
    iii. A consumer wishes to buy from a financial institution a 
$10,000 certificate of deposit paying 15% interest but has only 
$4,000. The financial institution offers to lend the consumer $6,000 
at an interest rate of 6% but will pay the 15% interest only on the 
amount of the consumer's deposit, $4,000. The creditor's failure to 
pay interest on the $6,000 does not result in an additional finance 
charge on the extension of credit, provided the consumer is entitled 
by the deposit agreement with the financial institution to interest 
only on the amount of the consumer's deposit.
    iv. A consumer enters into a combined time deposit/credit 
agreement with a financial institution that establishes a time 
deposit account and an open-end line of credit. The line of credit 
may be used to borrow against the funds in the time deposit. The 
agreement provides for an interest rate on any credit extension of, 
for example, 1%. In addition, the agreement states that the creditor 
will pay 0% interest on the amount of the time deposit that 
corresponds to the amount of the credit extension(s). The interest 
that is not paid on the time deposit by the financial institution is 
not a finance charge (and therefore does not affect the annual 
percentage rate computation).
    4. Treatment of transaction fees on credit card plans. Any 
transaction charge imposed on a cardholder by a card issuer is a 
finance charge, regardless of whether the issuer imposes the same, 
greater, or lesser charge on withdrawals of funds from an asset 
account such as a checking or savings account. For example:
    i. Any charge imposed on a credit cardholder by a card issuer 
for the use of an automated teller machine (ATM) to obtain a cash 
advance (whether in a proprietary, shared, interchange, or other 
system) is a finance charge regardless of whether the card issuer 
imposes a charge on its debit cardholders for using the ATM to 
withdraw cash from a consumer asset account, such as a checking or 
savings account.
    ii. Any charge imposed on a credit cardholder for making a 
purchase or obtaining a cash advance outside the United States, with 
a foreign merchant, or in a foreign currency is a finance charge, 
regardless of whether a charge is imposed on debit cardholders for 
such transactions. The following principles apply in determining 
what is a foreign transaction fee and the amount of the fee:
    A. Included are (1) fees imposed when transactions are made in a 
foreign currency and converted to U.S. dollars; (2) fees imposed 
when transactions are made in U.S. dollars outside the U.S.; and (3) 
fees imposed when transactions are made (whether in a foreign 
currency or in U.S. dollars) with a foreign merchant, such as via a 
merchant's Web site. For example, a consumer may use a credit card 
to make a purchase in Bermuda, in U.S. dollars, and the card issuer 
may impose a fee because the transaction took place outside the 
United States.
    B. Included are fees imposed by the card issuer and fees imposed 
by a third party that performs the conversion, such as a credit card 
network or the card issuer's corporate parent. (For example, in a 
transaction processed through a credit card network, the network may 
impose a 1 percent charge and the card-issuing bank may impose an 
additional 2 percent charge, for a total of a 3 percentage point 
foreign transaction fee being imposed on the consumer.)
    C. Fees imposed by a third party are included only if they are 
directly passed on to the consumer. For example, if a credit card 
network imposes a 1 percent fee on the card issuer, but the card 
issuer absorbs the fee as a cost of doing business (and only passes 
it on to consumers in the general sense that the interest and fees 
are imposed on all its customers to recover its costs), then the fee 
is not a foreign transaction fee and need not be disclosed. In 
another example, if the credit card network imposes a 1 percent fee 
for a foreign transaction on the card issuer, and the card issuer 
imposes this same fee on the consumer who engaged in the foreign 
transaction, then the fee is a foreign transaction fee and a finance 
charge.
    D. A card issuer is not required to disclose a fee imposed by a 
merchant. For example, if the merchant itself performs the currency 
conversion and adds a fee, this fee need not be disclosed by the 
card issuer. Under Sec.  226.9(d), a card issuer is not obligated to 
disclose finance charges imposed by a party honoring a credit card, 
such as a merchant, although the merchant is required to disclose 
such a finance charge if the merchant is subject to the Truth in 
Lending Act and Regulation Z.
    E. The foreign transaction fee is determined by first 
calculating the dollar amount of the transaction by using a currency 
conversion rate outside the card issuer's and third party's control. 
Any amount in excess of that dollar amount is a foreign transaction 
fee. Conversion rates outside the card issuer's and third party's 
control include, for example, a rate selected from the range of 
rates available in the wholesale currency exchange markets, an 
average of the highest and lowest rates available in such markets, 
or a government-mandated or government-managed exchange rate (or a 
rate selected from a range of such rates).
    F. The rate used for a particular transaction need not be the 
same rate that the card issuer (or third party) itself obtains in 
its currency conversion operations. In addition, the rate used for a 
particular transaction need not be the rate in effect on the date of 
the transaction (purchase or cash advance).
    5. Taxes.
    i. Generally, a tax imposed by a state or other governmental 
body solely on a creditor is a finance charge if the creditor 
separately imposes the charge on the consumer.
    ii. In contrast, a tax is not a finance charge (even if it is 
collected by the creditor) if applicable law imposes the tax:
    A. Solely on the consumer;
    B. On the creditor and the consumer jointly;
    C. On the credit transaction, without indicating which party is 
liable for the tax; or
    D. On the creditor, if applicable law directs or authorizes the 
creditor to pass the tax on to the consumer. (For purposes of this 
section, if applicable law is silent as to passing on the tax, the 
law is deemed not to authorize passing it on.)
    iii. For example, a stamp tax, property tax, intangible tax, or 
any other state or local tax imposed on the consumer, or on the 
credit transaction, is not a finance charge even if the tax is 
collected by the creditor.
    iv. In addition, a tax is not a finance charge if it is excluded 
from the finance charge by another provision of the regulation or 
commentary (for example, if the tax is imposed uniformly in cash and 
credit transactions).
    4(a)(1) Charges by third parties.
    1. Choosing the provider of a required service. An example of a 
third-party charge included in the finance charge is the cost of 
required mortgage insurance, even if the consumer is allowed to 
choose the insurer.
    2. Annuities associated with reverse mortgages. Some creditors 
offer annuities in connection with a reverse-mortgage transaction. 
The amount of the premium is a finance charge if the creditor 
requires the purchase of the annuity incident to the credit. 
Examples include the following:
    i. The credit documents reflect the purchase of an annuity from 
a specific provider or providers.
    ii. The creditor assesses an additional charge on consumers who 
do not purchase an annuity from a specific provider.
    iii. The annuity is intended to replace in whole or in part the 
creditor's payments to the consumer either immediately or at some 
future date.
    4(a)(2) Special rule; closing agent charges.
    1. General. This rule applies to charges by a third party 
serving as the closing agent for the particular loan. An example of 
a closing agent charge included in the finance charge is a courier 
fee where the creditor requires the use of a courier.
    2. Required closing agent. If the creditor requires the use of a 
closing agent, fees charged by the closing agent are included in the 
finance charge only if the creditor requires the particular service, 
requires the imposition of the charge, or retains a portion of the 
charge. Fees charged by a third-party closing agent may be otherwise 
excluded from the finance charge under Sec.  226.4. For example, a 
fee that would be paid in a comparable cash transaction may be 
excluded under Sec.  226.4(a). A charge for conducting or attending 
a closing is a finance charge and may be excluded only if the charge 
is included in and is incidental to a lump-sum fee excluded under 
Sec.  226.4(c)(7).
    4(a)(3) Special rule; mortgage broker fees.
    1. General. A fee charged by a mortgage broker is excluded from 
the finance charge if it is the type of fee that is also excluded 
when charged by the creditor. For example, to exclude an application 
fee from the finance charge under Sec.  226.4(c)(1), a

[[Page 7858]]

mortgage broker must charge the fee to all applicants for credit, 
whether or not credit is extended.
    2. Coverage. This rule applies to charges paid by consumers to a 
mortgage broker in connection with a consumer credit transaction 
secured by real property or a dwelling.
    3. Compensation by lender. The rule requires all mortgage broker 
fees to be included in the finance charge. Creditors sometimes 
compensate mortgage brokers under a separate arrangement with those 
parties. Creditors may draw on amounts paid by the consumer, such as 
points or closing costs, to fund their payment to the broker. 
Compensation paid by a creditor to a mortgage broker under an 
agreement is not included as a separate component of a consumer's 
total finance charge (although this compensation may be reflected in 
the finance charge if it comes from amounts paid by the consumer to 
the creditor that are finance charges, such as points and interest).
    4(b) Examples of finance charges.
    1. Relationship to other provisions. Charges or fees shown as 
examples of finance charges in Sec.  226.4(b) may be excludable 
under Sec.  226.4(c), (d), or (e). For example:
    i. Premiums for credit life insurance, shown as an example of a 
finance charge under Sec.  226.4(b)(7), may be excluded if the 
requirements of Sec.  226.4(d)(1) are met.
    ii. Appraisal fees mentioned in Sec.  226.4(b)(4) are excluded 
for real property or residential mortgage transactions under Sec.  
226.4(c)(7).
    Paragraph 4(b)(2).
    1. Checking account charges. A checking or transaction account 
charge imposed in connection with a credit feature is a finance 
charge under Sec.  226.4(b)(2) to the extent the charge exceeds the 
charge for a similar account without a credit feature. If a charge 
for an account with a credit feature does not exceed the charge for 
an account without a credit feature, the charge is not a finance 
charge under Sec.  226.4(b)(2). To illustrate:
    i. A $5 service charge is imposed on an account with an 
overdraft line of credit (where the institution has agreed in 
writing to pay an overdraft), while a $3 service charge is imposed 
on an account without a credit feature; the $2 difference is a 
finance charge. (If the difference is not related to account 
activity, however, it may be excludable as a participation fee. See 
the commentary to Sec.  226.4(c)(4).)
    ii. A $5 service charge is imposed for each item that results in 
an overdraft on an account with an overdraft line of credit, while a 
$25 service charge is imposed for paying or returning each item on a 
similar account without a credit feature; the $5 charge is not a 
finance charge.
    Paragraph 4(b)(3).
    1. Assumption fees. The assumption fees mentioned in Sec.  
226.4(b)(3) are finance charges only when the assumption occurs and 
the fee is imposed on the new buyer. The assumption fee is a finance 
charge in the new buyer's transaction.
    Paragraph 4(b)(5).
    1. Credit loss insurance. Common examples of the insurance 
against credit loss mentioned in Sec.  226.4(b)(5) are mortgage 
guaranty insurance, holder in due course insurance, and repossession 
insurance. Such premiums must be included in the finance charge only 
for the period that the creditor requires the insurance to be 
maintained.
    2. Residual value insurance. Where a creditor requires a 
consumer to maintain residual value insurance or where the creditor 
is a beneficiary of a residual value insurance policy written in 
connection with an extension of credit (as is the case in some forms 
of automobile balloon-payment financing, for example), the premiums 
for the insurance must be included in the finance charge for the 
period that the insurance is to be maintained. If a creditor pays 
for residual-value insurance and absorbs the payment as a cost of 
doing business, such costs are not considered finance charges. (See 
comment 4(a)-2.)
    Paragraphs 4(b)(7) and (b)(8).
    1. Pre-existing insurance policy. The insurance discussed in 
Sec.  226.4(b)(7) and (b)(8) does not include an insurance policy 
(such as a life or an automobile collision insurance policy) that is 
already owned by the consumer, even if the policy is assigned to or 
otherwise made payable to the creditor to satisfy an insurance 
requirement. Such a policy is not ``written in connection with'' the 
transaction, as long as the insurance was not purchased for use in 
that credit extension, since it was previously owned by the 
consumer.
    2. Insurance written in connection with a transaction. Credit 
insurance sold before or after an open-end (not home-secured) plan 
is opened is considered ``written in connection with a credit 
transaction.'' Insurance sold after consummation in closed-end 
credit transactions or after the opening of a home-equity plan 
subject to the requirements of Sec.  226.5b is not considered 
``written in connection with'' the credit transaction if the 
insurance is written because of the consumer's default (for example, 
by failing to obtain or maintain required property insurance) or 
because the consumer requests insurance after consummation or the 
opening of a home-equity plan subject to the requirements of Sec.  
226.5b (although credit-sale disclosures may be required for the 
insurance sold after consummation if it is financed).
    3. Substitution of life insurance. The premium for a life 
insurance policy purchased and assigned to satisfy a credit life 
insurance requirement must be included in the finance charge, but 
only to the extent of the cost of the credit life insurance if 
purchased from the creditor or the actual cost of the policy (if 
that is less than the cost of the insurance available from the 
creditor). If the creditor does not offer the required insurance, 
the premium to be included in the finance charge is the cost of a 
policy of insurance of the type, amount, and term required by the 
creditor.
    4. Other insurance. Fees for required insurance not of the types 
described in Sec.  226.4(b)(7) and (b)(8) are finance charges and 
are not excludable. For example:
    i. The premium for a hospitalization insurance policy, if it is 
required to be purchased only in a credit transaction, is a finance 
charge.
    Paragraph 4(b)(9).
    1. Discounts for payment by other than credit. The discounts to 
induce payment by other than credit mentioned in Sec.  226.4(b)(9) 
include, for example, the following situation:
    i. The seller of land offers individual tracts for $10,000 each. 
If the purchaser pays cash, the price is $9,000, but if the 
purchaser finances the tract with the seller the price is $10,000. 
The $1,000 difference is a finance charge for those who buy the 
tracts on credit.
    2. Exception for cash discounts.
    i. Creditors may exclude from the finance charge discounts 
offered to consumers for using cash or another means of payment 
instead of using a credit card or an open-end plan. The discount may 
be in whatever amount the seller desires, either as a percentage of 
the regular price (as defined in section 103(z) of the act, as 
amended) or a dollar amount. Pursuant to section 167(b) of the act, 
this provision applies only to transactions involving an open-end 
credit plan or a credit card (whether open-end or closed-end credit 
is extended on the card). The merchant must offer the discount to 
prospective buyers whether or not they are cardholders or members of 
the open-end credit plan. The merchant may, however, make other 
distinctions. For example:
    A. The merchant may limit the discount to payment by cash and 
not offer it for payment by check or by use of a debit card.
    B. The merchant may establish a discount plan that allows a 15% 
discount for payment by cash, a 10% discount for payment by check, 
and a 5% discount for payment by a particular credit card. None of 
these discounts is a finance charge.
    ii. Pursuant to section 171(c) of the act, discounts excluded 
from the finance charge under this paragraph are also excluded from 
treatment as a finance charge or other charge for credit under any 
state usury or disclosure laws.
    3. Determination of the regular price.
    i. The regular price is critical in determining whether the 
difference between the price charged to cash customers and credit 
customers is a discount or a surcharge, as these terms are defined 
in amended section 103 of the act. The regular price is defined in 
section 103 of the act as--
    * * * the tag or posted price charged for the property or 
service if a single price is tagged or posted, or the price charged 
for the property or service when payment is made by use of an open-
end credit account or a credit card if either (1) no price is tagged 
or posted, or (2) two prices are tagged or posted. * * *
    ii. For example, in the sale of motor vehicle fuel, the tagged 
or posted price is the price displayed at the pump. As a result, the 
higher price (the open-end credit or credit card price) must be 
displayed at the pump, either alone or along with the cash price. 
Service station operators may designate separate pumps or separate 
islands as being for either cash or credit purchases and display 
only the appropriate prices at the various pumps. If a pump is 
capable of displaying on its meter either a cash or a credit price 
depending upon the consumer's means of payment, both the cash price 
and the credit price must be displayed at the pump. A service 
station operator may display the cash price of fuel by itself on a 
curb sign, as long as the sign

[[Page 7859]]

clearly indicates that the price is limited to cash purchases.
    4(b)(10) Debt cancellation and debt suspension fees.
    1. Definition. Debt cancellation coverage provides for payment 
or satisfaction of all or part of a debt when a specified event 
occurs. The term ``debt cancellation coverage'' includes guaranteed 
automobile protection, or ``GAP,'' agreements, which pay or satisfy 
the remaining debt after property insurance benefits are exhausted. 
Debt suspension coverage provides for suspension of the obligation 
to make one or more payments on the date(s) otherwise required by 
the credit agreement, when a specified event occurs. The term ``debt 
suspension'' does not include loan payment deferral arrangements in 
which the triggering event is the bank's unilateral decision to 
allow a deferral of payment and the borrower's unilateral election 
to do so, such as by skipping or reducing one or more payments 
(``skip payments'').
    2. Coverage written in connection with a transaction. Coverage 
sold after consummation in closed-end credit transactions or after 
the opening of a home-equity plan subject to the requirements of 
Sec.  226.5b is not ``written in connection with'' the credit 
transaction if the coverage is written because the consumer requests 
coverage after consummation or the opening of a home-equity plan 
subject to the requirements of Sec.  226.5b (although credit-sale 
disclosures may be required for the coverage sold after consummation 
if it is financed). Coverage sold before or after an open-end (not 
home-secured) plan is opened is considered ``written in connection 
with a credit transaction.''
    4(c) Charges excluded from the finance charge.
    Paragraph 4(c)(1).
    1. Application fees. An application fee that is excluded from 
the finance charge is a charge to recover the costs associated with 
processing applications for credit. The fee may cover the costs of 
services such as credit reports, credit investigations, and 
appraisals. The creditor is free to impose the fee in only certain 
of its loan programs, such as mortgage loans. However, if the fee is 
to be excluded from the finance charge under Sec.  226.4(c)(1), it 
must be charged to all applicants, not just to applicants who are 
approved or who actually receive credit.
    Paragraph 4(c)(2).
    1. Late payment charges.
    i. Late payment charges can be excluded from the finance charge 
under Sec.  226.4(c)(2) whether or not the person imposing the 
charge continues to extend credit on the account or continues to 
provide property or services to the consumer. In determining whether 
a charge is for actual unanticipated late payment on a 30-day 
account, for example, factors to be considered include:
    A. The terms of the account. For example, is the consumer 
required by the account terms to pay the account balance in full 
each month? If not, the charge may be a finance charge.
    B. The practices of the creditor in handling the accounts. For 
example, regardless of the terms of the account, does the creditor 
allow consumers to pay the accounts over a period of time without 
demanding payment in full or taking other action to collect? If no 
effort is made to collect the full amount due, the charge may be a 
finance charge.
    ii. Section 226.4(c)(2) applies to late payment charges imposed 
for failure to make payments as agreed, as well as failure to pay an 
account in full when due.
    2. Other excluded charges. Charges for ``delinquency, default, 
or a similar occurrence'' include, for example, charges for 
reinstatement of credit privileges or for submitting as payment a 
check that is later returned unpaid.
    Paragraph 4(c)(3).
    1. Assessing interest on an overdraft balance. A charge on an 
overdraft balance computed by applying a rate of interest to the 
amount of the overdraft is not a finance charge, even though the 
consumer agrees to the charge in the account agreement, unless the 
financial institution agrees in writing that it will pay such items.
    Paragraph 4(c)(4).
    1. Participation fees--periodic basis. The participation fees 
described in Sec.  226.4(c)(4) do not necessarily have to be formal 
membership fees, nor are they limited to credit card plans. The 
provision applies to any credit plan in which payment of a fee is a 
condition of access to the plan itself, but it does not apply to 
fees imposed separately on individual closed-end transactions. The 
fee may be charged on a monthly, annual, or other periodic basis; a 
one-time, non-recurring fee imposed at the time an account is opened 
is not a fee that is charged on a periodic basis, and may not be 
treated as a participation fee.
    2. Participation fees--exclusions. Minimum monthly charges, 
charges for non-use of a credit card, and other charges based on 
either account activity or the amount of credit available under the 
plan are not excluded from the finance charge by Sec.  226.4(c)(4). 
Thus, for example, a fee that is charged and then refunded to the 
consumer based on the extent to which the consumer uses the credit 
available would be a finance charge. (See the commentary to Sec.  
226.4(b)(2). Also, see comment 14(c)-2 for treatment of certain 
types of fees excluded in determining the annual percentage rate for 
the periodic statement.)
    Paragraph 4(c)(5).
    1. Seller's points. The seller's points mentioned in Sec.  
226.4(c)(5) include any charges imposed by the creditor upon the 
noncreditor seller of property for providing credit to the buyer or 
for providing credit on certain terms. These charges are excluded 
from the finance charge even if they are passed on to the buyer, for 
example, in the form of a higher sales price. Seller's points are 
frequently involved in real estate transactions guaranteed or 
insured by governmental agencies. A commitment fee paid by a 
noncreditor seller (such as a real estate developer) to the creditor 
should be treated as seller's points. Buyer's points (that is, 
points charged to the buyer by the creditor), however, are finance 
charges.
    2. Other seller-paid amounts. Mortgage insurance premiums and 
other finance charges are sometimes paid at or before consummation 
or settlement on the borrower's behalf by a noncreditor seller. The 
creditor should treat the payment made by the seller as seller's 
points and exclude it from the finance charge if, based on the 
seller's payment, the consumer is not legally bound to the creditor 
for the charge. A creditor who gives disclosures before the payment 
has been made should base them on the best information reasonably 
available.
    Paragraph 4(c)(6).
    1. Lost interest. Certain federal and state laws mandate a 
percentage differential between the interest rate paid on a deposit 
and the rate charged on a loan secured by that deposit. In some 
situations, because of usury limits the creditor must reduce the 
interest rate paid on the deposit and, as a result, the consumer 
loses some of the interest that would otherwise have been earned. 
Under Sec.  226.4(c)(6), such ``lost interest'' need not be included 
in the finance charge. This rule applies only to an interest 
reduction imposed because a rate differential is required by law and 
a usury limit precludes compliance by any other means. If the 
creditor imposes a differential that exceeds that required, only the 
lost interest attributable to the excess amount is a finance charge. 
(See the commentary to Sec.  226.4(a).)
    Paragraph 4(c)(7).
    1. Real estate or residential mortgage transaction charges. The 
list of charges in Sec.  226.4(c)(7) applies both to residential 
mortgage transactions (which may include, for example, the purchase 
of a mobile home) and to other transactions secured by real estate. 
The fees are excluded from the finance charge even if the services 
for which the fees are imposed are performed by the creditor's 
employees rather than by a third party. In addition, the cost of 
verifying or confirming information connected to the item is also 
excluded. For example, credit-report fees cover not only the cost of 
the report but also the cost of verifying information in the report. 
In all cases, charges excluded under Sec.  226.4(c)(7) must be bona 
fide and reasonable.
    2. Lump-sum charges. If a lump sum charged for several services 
includes a charge that is not excludable, a portion of the total 
should be allocated to that service and included in the finance 
charge. However, a lump sum charged for conducting or attending a 
closing (for example, by a lawyer or a title company) is excluded 
from the finance charge if the charge is primarily for services 
related to items listed in Sec.  226.4(c)(7) (for example, reviewing 
or completing documents), even if other incidental services such as 
explaining various documents or disbursing funds for the parties are 
performed. The entire charge is excluded even if a fee for the 
incidental services would be a finance charge if it were imposed 
separately.
    3. Charges assessed during the loan term. Real estate or 
residential mortgage transaction charges excluded under Sec.  
226.4(c)(7) are those charges imposed solely in connection with the 
initial decision to grant credit. This would include, for example, a 
fee to search for tax liens on the property or to determine if flood 
insurance is required. The exclusion does not apply to fees for 
services to be performed periodically

[[Page 7860]]

during the loan term, regardless of when the fee is collected. For 
example, a fee for one or more determinations during the loan term 
of the current tax-lien status or flood-insurance requirements is a 
finance charge, regardless of whether the fee is imposed at closing, 
or when the service is performed. If a creditor is uncertain about 
what portion of a fee to be paid at consummation or loan closing is 
related to the initial decision to grant credit, the entire fee may 
be treated as a finance charge.
    4(d) Insurance and debt cancellation and debt suspension 
coverage.
    1. General. Section 226.4(d) permits insurance premiums and 
charges and debt cancellation and debt suspension charges to be 
excluded from the finance charge. The required disclosures must be 
made in writing, except as provided in Sec.  226.4(d)(4). The rules 
on location of insurance and debt cancellation and debt suspension 
disclosures for closed-end transactions are in Sec.  226.17(a). For 
purposes of Sec.  226.4(d), all references to insurance also include 
debt cancellation and debt suspension coverage unless the context 
indicates otherwise.
    2. Timing of disclosures. If disclosures are given early, for 
example under Sec.  226.17(f) or Sec.  226.19(a), the creditor need 
not redisclose if the actual premium is different at the time of 
consummation. If insurance disclosures are not given at the time of 
early disclosure and insurance is in fact written in connection with 
the transaction, the disclosures under Sec.  226.4(d) must be made 
in order to exclude the premiums from the finance charge.
    3. Premium rate increases. The creditor should disclose the 
premium amount based on the rates currently in effect and need not 
designate it as an estimate even if the premium rates may increase. 
An increase in insurance rates after consummation of a closed-end 
credit transaction or during the life of an open-end credit plan 
does not require redisclosure in order to exclude the additional 
premium from treatment as a finance charge.
    4. Unit-cost disclosures.
    i. Open-end credit. The premium or fee for insurance or debt 
cancellation or debt suspension for the initial term of coverage may 
be disclosed on a unit-cost basis in open-end credit transactions. 
The cost per unit should be based on the initial term of coverage, 
unless one of the options under comment 4(d)-12 is available.
    ii. Closed-end credit. One of the transactions for which unit-
cost disclosures (such as 50 cents per year for each $100 of the 
amount financed) may be used in place of the total insurance premium 
involves a particular kind of insurance plan. For example, a 
consumer with a current indebtedness of $8,000 is covered by a plan 
of credit life insurance coverage with a maximum of $10,000. The 
consumer requests an additional $4,000 loan to be covered by the 
same insurance plan. Since the $4,000 loan exceeds, in part, the 
maximum amount of indebtedness that can be covered by the plan, the 
creditor may properly give the insurance-cost disclosures on the 
$4,000 loan on a unit-cost basis.
    5. Required credit life insurance; debt cancellation or 
suspension coverage. Credit life, accident, health, or loss-of-
income insurance, and debt cancellation and suspension coverage 
described in Sec.  226.4(b)(10), must be voluntary in order for the 
premium or charges to be excluded from the finance charge. Whether 
the insurance or coverage is in fact required or optional is a 
factual question. If the insurance or coverage is required, the 
premiums must be included in the finance charge, whether the 
insurance or coverage is purchased from the creditor or from a third 
party. If the consumer is required to elect one of several options--
such as to purchase credit life insurance, or to assign an existing 
life insurance policy, or to pledge security such as a certificate 
of deposit--and the consumer purchases the credit life insurance 
policy, the premium must be included in the finance charge. (If the 
consumer assigns a preexisting policy or pledges security instead, 
no premium is included in the finance charge. The security interest 
would be disclosed under Sec.  226.6(a)(4), Sec.  226.6(b)(5)(ii), 
or Sec.  226.18(m). See the commentary to Sec.  226.4(b)(7) and 
(b)(8).)
    6. Other types of voluntary insurance. Insurance is not credit 
life, accident, health, or loss-of-income insurance if the creditor 
or the credit account of the consumer is not the beneficiary of the 
insurance coverage. If the premium for such insurance is not imposed 
by the creditor as an incident to or a condition of credit, it is 
not covered by Sec.  226.4.
    7. Signatures. If the creditor offers a number of insurance 
options under Sec.  226.4(d), the creditor may provide a means for 
the consumer to sign or initial for each option, or it may provide 
for a single authorizing signature or initial with the options 
selected designated by some other means, such as a check mark. The 
insurance authorization may be signed or initialed by any consumer, 
as defined in Sec.  226.2(a)(11), or by an authorized user on a 
credit card account.
    8. Property insurance. To exclude property insurance premiums or 
charges from the finance charge, the creditor must allow the 
consumer to choose the insurer and disclose that fact. This 
disclosure must be made whether or not the property insurance is 
available from or through the creditor. The requirement that an 
option be given does not require that the insurance be readily 
available from other sources. The premium or charge must be 
disclosed only if the consumer elects to purchase the insurance from 
the creditor; in such a case, the creditor must also disclose the 
term of the property insurance coverage if it is less than the term 
of the obligation.
    9. Single-interest insurance. Blanket and specific single-
interest coverage are treated the same for purposes of the 
regulation. A charge for either type of single-interest insurance 
may be excluded from the finance charge if:
    i. The insurer waives any right of subrogation.
    ii. The other requirements of Sec.  226.4(d)(2) are met. This 
includes, of course, giving the consumer the option of obtaining the 
insurance from a person of the consumer's choice. The creditor need 
not ascertain whether the consumer is able to purchase the insurance 
from someone else.
    10. Single-interest insurance defined. The term single-interest 
insurance as used in the regulation refers only to the types of 
coverage traditionally included in the term vendor's single-interest 
insurance (or VSI), that is, protection of tangible property against 
normal property damage, concealment, confiscation, conversion, 
embezzlement, and skip. Some comprehensive insurance policies may 
include a variety of additional coverages, such as repossession 
insurance and holder-in-due-course insurance. These types of 
coverage do not constitute single-interest insurance for purposes of 
the regulation, and premiums for them do not qualify for exclusion 
from the finance charge under Sec.  226.4(d). If a policy that is 
primarily VSI also provides coverages that are not VSI or other 
property insurance, a portion of the premiums must be allocated to 
the nonexcludable coverages and included in the finance charge. 
However, such allocation is not required if the total premium in 
fact attributable to all of the non-VSI coverages included in the 
policy is $1.00 or less (or $5.00 or less in the case of a multiyear 
policy).
    11. Initial term.
    i. The initial term of insurance or debt cancellation or debt 
suspension coverage determines the period for which a premium amount 
must be disclosed, unless one of the options discussed under comment 
4(d)-12 is available. For purposes of Sec.  226.4(d), the initial 
term is the period for which the insurer or creditor is obligated to 
provide coverage, even though the consumer may be allowed to cancel 
the coverage or coverage may end due to nonpayment before that term 
expires.
    ii. For example:
    A. The initial term of a property insurance policy on an 
automobile that is written for one year is one year even though 
premiums are paid monthly and the term of the credit transaction is 
four years.
    B. The initial term of an insurance policy is the full term of 
the credit transaction if the consumer pays or finances a single 
premium in advance.
    12. Initial term; alternative.
    i. General. A creditor has the option of providing cost 
disclosures on the basis of one year of insurance or debt 
cancellation or debt suspension coverage instead of a longer initial 
term (provided the premium or fee is clearly labeled as being for 
one year) if:
    A. The initial term is indefinite or not clear, or
    B. The consumer has agreed to pay a premium or fee that is 
assessed periodically but the consumer is under no obligation to 
continue the coverage, whether or not the consumer has made an 
initial payment.
    ii. Open-end plans. For open-end plans, a creditor also has the 
option of providing unit-cost disclosure on the basis of a period 
that is less than one year if the consumer has agreed to pay a 
premium or fee that is assessed periodically, for example monthly, 
but the consumer is under no obligation to continue the coverage.
    iii. Examples. To illustrate:
    A. A credit life insurance policy providing coverage for a 30-
year mortgage loan has an

[[Page 7861]]

initial term of 30 years, even though premiums are paid monthly and 
the consumer is not required to continue the coverage. Disclosures 
may be based on the initial term, but the creditor also has the 
option of making disclosures on the basis of coverage for an assumed 
initial term of one year.
    13. Loss-of-income insurance. The loss-of-income insurance 
mentioned in Sec.  226.4(d) includes involuntary unemployment 
insurance, which provides that some or all of the consumer's 
payments will be made if the consumer becomes unemployed 
involuntarily.
    4(d)(3) Voluntary debt cancellation or debt suspension fees.
    1. General. Fees charged for the specialized form of debt 
cancellation agreement known as guaranteed automobile protection 
(``GAP'') agreements must be disclosed according to Sec.  
226.4(d)(3) rather than according to Sec.  226.4(d)(2) for property 
insurance.
    2. Disclosures. Creditors can comply with Sec.  226.4(d)(3) by 
providing a disclosure that refers to debt cancellation or debt 
suspension coverage whether or not the coverage is considered 
insurance. Creditors may use the model credit insurance disclosures 
only if the debt cancellation or debt suspension coverage 
constitutes insurance under state law. (See Model Clauses and 
Samples at G-16 and H-17 in appendix G and appendix H to part 226 
for guidance on how to provide the disclosure required by Sec.  
226.4(d)(3)(iii) for debt suspension products.)
    3. Multiple events. If debt cancellation or debt suspension 
coverage for two or more events is provided at a single charge, the 
entire charge may be excluded from the finance charge if at least 
one of the events is accident or loss of life, health, or income and 
the conditions specified in Sec.  226.4(d)(3) or, as applicable, 
Sec.  226.4(d)(4), are satisfied.
    4. Disclosures in programs combining debt cancellation and debt 
suspension features. If the consumer's debt can be cancelled under 
certain circumstances, the disclosure may be modified to reflect 
that fact. The disclosure could, for example, state (in addition to 
the language required by Sec.  226.4(d)(3)(iii)) that ``In some 
circumstances, my debt may be cancelled.'' However, the disclosure 
would not be permitted to list the specific events that would result 
in debt cancellation.
    4(d)(4) Telephone purchases.
    1. Affirmative request. A creditor would not satisfy the 
requirement to obtain a consumer's affirmative request if the 
``request'' was a response to a script that uses leading questions 
or negative consent. A question asking whether the consumer wishes 
to enroll in the credit insurance or debt cancellation or suspension 
plan and seeking a yes-or-no response (such as ``Do you want to 
enroll in this optional debt cancellation plan?'') would not be 
considered leading.
    4(e) Certain security interest charges.
    1. Examples.
    i. Excludable charges. Sums must be actually paid to public 
officials to be excluded from the finance charge under Sec.  
226.4(e)(1) and (e)(3). Examples are charges or other fees required 
for filing or recording security agreements, mortgages, continuation 
statements, termination statements, and similar documents, as well 
as intangible property or other taxes even when the charges or fees 
are imposed by the state solely on the creditor and charged to the 
consumer (if the tax must be paid to record a security agreement). 
(See comment 4(a)-5 regarding the treatment of taxes, generally.)
    ii. Charges not excludable. If the obligation is between the 
creditor and a third party (an assignee, for example), charges or 
other fees for filing or recording security agreements, mortgages, 
continuation statements, termination statements, and similar 
documents relating to that obligation are not excludable from the 
finance charge under this section.
    2. Itemization. The various charges described in Sec.  
226.4(e)(1) and (e)(3) may be totaled and disclosed as an aggregate 
sum, or they may be itemized by the specific fees and taxes imposed. 
If an aggregate sum is disclosed, a general term such as security 
interest fees or filing fees may be used.
    3. Notary fees. In order for a notary fee to be excluded under 
Sec.  226.4(e)(1), all of the following conditions must be met:
    i. The document to be notarized is one used to perfect, release, 
or continue a security interest.
    ii. The document is required by law to be notarized.
    iii. A notary is considered a public official under applicable 
law.
    iv. The amount of the fee is set or authorized by law.
    4. Nonfiling insurance. The exclusion in Sec.  226.4(e)(2) is 
available only if nonfiling insurance is purchased. If the creditor 
collects and simply retains a fee as a sort of ``self-insurance'' 
against nonfiling, it may not be excluded from the finance charge. 
If the nonfiling insurance premium exceeds the amount of the fees 
excludable from the finance charge under Sec.  226.4(e)(1), only the 
excess is a finance charge. For example:
    i. The fee for perfecting a security interest is $5.00 and the 
fee for releasing the security interest is $3.00. The creditor 
charges $10.00 for nonfiling insurance. Only $8.00 of the $10.00 is 
excludable from the finance charge.
    4(f) Prohibited offsets.
    1. Earnings on deposits or investments. The rule that the 
creditor shall not deduct any earnings by the consumer on deposits 
or investments applies whether or not the creditor has a security 
interest in the property.

Subpart B--Open-End Credit

Section 226.5--General Disclosure Requirements

    5(a) Form of disclosures.
    5(a)(1) General.
    1. Clear and conspicuous standard. The ``clear and conspicuous'' 
standard generally requires that disclosures be in a reasonably 
understandable form. Disclosures for credit card applications and 
solicitations under Sec.  226.5a, highlighted account-opening 
disclosures under Sec.  226.6(b)(1), highlighted disclosure on 
checks that access a credit card under Sec.  226.9(b)(3), 
highlighted change-in-terms disclosures under Sec.  
226.9(c)(2)(iv)(D), and highlighted disclosures when a rate is 
increased due to delinquency, default or for a penalty under Sec.  
226.9(g)(3)(ii) must also be readily noticeable to the consumer.
    2. Clear and conspicuous--reasonably understandable form. Except 
where otherwise provided, the reasonably understandable form 
standard does not require that disclosures be segregated from other 
material or located in any particular place on the disclosure 
statement, or that numerical amounts or percentages be in any 
particular type size. For disclosures that are given orally, the 
standard requires that they be given at a speed and volume 
sufficient for a consumer to hear and comprehend them. (See comment 
5(b)(1)(ii)-1.) Except where otherwise provided, the standard does 
not prohibit:
    i. Pluralizing required terminology (``finance charge'' and 
``annual percentage rate'').
    ii. Adding to the required disclosures such items as contractual 
provisions, explanations of contract terms, state disclosures, and 
translations.
    iii. Sending promotional material with the required disclosures.
    iv. Using commonly accepted or readily understandable 
abbreviations (such as ``mo.'' for ``month'' or ``Tx.'' for 
``Texas'') in making any required disclosures.
    v. Using codes or symbols such as ``APR'' (for annual percentage 
rate), ``FC'' (for finance charge), or ``Cr'' (for credit balance), 
so long as a legend or description of the code or symbol is provided 
on the disclosure statement.
    3. Clear and conspicuous--readily noticeable standard. To meet 
the readily noticeable standard, disclosures for credit card 
applications and solicitations under Sec.  226.5a, highlighted 
account-opening disclosures under Sec.  226.6(b)(1), highlighted 
disclosures on checks that access a credit card account under Sec.  
226.9(b)(3), highlighted change-in-terms disclosures under Sec.  
226.9(c)(2)(iv)(D), and highlighted disclosures when a rate is 
increased due to delinquency, default or penalty pricing under Sec.  
226.9(g)(3)(ii) must be given in a minimum of 10-point font. (See 
special rule for font size requirements for the annual percentage 
rate for purchases under Sec. Sec.  226.5a(b)(1) and 
226.6(b)(2)(i).)
    4. Integrated document. The creditor may make both the account-
opening disclosures (Sec.  226.6) and the periodic-statement 
disclosures (Sec.  226.7) on more than one page, and use both the 
front and the reverse sides, except where otherwise indicated, so 
long as the pages constitute an integrated document. An integrated 
document would not include disclosure pages provided to the consumer 
at different times or disclosures interspersed on the same page with 
promotional material. An integrated document would include, for 
example:
    i. Multiple pages provided in the same envelope that cover 
related material and are folded together, numbered consecutively, or 
clearly labeled to show that they relate to one another; or
    ii. A brochure that contains disclosures and explanatory 
material about a range of services the creditor offers, such as 
credit, checking account, and electronic fund transfer features.

[[Page 7862]]

    5. Disclosures covered. Disclosures that must meet the ``clear 
and conspicuous'' standard include all required communications under 
this subpart. Therefore, disclosures made by a person other than the 
card issuer, such as disclosures of finance charges imposed at the 
time of honoring a consumer's credit card under Sec.  226.9(d), and 
notices, such as the correction notice required to be sent to the 
consumer under Sec.  226.13(e), must also be clear and conspicuous.
    Paragraph 5(a)(1)(ii)(A).
    1. Electronic disclosures. Disclosures that need not be provided 
in writing under Sec.  226.5(a)(1)(ii)(A) may be provided in 
writing, orally, or in electronic form. If the consumer requests the 
service in electronic form, such as on the creditor's Web site, the 
specified disclosures may be provided in electronic form without 
regard to the consumer consent or other provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 
U.S.C. 7001 et seq.).
    Paragraph 5(a)(1)(iii).
    1. Disclosures not subject to E-Sign Act. See the commentary to 
Sec.  226.5(a)(1)(ii)(A) regarding disclosures (in addition to those 
specified under Sec.  226.5(a)(1)(iii)) that may be provided in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act.
    5(a)(2) Terminology.
    1. When disclosures must be more conspicuous. For home-equity 
plans subject to Sec.  226.5b, the terms finance charge and annual 
percentage rate, when required to be used with a number, must be 
disclosed more conspicuously than other required disclosures, except 
in the cases provided in Sec.  226.5(a)(2)(ii). At the creditor's 
option, finance charge and annual percentage rate may also be 
disclosed more conspicuously than the other required disclosures 
even when the regulation does not so require. The following examples 
illustrate these rules:
    i. In disclosing the annual percentage rate as required by Sec.  
226.6(a)(1)(ii), the term annual percentage rate is subject to the 
more conspicuous rule.
    ii. In disclosing the amount of the finance charge, required by 
Sec.  226.7(a)(6)(i), the term finance charge is subject to the more 
conspicuous rule.
    iii. Although neither finance charge nor annual percentage rate 
need be emphasized when used as part of general informational 
material or in textual descriptions of other terms, emphasis is 
permissible in such cases. For example, when the terms appear as 
part of the explanations required under Sec.  226.6(a)(1)(iii) and 
(a)(1)(iv), they may be equally conspicuous as the disclosures 
required under Sec. Sec.  226.6(a)(1)(ii) and 226.7(a)(7).
    2. Making disclosures more conspicuous. In disclosing the terms 
finance charge and annual percentage rate more conspicuously for 
home-equity plans subject to Sec.  226.5b, only the words finance 
charge and annual percentage rate should be accentuated. For 
example, if the term total finance charge is used, only finance 
charge should be emphasized. The disclosures may be made more 
conspicuous by, for example:
    i. Capitalizing the words when other disclosures are printed in 
lower case.
    ii. Putting them in bold print or a contrasting color.
    iii. Underlining them.
    iv. Setting them off with asterisks.
    v. Printing them in larger type.
    3. Disclosure of figures--exception to more conspicuous rule. 
For home-equity plans subject to Sec.  226.5b, the terms annual 
percentage rate and finance charge need not be more conspicuous than 
figures (including, for example, numbers, percentages, and dollar 
signs).
    4. Consistent terminology. Language used in disclosures required 
in this subpart must be close enough in meaning to enable the 
consumer to relate the different disclosures; however, the language 
need not be identical.
    5(b) Time of disclosures.
    5(b)(1) Account-opening disclosures.
    5(b)(1)(i) General rule.
    1. Disclosure before the first transaction. When disclosures 
must be furnished ``before the first transaction,'' account-opening 
disclosures must be delivered before the consumer becomes obligated 
on the plan. Examples include:
    i. Purchases. The consumer makes the first purchase, such as 
when a consumer opens a credit plan and makes purchases 
contemporaneously at a retail store, except when the consumer places 
a telephone call to make the purchase and opens the plan 
contemporaneously. (See commentary to Sec.  226.5(b)(1)(iii) below.)
    ii. Advances. The consumer receives the first advance. If the 
consumer receives a cash advance check at the same time the account-
opening disclosures are provided, disclosures are still timely if 
the consumer can, after receiving the disclosures, return the cash 
advance check to the creditor without obligation (for example, 
without paying finance charges).
    2. Reactivation of suspended account. If an account is 
temporarily suspended (for example, because the consumer has 
exceeded a credit limit, or because a credit card is reported lost 
or stolen) and then is reactivated, no new account-opening 
disclosures are required.
    3. Reopening closed account. If an account has been closed (for 
example, due to inactivity, cancellation, or expiration) and then is 
reopened, new account-opening disclosures are required. No new 
account-opening disclosures are required, however, when the account 
is closed merely to assign it a new number (for example, when a 
credit card is reported lost or stolen) and the ``new'' account then 
continues on the same terms.
    4. Converting closed-end to open-end credit. If a closed-end 
credit transaction is converted to an open-end credit account under 
a written agreement with the consumer, account-opening disclosures 
under Sec.  226.6 must be given before the consumer becomes 
obligated on the open-end credit plan. (See the commentary to Sec.  
226.17 on converting open-end credit to closed-end credit.)
    5. Balance transfers. A creditor that solicits the transfer by a 
consumer of outstanding balances from an existing account to a new 
open-end plan must furnish the disclosures required by Sec.  226.6 
so that the consumer has an opportunity, after receiving the 
disclosures, to contact the creditor before the balance is 
transferred and decline the transfer. For example, assume a consumer 
responds to a card issuer's solicitation for a credit card account 
subject to Sec.  226.5a that offers a range of balance transfer 
annual percentage rates, based on the consumer's creditworthiness. 
If the creditor opens an account for the consumer, the creditor 
would comply with the timing rules of this section by providing the 
consumer with the annual percentage rate (along with the fees and 
other required disclosures) that would apply to the balance transfer 
in time for the consumer to contact the creditor and withdraw the 
request. A creditor that permits consumers to withdraw the request 
by telephone has met this timing standard if the creditor does not 
effect the balance transfer until 10 days after the creditor has 
sent account-opening disclosures to the consumer, assuming the 
consumer has not contacted the creditor to withdraw the request. 
Card issuers that are subject to the requirements of Sec.  226.5a 
may establish procedures that comply with both Sec. Sec.  226.5a and 
226.6 in a single disclosure statement.
    6. Substitution or replacement of credit card accounts.
    i. Generally. When a card issuer substitutes or replaces an 
existing credit card account with another credit card account, the 
card issuer must either provide notice of the terms of the new 
account consistent with Sec.  226.6(b) or provide notice of the 
changes in the terms of the existing account consistent with Sec.  
226.9(c)(2). Whether a substitution or replacement results in the 
opening of a new account or a change in the terms of an existing 
account for purposes of the disclosure requirements in Sec. Sec.  
226.6(b) and 226.9(c)(2) is determined in light of all the relevant 
facts and circumstances. For additional requirements and limitations 
related to the substitution or replacement of credit card accounts, 
see Sec. Sec.  226.12(a) and 226.55(d) and comments 12(a)(1)-1 
through -8, 12(a)(2)-1 through -9, 55(b)(3)-3, and 55(d)-1 through -
3.
    ii. Relevant facts and circumstances. Listed below are facts and 
circumstances that are relevant to whether a substitution or 
replacement results in the opening of a new account or a change in 
the terms of an existing account for purposes of the disclosure 
requirements in Sec. Sec.  226.6(b) and 226.9(c)(2). When most of 
the facts and circumstances listed below are present, the 
substitution or replacement likely constitutes the opening of a new 
account for which Sec.  226.6(b) disclosures are appropriate. When 
few of the facts and circumstances listed below are present, the 
substitution or replacement likely constitutes a change in the terms 
of an existing account for which Sec.  226.9(c)(2) disclosures are 
appropriate.
    A. Whether the card issuer provides the consumer with a new 
credit card;
    B. Whether the card issuer provides the consumer with a new 
account number;
    C. Whether the account provides new features or benefits after 
the substitution or replacement (such as rewards on purchases);
    D. Whether the account can be used to conduct transactions at a 
greater or lesser

[[Page 7863]]

number of merchants after the substitution or replacement (such as 
when a retail card is replaced with a cobranded general purpose 
credit card that can be used at a wider number of merchants);
    E. Whether the card issuer implemented the substitution or 
replacement on an individualized basis (such as in response to a 
consumer's request); and
    F. Whether the account becomes a different type of open-end plan 
after the substitution or replacement (such as when a charge card is 
replaced by a credit card).
    iii. Replacement as a result of theft or unauthorized use. 
Notwithstanding paragraphs i. and ii. above, a card issuer that 
replaces a credit card or provides a new account number because the 
consumer has reported the card stolen or because the account appears 
to have been used for unauthorized transactions is not required to 
provide a notice under Sec. Sec.  226.6(b) or 226.9(c)(2) unless the 
card issuer has changed a term of the account that is subject to 
Sec. Sec.  226.6(b) or 226.9(c)(2).
    5(b)(1)(ii) Charges imposed as part of an open-end (not home-
secured) plan.
    1. Disclosing charges before the fee is imposed. Creditors may 
disclose charges imposed as part of an open-end (not home-secured) 
plan orally or in writing at any time before a consumer agrees to 
pay the fee or becomes obligated for the charge, unless the charge 
is specified under Sec.  226.6(b)(2). (Charges imposed as part of an 
open-end (not home-secured plan) that are not specified under Sec.  
226.6(b)(2) may alternatively be disclosed in electronic form; see 
the commentary to Sec.  226.5(a)(1)(ii)(A).) Creditors must provide 
such disclosures at a time and in a manner that a consumer would be 
likely to notice them. For example, if a consumer telephones a card 
issuer to discuss a particular service, a creditor would meet the 
standard if the creditor clearly and conspicuously discloses the fee 
associated with the service that is the topic of the telephone call 
orally to the consumer. Similarly, a creditor providing marketing 
materials in writing to a consumer about a particular service would 
meet the standard if the creditor provided a clear and conspicuous 
written disclosure of the fee for that service in those same 
materials. A creditor that provides written materials to a consumer 
about a particular service but provides a fee disclosure for another 
service not promoted in such materials would not meet the standard. 
For example, if a creditor provided marketing materials promoting 
payment by Internet, but included the fee for a replacement card on 
such materials with no explanation, the creditor would not be 
disclosing the fee at a time and in a manner that the consumer would 
be likely to notice the fee.
    5(b)(1)(iii) Telephone purchases.
    1. Return policies. In order for creditors to provide 
disclosures in accordance with the timing requirements of this 
paragraph, consumers must be permitted to return merchandise 
purchased at the time the plan was established without paying 
mailing or return-shipment costs. Creditors may impose costs to 
return subsequent purchases of merchandise under the plan, or to 
return merchandise purchased by other means such as a credit card 
issued by another creditor. A reasonable return policy would be of 
sufficient duration that the consumer is likely to have received the 
disclosures and had sufficient time to make a decision about the 
financing plan before his or her right to return the goods expires. 
Return policies need not provide a right to return goods if the 
consumer consumes or damages the goods, or for installed appliances 
or fixtures, provided there is a reasonable repair or replacement 
policy to cover defective goods or installations. If the consumer 
chooses to reject the financing plan, creditors comply with the 
requirements of this paragraph by permitting the consumer to pay for 
the goods with another reasonable form of payment acceptable to the 
merchant and keep the goods although the creditor cannot require the 
consumer to do so.
    5(b)(1)(iv) Membership fees.
    1. Membership fees. See Sec.  226.5a(b)(2) and related 
commentary for guidance on fees for issuance or availability of a 
credit or charge card.
    2. Rejecting the plan. If a consumer has paid or promised to pay 
a membership fee including an application fee excludable from the 
finance charge under Sec.  226.4(c)(1) before receiving account-
opening disclosures, the consumer may, after receiving the 
disclosures, reject the plan and not be obligated for the membership 
fee, application fee, or any other fee or charge. A consumer who has 
received the disclosures and uses the account, or makes a payment on 
the account after receiving a billing statement, is deemed not to 
have rejected the plan.
    3. Using the account. A consumer uses an account by obtaining an 
extension of credit after receiving the account-opening disclosures, 
such as by making a purchase or obtaining an advance. A consumer 
does not ``use'' the account by activating the account. A consumer 
also does not ``use'' the account when the creditor assesses fees on 
the account (such as start-up fees or fees associated with credit 
insurance or debt cancellation or suspension programs agreed to as a 
part of the application and before the consumer receives account-
opening disclosures). For example, the consumer does not ``use'' the 
account when a creditor sends a billing statement with start-up 
fees, there is no other activity on the account, the consumer does 
not pay the fees, and the creditor subsequently assesses a late fee 
or interest on the unpaid fee balances. A consumer also does not 
``use'' the account by paying an application fee excludable from the 
finance charge under Sec.  226.4(c)(1) prior to receiving the 
account-opening disclosures.
    4. Home-equity plans. Creditors offering home-equity plans 
subject to the requirements of Sec.  226.5b are subject to the 
requirements of Sec.  226.5b(h) regarding the collection of fees.
    5(b)(2) Periodic statements.
    Paragraph 5(b)(2)(i).
    1. Periodic statements not required. Periodic statements need 
not be sent in the following cases:
    i. If the creditor adjusts an account balance so that at the end 
of the cycle the balance is less than $1--so long as no finance 
charge has been imposed on the account for that cycle.
    ii. If a statement was returned as undeliverable. If a new 
address is provided, however, within a reasonable time before the 
creditor must send a statement, the creditor must resume sending 
statements. Receiving the address at least 20 days before the end of 
a cycle would be a reasonable amount of time to prepare the 
statement for that cycle. For example, if an address is received 22 
days before the end of the June cycle, the creditor must send the 
periodic statement for the June cycle. (See Sec.  226.13(a)(7).)
    2. Termination of draw privileges. When a consumer's ability to 
draw on an open-end account is terminated without being converted to 
closed-end credit under a written agreement, the creditor must 
continue to provide periodic statements to those consumers entitled 
to receive them under Sec.  226.5(b)(2)(i), for example, when the 
draw period of an open-end credit plan ends and consumers are paying 
off outstanding balances according to the account agreement or under 
the terms of a workout agreement that is not converted to a closed-
end transaction. In addition, creditors must continue to follow all 
of the other open-end credit requirements and procedures in subpart 
B.
    3. Uncollectible accounts. An account is deemed uncollectible 
for purposes of Sec.  226.5(b)(2)(i) when a creditor has ceased 
collection efforts, either directly or through a third party.
    4. Instituting collection proceedings. Creditors institute a 
delinquency collection proceeding by filing a court action or 
initiating an adjudicatory process with a third party. Assigning a 
debt to a debt collector or other third party would not constitute 
instituting a collection proceeding.
    Paragraph 5(b)(2)(ii).
    1. Mailing or delivery of periodic statements. A creditor is not 
required to determine the specific date on which a periodic 
statement is mailed or delivered to an individual consumer for 
purposes of Sec.  226.5(b)(2)(ii). A creditor complies with Sec.  
226.5(b)(2)(ii) if it has adopted reasonable procedures designed to 
ensure that periodic statements are mailed or delivered to consumers 
no later than a certain number of days after the closing date of the 
billing cycle and adds that number of days to the 21-day period 
required by Sec.  226.5(b)(2)(ii) when determining the payment due 
date and the date on which any grace period expires for purposes of 
Sec.  226.5(b)(2)(ii)(A)(1) and (b)(2)(ii)(B)(1). For example, if a 
creditor has adopted reasonable procedures designed to ensure that 
periodic statements are mailed or delivered to consumers no later 
than three days after the closing date of the billing cycle, the 
payment due date and the date on which any grace period expires must 
be no less than 24 days after the closing date of the billing cycle. 
Similarly, in these circumstances, the limitations in Sec.  
226.5(b)(2)(ii)(A)(2) and (b)(2)(ii)(B)(2) on treating a payment as 
late and imposing finance charges apply for 24 days after the 
closing date of the billing cycle.
    2. Treating a payment as late for any purpose. Treating a 
payment as late for any

[[Page 7864]]

purpose includes increasing the annual percentage rate as a penalty, 
reporting the consumer as delinquent to a credit reporting agency, 
assessing a late fee or any other fee, initiating collection 
activities, or terminating benefits (such as rewards on purchases) 
based on the consumer's failure to make a payment within a specified 
amount of time or by a specified date. The prohibition in Sec.  
226.5(b)(2)(ii)(A)(2) on treating a payment as late for any purpose 
applies only during the 21-day period following mailing or delivery 
of the periodic statement stating the due date for that payment and 
only if the required minimum periodic payment is received within 
that period. For example:
    i. Assume that a periodic statement mailed on April 4 states 
that a required minimum periodic payment of $50 is due on April 25. 
If the card issuer does not receive any payment on or before April 
25, Sec.  226.5(b)(2)(ii)(A)(2) does not prohibit the card issuer 
from treating the required minimum periodic payment as late.
    ii. Same facts as in paragraph i. above. On April 20, the card 
issuer receives a payment of $30 and no additional payment is 
received on or before April 25. Section 226.5(b)(2)(ii)(A)(2) does 
not prohibit the card issuer from treating the required minimum 
periodic payment as late.
    iii. Same facts as in paragraph i. above. On May 4, the card 
issuer has not received the $50 required minimum periodic payment 
that was due on April 25. The periodic statement mailed on May 4 
states that a required minimum periodic payment of $150 is due on 
May 25. Section 226.5(b)(2)(ii)(A)(2) does not permit the card 
issuer to treat the $150 required minimum periodic payment as late 
until April 26. However, the card issuer may continue to treat the 
$50 required minimum periodic payment as late during this period.
    3. Grace periods.
    i. Definition of grace period. For purposes of Sec.  
226.5(b)(2)(ii)(B), ``grace period'' means a period within which any 
credit extended may be repaid without incurring a finance charge due 
to a periodic interest rate. A deferred interest or similar 
promotional program under which the consumer is not obligated to pay 
interest that accrues on a balance if that balance is paid in full 
prior to the expiration of a specified period of time is not a grace 
period for purposes of Sec.  226.5(b)(2)(ii)(B). Similarly, a period 
following the payment due date during which a late payment fee will 
not be imposed is not a grace period for purposes of Sec.  
226.5(b)(2)(ii)(B). See comments 7(b)(11)-1, 7(b)(11)-2, and 
54(a)(1)-2.
    ii. Applicability of Sec.  226.5(b)(2)(ii)(B). Section 
226.5(b)(2)(ii)(B) applies if an account is eligible for a grace 
period when the periodic statement is mailed or delivered. Section 
226.5(b)(2)(ii)(B) does not require the creditor to provide a grace 
period or prohibit the creditor from placing limitations and 
conditions on a grace period to the extent consistent with Sec.  
226.5(b)(2)(ii)(B) and Sec.  226.54. See comment 54(a)(1)-1. 
Furthermore, the prohibition in Sec.  226.5(b)(2)(ii)(B)(2) applies 
only during the 21-day period following mailing or delivery of the 
periodic statement and applies only when the creditor receives a 
payment within that 21-day period that satisfies the terms of the 
grace period.
    iii. Example. Assume that the billing cycles for an account 
begin on the first day of the month and end on the last day of the 
month and that the payment due date for the account is the twenty-
fifth of the month. Assume also that, under the terms of the 
account, the balance at the end of a billing cycle must be paid in 
full by the following payment due date in order for the account to 
remain eligible for the grace period. At the end of the April 
billing cycle, the balance on the account is $500. The grace period 
applies to the $500 balance because the balance for the March 
billing cycle was paid in full on April 25. Accordingly, Sec.  
226.5(b)(2)(ii)(B)(1) requires the creditor to have reasonable 
procedures designed to ensure that the periodic statement reflecting 
the $500 balance is mailed or delivered on or before May 4. 
Furthermore, Sec.  226.5(b)(2)(ii)(B)(2) requires the creditor to 
have reasonable procedures designed to ensure that the creditor does 
not impose finance charges as a result of the loss of the grace 
period if a $500 payment is received on or before May 25. However, 
if the creditor receives a payment of $300 on April 25, Sec.  
226.5(b)(2)(ii)(B)(2) would not prohibit the creditor from imposing 
finance charges as a result of the loss of the grace period (to the 
extent permitted by Sec.  226.54).
    4. Application of Sec.  226.5(b)(2)(ii) to charge card and 
charged-off accounts.
    i. Charge card accounts. For purposes of Sec.  
226.5(b)(2)(ii)(A)(1), the payment due date is the date the card 
issuer is required to disclose on the periodic statement pursuant to 
Sec.  226.7(b)(11)(i)(A). Because Sec.  226.7(b)(11)(ii) provides 
that Sec.  226.7(b)(11)(i) does not apply to periodic statements 
provided solely for charge card accounts, Sec.  
226.5(b)(2)(ii)(A)(1) also does not apply to the mailing or delivery 
of periodic statements provided solely for such accounts. However, 
in these circumstances, Sec.  226.5(b)(2)(ii)(A)(2) requires the 
card issuer to have reasonable procedures designed to ensure that a 
payment is not treated as late for any purpose during the 21-day 
period following mailing or delivery of the statement. Section 
226.5(b)(2)(ii)(B) does not apply to charge card accounts because, 
for purposes of Sec.  226.5(b)(2)(ii)(B), a grace period is a period 
within which any credit extended may be repaid without incurring a 
finance charge due to a periodic interest rate and, consistent with 
Sec.  226.2(a)(15)(iii), charge card accounts do not impose a 
finance charge based on a periodic rate.
    ii. Charged-off accounts. For purposes of Sec.  
226.5(b)(2)(ii)(A)(1), the payment due date is the date the card 
issuer is required to disclose on the periodic statement pursuant to 
Sec.  226.7(b)(11)(i)(A). Because Sec.  226.7(b)(11)(ii) provides 
that Sec.  226.7(b)(11)(i) does not apply to periodic statements 
provided for charged-off accounts where full payment of the entire 
account balance is due immediately, Sec.  226.5(b)(2)(ii)(A)(1) also 
does not apply to the mailing or delivery of periodic statements 
provided solely for such accounts. Furthermore, although Sec.  
226.5(b)(2)(ii)(A)(2) requires the card issuer to have reasonable 
procedures designed to ensure that a payment is not treated as late 
for any purpose during the 21-day period following mailing or 
delivery of the statement, Sec.  226.5(b)(2)(ii)(A)(2) does not 
prohibit a card issuer from continuing to treat prior payments as 
late during that period. See comment 5(b)(2)(ii)-2. Section 
226.5(b)(2)(ii)(B) does not apply to charged-off accounts where full 
payment of the entire account balance is due immediately because 
such accounts do not provide a grace period.
    5. Consumer request to pick up periodic statements. When a 
consumer initiates a request, the creditor may permit, but may not 
require, the consumer to pick up periodic statements. If the 
consumer wishes to pick up a statement, the statement must be made 
available in accordance with Sec.  226.5(b)(2)(ii).
    6. Deferred interest and similar promotional programs. See 
comment 7(b)-1.iv.
    Paragraph 5(b)(2)(iii).
    1. Computer malfunction. The exceptions identified in Sec.  
226.5(b)(2)(iii) of this section do not extend to the failure to 
provide a periodic statement because of computer malfunction.
    5(c) Basis of disclosures and use of estimates.
    1. Legal obligation. The disclosures should reflect the credit 
terms to which the parties are legally bound at the time of giving 
the disclosures.
    i. The legal obligation is determined by applicable state or 
other law.
    ii. The fact that a term or contract may later be deemed 
unenforceable by a court on the basis of equity or other grounds 
does not, by itself, mean that disclosures based on that term or 
contract did not reflect the legal obligation.
    iii. The legal obligation normally is presumed to be contained 
in the contract that evidences the agreement. But this may be 
rebutted if another agreement between the parties legally modifies 
that contract.
    2. Estimates--obtaining information. Disclosures may be 
estimated when the exact information is unknown at the time 
disclosures are made. Information is unknown if it is not reasonably 
available to the creditor at the time disclosures are made. The 
reasonably available standard requires that the creditor, acting in 
good faith, exercise due diligence in obtaining information. In 
using estimates, the creditor is not required to disclose the basis 
for the estimated figures, but may include such explanations as 
additional information. The creditor normally may rely on the 
representations of other parties in obtaining information. For 
example, the creditor might look to insurance companies for the cost 
of insurance.
    3. Estimates--redisclosure. If the creditor makes estimated 
disclosures, redisclosure is not required for that consumer, even 
though more accurate information becomes available before the first 
transaction. For example, in an open-end plan to be secured by real 
estate, the creditor may estimate the appraisal fees to be charged; 
such an estimate might reasonably be based on the prevailing market 
rates for similar appraisals. If the exact

[[Page 7865]]

appraisal fee is determinable after the estimate is furnished but 
before the consumer receives the first advance under the plan, no 
new disclosure is necessary.
    5(d) Multiple creditors; multiple consumers.
    1. Multiple creditors. Under Sec.  226.5(d):
    i. Creditors must choose which of them will make the 
disclosures.
    ii. A single, complete set of disclosures must be provided, 
rather than partial disclosures from several creditors.
    iii. All disclosures for the open-end credit plan must be given, 
even if the disclosing creditor would not otherwise have been 
obligated to make a particular disclosure.
    2. Multiple consumers. Disclosures may be made to either obligor 
on a joint account. Disclosure responsibilities are not satisfied by 
giving disclosures to only a surety or guarantor for a principal 
obligor or to an authorized user. In rescindable transactions, 
however, separate disclosures must be given to each consumer who has 
the right to rescind under Sec.  226.15.
    3. Card issuer and person extending credit not the same person. 
Section 127(c)(4)(D) of the Truth in Lending Act (15 U.S.C. 
1637(c)(4)(D)) contains rules pertaining to charge card issuers with 
plans that allow access to an open-end credit plan that is 
maintained by a person other than the charge card issuer. These 
rules are not implemented in Regulation Z (although they were 
formerly implemented in Sec.  226.5a(f)). However, the statutory 
provisions remain in effect and may be used by charge card issuers 
with plans meeting the specified criteria.
    5(e) Effect of subsequent events.
    1. Events causing inaccuracies. Inaccuracies in disclosures are 
not violations if attributable to events occurring after disclosures 
are made. For example, when the consumer fails to fulfill a prior 
commitment to keep the collateral insured and the creditor then 
provides the coverage and charges the consumer for it, such a change 
does not make the original disclosures inaccurate. The creditor may, 
however, be required to provide a new disclosure(s) under Sec.  
226.9(c).
    2. Use of inserts. When changes in a creditor's plan affect 
required disclosures, the creditor may use inserts with outdated 
disclosure forms. Any insert:
    i. Should clearly refer to the disclosure provision it replaces.
    ii. Need not be physically attached or affixed to the basic 
disclosure statement.
    iii. May be used only until the supply of outdated forms is 
exhausted.

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

    1. General. Section 226.5a generally requires that credit 
disclosures be contained in application forms and solicitations 
initiated by a card issuer to open a credit or charge card account. 
(See Sec.  226.5a(a)(5) and (e)(2) for exceptions; see Sec.  
226.5a(a)(1) and accompanying commentary for the definition of 
solicitation; see also Sec.  226.2(a)(15) and accompanying 
commentary for the definition of charge card.)
    2. Substitution of account-opening summary table for the 
disclosures required by Sec.  226.5a. In complying with Sec.  
226.5a(c), (e)(1) or (f), a card issuer may provide the account-
opening summary table described in Sec.  226.6(b)(1) in lieu of the 
disclosures required by Sec.  226.5a, if the issuer provides the 
disclosures required by Sec.  226.6 on or with the application or 
solicitation.
    3. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to Sec.  226.5a 
disclosures.
    5a(a) General rules.
    5a(a)(1) Definition of solicitation.
    1. Invitations to apply. A card issuer may contact a consumer 
who has not been preapproved for a card account about opening an 
account (whether by direct mail, telephone, or other means) and 
invite the consumer to complete an application. Such a contact does 
not meet the definition of solicitation, nor is it covered by this 
section, unless the contact itself includes an application form in a 
direct mailing, electronic communication or ``take-one''; an oral 
application in a telephone contact initiated by the card issuer; or 
an application in an in-person contact initiated by the card issuer.
    5a(a)(2) Form of disclosures; tabular format.
    1. Location of table. i. General. Except for disclosures given 
electronically, disclosures in Sec.  226.5a(b) that are required to 
be provided in a table must be prominently located on or with the 
application or solicitation. Disclosures are deemed to be 
prominently located, for example, if the disclosures are on the same 
page as an application or solicitation reply form. If the 
disclosures appear elsewhere, they are deemed to be prominently 
located if the application or solicitation reply form contains a 
clear and conspicuous reference to the location of the disclosures 
and indicates that they contain rate, fee, and other cost 
information, as applicable.
    ii. Electronic disclosures. If the table is provided 
electronically, the table must be provided in close proximity to the 
application or solicitation. Card issuers have flexibility in 
satisfying this requirement. Methods card issuers could use to 
satisfy the requirement include, but are not limited to, the 
following examples:
    A. The disclosures could automatically appear on the screen when 
the application or reply form appears;
    B. The disclosures could be located on the same Web page as the 
application or reply form (whether or not they appear on the initial 
screen), if the application or reply form contains a clear and 
conspicuous reference to the location of the disclosures and 
indicates that the disclosures contain rate, fee, and other cost 
information, as applicable;
    C. Card issuers could provide a link to the electronic 
disclosures on or with the application (or reply form) as long as 
consumers cannot bypass the disclosures before submitting the 
application or reply form. The link would take the consumer to the 
disclosures, but the consumer need not be required to scroll 
completely through the disclosures; or
    D. The disclosures could be located on the same Web page as the 
application or reply form without necessarily appearing on the 
initial screen, immediately preceding the button that the consumer 
will click to submit the application or reply.
    Whatever method is used, a card issuer need not confirm that the 
consumer has read the disclosures.
    2. Multiple accounts. If a tabular format is required to be 
used, card issuers offering several types of accounts may disclose 
the various terms for the accounts in a single table or may provide 
a separate table for each account.
    3. Information permitted in the table. See the commentary to 
Sec.  226.5a(b), (d), and (e)(1) for guidance on additional 
information permitted in the table.
    4. Deletion of inapplicable disclosures. Generally, disclosures 
need only be given as applicable. Card issuers may, therefore, omit 
inapplicable headings and their corresponding boxes in the table. 
For example, if no foreign transaction fee is imposed on the 
account, the heading Foreign transaction and disclosure may be 
deleted from the table or the disclosure form may contain the 
heading Foreign transaction and a disclosure showing none. There is 
an exception for the grace period disclosure; even if no grace 
period exists, that fact must be stated.
    5. Highlighting of annual percentage rates and fee amounts. i. 
In general. See Samples G-10(B) and G-10(C) for guidance on 
providing the disclosures described in Sec.  226.5a(a)(2)(iv) in 
bold text. Other annual percentage rates or fee amounts disclosed in 
the table may not be in bold text. Samples G-10(B) and G-10(C) also 
provide guidance to issuers on how to disclose the rates and fees 
described in Sec.  226.5a(a)(2)(iv) in a clear and conspicuous 
manner, by including these rates and fees generally as the first 
text in the applicable rows of the table so that the highlighted 
rates and fees generally are aligned vertically in the table.
    ii. Maximum limits on fees. Section 226.5a(a)(2)(iv) provides 
that any maximum limits on fee amounts unrelated to fees that vary 
by state may not be disclosed in bold text. For example, assume an 
issuer will charge a cash advance fee of $5 or 3 percent of the cash 
advance transaction amount, whichever is greater, but the fee will 
not exceed $100. The maximum limit of $100 for the cash advance fee 
must not be highlighted in bold. Nonetheless, assume that the amount 
of the late fee varies by state, and the range of amount of late 
fees disclosed is $15-$25. In this case, the maximum limit of $25 on 
the late fee amounts must be highlighted in bold. In both cases, the 
minimum fee amount (e.g. $5 or $15) must be disclosed in bold text.
    iii. Periodic fees. Section 226.5a(a)(2)(iv) provides that any 
periodic fee disclosed pursuant to Sec.  226.5a(b)(2) that is not an 
annualized amount must not be disclosed in bold. For example, if an 
issuer imposes a $10 monthly maintenance fee for a card account, the 
issuer must disclose in the table that there is a $10 monthly 
maintenance fee, and that the fee is $120 on an annual basis. In 
this example, the $10 fee disclosure would not be disclosed in bold, 
but the $120 annualized amount must be disclosed in bold. In 
addition, if an issuer must disclose any

[[Page 7866]]

annual fee in the table, the amount of the annual fee must be 
disclosed in bold.
    6. Form of disclosures. Whether disclosures must be in 
electronic form depends upon the following:
    i. If a consumer accesses a credit card application or 
solicitation electronically (other than as described under ii. 
below), such as on-line at a home computer, the card issuer must 
provide the disclosures in electronic form (such as with the 
application or solicitation on its Web site) in order to meet the 
requirement to provide disclosures in a timely manner on or with the 
application or solicitation. If the issuer instead mailed paper 
disclosures to the consumer, this requirement would not be met.
    ii. In contrast, if a consumer is physically present in the card 
issuer's office, and accesses a credit card application or 
solicitation electronically, such as via a terminal or kiosk (or if 
the consumer uses a terminal or kiosk located on the premises of an 
affiliate or third party that has arranged with the card issuer to 
provide applications or solicitations to consumers), the issuer may 
provide disclosures in either electronic or paper form, provided the 
issuer complies with the timing and delivery (``on or with'') 
requirements of the regulation.
    7. Terminology. Section 226.5a(a)(2)(i) generally requires that 
the headings, content and format of the tabular disclosures be 
substantially similar, but need not be identical, to the applicable 
tables in appendix G-10 to part 226; but see Sec.  226.5(a)(2) for 
terminology requirements applicable to Sec.  226.5a disclosures.
    5a(a)(4) Fees that vary by state.
    1. Manner of disclosing range. If the card issuer discloses a 
range of fees instead of disclosing the amount of the specific fee 
applicable to the consumer's account, the range may be stated as the 
lowest authorized fee (zero, if there are one or more states where 
no fee applies) to the highest authorized fee.
    5a(a)(5) Exceptions.
    1. Noncoverage of consumer-initiated requests. Applications 
provided to a consumer upon request are not covered by Sec.  226.5a, 
even if the request is made in response to the card issuer's 
invitation to apply for a card account. To illustrate, if a card 
issuer invites consumers to call a toll-free number or to return a 
response card to obtain an application, the application sent in 
response to the consumer's request need not contain the disclosures 
required under Sec.  226.5a. Similarly, if the card issuer invites 
consumers to call and make an oral application on the telephone, 
Sec.  226.5a does not apply to the application made by the consumer. 
If, however, the card issuer calls a consumer or initiates a 
telephone discussion with a consumer about opening a card account 
and contemporaneously takes an oral application, such applications 
are subject to Sec.  226.5a, specifically Sec.  226.5a(d). Likewise, 
if the card issuer initiates an in-person discussion with a consumer 
about opening a card account and contemporaneously takes an 
application, such applications are subject to Sec.  226.5a, 
specifically Sec.  226.5a(f).
    5a(b) Required disclosures.
    1. Tabular format. Provisions in Sec.  226.5a(b) and its 
commentary provide that certain information must appear or is 
permitted to appear in a table. The tabular format is required for 
Sec.  226.5a(b) disclosures given pursuant to Sec.  226.5a(c), 
(d)(2), (e)(1) and (f). The tabular format does not apply to oral 
disclosures given pursuant to Sec.  226.5a(d)(1). (See Sec.  
226.5a(a)(2).)
    2. Accuracy. Rules concerning accuracy of the disclosures 
required by Sec.  226.5a(b), including variable rate disclosures, 
are stated in Sec.  226.5a(c)(2), (d)(3), and (e)(4), as applicable.
    5a(b)(1) Annual percentage rate.
    1. Variable-rate accounts--definition. For purposes of Sec.  
226.5a(b)(1), a variable-rate account exists when rate changes are 
part of the plan and are tied to an index or formula. (See the 
commentary to Sec.  226.6(b)(4)(ii) for examples of variable-rate 
plans.)
    2. Variable-rate accounts--fact that rate varies and how the 
rate will be determined. In describing how the applicable rate will 
be determined, the card issuer must identify in the table the type 
of index or formula used, such as the prime rate. In describing the 
index, the issuer may not include in the table details about the 
index. For example, if the issuer uses a prime rate, the issuer must 
disclose the rate as a ``prime rate'' and may not disclose in the 
table other details about the prime rate, such as the fact that it 
is the highest prime rate published in the Wall Street Journal two 
business days before the closing date of the statement for each 
billing period. The issuer may not disclose in the table the current 
value of the index (such as that the prime rate is currently 7.5 
percent) or the amount of the margin or spread added to the index or 
formula in setting the applicable rate. A card issuer may not 
disclose any applicable limitations on rate increases or decreases 
in the table, such as describing that the rate will not go below a 
certain rate or higher than a certain rate. (See Samples G-10(B) and 
G-10(C) for guidance on how to disclose the fact that the applicable 
rate varies and how it is determined.)
    3. Discounted initial rates. i. Immediate proximity. If the term 
``introductory'' is in the same phrase as the introductory rate, as 
that term is defined in Sec.  226.16(g)(2)(ii), it will be deemed to 
be in immediate proximity of the listing. For example, an issuer 
that uses the phrase ``introductory balance transfer APR X percent'' 
has used the word ``introductory'' within the same phrase as the 
rate. (See Sample G-10(C) for guidance on how to disclose clearly 
and conspicuously the expiration date of the introductory rate and 
the rate that will apply after the introductory rate expires, if an 
introductory rate is disclosed in the table.)
    ii. Subsequent changes in terms. The fact that an issuer may 
reserve the right to change a rate subsequent to account opening, 
pursuant to the notice requirements of Sec.  226.9(c) and the 
limitations in Sec.  226.55, does not, by itself, make that rate an 
introductory rate. For example, assume an issuer discloses an annual 
percentage rate for purchases of 12.99% but does not specify a time 
period during which that rate will be in effect. Even if that issuer 
subsequently increases the annual percentage rate for purchases to 
15.99%, pursuant to a change-in-terms notice provided under Sec.  
226.9(c), the 12.99% is not an introductory rate.
    iii. More than one introductory rate. If more than one 
introductory rate may apply to a particular balance in succeeding 
periods, the term ``introductory'' need only be used to describe the 
first introductory rate. For example, if an issuer offers a rate of 
8.99% on purchases for six months, 10.99% on purchases for the 
following six months, and 14.99% on purchases after the first year, 
the term ``introductory'' need only be used to describe the 8.99% 
rate.
    4. Premium initial rates--subsequent changes in terms. The fact 
that an issuer may reserve the right to change a rate subsequent to 
account opening, pursuant to the notice requirements of Sec.  
226.9(c) and the limitations in Sec.  226.55 (as applicable), does 
not, by itself, make that rate a premium initial rate. For example, 
assume an issuer discloses an annual percentage rate for purchases 
of 18.99% but does not specify a time period during which that rate 
will be in effect. Even if that issuer subsequently reduces the 
annual percentage rate for purchases to 15.99%, the 18.99% is not a 
premium initial rate. If the rate decrease is the result of a change 
from a non-variable rate to a variable rate or from a variable rate 
to a non-variable rate, see comments 9(c)(2)(v)-3 and 9(c)(2)(v)-4 
for guidance on the notice requirements under Sec.  226.9(c).
    5. Increased penalty rates. i. In general. For rates that are 
not introductory rates, if a rate may increase as a penalty for one 
or more events specified in the account agreement, such as a late 
payment or an extension of credit that exceeds the credit limit, the 
card issuer must disclose the increased rate that would apply, a 
brief description of the event or events that may result in the 
increased rate, and a brief description of how long the increased 
rate will remain in effect. The description of the specific event or 
events that may result in an increased rate should be brief. For 
example, if an issuer may increase a rate to the penalty rate 
because the consumer does not make the minimum payment by 5 p.m., 
Eastern Time, on its payment due date, the issuer should describe 
this circumstance in the table as ``make a late payment.'' 
Similarly, if an issuer may increase a rate that applies to a 
particular balance because the account is more than 60 days late, 
the issuer should describe this circumstance in the table as ``make 
a late payment.'' An issuer may not distinguish between the events 
that may result in an increased rate for existing balances and the 
events that may result in an increased rate for new transactions. 
(See Samples G-10(B) and G-10(C) (in the row labeled ``Penalty APR 
and When it Applies'') for additional guidance on the level of 
detail in which the specific event or events should be described.) 
The description of how long the increased rate will remain in effect 
also should be brief. If a card issuer reserves the right to apply 
the increased rate indefinitely, that fact should be stated. (See 
Samples G-10(B) and G-10(C) (in the row labeled ``Penalty APR and 
When it Applies'') for additional guidance on the level of detail 
which the issuer should use to

[[Page 7867]]

describe how long the increased rate will remain in effect.) A card 
issuer will be deemed to meet the standard to clearly and 
conspicuously disclose the information required by Sec.  
226.5a(b)(1)(iv)(A) if the issuer uses the format shown in Samples 
G-10(B) and G-10(C) (in the row labeled ``Penalty APR and When it 
Applies'') to disclose this information.
    ii. Introductory rates--general. An issuer is required to 
disclose directly beneath the table the circumstances under which an 
introductory rate, as that term is defined in Sec.  
226.16(g)(2)(ii), may be revoked, and the rate that will apply after 
the revocation. This information about revocation of an introductory 
rate and the rate that will apply after revocation must be provided 
even if the rate that will apply after the introductory rate is 
revoked is the rate that would have applied at the end of the 
promotional period. In a variable-rate account, the rate that would 
have applied at the end of the promotional period is a rate based on 
the applicable index or formula in accordance with the accuracy 
requirements set forth in Sec.  226.5a(c)(2) or (e)(4). In 
describing the rate that will apply after revocation of the 
introductory rate, if the rate that will apply after revocation of 
the introductory rate is already disclosed in the table, the issuer 
is not required to repeat the rate, but may refer to that rate in a 
clear and conspicuous manner. For example, if the rate that will 
apply after revocation of an introductory rate is the standard rate 
that applies to that type of transaction (such as a purchase or 
balance transfer transaction), and the standard rates are labeled in 
the table as ``standard APRs,'' the issuer may refer to the 
``standard APR'' when describing the rate that will apply after 
revocation of an introductory rate. (See Sample G-10(C) in the 
disclosure labeled ``Loss of Introductory APR'' directly beneath the 
table.) The description of the circumstances in which an 
introductory rate could be revoked should be brief. For example, if 
an issuer may increase an introductory rate because the account is 
more than 60 days late, the issuer should describe this circumstance 
in the table as ``make a late payment.'' In addition, if the 
circumstances in which an introductory rate could be revoked are 
already listed elsewhere in the table, the issuer is not required to 
repeat the circumstances again, but may refer to those circumstances 
in a clear and conspicuous manner. For example, if the circumstances 
in which an introductory rate could be revoked are the same as the 
event or events that may trigger a ``penalty rate'' as described in 
Sec.  226.5a(b)(1)(iv)(A), the issuer may refer to the actions 
listed in the Penalty APR row, in describing the circumstances in 
which the introductory rate could be revoked. (See Sample G-10(C) in 
the disclosure labeled ``Loss of Introductory APR'' directly beneath 
the table for additional guidance on the level of detail in which to 
describe the circumstances in which an introductory rate could be 
revoked.) A card issuer will be deemed to meet the standard to 
clearly and conspicuously disclose the information required by Sec.  
226.5a(b)(1)(iv)(B) if the issuer uses the format shown in Sample G-
10(C) to disclose this information.
    iii. Introductory rates--limitations on revocation. Issuers that 
are disclosing an introductory rate are prohibited by Sec.  226.55 
from increasing or revoking the introductory rate before it expires 
unless the consumer fails to make a required minimum periodic 
payment within 60 days after the due date for the payment. In making 
the required disclosure pursuant to Sec.  226.5a(b)(1)(iv)(B), 
issuers should describe this circumstance directly beneath the table 
as ``make a late payment.''
    6. Rates that depend on consumer's creditworthiness. i. In 
general. The card issuer, at its option, may disclose the possible 
rates that may apply as either specific rates, or a range of rates. 
For example, if there are three possible rates that may apply (9.99, 
12.99 or 17.99 percent), an issuer may disclose specific rates 
(9.99, 12.99 or 17.99 percent) or a range of rates (9.99 to 17.99 
percent). The card issuer may not disclose only the lowest, highest 
or median rate that could apply. (See Samples G-10(B) and G-10(C) 
for guidance on how to disclose a range of rates.)
    ii. Penalty rates. If the rate is a penalty rate, as described 
in Sec.  226.5a(b)(1)(iv), the card issuer at its option may 
disclose the highest rate that could apply, instead of disclosing 
the specific rates or the range of rates that could apply. For 
example, if the penalty rate could be up to 28.99 percent, but the 
issuer may impose a penalty rate that is less than that rate 
depending on factors at the time the penalty rate is imposed, the 
issuer may disclose the penalty rate as ``up to'' 28.99 percent. The 
issuer also must include a statement that the penalty rate for which 
the consumer may qualify will depend on the consumer's 
creditworthiness, and other factors if applicable.
    iii. Other factors. Section 226.5a(b)(1)(v) applies even if 
other factors are used in combination with a consumer's 
creditworthiness to determine the rate for which a consumer may 
qualify at account opening. For example, Sec.  226.5a(b)(1)(v) would 
apply if the issuer considers the type of purchase the consumer is 
making at the time the consumer opens the account, in combination 
with the consumer's creditworthiness, to determine the rate for 
which the consumer may qualify at account opening. If other factors 
are considered, the issuer should amend the statement about 
creditworthiness, to indicate that the rate for which the consumer 
may qualify at account opening will depend on the consumer's 
creditworthiness and other factors. Nonetheless, Sec.  
226.5a(b)(1)(v) does not apply if a consumer's creditworthiness is 
not one of the factors that will determine the rate for which the 
consumer may qualify at account opening (for example, if the rate is 
based solely on the type of purchase that the consumer is making at 
the time the consumer opens the account, or is based solely on 
whether the consumer has other banking relationships with the card 
issuer).
    7. Rate based on another rate on the account. In some cases, one 
rate may be based on another rate on the account. For example, 
assume that a penalty rate as described in Sec.  226.5a(b)(1)(iv)(A) 
is determined by adding 5 percentage points to the current purchase 
rate, which is 10 percent. In this example, the card issuer in 
disclosing the penalty rate must disclose 15 percent as the current 
penalty rate. If the purchase rate is a variable rate, then the 
penalty rate also is a variable rate. In that case, the card issuer 
also must disclose the fact that the penalty rate may vary and how 
the rate is determined, such as ``This APR may vary with the market 
based on the Prime Rate.'' In describing the penalty rate, the 
issuer shall not disclose in the table the amount of the margin or 
spread added to the current purchase rate to determine the penalty 
rate, such as describing that the penalty rate is determined by 
adding 5 percentage points to the purchase rate. (See Sec.  
226.5a(b)(1)(i) and comment 5a(b)(1)-2 for further guidance on 
describing a variable rate.)
    8. Rates. The only rates that shall be disclosed in the table 
are annual percentage rates determined under Sec.  226.14(b). 
Periodic rates shall not be disclosed in the table.
    9. Deferred interest or similar transactions. An issuer offering 
a deferred interest or similar plan, such as a promotional program 
that provides that a consumer will not be obligated to pay interest 
that accrues on a balance if that balance is paid in full prior to 
the expiration of a specified period of time, may not disclose a 0% 
rate as the rate applicable to deferred interest or similar 
transactions if there are any circumstances under which the consumer 
will be obligated for interest on such transactions for the deferred 
interest or similar period.
    5a(b)(2) Fees for issuance or availability.
    1. Membership fees. Membership fees for opening an account must 
be disclosed under this paragraph. A membership fee to join an 
organization that provides a credit or charge card as a privilege of 
membership must be disclosed only if the card is issued 
automatically upon membership. Such a fee shall not be disclosed in 
the table if membership results merely in eligibility to apply for 
an account.
    2. Enhancements. Fees for optional services in addition to basic 
membership privileges in a credit or charge card account (for 
example, travel insurance or card-registration services) shall not 
be disclosed in the table if the basic account may be opened without 
paying such fees. Issuing a card to each primary cardholder (not 
authorized users) is considered a basic membership privilege and 
fees for additional cards, beyond the first card on the account, 
must be disclosed as a fee for issuance or availability. Thus, a fee 
to obtain an additional card on the account beyond the first card 
(so that each cardholder would have his or her own card) must be 
disclosed in the table as a fee for issuance or availability under 
Sec.  226.5a(b)(2). This fee must be disclosed even if the fee is 
optional; that is, if the fee is charged only if the cardholder 
requests one or more additional cards. (See the available credit 
disclosure in Sec.  226.5a(b)(14).)
    3. One-time fees. Disclosure of non-periodic fees is limited to 
fees related to opening the account, such as one-time membership or 
participation fees, or an application fee that is excludable from 
the finance charge under Sec.  226.4(c)(1). The following are 
examples of fees that shall not be disclosed in the table:

[[Page 7868]]

    i. Fees for reissuing a lost or stolen card.
    ii. Statement reproduction fees.
    4. Waived or reduced fees. If fees required to be disclosed are 
waived or reduced for a limited time, the introductory fees or the 
fact of fee waivers may be provided in the table in addition to the 
required fees if the card issuer also discloses how long the reduced 
fees or waivers will remain in effect.
    5. Periodic fees and one-time fees. A card issuer disclosing a 
periodic fee must disclose the amount of the fee, how frequently it 
will be imposed, and the annualized amount of the fee. A card issuer 
disclosing a non-periodic fee must disclose that the fee is a one-
time fee. (See Sample G-10(C) for guidance on how to meet these 
requirements.)
    5a(b)(3) Fixed finance charge; minimum interest charge.
    1. Example of brief statement. See Samples G-10(B) and G-10(C) 
for guidance on how to provide a brief description of a minimum 
interest charge.
    2. Adjustment of $1.00 threshold amount. Consistent with Sec.  
226.5a(b)(3), the Board will publish adjustments to the $1.00 
threshold amount, as appropriate.
    5a(b)(4) Transaction charges.
    1. Charges imposed by person other than card issuer. Charges 
imposed by a third party, such as a seller of goods, shall not be 
disclosed in the table under this section; the third party would be 
responsible for disclosing the charge under Sec.  226.9(d)(1).
    2. Foreign transaction fees. A transaction charge imposed by the 
card issuer for the use of the card for purchases includes any fee 
imposed by the issuer for purchases in a foreign currency or that 
take place outside the United States or with a foreign merchant. 
(See comment 4(a)-4 for guidance on when a foreign transaction fee 
is considered charged by the card issuer.) If an issuer charges the 
same foreign transaction fee for purchases and cash advances in a 
foreign currency, or that take place outside the United States or 
with a foreign merchant, the issuer may disclose this foreign 
transaction fee as shown in Samples G-10(B) and G-10(C). Otherwise, 
the issuer must revise the foreign transaction fee language shown in 
Samples G-10(B) and G-10(C) to disclose clearly and conspicuously 
the amount of the foreign transaction fee that applies to purchases 
and the amount of the foreign transaction fee that applies to cash 
advances.
    5a(b)(5) Grace period.
    1. How grace period disclosure is made. The card issuer must 
state any conditions on the applicability of the grace period. An 
issuer that offers a grace period on all purchases and conditions 
the grace period on the consumer paying his or her outstanding 
balance in full by the due date each billing cycle, or on the 
consumer paying the outstanding balance in full by the due date in 
the previous and/or the current billing cycle(s) will be deemed to 
meet these requirements by providing the following disclosure, as 
applicable: ``Your due date is [at least] ---- days after the close 
of each billing cycle. We will not charge you any interest on 
purchases if you pay your entire balance by the due date each 
month.''
    2. No grace period. The issuer may use the following language to 
describe that no grace period on any purchases is offered, as 
applicable: ``We will begin charging interest on purchases on the 
transaction date.''
    3. Grace period on some purchases. If the issuer provides a 
grace period on some types of purchases but no grace period on 
others, the issuer may combine and revise the language in comments 
5a(b)(5)-1 and -2 as appropriate to describe to which types of 
purchases a grace period applies and to which types of purchases no 
grace period is offered.
    4. Limitations on the imposition of finance charges in Sec.  
226.54. Section 226.5a(b)(5) does not require a card issuer to 
disclose the limitations on the imposition of finance charges in 
Sec.  226.54.
    5a(b)(6) Balance computation method.
    1. Form of disclosure. In cases where the card issuer uses a 
balance computation method that is identified by name in the 
regulation, the card issuer must disclose below the table only the 
name of the method. In cases where the card issuer uses a balance 
computation method that is not identified by name in the regulation, 
the disclosure below the table must clearly explain the method in as 
much detail as set forth in the descriptions of balance methods in 
Sec.  226.5a(g). The explanation need not be as detailed as that 
required for the disclosures under Sec.  226.6(b)(4)(i)(D). (See the 
commentary to Sec.  226.5a(g) for guidance on particular methods.)
    2. Determining the method. In determining which balance 
computation method to disclose for purchases, the card issuer must 
assume that a purchase balance will exist at the end of any grace 
period. Thus, for example, if the average daily balance method will 
include new purchases only if purchase balances are not paid within 
the grace period, the card issuer would disclose the name of the 
average daily balance method that includes new purchases. The card 
issuer must not assume the existence of a purchase balance, however, 
in making other disclosures under Sec.  226.5a(b).
    5a(b)(7) Statement on charge card payments.
    1. Applicability and content. The disclosure that charges are 
payable upon receipt of the periodic statement is applicable only to 
charge card accounts. In making this disclosure, the card issuer may 
make such modifications as are necessary to more accurately reflect 
the circumstances of repayment under the account. For example, the 
disclosure might read, ``Charges are due and payable upon receipt of 
the periodic statement and must be paid no later than 15 days after 
receipt of such statement.''
    5a(b)(8) Cash advance fee.
    1. Content. See Samples G-10(B) and G-10(C) for guidance on how 
to disclose clearly and conspicuously the cash advance fee.
    2. Foreign cash advances. Cash advance fees required to be 
disclosed under Sec.  226.5a(b)(8) include any charge imposed by the 
card issuer for cash advances in a foreign currency or that take 
place outside the United States or with a foreign merchant. (See 
comment 4(a)-4 for guidance on when a foreign transaction fee is 
considered charged by the card issuer.) If an issuer charges the 
same foreign transaction fee for purchases and cash advances in a 
foreign currency or that take place outside the United States or 
with a foreign merchant, the issuer may disclose this foreign 
transaction fee as shown in Samples G-10(B) and (C). Otherwise, the 
issuer must revise the foreign transaction fee language shown in 
Samples G-10(B) and (C) to disclose clearly and conspicuously the 
amount of the foreign transaction fee that applies to purchases and 
the amount of the foreign transaction fee that applies to cash 
advances.
    3. ATM fees. An issuer is not required to disclose pursuant to 
Sec.  226.5a(b)(8) any charges imposed on a cardholder by an 
institution other than the card issuer for the use of the other 
institution's ATM in a shared or interchange system.
    5a(b)(9) Late payment fee.
    1. Applicability. The disclosure of the fee for a late payment 
includes only those fees that will be imposed for actual, 
unanticipated late payments. (See the commentary to Sec.  
226.4(c)(2) for additional guidance on late payment fees. See 
Samples G-10(B) and G-10(C) for guidance on how to disclose clearly 
and conspicuously the late payment fee.)
    5a(b)(10) Over-the-limit fee.
    1. Applicability. The disclosure of fees for exceeding a credit 
limit does not include fees for other types of default or for 
services related to exceeding the limit. For example, no disclosure 
is required of fees for reinstating credit privileges or fees for 
the dishonor of checks on an account that, if paid, would cause the 
credit limit to be exceeded. (See Samples G-10(B) and G-10(C) for 
guidance on how to disclose clearly and conspicuously the over-the-
limit fee.)
    5a(b)(13) Required insurance, debt cancellation, or debt 
suspension coverage.
    1. Content. See Sample G-10(B) for guidance on how to comply 
with the requirements in Sec.  226.5a(b)(13).
    5a(b)(14) Available credit.
    1. Calculating available credit. If the 15 percent threshold 
test is met, the issuer must disclose the available credit excluding 
optional fees, and the available credit including optional fees. In 
calculating the available credit to disclose in the table, the 
issuer must consider all fees for the issuance or availability of 
credit described in Sec.  226.5a(b)(2), and any security deposit, 
that will be imposed and charged to the account when the account is 
opened, such as one-time issuance and set-up fees. For example, in 
calculating the available credit, issuers must consider the first 
year's annual fee and the first month's maintenance fee (as 
applicable) if they are charged to the account on the first billing 
statement. In calculating the amount of the available credit 
including optional fees, if optional fees could be charged multiple 
times, the issuer shall assume that the optional fee is only imposed 
once. For example, if an issuer charges a fee for each additional 
card issued on the account, the issuer in calculating the amount of 
the available credit including optional fees may assume that the 
cardholder requests only one additional card. In disclosing the 
available credit, the issuer shall round down the available credit 
amount to the nearest whole dollar.
    2. Content. See Sample G-10(C) for guidance on how to provide 
the disclosure

[[Page 7869]]

required by Sec.  226.5a(b)(14) clearly and conspicuously.
    5a(b)(15) Web site reference.
    1. Content. See Samples G-10(B) and G-10(C) for guidance on 
disclosing a reference to the Web site established by the Board and 
a statement that consumers may obtain on the Web site information 
about shopping for and using credit card accounts.
    5a(c) Direct mail and electronic applications and solicitations.
    1. Mailed publications. Applications or solicitations contained 
in generally available publications mailed to consumers (such as 
subscription magazines) are subject to the requirements applicable 
to take-ones in Sec.  226.5a(e), rather than the direct mail 
requirements of Sec.  226.5a(c). However, if a primary purpose of a 
card issuer's mailing is to offer credit or charge card accounts--
for example, where a card issuer ``prescreens'' a list of potential 
cardholders using credit criteria, and then mails to the targeted 
group its catalog containing an application or a solicitation for a 
card account--the direct mail rules apply. In addition, a card 
issuer may use a single application form as a take-one (in racks in 
public locations, for example) and for direct mailings, if the card 
issuer complies with the requirements of Sec.  226.5a(c) even when 
the form is used as a take-one--that is, by presenting the required 
Sec.  226.5a disclosures in a tabular format. When used in a direct 
mailing, the credit term disclosures must be accurate as of the 
mailing date whether or not the Sec.  226.5a(e)(1)(ii) and 
(e)(1)(iii) disclosures are included; when used in a take-one, the 
disclosures must be accurate for as long as the take-one forms 
remain available to the public if the Sec.  226.5a(e)(1)(ii) and 
(e)(1)(iii) disclosures are omitted. (If those disclosures are 
included in the take-one, the credit term disclosures need only be 
accurate as of the printing date.)
    5a(d) Telephone applications and solicitations.
    1. Coverage. i. This paragraph applies if:
    A. A telephone conversation between a card issuer and consumer 
may result in the issuance of a card as a consequence of an issuer-
initiated offer to open an account for which the issuer does not 
require any application (that is, a prescreened telephone 
solicitation).
    B. The card issuer initiates the contact and at the same time 
takes application information over the telephone.
    ii. This paragraph does not apply to:
    A. Telephone applications initiated by the consumer.
    B. Situations where no card will be issued--because, for 
example, the consumer indicates that he or she does not want the 
card, or the card issuer decides either during the telephone 
conversation or later not to issue the card.
    2. Right to reject the plan. The right to reject the plan 
referenced in this paragraph is the same as the right to reject the 
plan described in Sec.  226.5(b)(1)(iv). If an issuer substitutes 
the account-opening summary table described in Sec.  226.6(b)(1) in 
lieu of the disclosures specified in Sec.  226.5a(d)(2)(ii), the 
disclosure specified in Sec.  226.5a(d)(2)(ii)(B) must appear in the 
table, if the issuer is required to do so pursuant to Sec.  
226.6(b)(2)(xiii). Otherwise, the disclosure specified in Sec.  
226.5a(d)(2)(ii)(B) may appear either in or outside the table 
containing the required credit disclosures.
    3. Substituting account-opening table for alternative written 
disclosures. An issuer may substitute the account-opening summary 
table described in Sec.  226.6(b)(1) in lieu of the disclosures 
specified in Sec.  226.5a(d)(2)(ii).
    5a(e) Applications and solicitations made available to general 
public.
    1. Coverage. Applications and solicitations made available to 
the general public include what are commonly referred to as take-one 
applications typically found at counters in banks and retail 
establishments, as well as applications contained in catalogs, 
magazines and other generally available publications. In the case of 
credit unions, this paragraph applies to applications and 
solicitations to open card accounts made available to those in the 
general field of membership.
    2. In-person applications and solicitations. In-person 
applications and solicitations initiated by a card issuer are 
subject to Sec.  226.5a(f), not Sec.  226.5a(e). (See Sec.  
226.5a(f) and accompanying commentary for rules relating to in-
person applications and solicitations.)
    3. Toll-free telephone number. If a card issuer, in complying 
with any of the disclosure options of Sec.  226.5a(e), provides a 
telephone number for consumers to call to obtain credit information, 
the number must be toll-free for nonlocal calls made from an area 
code other than the one used in the card issuer's dialing area. 
Alternatively, a card issuer may provide any telephone number that 
allows a consumer to call for information and reverse the telephone 
charges.
    5a(e)(1) Disclosure of required credit information.
    1. Date of printing. Disclosure of the month and year fulfills 
the requirement to disclose the date an application was printed.
    2. Form of disclosures. The disclosures specified in Sec.  
226.5a(e)(1)(ii) and (e)(1)(iii) may appear either in or outside the 
table containing the required credit disclosures.
    5a(e)(2) No disclosure of credit information.
    1. When disclosure option available. A card issuer may use this 
option only if the issuer does not include on or with the 
application or solicitation any statement that refers to the credit 
disclosures required by Sec.  226.5a(b). Statements such as no 
annual fee, low interest rate, favorable rates, and low costs are 
deemed to refer to the required credit disclosures and, therefore, 
may not be included on or with the solicitation or application, if 
the card issuer chooses to use this option.
    5a(e)(3) Prompt response to requests for information.
    1. Prompt disclosure. Information is promptly disclosed if it is 
given within 30 days of a consumer's request for information but in 
no event later than delivery of the credit or charge card.
    2. Information disclosed. When a consumer requests credit 
information, card issuers need not provide all the required credit 
disclosures in all instances. For example, if disclosures have been 
provided in accordance with Sec.  226.5a(e)(1) and a consumer calls 
or writes a card issuer to obtain information about changes in the 
disclosures, the issuer need only provide the items of information 
that have changed from those previously disclosed on or with the 
application or solicitation. If a consumer requests information 
about particular items, the card issuer need only provide the 
requested information. If, however, the card issuer has made 
disclosures in accordance with the option in Sec.  226.5a(e)(2) and 
a consumer calls or writes the card issuer requesting information 
about costs, all the required disclosure information must be given.
    3. Manner of response. A card issuer's response to a consumer's 
request for credit information may be provided orally or in writing, 
regardless of the manner in which the consumer's request is received 
by the issuer. Furthermore, the card issuer must provide the 
information listed in Sec.  226.5a(e)(1). Information provided in 
writing need not be in a tabular format.
    5a(f) In-person applications and solicitations.
    1. Coverage. i. This paragraph applies if:
    A. An in-person conversation between a card issuer and a 
consumer may result in the issuance of a card as a consequence of an 
issuer-initiated offer to open an account for which the issuer does 
not require any application (that is, a preapproved in-person 
solicitation).
    B. The card issuer initiates the contact and at the same time 
takes application information in person. For example, the following 
are covered:
    1. A consumer applies in person for a car loan at a financial 
institution and the loan officer invites the consumer to apply for a 
credit or charge card account; the consumer accepts the invitation 
and submits an application.
    2. An employee of a retail establishment, in the course of 
processing a sales transaction using a bank credit card, asks a 
customer if he or she would like to apply for the retailer's credit 
or charge card; the customer responds affirmatively and submits an 
application.
    ii. This paragraph does not apply to:
    A. In-person applications initiated by the consumer.
    B. Situations where no card will be issued--because, for 
example, the consumer indicates that he or she does not want the 
card, or the card issuer decides during the in-person conversation 
not to issue the card.

Section 226.5b--Requirements for Home-equity Plans

* * * * *
    5b(a) Form of Disclosure
    5b(a)(1) General
    1. Written disclosures. The disclosures required under this 
section must be clear and conspicuous and in writing, but need not 
be in a form the consumer can keep. (See the commentary to Sec.  
226.6(a)(3) for special rules when disclosures required under Sec.  
226.5b(d) are given in a retainable form.)
* * * * *
    5b(f) Limitations on Home-equity Plans
* * * * *

[[Page 7870]]

    Paragraph 5b(f)(3)(vi).
* * * * *
    4. Reinstatement of credit privileges. Creditors are responsible 
for ensuring that credit privileges are restored as soon as 
reasonably possible after the condition that permitted the 
creditor's action ceases to exist. One way a creditor can meet this 
responsibility is to monitor the line on an ongoing basis to 
determine when the condition ceases to exist. The creditor must 
investigate the condition frequently enough to assure itself that 
the condition permitting the freeze continues to exist. The 
frequency with which the creditor must investigate to determine 
whether a condition continues to exist depends upon the specific 
condition permitting the freeze. As an alternative to such 
monitoring, the creditor may shift the duty to the consumer to 
request reinstatement of credit privileges by providing a notice in 
accordance with Sec.  226.9(c)(1)(iii). A creditor may require a 
reinstatement request to be in writing if it notifies the consumer 
of this requirement on the notice provided under Sec.  
226.9(c)(1)(iii). Once the consumer requests reinstatement, the 
creditor must promptly investigate to determine whether the 
condition allowing the freeze continues to exist. Under this 
alternative, the creditor has a duty to investigate only upon the 
consumer's request.
* * * * *

Section 226.6--Account-Opening Disclosures

    6(a) Rules affecting home-equity plans.
    6(a)(1) Finance charge.
    Paragraph 6(a)(1)(i).
    1. When finance charges accrue. Creditors are not required to 
disclose a specific date when finance charges will begin to accrue. 
Creditors may provide a general explanation such as that the 
consumer has 30 days from the closing date to pay the new balance 
before finance charges will accrue on the account.
    2. Grace periods. In disclosing whether or not a grace period 
exists, the creditor need not use ``free period,'' ``free-ride 
period,'' ``grace period'' or any other particular descriptive 
phrase or term. For example, a statement that ``the finance charge 
begins on the date the transaction is posted to your account'' 
adequately discloses that no grace period exists. In the same 
fashion, a statement that ``finance charges will be imposed on any 
new purchases only if they are not paid in full within 25 days after 
the close of the billing cycle'' indicates that a grace period 
exists in the interim.
    Paragraph 6(a)(1)(ii).
    1. Range of balances. The range of balances disclosure is 
inapplicable:
    i. If only one periodic rate may be applied to the entire 
account balance.
    ii. If only one periodic rate may be applied to the entire 
balance for a feature (for example, cash advances), even though the 
balance for another feature (purchases) may be subject to two rates 
(a 1.5% monthly periodic rate on purchase balances of $0-$500, and a 
1% monthly periodic rate for balances above $500). In this example, 
the creditor must give a range of balances disclosure for the 
purchase feature.
    2. Variable-rate disclosures--coverage.
    i. Examples. This section covers open-end credit plans under 
which rate changes are specifically set forth in the account 
agreement and are tied to an index or formula. A creditor would use 
variable-rate disclosures for plans involving rate changes such as 
the following:
    A. Rate changes that are tied to the rate the creditor pays on 
its six-month certificates of deposit.
    B. Rate changes that are tied to Treasury bill rates.
    C. Rate changes that are tied to changes in the creditor's 
commercial lending rate.
    ii. An open-end credit plan in which the employee receives a 
lower rate contingent upon employment (that is, with the rate to be 
increased upon termination of employment) is not a variable-rate 
plan.
    3. Variable-rate plan--rate(s) in effect. In disclosing the 
rate(s) in effect at the time of the account-opening disclosures (as 
is required by Sec.  226.6(a)(1)(ii)), the creditor may use an 
insert showing the current rate; may give the rate as of a specified 
date and then update the disclosure from time to time, for example, 
each calendar month; or may disclose an estimated rate under Sec.  
226.5(c).
    4. Variable-rate plan--additional disclosures required. In 
addition to disclosing the rates in effect at the time of the 
account-opening disclosures, the disclosures under Sec.  
226.6(a)(1)(ii) also must be made.
    5. Variable-rate plan--index. The index to be used must be 
clearly identified; the creditor need not give, however, an 
explanation of how the index is determined or provide instructions 
for obtaining it.
    6. Variable-rate plan--circumstances for increase.
    i. Circumstances under which the rate(s) may increase include, 
for example:
    A. An increase in the Treasury bill rate.
    B. An increase in the Federal Reserve discount rate.
    ii. The creditor must disclose when the increase will take 
effect; for example:
    A. ``An increase will take effect on the day that the Treasury 
bill rate increases,'' or
    B. ``An increase in the Federal Reserve discount rate will take 
effect on the first day of the creditor's billing cycle.''
    7. Variable-rate plan--limitations on increase. In disclosing 
any limitations on rate increases, limitations such as the maximum 
increase per year or the maximum increase over the duration of the 
plan must be disclosed. When there are no limitations, the creditor 
may, but need not, disclose that fact. (A maximum interest rate must 
be included in dwelling-secured open-end credit plans under which 
the interest rate may be changed. See Sec.  226.30 and the 
commentary to that section.) Legal limits such as usury or rate 
ceilings under state or federal statutes or regulations need not be 
disclosed. Examples of limitations that must be disclosed include:
    i. ``The rate on the plan will not exceed 25% annual percentage 
rate.''
    ii. ``Not more than \1/2\% increase in the annual percentage 
rate per year will occur.''
    8. Variable-rate plan--effects of increase. Examples of effects 
of rate increases that must be disclosed include:
    i. Any requirement for additional collateral if the annual 
percentage rate increases beyond a specified rate.
    ii. Any increase in the scheduled minimum periodic payment 
amount.
    9. Variable-rate plan--change-in-terms notice not required. No 
notice of a change in terms is required for a rate increase under a 
variable-rate plan as defined in comment 6(a)(1)(ii)-2.
    10. Discounted variable-rate plans. In some variable-rate plans, 
creditors may set an initial interest rate that is not determined by 
the index or formula used to make later interest rate adjustments. 
Typically, this initial rate is lower than the rate would be if it 
were calculated using the index or formula.
    i. For example, a creditor may calculate interest rates 
according to a formula using the six-month Treasury bill rate plus a 
2 percent margin. If the current Treasury bill rate is 10 percent, 
the creditor may forgo the 2 percent spread and charge only 10 
percent for a limited time, instead of setting an initial rate of 12 
percent, or the creditor may disregard the index or formula and set 
the initial rate at 9 percent.
    ii. When creditors use an initial rate that is not calculated 
using the index or formula for later rate adjustments, the account-
opening disclosure statement should reflect:
    A. The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate), together with a statement of 
how long the initial rate will remain in effect;
    B. The current rate that would have been applied using the index 
or formula (also expressed as a periodic rate and a corresponding 
annual percentage rate); and
    C. The other variable-rate information required in Sec.  
226.6(a)(1)(ii).
    iii. In disclosing the current periodic and annual percentage 
rates that would be applied using the index or formula, the creditor 
may use any of the disclosure options described in comment 
6(a)(1)(ii)-3.
    11. Increased penalty rates. If the initial rate may increase 
upon the occurrence of one or more specific events, such as a late 
payment or an extension of credit that exceeds the credit limit, the 
creditor must disclose the initial rate and the increased penalty 
rate that may apply. If the penalty rate is based on an index and an 
increased margin, the issuer must disclose the index and the margin. 
The creditor must also disclose the specific event or events that 
may result in the increased rate, such as ``22% APR, if 60 days 
late.'' If the penalty rate cannot be determined at the time 
disclosures are given, the creditor must provide an explanation of 
the specific event or events that may result in the increased rate. 
At the creditor's option, the creditor may disclose the period for 
which the increased rate will remain in effect, such as ``until you 
make three timely payments.'' The creditor need not disclose an 
increased rate that is imposed when credit privileges are 
permanently terminated.
    Paragraph 6(a)(1)(iii).
    1. Explanation of balance computation method. A shorthand phrase 
such as ``previous balance method'' does not suffice in explaining 
the balance computation

[[Page 7871]]

method. (See Model Clauses G-1 and G-1(A) to part 226.)
    2. Allocation of payments. Creditors may, but need not, explain 
how payments and other credits are allocated to outstanding 
balances. For example, the creditor need not disclose that payments 
are applied to late charges, overdue balances, and finance charges 
before being applied to the principal balance; or in a multifeatured 
plan, that payments are applied first to finance charges, then to 
purchases, and then to cash advances. (See comment 7-1 for 
definition of multifeatured plan.)
    Paragraph 6(a)(1)(iv).
    1. Finance charges. In addition to disclosing the periodic 
rate(s) under Sec.  226.6(a)(1)(ii), creditors must disclose any 
other type of finance charge that may be imposed, such as minimum, 
fixed, transaction, and activity charges; required insurance; or 
appraisal or credit report fees (unless excluded from the finance 
charge under Sec.  226.4(c)(7)). Creditors are not required to 
disclose the fact that no finance charge is imposed when the 
outstanding balance is less than a certain amount or the balance 
below which no finance charge will be imposed.
    6(a)(2) Other charges.
    1. General; examples of other charges. Under Sec.  226.6(a)(2), 
significant charges related to the plan (that are not finance 
charges) must also be disclosed. For example:
    i. Late-payment and over-the-credit-limit charges.
    ii. Fees for providing documentary evidence of transactions 
requested under Sec.  226.13 (billing error resolution).
    iii. Charges imposed in connection with residential mortgage 
transactions or real estate transactions such as title, appraisal, 
and credit-report fees (see Sec.  226.4(c)(7)).
    iv. A tax imposed on the credit transaction by a state or other 
governmental body, such as a documentary stamp tax on cash advances. 
(See the commentary to Sec.  226.4(a)).
    v. A membership or participation fee for a package of services 
that includes an open-end credit feature, unless the fee is required 
whether or not the open-end credit feature is included. For example, 
a membership fee to join a credit union is not an ``other charge,'' 
even if membership is required to apply for credit. For example, if 
the primary benefit of membership in an organization is the 
opportunity to apply for a credit card, and the other benefits 
offered (such as a newsletter or a member information hotline) are 
merely incidental to the credit feature, the membership fee would be 
disclosed as an ``other charge.''
    vi. Charges imposed for the termination of an open-end credit 
plan.
    2. Exclusions. The following are examples of charges that are 
not ``other charges''
    i. Fees charged for documentary evidence of transactions for 
income tax purposes.
    ii. Amounts payable by a consumer for collection activity after 
default; attorney's fees, whether or not automatically imposed; 
foreclosure costs; post-judgment interest rates imposed by law; and 
reinstatement or reissuance fees.
    iii. Premiums for voluntary credit life or disability insurance, 
or for property insurance, that are not part of the finance charge.
    iv. Application fees under Sec.  226.4(c)(1).
    v. A monthly service charge for a checking account with 
overdraft protection that is applied to all checking accounts, 
whether or not a credit feature is attached.
    vi. Charges for submitting as payment a check that is later 
returned unpaid (See commentary to Sec.  226.4(c)(2)).
    vii. Charges imposed on a cardholder by an institution other 
than the card issuer for the use of the other institution's ATM in a 
shared or interchange system. (See also comment 7(a)(2)-2.)
    viii. Taxes and filing or notary fees excluded from the finance 
charge under Sec.  226.4(e).
    ix. A fee to expedite delivery of a credit card, either at 
account opening or during the life of the account, provided delivery 
of the card is also available by standard mail service (or other 
means at least as fast) without paying a fee for delivery.
    x. A fee charged for arranging a single payment on the credit 
account, upon the consumer's request (regardless of how frequently 
the consumer requests the service), if the credit plan provides that 
the consumer may make payments on the account by another reasonable 
means, such as by standard mail service, without paying a fee to the 
creditor.
    6(a)(3) Home-equity plan information.
    1. Additional disclosures required. For home-equity plans, 
creditors must provide several of the disclosures set forth in Sec.  
226.5b(d) along with the disclosures required under Sec.  226.6. 
Creditors also must disclose a list of the conditions that permit 
the creditor to terminate the plan, freeze or reduce the credit 
limit, and implement specified modifications to the original terms. 
(See comment 5b(d)(4)(iii)-1.)
    2. Form of disclosures. The home-equity disclosures provided 
under this section must be in a form the consumer can keep, and are 
governed by Sec.  226.5(a)(1). The segregation standard set forth in 
Sec.  226.5b(a) does not apply to home-equity disclosures provided 
under Sec.  226.6.
    3. Disclosure of payment and variable-rate examples.
    i. The payment-example disclosure in Sec.  226.5b(d)(5)(iii) and 
the variable-rate information in Sec.  226.5b(d)(12)(viii), 
(d)(12)(x), (d)(12)(xi), and (d)(12)(xii) need not be provided with 
the disclosures under Sec.  226.6 if the disclosures under Sec.  
226.5b(d) were provided in a form the consumer could keep; and the 
disclosures of the payment example under Sec.  226.5b(d)(5)(iii), 
the maximum-payment example under Sec.  226.5b(d)(12)(x) and the 
historical table under Sec.  226.5b(d)(12)(xi) included a 
representative payment example for the category of payment options 
the consumer has chosen.
    ii. For example, if a creditor offers three payment options (one 
for each of the categories described in the commentary to Sec.  
226.5b(d)(5)), describes all three options in its early disclosures, 
and provides all of the disclosures in a retainable form, that 
creditor need not provide the Sec.  226.5b(d)(5)(iii) or (d)(12) 
disclosures again when the account is opened. If the creditor showed 
only one of the three options in the early disclosures (which would 
be the case with a separate disclosure form rather than a combined 
form, as discussed under Sec.  226.5b(a)), the disclosures under 
Sec.  226.5b(d)(5)(iii), (d)(12)(viii), (d)(12)(x), (d)(12)(xi) and 
(d)(12)(xii) must be given to any consumer who chooses one of the 
other two options. If the Sec.  226.5b(d)(5)(iii) and (d)(12) 
disclosures are provided with the second set of disclosures, they 
need not be transaction-specific, but may be based on a 
representative example of the category of payment option chosen.
    4. Disclosures for the repayment period. The creditor must 
provide disclosures about both the draw and repayment phases when 
giving the disclosures under Sec.  226.6. Specifically, the creditor 
must make the disclosures in Sec.  226.6(a)(3), state the 
corresponding annual percentage rate, and provide the variable-rate 
information required in Sec.  226.6(a)(1)(ii) for the repayment 
phase. To the extent the corresponding annual percentage rate, the 
information in Sec.  226.6(a)(1)(ii), and any other required 
disclosures are the same for the draw and repayment phase, the 
creditor need not repeat such information, as long as it is clear 
that the information applies to both phases.
    6(a)(4) Security interests.
    1. General. Creditors are not required to use specific terms to 
describe a security interest, or to explain the type of security or 
the creditor's rights with respect to the collateral.
    2. Identification of property. Creditors sufficiently identify 
collateral by type by stating, for example, motor vehicle or 
household appliances. (Creditors should be aware, however, that the 
federal credit practices rules, as well as some state laws, prohibit 
certain security interests in household goods.) The creditor may, at 
its option, provide a more specific identification (for example, a 
model and serial number.)
    3. Spreader clause. If collateral for preexisting credit with 
the creditor will secure the plan being opened, the creditor must 
disclose that fact. (Such security interests may be known as 
``spreader'' or ``dragnet'' clauses, or as ``cross-
collateralization'' clauses.) The creditor need not specifically 
identify the collateral; a reminder such as ``collateral securing 
other loans with us may also secure this loan'' is sufficient. At 
the creditor's option, a more specific description of the property 
involved may be given.
    4. Additional collateral. If collateral is required when 
advances reach a certain amount, the creditor should disclose the 
information available at the time of the account-opening 
disclosures. For example, if the creditor knows that a security 
interest will be taken in household goods if the consumer's balance 
exceeds $1,000, the creditor should disclose accordingly. If the 
creditor knows that security will be required if the consumer's 
balance exceeds $1,000, but the creditor does not know what security 
will be required, the creditor must disclose on the initial 
disclosure statement that security will be required if the balance 
exceeds $1,000, and the creditor must provide a change-in-

[[Page 7872]]

terms notice under Sec.  226.9(c) at the time the security is taken. 
(See comment 6(a)(4)-2.)
    5. Collateral from third party. Security interests taken in 
connection with the plan must be disclosed, whether the collateral 
is owned by the consumer or a third party.
    6(a)(5) Statement of billing rights.
    1. See the commentary to Model Forms G-3, G-3(A), G-4, and G-
4(A).
    6(b) Rules affecting open-end (not home-secured) plans.
    6(b)(1) Form of disclosures; tabular format for open-end (not 
home-secured) plans.
    1. Relation to tabular summary for applications and 
solicitations. See commentary to Sec.  226.5a(a), (b), and (c) 
regarding format and content requirements, except for the following:
    i. Creditors must use the accuracy standard for annual 
percentage rates in Sec.  226.6(b)(4)(ii)(G).
    ii. Generally, creditors must disclose the specific rate for 
each feature that applies to the account. If the rates on an open-
end (not home-secured) plan vary by state and the creditor is 
providing the account-opening table in person at the time the plan 
is established in connection with financing the purchase of goods or 
services the creditor may, at its option, disclose in the account-
opening table (A) the rate applicable to the consumer's account, or 
(B) the range of rates, if the disclosure includes a statement that 
the rate varies by state and refers the consumer to the account 
agreement or other disclosure provided with the account-opening 
table where the rate applicable to the consumer's account is 
disclosed.
    iii. Creditors must explain whether or not a grace period exists 
for all features on the account. The row heading ``Paying Interest'' 
must be used if any one feature on the account does not have a grace 
period.
    iv. Creditors must name the balance computation method used for 
each feature of the account and state that an explanation of the 
balance computation method(s) is provided in the account-opening 
disclosures.
    v. Creditors must state that consumers' billing rights are 
provided in the account-opening disclosures.
    vi. If fees on an open-end (not home-secured) plan vary by state 
and the creditor is providing the account-opening table in person at 
the time the plan is established in connection with financing the 
purchase of goods or services the creditor may, at its option, 
disclose in the account-opening table (A) the specific fee 
applicable to the consumer's account, or (B) the range of fees, if 
the disclosure includes a statement that the amount of the fee 
varies by state and refers the consumer to the account agreement or 
other disclosure provided with the account-opening table where the 
fee applicable to the consumer's account is disclosed.
    vii. Creditors that must disclose the amount of available credit 
must state the initial credit limit provided on the account.
    viii. Creditors must disclose directly beneath the table the 
circumstances under which an introductory rate may be revoked and 
the rate that will apply after the introductory rate is revoked. 
Issuers of credit card accounts under an open-end (not home-secured) 
consumer credit plan are subject to limitations on the circumstances 
under which an introductory rate may be revoked. (See comment 
5a(b)(1)-5 for guidance on how a card issuer may disclose the 
circumstances under which an introductory rate may be revoked.)
    ix. The applicable forms providing safe harbors for account-
opening tables are under appendix G-17 to part 226.
    2. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to Sec.  226.6 
disclosures.
    3. Terminology. Section 226.6(b)(1) generally requires that the 
headings, content, and format of the tabular disclosures be 
substantially similar, but need not be identical, to the tables in 
appendix G to part 226; but see Sec.  226.5(a)(2) for terminology 
requirements applicable to Sec.  226.6(b).
    6(b)(2) Required disclosures for account-opening table for open-
end (not home-secured) plans.
    6(b)(2)(iii) Fixed finance charge; minimum interest charge.
    1. Example of brief statement. See Samples G-17(B), G-17(C), and 
G-17(D) for guidance on how to provide a brief description of a 
minimum interest charge.
    6(b)(2)(v) Grace period.
    1. Grace period. Creditors must state any conditions on the 
applicability of the grace period. A creditor that offers a grace 
period on all types of transactions for the account and conditions 
the grace period on the consumer paying his or her outstanding 
balance in full by the due date each billing cycle, or on the 
consumer paying the outstanding balance in full by the due date in 
the previous and/or the current billing cycle(s) will be deemed to 
meet these requirements by providing the following disclosure, as 
applicable: ``Your due date is [at least] -- days after the close of 
each billing cycle. We will not charge you any interest on your 
account if you pay your entire balance by the due date each month.''
    2. No grace period. Creditors may use the following language to 
describe that no grace period is offered, as applicable: ``We will 
begin charging interest on [applicable transactions] on the 
transaction date.''
    3. Grace period on some features. See Samples G-17(B) and G-
17(C) for guidance on complying with Sec.  226.6(b)(2)(v) when a 
creditor offers a grace period for purchases but no grace period on 
balance transfers and cash advances.
    4. Limitations on the imposition of finance charges in Sec.  
226.54. Section 226.6(b)(2)(v) does not require a card issuer to 
disclose the limitations on the imposition of finance charges in 
Sec.  226.54.
    6(b)(2)(vi) Balance computation method.
    1. Content. See Samples G-17(B) and G-17(C) for guidance on how 
to disclose the balance computation method where the same method is 
used for all features on the account.
    6(b)(2)(xiii) Available credit.
    1. Right to reject the plan. Creditors may use the following 
language to describe consumers' right to reject a plan after 
receiving account-opening disclosures: ``You may still reject this 
plan, provided that you have not yet used the account or paid a fee 
after receiving a billing statement. If you do reject the plan, you 
are not responsible for any fees or charges.''
    6(b)(3) Disclosure of charges imposed as part of open-end (not 
home-secured) plans.
    1. When finance charges accrue. Creditors are not required to 
disclose a specific date when a cost that is a finance charge under 
Sec.  226.4 will begin to accrue.
    2. Grace periods. In disclosing in the account agreement or 
disclosure statement whether or not a grace period exists, the 
creditor need not use any particular descriptive phrase or term. 
However, the descriptive phrase or term must be sufficiently similar 
to the disclosures provided pursuant to Sec. Sec.  226.5a(b)(5) and 
226.6(b)(2)(v) to satisfy a creditor's duty to provide consistent 
terminology under Sec.  226.5(a)(2).
    3. No finance charge imposed below certain balance. Creditors 
are not required to disclose the fact that no finance charge is 
imposed when the outstanding balance is less than a certain amount 
or the balance below which no finance charge will be imposed.
    Paragraph 6(b)(3)(ii).
    1. Failure to use the plan as agreed. Late payment fees, over-
the-limit fees, and fees for payments returned unpaid are examples 
of charges resulting from consumers' failure to use the plan as 
agreed.
    2. Examples of fees that affect the plan. Examples of charges 
the payment, or nonpayment, of which affects the consumer's account 
are:
    i. Access to the plan. Fees for using the card at the creditor's 
ATM to obtain a cash advance, fees to obtain additional cards 
including replacements for lost or stolen cards, fees to expedite 
delivery of cards or other credit devices, application and 
membership fees, and annual or other participation fees identified 
in Sec.  226.4(c)(4).
    ii. Amount of credit extended. Fees for increasing the credit 
limit on the account, whether at the consumer's request or 
unilaterally by the creditor.
    iii. Timing or method of billing or payment. Fees to pay by 
telephone or via the Internet.
    3. Threshold test. If the creditor is unsure whether a 
particular charge is a cost imposed as part of the plan, the 
creditor may at its option consider such charges as a cost imposed 
as part of the plan for purposes of the Truth in Lending Act.
    Paragraph 6(b)(3)(iii)(B).
    1. Fees for package of services. A fee to join a credit union is 
an example of a fee for a package of services that is not imposed as 
part of the plan, even if the consumer must join the credit union to 
apply for credit. In contrast, a membership fee is an example of a 
fee for a package of services that is considered to be imposed as 
part of a plan where the primary benefit of membership in the 
organization is the opportunity to apply for a credit card, and the 
other benefits offered (such as a newsletter or a member information 
hotline) are merely incidental to the credit feature.
    6(b)(4) Disclosure of rates for open-end (not home-secured) 
plans.
    Paragraph 6(b)(4)(i)(B).
    1. Range of balances. Creditors are not required to disclose the 
range of balances:

[[Page 7873]]

    i. If only one periodic interest rate may be applied to the 
entire account balance.
    ii. If only one periodic interest rate may be applied to the 
entire balance for a feature (for example, cash advances), even 
though the balance for another feature (purchases) may be subject to 
two rates (a 1.5% monthly periodic interest rate on purchase 
balances of $0-$500, and a 1% periodic interest rate for balances 
above $500). In this example, the creditor must give a range of 
balances disclosure for the purchase feature.
    Paragraph 6(b)(4)(i)(D).
    1. Explanation of balance computation method. Creditors do not 
provide a sufficient explanation of a balance computation method by 
using a shorthand phrase such as ``previous balance method'' or the 
name of a balance computation method listed in Sec.  226.5a(g). (See 
Model Clauses G-1(A) in appendix G to part 226. See Sec.  
226.6(b)(2)(vi) regarding balance computation descriptions in the 
account-opening summary.)
    2. Allocation of payments. Creditors may, but need not, explain 
how payments and other credits are allocated to outstanding 
balances.
    6(b)(4)(ii) Variable-rate accounts.
    1. Variable-rate disclosures--coverage.
    i. Examples. Examples of open-end plans that permit the rate to 
change and are considered variable-rate plans include:
    A. Rate changes that are tied to the rate the creditor pays on 
its six-month certificates of deposit.
    B. Rate changes that are tied to Treasury bill rates.
    C. Rate changes that are tied to changes in the creditor's 
commercial lending rate.
    ii. Examples of open-end plans that permit the rate to change 
and are not considered variable-rate include:
    A. Rate changes that are invoked under a creditor's contract 
reservation to increase the rate without reference to such an index 
or formula (for example, a plan that simply provides that the 
creditor reserves the right to raise its rates).
    B. Rate changes that are triggered by a specific event such as 
an open-end credit plan in which the employee receives a lower rate 
contingent upon employment, and the rate increases upon termination 
of employment.
    2. Variable-rate plan--circumstances for increase.
    i. The following are examples that comply with the requirement 
to disclose circumstances under which the rate(s) may increase:
    A. ``The Treasury bill rate increases.''
    B. ``The Federal Reserve discount rate increases.''
    ii. Disclosing the frequency with which the rate may increase 
includes disclosing when the increase will take effect; for example:
    A. ``An increase will take effect on the day that the Treasury 
bill rate increases.''
    B. ``An increase in the Federal Reserve discount rate will take 
effect on the first day of the creditor's billing cycle.''
    3. Variable-rate plan--limitations on increase. In disclosing 
any limitations on rate increases, limitations such as the maximum 
increase per year or the maximum increase over the duration of the 
plan must be disclosed. When there are no limitations, the creditor 
may, but need not, disclose that fact. Legal limits such as usury or 
rate ceilings under state or federal statutes or regulations need 
not be disclosed. Examples of limitations that must be disclosed 
include:
    i. ``The rate on the plan will not exceed 25% annual percentage 
rate.''
    ii. ``Not more than \1/2\ of 1% increase in the annual 
percentage rate per year will occur.''
    4. Variable-rate plan--effects of increase. Examples of effects 
of rate increases that must be disclosed include:
    i. Any requirement for additional collateral if the annual 
percentage rate increases beyond a specified rate.
    ii. Any increase in the scheduled minimum periodic payment 
amount.
    5. Discounted variable-rate plans. In some variable-rate plans, 
creditors may set an initial interest rate that is not determined by 
the index or formula used to make later interest rate adjustments. 
Typically, this initial rate is lower than the rate would be if it 
were calculated using the index or formula.
    i. For example, a creditor may calculate interest rates 
according to a formula using the six-month Treasury bill rate plus a 
2 percent margin. If the current Treasury bill rate is 10 percent, 
the creditor may forgo the 2 percent spread and charge only 10 
percent for a limited time, instead of setting an initial rate of 12 
percent, or the creditor may disregard the index or formula and set 
the initial rate at 9 percent.
    ii. When creditors disclose in the account-opening disclosures 
an initial rate that is not calculated using the index or formula 
for later rate adjustments, the disclosure should reflect:
    A. The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate), together with a statement of 
how long the initial rate will remain in effect;
    B. The current rate that would have been applied using the index 
or formula (also expressed as a periodic rate and a corresponding 
annual percentage rate); and
    C. The other variable-rate information required by Sec.  
226.6(b)(4)(ii).
    6(b)(4)(iii) Rate changes not due to index or formula.
    1. Events that cause the initial rate to change.
    i. Changes based on expiration of time period. If the initial 
rate will change at the expiration of a time period, creditors that 
disclose the initial rate in the account-opening disclosure must 
identify the expiration date and the fact that the initial rate will 
end at that time.
    ii. Changes based on specified contract terms. If the account 
agreement provides that the creditor may change the initial rate 
upon the occurrence of a specified event or events, the creditor 
must identify the events or events. Examples include the consumer 
not making the required minimum payment when due, or the termination 
of an employee preferred rate when the employment relationship is 
terminated.
    2. Rate that will apply after initial rate changes.
    i. Increased margins. If the initial rate is based on an index 
and the rate may increase due to a change in the margin applied to 
the index, the creditor must disclose the increased margin. If more 
than one margin could apply, the creditor may disclose the highest 
margin.
    ii. Risk-based pricing. In some plans, the amount of the rate 
change depends on how the creditor weighs the occurrence of events 
specified in the account agreement that authorize the creditor to 
change rates, as well as other factors. Creditors must state the 
increased rate that may apply. At the creditor's option, the 
creditor may state the possible rates as a range, or by stating only 
the highest rate that could be assessed. The creditor must disclose 
the period for which the increased rate will remain in effect, such 
as ``until you make three timely payments,'' or if there is no 
limitation, the fact that the increased rate may remain 
indefinitely.
    3. Effect of rate change on balances. Creditors must disclose 
information to consumers about the balance to which the new rate 
will apply and the balance to which the current rate at the time of 
the change will apply. Card issuers subject to Sec.  226.55 may be 
subject to certain restrictions on the application of increased 
rates to certain balances.
    6(b)(5) Additional disclosures for open-end (not home-secured) 
plans.
    6(b)(5)(i) Voluntary credit insurance, debt cancellation or debt 
suspension.
    1. Timing. Under Sec.  226.4(d), disclosures required to exclude 
the cost of voluntary credit insurance or debt cancellation or debt 
suspension coverage from the finance charge must be provided before 
the consumer agrees to the purchase of the insurance or coverage. 
Creditors comply with Sec.  226.6(b)(5)(i) if they provide those 
disclosures in accordance with Sec.  226.4(d). For example, if the 
disclosures required by Sec.  226.4(d) are provided at application, 
creditors need not repeat those disclosures at account opening.
    6(b)(5)(ii) Security interests.
    1. General. Creditors are not required to use specific terms to 
describe a security interest, or to explain the type of security or 
the creditor's rights with respect to the collateral.
    2. Identification of property. Creditors sufficiently identify 
collateral by type by stating, for example, motor vehicle or 
household appliances. (Creditors should be aware, however, that the 
federal credit practices rules, as well as some state laws, prohibit 
certain security interests in household goods.) The creditor may, at 
its option, provide a more specific identification (for example, a 
model and serial number.)
    3. Spreader clause. If collateral for preexisting credit with 
the creditor will secure the plan being opened, the creditor must 
disclose that fact. (Such security interests may be known as 
``spreader'' or ``dragnet'' clauses, or as ``cross-
collateralization'' clauses.) The creditor need not specifically 
identify the collateral; a reminder such as ``collateral securing 
other loans with us may also secure this loan'' is sufficient. At 
the creditor's option, a more specific description of the property 
involved may be given.
    4. Additional collateral. If collateral is required when 
advances reach a certain

[[Page 7874]]

amount, the creditor should disclose the information available at 
the time of the account-opening disclosures. For example, if the 
creditor knows that a security interest will be taken in household 
goods if the consumer's balance exceeds $1,000, the creditor should 
disclose accordingly. If the creditor knows that security will be 
required if the consumer's balance exceeds $1,000, but the creditor 
does not know what security will be required, the creditor must 
disclose on the initial disclosure statement that security will be 
required if the balance exceeds $1,000, and the creditor must 
provide a change-in-terms notice under Sec.  226.9(c) at the time 
the security is taken. (See comment 6(b)(5)(ii)-2.)
    5. Collateral from third party. Security interests taken in 
connection with the plan must be disclosed, whether the collateral 
is owned by the consumer or a third party.
    6(b)(5)(iii) Statement of billing rights.
    1. See the commentary to Model Forms G-3(A) and G-4(A).

Section 226.7--Periodic Statement

    1. Multifeatured plans. Some plans involve a number of different 
features, such as purchases, cash advances, or overdraft checking. 
Groups of transactions subject to different finance charge terms 
because of the dates on which the transactions took place are 
treated like different features for purposes of disclosures on the 
periodic statements. The commentary includes additional guidance for 
multifeatured plans.
    7(a) Rules affecting home-equity plans.
    7(a)(1) Previous balance.
    1. Credit balances. If the previous balance is a credit balance, 
it must be disclosed in such a way so as to inform the consumer that 
it is a credit balance, rather than a debit balance.
    2. Multifeatured plans. In a multifeatured plan, the previous 
balance may be disclosed either as an aggregate balance for the 
account or as separate balances for each feature (for example, a 
previous balance for purchases and a previous balance for cash 
advances). If separate balances are disclosed, a total previous 
balance is optional.
    3. Accrued finance charges allocated from payments. Some open-
end credit plans provide that the amount of the finance charge that 
has accrued since the consumer's last payment is directly deducted 
from each new payment, rather than being separately added to each 
statement and reflected as an increase in the obligation. In such a 
plan, the previous balance need not reflect finance charges accrued 
since the last payment.
    7(a)(2) Identification of transactions.
    1. Multifeatured plans. In identifying transactions under Sec.  
226.7(a)(2) for multifeatured plans, creditors may, for example, 
choose to arrange transactions by feature (such as disclosing sale 
transactions separately from cash advance transactions) or in some 
other clear manner, such as by arranging the transactions in general 
chronological order.
    2. Automated teller machine (ATM) charges imposed by other 
institutions in shared or interchange systems. A charge imposed on 
the cardholder by an institution other than the card issuer for the 
use of the other institution's ATM in a shared or interchange system 
and included by the terminal-operating institution in the amount of 
the transaction need not be separately disclosed on the periodic 
statement.
    7(a)(3) Credits.
    1. Identification--sufficiency. The creditor need not describe 
each credit by type (returned merchandise, rebate of finance charge, 
etc.)--``credit'' would suffice--except if the creditor is using the 
periodic statement to satisfy the billing-error correction notice 
requirement. (See the commentary to Sec.  226.13(e) and (f).)
    2. Format. A creditor may list credits relating to credit 
extensions (payments, rebates, etc.) together with other types of 
credits (such as deposits to a checking account), as long as the 
entries are identified so as to inform the consumer which type of 
credit each entry represents.
    3. Date. If only one date is disclosed (that is, the crediting 
date as required by the regulation), no further identification of 
that date is necessary. More than one date may be disclosed for a 
single entry, as long as it is clear which date represents the date 
on which credit was given.
    4. Totals. A total of amounts credited during the billing cycle 
is not required.
    7(a)(4) Periodic rates.
    1. Disclosure of periodic rates--whether or not actually 
applied. Except as provided in Sec.  226.7(a)(4)(ii), any periodic 
rate that may be used to compute finance charges (and its 
corresponding annual percentage rate) must be disclosed whether or 
not it is applied during the billing cycle. For example:
    i. If the consumer's account has both a purchase feature and a 
cash advance feature, the creditor must disclose the rate for each, 
even if the consumer only makes purchases on the account during the 
billing cycle.
    ii. If the rate varies (such as when it is tied to a particular 
index), the creditor must disclose each rate in effect during the 
cycle for which the statement was issued.
    2. Disclosure of periodic rates required only if imposition 
possible. With regard to the periodic rate disclosure (and its 
corresponding annual percentage rate), only rates that could have 
been imposed during the billing cycle reflected on the periodic 
statement need to be disclosed. For example:
    i. If the creditor is changing rates effective during the next 
billing cycle (because of a variable-rate plan), the rates required 
to be disclosed under Sec.  226.7(a)(4) are only those in effect 
during the billing cycle reflected on the periodic statement. For 
example, if the monthly rate applied during May was 1.5%, but the 
creditor will increase the rate to 1.8% effective June 1, 1.5% (and 
its corresponding annual percentage rate) is the only required 
disclosure under Sec.  226.7(a)(4) for the periodic statement 
reflecting the May account activity.
    ii. If rates applicable to a particular type of transaction 
changed after a certain date and the old rate is only being applied 
to transactions that took place prior to that date, the creditor 
need not continue to disclose the old rate for those consumers that 
have no outstanding balances to which that rate could be applied.
    3. Multiple rates--same transaction. If two or more periodic 
rates are applied to the same balance for the same type of 
transaction (for example, if the finance charge consists of a 
monthly periodic rate of 1.5% applied to the outstanding balance and 
a required credit life insurance component calculated at 0.1% per 
month on the same outstanding balance), the creditor may do either 
of the following:
    i. Disclose each periodic rate, the range of balances to which 
it is applicable, and the corresponding annual percentage rate for 
each. (For example, 1.5% monthly, 18% annual percentage rate; 0.1% 
monthly, 1.2% annual percentage rate.)
    ii. Disclose one composite periodic rate (that is, 1.6% per 
month) along with the applicable range of balances and the 
corresponding annual percentage rate.
    4. Corresponding annual percentage rate. In disclosing the 
annual percentage rate that corresponds to each periodic rate, the 
creditor may use ``corresponding annual percentage rate,'' ``nominal 
annual percentage rate,'' ``corresponding nominal annual percentage 
rate,'' or similar phrases.
    5. Rate same as actual annual percentage rate. When the 
corresponding rate is the same as the annual percentage rate 
disclosed under Sec.  226.7(a)(7), the creditor need disclose only 
one annual percentage rate, but must use the phrase ``annual 
percentage rate.''
    6. Range of balances. See comment 6(a)(1)(ii)-1. A creditor is 
not required to adjust the range of balances disclosure to reflect 
the balance below which only a minimum charge applies.
    7(a)(5) Balance on which finance charge computed.
    1. Limitation to periodic rates. Section 226.7(a)(5) only 
requires disclosure of the balance(s) to which a periodic rate was 
applied and does not apply to balances on which other kinds of 
finance charges (such as transaction charges) were imposed. For 
example, if a consumer obtains a $1,500 cash advance subject to both 
a 1% transaction fee and a 1% monthly periodic rate, the creditor 
need only disclose the balance subject to the monthly rate (which 
might include portions of earlier cash advances not paid off in 
previous cycles).
    2. Split rates applied to balance ranges. If split rates were 
applied to a balance because different portions of the balance fall 
within two or more balance ranges, the creditor need not separately 
disclose the portions of the balance subject to such different rates 
since the range of balances to which the rates apply has been 
separately disclosed. For example, a creditor could disclose a 
balance of $700 for purchases even though a monthly periodic rate of 
1.5% applied to the first $500, and a monthly periodic rate of 1% to 
the remainder. This option to disclose a combined balance does not 
apply when the finance charge is computed by applying the split 
rates to each day's balance (in contrast, for example, to applying 
the rates to the average daily balance). In that case, the balances 
must be disclosed using any of the options that are available if two 
or more daily rates are imposed. (See comment 7(a)(5)-5.)
    3. Monthly rate on average daily balance. Creditors may apply a 
monthly periodic rate to an average daily balance.
    4. Multifeatured plans. In a multifeatured plan, the creditor 
must disclose a separate balance (or balances, as applicable) to 
which

[[Page 7875]]

a periodic rate was applied for each feature or group of features 
subject to different periodic rates or different balance computation 
methods. Separate balances are not required, however, merely because 
a grace period is available for some features but not others. A 
total balance for the entire plan is optional. This does not affect 
how many balances the creditor must disclose--or may disclose--
within each feature. (See, for example, comment 7(a)(5)-5.)
    5. Daily rate on daily balances. i. If the finance charge is 
computed on the balance each day by application of one or more daily 
periodic rates, the balance on which the finance charge was computed 
may be disclosed in any of the following ways for each feature:
    ii. If a single daily periodic rate is imposed, the balance to 
which it is applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the 
balance in the account changes.
    C. The sum of the daily balances during the billing cycle.
    D. The average daily balance during the billing cycle, in which 
case the creditor shall explain that the average daily balance is or 
can be multiplied by the number of days in the billing cycle and the 
periodic rate applied to the product to determine the amount of the 
finance charge.
    iii. If two or more daily periodic rates may be imposed, the 
balances to which the rates are applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the 
balance in the account changes.
    C. Two or more average daily balances, each applicable to the 
daily periodic rates imposed for the time that those rates were in 
effect, as long as the creditor explains that the finance charge is 
or may be determined by (1) multiplying each of the average balances 
by the number of days in the billing cycle (or if the daily rate 
varied during the cycle, by multiplying by the number of days the 
applicable rate was in effect), (2) multiplying each of the results 
by the applicable daily periodic rate, and (3) adding these products 
together.
    6. Explanation of balance computation method. See the commentary 
to 6(a)(1)(iii).
    7. Information to compute balance. In connection with disclosing 
the finance charge balance, the creditor need not give the consumer 
all of the information necessary to compute the balance if that 
information is not otherwise required to be disclosed. For example, 
if current purchases are included from the date they are posted to 
the account, the posting date need not be disclosed.
    8. Non-deduction of credits. The creditor need not specifically 
identify the total dollar amount of credits not deducted in 
computing the finance charge balance. Disclosure of the amount of 
credits not deducted is accomplished by listing the credits (Sec.  
226.7(a)(3)) and indicating which credits will not be deducted in 
determining the balance (for example, ``credits after the 15th of 
the month are not deducted in computing the finance charge.'').
    9. Use of one balance computation method explanation when 
multiple balances disclosed. Sometimes the creditor will disclose 
more than one balance to which a periodic rate was applied, even 
though each balance was computed using the same balance computation 
method. For example, if a plan involves purchases and cash advances 
that are subject to different rates, more than one balance must be 
disclosed, even though the same computation method is used for 
determining the balance for each feature. In these cases, one 
explanation of the balance computation method is sufficient. 
Sometimes the creditor separately discloses the portions of the 
balance that are subject to different rates because different 
portions of the balance fall within two or more balance ranges, even 
when a combined balance disclosure would be permitted under comment 
7(a)(5)-2. In these cases, one explanation of the balance 
computation method is also sufficient (assuming, of course, that all 
portions of the balance were computed using the same method).
    7(a)(6) Amount of finance charge and other charges.
    Paragraph 7(a)(6)(i).
    1. Total. A total finance charge amount for the plan is not 
required.
    2. Itemization--types of finance charges. Each type of finance 
charge (such as periodic rates, transaction charges, and minimum 
charges) imposed during the cycle must be separately itemized; for 
example, disclosure of only a combined finance charge attributable 
to both a minimum charge and transaction charges would not be 
permissible. Finance charges of the same type may be disclosed, 
however, individually or as a total. For example, five transaction 
charges of $1 may be listed separately or as $5.
    3. Itemization--different periodic rates. Whether different 
periodic rates are applicable to different types of transactions or 
to different balance ranges, the creditor may give the finance 
charge attributable to each rate or may give a total finance charge 
amount. For example, if a creditor charges 1.5% per month on the 
first $500 of a balance and 1% per month on amounts over $500, the 
creditor may itemize the two components ($7.50 and $1.00) of the 
$8.50 charge, or may disclose $8.50.
    4. Multifeatured plans. In a multifeatured plan, in disclosing 
the amount of the finance charge attributable to the application of 
periodic rates no total periodic rate disclosure for the entire plan 
need be given.
    5. Finance charges not added to account. A finance charge that 
is not included in the new balance because it is payable to a third 
party (such as required life insurance) must still be shown on the 
periodic statement as a finance charge.
    6. Finance charges other than periodic rates. See comment 
6(a)(1)(iv)-1 for examples.
    7. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since 
the consumer's last payment is directly deducted from each new 
payment, rather than being separately added to each statement and 
therefore reflected as an increase in the obligation. In such a 
plan, no disclosure is required of finance charges that have accrued 
since the last payment.
    8. Start-up fees. Points, loan fees, and similar finance charges 
relating to the opening of the account that are paid prior to the 
issuance of the first periodic statement need not be disclosed on 
the periodic statement. If, however, these charges are financed as 
part of the plan, including charges that are paid out of the first 
advance, the charges must be disclosed as part of the finance charge 
on the first periodic statement. However, they need not be factored 
into the annual percentage rate. (See Sec.  226.14(c)(3).)
    Paragraph 7(a)(6)(ii).
    1. Identification. In identifying any other charges actually 
imposed during the billing cycle, the type is adequately described 
as late charge or membership fee, for example. Similarly, closing 
costs or settlement costs, for example, may be used to describe 
charges imposed in connection with real estate transactions that are 
excluded from the finance charge under Sec.  226.4(c)(7), if the 
same term (such as closing costs) was used in the initial 
disclosures and if the creditor chose to itemize and individually 
disclose the costs included in that term. Even though the taxes and 
filing or notary fees excluded from the finance charge under Sec.  
226.4(e) are not required to be disclosed as other charges under 
Sec.  226.6(a)(2), these charges may be included in the amount shown 
as closing costs or settlement costs on the periodic statement, if 
the charges were itemized and disclosed as part of the closing costs 
or settlement costs on the initial disclosure statement. (See 
comment 6(a)(2)-1 for examples of other charges.)
    2. Date. The date of imposing or debiting other charges need not 
be disclosed.
    3. Total. Disclosure of the total amount of other charges is 
optional.
    4. Itemization--types of other charges. Each type of other 
charge (such as late-payment charges, over-the-credit-limit charges, 
and membership fees) imposed during the cycle must be separately 
itemized; for example, disclosure of only a total of other charges 
attributable to both an over-the-credit-limit charge and a late-
payment charge would not be permissible. Other charges of the same 
type may be disclosed, however, individually or as a total. For 
example, three fees of $3 for providing copies related to the 
resolution of a billing error could be listed separately or as $9.
    7(a)(7) Annual percentage rate.
    1. Plans subject to the requirements of Sec.  226.5b. For home-
equity plans subject to the requirements of Sec.  226.5b, creditors 
are not required to disclose an effective annual percentage rate. 
Creditors that state an annualized rate in addition to the 
corresponding annual percentage rate required by Sec.  226.7(a)(4) 
must calculate that rate in accordance with Sec.  226.14(c).
    2. Labels. Creditors that choose to disclose an annual 
percentage rate calculated under Sec.  226.14(c) and label the 
figure as ``annual percentage rate'' must label the periodic rate 
expressed as an annualized rate as the

[[Page 7876]]

``corresponding APR,'' ``nominal APR,'' or a similar phrase as 
provided in comment 7(a)(4)-4. Creditors also comply with the label 
requirement if the rate calculated under Sec.  226.14(c) is 
described as the ``effective APR'' or something similar. For those 
creditors, the periodic rate expressed as an annualized rate could 
be labeled ``annual percentage rate,'' consistent with the 
requirement under Sec.  226.7(b)(4). If the two rates represent 
different values, creditors must label the rates differently to meet 
the clear and conspicuous standard under Sec.  226.5(a)(1).
    7(a)(8) Grace period.
    1. Terminology. Although the creditor is required to indicate 
any time period the consumer may have to pay the balance outstanding 
without incurring additional finance charges, no specific wording is 
required, so long as the language used is consistent with that used 
on the account-opening disclosure statement. For example, ``To avoid 
additional finance charges, pay the new balance before --------'' 
would suffice.
    7(a)(9) Address for notice of billing errors.
    1. Terminology. The periodic statement should indicate the 
general purpose for the address for billing-error inquiries, 
although a detailed explanation or particular wording is not 
required.
    2. Telephone number. A telephone number, e-mail address, or Web 
site location may be included, but the mailing address for billing-
error inquiries, which is the required disclosure, must be clear and 
conspicuous. The address is deemed to be clear and conspicuous if a 
precautionary instruction is included that telephoning or notifying 
the creditor by e-mail or Web site will not preserve the consumer's 
billing rights, unless the creditor has agreed to treat billing 
error notices provided by electronic means as written notices, in 
which case the precautionary instruction is required only for 
telephoning.
    7(a)(10) Closing date of billing cycle; new balance.
    1. Credit balances. See comment 7(a)(1)-1.
    2. Multifeatured plans. In a multifeatured plan, the new balance 
may be disclosed for each feature or for the plan as a whole. If 
separate new balances are disclosed, a total new balance is 
optional.
    3. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since 
the consumer's last payment is directly deducted from each new 
payment, rather than being separately added to each statement and 
therefore reflected as an increase in the obligation. In such a 
plan, the new balance need not reflect finance charges accrued since 
the last payment.
    7(b) Rules affecting open-end (not home-secured) plans.
    7(b) Rules affecting open-end (not home-secured) plans.
    1. Deferred interest or similar transactions. Creditors offer a 
variety of payment plans for purchases that permit consumers to 
avoid interest charges if the purchase balance is paid in full by a 
certain date. ``Deferred interest'' has the same meaning as in Sec.  
226.16(h)(2) and associated commentary. The following provides 
guidance for a deferred interest or similar plan where, for example, 
no interest charge is imposed on a $500 purchase made in January if 
the $500 balance is paid by July 31.
    i. Annual percentage rates. Under Sec.  226.7(b)(4), creditors 
must disclose each annual percentage rate that may be used to 
compute the interest charge. Under some plans with a deferred 
interest or similar feature, if the deferred interest balance is not 
paid by a certain date, July 31 in this example, interest charges 
applicable to the billing cycles between the date of purchase in 
January and July 31 may be imposed. Annual percentage rates that may 
apply to the deferred interest balance ($500 in this example) if the 
balance is not paid in full by July 31 must appear on periodic 
statements for the billing cycles between the date of purchase and 
July 31. However, if the consumer does not pay the deferred interest 
balance by July 31, the creditor is not required to identify, on the 
periodic statement disclosing the interest charge for the deferred 
interest balance, annual percentage rates that have been disclosed 
in previous billing cycles between the date of purchase and July 31.
    ii. Balances subject to periodic rates. Under Sec.  226.7(b)(5), 
creditors must disclose the balances subject to interest during a 
billing cycle. The deferred interest balance ($500 in this example) 
is not subject to interest for billing cycles between the date of 
purchase and July 31 in this example. Periodic statements sent for 
those billing cycles should not include the deferred interest 
balance in the balance disclosed under Sec.  226.7(b)(5). This 
amount must be separately disclosed on periodic statements and 
identified by a term other than the term used to identify the 
balance disclosed under Sec.  226.7(b)(5) (such as ``deferred 
interest balance''). During any billing cycle in which an interest 
charge on the deferred interest balance is debited to the account, 
the balance disclosed under Sec.  226.7(b)(5) should include the 
deferred interest balance for that billing cycle.
    iii. Amount of interest charge. Under Sec.  226.7(b)(6)(ii), 
creditors must disclose interest charges imposed during a billing 
cycle. For some deferred interest purchases, the creditor may impose 
interest from the date of purchase if the deferred interest balance 
($500 in this example) is not paid in full by July 31 in this 
example, but otherwise will not impose interest for billing cycles 
between the date of purchase and July 31. Periodic statements for 
billing cycles preceding July 31 in this example should not include 
in the interest charge disclosed under Sec.  226.7(b)(6)(ii) the 
amounts a consumer may owe if the deferred interest balance is not 
paid in full by July 31. In this example, the February periodic 
statement should not identify as interest charges interest 
attributable to the $500 January purchase. This amount must be 
separately disclosed on periodic statements and identified by a term 
other than ``interest charge'' (such as ``contingent interest 
charge'' or ``deferred interest charge''). The interest charge on a 
deferred interest balance should be reflected on the periodic 
statement under Sec.  226.7(b)(6)(ii) for the billing cycle in which 
the interest charge is debited to the account.
    iv. Due date to avoid obligation for finance charges under a 
deferred interest or similar program. Section 226.7(b)(14) requires 
disclosure on periodic statements of the date by which any 
outstanding balance subject to a deferred interest or similar 
program must be paid in full in order to avoid the obligation for 
finance charges on such balance. This disclosure must appear on the 
front of each periodic statement issued during the deferred interest 
period beginning with the first periodic statement issued during the 
deferred interest period that reflects the deferred interest or 
similar transaction.
    7(b)(1) Previous balance.
    1. Credit balances. If the previous balance is a credit balance, 
it must be disclosed in such a way so as to inform the consumer that 
it is a credit balance, rather than a debit balance.
    2. Multifeatured plans. In a multifeatured plan, the previous 
balance may be disclosed either as an aggregate balance for the 
account or as separate balances for each feature (for example, a 
previous balance for purchases and a previous balance for cash 
advances). If separate balances are disclosed, a total previous 
balance is optional.
    3. Accrued finance charges allocated from payments. Some open-
end credit plans provide that the amount of the finance charge that 
has accrued since the consumer's last payment is directly deducted 
from each new payment, rather than being separately added to each 
statement and reflected as an increase in the obligation. In such a 
plan, the previous balance need not reflect finance charges accrued 
since the last payment.
    7(b)(2) Identification of transactions.
    1. Multifeatured plans. Creditors may, but are not required to, 
arrange transactions by feature (such as disclosing purchase 
transactions separately from cash advance transactions). Pursuant to 
Sec.  226.7(b)(6), however, creditors must group all fees and all 
interest separately from transactions and may not disclose any fees 
or interest charges with transactions.
    2. Automated teller machine (ATM) charges imposed by other 
institutions in shared or interchange systems. A charge imposed on 
the cardholder by an institution other than the card issuer for the 
use of the other institution's ATM in a shared or interchange system 
and included by the terminal-operating institution in the amount of 
the transaction need not be separately disclosed on the periodic 
statement.
    7(b)(3) Credits.
    1. Identification--sufficiency. The creditor need not describe 
each credit by type (returned merchandise, rebate of finance charge, 
etc.)--``credit'' would suffice--except if the creditor is using the 
periodic statement to satisfy the billing-error correction notice 
requirement. (See the commentary to Sec.  226.13(e) and (f).) 
Credits may be distinguished from transactions in any way that is 
clear and conspicuous, for example, by use of debit and credit 
columns or by use of plus signs and/or minus signs.
    2. Date. If only one date is disclosed (that is, the crediting 
date as required by the regulation), no further identification of 
that date is necessary. More than one date may be

[[Page 7877]]

disclosed for a single entry, as long as it is clear which date 
represents the date on which credit was given.
    3. Totals. A total of amounts credited during the billing cycle 
is not required.
    7(b)(4) Periodic rates.
    1. Disclosure of periodic interest rates--whether or not 
actually applied. Except as provided in Sec.  226.7(b)(4)(ii), any 
periodic interest rate that may be used to compute finance charges, 
expressed as and labeled ``Annual Percentage Rate,'' must be 
disclosed whether or not it is applied during the billing cycle. For 
example:
    i. If the consumer's account has both a purchase feature and a 
cash advance feature, the creditor must disclose the annual 
percentage rate for each, even if the consumer only makes purchases 
on the account during the billing cycle.
    ii. If the annual percentage rate varies (such as when it is 
tied to a particular index), the creditor must disclose each annual 
percentage rate in effect during the cycle for which the statement 
was issued.
    2. Disclosure of periodic interest rates required only if 
imposition possible. With regard to the periodic interest rate 
disclosure (and its corresponding annual percentage rate), only 
rates that could have been imposed during the billing cycle 
reflected on the periodic statement need to be disclosed. For 
example:
    i. If the creditor is changing annual percentage rates effective 
during the next billing cycle (either because it is changing terms 
or because of a variable-rate plan), the annual percentage rates 
required to be disclosed under Sec.  226.7(b)(4) are only those in 
effect during the billing cycle reflected on the periodic statement. 
For example, if the annual percentage rate applied during May was 
18%, but the creditor will increase the rate to 21% effective June 
1, 18% is the only required disclosure under Sec.  226.7(b)(4) for 
the periodic statement reflecting the May account activity.
    ii. If the consumer has an overdraft line that might later be 
expanded upon the consumer's request to include secured advances, 
the rates for the secured advance feature need not be given until 
such time as the consumer has requested and received access to the 
additional feature.
    iii. If annual percentage rates applicable to a particular type 
of transaction changed after a certain date and the old rate is only 
being applied to transactions that took place prior to that date, 
the creditor need not continue to disclose the old rate for those 
consumers that have no outstanding balances to which that rate could 
be applied.
    3. Multiple rates--same transaction. If two or more periodic 
rates are applied to the same balance for the same type of 
transaction (for example, if the interest charge consists of a 
monthly periodic interest rate of 1.5% applied to the outstanding 
balance and a required credit life insurance component calculated at 
0.1% per month on the same outstanding balance), creditors must 
disclose the periodic interest rate, expressed as an 18% annual 
percentage rate and the range of balances to which it is applicable. 
Costs attributable to the credit life insurance component must be 
disclosed as a fee under Sec.  226.7(b)(6)(iii).
    4. Fees. Creditors that identify fees in accordance with Sec.  
226.7(b)(6)(iii) need not identify the periodic rate at which a fee 
would accrue if the fee remains unpaid. For example, assume a fee is 
imposed for a late payment in the previous cycle and that the fee, 
unpaid, would be included in the purchases balance and accrue 
interest at the rate for purchases. The creditor need not separately 
disclose that the purchase rate applies to the portion of the 
purchases balance attributable to the unpaid fee.
    5. Ranges of balances. See comment 6(b)(4)(i)(B)-1. A creditor 
is not required to adjust the range of balances disclosure to 
reflect the balance below which only a minimum charge applies.
    6. Deferred interest transactions. See comment 7(b)-1.i.
    7(b)(5) Balance on which finance charge computed.
    1. Split rates applied to balance ranges. If split rates were 
applied to a balance because different portions of the balance fall 
within two or more balance ranges, the creditor need not separately 
disclose the portions of the balance subject to such different rates 
since the range of balances to which the rates apply has been 
separately disclosed. For example, a creditor could disclose a 
balance of $700 for purchases even though a monthly periodic rate of 
1.5% applied to the first $500, and a monthly periodic rate of 1% to 
the remainder. This option to disclose a combined balance does not 
apply when the interest charge is computed by applying the split 
rates to each day's balance (in contrast, for example, to applying 
the rates to the average daily balance). In that case, the balances 
must be disclosed using any of the options that are available if two 
or more daily rates are imposed. (See comment 7(b)(5)-4.)
    2. Monthly rate on average daily balance. Creditors may apply a 
monthly periodic rate to an average daily balance.
    3. Multifeatured plans. In a multifeatured plan, the creditor 
must disclose a separate balance (or balances, as applicable) to 
which a periodic rate was applied for each feature. Separate 
balances are not required, however, merely because a grace period is 
available for some features but not others. A total balance for the 
entire plan is optional. This does not affect how many balances the 
creditor must disclose--or may disclose--within each feature. (See, 
for example, comments 7(b)(5)-4 and 7(b)(4)-5.)
    4. Daily rate on daily balance. i. If a finance charge is 
computed on the balance each day by application of one or more daily 
periodic interest rates, the balance on which the interest charge 
was computed may be disclosed in any of the following ways for each 
feature:
    ii. If a single daily periodic interest rate is imposed, the 
balance to which it is applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the 
balance in the account changes.
    C. The sum of the daily balances during the billing cycle.
    D. The average daily balance during the billing cycle, in which 
case the creditor may, at its option, explain that the average daily 
balance is or can be multiplied by the number of days in the billing 
cycle and the periodic rate applied to the product to determine the 
amount of interest.
    iii. If two or more daily periodic interest rates may be 
imposed, the balances to which the rates are applicable may be 
stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the 
balance in the account changes.
    C. Two or more average daily balances, each applicable to the 
daily periodic interest rates imposed for the time that those rates 
were in effect. The creditor may, at its option, explain that 
interest is or may be determined by (1) multiplying each of the 
average balances by the number of days in the billing cycle (or if 
the daily rate varied during the cycle, by multiplying by the number 
of days the applicable rate was in effect), (2) multiplying each of 
the results by the applicable daily periodic rate, and (3) adding 
these products together.
    5. Information to compute balance. In connection with disclosing 
the interest charge balance, the creditor need not give the consumer 
all of the information necessary to compute the balance if that 
information is not otherwise required to be disclosed. For example, 
if current purchases are included from the date they are posted to 
the account, the posting date need not be disclosed.
    6. Non-deduction of credits. The creditor need not specifically 
identify the total dollar amount of credits not deducted in 
computing the finance charge balance. Disclosure of the amount of 
credits not deducted is accomplished by listing the credits (Sec.  
226.7(b)(3)) and indicating which credits will not be deducted in 
determining the balance (for example, ``credits after the 15th of 
the month are not deducted in computing the interest charge.'').
    7. Use of one balance computation method explanation when 
multiple balances disclosed. Sometimes the creditor will disclose 
more than one balance to which a periodic rate was applied, even 
though each balance was computed using the same balance computation 
method. For example, if a plan involves purchases and cash advances 
that are subject to different rates, more than one balance must be 
disclosed, even though the same computation method is used for 
determining the balance for each feature. In these cases, one 
explanation or a single identification of the name of the balance 
computation method is sufficient. Sometimes the creditor separately 
discloses the portions of the balance that are subject to different 
rates because different portions of the balance fall within two or 
more balance ranges, even when a combined balance disclosure would 
be permitted under comment 7(b)(5)-1. In these cases, one 
explanation or a single identification of the name of the balance 
computation method is also sufficient (assuming, of course, that all 
portions of the balance were computed using the same method).
    8. Deferred interest transactions. See comment 7(b)-1.ii.
    7(b)(6) Charges imposed.

[[Page 7878]]

    1. Examples of charges. See commentary to Sec.  226.6(b)(3).
    2. Fees. Costs attributable to periodic rates other than 
interest charges shall be disclosed as a fee. For example, if a 
consumer obtains credit life insurance that is calculated at 0.1% 
per month on an outstanding balance and a monthly interest rate of 
1.5% applies to the same balance, the creditor must disclose the 
dollar cost attributable to interest as an ``interest charge'' and 
the credit insurance cost as a ``fee.''
    3. Total fees for calendar year to date.
    i. Monthly statements. Some creditors send monthly statements 
but the statement periods do not coincide with the calendar month. 
For creditors sending monthly statements, the following comply with 
the requirement to provide calendar year-to-date totals.
    A. A creditor may disclose a calendar-year-to-date total at the 
end of the calendar year by aggregating fees for 12 monthly cycles, 
starting with the period that begins during January and finishing 
with the period that begins during December. For example, if 
statement periods begin on the 10th day of each month, the statement 
covering December 10, 2011 through January 9, 2012, may disclose the 
year-to-date total for fees imposed from January 10, 2011, through 
January 9, 2012. Alternatively, the creditor could provide a 
statement for the cycle ending January 9, 2012, showing the year-to-
date total for fees imposed January 1, 2011, through December 31, 
2011.
    B. A creditor may disclose a calendar-year-to-date total at the 
end of the calendar year by aggregating fees for 12 monthly cycles, 
starting with the period that begins during December and finishing 
with the period that begins during November. For example, if 
statement periods begin on the 10th day of each month, the statement 
covering November 10, 2011 through December 9, 2011, may disclose 
the year-to-date total for fees imposed from December 10, 2010, 
through December 9, 2011.
    ii. Quarterly statements. Creditors issuing quarterly statements 
may apply the guidance set forth for monthly statements to comply 
with the requirement to provide calendar year-to-date totals on 
quarterly statements.
    4. Minimum charge in lieu of interest. A minimum charge imposed 
if a charge would otherwise have been determined by applying a 
periodic rate to a balance except for the fact that such charge is 
smaller than the minimum must be disclosed as a fee. For example, 
assume a creditor imposes a minimum charge of $1.50 in lieu of 
interest if the calculated interest for a billing period is less 
than that minimum charge. If the interest calculated on a consumer's 
account for a particular billing period is 50 cents, the minimum 
charge of $1.50 would apply. In this case, the entire $1.50 would be 
disclosed as a fee; the periodic statement would reflect the $1.50 
as a fee, and $0 in interest.
    5. Adjustments to year-to-date totals. In some cases, a creditor 
may provide a statement for the current period reflecting that fees 
or interest charges imposed during a previous period were waived or 
reversed and credited to the account. Creditors may, but are not 
required to, reflect the adjustment in the year-to-date totals, nor, 
if an adjustment is made, to provide an explanation about the reason 
for the adjustment. Such adjustments should not affect the total 
fees or interest charges imposed for the current statement period.
    6. Acquired accounts. An institution that acquires an account or 
plan must include, as applicable, fees and charges imposed on the 
account or plan prior to the acquisition in the aggregate 
disclosures provided under Sec.  226.7(b)(6) for the acquired 
account or plan. Alternatively, the institution may provide separate 
totals reflecting activity prior and subsequent to the account or 
plan acquisition. For example, a creditor that acquires an account 
or plan on August 12 of a given calendar year may provide one total 
for the period from January 1 to August 11 and a separate total for 
the period beginning on August 12.
    7. Account upgrades. A creditor that upgrades, or otherwise 
changes, a consumer's plan to a different open-end credit plan must 
include, as applicable, fees and charges imposed for that portion of 
the calendar year prior to the upgrade or change in the consumer's 
plan in the aggregate disclosures provided pursuant to Sec.  
226.7(b)(6) for the new plan. For example, assume a consumer has 
incurred $125 in fees for the calendar year to date for a retail 
credit card account, which is then replaced by a cobranded credit 
card account also issued by the creditor. In this case, the creditor 
must reflect the $125 in fees incurred prior to the replacement of 
the retail credit card account in the calendar year-to-date totals 
provided for the cobranded credit card account. Alternatively, the 
institution may provide two separate totals reflecting activity 
prior and subsequent to the plan upgrade or change.
    7(b)(7) Change-in-terms and increased penalty rate summary for 
open-end (not home-secured) plans.
    1. Location of summary tables. If a change-in-terms notice 
required by Sec.  226.9(c)(2) is provided on or with a periodic 
statement, a tabular summary of key changes must appear on the front 
of the statement. Similarly, if a notice of a rate increase due to 
delinquency or default or as a penalty required by Sec.  226.9(g)(1) 
is provided on or with a periodic statement, information required to 
be provided about the increase, presented in a table, must appear on 
the front of the statement.
    7(b)(8) Grace period.
    1. Terminology. In describing the grace period, the language 
used must be consistent with that used on the account-opening 
disclosure statement. (See Sec.  226.5(a)(2)(i).)
    2. Deferred interest transactions. See comment 7(b)-1.iv.
    3. Limitations on the imposition of finance charges in Sec.  
226.54. Section 226.7(b)(8) does not require a card issuer to 
disclose the limitations on the imposition of finance charges in 
Sec.  226.54.
    7(b)(9) Address for notice of billing errors.
    1. Terminology. The periodic statement should indicate the 
general purpose for the address for billing-error inquiries, 
although a detailed explanation or particular wording is not 
required.
    2. Telephone number. A telephone number, e-mail address, or Web 
site location may be included, but the mailing address for billing-
error inquiries, which is the required disclosure, must be clear and 
conspicuous. The address is deemed to be clear and conspicuous if a 
precautionary instruction is included that telephoning or notifying 
the creditor by e-mail or Web site will not preserve the consumer's 
billing rights, unless the creditor has agreed to treat billing 
error notices provided by electronic means as written notices, in 
which case the precautionary instruction is required only for 
telephoning.
    7(b)(10) Closing date of billing cycle; new balance.
    1. Credit balances. See comment 7(b)(1)-1.
    2. Multifeatured plans. In a multifeatured plan, the new balance 
may be disclosed for each feature or for the plan as a whole. If 
separate new balances are disclosed, a total new balance is 
optional.
    3. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since 
the consumer's last payment is directly deducted from each new 
payment, rather than being separately added to each statement and 
therefore reflected as an increase in the obligation. In such a 
plan, the new balance need not reflect finance charges accrued since 
the last payment.
    7(b)(11) Due date; late payment costs.
    1. Informal periods affecting late payments. Although the terms 
of the account agreement may provide that a card issuer may assess a 
late payment fee if a payment is not received by a certain date, the 
card issuer may have an informal policy or practice that delays the 
assessment of the late payment fee for payments received a brief 
period of time after the date upon which a card issuer has the 
contractual right to impose the fee. A card issuer must disclose the 
due date according to the legal obligation between the parties, and 
need not consider the end of an informal ``courtesy period'' as the 
due date under Sec.  226.7(b)(11).
    2. Assessment of late payment fees. Some state or other laws 
require that a certain number of days must elapse following a due 
date before a late payment fee may be imposed. In addition, a card 
issuer may be restricted by the terms of the account agreement from 
imposing a late payment fee until a payment is late for a certain 
number of days following a due date. For example, assume a payment 
is due on March 10 and the account agreement or state law provides 
that a late payment fee cannot be assessed before March 21. A card 
issuer must disclose the due date under the terms of the legal 
obligation (March 10 in this example), and not a date different than 
the due date, such as when the card issuer is restricted by the 
account agreement or state or other law from imposing a late payment 
fee unless a payment is late for a certain number of days following 
the due date (March 21 in this example). Consumers' rights under 
state law to avoid the imposition of late payment fees during a 
specified period following a due date are unaffected by the 
disclosure requirement. In this example, the card issuer would 
disclose March 10 as the due date for purposes of Sec.  
226.7(b)(11), but could not, under state law, assess a late payment 
fee before March 21.

[[Page 7879]]

    3. Fee or rate triggered by multiple events. If a late payment 
fee or penalty rate is triggered after multiple events, such as two 
late payments in six months, the card issuer may, but is not 
required to, disclose the late payment and penalty rate disclosure 
each month. The disclosures must be included on any periodic 
statement for which a late payment could trigger the late payment 
fee or penalty rate, such as after the consumer made one late 
payment in this example. For example, if a cardholder has already 
made one late payment, the disclosure must be on each statement for 
the following five billing cycles.
    4. Range of late fees or penalty rates. A card issuer that 
imposes a range of late payment fees or rates on a credit card 
account under an open-end (not home-secured) consumer credit plan 
may state the highest fee or rate along with an indication lower 
fees or rates could be imposed. For example, a phrase indicating the 
late payment fee could be ``up to $29'' complies with this 
requirement.
    5. Penalty rate in effect. If the highest penalty rate has 
previously been triggered on an account, the card issuer may, but is 
not required to, delete the amount of the penalty rate and the 
warning that the rate may be imposed for an untimely payment, as not 
applicable. Alternatively, the card issuer may, but is not required 
to, modify the language to indicate that the penalty rate has been 
increased due to previous late payments (if applicable).
    6. Same day each month. The requirement that the due date be the 
same day each month means that the due date must generally be the 
same numerical date. For example, a consumer's due date could be the 
25th of every month. In contrast, a due date that is the same 
relative date but not numerical date each month, such as the third 
Tuesday of the month, generally would not comply with this 
requirement. However, a consumer's due date may be the last day of 
each month, even though that date will not be the same numerical 
date. For example, if a consumer's due date is the last day of each 
month, it will fall on February 28th (or February 29th in a leap 
year) and on August 31st.
    7. Change in due date. A creditor may adjust a consumer's due 
date from time to time provided that the new due date will be the 
same numerical date each month on an ongoing basis. For example, a 
creditor may choose to honor a consumer's request to change from a 
due date that is the 20th of each month to the 5th of each month, or 
may choose to change a consumer's due date from time to time for 
operational reasons. See comment 2(a)(4)-3 for guidance on 
transitional billing cycles.
    8. Billing cycles longer than one month. The requirement that 
the due date be the same day each month does not prohibit billing 
cycles that are two or three months, provided that the due date for 
each billing cycle is on the same numerical date of the month. For 
example, a creditor that establishes two-month billing cycles could 
send a consumer periodic statements disclosing due dates of January 
25, March 25, and May 25.
    9. Payment due date when the creditor does not accept or receive 
payments by mail. If the due date in a given month falls on a day on 
which the creditor does not receive or accept payments by mail and 
the creditor is required to treat a payment received the next 
business day as timely pursuant to Sec.  226.10(d), the creditor 
must disclose the due date according to the legal obligation between 
the parties, not the date as of which the creditor is permitted to 
treat the payment as late. For example, assume that the consumer's 
due date is the 4th of every month and the creditor does not accept 
or receive payments by mail on Thursday, July 4. Pursuant to Sec.  
226.10(d), the creditor may not treat a mailed payment received on 
the following business day, Friday, July 5, as late for any purpose. 
The creditor must nonetheless disclose July 4 as the due date on the 
periodic statement and may not disclose a July 5 due date.
    7(b)(12) Repayment disclosures.
    Paragraph 7(b)(12)(i)(F)
    1. Minimum payment repayment estimate disclosed on the periodic 
statement is three years or less. Section 226.7(b)(12)(i)(F)(2)(i) 
provides that a credit card issuer is not required to provide the 
disclosures related to repayment in 36 months if the minimum payment 
repayment estimate disclosed under Sec.  226.7(b)(12)(i)(B) after 
rounding is 3 years or less. For example, if the minimum payment 
repayment estimate is 2 years 6 months to 3 years 5 months, issuers 
would be required under Sec.  226.7(b)(12)(i)(B) to disclose that it 
would take 3 years to pay off the balance in full if making only the 
minimum payment. In these cases, an issuer would not be required to 
disclose the 36-month disclosures on the periodic statement because 
the minimum payment repayment estimate disclosed to the consumer on 
the periodic statement (after rounding) is 3 years or less.
    7(b)(12)(iv) Provision of information about credit counseling 
services.
    1. Approved organizations. Section 226.7(b)(12)(iv)(A) requires 
card issuers to provide information regarding at least three 
organizations that have been approved by the United States Trustee 
or a bankruptcy administrator pursuant to 11 U.S.C. 111(a)(1) to 
provide credit counseling services in, at the card issuer's option, 
either the state in which the billing address for the account is 
located or the state specified by the consumer. A card issuer does 
not satisfy the requirements in Sec.  226.7(b)(12)(iv)(A) by 
providing information regarding providers that have been approved 
pursuant to 11 U.S.C. 111(a)(2) to offer personal financial 
management courses.
    2. Information regarding approved organizations.
    i. Provision of information obtained from United States Trustee 
or bankruptcy administrator. A card issuer complies with the 
requirements of Sec.  226.7(b)(12)(iv)(A) if, through the toll-free 
number disclosed pursuant to Sec.  226.7(b)(12)(i) or (b)(12)(ii), 
it provides the consumer with information obtained from the United 
States Trustee or a bankruptcy administrator, such as information 
obtained from the Web site operated by the United States Trustee. 
Section 226.7(b)(12)(iv)(A) does not require a card issuer to 
provide information that is not available from the United States 
Trustee or a bankruptcy administrator. If, for example, the Web site 
address for an organization approved by the United States Trustee is 
not available from the Web site operated by the United States 
Trustee, a card issuer is not required to provide a Web site address 
for that organization. However, Sec.  226.7(b)(12)(iv)(B) requires 
the card issuer to, at least annually, update the information it 
provides for consistency with the information provided by the United 
States Trustee or a bankruptcy administrator.
    ii. Provision of information consistent with request of approved 
organization. If requested by an approved organization, a card 
issuer may at its option provide, in addition to the name of the 
organization obtained from the United States Trustee or a bankruptcy 
administrator, another name used by that organization through the 
toll-free number disclosed pursuant to Sec.  226.7(b)(12)(i) or 
(b)(12)(ii). In addition, if requested by an approved organization, 
a card issuer may at its option provide through the toll-free number 
disclosed pursuant to Sec.  226.7(b)(12)(i) or (b)(12)(ii) a street 
address, telephone number, or Web site address for the organization 
that is different than the street address, telephone number, or Web 
site address obtained from the United States Trustee or a bankruptcy 
administrator. However, if requested by an approved organization, a 
card issuer must not provide information regarding that organization 
through the toll-free number disclosed pursuant to Sec.  
226.7(b)(12)(i) or (b)(12)(ii).
    iii. Information regarding approved organizations that provide 
credit counseling services in a language other than English. A card 
issuer may at its option provide through the toll-free number 
disclosed pursuant to Sec.  226.7(b)(12)(i) or (b)(12)(ii) 
information regarding approved organizations that provide credit 
counseling services in languages other than English. In the 
alternative, a card issuer may at its option state that such 
information is available from the Web site operated by the United 
States Trustee. Disclosing this Web site address does not by itself 
constitute a statement that organizations have been approved by the 
United States Trustee for purposes of comment 7(b)(12)(iv)-2.iv.
    iv. Statements regarding approval by the United States Trustee 
or a bankruptcy administrator. Section 226.7(b)(12)(iv) does not 
require a card issuer to disclose through the toll-free number 
disclosed pursuant to Sec.  226.7(b)(12)(i) or (b)(12)(ii) that 
organizations have been approved by the United States Trustee or a 
bankruptcy administrator. However, if a card issuer chooses to make 
such a disclosure, Sec.  226.7(b)(12)(iv) requires that the card 
issuer also disclose that:
    A. The United States Trustee or a bankruptcy administrator has 
determined that the organizations meet the minimum requirements for 
nonprofit pre-bankruptcy budget and credit counseling;
    B. The organizations may provide other credit counseling 
services that have not been reviewed by the United States Trustee or 
a bankruptcy administrator; and

[[Page 7880]]

    C. The United States Trustee or the bankruptcy administrator 
does not endorse or recommend any particular organization.
    3. Automated response systems or devices. At their option, card 
issuers may use toll-free telephone numbers that connect consumers 
to automated systems, such as an interactive voice response system, 
through which consumers may obtain the information required by Sec.  
226.7(b)(12)(iv) by inputting information using a touch-tone 
telephone or similar device.
    4. Toll-free telephone number. A card issuer may provide a toll-
free telephone number that is designed to handle customer service 
calls generally, so long as the option to receive the information 
required by Sec.  226.7(b)(12)(iv) is prominently disclosed to the 
consumer. For automated systems, the option to receive the 
information required by Sec.  226.7(b)(12)(iv) is prominently 
disclosed to the consumer if it is listed as one of the options in 
the first menu of options given to the consumer, such as ``Press or 
say `3' if you would like information about credit counseling 
services.'' If the automated system permits callers to select the 
language in which the call is conducted and in which information is 
provided, the menu to select the language may precede the menu with 
the option to receive information about accessing credit counseling 
services.
    5. Third parties. At their option, card issuers may use a third 
party to establish and maintain a toll-free telephone number for use 
by the issuer to provide the information required by Sec.  
226.7(b)(12)(iv).
    6. Web site address. When making the repayment disclosures on 
the periodic statement pursuant to Sec.  226.7(b)(12), a card issuer 
at its option may also include a reference to a Web site address (in 
addition to the toll-free telephone number) where its customers may 
obtain the information required by Sec.  226.7(b)(12)(iv), so long 
as the information provided on the Web site complies with Sec.  
226.7(b)(12)(iv). The Web site address disclosed must take consumers 
directly to the Web page where information about accessing credit 
counseling may be obtained. In the alternative, the card issuer may 
disclose the Web site address for the Web page operated by the 
United States Trustee where consumers may obtain information about 
approved credit counseling organizations. Disclosing this Web site 
address does not by itself constitute a statement that organizations 
have been approved by the United States Trustee for purposes of 
comment 7(b)(12)(iv)-2.iv.
    7. Advertising or marketing information. If a consumer requests 
information about credit counseling services, the card issuer may 
not provide advertisements or marketing materials to the consumer 
(except for providing the name of the issuer) prior to providing the 
information required by Sec.  226.7(b)(12)(iv). Educational 
materials that do not solicit business are not considered 
advertisements or marketing materials for this purpose. Examples:
    i. Toll-free telephone number. As described in comment 
7(b)(12)(iv)-4, an issuer may provide a toll-free telephone number 
that is designed to handle customer service calls generally, so long 
as the option to receive the information required by Sec.  
226.7(b)(12)(iv) through that toll-free telephone number is 
prominently disclosed to the consumer. Once the consumer selects the 
option to receive the information required by Sec.  
226.7(b)(12)(iv), the issuer may not provide advertisements or 
marketing materials to the consumer (except for providing the name 
of the issuer) prior to providing the required information.
    ii. Web page. If the issuer discloses a link to a Web site 
address as part of the disclosures pursuant to comment 7(b)(12)(iv)-
6, the issuer may not provide advertisements or marketing materials 
(except for providing the name of the issuer) on the Web page 
accessed by the address prior to providing the information required 
by Sec.  226.7(b)(12)(iv).
    7(b)(12)(v) Exemptions.
    1. Billing cycle where paying the minimum payment due for that 
billing cycle will pay the outstanding balance on the account for 
that billing cycle. Under Sec.  226.7(b)(12)(v)(C), a card issuer is 
exempt from the repayment disclosure requirements set forth in Sec.  
226.7(b)(12) for a particular billing cycle where paying the minimum 
payment due for that billing cycle will pay the outstanding balance 
on the account for that billing cycle. For example, if the entire 
outstanding balance on an account for a particular billing cycle is 
$20 and the minimum payment is $20, an issuer would not need to 
comply with the repayment disclosure requirements for that 
particular billing cycle. In addition, this exemption would apply to 
a charged-off account where payment of the entire account balance is 
due immediately.
    7(b)(13) Format requirements.
    1. Combined deposit account and credit account statements. Some 
financial institutions provide information about deposit account and 
open-end credit account activity on one periodic statement. For 
purposes of providing disclosures on the front of the first page of 
the periodic statement pursuant to Sec.  226.7(b)(13), the first 
page of such a combined statement shall be the page on which credit 
transactions first appear.

Section 226.8--Identifying Transactions on Periodic Statements

    8(a) Sale credit.
    1. Sale credit. The term ``sale credit'' refers to a purchase in 
which the consumer uses a credit card or otherwise directly accesses 
an open-end line of credit (see comment 8(b)-1 if access is by means 
of a check) to obtain goods or services from a merchant, whether or 
not the merchant is the card issuer or creditor. ``Sale credit'' 
includes:
    i. The purchase of funds-transfer services (such as a wire 
transfer) from an intermediary.
    ii. The purchase of services from the card issuer or creditor. 
For the purchase of services that are costs imposed as part of the 
plan under Sec.  226.6(b)(3), card issuers and creditors comply with 
the requirements for identifying transactions under this section by 
disclosing the fees in accordance with the requirements of Sec.  
226.7(b)(6). For the purchases of services that are not costs 
imposed as part of the plan, card issuers and creditors may, at 
their option, identify transactions under this section or in 
accordance with the requirements of Sec.  226.7(b)(6).
    2. Amount--transactions not billed in full. If sale transactions 
are not billed in full on any single statement, but are billed 
periodically in precomputed installments, the first periodic 
statement reflecting the transaction must show either the full 
amount of the transaction together with the date the transaction 
actually took place; or the amount of the first installment that was 
debited to the account together with the date of the transaction or 
the date on which the first installment was debited to the account. 
In any event, subsequent periodic statements should reflect each 
installment due, together with either any other identifying 
information required by Sec.  226.8(a) (such as the seller's name 
and address in a three-party situation) or other appropriate 
identifying information relating the transaction to the first 
billing. The debiting date for the particular installment, or the 
date the transaction took place, may be used as the date of the 
transaction on these subsequent statements.
    3. Date--when a transaction takes place.
    i. If the consumer conducts the transaction in person, the date 
of the transaction is the calendar date on which the consumer made 
the purchase or order, or secured the advance.
    ii. For transactions billed to the account on an ongoing basis 
(other than installments to pay a precomputed amount), the date of 
the transaction is the date on which the amount is debited to the 
account. This might include, for example, monthly insurance 
premiums.
    iii. For mail, Internet, or telephone orders, a creditor may 
disclose as the transaction date either the invoice date, the 
debiting date, or the date the order was placed by telephone or via 
the Internet.
    iv. In a foreign transaction, the debiting date may be 
considered the transaction date.
    4. Date--sufficiency of description.
    i. If the creditor discloses only the date of the transaction, 
the creditor need not identify it as the ``transaction date.'' If 
the creditor discloses more than one date (for example, the 
transaction date and the posting date), the creditor must identify 
each.
    ii. The month and day sufficiently identify the transaction 
date, unless the posting of the transaction is delayed so long that 
the year is needed for a clear disclosure to the consumer.
    5. Same or related persons. i. For purposes of identifying 
transactions, the term same or related persons refers to, for 
example:
    A. Franchised or licensed sellers of a creditor's product or 
service.
    B. Sellers who assign or sell open-end sales accounts to a 
creditor or arrange for such credit under a plan that allows the 
consumer to use the credit only in transactions with that seller.
    ii. A seller is not related to the creditor merely because the 
seller and the creditor have an agreement authorizing the seller to 
honor the creditor's credit card.
    6. Brief identification--sufficiency of description. The ``brief 
identification'' provision in Sec.  226.8(a)(1)(i) requires a 
designation that will enable the consumer to reconcile the periodic 
statement with the

[[Page 7881]]

consumer's own records. In determining the sufficiency of the 
description, the following rules apply:
    i. While item-by-item descriptions are not necessary, reasonable 
precision is required. For example, ``merchandise,'' 
``miscellaneous,'' ``second-hand goods,'' or ``promotional items'' 
would not suffice.
    ii. A reference to a department in a sales establishment that 
accurately conveys the identification of the types of property or 
services available in the department is sufficient--for example, 
``jewelry,'' or ``sporting goods.''
    iii. A number or symbol that is related to an identification 
list printed elsewhere on the statement that reasonably identifies 
the transaction with the creditor is sufficient.
    7. Seller's name--sufficiency of description. The requirement 
contemplates that the seller's name will appear on the periodic 
statement in essentially the same form as it appears on transaction 
documents provided to the consumer at the time of the sale. The 
seller's name may also be disclosed as, for example:
    i. A more complete spelling of the name that was alphabetically 
abbreviated on the receipt or other credit document.
    ii. An alphabetical abbreviation of the name on the periodic 
statement even if the name appears in a more complete spelling on 
the receipt or other credit document. Terms that merely indicate the 
form of a business entity, such as ``Inc.,'' ``Co.,'' or ``Ltd.,'' 
may always be omitted.
    8. Location of transaction.
    i. If the seller has multiple stores or branches within a city, 
the creditor need not identify the specific branch at which the sale 
occurred.
    ii. When no meaningful address is available because the consumer 
did not make the purchase at any fixed location of the seller, the 
creditor may omit the address, or may provide some other identifying 
designation, such as ``aboard plane,'' ``ABC Airways Flight,'' 
``customer's home,'' ``telephone order,'' ``Internet order'' or 
``mail order.''
    8(b) Nonsale credit.
    1. Nonsale credit. The term ``nonsale credit'' refers to any 
form of loan credit including, for example:
    i. A cash advance.
    ii. An advance on a credit plan that is accessed by overdrafts 
on a checking account.
    iii. The use of a ``supplemental credit device'' in the form of 
a check or draft or the use of the overdraft credit plan accessed by 
a debit card, even if such use is in connection with a purchase of 
goods or services.
    iv. Miscellaneous debits to remedy mispostings, returned checks, 
and similar entries.
    2. Amount--overdraft credit plans. If credit is extended under 
an overdraft credit plan tied to a checking account or by means of a 
debit card tied to an overdraft credit plan:
    i. The amount to be disclosed is that of the credit extension, 
not the face amount of the check or the total amount of the debit/
credit transaction.
    ii. The creditor may disclose the amount of the credit 
extensions on a cumulative daily basis, rather than the amount 
attributable to each check or each use of the debit card that 
accesses the credit plan.
    3. Date of transaction. See comment 8(a)-4.
    4. Nonsale transaction--sufficiency of identification. The 
creditor sufficiently identifies a nonsale transaction by describing 
the type of advance it represents, such as cash advance, loan, 
overdraft loan, or any readily understandable trade name for the 
credit program.

Section 226.9--Subsequent Disclosure Requirements

    9(a) Furnishing statement of billing rights.
    9(a)(1) Annual statement.
    1. General. The creditor may provide the annual billing rights 
statement:
    i. By sending it in one billing period per year to each consumer 
that gets a periodic statement for that period; or
    ii. By sending a copy to all of its accountholders sometime 
during the calendar year but not necessarily all in one billing 
period (for example, sending the annual notice in connection with 
renewal cards or when imposing annual membership fees).
    2. Substantially similar. See the commentary to Model Forms G-3 
and G-3(A) in appendix G to part 226.
    9(a)(2) Alternative summary statement.
    1. Changing from long-form to short form statement and vice 
versa. If the creditor has been sending the long-form annual 
statement, and subsequently decides to use the alternative summary 
statement, the first summary statement must be sent no later than 12 
months after the last long-form statement was sent. Conversely, if 
the creditor wants to switch to the long-form, the first long-form 
statement must be sent no later than 12 months after the last 
summary statement.
    2. Substantially similar. See the commentary to Model Forms G-4 
and G-4(A) in appendix G to part 226.
    9(b) Disclosures for supplemental credit access devices and 
additional features.
    1. Credit access device--examples. Credit access device 
includes, for example, a blank check, payee-designated check, blank 
draft or order, or authorization form for issuance of a check; it 
does not include a check issued payable to a consumer representing 
loan proceeds or the disbursement of a cash advance.
    2. Credit account feature--examples. A new credit account 
feature would include, for example:
    i. The addition of overdraft checking to an existing account 
(although the regular checks that could trigger the overdraft 
feature are not themselves ``devices'').
    ii. The option to use an existing credit card to secure cash 
advances, when previously the card could only be used for purchases.
    Paragraph 9(b)(2).
    1. Different finance charge terms. Except as provided in Sec.  
226.9(b)(3) for checks that access a credit card account, if the 
finance charge terms are different from those previously disclosed, 
the creditor may satisfy the requirement to give the finance charge 
terms either by giving a complete set of new account-opening 
disclosures reflecting the terms of the added device or feature or 
by giving only the finance charge disclosures for the added device 
or feature.
    9(b)(3) Checks that access a credit card account.
    9(b)(3)(i) Disclosures.
    1. Front of the page containing the checks. The following would 
comply with the requirement that the tabular disclosures provided 
pursuant to Sec.  226.9(b)(3) appear on the front of the page 
containing the checks:
    i. Providing the tabular disclosure on the front of the first 
page on which checks appear, for an offer where checks are provided 
on multiple pages;
    ii. Providing the tabular disclosure on the front of a mini-book 
or accordion booklet containing the checks; or
    iii. Providing the tabular disclosure on the front of the 
solicitation letter, when the checks are printed on the front of the 
same page as the solicitation letter even if the checks can be 
separated by the consumer from the solicitation letter using 
perforations.
    Paragraph 9(b)(3)(i)(D).
    1. Grace period. Creditors may use the following language to 
describe a grace period on check transactions: ``Your due date is 
[at least] -------- days after the close of each billing cycle. We 
will not charge you interest on check transactions if you pay your 
entire balance by the due date each month.'' Creditors may use the 
following language to describe that no grace period on check 
transactions is offered, as applicable: ``We will begin charging 
interest on these checks on the transaction date.''
    9(c) Change in terms.
    9(c)(1) Rules affecting home-equity plans.
    1. Changes initially disclosed. No notice of a change in terms 
need be given if the specific change is set forth initially, such 
as: rate increases under a properly disclosed variable-rate plan, a 
rate increase that occurs when an employee has been under a 
preferential rate agreement and terminates employment, or an 
increase that occurs when the consumer has been under an agreement 
to maintain a certain balance in a savings account in order to keep 
a particular rate and the account balance falls below the specified 
minimum. The rules in Sec.  226.5b(f) relating to home-equity plans 
limit the ability of a creditor to change the terms of such plans.
    2. State law issues. Examples of issues not addressed by Sec.  
226.9(c) because they are controlled by state or other applicable 
law include:
    i. The types of changes a creditor may make. (But see Sec.  
226.5b(f))
    ii. How changed terms affect existing balances, such as when a 
periodic rate is changed and the consumer does not pay off the 
entire existing balance before the new rate takes effect.
    3. Change in billing cycle. Whenever the creditor changes the 
consumer's billing cycle, it must give a change-in-terms notice if 
the change either affects any of the terms required to be disclosed 
under Sec.  226.6(a) or increases the minimum payment, unless an 
exception under Sec.  226.9(c)(1)(ii) applies; for example, the 
creditor must give advance notice if the creditor initially 
disclosed a 25-day grace period on purchases and the

[[Page 7882]]

consumer will have fewer days during the billing cycle change.
    9(c)(1)(i) Written notice required.
    1. Affected consumers. Change-in-terms notices need only go to 
those consumers who may be affected by the change. For example, a 
change in the periodic rate for check overdraft credit need not be 
disclosed to consumers who do not have that feature on their 
accounts.
    2. Timing--effective date of change. The rule that the notice of 
the change in terms be provided at least 15 days before the change 
takes effect permits mid-cycle changes when there is clearly no 
retroactive effect, such as the imposition of a transaction fee. Any 
change in the balance computation method, in contrast, would need to 
be disclosed at least 15 days prior to the billing cycle in which 
the change is to be implemented.
    3. Timing--advance notice not required. Advance notice of 15 
days is not necessary--that is, a notice of change in terms is 
required, but it may be mailed or delivered as late as the effective 
date of the change--in two circumstances:
    i. If there is an increased periodic rate or any other finance 
charge attributable to the consumer's delinquency or default.
    ii. If the consumer agrees to the particular change. This 
provision is intended for use in the unusual instance when a 
consumer substitutes collateral or when the creditor can advance 
additional credit only if a change relatively unique to that 
consumer is made, such as the consumer's providing additional 
security or paying an increased minimum payment amount. Therefore, 
the following are not ``agreements'' between the consumer and the 
creditor for purposes of Sec.  226.9(c)(1)(i): The consumer's 
general acceptance of the creditor's contract reservation of the 
right to change terms; the consumer's use of the account (which 
might imply acceptance of its terms under state law); and the 
consumer's acceptance of a unilateral term change that is not 
particular to that consumer, but rather is of general applicability 
to consumers with that type of account.
    4. Form of change-in-terms notice. A complete new set of the 
initial disclosures containing the changed term complies with Sec.  
226.9(c)(1)(i) if the change is highlighted in some way on the 
disclosure statement, or if the disclosure statement is accompanied 
by a letter or some other insert that indicates or draws attention 
to the term change.
    5. Security interest change--form of notice. A copy of the 
security agreement that describes the collateral securing the 
consumer's account may be used as the notice, when the term change 
is the addition of a security interest or the addition or 
substitution of collateral.
    6. Changes to home-equity plans entered into on or after 
November 7, 1989. Section 226.9(c)(1) applies when, by written 
agreement under Sec.  226.5b(f)(3)(iii), a creditor changes the 
terms of a home-equity plan--entered into on or after November 7, 
1989--at or before its scheduled expiration, for example, by 
renewing a plan on terms different from those of the original plan. 
In disclosing the change:
    i. If the index is changed, the maximum annual percentage rate 
is increased (to the limited extent permitted by Sec.  226.30), or a 
variable-rate feature is added to a fixed-rate plan, the creditor 
must include the disclosures required by Sec.  226.5b(d)(12)(x) and 
(d)(12)(xi), unless these disclosures are unchanged from those given 
earlier.
    ii. If the minimum payment requirement is changed, the creditor 
must include the disclosures required by Sec.  226.5b(d)(5)(iii) 
(and, in variable-rate plans, the disclosures required by Sec.  
226.5b(d)(12)(x) and (d)(12)(xi)) unless the disclosures given 
earlier contained representative examples covering the new minimum 
payment requirement. (See the commentary to Sec.  226.5b(d)(5)(iii), 
(d)(12)(x) and (d)(12)(xi) for a discussion of representative 
examples.)
    iii. When the terms are changed pursuant to a written agreement 
as described in Sec.  226.5b(f)(3)(iii), the advance-notice 
requirement does not apply.
    9(c)(1)(ii) Notice not required.
    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:
    i. A change in the consumer's credit limit.
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges. (But see 
Sec.  226.5b(f).)
    v. Changes arising merely by operation of law; for example, if 
the creditor's security interest in a consumer's car automatically 
extends to the proceeds when the consumer sells the car.
    2. Skip features. If a credit program allows consumers to skip 
or reduce one or more payments during the year, or involves 
temporary reductions in finance charges, no notice of the change in 
terms is required either prior to the reduction or upon resumption 
of the higher rates or payments if these features are explained on 
the initial disclosure statement (including an explanation of the 
terms upon resumption). For example, a merchant may allow consumers 
to skip the December payment to encourage holiday shopping, or a 
teachers' credit union may not require payments during summer 
vacation. Otherwise, the creditor must give notice prior to resuming 
the original schedule or rate, even though no notice is required 
prior to the reduction. The change-in-terms notice may be combined 
with the notice offering the reduction. For example, the periodic 
statement reflecting the reduction or skip feature may also be used 
to notify the consumer of the resumption of the original schedule or 
rate, either by stating explicitly when the higher payment or 
charges resume, or by indicating the duration of the skip option. 
Language such as ``You may skip your October payment,'' or ``We will 
waive your finance charges for January,'' may serve as the change-
in-terms notice.
    9(c)(1)(iii) Notice to restrict credit.
    1. Written request for reinstatement. If a creditor requires the 
request for reinstatement of credit privileges to be in writing, the 
notice under Sec.  226.9(c)(1)(iii) must state that fact.
    2. Notice not required. A creditor need not provide a notice 
under this paragraph if, pursuant to the commentary to Sec.  
226.5b(f)(2), a creditor freezes a line or reduces a credit line 
rather than terminating a plan and accelerating the balance.
    9(c)(2) Rules affecting open-end (not home-secured) plans.
    1. Changes initially disclosed. Except as provided in Sec.  
226.9(g)(1), no notice of a change in terms need be given if the 
specific change is set forth initially, such as rate increases under 
a properly disclosed variable-rate plan in accordance with Sec.  
226.9(c)(2)(v)(C). In contrast, notice must be given if the contract 
allows the creditor to increase the rate at its discretion.
    2. State law issues. Some issues are not addressed by Sec.  
226.9(c)(2) because they are controlled by state or other applicable 
laws. These issues include the types of changes a creditor may make, 
to the extent otherwise permitted by this regulation.
    3. Change in billing cycle. Whenever the creditor changes the 
consumer's billing cycle, it must give a change-in-terms notice if 
the change affects any of the terms described in Sec.  
226.9(c)(2)(i), unless an exception under Sec.  226.9(c)(2)(v) 
applies; for example, the creditor must give advance notice if the 
creditor initially disclosed a 28-day grace period on purchases and 
the consumer will have fewer days during the billing cycle change. 
See also Sec.  226.7(b)(11)(i)(A) regarding the general requirement 
that the payment due date for a credit card account under an open-
end (not home-secured) consumer credit plan must be the same day 
each month.
    4. Relationship to Sec.  226.9(b). If a creditor adds a feature 
to the account on the type of terms otherwise required to be 
disclosed under Sec.  226.6, the creditor must satisfy: the 
requirement to provide the finance charge disclosures for the added 
feature under Sec.  226.9(b); and any applicable requirement to 
provide a change-in-terms notice under Sec.  226.9(c), including any 
advance notice that must be provided. For example, if a creditor 
adds a balance transfer feature to an account more than 30 days 
after account-opening disclosures are provided, it must give the 
finance charge disclosures for the balance transfer feature under 
Sec.  226.9(b) as well as comply with the change-in-terms notice 
requirements under Sec.  226.9(c), including providing notice of the 
change at least 45 days prior to the effective date of the change. 
Similarly, if a creditor makes a balance transfer offer on finance 
charge terms that are higher than those previously disclosed for 
balance transfers, it would also generally be required to provide a 
change-in-terms notice at least 45 days in advance of the effective 
date of the change. A creditor may provide a single notice under 
Sec.  226.9(c) to satisfy the notice requirements of both paragraphs 
(b) and (c) of Sec.  226.9. For checks that access a credit card 
account subject to the disclosure requirements in Sec.  226.9(b)(3), 
a creditor is not subject to the notice requirements under Sec.  
226.9(c) even if the applicable rate or fee is higher than those 
previously disclosed for such checks. Thus, for example, the 
creditor need not wait 45 days before applying the new rate or fee 
for transactions made using such checks, but the creditor must make 
the required disclosures on or with the checks in accordance with 
Sec.  226.9(b)(3).

[[Page 7883]]

    9(c)(2)(i) Changes where written advance notice is required.
    1. Affected consumers. Change-in-terms notices need only go to 
those consumers who may be affected by the change. For example, a 
change in the periodic rate for check overdraft credit need not be 
disclosed to consumers who do not have that feature on their 
accounts. If a single credit account involves multiple consumers 
that may be affected by the change, the creditor should refer to 
Sec.  226.5(d) to determine the number of notices that must be 
given.
    2. Timing--effective date of change. The rule that the notice of 
the change in terms be provided at least 45 days before the change 
takes effect permits mid-cycle changes when there is clearly no 
retroactive effect, such as the imposition of a transaction fee. Any 
change in the balance computation method, in contrast, would need to 
be disclosed at least 45 days prior to the billing cycle in which 
the change is to be implemented.
    3. Changes agreed to by the consumer. See also comment 
5(b)(1)(i)-6.
    4. Form of change-in-terms notice. Except if Sec.  
226.9(c)(2)(iv) applies, a complete new set of the initial 
disclosures containing the changed term complies with Sec.  
226.9(c)(2)(i) if the change is highlighted on the disclosure 
statement, or if the disclosure statement is accompanied by a letter 
or some other insert that indicates or draws attention to the term 
being changed.
    5. Security interest change--form of notice. A creditor must 
provide a description of any security interest it is acquiring under 
Sec.  226.9(c)(2)(iv). A copy of the security agreement that 
describes the collateral securing the consumer's account may also be 
used as the notice, when the term change is the addition of a 
security interest or the addition or substitution of collateral.
    6. Examples. See comment 55(a)-1 and 55(b)-3 for examples of how 
a card issuer that is subject to Sec.  226.55 may comply with the 
timing requirements for notices required by Sec.  226.9(c)(2)(i).
    9(c)(2)(iii) Charges not covered by Sec.  226.6(b)(1) and 
(b)(2).
    1. Applicability. Generally, if a creditor increases any 
component of a charge, or introduces a new charge, that is imposed 
as part of the plan under Sec.  226.6(b)(3) but is not required to 
be disclosed as part of the account-opening summary table under 
Sec.  226.6(b)(1) and (b)(2), the creditor may either, at its option 
(i) provide at least 45 days' written advance notice before the 
change becomes effective to comply with the requirements of Sec.  
226.9(c)(2)(i), or (ii) provide notice orally or in writing, or 
electronically if the consumer requests the service electronically, 
of the amount of the charge to an affected consumer before the 
consumer agrees to or becomes obligated to pay the charge, at a time 
and in a manner that a consumer would be likely to notice the 
disclosure. (See the commentary under Sec.  226.5(a)(1)(iii) 
regarding disclosure of such changes in electronic form.) For 
example, a fee for expedited delivery of a credit card is a charge 
imposed as part of the plan under Sec.  226.6(b)(3) but is not 
required to be disclosed in the account-opening summary table under 
Sec.  226.6(b)(1) and (b)(2). If a creditor changes the amount of 
that expedited delivery fee, the creditor may provide written 
advance notice of the change to affected consumers at least 45 days 
before the change becomes effective. Alternatively, the creditor may 
provide oral or written notice, or electronic notice if the consumer 
requests the service electronically, of the amount of the charge to 
an affected consumer before the consumer agrees to or becomes 
obligated to pay the charge, at a time and in a manner that the 
consumer would be likely to notice the disclosure. (See comment 
5(b)(1)(ii)-1 for examples of disclosures given at a time and in a 
manner that the consumer would be likely to notice them.)
    9(c)(2)(iv) Disclosure requirements.
    9(c)(2)(iv) Significant changes in account terms.
    1. Changing margin for calculating a variable rate. If a 
creditor is changing a margin used to calculate a variable rate, the 
creditor must disclose the amount of the new rate (as calculated 
using the new margin) in the table described in Sec.  
226.9(c)(2)(iv), and include a reminder that the rate is a variable 
rate. For example, if a creditor is changing the margin for a 
variable rate that uses the prime rate as an index, the creditor 
must disclose in the table the new rate (as calculated using the new 
margin) and indicate that the rate varies with the market based on 
the prime rate.
    2. Changing index for calculating a variable rate. If a creditor 
is changing the index used to calculate a variable rate, the 
creditor must disclose the amount of the new rate (as calculated 
using the new index) and indicate that the rate varies and the how 
the rate is determined, as explained in Sec.  226.6(b)(2)(i)(A). For 
example, if a creditor is changing from using a prime rate to using 
the LIBOR in calculating a variable rate, the creditor would 
disclose in the table the new rate (using the new index) and 
indicate that the rate varies with the market based on the LIBOR.
    3. Changing from a variable rate to a non-variable rate. If a 
creditor is changing from a variable rate to a non-variable rate, 
the creditor must disclose the amount of the new rate (that is, the 
non-variable rate) in the table.
    4. Changing from a non-variable rate to a variable rate. If a 
creditor is changing from a non-variable rate to a variable rate, 
the creditor must disclose the amount of the new rate (the variable 
rate using the index and margin), and indicate that the rate varies 
with the market based on the index used, such as the prime rate or 
the LIBOR.
    5. Changes in the penalty rate, the triggers for the penalty 
rate, or how long the penalty rate applies. If a creditor is 
changing the amount of the penalty rate, the creditor must also 
redisclose the triggers for the penalty rate and the information 
about how long the penalty rate applies even if those terms are not 
changing. Likewise, if a creditor is changing the triggers for the 
penalty rate, the creditor must redisclose the amount of the penalty 
rate and information about how long the penalty rate applies. If a 
creditor is changing how long the penalty rate applies, the creditor 
must redisclose the amount of the penalty rate and the triggers for 
the penalty rate, even if they are not changing.
    6. Changes in fees. If a creditor is changing part of how a fee 
that is disclosed in a tabular format under Sec.  226.6(b)(1) and 
(b)(2) is determined, the creditor must redisclose all relevant 
information related to that fee regardless of whether this other 
information is changing. For example, if a creditor currently 
charges a cash advance fee of ``Either $5 or 3% of the transaction 
amount, whichever is greater. (Max: $100),'' and the creditor is 
only changing the minimum dollar amount from $5 to $10, the issuer 
must redisclose the other information related to how the fee is 
determined. For example, the creditor in this example would disclose 
the following: ``Either $10 or 3% of the transaction amount, 
whichever is greater. (Max: $100).''
    7. Combining a notice described in Sec.  226.9(c)(2)(iv) with a 
notice described in Sec.  226.9(g)(3). If a creditor is required to 
provide a notice described in Sec.  226.9(c)(2)(iv) and a notice 
described in Sec.  226.9(g)(3) to a consumer, the creditor may 
combine the two notices. This would occur if penalty pricing has 
been triggered, and other terms are changing on the consumer's 
account at the same time.
    8. Content. Sample G-20 contains an example of how to comply 
with the requirements in Sec.  226.9(c)(2)(iv) when a variable rate 
is being changed to a non-variable rate on a credit card account. 
The sample explains when the new rate will apply to new transactions 
and to which balances the current rate will continue to apply. 
Sample G-21 contains an example of how to comply with the 
requirements in Sec.  226.9(c)(2)(iv) when (i) the late payment fee 
on a credit card account is being increased in accordance with a 
formula that depends on the outstanding balance on the account, and 
(ii) the returned payment fee is also being increased. The sample 
discloses the consumer's right to reject the changes in accordance 
with Sec.  226.9(h).
    9. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required 
under Sec.  226.9(c)(2)(iv)(A)(1).
    10. Terminology. See Sec.  226.5(a)(2) for terminology 
requirements applicable to disclosures required under Sec.  
226.9(c)(2)(iv)(A)(1).
    9(c)(2)(v) Notice not required.
    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:
    i. A change in the consumer's credit limit except as otherwise 
required by Sec.  226.9(c)(2)(vi).
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges.
    v. Changes arising merely by operation of law; for example, if 
the creditor's security interest in a consumer's car automatically 
extends to the proceeds when the consumer sells the car.
    2. Skip features. i. General. If a credit program allows 
consumers to skip or reduce one or more payments during the year, or

[[Page 7884]]

involves temporary reductions in finance charges other than 
reductions in an interest rate (except if Sec.  226.9(c)(2)(v)(B) or 
(c)(2)(v)(D) applies), no notice of the change in terms is required 
either prior to the reduction or upon resumption of the higher 
finance charges or payments if these features are explained on the 
account-opening disclosure statement (including an explanation of 
the terms upon resumption). For example, a merchant may allow 
consumers to skip the December payment to encourage holiday 
shopping, or a teacher's credit union may not require payments 
during summer vacation. Otherwise, the creditor must give notice 
prior to resuming the original schedule or finance charge, even 
though no notice is required prior to the reduction. The change-in-
terms notice may be combined with the notice offering the reduction. 
For example, the periodic statement reflecting the reduction or skip 
feature may also be used to notify the consumer of the resumption of 
the original schedule or finance charge, either by stating 
explicitly when the higher payment or charges resume or by 
indicating the duration of the skip option. Language such as ``You 
may skip your October payment'' may serve as the change-in-terms 
notice.
    ii. Temporary reductions in interest rates. If a credit program 
involves temporary reductions in an interest rate, no notice of the 
change in terms is required either prior to the reduction or upon 
resumption of the original rate if these features are disclosed in 
advance in accordance with the requirements of Sec.  
226.9(c)(2)(v)(B). Otherwise, the creditor must give notice prior to 
resuming the original rate, even though no notice is required prior 
to the reduction. The notice provided prior to resuming the original 
rate must comply with the timing requirements of Sec.  
226.9(c)(2)(i) and the content and format requirements of Sec.  
226.9(c)(2)(iv)(A), (B) (if applicable), (C) (if applicable), and 
(D). See comment 55(b)-3 for guidance regarding the application of 
Sec.  226.55 in these circumstances.
    3. Changing from a variable rate to a non-variable rate. If a 
creditor is changing a rate applicable to a consumer's account from 
a variable rate to a non-variable rate, the creditor must provide a 
notice as otherwise required under Sec.  226.9(c) even if the 
variable rate at the time of the change is higher than the non-
variable rate. (See comment 9(c)(2)(iv)(A)-3.)
    4. Changing from a non-variable rate to a variable rate. If a 
creditor is changing a rate applicable to a consumer's account from 
a non-variable rate to a variable rate, the creditor must provide a 
notice as otherwise required under Sec.  226.9(c) even if the non-
variable rate is higher than the variable rate at the time of the 
change. (See comment 9(c)(2)(iv)(A)-4.)
    5. Temporary rate reductions offered by telephone. The timing 
requirements of Sec.  226.9(c)(2)(v)(B) are deemed to have been met, 
and written disclosures required by Sec.  226.9(c)(2)(v)(B) may be 
provided as soon as reasonably practicable after the first 
transaction subject to a rate that will be in effect for a specified 
period of time (a temporary rate) if:
    i. The consumer accepts the offer of the temporary rate by 
telephone;
    ii. The creditor permits the consumer to reject the temporary 
rate offer and have the rate or rates that previously applied to the 
consumer's balances reinstated for 45 days after the creditor mails 
or delivers the written disclosures required by Sec.  
226.9(c)(2)(v)(B); and
    iii. The disclosures required by Sec.  226.9(c)(2)(v)(B) and the 
consumer's right to reject the temporary rate offer and have the 
rate or rates that previously applied to the consumer's account 
reinstated are disclosed to the consumer as part of the temporary 
rate offer.
    6. First listing. The disclosures required by Sec.  
226.9(c)(2)(v)(B)(1) are only required to be provided in close 
proximity and in equal prominence to the first listing of the 
temporary rate in the disclosure provided to the consumer. For 
purposes of Sec.  226.9(c)(2)(v)(B), the first statement of the 
temporary rate is the most prominent listing on the front side of 
the first page of the disclosure. If the temporary rate does not 
appear on the front side of the first page of the disclosure, then 
the first listing of the temporary rate is the most prominent 
listing of the temporary rate on the subsequent pages of the 
disclosure. For advertising requirements for promotional rates, see 
Sec.  226.16(g).
    7. Close proximity--point of sale. Creditors providing the 
disclosures required by Sec.  226.9(c)(2)(v)(B) of this section in 
person in connection with financing the purchase of goods or 
services may, at the creditor's option, disclose the annual 
percentage rate that would apply after expiration of the period on a 
separate page or document from the temporary rate and the length of 
the period, provided that the disclosure of the annual percentage 
rate that would apply after the expiration of the period is equally 
prominent to, and is provided at the same time as, the disclosure of 
the temporary rate and length of the period.
    8. Disclosure of annual percentage rates. If a rate disclosed 
pursuant to Sec.  226.9(c)(2)(v)(B) or (c)(2)(v)(D) is a variable 
rate, the creditor must disclose the fact that the rate may vary and 
how the rate is determined. For example, a creditor could state 
``After October 1, 2009, your APR will be 14.99%. This APR will vary 
with the market based on the Prime Rate.''
    9. Deferred interest or similar programs. If the applicable 
conditions are met, the exception in Sec.  226.9(c)(2)(v)(B) applies 
to deferred interest or similar promotional programs under which the 
consumer is not obligated to pay interest that accrues on a balance 
if that balance is paid in full prior to the expiration of a 
specified period of time. For purposes of this comment and Sec.  
226.9(c)(2)(v)(B), ``deferred interest'' has the same meaning as in 
Sec.  226.16(h)(2) and associated commentary. For such programs, a 
creditor must disclose pursuant to Sec.  226.9(c)(2)(v)(B)(1) the 
length of the deferred interest period and the rate that will apply 
to the balance subject to the deferred interest program if that 
balance is not paid in full prior to expiration of the deferred 
interest period. Examples of language that a creditor may use to 
make the required disclosures under Sec.  226.9(c)(2)(v)(B)(1) 
include:
    i. ``No interest if paid in full in 6 months. If the balance is 
not paid in full in 6 months, interest will be imposed from the date 
of purchase at a rate of 15.99%.''
    ii. ``No interest if paid in full by December 31, 2010. If the 
balance is not paid in full by that date, interest will be imposed 
from the transaction date at a rate of 15%.''
    10. Disclosure of the terms of a workout or temporary hardship 
arrangement. In order for the exception in Sec.  226.9(c)(2)(v)(D) 
to apply, the disclosure provided to the consumer pursuant to Sec.  
226.9(c)(2)(v)(D)(2) must set forth:
    i. The annual percentage rate that will apply to balances 
subject to the workout or temporary hardship arrangement;
    ii. The annual percentage rate that will apply to such balances 
if the consumer completes or fails to comply with the terms of, the 
workout or temporary hardship arrangement;
    iii. Any reduced fee or charge of a type required to be 
disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
that will apply to balances subject to the workout or temporary 
hardship arrangement, as well as the fee or charge that will apply 
if the consumer completes or fails to comply with the terms of the 
workout or temporary hardship arrangement;
    iv. Any reduced minimum periodic payment that will apply to 
balances subject to the workout or temporary hardship arrangement, 
as well as the minimum periodic payment that will apply if the 
consumer completes or fails to comply with the terms of the workout 
or temporary hardship arrangement; and
    v. If applicable, that the consumer must make timely minimum 
payments in order to remain eligible for the workout or temporary 
hardship arrangement.
    11. Index not under creditor's control. See comment 55(b)(2)-2 
for guidance on when an index is deemed to be under the card 
issuer's control.
    9(d) Finance charge imposed at time of transaction.
    1. Disclosure prior to imposition. A person imposing a finance 
charge at the time of honoring a consumer's credit card must 
disclose the amount of the charge, or an explanation of how the 
charge will be determined, prior to its imposition. This must be 
disclosed before the consumer becomes obligated for property or 
services that may be paid for by use of a credit card. For example, 
disclosure must be given before the consumer has dinner at a 
restaurant, stays overnight at a hotel, or makes a deposit 
guaranteeing the purchase of property or services.
    9(e) Disclosures upon renewal of credit or charge card.
    1. Coverage. This paragraph applies to credit and charge card 
accounts of the type subject to Sec.  226.5a. (See Sec.  
226.5a(a)(5) and the accompanying commentary for discussion of the 
types of accounts subject to Sec.  226.5a.) The disclosure 
requirements are triggered when a card issuer imposes any annual or 
other periodic fee on such an account or if the card

[[Page 7885]]

issuer has changed or amended any term of a cardholder's account 
required to be disclosed under Sec.  226.6(b)(1) and (b)(2) that has 
not previously been disclosed to the consumer, whether or not the 
card issuer originally was required to provide the application and 
solicitation disclosures described in Sec.  226.5a.
    2. Form. The disclosures under this paragraph must be clear and 
conspicuous, but need not appear in a tabular format or in a 
prominent location. The disclosures need not be in a form the 
cardholder can retain.
    3. Terms at renewal. Renewal notices must reflect the terms 
actually in effect at the time of renewal. For example, a card 
issuer that offers a preferential annual percentage rate to 
employees during their employment must send a renewal notice to 
employees disclosing the lower rate actually charged to employees 
(although the card issuer also may show the rate charged to the 
general public).
    4. Variable rate. If the card issuer cannot determine the rate 
that will be in effect if the cardholder chooses to renew a 
variable-rate account, the card issuer may disclose the rate in 
effect at the time of mailing or delivery of the renewal notice. 
Alternatively, the card issuer may use the rate as of a specified 
date within the last 30 days before the disclosure is provided.
    5. Renewals more frequent than annual. If a renewal fee is 
billed more often than annually, the renewal notice should be 
provided each time the fee is billed. In this instance, the fee need 
not be disclosed as an annualized amount. Alternatively, the card 
issuer may provide the notice no less than once every 12 months if 
the notice explains the amount and frequency of the fee that will be 
billed during the time period covered by the disclosure, and also 
discloses the fee as an annualized amount. The notice under this 
alternative also must state the consequences of a cardholder's 
decision to terminate the account after the renewal-notice period 
has expired. For example, if a $2 fee is billed monthly but the 
notice is given annually, the notice must inform the cardholder that 
the monthly charge is $2, the annualized fee is $24, and $2 will be 
billed to the account each month for the coming year unless the 
cardholder notifies the card issuer. If the cardholder is obligated 
to pay an amount equal to the remaining unpaid monthly charges if 
the cardholder terminates the account during the coming year but 
after the first month, the notice must disclose the fact.
    6. Terminating credit availability. Card issuers have some 
flexibility in determining the procedures for how and when an 
account may be terminated. However, the card issuer must clearly 
disclose the time by which the cardholder must act to terminate the 
account to avoid paying a renewal fee, if applicable. State and 
other applicable law govern whether the card issuer may impose 
requirements such as specifying that the cardholder's response be in 
writing or that the outstanding balance be repaid in full upon 
termination.
    7. Timing of termination by cardholder. When a card issuer 
provides notice under Sec.  226.9(e)(1), a cardholder must be given 
at least 30 days or one billing cycle, whichever is less, from the 
date the notice is mailed or delivered to make a decision whether to 
terminate an account.
    8. Timing of notices. A renewal notice is deemed to be provided 
when mailed or delivered. Similarly, notice of termination is deemed 
to be given when mailed or delivered.
    9. Prompt reversal of renewal fee upon termination. In a 
situation where a cardholder has provided timely notice of 
termination and a renewal fee has been billed to a cardholder's 
account, the card issuer must reverse or otherwise withdraw the fee 
promptly. Once a cardholder has terminated an account, no additional 
action by the cardholder may be required.
    10. Disclosure of changes in terms not required to be disclosed 
pursuant to Sec.  226.6(b)(1) and (b)(2). Clear and conspicuous 
disclosure of a changed term on a periodic statement provided to a 
consumer prior to renewal of the consumer's account constitutes 
prior disclosure of that term for purposes of Sec.  226.9(e)(1). 
Card issuers should refer to Sec.  226.9(c)(2) for additional 
timing, content, and formatting requirements that apply to certain 
changes in terms under that paragraph.
    9(e)(2) Notification on periodic statements.
    1. Combined disclosures. If a single disclosure is used to 
comply with both Sec. Sec.  226.9(e) and 226.7, the periodic 
statement must comply with the rules in Sec. Sec.  226.5a and 226.7. 
For example, a description substantially similar to the heading 
describing the grace period required by Sec.  226.5a(b)(5) must be 
used and the name of the balance-calculation method must be 
identified (if listed in Sec.  226.5a(g)) to comply with the 
requirements of Sec.  226.5a. A card issuer may include some of the 
renewal disclosures on a periodic statement and others on a separate 
document so long as there is some reference indicating that the 
disclosures relate to one another. All renewal disclosures must be 
provided to a cardholder at the same time.
    2. Preprinted notices on periodic statements. A card issuer may 
preprint the required information on its periodic statements. A card 
issuer that does so, however, must make clear on the periodic 
statement when the preprinted renewal disclosures are applicable. 
For example, the card issuer could include a special notice (not 
preprinted) at the appropriate time that the renewal fee will be 
billed in the following billing cycle, or could show the renewal 
date as a regular (preprinted) entry on all periodic statements.
    9(f) Change in credit card account insurance provider.
    1. Coverage. This paragraph applies to credit card accounts of 
the type subject to Sec.  226.5a if credit insurance (typically 
life, disability, and unemployment insurance) is offered on the 
outstanding balance of such an account. (Credit card accounts 
subject to Sec.  226.9(f) are the same as those subject to Sec.  
226.9(e); see comment 9(e)-1.) Charge card accounts are not covered 
by this paragraph. In addition, the disclosure requirements of this 
paragraph apply only where the card issuer initiates the change in 
insurance provider. For example, if the card issuer's current 
insurance provider is merged into or acquired by another company, 
these disclosures would not be required. Disclosures also need not 
be given in cases where card issuers pay for credit insurance 
themselves and do not separately charge the cardholder.
    2. No increase in rate or decrease in coverage. The requirement 
to provide the disclosure arises when the card issuer changes the 
provider of insurance, even if there will be no increase in the 
premium rate charged to the consumer and no decrease in coverage 
under the insurance policy.
    3. Form of notice. If a substantial decrease in coverage will 
result from the change in provider, the card issuer either must 
explain the decrease or refer to an accompanying copy of the policy 
or group certificate for details of the new terms of coverage. (See 
the commentary to appendix G-13 to part 226.)
    4. Discontinuation of insurance. In addition to stating that the 
cardholder may cancel the insurance, the card issuer may explain the 
effect the cancellation would have on the consumer's credit card 
plan.
    5. Mailing by third party. Although the card issuer is 
responsible for the disclosures, the insurance provider or another 
third party may furnish the disclosures on the card issuer's behalf.
    9(f)(3) Substantial decrease in coverage.
    1. Determination. Whether a substantial decrease in coverage 
will result from the change in provider is determined by the two-
part test in Sec.  226.9(f)(3): First, whether the decrease is in a 
significant term of coverage; and second, whether the decrease might 
reasonably be expected to affect a cardholder's decision to continue 
the insurance. If both conditions are met, the decrease must be 
disclosed in the notice.
    9(g) Increase in rates due to delinquency or default or as a 
penalty.
    1. Relationship between Sec.  226.9(c) and (g) and Sec.  
226.55--examples. Card issuers subject to Sec.  226.55 are 
prohibited from increasing the annual percentage rate for a category 
of transactions on any consumer credit card account unless 
specifically permitted by one of the exceptions in Sec.  226.55(b). 
See comments 55(a)-1 and 55(b)-3 and the commentary to Sec.  
226.55(b)(4) for examples that illustrate the relationship between 
the notice requirements of Sec.  226.9(c) and (g) and Sec.  226.55.
    2. Affected consumers. If a single credit account involves 
multiple consumers that may be affected by the change, the creditor 
should refer to Sec.  226.5(d) to determine the number of notices 
that must be given.
    3. Combining a notice described in Sec.  226.9(g)(3) with a 
notice described in Sec.  226.9(c)(2)(iv). If a creditor is required 
to provide notices pursuant to both Sec.  226.9(c)(2)(iv) and (g)(3) 
to a consumer, the creditor may combine the two notices. This would 
occur when penalty pricing has been triggered, and other terms are 
changing on the consumer's account at the same time.
    4. Content. Sample G-22 contains an example of how to comply 
with the requirements in Sec.  226.9(g)(3)(i) when the rate on a 
consumer's credit card account is being increased to a penalty rate 
as described in Sec.  226.9(g)(1)(ii), based on a late payment that 
is not more than 60 days late. Sample G-23

[[Page 7886]]

contains an example of how to comply with the requirements in Sec.  
226.9(g)(3)(i) when the rate increase is triggered by a delinquency 
of more than 60 days.
    5. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required 
under Sec.  226.9(g).
    6. Terminology. See Sec.  226.5(a)(2) for terminology 
requirements applicable to disclosures required under Sec.  
226.9(g).
    9(g)(4) Exception for decrease in credit limit.
    1. The following illustrates the requirements of Sec.  
226.9(g)(4). Assume that a creditor decreased the credit limit 
applicable to a consumer's account and sent a notice pursuant to 
Sec.  226.9(g)(4) on January 1, stating among other things that the 
penalty rate would apply if the consumer's balance exceeded the new 
credit limit as of February 16. If the consumer's balance exceeded 
the credit limit on February 16, the creditor could impose the 
penalty rate on that date. However, a creditor could not apply the 
penalty rate if the consumer's balance did not exceed the new credit 
limit on February 16, even if the consumer's balance had exceeded 
the new credit limit on several dates between January 1 and February 
15. If the consumer's balance did not exceed the new credit limit on 
February 16 but the consumer conducted a transaction on February 17 
that caused the balance to exceed the new credit limit, the general 
rule in Sec.  226.9(g)(1)(ii) would apply and the creditor would be 
required to give an additional 45 days' notice prior to imposition 
of the penalty rate (but under these circumstances the consumer 
would have no ability to cure the over-the-limit balance in order to 
avoid penalty pricing).
    9(h) Consumer rejection of certain significant changes in terms.
    1. Circumstances in which Sec.  226.9(h) does not apply. Section 
226.9(h) applies when Sec.  226.9(c)(2)(iv)(B) requires disclosure 
of the consumer's right to reject a significant change to an account 
term. Thus, for example, Sec.  226.9(h) does not apply to changes to 
the terms of home equity plans subject to the requirements of Sec.  
226.5b that are accessible by a credit or charge card because Sec.  
226.9(c)(2) does not apply to such plans. Similarly, Sec.  226.9(h) 
does not apply in the following circumstances because Sec.  
226.9(c)(2)(iv)(B) does not require disclosure of the right to 
reject in those circumstances: (i) An increase in the required 
minimum periodic payment; (ii) a change in an annual percentage rate 
applicable to a consumer's account (such as changing the margin or 
index for calculating a variable rate, changing from a variable rate 
to a non-variable rate, or changing from a non-variable rate to a 
variable rate); (iii) a change in the balance computation method 
necessary to comply with Sec.  226.54; and (iv) when the change 
results from the creditor not receiving the consumer's required 
minimum periodic payment within 60 days after the due date for that 
payment.
    9(h)(1) Right to reject.
    1. Reasonable requirements for submission of rejections. A 
creditor may establish reasonable requirements for the submission of 
rejections pursuant to Sec.  226.9(h)(1). For example:
    i. It would be reasonable for a creditor to require that 
rejections be made by the primary account holder and that the 
consumer identify the account number.
    ii. It would be reasonable for a creditor to require that 
rejections be made only using the toll-free telephone number 
disclosed pursuant to Sec.  226.9(c). It would also be reasonable 
for a creditor to designate additional channels for the submission 
of rejections (such as an address for rejections submitted by mail) 
so long as the creditor does not require that rejections be 
submitted through such additional channels.
    iii. It would be reasonable for a creditor to require that 
rejections be received before the effective date disclosed pursuant 
to Sec.  226.9(c) and to treat the account as not subject to Sec.  
226.9(h) if a rejection is received on or after that date. It would 
not, however, be reasonable to require that rejections be submitted 
earlier than the day before the effective date. If a creditor is 
unable to process all rejections received before the effective date, 
the creditor may delay implementation of the change in terms until 
all rejections have been processed. In the alternative, the creditor 
could implement the change on the effective date and then, on any 
account for which a timely rejection was received, reverse the 
change and remove or credit any interest charges or fees imposed as 
a result of the change. For example, if the effective date for a 
change in terms is June 15 and the creditor cannot process all 
rejections received by telephone on June 14 until June 16, the 
creditor may delay imposition of the change until June 17. 
Alternatively, the creditor could implement the change for all 
affected accounts on June 15 and then, once all rejections have been 
processed, return any account for which a timely rejection was 
received to the prior terms and ensure that the account is not 
assessed any additional interest or fees as a result of the change 
or that the account is credited for such interest or fees.
    2. Use of account following provision of notice. A consumer does 
not waive or forfeit the right to reject a significant change in 
terms by using the account for transactions prior to the effective 
date of the change. Similarly, a consumer does not revoke a 
rejection by using the account for transactions after the rejection 
is received.
    9(h)(2)(ii) Prohibition on penalties.
    1. Termination or suspension of credit availability. Section 
226.9(h)(2)(ii) does not prohibit a creditor from terminating or 
suspending credit availability as a result of the consumer's 
rejection of a significant change in terms.
    2. Solely as a result of rejection. A creditor is prohibited 
from imposing a fee or charge or treating an account as in default 
solely as a result of the consumer's rejection of a significant 
change in terms. For example, if credit availability is terminated 
or suspended as a result of the consumer's rejection of a 
significant change in terms, a creditor is prohibited from imposing 
a periodic fee that was not charged before the consumer rejected the 
change (such as a closed account fee). See also comment 55(d)-1. 
However, regardless of whether credit availability is terminated or 
suspended as a result of the consumer's rejection, a creditor is not 
prohibited from continuing to charge a periodic fee that was charged 
before the rejection. Similarly, a creditor that charged a fee for 
late payment before a change was rejected is not prohibited from 
charging that fee after rejection of the change.
    9(h)(2)(iii) Repayment of outstanding balance.
    1. Relevant date for repayment methods. Once a consumer has 
rejected a significant change in terms, Sec.  226.9(h)(2)(iii) 
prohibits the creditor from requiring repayment of the balance on 
the account using a method that is less beneficial to the consumer 
than one of the methods listed in Sec.  226.55(c)(2). When applying 
the methods listed in Sec.  226.55(c)(2) pursuant to Sec.  
226.9(h)(2)(iii), a creditor may utilize the date on which the 
creditor was notified of the rejection or a later date (such as the 
date on which the change would have gone into effect but for the 
rejection). For example, assume that on April 16 a creditor provides 
a notice pursuant to Sec.  226.9(c) informing the consumer that the 
monthly maintenance fee for the account will increase effective June 
1. The notice also states that the consumer may reject the increase 
by calling a specified toll-free telephone number before June 1 but 
that, if the consumer does so, credit availability for the account 
will be terminated. On May 5, the consumer calls the toll-free 
number and exercises the right to reject. If the creditor chooses to 
establish a five-year amortization period for the balance on the 
account consistent with Sec.  226.55(c)(2)(ii), that period may 
begin no earlier than the date on which the creditor was notified of 
the rejection (May 5). However, the creditor may also begin the 
amortization period on the date on which the change would have gone 
into effect but for the rejection (June 1).
    2. Balance on the account.
    i. In general. When applying the methods listed in Sec.  
226.55(c)(2) pursuant to Sec.  226.9(h)(2)(iii), the provisions in 
Sec.  226.55(c)(2) and the guidance in the commentary to Sec.  
226.55(c)(2) regarding protected balances also apply to a balance on 
the account subject to Sec.  226.9(h)(2)(iii). If a creditor 
terminates or suspends credit availability based on a consumer's 
rejection of a significant change in terms, the balance on the 
account that is subject to Sec.  226.9(h)(2)(iii) is the balance at 
the end of the day on which credit availability is terminated or 
suspended. However, if a creditor does not terminate or suspend 
credit availability based on the consumer's rejection, the balance 
on the account subject to Sec.  226.9(h)(2)(iii) is the balance at 
the end of the day on which the creditor was notified of the 
rejection or, at the creditor's option, a later date.
    ii. Example. Assume that on June 16 a creditor provides a notice 
pursuant to Sec.  226.9(c) informing the consumer that the annual 
fee for the account will increase effective August 1. The notice 
also states that the consumer may reject the increase by calling a 
specified toll-free telephone number before August 1 but that, if 
the consumer does so, credit availability for the account will be 
terminated. On July 20, the account has a purchase balance of $1,000 
and the

[[Page 7887]]

consumer calls the toll-free number and exercises the right to 
reject. On July 22, a $200 purchase is charged to the account. If 
the creditor terminates credit availability on July 25 as a result 
of the rejection, the balance subject to the repayment limitations 
in Sec.  226.9(h)(2)(iii) is the $1,200 purchase balance at the end 
of the day on July 25. However, if the creditor does not terminate 
credit availability as a result of the rejection, the balance 
subject to the repayment limitations in Sec.  226.9(h)(2)(iii) is 
the $1,000 purchase balance at the end of the day on the date the 
creditor was notified of the rejection (July 20), although the 
creditor may, at its option, treat the $200 purchase as part of the 
balance subject to Sec.  226.9(h)(2)(iii).
    9(h)(3) Exception.
    1. Examples. Section 226.9(h)(3) provides that Sec.  226.9(h) 
does not apply when the creditor has not received the consumer's 
required minimum periodic payment within 60 days after the due date 
for that payment. The following examples illustrate the application 
of this exception:
    i. Account becomes more than 60 days delinquent before notice 
provided. Assume that a credit card account is opened on January 1 
of year one and that the payment due date for the account is the 
fifteenth day of the month. On June 20 of year two, the creditor has 
not received the required minimum periodic payments due on April 15, 
May 15, and June 15. On June 20, the creditor provides a notice 
pursuant to Sec.  226.9(c) informing the consumer that a monthly 
maintenance fee of $10 will be charged beginning on August 4. 
However, Sec.  226.9(c)(2)(iv)(B) does not require the creditor to 
notify the consumer of the right to reject because the creditor has 
not received the April 15 minimum payment within 60 days after the 
due date. Furthermore, the exception in Sec.  226.9(h)(3) applies 
and the consumer may not reject the fee.
    ii. Account becomes more than 60 days delinquent after 
rejection. Assume that a credit card account is opened on January 1 
of year one and that the payment due date for the account is the 
fifteenth day of the month. On April 20 of year two, the creditor 
has not received the required minimum periodic payment due on April 
15. On April 20, the creditor provides a notice pursuant to Sec.  
226.9(c) informing the consumer that an annual fee of $100 will be 
charged beginning on June 4. The notice further states that the 
consumer may reject the fee by calling a specified toll-free 
telephone number before June 4 but that, if the consumer does so, 
credit availability for the account will be terminated. On May 5, 
the consumer calls the toll-free telephone number and rejects the 
fee. Section 226.9(h)(2)(i) prohibits the creditor from charging the 
$100 fee to the account. If, however, the creditor does not receive 
the minimum payments due on April 15 and May 15 by June 15, Sec.  
226.9(h)(3) permits the creditor to charge the $100 fee. The 
creditor must provide a second notice of the fee pursuant to Sec.  
226.9(c), but Sec.  226.9(c)(2)(iv)(B) does not require the creditor 
to disclose the right to reject and Sec.  226.9(h)(3) does not allow 
the consumer to reject the fee. Similarly, the restrictions in Sec.  
226.9(h)(2)(ii) and (iii) no longer apply.

Section 226.10--Payments

    10(a) General rule.
    1. Crediting date. Section 226.10(a) does not require the 
creditor to post the payment to the consumer's account on a 
particular date; the creditor is only required to credit the payment 
as of the date of receipt.
    2. Date of receipt. The ``date of receipt'' is the date that the 
payment instrument or other means of completing the payment reaches 
the creditor. For example:
    i. Payment by check is received when the creditor gets it, not 
when the funds are collected.
    ii. In a payroll deduction plan in which funds are deposited to 
an asset account held by the creditor, and from which payments are 
made periodically to an open-end credit account, payment is received 
on the date when it is debited to the asset account (rather than on 
the date of the deposit), provided the payroll deduction method is 
voluntary and the consumer retains use of the funds until the 
contractual payment date.
    iii. If the consumer elects to have payment made by a third 
party payor such as a financial institution, through a preauthorized 
payment or telephone bill-payment arrangement, payment is received 
when the creditor gets the third party payor's check or other 
transfer medium, such as an electronic fund transfer, as long as the 
payment meets the creditor's requirements as specified under Sec.  
226.10(b).
    iv. Payment made via the creditor's Web site is received on the 
date on which the consumer authorizes the creditor to effect the 
payment, even if the consumer gives the instruction authorizing that 
payment in advance of the date on which the creditor is authorized 
to effect the payment. If the consumer authorizes the creditor to 
effect the payment immediately, but the consumer's instruction is 
received after 5 p.m. or any later cut-off time specified by the 
creditor, the date on which the consumer authorizes the creditor to 
effect the payment is deemed to be the next business day.
    10(b) Specific requirements for payments.
    1. Payment by electronic fund transfer. A creditor may be 
prohibited from specifying payment by preauthorized electronic fund 
transfer. (See section 913 of the Electronic Fund Transfer Act.)
    2. Payment via creditor's Web site. If a creditor promotes 
electronic payment via its Web site (such as by disclosing on the 
Web site itself that payments may be made via the Web site), any 
payments made via the creditor's Web site prior to the creditor's 
specified cut-off time, if any, would generally be conforming 
payments for purposes of Sec.  226.10(b).
    3. Acceptance of nonconforming payments. If the creditor accepts 
a nonconforming payment (for example, payment mailed to a branch 
office, when the creditor had specified that payment be sent to a 
different location), finance charges may accrue for the period 
between receipt and crediting of payments.
    4. Implied guidelines for payments. In the absence of specified 
requirements for making payments (see Sec.  226.10(b)):
    i. Payments may be made at any location where the creditor 
conducts business.
    ii. Payments may be made any time during the creditor's normal 
business hours.
    iii. Payment may be by cash, money order, draft, or other 
similar instrument in properly negotiable form, or by electronic 
fund transfer if the creditor and consumer have so agreed.
    5. Payments made at point of sale. If a card issuer that is a 
financial institution issues a credit card under an open-end (not 
home-secured) consumer credit plan that can be used only for 
transactions with a particular merchant or merchants or a credit 
card that is cobranded with the name of a particular merchant or 
merchants, and a consumer is able to make a payment on that credit 
card account at a retail location maintained by such a merchant, 
that retail location is not considered to be a branch or office of 
the card issuer for purposes of Sec.  226.10(b)(3).
    6. In-person payments on credit card accounts. For purposes of 
Sec.  226.10(b)(3), payments made in person at a branch or office of 
a financial institution include payments made with the direct 
assistance of, or to, a branch or office employee, for example a 
teller at a bank branch. A payment made at the bank branch without 
the direct assistance of a branch or office employee, for example a 
payment placed in a branch or office mail slot, is not a payment 
made in person for purposes of Sec.  226.10(b)(3).
    7. In-person payments at affiliate of card issuer. If an 
affiliate of a card issuer that is a financial institution shares a 
name with the card issuer, such as ``ABC,'' and accepts in-person 
payments on the card issuer's credit card accounts, those payments 
are subject to the requirements of Sec.  226.10(b)(3).
    10(d) Crediting of payments when creditor does not receive or 
accept payments on due date.
    1. Example. A day on which the creditor does not receive or 
accept payments by mail may occur, for example, if the U.S. Postal 
Service does not deliver mail on that date.
    2. Treating a payment as late for any purpose. See comment 
5(b)(2)(ii)-2 for guidance on treating a payment as late for any 
purpose. When an account is not eligible for a grace period, 
imposing a finance charge due to a periodic interest rate does not 
constitute treating a payment as late.
    10(e) Limitations on fees related to method of payment.
    1. Separate fee to allow consumers to make a payment. For 
purposes of Sec.  226.10(e), the term ``separate fee'' means a fee 
imposed on a consumer for making a payment to the consumer's 
account. A fee or other charge imposed if payment is made after the 
due date, such as a late fee or finance charge, is not a separate 
fee to allow consumers to make a payment for purposes of Sec.  
226.10(e).
    2. Expedited. For purposes of Sec.  226.10(e), the term 
``expedited'' means crediting a payment the same day or, if the 
payment is received after any cut-off time established by the 
creditor, the next business day.
    3. Service by a customer service representative. Service by a 
customer service representative of a creditor means any payment made 
to the consumer's account with the assistance of a live 
representative or agent of the creditor, including those made in 
person, on the telephone, or by electronic

[[Page 7888]]

means. A customer service representative does not include automated 
means of making payment that do not involve a live representative or 
agent of the creditor, such as a voice response unit or interactive 
voice response system. Service by a customer service representative 
includes any payment transaction which involves the assistance of a 
live representative or agent of the creditor, even if an automated 
system is required for a portion of the transaction.
    10(f) Changes by card issuer.
    1. Address for receiving payment. For purposes of Sec.  
226.10(f), ``address for receiving payment'' means a mailing address 
for receiving payment, such as a post office box, or the address of 
a branch or office at which payments on credit card accounts are 
accepted.
    2. Materiality. For purposes of Sec.  226.10(f), a ``material 
change'' means any change in the address for receiving payment or 
procedures for handling cardholder payments which causes a material 
delay in the crediting of a payment. ``Material delay'' means any 
delay in crediting payment to a consumer's account which would 
result in a late payment and the imposition of a late fee or finance 
charge. A delay in crediting a payment which does not result in a 
late fee or finance charge would be immaterial.
    3. Safe harbor. (i) General. A card issuer may elect not to 
impose a late fee or finance charge on a consumer's account for the 
60-day period following a change in address for receiving payment or 
procedures for handling cardholder payments which could reasonably 
be expected to cause a material delay in crediting of a payment to 
the consumer's account. For purposes of Sec.  226.10(f), a late fee 
or finance charge is not imposed if the fee or charge is waived or 
removed, or an amount equal to the fee or charge is credited to the 
account.
    (ii) Retail location. For a material change in the address of a 
retail location or procedures for handling cardholder payments at a 
retail location, a card issuer may impose a late fee or finance 
charge on a consumer's account for a late payment during the 60-day 
period following the date on which the change took effect. However, 
if a consumer is notified by a consumer no later than 60 days after 
the card issuer transmitted the first periodic statement that 
reflects the late fee or finance charge for a late payment that the 
late payment was caused by such change, the card issuer must waive 
or remove any late fee or finance charge, or credit an amount equal 
to any late fee or finance charge, imposed on the account during the 
60-day period following the date on which the change took effect.
    4. Examples.
    i. A card issuer changes the mailing address for receiving 
payments by mail from a five-digit postal zip code to a nine-digit 
postal zip code. A consumer mails a payment using the five-digit 
postal zip code. The change in mailing address is immaterial and it 
does not cause a delay. Therefore, a card issuer may impose a late 
fee or finance charge for a late payment on the account.
    ii. A card issuer changes the mailing address for receiving 
payments by mail from one post office box number to another post 
office box number. For a 60-day period following the change, the 
card issuer continues to use both post office box numbers for the 
collection of payments received by mail. The change in mailing 
address would not cause a material delay in crediting a payment 
because payments would be received and credited at both addresses. 
Therefore, a card issuer may impose a late fee or finance charge for 
a late payment on the account during the 60-day period following the 
date on which the change took effect.
    iii. Same facts as paragraph ii. above, except the prior post 
office box number is no longer valid and mail sent to that address 
during the 60-day period following the change would be returned to 
sender. The change in mailing address is material and the change 
could cause a material delay in the crediting of a payment because a 
payment sent to the old address could be delayed past the due date. 
If, as a result, a consumer makes a late payment on the account 
during the 60-day period following the date on which the change took 
effect, a card issuer may not impose any late fee or finance charge 
for the late payment.
    iv. A card issuer permanently closes a local branch office at 
which payments are accepted on credit card accounts. The permanent 
closing of the local branch office is a material change in address 
for receiving payment. Relying on the safe harbor, the card issuer 
elects not to impose a late fee or finance charge for the 60-day 
period following the local branch closing for late payments on 
consumer accounts which the issuer reasonably determines are 
associated with the local branch and which could reasonably be 
expected to have been caused by the branch closing.
    v. A consumer has elected to make payments automatically to a 
credit card account, such as through a payroll deduction plan or a 
third party payor's preauthorized payment arrangement. A card issuer 
changes the procedures for handling such payments and as a result, a 
payment is delayed and not credited to the consumer's account before 
the due date. In these circumstances, a card issuer may not impose 
any late fee or finance charge during the 60-day period following 
the date on which the change took effect for a late payment on the 
account.
    vi. A card issuer no longer accepts payments in person at a 
retail location as a conforming method of payment, which is a 
material change in the procedures for handling cardholder payment. 
In the 60-day period following the date on which the change took 
effect, a consumer attempts to make a payment in person at a retail 
location of a card issuer. As a result, the consumer makes a late 
payment and the issuer charges a late fee on the consumer's account. 
The consumer notifies the card issuer of the late fee for the late 
payment which was caused by the material change. In order to comply 
with Sec.  226.10(f), the card issuer must waive or remove the late 
fee or finance charge, or credit the consumer's account in an amount 
equal to the late fee or finance charge.
    5. Finance charge due to periodic interest rate. When an account 
is not eligible for a grace period, imposing a finance charge due to 
a periodic interest rate does not constitute imposition of a finance 
charge for a late payment for purposes of Sec.  226.10(f).

Section 226.11--Treatment of Credit Balances; Account Termination

    11(a) Credit balances.
    1. Timing of refund. The creditor may also fulfill its 
obligations under Sec.  226.11 by:
    i. Refunding any credit balance to the consumer immediately.
    ii. Refunding any credit balance prior to receiving a written 
request (under Sec.  226.11(a)(2)) from the consumer.
    iii. Refunding any credit balance upon the consumer's oral or 
electronic request.
    iv. Making a good faith effort to refund any credit balance 
before 6 months have passed. If that attempt is unsuccessful, the 
creditor need not try again to refund the credit balance at the end 
of the 6-month period.
    2. Amount of refund. The phrases any part of the remaining 
credit balance in Sec.  226.11(a)(2) and any part of the credit 
balance remaining in the account in Sec.  226.11(a)(3) mean the 
amount of the credit balance at the time the creditor is required to 
make the refund. The creditor may take into consideration 
intervening purchases or other debits to the consumer's account 
(including those that have not yet been reflected on a periodic 
statement) that decrease or eliminate the credit balance.
    Paragraph 11(a)(2).
    1. Written requests--standing orders. The creditor is not 
required to honor standing orders requesting refunds of any credit 
balance that may be created on the consumer's account.
    Paragraph 11(a)(3).
    1. Good faith effort to refund. The creditor must take positive 
steps to return any credit balance that has remained in the account 
for over 6 months. This includes, if necessary, attempts to trace 
the consumer through the consumer's last known address or telephone 
number, or both.
    2. Good faith effort unsuccessful. Section 226.11 imposes no 
further duties on the creditor if a good faith effort to return the 
balance is unsuccessful. The ultimate disposition of the credit 
balance (or any credit balance of $1 or less) is to be determined 
under other applicable law.
    11(b) Account termination.
    Paragraph 11(b)(1).
    1. Expiration date. The credit agreement determines whether or 
not an open-end plan has a stated expiration (maturity) date. 
Creditors that offer accounts with no stated expiration date are 
prohibited from terminating those accounts solely because a consumer 
does not incur a finance charge, even if credit cards or other 
access devices associated with the account expire after a stated 
period. Creditors may still terminate such accounts for inactivity 
consistent with Sec.  226.11(b)(2).
    11(c) Timely settlement of estate debts
    1. Administrator of an estate. For purposes of Sec.  226.11(c), 
the term ``administrator'' means an administrator, executor, or any 
personal representative of an estate who is authorized to act on 
behalf of the estate.
    2. Examples. The following are examples of reasonable procedures 
that satisfy this rule:

[[Page 7889]]

    i. A card issuer may decline future transactions and terminate 
the account upon receiving reasonable notice of the consumer's 
death.
    ii. A card issuer may credit the account for fees and charges 
imposed after the date of receiving reasonable notice of the 
consumer's death.
    iii. A card issuer may waive the estate's liability for all 
charges made to the account after receiving reasonable notice of the 
consumer's death.
    iv. A card issuer may authorize an agent to handle matters in 
accordance with the requirements of this rule.
    v. A card issuer may require administrators of an estate to 
provide documentation indicating authority to act on behalf of the 
estate.
    vi. A card issuer may establish or designate a department, 
business unit, or communication channel for administrators, such as 
a specific mailing address or toll-free number, to handle matters in 
accordance with the requirements of this rule.
    vii. A card issuer may direct administrators, who call a general 
customer service toll-free number or who send correspondence by mail 
to an address for general correspondence, to an appropriate customer 
service representative, department, business unit, or communication 
channel to handle matters in accordance with the requirements of 
this rule.
    2. Request by an administrator of an estate. A card issuer may 
receive a request for the amount of the balance on a deceased 
consumer's account in writing or by telephone call from the 
administrator of an estate. If a request is made in writing, such as 
by mail, the request is received on the date the card issuer 
receives the correspondence.
    3. Timely statement of balance. A card issuer must disclose the 
balance on a deceased consumer's account, upon request by the 
administrator of the decedent's estate. A card issuer may provide 
the amount, if any, by a written statement or by telephone. This 
does not preclude a card issuer from providing the balance amount to 
appropriate persons, other than the administrator, such as the 
spouse or a relative of the decedent, who indicate that they may pay 
any balance. This provision does not relieve card issuers of the 
requirements to provide a periodic statement, under Sec.  
226.5(b)(2). A periodic statement, under Sec.  226.5(b)(2), may 
satisfy the requirements of Sec.  226.11(c)(2), if provided within 
30 days of receiving a request by an administrator of the estate.
    4. Imposition of fees and interest charges. Section 226.11(c)(3) 
does not prohibit a card issuer from imposing fees and finance 
charges due to a periodic interest rate based on balances for days 
that precede the date on which the card issuer receives a request 
pursuant to Sec.  226.11(c)(2). For example, if the last day of the 
billing cycle is June 30 and the card issuer receives a request 
pursuant to Sec.  226.11(c)(2) on June 25, the card issuer may 
charge interest that accrued prior to June 25.
    5. Example. A card issuer receives a request from an 
administrator for the amount of the balance on a deceased consumer's 
account on March 1. The card issuer discloses to the administrator 
on March 25 that the balance is $1,000. If the card issuer receives 
payment in full of the $1,000 on April 24, the card issuer must 
waive or rebate any additional interest that accrued on the $1,000 
balance between March 25 and April 24. If the card issuer receives a 
payment of $1,000 on April 25, the card issuer is not required to 
waive or rebate interest charges on the $1,000 balance in respect of 
the period between March 25 and April 25. If the card issuer 
receives a partial payment of $500 on April 24, the card issuer is 
not required to waive or rebate interest charges on the $1,000 
balance in respect of the period between March 25 and April 25.
    6. Application to joint accounts. A card issuer may impose fees 
and charges on an account of a deceased consumer if a joint 
accountholder remains on the account. If only an authorized user 
remains on the account of a deceased consumer, however, then a card 
issuer may not impose fees and charges.

Section 226.12--Special Credit Card Provisions

    1. Scope. Sections 226.12(a) and (b) deal with the issuance and 
liability rules for credit cards, whether the card is intended for 
consumer, business, or any other purposes. Sections 226.12(a) and 
(b) are exceptions to the general rule that the regulation applies 
only to consumer credit. (See Sec. Sec.  226.1 and 226.3.)
    2. Definition of ``accepted credit card''. For purposes of this 
section, ``accepted credit card'' means any credit card that a 
cardholder has requested or applied for and received, or has signed, 
used, or authorized another person to use to obtain credit. Any 
credit card issued as a renewal or substitute in accordance with 
Sec.  226.12(a) becomes an accepted credit card when received by the 
cardholder.
    12(a) Issuance of credit cards.
    Paragraph 12(a)(1).
    1. Explicit request. A request or application for a card must be 
explicit. For example, a request for an overdraft plan tied to a 
checking account does not constitute an application for a credit 
card with overdraft checking features.
    2. Addition of credit features. If the consumer has a non-credit 
card, the addition of credit features to the card (for example, the 
granting of overdraft privileges on a checking account when the 
consumer already has a check guarantee card) constitutes issuance of 
a credit card.
    3. Variance of card from request. The request or application 
need not correspond exactly to the card that is issued. For example:
    i. The name of the card requested may be different when issued.
    ii. The card may have features in addition to those reflected in 
the request or application.
    4. Permissible form of request. The request or application may 
be oral (in response to a telephone solicitation by a card issuer, 
for example) or written.
    5. Time of issuance. A credit card may be issued in response to 
a request made before any cards are ready for issuance (for example, 
if a new program is established), even if there is some delay in 
issuance.
    6. Persons to whom cards may be issued. A card issuer may issue 
a credit card to the person who requests it, and to anyone else for 
whom that person requests a card and who will be an authorized user 
on the requester's account. In other words, cards may be sent to 
consumer A on A's request, and also (on A's request) to consumers B 
and C, who will be authorized users on A's account. In these 
circumstances, the following rules apply:
    i. The additional cards may be imprinted in either A's name or 
in the names of B and C.
    ii. No liability for unauthorized use (by persons other than B 
and C), not even the $50, may be imposed on B or C since they are 
merely users and not cardholders as that term is defined in Sec.  
226.2 and used in Sec.  226.12(b); of course, liability of up to $50 
for unauthorized use of B's and C's cards may be imposed on A.
    iii. Whether B and C may be held liable for their own use, or on 
the account generally, is a matter of state or other applicable law.
    7. Issuance of non-credit cards.
    i. General. Under Sec.  226.12(a)(1), a credit card cannot be 
issued except in response to a request or an application. (See 
comment 2(a)(15)-2 for examples of cards or devices that are and are 
not credit cards.) A non-credit card may be sent on an unsolicited 
basis by an issuer that does not propose to connect the card to any 
credit plan; a credit feature may be added to a previously issued 
non-credit card only upon the consumer's specific request.
    ii. Examples. A purchase-price discount card may be sent on an 
unsolicited basis by an issuer that does not propose to connect the 
card to any credit plan. An issuer demonstrates that it proposes to 
connect the card to a credit plan by, for example, including 
promotional materials about credit features or account agreements 
and disclosures required by Sec.  226.6. The issuer will violate the 
rule against unsolicited issuance if, for example, at the time the 
card is sent a credit plan can be accessed by the card or the 
recipient of the unsolicited card has been preapproved for credit 
that the recipient can access by contacting the issuer and 
activating the card.
    8. Unsolicited issuance of PINs. A card issuer may issue 
personal identification numbers (PINs) to existing credit 
cardholders without a specific request from the cardholders, 
provided the PINs cannot be used alone to obtain credit. For 
example, the PINs may be necessary if consumers wish to use their 
existing credit cards at automated teller machines or at merchant 
locations with point of sale terminals that require PINs.
    Paragraph 12(a)(2).
    1. Renewal. Renewal generally contemplates the regular 
replacement of existing cards because of, for example, security 
reasons or new technology or systems. It also includes the re-
issuance of cards that have been suspended temporarily, but does not 
include the opening of a new account after a previous account was 
closed.
    2. Substitution--examples. Substitution encompasses the 
replacement of one card with another because the underlying account 
relationship has changed in some way--such as when the card issuer 
has:

[[Page 7890]]

    i. Changed its name.
    ii. Changed the name of the card.
    iii. Changed the credit or other features available on the 
account. For example, the original card could be used to make 
purchases and obtain cash advances at teller windows. The substitute 
card might be usable, in addition, for obtaining cash advances 
through automated teller machines. (If the substitute card 
constitutes an access device, as defined in Regulation E, then the 
Regulation E issuance rules would have to be followed.) The 
substitution of one card with another on an unsolicited basis is not 
permissible, however, where in conjunction with the substitution an 
additional credit card account is opened and the consumer is able to 
make new purchases or advances under both the original and the new 
account with the new card. For example, if a retail card issuer 
replaces its credit card with a combined retailer/bank card, each of 
the creditors maintains a separate account, and both accounts can be 
accessed for new transactions by use of the new credit card, the 
card cannot be provided to a consumer without solicitation.
    iv. Substituted a card user's name on the substitute card for 
the cardholder's name appearing on the original card.
    v. Changed the merchant base, provided that the new card is 
honored by at least one of the persons that honored the original 
card. However, unless the change in the merchant base is the 
addition of an affiliate of the existing merchant base, the 
substitution of a new card for another on an unsolicited basis is 
not permissible where the account is inactive. A credit card cannot 
be issued in these circumstances without a request or application. 
For purposes of Sec.  226.12(a), an account is inactive if no credit 
has been extended and if the account has no outstanding balance for 
the prior 24 months. (See Sec.  226.11(b)(2).)
    3. Substitution--successor card issuer. Substitution also occurs 
when a successor card issuer replaces the original card issuer (for 
example, when a new card issuer purchases the accounts of the 
original issuer and issues its own card to replace the original 
one). A permissible substitution exists even if the original issuer 
retains the existing receivables and the new card issuer acquires 
the right only to future receivables, provided use of the original 
card is cut off when use of the new card becomes possible.
    4. Substitution--non-credit-card plan. A credit card that 
replaces a retailer's open-end credit plan not involving a credit 
card is not considered a substitute for the retailer's plan--even if 
the consumer used the retailer's plan. A credit card cannot be 
issued in these circumstances without a request or application.
    5. One-for-one rule. An accepted card may be replaced by no more 
than one renewal or substitute card. For example, the card issuer 
may not replace a credit card permitting purchases and cash advances 
with two cards, one for the purchases and another for the cash 
advances.
    6. One-for-one rule--exceptions. The regulation does not 
prohibit the card issuer from:
    i. Replacing a debit/credit card with a credit card and another 
card with only debit functions (or debit functions plus an 
associated overdraft capability), since the latter card could be 
issued on an unsolicited basis under Regulation E.
    ii. Replacing an accepted card with more than one renewal or 
substitute card, provided that:
    A. No replacement card accesses any account not accessed by the 
accepted card;
    B. For terms and conditions required to be disclosed under Sec.  
226.6, all replacement cards are issued subject to the same terms 
and conditions, except that a creditor may vary terms for which no 
change in terms notice is required under Sec.  226.9(c); and
    C. Under the account's terms the consumer's total liability for 
unauthorized use with respect to the account does not increase.
    7. Methods of terminating replaced card. The card issuer need 
not physically retrieve the original card, provided the old card is 
voided in some way, for example:
    i. The issuer includes with the new card a notification that the 
existing card is no longer valid and should be destroyed 
immediately.
    ii. The original card contained an expiration date.
    iii. The card issuer, in order to preclude use of the card, 
reprograms computers or issues instructions to authorization 
centers.
    8. Incomplete replacement. If a consumer has duplicate credit 
cards on the same account (Card A--one type of bank credit card, for 
example), the card issuer may not replace the duplicate cards with 
one Card A and one Card B (Card B--another type of bank credit card) 
unless the consumer requests Card B.
    9. Multiple entities. Where multiple entities share 
responsibilities with respect to a credit card issued by one of 
them, the entity that issued the card may replace it on an 
unsolicited basis, if that entity terminates the original card by 
voiding it in some way, as described in comment 12(a)(2)-7. The 
other entity or entities may not issue a card on an unsolicited 
basis in these circumstances.
    12(b) Liability of cardholder for unauthorized use.
    1. Meaning of cardholder. For purposes of this provision, 
cardholder includes any person (including organizations) to whom a 
credit card is issued for any purpose, including business. When a 
corporation is the cardholder, required disclosures should be 
provided to the corporation (as opposed to an employee user).
    2. Imposing liability. A card issuer is not required to impose 
liability on a cardholder for the unauthorized use of a credit card; 
if the card issuer does not seek to impose liability, the issuer 
need not conduct any investigation of the cardholder's claim.
    3. Reasonable investigation. If a card issuer seeks to impose 
liability when a claim of unauthorized use is made by a cardholder, 
the card issuer must conduct a reasonable investigation of the 
claim. In conducting its investigation, the card issuer may 
reasonably request the cardholder's cooperation. The card issuer may 
not automatically deny a claim based solely on the cardholder's 
failure or refusal to comply with a particular request, including 
providing an affidavit or filing a police report; however, if the 
card issuer otherwise has no knowledge of facts confirming the 
unauthorized use, the lack of information resulting from the 
cardholder's failure or refusal to comply with a particular request 
may lead the card issuer reasonably to terminate the investigation. 
The procedures involved in investigating claims may differ, but 
actions such as the following represent steps that a card issuer may 
take, as appropriate, in conducting a reasonable investigation:
    i. Reviewing the types or amounts of purchases made in relation 
to the cardholder's previous purchasing pattern.
    ii. Reviewing where the purchases were delivered in relation to 
the cardholder's residence or place of business.
    iii. Reviewing where the purchases were made in relation to 
where the cardholder resides or has normally shopped.
    iv. Comparing any signature on credit slips for the purchases to 
the signature of the cardholder or an authorized user in the card 
issuer's records, including other credit slips.
    v. Requesting documentation to assist in the verification of the 
claim.
    vi. Requiring a written, signed statement from the cardholder or 
authorized user. For example, the creditor may include a signature 
line on a billing rights form that the cardholder may send in to 
provide notice of the claim. However, a creditor may not require the 
cardholder to provide an affidavit or signed statement under penalty 
of perjury as part of a reasonable investigation.
    vii. Requesting a copy of a police report, if one was filed.
    viii. Requesting information regarding the cardholder's 
knowledge of the person who allegedly used the card or of that 
person's authority to do so.
    4. Checks that access a credit card account. The liability 
provisions for unauthorized use under Sec.  226.12(b)(1) only apply 
to transactions involving the use of a credit card, and not if an 
unauthorized transaction is made using a check accessing the credit 
card account. However, the billing error provisions in Sec.  226.13 
apply to both of these types of transactions.
    12(b)(1)(ii) Limitation on amount.
    1. Meaning of authority. Section 226.12(b)(1)(i) defines 
unauthorized use in terms of whether the user has actual, implied, 
or apparent authority. Whether such authority exists must be 
determined under state or other applicable law.
    2. Liability limits--dollar amounts. As a general rule, the 
cardholder's liability for a series of unauthorized uses cannot 
exceed either $50 or the value obtained through the unauthorized use 
before the card issuer is notified, whichever is less.
    3. Implied or apparent authority. If a cardholder furnishes a 
credit card and grants authority to make credit transactions to a 
person (such as a family member or coworker) who exceeds the 
authority given, the cardholder is liable for the transaction(s) 
unless the cardholder has notified the creditor that use of the 
credit card by that person is no longer authorized.
    4. Credit card obtained through robbery or fraud. An 
unauthorized use includes, but is not limited to, a transaction 
initiated by a

[[Page 7891]]

person who has obtained the credit card from the consumer, or 
otherwise initiated the transaction, through fraud or robbery.
    12(b)(2) Conditions of liability.
    1. Issuer's option not to comply. A card issuer that chooses not 
to impose any liability on cardholders for unauthorized use need not 
comply with the disclosure and identification requirements discussed 
in Sec.  226.12(b)(2).
    Paragraph 12(b)(2)(ii).
    1. Disclosure of liability and means of notifying issuer. The 
disclosures referred to in Sec.  226.12(b)(2)(ii) may be given, for 
example, with the initial disclosures under Sec.  226.6, on the 
credit card itself, or on periodic statements. They may be given at 
any time preceding the unauthorized use of the card.
    2. Meaning of ``adequate notice.'' For purposes of this 
provision, ``adequate notice'' means a printed notice to a 
cardholder that sets forth clearly the pertinent facts so that the 
cardholder may reasonably be expected to have noticed it and 
understood its meaning. The notice may be given by any means 
reasonably assuring receipt by the cardholder.
    Paragraph 12(b)(2)(iii).
    1. Means of identifying cardholder or user. To fulfill the 
condition set forth in Sec.  226.12(b)(2)(iii), the issuer must 
provide some method whereby the cardholder or the authorized user 
can be identified. This could include, for example, a signature, 
photograph, or fingerprint on the card or other biometric means, or 
electronic or mechanical confirmation.
    2. Identification by magnetic strip. Unless a magnetic strip (or 
similar device not readable without physical aids) must be used in 
conjunction with a secret code or the like, it would not constitute 
sufficient means of identification. Sufficient identification also 
does not exist if a ``pool'' or group card, issued to a corporation 
and signed by a corporate agent who will not be a user of the card, 
is intended to be used by another employee for whom no means of 
identification is provided.
    3. Transactions not involving card. The cardholder may not be 
held liable under Sec.  226.12(b) when the card itself (or some 
other sufficient means of identification of the cardholder) is not 
presented. Since the issuer has not provided a means to identify the 
user under these circumstances, the issuer has not fulfilled one of 
the conditions for imposing liability. For example, when merchandise 
is ordered by telephone or the Internet by a person without 
authority to do so, using a credit card account number by itself or 
with other information that appears on the card (for example, the 
card expiration date and a 3- or 4-digit cardholder identification 
number), no liability may be imposed on the cardholder.
    12(b)(3) Notification to card issuer.
    1. How notice must be provided. Notice given in a normal 
business manner--for example, by mail, telephone, or personal 
visit--is effective even though it is not given to, or does not 
reach, some particular person within the issuer's organization. 
Notice also may be effective even though it is not given at the 
address or phone number disclosed by the card issuer under Sec.  
226.12(b)(2)(ii).
    2. Who must provide notice. Notice of loss, theft, or possible 
unauthorized use need not be initiated by the cardholder. Notice is 
sufficient so long as it gives the ``pertinent information'' which 
would include the name or card number of the cardholder and an 
indication that unauthorized use has or may have occurred.
    3. Relationship to Sec.  226.13. The liability protections 
afforded to cardholders in Sec.  226.12 do not depend upon the 
cardholder's following the error resolution procedures in Sec.  
226.13. For example, the written notification and time limit 
requirements of Sec.  226.13 do not affect the Sec.  226.12 
protections. (See also comment 12(b)-4.)
    12(b)(5) Business use of credit cards.
    1. Agreement for higher liability for business use cards. The 
card issuer may not rely on Sec.  226.12(b)(5) if the business is 
clearly not in a position to provide 10 or more cards to employees 
(for example, if the business has only 3 employees). On the other 
hand, the issuer need not monitor the personnel practices of the 
business to make sure that it has at least 10 employees at all 
times.
    2. Unauthorized use by employee. The protection afforded to an 
employee against liability for unauthorized use in excess of the 
limits set in Sec.  226.12(b) applies only to unauthorized use by 
someone other than the employee. If the employee uses the card in an 
unauthorized manner, the regulation sets no restriction on the 
employee's potential liability for such use.
    12(c) Right of cardholder to assert claims or defenses against 
card issuer.
    1. Relationship to Sec.  226.13. The Sec.  226.12(c) credit card 
``holder in due course'' provision deals with the consumer's right 
to assert against the card issuer a claim or defense concerning 
property or services purchased with a credit card, if the merchant 
has been unwilling to resolve the dispute. Even though certain 
merchandise disputes, such as non-delivery of goods, may also 
constitute ``billing errors'' under Sec.  226.13, that section 
operates independently of Sec.  226.12(c). The cardholder whose 
asserted billing error involves undelivered goods may institute the 
error resolution procedures of Sec.  226.13; but whether or not the 
cardholder has done so, the cardholder may assert claims or defenses 
under Sec.  226.12(c). Conversely, the consumer may pay a disputed 
balance and thus have no further right to assert claims and 
defenses, but still may assert a billing error if notice of that 
billing error is given in the proper time and manner. An assertion 
that a particular transaction resulted from unauthorized use of the 
card could also be both a ``defense'' and a billing error.
    2. Claims and defenses assertible. Section 226.12(c) merely 
preserves the consumer's right to assert against the card issuer any 
claims or defenses that can be asserted against the merchant. It 
does not determine what claims or defenses are valid as to the 
merchant; this determination must be made under state or other 
applicable law.
    3. Transactions excluded. Section 226.12(c) does not apply to 
the use of a check guarantee card or a debit card in connection with 
an overdraft credit plan, or to a check guarantee card used in 
connection with cash-advance checks.
    4. Method of calculating the amount of credit outstanding. The 
amount of the claim or defense that the cardholder may assert shall 
not exceed the amount of credit outstanding for the disputed 
transaction at the time the cardholder first notifies the card 
issuer or the person honoring the credit card of the existence of 
the claim or defense. To determine the amount of credit outstanding 
for purposes of this section, payments and other credits shall be 
applied to: (i) Late charges in the order of entry to the account; 
then to (ii) finance charges in the order of entry to the account; 
and then to (iii) any other debits in the order of entry to the 
account. If more than one item is included in a single extension of 
credit, credits are to be distributed pro rata according to prices 
and applicable taxes.
    12(c)(1) General rule.
    1. Situations excluded and included. The consumer may assert 
claims or defenses only when the goods or services are ``purchased 
with the credit card.'' This could include mail, the Internet or 
telephone orders, if the purchase is charged to the credit card 
account. But it would exclude:
    i. Use of a credit card to obtain a cash advance, even if the 
consumer then uses the money to purchase goods or services. Such a 
transaction would not involve ``property or services purchased with 
the credit card.''
    ii. The purchase of goods or services by use of a check 
accessing an overdraft account and a credit card used solely for 
identification of the consumer. (On the other hand, if the credit 
card is used to make partial payment for the purchase and not merely 
for identification, the right to assert claims or defenses would 
apply to credit extended via the credit card, although not to the 
credit extended on the overdraft line.)
    iii. Purchases made by use of a check guarantee card in 
conjunction with a cash advance check (or by cash advance checks 
alone). (See comment 12(c)-3.) A cash advance check is a check that, 
when written, does not draw on an asset account; instead, it is 
charged entirely to an open-end credit account.
    iv. Purchases effected by use of either a check guarantee card 
or a debit card when used to draw on overdraft credit plans. (See 
comment 12(c)-3.) The debit card exemption applies whether the card 
accesses an asset account via point of sale terminals, automated 
teller machines, or in any other way, and whether the card qualifies 
as an ``access device'' under Regulation E or is only a paper based 
debit card. If a card serves both as an ordinary credit card and 
also as check guarantee or debit card, a transaction will be subject 
to this rule on asserting claims and defenses when used as an 
ordinary credit card, but not when used as a check guarantee or 
debit card.
    12(c)(2) Adverse credit reports prohibited.
    1. Scope of prohibition. Although an amount in dispute may not 
be reported as delinquent until the matter is resolved:
    i. That amount may be reported as disputed.
    ii. Nothing in this provision prohibits the card issuer from 
undertaking its normal

[[Page 7892]]

collection activities for the delinquent and undisputed portion of 
the account.
    2. Settlement of dispute. A card issuer may not consider a 
dispute settled and report an amount disputed as delinquent or begin 
collection of the disputed amount until it has completed a 
reasonable investigation of the cardholder's claim. A reasonable 
investigation requires an independent assessment of the cardholder's 
claim based on information obtained from both the cardholder and the 
merchant, if possible. In conducting an investigation, the card 
issuer may request the cardholder's reasonable cooperation. The card 
issuer may not automatically consider a dispute settled if the 
cardholder fails or refuses to comply with a particular request. 
However, if the card issuer otherwise has no means of obtaining 
information necessary to resolve the dispute, the lack of 
information resulting from the cardholder's failure or refusal to 
comply with a particular request may lead the card issuer reasonably 
to terminate the investigation.
    12(c)(3) Limitations.
    Paragraph 12(c)(3)(i)(A).
    1. Resolution with merchant. The consumer must have tried to 
resolve the dispute with the merchant. This does not require any 
special procedures or correspondence between them, and is a matter 
for factual determination in each case. The consumer is not required 
to seek satisfaction from the manufacturer of the goods involved. 
When the merchant is in bankruptcy proceedings, the consumer is not 
required to file a claim in those proceedings, and may instead file 
a claim for the property or service purchased with the credit card 
with the card issuer directly.
    Paragraph 12(c)(3)(i)(B).
    1. Geographic limitation. The question of where a transaction 
occurs (as in the case of mail, Internet, or telephone orders, for 
example) is to be determined under state or other applicable law.
    Paragraph 12(c)(3)(ii).
    1. Merchant honoring card. The exceptions (stated in Sec.  
226.12(c)(3)(ii)) to the amount and geographic limitations in Sec.  
226.12(c)(3)(i)(B) do not apply if the merchant merely honors, or 
indicates through signs or advertising that it honors, a particular 
credit card.
    12(d) Offsets by card issuer prohibited.
    Paragraph 12(d)(1).
    1. Holds on accounts. ``Freezing'' or placing a hold on funds in 
the cardholder's deposit account is the functional equivalent of an 
offset and would contravene the prohibition in Sec.  226.12(d)(1), 
unless done in the context of one of the exceptions specified in 
Sec.  226.12(d)(2). For example, if the terms of a security 
agreement permitted the card issuer to place a hold on the funds, 
the hold would not violate the offset prohibition. Similarly, if an 
order of a bankruptcy court required the card issuer to turn over 
deposit account funds to the trustee in bankruptcy, the issuer would 
not violate the regulation by placing a hold on the funds in order 
to comply with the court order.
    2. Funds intended as deposits. If the consumer tenders funds as 
a deposit (to a checking account, for example), the card issuer may 
not apply the funds to repay indebtedness on the consumer's credit 
card account.
    3. Types of indebtedness; overdraft accounts. The offset 
prohibition applies to any indebtedness arising from transactions 
under a credit card plan, including accrued finance charges and 
other charges on the account. The prohibition also applies to 
balances arising from transactions not using the credit card itself 
but taking place under plans that involve credit cards. For example, 
if the consumer writes a check that accesses an overdraft line of 
credit, the resulting indebtedness is subject to the offset 
prohibition since it is incurred through a credit card plan, even 
though the consumer did not use an associated check guarantee or 
debit card.
    4. When prohibition applies in case of termination of account. 
The offset prohibition applies even after the card issuer terminates 
the cardholder's credit card privileges, if the indebtedness was 
incurred prior to termination. If the indebtedness was incurred 
after termination, the prohibition does not apply.
    Paragraph 12(d)(2).
    1. Security interest--limitations. In order to qualify for the 
exception stated in Sec.  226.12(d)(2), a security interest must be 
affirmatively agreed to by the consumer and must be disclosed in the 
issuer's account-opening disclosures under Sec.  226.6. The security 
interest must not be the functional equivalent of a right of offset; 
as a result, routinely including in agreements contract language 
indicating that consumers are giving a security interest in any 
deposit accounts maintained with the issuer does not result in a 
security interest that falls within the exception in Sec.  
226.12(d)(2). For a security interest to qualify for the exception 
under Sec.  226.12(d)(2) the following conditions must be met:
    i. The consumer must be aware that granting a security interest 
is a condition for the credit card account (or for more favorable 
account terms) and must specifically intend to grant a security 
interest in a deposit account. Indicia of the consumer's awareness 
and intent include at least one of the following (or a substantially 
similar procedure that evidences the consumer's awareness and 
intent):
    A. Separate signature or initials on the agreement indicating 
that a security interest is being given.
    B. Placement of the security agreement on a separate page, or 
otherwise separating the security interest provisions from other 
contract and disclosure provisions.
    C. Reference to a specific amount of deposited funds or to a 
specific deposit account number.
    ii. The security interest must be obtainable and enforceable by 
creditors generally. If other creditors could not obtain a security 
interest in the consumer's deposit accounts to the same extent as 
the card issuer, the security interest is prohibited by Sec.  
226.12(d)(2).
    2. Security interest--after-acquired property. As used in Sec.  
226.12(d)(2), the term ``security interest'' does not exclude (as it 
does for other Regulation Z purposes) interests in after-acquired 
property. Thus, a consensual security interest in deposit-account 
funds, including funds deposited after the granting of the security 
interest would constitute a permissible exception to the prohibition 
on offsets.
    3. Court order. If the card issuer obtains a judgment against 
the cardholder, and if state and other applicable law and the terms 
of the judgment do not so prohibit, the card issuer may offset the 
indebtedness against the cardholder's deposit account.
    Paragraph 12(d)(3).
    1. Automatic payment plans--scope of exception. With regard to 
automatic debit plans under Sec.  226.12(d)(3), the following rules 
apply:
    i. The cardholder's authorization must be in writing and signed 
or initialed by the cardholder.
    ii. The authorizing language need not appear directly above or 
next to the cardholder's signature or initials, provided it appears 
on the same document and that it clearly spells out the terms of the 
automatic debit plan.
    iii. If the cardholder has the option to accept or reject the 
automatic debit feature (such option may be required under section 
913 of the Electronic Fund Transfer Act), the fact that the option 
exists should be clearly indicated.
    2. Automatic payment plans--additional exceptions. The following 
practices are not prohibited by Sec.  226.12(d)(1):
    i. Automatically deducting charges for participation in a 
program of banking services (one aspect of which may be a credit 
card plan).
    ii. Debiting the cardholder's deposit account on the 
cardholder's specific request rather than on an automatic periodic 
basis (for example, a cardholder might check a box on the credit 
card bill stub, requesting the issuer to debit the cardholder's 
account to pay that bill).
    12(e) Prompt notification of returns and crediting of refunds.
    Paragraph 12(e)(1).
    1. Normal channels. The term normal channels refers to any 
network or interchange system used for the processing of the 
original charge slips (or equivalent information concerning the 
transaction).
    Paragraph 12(e)(2).
    1. Crediting account. The card issuer need not actually post the 
refund to the consumer's account within three business days after 
receiving the credit statement, provided that it credits the account 
as of a date within that time period.

Section 226.13--Billing Error Resolution

    1. Creditor's failure to comply with billing error provisions. 
Failure to comply with the error resolution procedures may result in 
the forfeiture of disputed amounts as prescribed in section 161(e) 
of the act. (Any failure to comply may also be a violation subject 
to the liability provisions of section 130 of the act.)
    2. Charges for error resolution. If a billing error occurred, 
whether as alleged or in a different amount or manner, the creditor 
may not impose a charge related to any aspect of the error 
resolution process (including charges for documentation or 
investigation) and must credit the consumer's account if

[[Page 7893]]

such a charge was assessed pending resolution. Since the act grants 
the consumer error resolution rights, the creditor should avoid any 
chilling effect on the good faith assertion of errors that might 
result if charges are assessed when no billing error has occurred.
    13(a) Definition of billing error.
    Paragraph 13(a)(1).
    1. Actual, implied, or apparent authority. Whether use of a 
credit card or open-end credit plan is authorized is determined by 
state or other applicable law. (See comment 12(b)(1)(ii)-1.)
    Paragraph 13(a)(3).
    1. Coverage. i. Section 226.13(a)(3) covers disputes about goods 
or services that are ``not accepted'' or ``not delivered * * * as 
agreed''; for example:
    A. The appearance on a periodic statement of a purchase, when 
the consumer refused to take delivery of goods because they did not 
comply with the contract.
    B. Delivery of property or services different from that agreed 
upon.
    C. Delivery of the wrong quantity.
    D. Late delivery.
    E. Delivery to the wrong location.
    ii. Section 226.13(a)(3) does not apply to a dispute relating to 
the quality of property or services that the consumer accepts. 
Whether acceptance occurred is determined by state or other 
applicable law.
    2. Application to purchases made using a third-party payment 
intermediary. Section 226.13(a)(3) generally applies to disputes 
about goods and services that are purchased using a third-party 
payment intermediary, such as a person-to-person Internet payment 
service, funded through use of a consumer's open-end credit plan 
when the goods or services are not accepted by the consumer or not 
delivered to the consumer as agreed. However, the extension of 
credit must be made at the time the consumer purchases the good or 
service and match the amount of the transaction to purchase the good 
or service (including ancillary taxes and fees). Under these 
circumstances, the property or service for which the extension of 
credit is made is not the payment service, but rather the good or 
service that the consumer has purchased using the payment service. 
Thus, for example, Sec.  226.13(a)(3) would not apply to purchases 
using a third party payment intermediary that is funded through use 
of an open-end credit plan if:
    i. The extension of credit is made to fund the third-party 
payment intermediary ``account,'' but the consumer does not 
contemporaneously use those funds to purchase a good or service at 
that time.
    ii. The extension of credit is made to fund only a portion of 
the purchase amount, and the consumer uses other sources to fund the 
remaining amount.
    3. Notice to merchant not required. A consumer is not required 
to first notify the merchant or other payee from whom he or she has 
purchased goods or services and attempt to resolve a dispute 
regarding the good or service before providing a billing-error 
notice to the creditor under Sec.  226.13(a)(3) asserting that the 
goods or services were not accepted or delivered as agreed.
    Paragraph 13(a)(5).
    1. Computational errors. In periodic statements that are 
combined with other information, the error resolution procedures are 
triggered only if the consumer asserts a computational billing error 
in the credit-related portion of the periodic statement. For 
example, if a bank combines a periodic statement reflecting the 
consumer's credit card transactions with the consumer's monthly 
checking statement, a computational error in the checking account 
portion of the combined statement is not a billing error.
    Paragraph 13(a)(6).
    1. Documentation requests. A request for documentation such as 
receipts or sales slips, unaccompanied by an allegation of an error 
under Sec.  226.13(a) or a request for additional clarification 
under Sec.  226.13(a)(6), does not trigger the error resolution 
procedures. For example, a request for documentation merely for 
purposes such as tax preparation or recordkeeping does not trigger 
the error resolution procedures.
    13(b) Billing error notice.
    1. Withdrawal of billing error notice by consumer. The creditor 
need not comply with the requirements of Sec.  226.13(c) through (g) 
of this section if the consumer concludes that no billing error 
occurred and voluntarily withdraws the billing error notice. The 
consumer's withdrawal of a billing error notice may be oral, 
electronic or written.
    2. Form of written notice. The creditor may require that the 
written notice not be made on the payment medium or other material 
accompanying the periodic statement if the creditor so stipulates in 
the billing rights statement required by Sec. Sec.  226.6(a)(5) or 
(b)(5)(iii), and 226.9(a). In addition, if the creditor stipulates 
in the billing rights statement that it accepts billing error 
notices submitted electronically, and states the means by which a 
consumer may electronically submit a billing error notice, a notice 
sent in such manner will be deemed to satisfy the written notice 
requirement for purposes of Sec.  226.13(b).
    Paragraph 13(b)(1).
    1. Failure to send periodic statement--timing. If the creditor 
has failed to send a periodic statement, the 60-day period runs from 
the time the statement should have been sent. Once the statement is 
provided, the consumer has another 60 days to assert any billing 
errors reflected on it.
    2. Failure to reflect credit--timing. If the periodic statement 
fails to reflect a credit to the account, the 60-day period runs 
from transmittal of the statement on which the credit should have 
appeared.
    3. Transmittal. If a consumer has arranged for periodic 
statements to be held at the financial institution until called for, 
the statement is ``transmitted'' when it is first made available to 
the consumer.
    Paragraph 13(b)(2).
    1. Identity of the consumer. The billing error notice need not 
specify both the name and the account number if the information 
supplied enables the creditor to identify the consumer's name and 
account.
    13(c) Time for resolution; general procedures.
    1. Temporary or provisional corrections. A creditor may 
temporarily correct the consumer's account in response to a billing 
error notice, but is not excused from complying with the remaining 
error resolution procedures within the time limits for resolution.
    2. Correction without investigation. A creditor may correct a 
billing error in the manner and amount asserted by the consumer 
without the investigation or the determination normally required. 
The creditor must comply, however, with all other applicable 
provisions. If a creditor follows this procedure, no presumption is 
created that a billing error occurred.
    3. Relationship with Sec.  226.12. The consumer's rights under 
the billing error provisions in Sec.  226.13 are independent of the 
provisions set forth in Sec.  226.12(b) and (c). (See comments 
12(b)-4, 12(b)(3)-3, and 12(c)-1.)
    Paragraph 13(c)(2).
    1. Time for resolution. The phrase two complete billing cycles 
means two actual billing cycles occurring after receipt of the 
billing error notice, not a measure of time equal to two billing 
cycles. For example, if a creditor on a monthly billing cycle 
receives a billing error notice mid-cycle, it has the remainder of 
that cycle plus the next two full billing cycles to resolve the 
error.
    2. Finality of error resolution procedure. A creditor must 
comply with the error resolution procedures and complete its 
investigation to determine whether an error occurred within two 
complete billing cycles as set forth in Sec.  226.13(c)(2). Thus, 
for example, the creditor would be prohibited from reversing amounts 
previously credited for an alleged billing error even if the 
creditor obtains evidence after the error resolution time period has 
passed indicating that the billing error did not occur as asserted 
by the consumer. Similarly, if a creditor fails to mail or deliver a 
written explanation setting forth the reason why the billing error 
did not occur as asserted, or otherwise fails to comply with the 
error resolution procedures set forth in Sec.  226.13(f), the 
creditor generally must credit the disputed amount and related 
finance or other charges, as applicable, to the consumer's account.
    13(d) Rules pending resolution.
    1. Disputed amount. Disputed amount is the dollar amount alleged 
by the consumer to be in error. When the allegation concerns the 
description or identification of the transaction (such as the date 
or the seller's name) rather than a dollar amount, the disputed 
amount is the amount of the transaction or charge that corresponds 
to the disputed transaction identification. If the consumer alleges 
a failure to send a periodic statement under Sec.  226.13(a)(7), the 
disputed amount is the entire balance owing.
    13(d)(1) Consumer's right to withhold disputed amount; 
collection action prohibited.
    1. Prohibited collection actions. During the error resolution 
period, the creditor is prohibited from trying to collect the 
disputed amount from the consumer. Prohibited collection actions 
include, for example, instituting court action, taking a lien, or 
instituting attachment proceedings.
    2. Right to withhold payment. If the creditor reflects any 
disputed amount or

[[Page 7894]]

related finance or other charges on the periodic statement, and is 
therefore required to make the disclosure under Sec.  226.13(d)(4), 
the creditor may comply with that disclosure requirement by 
indicating that payment of any disputed amount is not required 
pending resolution. Making a disclosure that only refers to the 
disputed amount would, of course, in no way affect the consumer's 
right under Sec.  226.13(d)(1) to withhold related finance and other 
charges. The disclosure under Sec.  226.13(d)(4) need not appear in 
any specific place on the periodic statement, need not state the 
specific amount that the consumer may withhold, and may be 
preprinted on the periodic statement.
    3. Imposition of additional charges on undisputed amounts. The 
consumer's withholding of a disputed amount from the total bill 
cannot subject undisputed balances (including new purchases or cash 
advances made during the present or subsequent cycles) to the 
imposition of finance or other charges. For example, if on an 
account with a grace period (that is, an account in which paying the 
new balance in full allows the consumer to avoid the imposition of 
additional finance charges), a consumer disputes a $2 item out of a 
total bill of $300 and pays $298 within the grace period, the 
consumer would not lose the grace period as to any undisputed 
amounts, even if the creditor determines later that no billing error 
occurred. Furthermore, finance or other charges may not be imposed 
on any new purchases or advances that, absent the unpaid disputed 
balance, would not have finance or other charges imposed on them. 
Finance or other charges that would have been incurred even if the 
consumer had paid the disputed amount would not be affected.
    4. Automatic payment plans--coverage. The coverage of this 
provision is limited to the card issuer's automatic payment plans, 
whether or not the consumer's asset account is held by the card 
issuer or by another financial institution. It does not apply to 
automatic or bill-payment plans offered by financial institutions 
other than the credit card issuer.
    5. Automatic payment plans--time of notice. While the card 
issuer does not have to restore or prevent the debiting of a 
disputed amount if the billing error notice arrives after the three-
business-day cut-off, the card issuer must, however, prevent the 
automatic debit of any part of the disputed amount that is still 
outstanding and unresolved at the time of the next scheduled debit 
date.
    13(d)(2) Adverse credit reports prohibited.
    1. Report of dispute. Although the creditor must not issue an 
adverse credit report because the consumer fails to pay the disputed 
amount or any related charges, the creditor may report that the 
amount or the account is in dispute. Also, the creditor may report 
the account as delinquent if undisputed amounts remain unpaid.
    2. Person. During the error resolution period, the creditor is 
prohibited from making an adverse credit report about the disputed 
amount to any person--including employers, insurance companies, 
other creditors, and credit bureaus.
    3. Creditor's agent. Whether an agency relationship exists 
between a creditor and an issuer of an adverse credit report is 
determined by State or other applicable law.
    13(e) Procedures if billing error occurred as asserted.
    1. Correction of error. The phrase as applicable means that the 
necessary corrections vary with the type of billing error that 
occurred. For example, a misidentified transaction (or a transaction 
that is identified by one of the alternative methods in Sec.  226.8) 
is cured by properly identifying the transaction and crediting 
related finance and any other charges imposed. The creditor is not 
required to cancel the amount of the underlying obligation incurred 
by the consumer.
    2. Form of correction notice. The written correction notice may 
take a variety of forms. It may be sent separately, or it may be 
included on or with a periodic statement that is mailed within the 
time for resolution. If the periodic statement is used, the amount 
of the billing error must be specifically identified. If a separate 
billing error correction notice is provided, the accompanying or 
subsequent periodic statement reflecting the corrected amount may 
simply identify it as credit.
    3. Discovery of information after investigation period. See 
comment 13(c)(2)-2.
    13(f) Procedures if different billing error or no billing error 
occurred.
    1. Different billing error. Examples of a different billing 
error include:
    i. Differences in the amount of an error (for example, the 
customer asserts a $55.00 error but the error was only $53.00).
    ii. Differences in other particulars asserted by the consumer 
(such as when a consumer asserts that a particular transaction never 
occurred, but the creditor determines that only the seller's name 
was disclosed incorrectly).
    2. Form of creditor's explanation. The written explanation 
(which also may notify the consumer of corrections to the account) 
may take a variety of forms. It may be sent separately, or it may be 
included on or with a periodic statement that is mailed within the 
time for resolution. If the creditor uses the periodic statement for 
the explanation and correction(s), the corrections must be 
specifically identified. If a separate explanation, including the 
correction notice, is provided, the enclosed or subsequent periodic 
statement reflecting the corrected amount may simply identify it as 
a credit. The explanation may be combined with the creditor's notice 
to the consumer of amounts still owing, which is required under 
Sec.  226.13(g)(1), provided it is sent within the time limit for 
resolution. (See commentary to Sec.  226.13(e).)
    3. Reasonable investigation. A creditor must conduct a 
reasonable investigation before it determines that no billing error 
occurred or that a different billing error occurred from that 
asserted. In conducting its investigation of an allegation of a 
billing error, the creditor may reasonably request the consumer's 
cooperation. The creditor may not automatically deny a claim based 
solely on the consumer's failure or refusal to comply with a 
particular request, including providing an affidavit or filing a 
police report. However, if the creditor otherwise has no knowledge 
of facts confirming the billing error, the lack of information 
resulting from the consumer's failure or refusal to comply with a 
particular request may lead the creditor reasonably to terminate the 
investigation. The procedures involved in investigating alleged 
billing errors may differ depending on the billing error type.
    i. Unauthorized transaction. In conducting an investigation of a 
notice of billing error alleging an unauthorized transaction under 
Sec.  226.13(a)(1), actions such as the following represent steps 
that a creditor may take, as appropriate, in conducting a reasonable 
investigation:
    A. Reviewing the types or amounts of purchases made in relation 
to the consumer's previous purchasing pattern.
    B. Reviewing where the purchases were delivered in relation to 
the consumer's residence or place of business.
    C. Reviewing where the purchases were made in relation to where 
the consumer resides or has normally shopped.
    D. Comparing any signature on credit slips for the purchases to 
the signature of the consumer (or an authorized user in the case of 
a credit card account) in the creditor's records, including other 
credit slips.
    E. Requesting documentation to assist in the verification of the 
claim.
    F. Requiring a written, signed statement from the consumer (or 
authorized user, in the case of a credit card account). For example, 
the creditor may include a signature line on a billing rights form 
that the consumer may send in to provide notice of the claim. 
However, a creditor may not require the consumer to provide an 
affidavit or signed statement under penalty of perjury as a part of 
a reasonable investigation.
    G. Requesting a copy of a police report, if one was filed.
    H. Requesting information regarding the consumer's knowledge of 
the person who allegedly obtained an extension of credit on the 
account or of that person's authority to do so.
    ii. Nondelivery of property or services. In conducting an 
investigation of a billing error notice alleging the nondelivery of 
property or services under Sec.  226.13(a)(3), the creditor shall 
not deny the assertion unless it conducts a reasonable investigation 
and determines that the property or services were actually 
delivered, mailed, or sent as agreed.
    iii. Incorrect information. In conducting an investigation of a 
billing error notice alleging that information appearing on a 
periodic statement is incorrect because a person honoring the 
consumer's credit card or otherwise accepting an access device for 
an open-end plan has made an incorrect report to the creditor, the 
creditor shall not deny the assertion unless it conducts a 
reasonable investigation and determines that the information was 
correct.
    13(g) Creditor's rights and duties after resolution.
    Paragraph 13(g)(1).
    1. Amounts owed by consumer. Amounts the consumer still owes may 
include both minimum periodic payments and related finance and other 
charges that accrued during the resolution period. As explained in

[[Page 7895]]

the commentary to Sec.  226.13(d)(1), even if the creditor later 
determines that no billing error occurred, the creditor may not 
include finance or other charges that are imposed on undisputed 
balances solely as a result of a consumer's withholding payment of a 
disputed amount.
    2. Time of notice. The creditor need not send the notice of 
amount owed within the time period for resolution, although it is 
under a duty to send the notice promptly after resolution of the 
alleged error. If the creditor combines the notice of the amount 
owed with the explanation required under Sec.  226.13(f)(1), the 
combined notice must be provided within the time limit for 
resolution.
    Paragraph 13(g)(2).
    1. Grace period if no error occurred. If the creditor 
determines, after a reasonable investigation, that a billing error 
did not occur as asserted, and the consumer was entitled to a grace 
period at the time the consumer provided the billing error notice, 
the consumer must be given a period of time equal to the grace 
period disclosed under Sec.  226.6(a)(1) or (b)(2) and Sec.  
226.7(a)(8) or (b)(8) to pay any disputed amounts due without 
incurring additional finance or other charges. However, the creditor 
need not allow a grace period disclosed under the above-mentioned 
sections to pay the amount due under Sec.  226.13(g)(1) if no error 
occurred and the consumer was not entitled to a grace period at the 
time the consumer asserted the error. For example, assume that a 
creditor provides a consumer a grace period of 20 days to pay a new 
balance to avoid finance charges, and that the consumer did not 
carry an outstanding balance from the prior month. If the consumer 
subsequently asserts a billing error for the current statement 
period within the 20-day grace period, and the creditor determines 
that no billing error in fact occurred, the consumer must be given 
at least 20 days (i.e., the full disclosed grace period) to pay the 
amount due without incurring additional finance charges. Conversely, 
if the consumer was not entitled to a grace period at the time the 
consumer asserted the billing error, for example, if the consumer 
did not pay the previous monthly balance of undisputed charges in 
full, the creditor may assess finance charges on the disputed 
balance for the entire period the item was in dispute.
    Paragraph 13(g)(3).
    1. Time for payment. The consumer has a minimum of 10 days to 
pay (measured from the time the consumer could reasonably be 
expected to have received notice of the amount owed) before the 
creditor may issue an adverse credit report; if an initially 
disclosed grace period allows the consumer a longer time in which to 
pay, the consumer has the benefit of that longer period.
    Paragraph 13(g)(4).
    1. Credit reporting. Under Sec.  226.13(g)(4)(i) and (iii) the 
creditor's additional credit reporting responsibilities must be 
accomplished promptly. The creditor need not establish costly 
procedures to fulfill this requirement. For example, a creditor that 
reports to a credit bureau on scheduled updates need not transmit 
corrective information by an unscheduled computer or magnetic tape; 
it may provide the credit bureau with the correct information by 
letter or other commercially reasonable means when using the 
scheduled update would not be ``prompt.'' The creditor is not 
responsible for ensuring that the credit bureau corrects its 
information immediately.
    2. Adverse report to credit bureau. If a creditor made an 
adverse report to a credit bureau that disseminated the information 
to other creditors, the creditor fulfills its Sec.  226.13(g)(4)(ii) 
obligations by providing the consumer with the name and address of 
the credit bureau.
    13(i) Relation to Electronic Fund Transfer Act and Regulation E.
    1. Coverage. Credit extended directly from a non-overdraft 
credit line is governed solely by Regulation Z, even though a 
combined credit card/access device is used to obtain the extension.
    2. Incidental credit under agreement. Credit extended incident 
to an electronic fund transfer under an agreement between the 
consumer and the financial institution is governed by Sec.  
226.13(i), which provides that certain error resolution procedures 
in both this regulation and Regulation E apply. Incidental credit 
that is not extended under an agreement between the consumer and the 
financial institution is governed solely by the error resolution 
procedures in Regulation E. For example, credit inadvertently 
extended incident to an electronic fund-transfer, such as under an 
overdraft service not subject to Regulation Z, is governed solely by 
the Regulation E error resolution procedures, if the bank and the 
consumer do not have an agreement to extend credit when the 
consumer's account is overdrawn.
    3. Application to debit/credit transactions-examples. If a 
consumer withdraws money at an automated teller machine and 
activates an overdraft credit feature on the checking account:
    i. An error asserted with respect to the transaction is subject, 
for error resolution purposes, to the applicable Regulation E 
provisions (such as timing and notice) for the entire transaction.
    ii. The creditor need not provisionally credit the consumer's 
account, under Sec.  205.11(c)(2)(i) of Regulation E, for any 
portion of the unpaid extension of credit.
    iii. The creditor must credit the consumer's account under Sec.  
205.11(c) with any finance or other charges incurred as a result of 
the alleged error.
    iv. The provisions of Sec. Sec.  226.13(d) and (g) apply only to 
the credit portion of the transaction.

Section 226.14--Determination of Annual Percentage Rate

    14(a) General rule.
    1. Tolerance. The tolerance of \1/8\th of 1 percentage point 
above or below the annual percentage rate applies to any required 
disclosure of the annual percentage rate. The disclosure of the 
annual percentage rate is required in Sec. Sec.  226.5a, 226.5b, 
226.6, 226.7, 226.9, 226.15, 226.16, 226.26, 226.55, and 226.56.
    2. Rounding. The regulation does not require that the annual 
percentage rate be calculated to any particular number of decimal 
places; rounding is permissible within the \1/8\th of 1 percent 
tolerance. For example, an exact annual percentage rate of 14.33333% 
may be stated as 14.33% or as 14.3%, or even as 14\1/4\%; but it 
could not be stated as 14.2% or 14%, since each varies by more than 
the permitted tolerance.
    3. Periodic rates. No explicit tolerance exists for any periodic 
rate as such; a disclosed periodic rate may vary from precise 
accuracy (for example, due to rounding) only to the extent that its 
annualized equivalent is within the tolerance permitted by Sec.  
226.14(a). Further, a periodic rate need not be calculated to any 
particular number of decimal places.
    4. Finance charges. The regulation does not prohibit creditors 
from assessing finance charges on balances that include prior, 
unpaid finance charges; state or other applicable law may do so, 
however.
    5. Good faith reliance on faulty calculation tools. The 
regulation relieves a creditor of liability for an error in the 
annual percentage rate or finance charge that resulted from a 
corresponding error in a calculation tool used in good faith by the 
creditor. Whether or not the creditor's use of the tool was in good 
faith must be determined on a case-by-case basis, but the creditor 
must in any case have taken reasonable steps to verify the accuracy 
of the tool, including any instructions, before using it. Generally, 
the safe harbor from liability is available only for errors directly 
attributable to the calculation tool itself, including software 
programs; it is not intended to absolve a creditor of liability for 
its own errors, or for errors arising from improper use of the tool, 
from incorrect data entry, or from misapplication of the law.
    14(b) Annual percentage rate--in general.
    1. Corresponding annual percentage rate computation. For 
purposes of Sec. Sec.  226.5a, 226.5b, 226.6, 226.7(a)(4) or (b)(4), 
226.9, 226.15, 226.16, 226.26, 226.55, and 226.56, the annual 
percentage rate is determined by multiplying the periodic rate by 
the number of periods in the year. This computation reflects the 
fact that, in such disclosures, the rate (known as the corresponding 
annual percentage rate) is prospective and does not involve any 
particular finance charge or periodic balance.
    14(c) Optional effective annual percentage rate for periodic 
statements for creditors offering open-end plans subject to the 
requirements of Sec.  226.5b.
    1. General rule. The periodic statement may reflect (under Sec.  
226.7(a)(7)) the annualized equivalent of the rate actually applied 
during a particular cycle; this rate may differ from the 
corresponding annual percentage rate because of the inclusion of, 
for example, fixed, minimum, or transaction charges. Sections 
226.14(c)(1) through (c)(4) state the computation rules for the 
effective rate.
    2. Charges related to opening, renewing, or continuing an 
account. Sections 226.14(c)(2) and (c)(3) exclude from the 
calculation of the effective annual percentage rate finance charges 
that are imposed during the billing cycle such as a loan fee, 
points, or similar charge that relates to opening, renewing, or 
continuing an account. The charges involved here do not relate to a 
specific transaction or to specific activity on the account, but 
relate

[[Page 7896]]

solely to the opening, renewing, or continuing of the account. For 
example, an annual fee to renew an open-end credit account that is a 
percentage of the credit limit on the account, or that is charged 
only to consumers that have not used their credit card for a certain 
dollar amount in transactions during the preceding year, would not 
be included in the calculation of the annual percentage rate, even 
though the fee may not be excluded from the finance charge under 
Sec.  226.4(c)(4). (See comment 4(c)(4)-2.) This rule applies even 
if the loan fee, points, or similar charges are billed on a 
subsequent periodic statement or withheld from the proceeds of the 
first advance on the account.
    3. Classification of charges. If the finance charge includes a 
charge not due to the application of a periodic rate, the creditor 
must use the annual percentage rate computation method that 
corresponds to the type of charge imposed. If the charge is tied to 
a specific transaction (for example, 3 percent of the amount of each 
transaction), then the method in Sec.  226.14(c)(3) must be used. If 
a fixed or minimum charge is applied, that is, one not tied to any 
specific transaction, then the formula in Sec.  226.14(c)(2) is 
appropriate.
    4. Small finance charges. Section 226.14(c)(4) gives the 
creditor an alternative to Sec.  226.14(c)(2) and (c)(3) if small 
finance charges (50 cents or less) are involved; that is, if the 
finance charge includes minimum or fixed fees not due to the 
application of a periodic rate and the total finance charge for the 
cycle does not exceed 50 cents. For example, while a monthly 
activity fee of 50 cents on a balance of $20 would produce an annual 
percentage rate of 30 percent under the rule in Sec.  226.14(c)(2), 
the creditor may disclose an annual percentage rate of 18 percent if 
the periodic rate generally applicable to all balances is 1\1/2\ 
percent per month.
    5. Prior-cycle adjustments. i. The annual percentage rate 
reflects the finance charges imposed during the billing cycle. 
However, finance charges imposed during the billing cycle may relate 
to activity in a prior cycle. Examples of circumstances when this 
may occur are:
    A. A cash advance occurs on the last day of a billing cycle on 
an account that uses the transaction date to figure finance charges, 
and it is impracticable to post the transaction until the following 
cycle.
    B. An adjustment to the finance charge is made following the 
resolution of a billing error dispute.
    C. A consumer fails to pay the purchase balance under a deferred 
payment feature by the payment due date, and finance charges are 
imposed from the date of purchase.
    ii. Finance charges relating to activity in prior cycles should 
be reflected on the periodic statement as follows:
    A. If a finance charge imposed in the current billing cycle is 
attributable to periodic rates applicable to prior billing cycles 
(such as when a deferred payment balance was not paid in full by the 
payment due date and finance charges from the date of purchase are 
now being debited to the account, or when a cash advance occurs on 
the last day of a billing cycle on an account that uses the 
transaction date to figure finance charges and it is impracticable 
to post the transaction until the following cycle), and the creditor 
uses the quotient method to calculate the annual percentage rate, 
the numerator would include the amount of any transaction charges 
plus any other finance charges posted during the billing cycle. At 
the creditor's option, balances relating to the finance charge 
adjustment may be included in the denominator if permitted by the 
legal obligation, if it was impracticable to post the transaction in 
the previous cycle because of timing, or if the adjustment is 
covered by comment 14(c)-5.ii.B.
    B. If a finance charge that is posted to the account relates to 
activity for which a finance charge was debited or credited to the 
account in a previous billing cycle (for example, if the finance 
charge relates to an adjustment such as the resolution of a billing 
error dispute, or an unintentional posting error, or a payment by 
check that was later returned unpaid for insufficient funds or other 
reasons), the creditor shall at its option:
    1. Calculate the annual percentage rate in accordance with ii.A. 
of this paragraph, or
    2. Disclose the finance charge adjustment on the periodic 
statement and calculate the annual percentage rate for the current 
billing cycle without including the finance charge adjustment in the 
numerator and balances associated with the finance charge adjustment 
in the denominator.
    14(c)(1) Solely periodic rates imposed.
    1. Periodic rates. Section 226.14(c)(1) applies if the only 
finance charge imposed is due to the application of a periodic rate 
to a balance. The creditor may compute the annual percentage rate 
either:
    i. By multiplying each periodic rate by the number of periods in 
the year; or
    ii. By the ``quotient'' method. This method refers to a 
composite annual percentage rate when different periodic rates apply 
to different balances. For example, a particular plan may involve a 
periodic rate of \1/2\ percent on balances up to $500, and 1 percent 
on balances over $500. If, in a given cycle, the consumer has a 
balance of $800, the finance charge would consist of $7.50 (500 
x.015) plus $3.00 (300 x.01), for a total finance charge of $10.50. 
The annual percentage rate for this period may be disclosed either 
as 18% on $500 and 12 percent on $300, or as 15.75 percent on a 
balance of $800 (the quotient of $10.50 divided by $800, multiplied 
by 12).
    14(c)(2) Minimum or fixed charge, but not transaction charge, 
imposed.
    1. Certain charges not based on periodic rates. Section 
226.14(c)(2) specifies use of the quotient method to determine the 
annual percentage rate if the finance charge imposed includes a 
certain charge not due to the application of a periodic rate (other 
than a charge relating to a specific transaction). For example, if 
the creditor imposes a minimum $1 finance charge on all balances 
below $50, and the consumer's balance was $40 in a particular cycle, 
the creditor would disclose an annual percentage rate of 30 percent 
(1/40 x12).
    2. No balance. If there is no balance to which the finance 
charge is applicable, an annual percentage rate cannot be determined 
under Sec.  226.14(c)(2). This could occur not only when minimum 
charges are imposed on an account with no balance, but also when a 
periodic rate is applied to advances from the date of the 
transaction. For example, if on May 19 the consumer pays the new 
balance in full from a statement dated May 1, and has no further 
transactions reflected on the June 1 statement, that statement would 
reflect a finance charge with no account balance.
    14(c)(3) Transaction charge imposed.
    1. Transaction charges. i. Section 226.14(c)(3) transaction 
charges include, for example:
    A. A loan fee of $10 imposed on a particular advance.
    B. A charge of 3 percent of the amount of each transaction.
    ii. The reference to avoiding duplication in the computation 
requires that the amounts of transactions on which transaction 
charges were imposed not be included both in the amount of total 
balances and in the ``other amounts on which a finance charge was 
imposed'' figure. In a multifeatured plan, creditors may consider 
each bona fide feature separately in the calculation of the 
denominator. A creditor has considerable flexibility in defining 
features for open-end plans, as long as the creditor has a 
reasonable basis for the distinctions. For further explanation and 
examples of how to determine the components of this formula, see 
appendix F to part 226.
    2. Daily rate with specific transaction charge. Section 
226.14(c)(3) sets forth an acceptable method for calculating the 
annual percentage rate if the finance charge results from a charge 
relating to a specific transaction and the application of a daily 
periodic rate. This section includes the requirement that the 
creditor follow the rules in appendix F to part 226 in calculating 
the annual percentage rate, especially the provision in the 
introductory section of appendix F which addresses the daily rate/
transaction charge situation by providing that the ``average of 
daily balances'' shall be used instead of the ``sum of the 
balances.''
    14(d) Calculations where daily periodic rate applied.
    1. Quotient method. Section 226.14(d) addresses use of a daily 
periodic rate(s) to determine some or all of the finance charge and 
use of the quotient method to determine the annual percentage rate. 
Since the quotient formula in Sec.  226.14(c)(1)(ii) and (c)(2) 
cannot be used when a daily rate is being applied to a series of 
daily balances, Sec.  226.14(d) provides two alternative ways to 
calculate the annual percentage rate--either of which satisfies the 
provisions of Sec.  226.7(a)(7).
    2. Daily rate with specific transaction charge. If the finance 
charge results from a charge relating to a specific transaction and 
the application of a daily periodic rate, see comment 14(c)(3)-2 for 
guidance on an appropriate calculation method.
* * * * *

Section 226.16--Advertising

    1. Clear and conspicuous standard--general. Section 226.16 is 
subject to the general ``clear and conspicuous'' standard for

[[Page 7897]]

subpart B (see Sec.  226.5(a)(1)) but prescribes no specific rules 
for the format of the necessary disclosures, other than the format 
requirements related to the disclosure of a promotional rate or 
payment under Sec.  226.16(d)(6), a promotional rate under Sec.  
226.16(g), or a deferred interest or similar offer under Sec.  
226.16(h). Other than the disclosure of certain terms described in 
Sec. Sec.  226.16(d)(6), (g), or (h), the credit terms need not be 
printed in a certain type size nor need they appear in any 
particular place in the advertisement.
    2. Clear and conspicuous standard--promotional rates or 
payments; deferred interest or similar offers.
    i. For purposes of Sec.  226.16(d)(6), a clear and conspicuous 
disclosure means that the required information in Sec.  
226.16(d)(6)(ii)(A)-(C) is disclosed with equal prominence and in 
close proximity to the promotional rate or payment to which it 
applies. If the information in Sec.  226.16(d)(6)(ii)(A)-(C) is the 
same type size and is located immediately next to or directly above 
or below the promotional rate or payment to which it applies, 
without any intervening text or graphical displays, the disclosures 
would be deemed to be equally prominent and in close proximity. 
Notwithstanding the above, for electronic advertisements that 
disclose promotional rates or payments, compliance with the 
requirements of Sec.  226.16(c) is deemed to satisfy the clear and 
conspicuous standard.
    ii. For purposes of Sec.  226.16(g)(4) as it applies to written 
or electronic advertisements only, a clear and conspicuous 
disclosure means the required information in Sec.  226.16(g)(4)(i) 
and (g)(4)(ii) must be equally prominent to the promotional rate to 
which it applies. If the information in Sec.  226.16(g)(4)(i) and 
(g)(4)(ii) is the same type size as the promotional rate to which it 
applies, the disclosures would be deemed to be equally prominent. 
For purposes of Sec.  226.16(h)(3) as it applies to written or 
electronic advertisements only, a clear and conspicuous disclosure 
means the required information in Sec.  226.16(h)(3) must be equally 
prominent to each statement of ``no interest,'' ``no payments,'' 
``deferred interest,'' ``same as cash,'' or similar term regarding 
interest or payments during the deferred interest period. If the 
information required to be disclosed under Sec.  226.16(h)(3) is the 
same type size as the statement of ``no interest,'' ``no payments,'' 
``deferred interest,'' ``same as cash,'' or similar term regarding 
interest or payments during the deferred interest period, the 
disclosure would be deemed to be equally prominent.
    3. Clear and conspicuous standard--Internet advertisements for 
home-equity plans. For purposes of this section, a clear and 
conspicuous disclosure for visual text advertisements on the 
Internet for home-equity plans subject to the requirements of Sec.  
226.5b means that the required disclosures are not obscured by 
techniques such as graphical displays, shading, coloration, or other 
devices and comply with all other requirements for clear and 
conspicuous disclosures under Sec.  226.16(d). (See also comment 
16(c)(1)-2.)
    4. Clear and conspicuous standard--televised advertisements for 
home-equity plans. For purposes of this section, including 
alternative disclosures as provided for by Sec.  226.16(e), a clear 
and conspicuous disclosure in the context of visual text 
advertisements on television for home-equity plans subject to the 
requirements of Sec.  226.5b means that the required disclosures are 
not obscured by techniques such as graphical displays, shading, 
coloration, or other devices, are displayed in a manner that allows 
for a consumer to read the information required to be disclosed, and 
comply with all other requirements for clear and conspicuous 
disclosures under Sec.  226.16(d). For example, very fine print in a 
television advertisement would not meet the clear and conspicuous 
standard if consumers cannot see and read the information required 
to be disclosed.
    5. Clear and conspicuous standard--oral advertisements for home-
equity plans. For purposes of this section, including alternative 
disclosures as provided for by Sec.  226.16(e), a clear and 
conspicuous disclosure in the context of an oral advertisement for 
home-equity plans subject to the requirements of Sec.  226.5b, 
whether by radio, television, the Internet, or other medium, means 
that the required disclosures are given at a speed and volume 
sufficient for a consumer to hear and comprehend them. For example, 
information stated very rapidly at a low volume in a radio or 
television advertisement would not meet the clear and conspicuous 
standard if consumers cannot hear and comprehend the information 
required to be disclosed.
    6. Expressing the annual percentage rate in abbreviated form. 
Whenever the annual percentage rate is used in an advertisement for 
open-end credit, it may be expressed using a readily understandable 
abbreviation such as APR.
    7. Effective date. For guidance on the applicability of the 
Board's revisions to Sec.  226.16 published on July 30, 2008, see 
comment 1(d)(5)-1.
    16(a) Actually available terms.
    1. General rule. To the extent that an advertisement mentions 
specific credit terms, it may state only those terms that the 
creditor is actually prepared to offer. For example, a creditor may 
not advertise a very low annual percentage rate that will not in 
fact be available at any time. Section 226.16(a) is not intended to 
inhibit the promotion of new credit programs, but to bar the 
advertising of terms that are not and will not be available. For 
example, a creditor may advertise terms that will be offered for 
only a limited period, or terms that will become available at a 
future date.
    2. Specific credit terms. Specific credit terms is not limited 
to the disclosures required by the regulation but would include any 
specific components of a credit plan, such as the minimum periodic 
payment amount or seller's points in a plan secured by real estate.
    16(b) Advertisement of terms that require additional 
disclosures.
    Paragraph (b)(1).
    1. Triggering terms. Negative as well as affirmative references 
trigger the requirement for additional information. For example, if 
a creditor states no interest or no annual membership fee in an 
advertisement, additional information must be provided. Other 
examples of terms that trigger additional disclosures are:
    i. Small monthly service charge on the remaining balance, which 
describes how the amount of a finance charge will be determined.
    ii. 12 percent Annual Percentage Rate or A $15 annual membership 
fee buys you $2,000 in credit, which describe required disclosures 
under Sec.  226.6.
    2. Implicit terms. Section 226.16(b) applies even if the 
triggering term is not stated explicitly, but may be readily 
determined from the advertisement.
    3. Membership fees. A membership fee is not a triggering term 
nor need it be disclosed under Sec.  226.16(b)(1)(iii) if it is 
required for participation in the plan whether or not an open-end 
credit feature is attached. (See comment 6(a)(2)-1 and Sec.  
226.6(b)(3)(iii)(B).)
    4. Deferred billing and deferred payment programs. Statements 
such as ``Charge it--you won't be billed until May'' or ``You may 
skip your January payment'' are not in themselves triggering terms, 
since the timing for initial billing or for monthly payments are not 
terms required to be disclosed under Sec.  226.6. However, a 
statement such as ``No interest charges until May'' or any other 
statement regarding when interest or finance charges begin to accrue 
is a triggering term, whether appearing alone or in conjunction with 
a description of a deferred billing or deferred payment program such 
as the examples above.
    5. Variable-rate plans. In disclosing the annual percentage rate 
in an advertisement for a variable-rate plan, as required by Sec.  
226.16(b)(1)(ii), the creditor may use an insert showing the current 
rate; or may give the rate as of a specified recent date. The 
additional requirement in Sec.  226.16(b)(1)(ii) to disclose the 
variable-rate feature may be satisfied by disclosing that the annual 
percentage rate may vary or a similar statement, but the 
advertisement need not include the information required by Sec.  
226.6(a)(1)(ii) or (b)(4)(ii).
    6. Membership fees for open-end (not home-secured) plans. For 
purposes of Sec.  226.16(b)(1)(iii), membership fees that may be 
imposed on open-end (not home-secured) plans shall have the same 
meaning as in Sec.  226.5a(b)(2).
    Paragraph (b)(2).
    1. Assumptions. In stating the total of payments and the time 
period to repay the obligation, assuming that the consumer pays only 
the periodic payment amounts advertised, as required under Sec.  
226.16(b)(2), the following additional assumptions may be made:
    i. Payments are made timely so as not to be considered late by 
the creditor;
    ii. Payments are made each period, and no debt cancellation or 
suspension agreement, or skip payment feature applies to the 
account;
    iii. No interest rate changes will affect the account;
    iv. No other balances are currently carried or will be carried 
on the account;
    v. No taxes or ancillary charges are or will be added to the 
obligation;
    vi. Goods or services are delivered on a single date; and

[[Page 7898]]

    vii. The consumer is not currently and will not become 
delinquent on the account.
    2. Positive periodic payment amounts. Only positive periodic 
payment amounts trigger the additional disclosures under Sec.  
226.16(b)(2). Therefore, if the periodic payment amount advertised 
is not a positive amount (e.g., ``No payments''), the advertisement 
need not state the total of payments and the time period to repay 
the obligation.
    16(c) Catalogs or other multiple-page advertisements; electronic 
advertisements.
    1. Definition. The multiple-page advertisements to which Sec.  
226.16(c) refers are advertisements consisting of a series of 
sequentially numbered pages--for example, a supplement to a 
newspaper. A mailing consisting of several separate flyers or pieces 
of promotional material in a single envelope does not constitute a 
single multiple-page advertisement for purposes of Sec.  226.16(c).
    Paragraph 16(c)(1).
    1. General. Section 226.16(c)(1) permits creditors to put credit 
information together in one place in a catalog or other multiple-
page advertisement or an electronic advertisement (such as an 
advertisement appearing on an Internet Web site). The rule applies 
only if the advertisement contains one or more of the triggering 
terms from Sec.  226.16(b).
    2. Electronic advertisement. If an electronic advertisement 
(such as an advertisement appearing on an Internet Web site) 
contains the table or schedule permitted under Sec.  226.16(c)(1), 
any statement of terms set forth in Sec.  226.6 appearing anywhere 
else in the advertisement must clearly direct the consumer to the 
location where the table or schedule begins. For example, a term 
triggering additional disclosures may be accompanied by a link that 
directly takes the consumer to the additional information.
    Paragraph 16(c)(2).
    1. Table or schedule if credit terms depend on outstanding 
balance. If the credit terms of a plan vary depending on the amount 
of the balance outstanding, rather than the amount of any property 
purchased, a table or schedule complies with Sec.  226.16(c)(2) if 
it includes the required disclosures for representative balances. 
For example, a creditor would disclose that a periodic rate of 1.5% 
is applied to balances of $500 or less, and a 1% rate is applied to 
balances greater than $500.
    16(d) Additional requirements for home-equity plans.
    1. Trigger terms. Negative as well as affirmative references 
trigger the requirement for additional information. For example, if 
a creditor states no annual fee, no points, or we waive closing 
costs in an advertisement, additional information must be provided. 
(See comment 16(d)-4 regarding the use of a phrase such as no 
closing costs.) Inclusion of a statement such as low fees, however, 
would not trigger the need to state additional information. 
References to payment terms include references to the draw period or 
any repayment period, to the length of the plan, to how the minimum 
payments are determined and to the timing of such payments.
    2. Fees to open the plan. Section 226.16(d)(1)(i) requires a 
disclosure of any fees imposed by the creditor or a third party to 
open the plan. In providing the fee information required under this 
paragraph, the corresponding rules for disclosure of this 
information apply. For example, fees to open the plan may be stated 
as a range. Similarly, if property insurance is required to open the 
plan, a creditor either may estimate the cost of the insurance or 
provide a statement that such insurance is required. (See the 
commentary to Sec.  226.5b(d)(7) and (d)(8).)
    3. Statements of tax deductibility. An advertisement that refers 
to deductibility for tax purposes is not misleading if it includes a 
statement such as ``consult a tax advisor regarding the 
deductibility of interest.'' An advertisement distributed in paper 
form or through the Internet (rather than by radio or television) 
that states that the advertised extension of credit may exceed the 
fair market value of the consumer's dwelling is not misleading if it 
clearly and conspicuously states the required information in 
Sec. Sec.  226.16(d)(4)(i) and (d)(4)(ii).
    4. Misleading terms prohibited. Under Sec.  226.16(d)(5), 
advertisements may not refer to home-equity plans as free money or 
use other misleading terms. For example, an advertisement could not 
state ``no closing costs'' or ``we waive closing costs'' if 
consumers may be required to pay any closing costs, such as 
recordation fees. In the case of property insurance, however, a 
creditor may state, for example, ``no closing costs'' even if 
property insurance may be required, as long as the creditor also 
provides a statement that such insurance may be required. (See the 
commentary to this section regarding fees to open a plan.)
    5. Promotional rates and payments in advertisements for home-
equity plans. Section 226.16(d)(6) requires additional disclosures 
for promotional rates or payments.
    i. Variable-rate plans. In advertisements for variable-rate 
plans, if the advertised annual percentage rate is based on (or the 
advertised payment is derived from) the index and margin that will 
be used to make rate (or payment) adjustments over the term of the 
loan, then there is no promotional rate or promotional payment. If, 
however, the advertised annual percentage rate is not based on (or 
the advertised payment is not derived from) the index and margin 
that will be used to make rate (or payment) adjustments, and a 
reasonably current application of the index and margin would result 
in a higher annual percentage rate (or, given an assumed balance, a 
higher payment) then there is a promotional rate or promotional 
payment.
    ii. Equal prominence, close proximity. Information required to 
be disclosed in Sec.  226.16(d)(6)(ii) that is immediately next to 
or directly above or below the promotional rate or payment (but not 
in a footnote) is deemed to be closely proximate to the listing. 
Information required to be disclosed in Sec.  226.16(d)(6)(ii) that 
is in the same type size as the promotional rate or payment is 
deemed to be equally prominent.
    iii. Amounts and time periods of payments. Section 
226.16(d)(6)(ii)(C) requires disclosure of the amount and time 
periods of any payments that will apply under the plan. This section 
may require disclosure of several payment amounts, including any 
balloon payment. For example, if an advertisement for a home-equity 
plan offers a $100,000 five-year line of credit and assumes that the 
entire line is drawn resulting in a minimum payment of $800 per 
month for the first six months, increasing to $1,000 per month after 
month six, followed by a $50,000 balloon payment after five years, 
the advertisement must disclose the amount and time period of each 
of the two monthly payment streams, as well as the amount and timing 
of the balloon payment, with equal prominence and in close proximity 
to the promotional payment. However, if the final payment could not 
be more than twice the amount of other minimum payments, the final 
payment need not be disclosed.
    iv. Plans other than variable-rate plans. For a plan other than 
a variable-rate plan, if an advertised payment is calculated in the 
same way as other payments based on an assumed balance, the fact 
that the minimum payment could increase solely if the consumer made 
an additional draw does not make the payment a promotional payment. 
For example, if a payment of $500 results from an assumed $10,000 
draw, and the payment would increase to $1,000 if the consumer made 
an additional $10,000 draw, the payment is not a promotional 
payment.
    v. Conversion option. Some home-equity plans permit the consumer 
to repay all or part of the balance during the draw period at a 
fixed rate (rather than a variable rate) and over a specified time 
period. The fixed-rate conversion option does not, by itself, make 
the rate or payment that would apply if the consumer exercised the 
fixed-rate conversion option a promotional rate or payment.
    vi. Preferred-rate provisions. Some home-equity plans contain a 
preferred-rate provision, where the rate will increase upon the 
occurrence of some event, such as the consumer-employee leaving the 
creditor's employ, the consumer closing an existing deposit account 
with the creditor, or the consumer revoking an election to make 
automated payments. A preferred-rate provision does not, by itself, 
make the rate or payment under the preferred-rate provision a 
promotional rate or payment.
    6. Reasonably current index and margin. For the purposes of this 
section, an index and margin is considered reasonably current if:
    i. For direct mail advertisements, it was in effect within 60 
days before mailing;
    ii. For advertisements in electronic form it was in effect 
within 30 days before the advertisement is sent to a consumer's e-
mail address, or in the case of an advertisement made on an Internet 
Web site, when viewed by the public; or
    iii. For printed advertisements made available to the general 
public, including ones contained in a catalog, magazine, or other 
generally available publication, it was in effect within 30 days 
before printing.
    7. Relation to other sections. Advertisements for home-equity 
plans must comply with all provisions in Sec.  226.16, not solely 
the rules in Sec.  226.16(d). If an advertisement contains 
information (such as

[[Page 7899]]

the payment terms) that triggers the duty under Sec.  226.16(d) to 
state the annual percentage rate, the additional disclosures in 
Sec.  226.16(b) must be provided in the advertisement. While Sec.  
226.16(d) does not require a statement of fees to use or maintain 
the plan (such as membership fees and transaction charges), such 
fees must be disclosed under Sec.  226.16(b)(1)(i) and (b)(1)(iii).
    8. Inapplicability of closed-end rules. Advertisements for home-
equity plans are governed solely by the requirements in Sec.  
226.16, except Sec.  226.16(g), and not by the closed-end 
advertising rules in Sec.  226.24. Thus, if a creditor states 
payment information about the repayment phase, this will trigger the 
duty to provide additional information under Sec.  226.16, but not 
under Sec.  226.24.
    9. Balloon payment. See comment 5b(d)(5)(ii)-3 for information 
not required to be stated in advertisements, and on situations in 
which the balloon payment requirement does not apply.
    16(e) Alternative disclosures--television or radio 
advertisements.
    1. Multi-purpose telephone number. When an advertised telephone 
number provides a recording, disclosures must be provided early in 
the sequence to ensure that the consumer receives the required 
disclosures. For example, in providing several options--such as 
providing directions to the advertiser's place of business--the 
option allowing the consumer to request disclosures should be 
provided early in the telephone message to ensure that the option to 
request disclosures is not obscured by other information.
    2. Statement accompanying toll free number. Language must 
accompany a telephone number indicating that disclosures are 
available by calling the telephone number, such as ``call 1-800-000-
0000 for details about credit costs and terms.''
    16(g) Promotional rates.
    1. Rate in effect at the end of the promotional period. If the 
annual percentage rate that will be in effect at the end of the 
promotional period (i.e., the post-promotional rate) is a variable 
rate, the post-promotional rate for purposes of Sec.  
226.16(g)(2)(i) is the rate that would have applied at the time the 
promotional rate was advertised if the promotional rate was not 
offered, consistent with the accuracy requirements in Sec.  
226.5a(c)(2) and (e)(4), as applicable.
    2. Immediate proximity. For written or electronic 
advertisements, including the term ``introductory'' or ``intro'' in 
the same phrase as the listing of the introductory rate is deemed to 
be in immediate proximity of the listing.
    3. Prominent location closely proximate. For written or 
electronic advertisements, information required to be disclosed in 
Sec.  226.16(g)(4)(i) and (g)(4)(ii) that is in the same paragraph 
as the first listing of the promotional rate is deemed to be in a 
prominent location closely proximate to the listing. Information 
disclosed in a footnote will not be considered in a prominent 
location closely proximate to the listing.
    4. First listing. For purposes of Sec.  226.16(g)(4) as it 
applies to written or electronic advertisements, the first listing 
of the promotional rate is the most prominent listing of the rate on 
the front side of the first page of the principal promotional 
document. The principal promotional document is the document 
designed to be seen first by the consumer in a mailing, such as a 
cover letter or solicitation letter. If the promotional rate does 
not appear on the front side of the first page of the principal 
promotional document, then the first listing of the promotional rate 
is the most prominent listing of the rate on the subsequent pages of 
the principal promotional document. If the promotional rate is not 
listed on the principal promotional document or there is no 
principal promotional document, the first listing is the most 
prominent listing of the rate on the front side of the first page of 
each document listing the promotional rate. If the promotional rate 
does not appear on the front side of the first page of a document, 
then the first listing of the promotional rate is the most prominent 
listing of the rate on the subsequent pages of the document. If the 
listing of the promotional rate with the largest type size on the 
front side of the first page (or subsequent pages if the promotional 
rate is not listed on the front side of the first page) of the 
principal promotional document (or each document listing the 
promotional rate if the promotional rate is not listed on the 
principal promotional document or there is no principal promotional 
document) is used as the most prominent listing, it will be deemed 
to be the first listing. Consistent with comment 16(c)-1, a catalog 
or multiple-page advertisement is considered one document for 
purposes of Sec.  226.16(g)(4).
    5. Post-promotional rate depends on consumer's creditworthiness. 
For purposes of disclosing the rate that may apply after the end of 
the promotional rate period, at the advertiser's option, the 
advertisement may disclose the rates that may apply as either 
specific rates, or a range of rates. For example, if there are three 
rates that may apply (9.99%, 12.99% or 17.99%), an issuer may 
disclose these three rates as specific rates (9.99%, 12.99% or 
17.99%) or as a range of rates (9.99%-17.99%).
    16(h) Deferred interest or similar offers.
    1. Deferred interest or similar offers clarified. Deferred 
interest or similar offers do not include offers that allow a 
consumer to skip payments during a specified period of time, and 
under which the consumer is not obligated under any circumstances 
for any interest or other finance charges that could be attributable 
to that period. Deferred interest or similar offers also do not 
include 0% annual percentage rate offers where a consumer is not 
obligated under any circumstances for interest attributable to the 
time period the 0% annual percentage rate was in effect, though such 
offers may be considered promotional rates under Sec.  
226.16(g)(2)(i). Deferred interest or similar offers also do not 
include skip payment programs that have no required minimum payment 
for one or more billing cycles but where interest continues to 
accrue and is imposed during that period.
    2. Deferred interest period clarified. Although the terms of an 
advertised deferred interest or similar offer may provide that a 
creditor may charge the accrued interest if the balance is not paid 
in full by a certain date, creditors sometimes have an informal 
policy or practice that delays charging the accrued interest for 
payment received a brief period of time after the date upon which a 
creditor has the contractual right to charge the accrued interest. 
The advertisement need not include the end of an informal ``courtesy 
period'' in disclosing the deferred interest period under Sec.  
226.16(h)(3).
    3. Immediate proximity. For written or electronic 
advertisements, including the deferred interest period in the same 
phrase as the statement of ``no interest,'' ``no payments,'' 
``deferred interest,'' or ``same as cash'' or similar term regarding 
interest or payments during the deferred interest period is deemed 
to be in immediate proximity of the statement.
    4. Prominent location closely proximate. For written or 
electronic advertisements, information required to be disclosed in 
Sec.  226.16(h)(4)(i) and (ii) that is in the same paragraph as the 
first statement of ``no interest,'' ``no payments,'' ``deferred 
interest,'' or ``same as cash'' or similar term regarding interest 
or payments during the deferred interest period is deemed to be in a 
prominent location closely proximate to the statement. Information 
disclosed in a footnote is not considered in a prominent location 
closely proximate to the statement.
    5. First listing. For purposes of Sec.  226.16(h)(4) as it 
applies to written or electronic advertisements, the first statement 
of ``no interest,'' ``no payments,'' ``deferred interest,'' ``same 
as cash,'' or similar term regarding interest or payments during the 
deferred interest period is the most prominent listing of one of 
these statements on the front side of the first page of the 
principal promotional document. The principal promotional document 
is the document designed to be seen first by the consumer in a 
mailing, such as a cover letter or solicitation letter. If one of 
the statements does not appear on the front side of the first page 
of the principal promotional document, then the first listing of one 
of these statements is the most prominent listing of a statement on 
the subsequent pages of the principal promotional document. If one 
of the statements is not listed on the principal promotional 
document or there is no principal promotional document, the first 
listing of one of these statements is the most prominent listing of 
the statement on the front side of the first page of each document 
containing one of these statements. If one of the statements does 
not appear on the front side of the first page of a document, then 
the first listing of one of these statements is the most prominent 
listing of a statement on the subsequent pages of the document. If 
the listing of one of these statements with the largest type size on 
the front side of the first page (or subsequent pages if one of 
these statements is not listed on the front side of the first page) 
of the principal promotional document (or each document listing one 
of these statements if a statement is not listed on the principal 
promotional document or there is no principal promotional document) 
is used as the most prominent listing, it will be deemed to be the 
first listing. Consistent

[[Page 7900]]

with comment 16(c)-1, a catalog or multiple-page advertisement is 
considered one document for purposes of Sec.  226.16(h)(4).
    6. Additional information. Consistent with comment 5(a)-2, the 
information required under Sec.  226.16(h)(4) need not be segregated 
from other information regarding the deferred interest or similar 
offer. Advertisements may also be required to provide additional 
information pursuant to Sec.  226.16(b) though such information need 
not be integrated with the information required under Sec.  
226.16(h)(4).
    7. Examples. Examples of disclosures that could be used to 
comply with the requirements of Sec.  226.16(h)(3) include: ``no 
interest if paid in full within 6 months'' and ``no interest if paid 
in full by December 31, 2010.''
* * * * *

Section 226.26--Use of Annual Percentage Rate in Oral Disclosures

* * * * *
    26(a) Open-end credit.
    1. Information that may be given. The creditor may state 
periodic rates in addition to the required annual percentage rate, 
but it need not do so. If the annual percentage rate is unknown 
because transaction charges, loan fees, or similar finance charges 
may be imposed, the creditor must give the corresponding annual 
percentage rate (that is, the periodic rate multiplied by the number 
of periods in a year, as described in Sec. Sec.  226.6(a)(1)(ii) and 
(b)(4)(i)(A) and 226.7(a)(4) and (b)(4)). In such cases, the 
creditor may, but need not, also give the consumer information about 
other finance charges and other charges.
* * * * *

Section 226.27--Language of Disclosures

    1. Subsequent disclosures. If a creditor provides account-
opening disclosures in a language other than English, subsequent 
disclosures need not be in that other language. For example, if the 
creditor gave Spanish-language account-opening disclosures, periodic 
statements and change-in-terms notices may be made in English.
* * * * *

Section 226.28--Effect on State Laws

    28(a) Inconsistent disclosure requirements.
* * * * *
    6. Rules for other fair credit billing provisions. The second 
part of the criteria for fair credit billing relates to the other 
rules implementing chapter 4 of the act (addressed in Sec. Sec.  
226.4(c)(8), 226.5(b)(2)(ii), 226.6(a)(5) and (b)(5)(iii), 
226.7(a)(9) and (b)(9), 226.9(a), 226.10, 226.11, 226.12(c) through 
(f), 226.13, and 226.21). Section 226.28(a)(2)(ii) provides that the 
test of inconsistency is whether the creditor can comply with state 
law without violating Federal law. For example:
    i. A state law that allows the card issuer to offset the 
consumer's credit-card indebtedness against funds held by the card 
issuer would be preempted, since Sec.  226.12(d) prohibits such 
action.
    ii. A state law that requires periodic statements to be sent 
more than 14 days before the end of a free-ride period would not be 
preempted.
    iii. A state law that permits consumers to assert claims and 
defenses against the card issuer without regard to the $50 and 100-
mile limitations of Sec.  226.12(c)(3)(ii) would not be preempted.
    iv. In paragraphs ii. and iii. of this comment, compliance with 
state law would involve no violation of the Federal law.
* * * * *

Section 226.30--Limitation on Rates

* * * * *
    8. Manner of stating the maximum interest rate. The maximum 
interest rate must be stated in the credit contract either as a 
specific amount or in any other manner that would allow the consumer 
to easily ascertain, at the time of entering into the obligation, 
what the rate ceiling will be over the term of the obligation.
    i. For example, the following statements would be sufficiently 
specific:
    A. The maximum interest rate will not exceed X%.
    B. The interest rate will never be higher than X percentage 
points above the initial rate of Y%.
    C. The interest rate will not exceed X%, or X percentage points 
about [a rate to be determined at some future point in time], 
whichever is less.
    D. The maximum interest rate will not exceed X%, or the state 
usury ceiling, whichever is less.
    ii. The following statements would not comply with this section:
    A. The interest rate will never be higher than X percentage 
points over the prevailing market rate.
    B. The interest rate will never be higher than X percentage 
points above [a rate to be determined at some future point in time].
    C. The interest rate will not exceed the state usury ceiling 
which is currently X%.
    iii. A creditor may state the maximum rate in terms of a maximum 
annual percentage rate that may be imposed. Under an open-end credit 
plan, this normally would be the corresponding annual percentage 
rate. (See generally Sec.  226.6(a)(1)(ii) and (b)(4)(i)(A).)
* * * * *

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students

Section 226.51 Ability To Pay

    51(a) General rule.
    51(a)(1) Consideration of ability to pay.
    1. Consideration of additional factors. Section 226.51(a) 
requires a card issuer to consider a consumer's ability to make the 
required minimum periodic payments under the terms of an account 
based on the consumer's income or assets and current obligations. 
The card issuer may also consider consumer reports, credit scores, 
and other factors, consistent with Regulation B (12 CFR part 202).
    2. Ability to pay as of application or consideration of 
increase. A card issuer complies with Sec.  226.51(a) if it bases 
its determination regarding a consumer's ability to make the 
required minimum periodic payments on the facts and circumstances 
known to the card issuer at the time the consumer applies to open 
the credit card account or when the card issuer considers increasing 
the credit line on an existing account.
    3. Credit line increase. When a card issuer considers increasing 
the credit line on an existing account, Sec.  226.51(a) applies 
whether the consideration is based upon a request of the consumer or 
is initiated by the card issuer.
    4. Income, assets, and employment. Any current or reasonably 
expected assets or income may be considered by the card issuer. For 
example, a card issuer may use information about current or expected 
salary, wages, bonus pay, tips and commissions. Employment may be 
full-time, part-time, seasonal, irregular, military, or self-
employment. Other sources of income could include interest or 
dividends, retirement benefits, public assistance, alimony, child 
support, or separate maintenance payments. A card issuer may also 
take into account assets such as savings accounts or investments 
that the consumer can or will be able to use. A card issuer may 
consider the consumer's income or assets based on information 
provided by the consumer, in connection with this credit card 
account or any other financial relationship the card issuer or its 
affiliates has with the consumer, subject to any applicable 
information-sharing rules, and information obtained through third 
parties, subject to any applicable information-sharing rules. A card 
issuer may also consider information obtained through any 
empirically derived, demonstrably and statistically sound model that 
reasonably estimates a consumer's income or assets.
    5. Current obligations. A card issuer may consider the 
consumer's current obligations based on information provided by the 
consumer or in a consumer report. In evaluating a consumer's current 
obligations, a card issuer need not assume that credit lines for 
other obligations are fully utilized.
    6. Joint applicants and joint accountholders. With respect to 
the opening of a joint account between two or more consumers or a 
credit line increase on a joint account between two or more 
consumers, the card issuer may consider the collective ability of 
all joint applicants or joint accountholders to make the required 
payments.
    51(a)(2) Minimum periodic payments.
    1. Applicable minimum payment formula. For purposes of 
estimating required minimum periodic payments under the safe harbor 
set forth in Sec.  226.51(a)(2)(ii), if the account has or may have 
a promotional program, such as a deferred payment or similar 
program, where there is no applicable minimum payment formula during 
the promotional period, the issuer must estimate the required 
minimum periodic payment based on the minimum payment formula that 
will apply when the promotion ends.
    2. Interest rate for purchases. For purposes of estimating 
required minimum periodic payments under the safe harbor set forth 
in Sec.  226.51(a)(2)(ii), if the interest rate for purchases is or 
may be a promotional rate, the issuer must use the post-promotional 
rate to estimate interest charges.

[[Page 7901]]

    2. Mandatory fees. For purposes of estimating required minimum 
periodic payments under the safe harbor set forth in Sec.  
226.51(a)(2)(ii), mandatory fees that must be assumed to be charged 
include those fees the card issuer knows the consumer will be 
required to pay under the terms of the account if the account is 
opened, such as an annual fee.
    51(b) Rules affecting young consumers.
    1. Age as of date of application or consideration of credit line 
increase. Sections 226.51(b)(1) and (b)(2) apply only to a consumer 
who has not attained the age of 21 as of the date of submission of 
the application under Sec.  226.51(b)(1) or the date the credit line 
increase is requested by the consumer (or if no request has been 
made, the date the credit line increase is considered by the card 
issuer) under Sec.  226.51(b)(2).
    2. Liability of cosigner, guarantor, or joint accountholder. 
Sections 226.51(b)(1)(ii) and (b)(2) require the signature or 
written consent of a cosigner, guarantor, or joint accountholder 
agreeing either to be secondarily liable for any debt on the account 
incurred by the consumer before the consumer has attained the age of 
21 or to be jointly liable with the consumer for any debt on the 
account. Sections 226.51(b)(1)(ii) and (b)(2) do not prohibit a card 
issuer from also requiring the cosigner, guarantor, or joint 
accountholder to assume liability for debts incurred after the 
consumer has attained the age of 21, consistent with any agreement 
made between the parties.
    3. Authorized users exempt. If a consumer who has not attained 
the age of 21 is being added to another person's account as an 
authorized user and has no liability for debts incurred on the 
account, Sec.  226.51(b)(1) and (b)(2) do not apply.
    4. Electronic application. Consistent with Sec.  
226.5(a)(1)(iii), an application may be provided to the consumer in 
electronic form without regard to the consumer consent or other 
provisions of the Electronic Signatures in Global and National 
Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.) in the 
circumstances set forth in Sec.  226.5a. The electronic submission 
of an application from a consumer or a consent to a credit line 
increase from a cosigner, guarantor, or joint accountholder to a 
card issuer would constitute a written application or consent for 
purposes of Sec.  226.51(b) and would not be considered a consumer 
disclosure for purposes of the E-Sign Act.
    51(b)(1) Applications from young consumers.
    1. Relation to Regulation B. In considering an application or 
credit line increase on the credit card account of a consumer who is 
less than 21 years old, creditors must comply with the applicable 
rules in Regulation B (12 CFR part 202).
    51(b)(2) Credit line increases for young consumers.
    1. Credit line request by joint accountholder aged 21 or older. 
The requirement under Sec.  226.51(b)(2) that a cosigner, guarantor, 
or joint accountholder for a credit card account opened pursuant to 
Sec.  226.51(b)(1)(ii) must agree in writing to assume liability for 
the increase before a credit line is increased, does not apply if 
the cosigner, guarantor or joint accountholder who is at least 21 
years old initiates the request for the increase.

Section 226.52--Limitations on Fees

    52(a) Limitations during first year after account opening.
    52(a)(1) General rule.
    1. Application. Section 226.52(a)(1) applies if a card issuer 
charges any fees to the account during the first year after the 
account is opened (unless the fees are specifically exempted by 
Sec.  226.52(a)(2)). Thus, if a card issuer charges a non-exempt fee 
to the account during the first year after account opening, Sec.  
226.52(a)(1) provides that the total amount of non-exempt fees the 
consumer is required to pay with respect to the account during the 
first year cannot exceed 25 percent of the credit limit in effect 
when the account is opened. This 25 percent limit applies to fees 
that the card issuer charges to the account as well as to fees that 
the card issuer requires the consumer to pay with respect to the 
account through other means (such as through a payment from the 
consumer to the card issuer or from another credit account provided 
by the card issuer).

For example:

    i. Assume that, under the terms of a credit card account, a 
consumer is required to pay $120 in fees for the issuance or 
availability of credit at account opening. The consumer is also 
required to pay a cash advance fee that is equal to five percent of 
the cash advance and a late payment fee of $15 if the required 
minimum periodic payment is not received by the payment due date 
(which is the twenty-fifth of the month). At account opening on 
January 1 of year one, the credit limit for the account is $500. 
Section 226.52(a)(1) permits the card issuer to charge to the 
account the $120 in fees for the issuance or availability of credit 
at account opening. On February 1 of year one, the consumer uses the 
account for a $100 cash advance. Section 226.52(a)(1) permits the 
card issuer to charge a $5 cash-advance fee to the account. On March 
26 of year one, the card issuer has not received the consumer's 
required minimum periodic payment. Section 226.52(a)(2) permits the 
card issuer to charge a $15 late payment fee to the account. On July 
15 of year one, the consumer uses the account for a $50 cash 
advance. Section 226.52(a)(1) does not permit the card issuer to 
charge a $2.50 cash advance fee to the account. Furthermore, Sec.  
225.52(a)(1) prohibits the card issuer from collecting the $2.50 
cash advance fee from the consumer by other means.
    ii. Assume that, under the terms of a credit card account, a 
consumer is required to pay $125 in fees for the issuance or 
availability of credit during the first year after account opening. 
At account opening on January 1 of year one, the credit limit for 
the account is $500. Section 226.52(a)(1) permits the card issuer to 
charge the $125 in fees to the account. However, Sec.  226.52(a)(1) 
prohibits the card issuer from requiring the consumer to make 
payments to the card issuer for additional non-exempt fees with 
respect to the account during the first year after account opening 
or requiring the consumer to open a separate credit account with the 
card issuer to fund the payment of additional non-exempt fees during 
the first year.
    2. Fees that exceed 25 percent limit. A card issuer that charges 
a fee to a credit card account that exceeds the 25 percent limit 
complies with Sec.  226.52(a)(1) if the card issuer waives or 
removes the fee and any associated interest charges or credits the 
account for an amount equal to the fee and any associated interest 
charges within a reasonable amount of time but no later than the end 
of the billing cycle following the billing cycle during which the 
fee was charged. For example, assuming the facts in comment 
52(a)(1)-1 above, the card issuer complies with Sec.  226.52(a)(1) 
if the card issuer charged the $2.50 cash advance fee to the account 
on July 15 of year one but waived or removed the fee or credited the 
account for $2.50 (plus any interest charges on that $2.50) at the 
end of the billing cycle.
    3. Changes in credit limit during first year.
    i. Increases in credit limit. If a card issuer increases the 
credit limit during the first year after the account is opened, 
Sec.  226.52(a)(1) does not permit the card issuer to require the 
consumer to pay additional fees that would otherwise be prohibited 
(such as a fee for increasing the credit limit). For example, assume 
that, at account opening on January 1, the credit limit for a credit 
card account is $400 and the consumer is required to pay $100 in 
fees for the issuance or availability of credit. On July 1, the card 
issuer increases the credit limit for the account to $600. Section 
226.52(a)(1) does not permit the card issuer to require the consumer 
to pay additional fees based on the increased credit limit.
    ii. Decreases in credit limit. If a card issuer decreases the 
credit limit during the first year after the account is opened, 
Sec.  226.52(a)(1) requires the card issuer to waive or remove any 
fees charged to the account that exceed 25 percent of the reduced 
credit limit or to credit the account for an amount equal to any 
fees the consumer was required to pay with respect to the account 
that exceed 25 percent of the reduced credit limit within a 
reasonable amount of time but no later than the end of the billing 
cycle following the billing cycle during which the fee was charged. 
For example, assume that, at account opening on January 1, the 
credit limit for a credit card account is $1,000 and the consumer is 
required to pay $250 in fees for the issuance or availability of 
credit. The billing cycles for the account begin on the first day of 
the month and end on the last day of the month. On July 30, the card 
issuer decreases the credit limit for the account to $500. Section 
226.52(a)(1) requires the card issuer to waive or remove $175 in 
fees from the account or to credit the account for an amount equal 
to $175 within a reasonable amount of time but no later than August 
31.
    52(a)(2) Fees not subject to limitations.
    1. Covered fees. Except as provided in Sec.  226.52(a)(2), Sec.  
226.52(a) applies to any fees that a card issuer will or may require 
the consumer to pay with respect to a credit card account during the 
first year after account opening. For example, Sec.  226.52(a) 
applies to:
    i. Fees that the consumer is required to pay for the issuance or 
availability of credit described in Sec.  226.5a(b)(2), including 
any fee

[[Page 7902]]

based on account activity or inactivity and any fee that a consumer 
is required to pay in order to receive a particular credit limit;
    ii. Fees for insurance described in Sec.  226.4(b)(7) or debt 
cancellation or debt suspension coverage described in Sec.  
226.4(b)(10) written in connection with a credit transaction, if the 
insurance or debt cancellation or debt suspension coverage is 
required by the terms of the account;
    iii. Fees that the consumer is required to pay in order to 
engage in transactions using the account (such as cash advance fees, 
balance transfer fees, foreign transaction fees, and fees for using 
the account for purchases); and
    iv. Fees that the consumer is required to pay for violating the 
terms of the account (except to the extent specifically excluded by 
Sec.  226.52(a)(2)(i)).
    2. Fees the consumer is not required to pay. Section 
226.52(a)(2)(ii) provides that Sec.  226.52(a) does not apply to 
fees that the consumer is not required to pay with respect to the 
account. For example, Sec.  226.52(a) generally does not apply to 
fees for making an expedited payment (to the extent permitted by 
Sec.  226.10(e)), fees for optional services (such as travel 
insurance), fees for reissuing a lost or stolen card, or statement 
reproduction fees.
    3. Security deposits. A security deposit that is charged to a 
credit card account is a fee for purposes of Sec.  226.52(a). In 
contrast, however, a security deposit is not subject to the 25 
percent limit in Sec.  226.52(a)(1) if it is not charged to the 
account. For example, Sec.  226.52(a)(1) does not prohibit a card 
issuer from requiring a consumer to provide funds at account opening 
pledged as security for the account that exceed 25 percent of the 
credit limit at account opening so long as those funds are not 
obtained from the account.
    52(a)(3) Rule of construction.
    1. Fees or charges otherwise prohibited by law. Section 
226.52(a) does not authorize the imposition or payment of fees or 
charges otherwise prohibited by law. For example, see 16 CFR Sec.  
310.4(a)(4).

Section 226.53--Allocation of Payments

    1. Required minimum periodic payment. Section 226.53 addresses 
the allocation of amounts paid by the consumer in excess of the 
minimum periodic payment required by the card issuer. Section 226.53 
does not limit or otherwise address the card issuer's ability to 
determine, consistent with applicable law and regulatory guidance, 
the amount of the required minimum periodic payment or how that 
payment is allocated. A card issuer may, but is not required to, 
allocate the required minimum periodic payment consistent with the 
requirements in Sec.  226.53 to the extent consistent with other 
applicable law or regulatory guidance.
    2. Applicable rates and balances. Section 226.53 permits a card 
issuer to allocate an amount paid by the consumer in excess of the 
required minimum periodic payment based on the annual percentage 
rates and balances on the day the preceding billing cycle ends, on 
the day the payment is credited to the account, or on any day in 
between those two dates. The day used by the card issuer to 
determine the applicable annual percentage rates and balances for 
purposes of Sec.  226.53 generally must be consistent from billing 
cycle to billing cycle, although the card issuer may adjust this day 
from time to time. For example:
    i. Assume that the billing cycles for a credit card account 
start on the first day of the month and end on the last day of the 
month. On the date the March billing cycle ends (March 31), the 
account has a purchase balance of $500 at a promotional annual 
percentage rate of 5% and another purchase balance of $200 at a non-
promotional annual percentage rate of 15%. On April 5, a $100 
purchase to which the 15% rate applies is charged to the account. On 
April 15, the promotional rate expires and Sec.  226.55(b)(1) 
permits the card issuer to increase the rate that applies to the 
$500 balance from 5% to 18%. On April 25, the card issuer credits to 
the account $400 paid by the consumer in excess of the required 
minimum periodic payment. If the card issuer's practice is to 
allocate payments based on the rates and balances on the last day of 
the prior billing cycle, the card issuer would allocate the $400 
payment to pay in full the $200 balance to which the 15% rate 
applied on March 31 and then allocate the remaining $200 to the $500 
balance to which the 5% rate applied on March 31. In the 
alternative, if the card issuer's practice is to allocate payments 
based on the rates and balances on the day a payment is credited to 
the account, the card issuer would allocate the $400 payment to the 
$500 balance to which the 18% rate applied on April 25.
    ii. Same facts as above except that, on April 25, the card 
issuer credits to the account $750 paid by the consumer in excess of 
the required minimum periodic payment. If the card issuer's practice 
is to allocate payments based on the rates and balances on the last 
day of the prior billing cycle, the card issuer would allocate the 
$750 payment to pay in full the $200 balance to which the 15% rate 
applied on March 31 and the $500 balance to which the 5% rate 
applied on March 31 and then allocate the remaining $50 to the $100 
purchase made on April 5. In the alternative, if the card issuer's 
practice is to allocate payments based on the rates and balances on 
the day a payment is credited to the account, the card issuer would 
allocate the $750 payment to pay in full the $500 balance to which 
the 18% rate applied on April 25 and then allocate the remaining 
$250 to the $300 balance to which the 15% rate applied on April 25.
    3. Claims or defenses under Sec.  226.12(c) and billing error 
disputes under Sec.  226.13. When a consumer has asserted a claim or 
defense against the card issuer pursuant to Sec.  226.12(c) or 
alleged a billing error under Sec.  226.13, the card issuer must 
apply the consumer's payment in a manner that avoids or minimizes 
any reduction in the amount subject to that claim, defense, or 
dispute. For example:
    i. Assume that a credit card account has a $500 cash advance 
balance at an annual percentage rate of 25% and a $1,000 purchase 
balance at an annual percentage rate of 17%. Assume also that $200 
of the cash advance balance is subject to a claim or defense under 
Sec.  226.12(c) or a billing error dispute under Sec.  226.13. If 
the consumer pays $900 in excess of the required minimum periodic 
payment, the card issuer must allocate $300 of the excess payment to 
pay in full the portion of the cash advance balance that is not 
subject to the claim, defense, or dispute and then allocate the 
remaining $600 to the $1,000 purchase balance.
    ii. Same facts as above except that the consumer pays $1,400 in 
excess of the required minimum periodic payment. The card issuer 
must allocate $1,300 of the excess payment to pay in full the $300 
cash advance balance that is not subject to the claim, defense, or 
dispute and the $1,000 purchase balance. If there are no new 
transactions or other amounts to which the remaining $100 can be 
allocated, the card issuer may apply that amount to the $200 cash 
advance balance that is subject to the claim, defense, or dispute. 
However, if the card issuer subsequently determines that a billing 
error occurred as asserted by the consumer, the card issuer must 
credit the account for the disputed amount and any related finance 
or other charges and send a correction notice consistent with Sec.  
226.13(e).
    4. Balances with the same rate. When the same annual percentage 
rate applies to more than one balance on an account and a different 
annual percentage rate applies to at least one other balance on that 
account, Sec.  226.53 generally does not require that any particular 
method be used when allocating among the balances with the same 
annual percentage rate. Under these circumstances, a card issuer may 
treat the balances with the same rate as a single balance or 
separate balances. See example in comment 53-5.iv. However, when a 
balance on a credit card account is subject to a deferred interest 
or similar program that provides that a consumer will not be 
obligated to pay interest that accrues on the balance if the balance 
is paid in full prior to the expiration of a specified period of 
time, that balance must be treated as a balance with an annual 
percentage rate of zero for purposes of Sec.  226.53 during that 
period of time. For example, if an account has a $1,000 purchase 
balance and a $2,000 balance that is subject to a deferred interest 
program that expires on July 1 and a 15% annual percentage rate 
applies to both, the balances must be treated as balances with 
different rates for purposes of Sec.  226.53 until July 1. In 
addition, unless the card issuer allocates amounts paid by the 
consumer in excess of the required minimum periodic payment in the 
manner requested by the consumer pursuant to Sec.  226.53(b)(2), 
Sec.  226.53(b)(1) requires the card issuer to apply any excess 
payments first to the $1,000 purchase balance except during the last 
two billing cycles of the deferred interest period (when it must be 
applied first to any remaining portion of the $2,000 balance). See 
example in comment 53-5.v.
    5. Examples. For purposes of the following examples, assume that 
none of the required minimum periodic payment is allocated to the 
balances discussed (unless otherwise stated).
    i. Assume that a credit card account has a cash advance balance 
of $500 at an annual

[[Page 7903]]

percentage rate of 20% and a purchase balance of $1,500 at an annual 
percentage rate of 15% and that the consumer pays $800 in excess of 
the required minimum periodic payment. Under Sec.  226.53(a), the 
card issuer must allocate $500 to pay off the cash advance balance 
and then allocate the remaining $300 to the purchase balance.
    ii. Assume that a credit card account has a cash advance balance 
of $500 at an annual percentage rate of 20% and a purchase balance 
of $1,500 at an annual percentage rate of 15% and that the consumer 
pays $400 in excess of the required minimum periodic payment. Under 
Sec.  226.53(a), the card issuer must allocate the entire $400 to 
the cash advance balance.
    iii. Assume that a credit card account has a cash advance 
balance of $100 at an annual percentage rate of 20%, a purchase 
balance of $300 at an annual percentage rate of 18%, and a $600 
protected balance on which the 12% annual percentage rate cannot be 
increased pursuant to Sec.  226.55. If the consumer pays $500 in 
excess of the required minimum periodic payment, Sec.  226.53(a) 
requires the card issuer to allocate $100 to pay off the cash 
advance balance, $300 to pay off the purchase balance, and $100 to 
the protected balance.
    iv. Assume that a credit card account has a cash advance balance 
of $500 at an annual percentage rate of 20%, a purchase balance of 
$1,000 at an annual percentage rate of 15%, and a transferred 
balance of $2,000 that was previously at a discounted annual 
percentage rate of 5% but is now at an annual percentage rate of 
15%. Assume also that the consumer pays $800 in excess of the 
required minimum periodic payment. Under Sec.  226.53(a), the card 
issuer must allocate $500 to pay off the cash advance balance and 
allocate the remaining $300 among the purchase balance and the 
transferred balance in the manner the card issuer deems appropriate.
    v. Assume that on January 1 a consumer uses a credit card 
account to make a $1,200 purchase subject to a deferred interest 
program under which interest accrues at an annual percentage rate of 
15% but the consumer will not be obligated to pay that interest if 
the balance is paid in full on or before June 30. The billing cycles 
for this account begin on the first day of the month and end on the 
last day of the month. Each month from January through June, the 
consumer uses the account to make $200 in purchases that are not 
subject to the deferred interest program but are subject to the 15% 
rate.
    A. Each month from February through June, the consumer pays $400 
in excess of the required minimum periodic payment on the payment 
due date, which is the twenty-fifth of the month. Any interest that 
accrues on the purchases not subject to the deferred interest 
program is paid by the required minimum periodic payment. The card 
issuer does not accept requests from consumers regarding the 
allocation of excess payments pursuant to Sec.  226.53(b)(2). Thus, 
Sec.  226.53(b)(1) requires the card issuer to allocate the $400 
excess payments received on February 25, March 25, and April 25 
consistent with Sec.  226.53(a). In other words, the card issuer 
must allocate those payments as follows: $200 to pay off the balance 
not subject to the deferred interest program (which is subject to 
the 15% rate) and the remaining $200 to the deferred interest 
balance (which is treated as a balance with a rate of zero). 
However, Sec.  226.53(b)(1) requires the card issuer to allocate the 
entire $400 excess payment received on May 25 to the deferred 
interest balance. Similarly, Sec.  226.53(b)(1) requires the card 
issuer to allocate the $400 excess payment received on June 25 as 
follows: $200 to the deferred interest balance (which pays that 
balance in full) and the remaining $200 to the balance not subject 
to the deferred interest program.
    B. Same facts as above, except that the card issuer does accept 
requests from consumers regarding the allocation of excess payments 
pursuant to Sec.  226.53(b)(2). In addition, on April 25, the card 
issuer receives an excess payment of $800, which the consumer 
requests be allocated to pay off the $800 balance subject to the 
deferred interest program. Section 226.53(b)(2) permits the card 
issuer to allocate the $800 excess payment in the manner requested 
by the consumer.
    53(b) Special rule for accounts with balances subject to 
deferred interest or similar programs.
    1. Deferred interest and similar programs. Section 226.53(b) 
applies to deferred interest or similar programs under which the 
consumer is not obligated to pay interest that accrues on a balance 
if that balance is paid in full prior to the expiration of a 
specified period of time. For purposes of Sec.  226.53(b), 
``deferred interest'' has the same meaning as in Sec.  226.16(h)(2) 
and associated commentary. Section 226.53(b) applies regardless of 
whether the consumer is required to make payments with respect to 
that balance during the specified period. However, a grace period 
during which any credit extended may be repaid without incurring a 
finance charge due to a periodic interest rate is not a deferred 
interest or similar program for purposes of Sec.  226.53(b). 
Similarly, a temporary annual percentage rate of zero percent that 
applies for a specified period of time consistent with Sec.  
226.55(b)(1) is not a deferred interest or similar program for 
purposes of Sec.  226.53(b) unless the consumer may be obligated to 
pay interest that accrues during the period if a balance is not paid 
in full prior to expiration of the period.
    2. Expiration of program during billing cycle. For purposes of 
Sec.  226.53(b)(1), a billing cycle does not constitute one of the 
two billing cycles immediately preceding expiration of a deferred 
interest or similar program if the expiration date for the program 
precedes the payment due date in that billing cycle. For example, 
assume that a credit card account has a balance subject to a 
deferred interest program that expires on June 15. Assume also that 
the billing cycles for the account begin on the first day of the 
month and end on the last day of the month and that the required 
minimum periodic payment is due on the twenty-fifth day of the 
month. The card issuer does not accept requests from consumers 
regarding the allocation of excess payments pursuant to Sec.  
226.53(b)(2). Because the expiration date for the deferred interest 
program (June 15) precedes the due date in the June billing cycle 
(June 25), Sec.  226.53(b)(1) requires the card issuer to allocate 
first to the deferred interest balance any amount paid by the 
consumer in excess of the required minimum periodic payment during 
the April and May billing cycles (as well as any amount paid by the 
consumer before June 15). However, if the deferred interest program 
expired on June 25 or on June 30 (or on any day in between), Sec.  
226.53(b)(1) would apply only to the May and June billing cycles.
    3. Consumer requests.
    i. Generally. Section 226.53(b) does not require a card issuer 
to allocate amounts paid by the consumer in excess of the required 
minimum periodic payment in the manner requested by the consumer, 
provided that the card issuer instead allocates such amounts 
consistent with Sec.  226.53(b)(1). For example, a card issuer may 
decline consumer requests regarding payment allocation as a general 
matter or may decline such requests when a consumer does not comply 
with requirements set by the card issuer (such as submitting the 
request in writing or submitting the request prior to or 
contemporaneously with submission of the payment), provided that 
amounts paid by the consumer in excess of the required minimum 
periodic payment are allocated consistent with Sec.  226.53(b)(1). 
Similarly, a card issuer that accepts requests pursuant to Sec.  
226.53(b)(2) must allocate amounts paid by a consumer in excess of 
the required minimum periodic payment consistent with Sec.  
226.53(b)(1) if the consumer does not submit a request. Furthermore, 
in these circumstances, a card issuer must allocate consistent with 
Sec.  226.53(b)(1) if the consumer submits a request with which the 
card issuer cannot comply (such as a request that contains a 
mathematical error), unless the consumer submits an additional 
request with which the card issuer can comply.
    ii. Examples of consumer requests that satisfy Sec.  
226.53(b)(2). A consumer has made a request for purposes of Sec.  
226.53(b)(2) if:
    A. The consumer contacts the card issuer orally, electronically, 
or in writing and specifically requests that a payment or payments 
be allocated in a particular manner during the period of time that 
the deferred interest or similar program applies to a balance on the 
account.
    B. The consumer completes a form or payment coupon provided by 
the card issuer for the purpose of requesting that a payment or 
payments be allocated in a particular manner during the period of 
time that the deferred interest or similar program applies to a 
balance on the account and submits that form or coupon to the card 
issuer.
    C. The consumer contacts the card issuer orally, electronically, 
or in writing and specifically requests that a payment that the card 
issuer has previously allocated consistent with Sec.  226.53(b)(1) 
instead be allocated in a different manner.
    iii. Examples of consumer requests that do not satisfy Sec.  
226.53(b)(2). A consumer has not made a request for purposes of 
Sec.  226.53(b)(2) if:
    A. The terms and conditions of the account agreement contain 
preprinted language

[[Page 7904]]

stating that by applying to open an account or by using that account 
for transactions subject to a deferred interest or similar program 
the consumer requests that payments be allocated in a particular 
manner.
    B. The card issuer's on-line application contains a preselected 
check box indicating that the consumer requests that payments be 
allocated in a particular manner and the consumer does not deselect 
the box.
    C. The payment coupon provided by the card issuer contains 
preprinted language or a preselected check box stating that by 
submitting a payment the consumer requests that the payment be 
allocated in a particular manner.
    D. The card issuer requires a consumer to accept a particular 
payment allocation method as a condition of using a deferred 
interest or similar program, making a payment, or receiving account 
services or features.

Section 226.54--Limitations on the Imposition of Finance Charges

    54(a) Limitations on imposing finance charges as a result of the 
loss of a grace period.
    54(a)(1) General rule.
    1. Eligibility for grace period. Section 226.54 prohibits the 
imposition of finance charges as a result of the loss of a grace 
period in certain specified circumstances. Section 226.54 does not 
require the card issuer to provide a grace period. Furthermore, 
Sec.  226.54 does not prohibit the card issuer from placing 
limitations and conditions on a grace period (such as limiting 
application of the grace period to certain types of transactions or 
conditioning eligibility for the grace period on certain 
transactions being paid in full by a particular date), provided that 
such limitations and conditions are consistent with Sec.  
226.5(b)(2)(ii)(B) and Sec.  226.54. Finally, Sec.  226.54 does not 
limit the imposition of finance charges with respect to a 
transaction when the consumer is not eligible for a grace period on 
that transaction at the end of the billing cycle in which the 
transaction occurred. For example:
    i. Assume that the billing cycles for a credit card account 
begin on the first day of the month and end on the last day of the 
month and that the payment due date is the twenty-fifth day of the 
month. Assume also that, for purchases made during the current 
billing cycle (for purposes of this example, the June billing 
cycle), the grace period applies from the date of the purchase until 
the payment due date in the following billing cycle (July 25), 
subject to two conditions. First, the purchase balance at the end of 
the preceding billing cycle (the May billing cycle) must have been 
paid in full by the payment due date in the current billing cycle 
(June 25). Second, the purchase balance at the end of the current 
billing cycle (the June billing cycle) must be paid in full by the 
following payment due date (July 25). Finally, assume that the 
consumer was eligible for a grace period at the start of the June 
billing cycle (in other words, assume that the purchase balance for 
the April billing cycle was paid in full by May 25).
    A. If the consumer pays the purchase balance for the May billing 
cycle in full by June 25, then at the end of the June billing cycle 
the consumer is eligible for a grace period with respect to 
purchases made during that billing cycle. Therefore, Sec.  226.54 
limits the imposition of finance charges with respect to purchases 
made during the June billing cycle if the consumer does not pay the 
purchase balance for the June billing cycle in full by July 25. 
Specifically, Sec.  226.54(a)(1)(i) prohibits the card issuer from 
imposing finance charges based on the purchase balance at the end of 
the June billing cycle for days that precede the July billing cycle. 
Furthermore, Sec.  226.54(a)(1)(ii) prohibits the card issuer from 
imposing finance charges based on any portion of the balance at the 
end of the June billing cycle that was paid on or before July 25.
    B. If the consumer does not pay the purchase balance for the May 
billing cycle in full by June 25, then the consumer is not eligible 
for a grace period with respect to purchases made during the June 
billing cycle at the end of that cycle. Therefore, Sec.  226.54 does 
not limit the imposition of finance charges with respect to 
purchases made during the June billing cycle regardless of whether 
the consumer pays the purchase balance for the June billing cycle in 
full by July 25.
    ii. Same facts as above except that the card issuer places only 
one condition on the provision of a grace period for purchases made 
during the current billing cycle (the June billing cycle): that the 
purchase balance at the end of the current billing cycle (the June 
billing cycle) be paid in full by the following payment due date 
(July 25). In these circumstances, Sec.  226.54 applies to the same 
extent as discussed in paragraphs i.A. and i.B. above regardless of 
whether the purchase balance for the April billing cycle was paid in 
full by May 25.
    2. Definition of grace period. For purposes of Sec. Sec.  
226.5(b)(2)(ii)(B) and 226.54, a grace period is a period within 
which any credit extended may be repaid without incurring a finance 
charge due to a periodic interest rate. The following are not grace 
periods for purposes of Sec.  226.54:
    i. Deferred interest and similar programs. A deferred interest 
or similar promotional program under which a consumer will not be 
obligated to pay interest that accrues on a balance if that balance 
is paid in full prior to the expiration of a specified period of 
time is not a grace period for purposes of Sec.  226.54. Thus, Sec.  
226.54 does not prohibit the card issuer from charging accrued 
interest to an account upon expiration of a deferred interest or 
similar program if the balance was not paid in full prior to 
expiration (to the extent consistent with Sec.  226.55 and other 
applicable law and regulatory guidance).
    ii. Waivers or rebates of interest. As a general matter, a card 
issuer has not provided a grace period with respect to transactions 
for purposes of Sec.  226.54 if, on an individualized basis (such as 
in response to a consumer's request), the card issuer waives or 
rebates finance charges that have accrued on transactions. In 
addition, when a balance at the end of the preceding billing cycle 
is paid in full on or before the payment due date in the current 
billing cycle, a card issuer that waives or rebates trailing or 
residual interest accrued on that balance or any other transactions 
during the current billing cycle has not provided a grace period 
with respect to that balance or any other transactions for purposes 
of Sec.  226.54. However, if the terms of the account provide that 
all interest accrued on transactions will be waived or rebated if 
the balance for those transactions at the end of the billing cycle 
during which the transactions occurred is paid in full by the 
following payment due date, the card issuer is providing a grace 
period with respect to those transactions for purposes of Sec.  
226.54. For example:
    A. Assume that the billing cycles for a credit card account 
begin on the first day of the month and end on the last day of the 
month and that the payment due date is the twenty-fifth day of the 
month. On March 31, the balance on the account is $1,000 and the 
consumer is not eligible for a grace period with respect to that 
balance because the balance at the end of the prior billing cycle 
was not paid in full on March 25. On April 15, the consumer uses the 
account for a $500 purchase. On April 25, the card issuer receives a 
payment of $1,000. On May 3, the card issuer mails or delivers a 
periodic statement reflecting trailing or residual interest that 
accrued on the $1,000 balance from April 1 through April 24 as well 
as interest that accrued on the $500 purchase from April 15 through 
April 30. On May 10, the consumer requests that the trailing or 
residual interest charges be waived and the card issuer complies. By 
waiving these interest charges, the card issuer has not provided a 
grace period with respect to the $1,000 balance or the $500 
purchase.
    B. Same facts as in paragraph ii.A. above except that the terms 
of the account state that trailing or residual interest will be 
waived in these circumstances or it is the card issuer's practice to 
waive trailing or residual interest in these circumstances. By 
waiving these interest charges, the card issuer has not provided a 
grace period with respect to the $1,000 balance or the $500 
purchase.
    C. Assume that the billing cycles for a credit card account 
begin on the first day of the month and end on the last day of the 
month and that the payment due date is the twenty-fifth day of the 
month. Assume also that, for purchases made during the current 
billing cycle (for purposes of this example, the June billing 
cycle), the terms of the account provide that interest accrued on 
those purchases from the date of the purchase until the payment due 
date in the following billing cycle (July 25) will be waived or 
rebated, subject to two conditions. First, the purchase balance at 
the end of the preceding billing cycle (the May billing cycle) must 
have been paid in full by the payment due date in the current 
billing cycle (June 25). Second, the purchase balance at the end of 
the current billing cycle (the June billing cycle) must be paid in 
full by the following payment due date (July 25). Under these 
circumstances, the card issuer is providing a grace period on 
purchases for purposes of Sec.  226.54. Therefore, assuming that the 
consumer was eligible for this grace period at the start of the June 
billing cycle

[[Page 7905]]

(in other words, assuming that the purchase balance for the April 
billing cycle was paid in full by May 25) and assuming that the 
consumer pays the purchase balance for the May billing cycle in full 
by June 25, Sec.  226.54 applies to the imposition of finance 
charges with respect to purchases made during the June billing 
cycle. Specifically, Sec.  226.54(a)(1)(i) prohibits the card issuer 
from imposing finance charges based on the purchase balance at the 
end of the June billing cycle for days that precede the July billing 
cycle. Furthermore, Sec.  226.54(a)(1)(ii) prohibits the card issuer 
from imposing finance charges based on any portion of the balance at 
the end of the June billing cycle that was paid on or before July 
25.
    3. Relationship to payment allocation requirements in Sec.  
226.53. Card issuers must comply with the payment allocation 
requirements in Sec.  226.53 even if doing so will result in the 
loss of a grace period.
    4. Prohibition on two-cycle balance computation method. When a 
consumer ceases to be eligible for a grace period, Sec.  
226.54(a)(1)(i) prohibits the card issuer from computing the finance 
charge using the two-cycle average daily balance computation method. 
This method calculates the finance charge using a balance that is 
the sum of the average daily balances for two billing cycles. The 
first balance is for the current billing cycle, and is calculated by 
adding the total balance (including or excluding new purchases and 
deducting payments and credits) for each day in the billing cycle, 
and then dividing by the number of days in the billing cycle. The 
second balance is for the preceding billing cycle.
    5. Prohibition on imposing finance charges on amounts paid 
within grace period. When a balance on a credit card account is 
eligible for a grace period and the card issuer receives payment for 
some but not all of that balance prior to the expiration of the 
grace period, Sec.  226.54(a)(1)(ii) prohibits the card issuer from 
imposing finance charges on the portion of the balance paid. Card 
issuers are not required to use a particular method to comply with 
Sec.  226.54(a)(1)(ii). However, when Sec.  226.54(a)(1)(ii) 
applies, a card issuer is in compliance if, for example, it applies 
the consumer's payment to the balance subject to the grace period at 
the end of the preceding billing cycle (in a manner consistent with 
the payment allocation requirements in Sec.  226.53) and then 
calculates interest charges based on the amount of the balance that 
remains unpaid.
    6. Examples. Assume that the annual percentage rate for 
purchases on a credit card account is 15%. The billing cycle starts 
on the first day of the month and ends on the last day of the month. 
The payment due date for the account is the twenty-fifth day of the 
month. For purchases made during the current billing cycle, the card 
issuer provides a grace period from the date of the purchase until 
the payment due date in the following billing cycle, provided that 
the purchase balance at the end of the current billing cycle is paid 
in full by the following payment due date. For purposes of this 
example, assume that none of the required minimum periodic payment 
is allocated to the balances discussed. During the March billing 
cycle, the following transactions are charged to the account: A $100 
purchase on March 10, a $200 purchase on March 15, and a $300 
purchase on March 20. On March 25, the purchase balance for the 
February billing cycle is paid in full. Thus, for purposes of Sec.  
226.54, the consumer is eligible for a grace period on the March 
purchases. At the end of the March billing cycle (March 31), the 
consumer's total purchase balance is $600 and the consumer will not 
be charged interest on that balance if it is paid in full by the 
following due date (April 25).
    i. On April 10, a $150 purchase is charged to the account. On 
April 25, the card issuer receives $500 in excess of the required 
minimum periodic payment. Section 226.54(a)(1)(i) prohibits the card 
issuer from reaching back and charging interest on any of the March 
transactions from the date of the transaction through the end of the 
March billing cycle (March 31). In these circumstances, the card 
issuer may comply with Sec.  226.54(a)(1)(ii) by applying the $500 
excess payment to the $600 purchase balance and then charging 
interest only on the portion of the $600 purchase balance that 
remains unpaid ($100) from the start of the April billing cycle 
(April 1) through the end of the April billing cycle (April 30). In 
addition, the card issuer may charge interest on the $150 purchase 
from the date of the transaction (April 10) through the end of the 
April billing cycle (April 31).
    ii. Same facts as in paragraph 6. above except that, on March 
18, a $250 cash advance is charged to the account at an annual 
percentage rate of 25%. The card issuer's grace period does not 
apply to cash advances, but the card issuer does provide a grace 
period on the March purchases because the purchase balance for the 
February billing cycle is paid in full on March 25. On April 25, the 
card issuer receives $600 in excess of the required minimum periodic 
payment. As required by Sec.  226.53, the card issuer allocates the 
$600 excess payment first to the balance with the highest annual 
percentage rate (the $250 cash advance balance). Although Sec.  
226.54(a)(1)(i) prohibits the card issuer from charging interest on 
the March purchases based on days in the March billing cycle, the 
card issuer may charge interest on the $250 cash advance from the 
date of the transaction (March 18) through April 24. In these 
circumstances, the card issuer may comply with Sec.  
226.54(a)(1)(ii) by applying the remainder of the excess payment 
($350) to the $600 purchase balance and then charging interest only 
on the portion of the $600 purchase balance that remains unpaid 
($250) from the start of the April billing cycle (April 1) through 
the end of the April billing cycle (April 30).
    iii. Same facts as in paragraph 6. above except that the 
consumer does not pay the balance for the February billing cycle in 
full on March 25 and therefore is not eligible for a grace period on 
the March purchases. Under these circumstances, Sec.  226.54 does 
not apply and the card issuer may charge interest from the date of 
each transaction through April 24 and interest on the remaining $100 
from April 25 through the end of the April billing cycle (April 25).

Section 226.55--Limitations on Increasing Annual Percentage Rates, 
Fees, and Charges

    55(a) General rule.
    1. Examples. Section 226.55(a) prohibits card issuers from 
increasing an annual percentage rate or any fee or charge required 
to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) on a credit card account unless specifically permitted 
by one of the exceptions in Sec.  226.55(b). The following examples 
illustrate the general application of Sec.  226.55(a) and (b). 
Additional examples illustrating specific aspects of the exceptions 
in Sec.  226.55(b) are provided in the commentary to those 
exceptions.
    i. Account-opening disclosure of non-variable rate for six 
months, then variable rate. Assume that, at account opening on 
January 1 of year one, a card issuer discloses that the annual 
percentage rate for purchases is a non-variable rate of 15% and will 
apply for six months. The card issuer also discloses that, after six 
months, the annual percentage rate for purchases will be a variable 
rate that is currently 18% and will be adjusted quarterly by adding 
a margin of 8 percentage points to a publicly-available index not 
under the card issuer's control. Furthermore, the card issuer 
discloses that the annual percentage rate for cash advances is the 
same variable rate that will apply to purchases after six months. 
Finally, the card issuer discloses that, to the extent consistent 
with Sec.  226.55 and other applicable law, a non-variable penalty 
rate of 30% may apply if the consumer makes a late payment. The 
payment due date for the account is the twenty-fifth day of the 
month and the required minimum periodic payments are applied to 
accrued interest and fees but do not reduce the purchase and cash 
advance balances.
    A. Change-in-terms rate increase for new transactions after 
first year. On January 15 of year one, the consumer uses the account 
to make a $2,000 purchase and a $500 cash advance. No other 
transactions are made on the account. At the start of each quarter, 
the card issuer may adjust the variable rate that applies to the 
$500 cash advance consistent with changes in the index (pursuant to 
Sec.  226.55(b)(2)). All required minimum periodic payments are 
received on or before the payment due date until May of year one, 
when the payment due on May 25 is received by the creditor on May 
28. At this time, the card issuer is prohibited by Sec.  226.55 from 
increasing the rates that apply to the $2,000 purchase, the $500 
cash advance, or future purchases and cash advances. Six months 
after account opening (July 1), the card issuer may begin to accrue 
interest on the $2,000 purchase at the previously-disclosed variable 
rate determined using an 8-point margin (pursuant to Sec.  
226.55(b)(1)). Because no other increases in rate were disclosed at 
account opening, the card issuer may not subsequently increase the 
variable rate that applies to the $2,000 purchase and the $500 cash 
advance (except due to increases in the index pursuant to Sec.  
226.55(b)(2)). On November 16, the card issuer provides a notice 
pursuant to Sec.  226.9(c) informing the consumer of a new variable 
rate that will apply on January 1 of year two (calculated using the 
same index and an increased

[[Page 7906]]

margin of 12 percentage points). On December 15, the consumer makes 
a $100 purchase. On January 1 of year two, the card issuer may 
increase the margin used to determine the variable rate that applies 
to new purchases to 12 percentage points (pursuant to Sec.  
226.55(b)(3)). However, Sec.  226.55(b)(3)(ii) does not permit the 
card issuer to apply the variable rate determined using the 12-point 
margin to the $2,000 purchase balance. Furthermore, although the 
$100 purchase occurred more than 14 days after provision of the 
Sec.  226.9(c) notice, Sec.  226.55(b)(3)(iii) does not permit the 
card issuer to apply the variable rate determined using the 12-point 
margin to that purchase because it occurred during the first year 
after account opening. On January 15 of year two, the consumer makes 
a $300 purchase. The card issuer may apply the variable rate 
determined using the 12-point margin to the $300 purchase.
    B. Account becomes more than 60 days delinquent during first 
year. Same facts as above except that the required minimum periodic 
payment due on May 25 of year one is not received by the card issuer 
until July 30 of year one. Because the card issuer received the 
required minimum periodic payment more than 60 days after the 
payment due date, Sec.  226.55(b)(4) permits the card issuer to 
increase the annual percentage rate applicable to the $2,000 
purchase, the $500 cash advance, and future purchases and cash 
advances. However, Sec.  226.55(b)(4)(i) requires the card issuer to 
first comply with the notice requirements in Sec.  226.9(g). Thus, 
if the card issuer provided a Sec.  226.9(g) notice on July 25 
stating that all rates on the account would be increased to the 30% 
penalty rate, the card issuer could apply that rate beginning on 
September 8 to all balances and to future transactions.
    ii. Account-opening disclosure of non-variable rate for six 
months, then increased non-variable rate for six months, then 
variable rate; change-in-terms rate increase for new transactions 
after first year. Assume that, at account opening on January 1 of 
year one, a card issuer discloses that the annual percentage rate 
for purchases will increase as follows: A non-variable rate of 5% 
for six months; a non-variable rate of 10% for an additional six 
months; and thereafter a variable rate that is currently 15% and 
will be adjusted monthly by adding a margin of 5 percentage points 
to a publicly-available index not under the card issuer's control. 
The payment due date for the account is the fifteenth day of the 
month and the required minimum periodic payments are applied to 
accrued interest and fees but do not reduce the purchase balance. On 
January 15 of year one, the consumer uses the account to make a 
$1,500 purchase. Six months after account opening (July 1), the card 
issuer may begin to accrue interest on the $1,500 purchase at the 
previously-disclosed 10% non-variable rate (pursuant to Sec.  
226.55(b)(1)). On September 15, the consumer uses the account for a 
$700 purchase. On November 16, the card issuer provides a notice 
pursuant to Sec.  226.9(c) informing the consumer of a new variable 
rate that will apply on January 1 of year two (calculated using the 
same index and an increased margin of 8 percentage points). One year 
after account opening (January 1 of year two), the card issuer may 
begin accruing interest on the $2,200 purchase balance at the 
previously-disclosed variable rate determined using a 5-point margin 
(pursuant to Sec.  226.55(b)(1)). Section 226.55 does not permit the 
card issuer to apply the variable rate determined using the 8-point 
margin to the $2,200 purchase balance. Furthermore, Sec.  226.55 
does not permit the card issuer to subsequently increase the 
variable rate determined using the 5-point margin that applies to 
the $2,200 purchase balance (except due to increases in the index 
pursuant to Sec.  226.55(b)(2)). The card issuer may, however, apply 
the variable rate determined using the 8-point margin to purchases 
made on or after January 1 of year two (pursuant to Sec.  
226.55(b)(3)).
    iii. Change-in-terms rate increase for new transactions after 
first year; penalty rate increase after first year. Assume that, at 
account opening on January 1 of year one, a card issuer discloses 
that the annual percentage rate for purchases is a variable rate 
determined by adding a margin of 6 percentage points to a publicly-
available index outside of the card issuer's control. The card 
issuer also discloses that, to the extent consistent with Sec.  
226.55 and other applicable law, a non-variable penalty rate of 28% 
may apply if the consumer makes a late payment. The due date for the 
account is the fifteenth of the month. On May 30 of year two, the 
account has a purchase balance of $1,000. On May 31, the card issuer 
provides a notice pursuant to Sec.  226.9(c) informing the consumer 
of a new variable rate that will apply on July 16 for all purchases 
made on or after June 15 (calculated by using the same index and an 
increased margin of 8 percentage points). On June 14, the consumer 
makes a $500 purchase. On June 15, the consumer makes a $200 
purchase. On July 1, the card issuer has not received the payment 
due on June 15 and provides the consumer with a notice pursuant to 
Sec.  226.9(g) stating that the 28% penalty rate will apply as of 
August 15 to all transactions made on or after July 16 and that, if 
the consumer becomes more than 60 days late, the penalty rate will 
apply to all balances on the account. On July 17, the consumer makes 
a $300 purchase.
    A. Account does not become more than 60 days delinquent. The 
payment due on June 15 of year two is received on July 2. On July 
16, Sec.  226.55(b)(3)(ii) permits the card issuer to apply the 
variable rate determined using the 8-point margin disclosed in the 
Sec.  226.9(c) notice to the $200 purchase made on June 15 but does 
not permit the card issuer to apply this rate to the $1,500 purchase 
balance. On August 15, Sec.  226.55(b)(3)(ii) permits the card 
issuer to apply the 28% penalty rate disclosed at account opening 
and in the Sec.  226.9(g) notice to the $300 purchase made on July 
17 but does not permit the card issuer to apply this rate to the 
$1,500 purchase balance (which remains at the variable rate 
determined using the 6-point margin) or the $200 purchase (which 
remains at the variable rate determined using the 8-point margin).
    B. Account becomes more than 60 days delinquent after provision 
of Sec.  226.9(g) notice. Same facts as above except the payment due 
on June 15 of year two has not been received by August 15. Section 
226.55(b)(4) permits the card issuer to apply the 28% penalty rate 
to the $1,500 purchase balance and the $200 purchase because it has 
not received the June 15 payment within 60 days after the due date. 
However, in order to do so, Sec.  226.55(b)(4)(i) requires the card 
issuer to first provide an additional notice pursuant to Sec.  
226.9(g). This notice must be sent no earlier than August 15, which 
is the first day the account became more than 60 days' delinquent. 
If the notice is sent on August 15, the card issuer may begin 
accruing interest on the $1,500 purchase balance and the $200 
purchase at the 28% penalty rate beginning on September 29.
    2. Relationship to grace period. Nothing in Sec.  226.55 
prohibits a card issuer from assessing interest due to the loss of a 
grace period to the extent consistent with Sec.  226.5(b)(2)(ii)(B) 
and Sec.  226.54. In addition, a card issuer has not reduced an 
annual percentage rate on a credit card account for purposes of 
Sec.  226.55 if the card issuer does not charge interest on a 
balance or a portion thereof based on a payment received prior to 
the expiration of a grace period. For example, if the annual 
percentage rate for purchases on an account is 15% but the card 
issuer does not charge any interest on a $500 purchase balance 
because that balance was paid in full prior to the expiration of the 
grace period, the card issuer has not reduced the 15% purchase rate 
to 0% for purposes of Sec.  226.55.
    55(b) Exceptions.
    1. Exceptions not mutually exclusive. A card issuer may increase 
an annual percentage rate or a fee or charge required to be 
disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
pursuant to an exception set forth in Sec.  226.55(b) even if that 
increase would not be permitted under a different exception. For 
example, although a card issuer cannot increase an annual percentage 
rate pursuant to Sec.  226.55(b)(1) unless that rate is provided for 
a specified period of at least six months, the card issuer may 
increase an annual percentage rate during a specified period due to 
an increase in an index consistent with Sec.  226.55(b)(2). 
Similarly, although Sec.  226.55(b)(3) does not permit a card issuer 
to increase an annual percentage rate during the first year after 
account opening, the card issuer may increase the rate during the 
first year after account opening pursuant to Sec.  226.55(b)(4) if 
the required minimum periodic payment is not received within 60 days 
after the due date.
    2. Relationship between exceptions in Sec.  226.55(b) and notice 
requirements in Sec.  226.9. Nothing in Sec.  226.55 alters the 
requirements in Sec.  226.9(c) and (g) that creditors provide 
written notice at least 45 days prior to the effective date of 
certain increases in annual percentage rates, fees, and charges.
    i. 14-day rule in Sec.  226.55(b)(3)(ii). Although Sec.  
226.55(b)(3)(ii) permits a card issuer that discloses an increased 
rate pursuant to Sec.  226.9(c) or (g) to apply that rate to 
transactions that occur more than 14 days after provision of the 
notice, the card issuer cannot begin to accrue interest at the 
increased rate until that increase goes into effect, consistent with 
Sec.  226.9(c) or (g). For example, if on May 1 a card issuer 
provides

[[Page 7907]]

a notice pursuant to Sec.  226.9(c) stating that a rate will 
increase from 15% to 18% on June 15, Sec.  226.55(b)(3)(ii) permits 
the card issuer to apply the 18% rate to transactions that occur on 
or after May 16. However, neither Sec.  226.55 nor Sec.  226.9(c) 
permits the card issuer to begin accruing interest at the 18% rate 
on those transactions until June 15. See additional examples in 
comment 55(b)(3)-4.
    ii. Mid-cycle increases; application of balance computation 
methods. Once an increased rate has gone into effect, the card 
issuer cannot calculate interest charges based on that increased 
rate for days prior to the effective date. Assume that, in the 
example in paragraph i. above, the billing cycles for the account 
begin on the first day of the month and end on the last day of the 
month. If, for example, the card issuer uses the average daily 
balance computation method, it cannot apply the 18% rate to the 
average daily balance for the entire June billing cycle because that 
rate did not become effective until June 15. However, the card 
issuer could apply the 15% rate to the average daily balance from 
June 1 through June 14 and the 18% rate to the average daily balance 
from June 15 through June 30. Similarly, if the card issuer that 
uses the daily balance computation method, it could apply the 15% 
rate to the daily balance for each day from June 1 through June 14 
and the 18% rate to the daily balance for each day from June 15 
through June 30.
    iii. Mid-cycle increases; delayed implementation of increase. If 
Sec.  226.55(b) and Sec.  226.9(b), (c), or (g) permit a card issuer 
to apply an increased annual percentage rate, fee, or charge on a 
date that is not the first day of a billing cycle, the card issuer 
may delay application of the increased rate, fee, or charge until 
the first day of the following billing cycle without relinquishing 
the ability to apply that rate, fee, or charge. Thus, in the example 
in paragraphs i. and ii. above, the card issuer could delay 
application of the 18% rate until the start of the next billing 
cycle (April 1) without relinquishing its ability to apply that rate 
under Sec.  226.55(b)(3). Similarly, assume that, at account opening 
on January 1, a card issuer discloses that a non-variable annual 
percentage rate of 10% will apply to purchases for six months and a 
non-variable rate of 15% will apply thereafter. The first day of 
each billing cycle for the account is the fifteenth of the month. If 
the six-month period expires on July 1, the card issuer may delay 
application of the 15% rate until the start of the next billing 
cycle (July 15) without relinquishing its ability to apply that rate 
under Sec.  226.55(b)(1).
    3. Application of a lower rate, fee, or charge. Nothing in Sec.  
226.55 prohibits a card issuer from lowering an annual percentage 
rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). However, a card issuer 
that does so cannot subsequently increase the rate, fee, or charge 
unless permitted by one of the exceptions in Sec.  226.55(b). The 
following examples illustrate the application of the rule:
    i. Application of lower rate during first year. Assume that a 
card issuer discloses at account opening on January 1 of year one 
that a non-variable annual percentage rate of 15% will apply to 
purchases. The card issuer also discloses that, to the extent 
consistent with Sec.  226.55 and other applicable law, a non-
variable penalty rate of 30% may apply if the consumer's required 
minimum periodic payment is received after the payment due date, 
which is the tenth of the month. The required minimum periodic 
payments are applied to accrued interest and fees but do not reduce 
the purchase balance.
    A. Temporary rate returns to standard rate at expiration. On 
September 30 of year one, the account has a purchase balance of 
$1,400 at the 15% rate. On October 1, the card issuer provides a 
notice pursuant to Sec.  226.9(c) informing the consumer that the 
rate for new purchases will decrease to a non-variable rate of 5% 
for six months (from October 1 through March 31 of year two) and 
that, beginning on April 1 of year two, the rate for purchases will 
increase to the 15% non-variable rate disclosed at account opening. 
The card issuer does not apply the 5% rate to the $1,400 purchase 
balance. On October 14 of year one, the consumer makes a $300 
purchase at the 5% rate. On January 15 of year two, the consumer 
makes a $150 purchase at the 5% rate. On April 1 of year two, the 
card issuer may begin accruing interest on the $300 purchase and the 
$150 purchase at 15% as disclosed in the Sec.  226.9(c) notice 
(pursuant to Sec.  226.55(b)(1)).
    B. Penalty rate increase. Same facts as above except that the 
required minimum periodic payment due on November 10 of year one is 
not received until November 15. Section 226.55 does not permit the 
card issuer to increase any annual percentage rate on the account at 
this time. The card issuer may apply the 30% penalty rate to new 
transactions beginning on April 1 of year two pursuant to Sec.  
226.55(b)(3) by providing a Sec.  226.9(g) notice informing the 
consumer of this increase no later than February 14 of year two. The 
card issuer may not, however, apply the 30% penalty rate to the 
$1,400 purchase balance as of September 30 of year one, the $300 
purchase on October 15 of year one, or the $150 purchase on January 
15 of year two.
    ii. Application of lower rate at end of first year. Assume that, 
at account opening on January 1 of year one, a card issuer discloses 
that a non-variable annual percentage rate of 15% will apply to 
purchases for one year and discloses that, after the first year, the 
card issuer will apply a variable rate that is currently 20% and is 
determined by adding a margin of 10 percentage points to a publicly-
available index not under the card issuer's control. On December 31 
of year one, the account has a purchase balance of $3,000.
    A. Notice of extension of existing temporary rate provided 
consistent with Sec.  226.55(b)(1)(i). On December 15 of year one, 
the card issuer provides a notice pursuant to Sec.  226.9(c) 
informing the consumer that the existing 15% rate will continue to 
apply until July 1 of year two. The notice further states that, on 
July 1 of year two, the variable rate disclosed at account opening 
will apply. On July 1 of year two, Sec.  226.55(b)(1) permits the 
card issuer to apply that variable rate to any remaining portion of 
the $3,000 balance and to new transactions.
    B. Notice of new temporary rate provided consistent with Sec.  
226.55(b)(1)(i). On December 15 of year one, the card issuer 
provides a notice pursuant to Sec.  226.9(c) informing the consumer 
of a new variable rate that will apply on January 1 of year two that 
is lower than the variable rate disclosed at account opening. The 
new variable rate is calculated using the same index and a reduced 
margin of 8 percentage points. The notice further states that, on 
July 1 of year two, the margin will increase to the margin disclosed 
at account opening (10 percentage points). On July 1 of year two, 
Sec.  226.55(b)(1) permits the card issuer to increase the margin 
used to determine the variable rate that applies to new purchases to 
10 percentage points and to apply that rate to any remaining portion 
of the $3,000 purchase balance.
    C. No notice provided. Same facts as in paragraph ii.B. above 
except that the card issuer does not send a notice on December 15 of 
year one. Instead, on January 1 of year two, the card issuer lowers 
the margin used to determine the variable rate to 8 percentage 
points and applies that rate to the $3,000 purchase balance and to 
new purchases. Section 226.9 does not require advance notice in 
these circumstances. However, unless the account becomes more than 
60 days' delinquent, Sec.  226.55 does not permit the card issuer to 
subsequently increase the rate that applies to the $3,000 purchase 
balance except due to increases in the index (pursuant to Sec.  
226.55(b)(2)).
    iii. Application of lower rate after first year. Assume that a 
card issuer discloses at account opening on January 1 of year one 
that a non-variable annual percentage rate of 10% will apply to 
purchases for one year, after which that rate will increase to a 
non-variable rate of 15%. The card issuer also discloses that, to 
the extent consistent with Sec.  226.55 and other applicable law, a 
non-variable penalty rate of 30% may apply if the consumer's 
required minimum periodic payment is received after the payment due 
date, which is the tenth of the month. The required minimum periodic 
payments are applied to accrued interest and fees but do not reduce 
the purchase balance.
    A. Effect of 14-day period. On June 30 of year two, the account 
has a purchase balance of $1,000 at the 15% rate. On July 1, the 
card issuer provides a notice pursuant to Sec.  226.9(c) informing 
the consumer that the rate for new purchases will decrease to a non-
variable rate of 5% for six months (from July 1 through December 31 
of year two) and that, beginning on January 1 of year three, the 
rate for purchases will increase to a non-variable rate of 17%. On 
July 15 of year two, the consumer makes a $200 purchase. On July 16, 
the consumer makes a $100 purchase. On January 1 of year three, the 
card issuer may begin accruing interest on the $100 purchase at 17% 
(pursuant to Sec.  226.55(b)(1)). However, Sec.  226.55(b)(1)(ii)(B) 
does not permit the card issuer to apply the 17% rate to the $200 
purchase because that transaction occurred within 14 days after 
provision of the Sec.  226.9(c) notice. Instead, the card issuer may 
apply the 15% rate that applied to purchases prior to provision of 
the Sec.  226.9(c) notice. In addition, if the card issuer applied 
the 5% rate to the $1,000 purchase balance, Sec.  226.55(b)(ii)(A) 
would

[[Page 7908]]

not permit the card issuer to increase the rate that applies to that 
balance on January 1 of year three to a rate that is higher than 15% 
that previously applied to the balance.
    B. Penalty rate increase. Same facts as above except that the 
required minimum periodic payment due on August 25 is received on 
August 30. At this time, Sec.  226.55 does not permit the card 
issuer to increase the annual percentage rates that apply to the 
$1,000 purchase balance, the $200 purchase, or the $100 purchase. 
Instead, those rates can only be increased as discussed in paragraph 
iii.A. above. However, if the card issuer provides a notice pursuant 
to Sec.  226.9(c) or (g) on September 1, Sec.  226.55(b)(3) permits 
the card issuer to apply an increased rate (such as the 17% purchase 
rate or the 30% penalty rate) to transactions that occur on or after 
September 16 beginning on October 16.
    4. Date on which transaction occurred. When a transaction 
occurred for purposes of Sec.  226.55 is generally determined by the 
date of the transaction. However, if a transaction that occurred 
within 14 days after provision of a Sec.  226.9(c) or (g) notice is 
not charged to the account prior to the effective date of the change 
or increase, the card issuer may treat the transaction as occurring 
more than 14 days after provision of the notice for purposes of 
Sec.  226.55. See example in comment 55(b)(3)-4.iii.B. In addition, 
when a merchant places a ``hold'' on the available credit on an 
account for an estimated transaction amount because the actual 
transaction amount will not be known until a later date, the date of 
the transaction for purposes of Sec.  226.55 is the date on which 
the card issuer receives the actual transaction amount from the 
merchant. See example in comment 55(b)(3)-4.iii.A.
    5. Category of transactions. For purposes of Sec.  226.55, a 
``category of transactions'' is a type or group of transactions to 
which an annual percentage rate applies that is different than the 
annual percentage rate that applies to other transactions. 
Similarly, a type or group of transactions is a ``category of 
transactions'' for purposes of Sec.  226.55 if a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), 
or (b)(2)(xii) applies to those transactions that is different than 
the fee or charge that applies to other transactions. For example, 
purchase transactions, cash advance transactions, and balance 
transfer transactions are separate categories of transactions for 
purposes of Sec.  226.55 if a card issuer applies different annual 
percentage rates to each. Furthermore, if, for example, the card 
issuer applies different annual percentage rates to different types 
of purchase transactions (such as one rate for purchases of gasoline 
or purchases over $100 and a different rate for all other 
purchases), each type constitutes a separate category of 
transactions for purposes of Sec.  226.55.
    55(b)(1) Temporary rate exception.
    1. Relationship to Sec.  226.9(c)(2)(v)(B). A card issuer that 
has complied with the disclosure requirements in Sec.  
226.9(c)(2)(v)(B) has also complied with the disclosure requirements 
in Sec.  226.55(b)(1)(i).
    2. Period of six months or longer. A temporary annual percentage 
rate must apply to transactions for a specified period of six months 
or longer before a card issuer can increase that rate pursuant to 
Sec.  226.55(b)(1). The specified period must expire no less than 
six months after the date on which the creditor provides the 
consumer with the disclosures required by Sec.  226.55(b)(1)(i) or, 
if later, the date on which the account can be used for transactions 
to which the temporary rate applies. Section 226.55(b)(1) does not 
prohibit a card issuer from limiting the application of a temporary 
annual percentage rate to a particular category of transactions 
(such as balance transfers or purchases over $100). However, in 
circumstances where the card issuer limits application of the 
temporary rate to a particular transaction, the specified period 
must expire no less than six months after the date on which that 
transaction occurred. The following examples illustrate the 
application of Sec.  226.55(b)(1):
    i. Assume that on January 1 a card issuer offers a consumer a 5% 
annual percentage rate on purchases made during the months of 
January through June. A 15% rate will apply thereafter. On February 
15, a $500 purchase is charged to the account. On June 15, a $200 
purchase is charged to the account. On July 1, the card issuer may 
begin accruing interest at the 15% rate on the $500 purchase and the 
$200 purchase (pursuant to Sec.  226.55(b)(1)).
    ii. Same facts as above except that on January 1 the card issuer 
offered the 5% rate on purchases beginning in the month of February. 
Section 226.55(b)(1) would not permit the card issuer to begin 
accruing interest at the 15% rate on the $500 purchase and the $200 
purchase until August 1.
    iii. Assume that on October 31 of year one the annual percentage 
rate for purchases is 17%. On November 1, the card issuer offers the 
consumer a 0% rate for six months on purchases made during the 
months of November and December. The 17% rate will apply thereafter. 
On November 15, a $500 purchase is charged to the account. On 
December 15, a $300 purchase is charged to the account. On January 
15 of year two, a $150 purchase is charged to the account. Section 
226.55(b)(1) would not permit the card issuer to begin accruing 
interest at the 17% rate on the $500 purchase and the $300 purchase 
until May 1 of year two. However, the card issuer may accrue 
interest at the 17% rate on the $150 purchase beginning on January 
15 of year two.
    iv. Assume that on June 1 of year one a card issuer offers a 
consumer a 0% annual percentage rate for six months on the purchase 
of an appliance. An 18% rate will apply thereafter. On September 1, 
a $5,000 transaction is charged to the account for the purchase of 
an appliance. Section 226.55(b)(1) would not permit the card issuer 
to begin accruing interest at the 18% rate on the $5,000 transaction 
until March 1 of year two.
    v. Assume that on May 31 of year one the annual percentage rate 
for purchases is 15%. On June 1, the card issuer offers the consumer 
a 5% rate for six months on a balance transfer of at least $1,000. 
The 15% rate will apply thereafter. On June 15, a $3,000 balance is 
transferred to the account. On July 15, a $200 purchase is charged 
to the account. Section 226.55(b)(1) would not permit the card 
issuer to begin accruing interest at the 15% rate on the $3,000 
transferred balance until December 15. However, the card issuer may 
accrue interest at the 15% rate on the $200 purchase beginning on 
July 15.
    vi. Same facts as in paragraph v. above except that the card 
issuer offers the 5% rate for six months on all balance transfers of 
at least $1,000 during the month of June and a $2,000 balance is 
transferred to the account on June 30 (in addition to the $3,000 
balance transfer on June 15). Because the 5% rate is not limited to 
a particular transaction, Sec.  226.55(b)(1) permits the card issuer 
to begin accruing interest on the $3,000 and $2,000 transferred 
balances on December 1.
    3. Deferred interest and similar promotional programs.
    i. Application of Sec.  226.55. The general prohibition in Sec.  
226.55(a) applies to the imposition of accrued interest upon the 
expiration of a deferred interest or similar promotional program 
under which the consumer is not obligated to pay interest that 
accrues on a balance if that balance is paid in full prior to the 
expiration of a specified period of time. However, the exception in 
Sec.  226.55(b)(1) also applies to these programs, provided that the 
specified period is six months or longer and that, prior to the 
commencement of the period, the card issuer discloses the length of 
the period and the rate at which interest will accrue on the balance 
subject to the deferred interest or similar program if that balance 
is not paid in full prior to expiration of the period. See comment 
9(c)(2)(v)-9. For purposes of Sec.  226.55, ``deferred interest'' 
has the same meaning as in Sec.  226.16(h)(2) and associated 
commentary.
    ii. Examples.
    A. Deferred interest offer at account opening. Assume that, at 
account opening on January 1 of year one, the card issuer discloses 
the following with respect to a deferred interest program: ``No 
interest on purchases made in January of year one if paid in full by 
December 31 of year one. If the balance is not paid in full by that 
date, interest will be imposed from the transaction date at a rate 
of 20%.'' On January 15 of year one, the consumer makes a purchase 
of $2,000. No other transactions are made on the account. The terms 
of the deferred interest program require the consumer to make 
minimum periodic payments with respect to the deferred interest 
balance, and the payment due on April 1 is not received until April 
10. Section 226.55 does not permit the card issuer to charge to the 
account interest that has accrued on the $2,000 purchase at this 
time. Furthermore, if the consumer pays the $2,000 purchase in full 
on or before December 31 of year one, Sec.  226.55 does not permit 
the card issuer to charge to the account any interest that has 
accrued on that purchase. If, however, the $2,000 purchase has not 
been paid in full by January 1 of year two, Sec.  226.55(b)(1) 
permits the card issuer to charge to the account the interest 
accrued on that purchase at the 20% rate during year one (to the 
extent consistent with other applicable law).
    B. Deferred interest offer after account opening. Assume that a 
card issuer discloses

[[Page 7909]]

at account opening on January 1 of year one that the rate that 
applies to purchases is a variable annual percentage rate that is 
currently 18% and will be adjusted quarterly by adding a margin of 8 
percentage points to a publicly-available index not under the card 
issuer's control. The card issuer also discloses that, to the extent 
consistent with Sec.  226.55 and other applicable law, a non-
variable penalty rate of 30% may apply if the consumer's required 
minimum periodic payment is received after the payment due date, 
which is the first of the month. On June 30 of year two, the 
consumer uses the account for a $1,000 purchase in response to an 
offer of a deferred interest program. Under the terms of this 
program, interest on the purchase will accrue at the variable rate 
for purchases but the consumer will not be obligated to pay that 
interest if the purchase is paid in full by December 31 of year 
three. The terms of the deferred interest program require the 
consumer to make minimum periodic payments with respect to the 
deferred interest balance, and the payment due on September 1 of 
year two is not received until September 6. Section 226.55 does not 
permit the card issuer to charge to the account interest that has 
accrued on the $1,000 purchase at this time. Furthermore, if the 
consumer pays the $1,000 purchase in full on or before December 31 
of year three, Sec.  226.55 does not permit the card issuer to 
charge to the account any interest that has accrued on that 
purchase. On December 31 of year three, the $1,000 purchase has been 
paid in full. Under these circumstances, the card issuer may not 
charge any interest accrued on the $1,000 purchase.
    C. Application of Sec.  226.55(b)(4) to deferred interest 
programs. Same facts as in paragraph ii.B. above except that, on 
November 2 of year two, the card issuer has not received the 
required minimum periodic payments due on September 1, October 1, or 
November 1 of year two and sends a Sec.  226.9(c) or (g) notice 
stating that interest accrued on the $1,000 purchase since June 30 
of year two will be charged to the account on December 17 of year 
two and thereafter interest will be charged on the $1,000 purchase 
consistent with the variable rate for purchases. On December 17 of 
year two, Sec.  226.55(b)(4) permits the card issuer to charge to 
the account interest accrued on the $1,000 purchase since June 30 of 
year two and Sec.  226.55(b)(3) permits the card issuer to begin 
charging interest on the $1,000 purchase consistent with the 
variable rate for purchases. However, if the card issuer receives 
the required minimum periodic payments due on January 1, February 1, 
March 1, April 1, May 1, and June 1 of year three, Sec.  
226.55(b)(4)(ii) requires the card issuer to cease charging the 
account for interest on the $1,000 purchase no later than the first 
day of the next billing cycle. See comment 55(b)(4)-3.iii. However, 
Sec.  226.55(b)(4)(ii) does not require the card issuer to waive or 
credit the account for interest accrued on the $1,000 purchase since 
June 30 of year two. If the $1,000 purchase is paid in full on 
December 31 of year three, the card issuer is not permitted to 
charge to the account interest accrued on the $1,000 purchase after 
June 1 of year three.
    4. Contingent or discretionary rate increases. Section Sec.  
226.55(b)(1) permits a card issuer to increase a temporary annual 
percentage rate upon the expiration of a specified period of time. 
However, Sec.  226.55(b)(1) does not permit a card issuer to apply 
an increased rate that is contingent on a particular event or 
occurrence or that may be applied at the card issuer's discretion. 
The following examples illustrate rate increases that are not 
permitted by Sec.  226.55:
    i. Assume that a card issuer discloses at account opening on 
January 1 of year one that a non-variable annual percentage rate of 
15% applies to purchases but that all rates on an account may be 
increased to a non-variable penalty rate of 30% if a consumer's 
required minimum periodic payment is received after the payment due 
date, which is the fifteenth of the month. On March 1, the account 
has a $2,000 purchase balance. The payment due on March 15 is not 
received until March 20. Section 226.55 does not permit the card 
issuer to apply the 30% penalty rate to the $2,000 purchase balance. 
However, pursuant to Sec.  226.55(b)(3), the card issuer could 
provide a Sec.  226.9(c) or (g) notice on or before November 16 
informing the consumer that, on January 1 of year two, the 30% rate 
(or a different rate) will apply to new transactions.
    ii. Assume that a card issuer discloses at account opening on 
January 1 of year one that a non-variable annual percentage rate of 
5% applies to transferred balances but that this rate will increase 
to a non-variable rate of 18% if the consumer does not use the 
account for at least $200 in purchases each billing cycle. On July 
1, the consumer transfers a balance of $4,000 to the account. During 
the October billing cycle, the consumer uses the account for $150 in 
purchases. Section 226.55 does not permit the card issuer to apply 
the 18% rate to the $4,000 transferred balance or the $150 in 
purchases. However, pursuant to Sec.  226.55(b)(3), the card issuer 
could provide a Sec.  226.9(c) or (g) notice on or before November 
16 informing the consumer that, on January 1 of year two, the 18% 
rate (or a different rate) will apply to new transactions.
    55(b)(2) Variable rate exception.
    1. Increases due to increase in index. Section 226.55(b)(2) 
provides that an annual percentage rate that varies according to an 
index that is not under the card issuer's control and is available 
to the general public may be increased due to an increase in the 
index. This section does not permit a card issuer to increase the 
rate by changing the method used to determine a rate that varies 
with an index (such as by increasing the margin), even if that 
change will not result in an immediate increase. However, from time 
to time, a card issuer may change the day on which index values are 
measured to determine changes to the rate.
    2. Index not under card issuer's control. A card issuer may 
increase a variable annual percentage rate pursuant to Sec.  
226.55(b)(2) only if the increase is based on an index or indices 
outside the card issuer's control. For purposes of Sec.  
226.55(b)(2), an index is under the card issuer's control if:
    i. The index is the card issuer's own prime rate or cost of 
funds. A card issuer is permitted, however, to use a published prime 
rate, such as that in the Wall Street Journal, even if the card 
issuer's own prime rate is one of several rates used to establish 
the published rate.
    ii. The variable rate is subject to a fixed minimum rate or 
similar requirement that does not permit the variable rate to 
decrease consistent with reductions in the index. A card issuer is 
permitted, however, to establish a fixed maximum rate that does not 
permit the variable rate to increase consistent with increases in an 
index. For example, assume that, under the terms of an account, a 
variable rate will be adjusted monthly by adding a margin of 5 
percentage points to a publicly-available index. When the account is 
opened, the index is 10% and therefore the variable rate is 15%. If 
the terms of the account provide that the variable rate will not 
decrease below 15% even if the index decreases below 10%, the card 
issuer cannot increase that rate pursuant to Sec.  226.55(b)(2). 
However, Sec.  226.55(b)(2) does not prohibit the card issuer from 
providing in the terms of the account that the variable rate will 
not increase above a certain amount (such as 20%).
    iii. The variable rate can be calculated based on any index 
value during a period of time (such as the 90 days preceding the 
last day of a billing cycle). A card issuer is permitted, however, 
to provide in the terms of the account that the variable rate will 
be calculated based on the average index value during a specified 
period. In the alternative, the card issuer is permitted to provide 
in the terms of the account that the variable rate will be 
calculated based on the index value on a specific day (such as the 
last day of a billing cycle). For example, assume that the terms of 
an account provide that a variable rate will be adjusted at the 
beginning of each quarter by adding a margin of 7 percentage points 
to a publicly-available index. At account opening at the beginning 
of the first quarter, the variable rate is 17% (based on an index 
value of 10%). During the first quarter, the index varies between 
9.8% and 10.5% with an average value of 10.1%. On the last day of 
the first quarter, the index value is 10.2%. At the beginning of the 
second quarter, Sec.  226.55(b)(2) does not permit the card issuer 
to increase the variable rate to 17.5% based on the first quarter's 
maximum index value of 10.5%. However, if the terms of the account 
provide that the variable rate will be calculated based on the 
average index value during the prior quarter, Sec.  226.55(b)(2) 
permits the card issuer to increase the variable rate to 17.1% 
(based on the average index value of 10.1% during the first 
quarter). In the alternative, if the terms of the account provide 
that the variable rate will be calculated based on the index value 
on the last day of the prior quarter, Sec.  226.55(b)(2) permits the 
card issuer to increase the variable rate to 17.2% (based on the 
index value of 10.2% on the last day of the first quarter).
    3. Publicly available. The index or indices must be available to 
the public. A publicly-available index need not be published in a 
newspaper, but it must be one the consumer

[[Page 7910]]

can independently obtain (by telephone, for example) and use to 
verify the annual percentage rate applied to the account.
    4. Changing a non-variable rate to a variable rate. Section 
226.55 generally prohibits a card issuer from changing a non-
variable annual percentage rate to a variable annual percentage rate 
because such a change can result in an increase. However, a card 
issuer may change a non-variable rate to a variable rate to the 
extent permitted by one of the exceptions in Sec.  226.55(b). For 
example, Sec.  226.55(b)(1) permits a card issuer to change a non-
variable rate to a variable rate upon expiration of a specified 
period of time. Similarly, following the first year after the 
account is opened, Sec.  226.55(b)(3) permits a card issuer to 
change a non-variable rate to a variable rate with respect to new 
transactions (after complying with the notice requirements in Sec.  
226.9(b), (c) or (g)).
    5. Changing a variable rate to a non-variable rate. Nothing in 
Sec.  226.55 prohibits a card issuer from changing a variable annual 
percentage rate to an equal or lower non-variable rate. Whether the 
non-variable rate is equal to or lower than the variable rate is 
determined at the time the card issuer provides the notice required 
by Sec.  226.9(c). For example, assume that on March 1 a variable 
annual percentage rate that is currently 15% applies to a balance of 
$2,000 and the card issuer sends a notice pursuant to Sec.  226.9(c) 
informing the consumer that the variable rate will be converted to a 
non-variable rate of 14% effective April 15. On April 15, the card 
issuer may apply the 14% non-variable rate to the $2,000 balance and 
to new transactions even if the variable rate on March 2 or a later 
date was less than 14%.
    6. Substitution of index. A card issuer may change the index and 
margin used to determine the annual percentage rate under Sec.  
226.55(b)(2) if the original index becomes unavailable, as long as 
historical fluctuations in the original and replacement indices were 
substantially similar, and as long as the replacement index and 
margin will produce a rate similar to the rate that was in effect at 
the time the original index became unavailable. If the replacement 
index is newly established and therefore does not have any rate 
history, it may be used if it produces a rate substantially similar 
to the rate in effect when the original index became unavailable.
    55(b)(3) Advance notice exception.
    1. Relationship to Sec.  226.9(h). A card issuer may not 
increase a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to Sec.  
226.55(b)(3) if the consumer has rejected the increased fee or 
charge pursuant to Sec.  226.9(h).
    2. Notice provided pursuant to Sec.  226.9(b) and (c). If an 
increased annual percentage rate, fee, or charge is disclosed 
pursuant to both Sec.  226.9(b) and (c), that rate, fee, or charge 
may only be applied to transactions that occur more than 14 days 
after provision of the Sec.  226.9(c) notice as provided in Sec.  
226.55(b)(3)(ii).
    3. Account opening.
    i. Multiple accounts with same card issuer. When a consumer has 
a credit card account with a card issuer and the consumer opens a 
new credit card account with the same card issuer (or its affiliate 
or subsidiary), the opening of the new account constitutes the 
opening of a credit card account for purposes of Sec.  
226.55(b)(3)(iii) if, more than 30 days after the new account is 
opened, the consumer has the option to obtain additional extensions 
of credit on each account. For example, assume that, on January 1 of 
year one, a consumer opens a credit card account with a card issuer. 
On July 1 of year one, the consumer opens a second credit card 
account with that card issuer. On July 15, a $1,000 balance is 
transferred from the first account to the second account. The 
opening of the second account constitutes the opening of a credit 
card account for purposes of Sec.  226.55(b)(3)(iii) so long as, on 
August 1, the consumer has the option to engage in transactions 
using either account. Under these circumstances, the card issuer 
could not increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), 
or (b)(2)(xii) on the second account pursuant to Sec.  226.55(b)(3) 
until July 1 of year two (which is one year after the second account 
was opened).
    ii. Substitution, replacement or consolidation.
    A. Generally. A credit card account has not been opened for 
purposes of Sec.  226.55(b)(3)(iii) when a credit card account 
issued by a card issuer is substituted, replaced, or consolidated 
with another credit card account issued by the same card issuer (or 
its affiliate or subsidiary). Circumstances in which a credit card 
account has not been opened for purposes of Sec.  226.55(b)(3)(iii) 
include when:
    (1) A retail credit card account is replaced with a cobranded 
general purpose credit card account that can be used at a wider 
number of merchants;
    (2) A credit card account is replaced with another credit card 
account offering different features;
    (3) A credit card account is consolidated or combined with one 
or more other credit card accounts into a single credit card 
account; or
    (4) A credit card account acquired through merger or acquisition 
is replaced with a credit card account issued by the acquiring card 
issuer.
    B. Limitation. A card issuer that replaces or consolidates a 
credit card account with another credit card account issued by the 
card issuer (or its affiliate or subsidiary) may not increase an 
annual percentage rate or a fee or charge required to be disclosed 
under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) in a manner 
otherwise prohibited by Sec.  226.55. For example, assume that, on 
January 1 of year one, a consumer opens a credit card account with 
an annual percentage rate of 15% for purchases. On July 1 of year 
one, the account is replaced with a credit card account that offers 
different features (such as rewards on purchases). Under these 
circumstances, Sec.  226.55(b)(3)(iii) prohibits the card issuer 
from increasing the annual percentage rate for new purchases to a 
rate that is higher than 15% pursuant to Sec.  226.55(b)(3) until 
January 1 of year two (which is one year after the first account was 
opened).
    4. Examples.
    i. Change-in-terms rate increase; temporary rate increase; 14-
day period. Assume that an account is opened on January 1 of year 
one. On March 14 of year two, the account has a purchase balance of 
$2,000 at a non-variable annual percentage rate of 15%. On March 15, 
the card issuer provides a notice pursuant to Sec.  226.9(c) 
informing the consumer that the rate for new purchases will increase 
to a non-variable rate of 18% on May 1. The notice further states 
that the 18% rate will apply for six months (until November 1) and 
that thereafter the card issuer will apply a variable rate that is 
currently 22% and is determined by adding a margin of 12 percentage 
points to a publicly-available index that is not under the card 
issuer's control. The fourteenth day after provision of the notice 
is March 29 and, on that date, the consumer makes a $200 purchase. 
On March 30, the consumer makes a $1,000 purchase. On May 1, the 
card issuer may begin accruing interest at 18% on the $1,000 
purchase made on March 30 (pursuant to Sec.  226.55(b)(3)). Section 
226.55(b)(3)(ii) does not permit the card issuer to apply the 18% 
rate to the $2,200 purchase balance as of March 29 because that 
balance reflects transactions that occurred prior to or within 14 
days after the provision of the Sec.  226.9(c) notice. After six 
months (November 2), the card issuer may begin accruing interest on 
any remaining portion of the $1,000 purchase at the previously-
disclosed variable rate determined using the 12-point margin 
(pursuant to Sec.  226.55(b)(1) and (b)(3)).
    ii. Checks that access an account. Assume that a card issuer 
discloses at account opening on January 1 of year one that the 
annual percentage rate that applies to cash advances is a variable 
rate that is currently 24% and will be adjusted quarterly by adding 
a margin of 14 percentage points to a publicly available index not 
under the card issuer's control. On July 1 of year two, the card 
issuer provides checks that access the account and, pursuant to 
Sec.  226.9(b)(3)(i)(A), discloses that a promotional rate of 15% 
will apply to credit extended by use of the checks until January 1 
of year three, after which the cash advance rate determined using 
the 14-point margin will apply. On July 9 of year two, the consumer 
uses one of the checks to pay for a $500 transaction. Beginning on 
January 1 of year three, the card issuer may apply the cash advance 
rate determined using the 14-point margin to any remaining portion 
of the $500 transaction (pursuant to Sec.  226.55(b)(1) and (b)(3)).
    iii. Hold on available credit; 14-day period. Assume that an 
account is opened on January 1 of year one. On September 14 of year 
two, the account has a purchase balance of $2,000 at a non-variable 
annual percentage rate of 17%. On September 15, the card issuer 
provides a notice pursuant to Sec.  226.9(c) informing the consumer 
that the rate for new purchases will increase to a non-variable rate 
of 20% on October 30. The fourteenth day after provision of the 
notice is September 29. On September 28, the consumer uses the 
credit card to check into a hotel and the hotel obtains 
authorization for a $1,000 hold on the account to ensure there is 
adequate available credit to cover the anticipated cost of the stay.
    A. The consumer checks out of the hotel on October 2. The actual 
cost of the stay is

[[Page 7911]]

$1,100 because of additional incidental costs. On October 2, the 
hotel charges the $1,100 transaction to the account. For purposes of 
Sec.  226.55(b)(3), the transaction occurred on October 2. 
Therefore, on October 30, Sec.  226.55(b)(3) permits the card issuer 
to apply the 20% rate to new purchases and to the $1,100 
transaction. However, Sec.  226.55(b)(3)(ii) does not permit the 
card issuer to apply the 20% rate to any remaining portion of the 
$2,000 purchase balance.
    B. Same facts as above except that the consumer checks out of 
the hotel on September 29. The actual cost of the stay is $250, but 
the hotel does not charge this amount to the account until November 
1. For purposes of Sec.  226.55(b)(3), the card issuer may treat the 
transaction as occurring more than 14 days after provision of the 
Sec.  226.9(c) notice (i.e., after September 29). Accordingly, the 
card issuer may apply the 20% rate to the $250 transaction.
    5. Application of increased fees and charges. See comment 
55(c)(1)-3.
    55(b)(4) Delinquency exception.
    1. Receipt of required minimum periodic payment within 60 days 
of due date. Section 226.55(b)(4) applies when a card issuer has not 
received the consumer's required minimum periodic payment within 60 
days after the due date for that payment. In order to satisfy this 
condition, a card issuer that requires monthly minimum payments 
generally must not have received two consecutive required minimum 
periodic payments. Whether a required minimum periodic payment has 
been received for purposes of Sec.  226.55(b)(4) depends on whether 
the amount received is equal to or more than the first outstanding 
required minimum periodic payment. For example, assume that the 
required minimum periodic payments for a credit card account are due 
on the fifteenth day of the month. On May 13, the card issuer has 
not received the $50 required minimum periodic payment due on March 
15 or the $150 required minimum periodic payment due on April 15. 
The sixtieth day after the March 15 payment due date is May 14. If 
the card issuer receives a $50 payment on May 14, Sec.  226.55(b)(4) 
does not apply because the payment is equal to the required minimum 
periodic payment due on March 15 and therefore the account is not 
more than 60 days delinquent. However, if the card issuer instead 
received a $40 payment on May 14, Sec.  226.55(b)(4) would apply 
beginning on May 15 because the payment is less than the required 
minimum periodic payment due on March 15. Furthermore, if the card 
issuer received the $50 payment on May 15, Sec.  226.55(b)(4) would 
apply because the card issuer did not receive the required minimum 
periodic payment due on March 15 within 60 days after the due date 
for that payment.
    2. Relationship to Sec.  226.9(g)(3)(i)(B). A card issuer that 
has complied with the disclosure requirements in Sec.  
226.9(g)(3)(i)(B) has also complied with the disclosure requirements 
in Sec.  226.55(b)(4)(i).
    3. Reduction in rate pursuant to Sec.  226.55(b)(4)(ii). Section 
226.55(b)(4)(ii) provides that, if the card issuer receives six 
consecutive required minimum periodic payments on or before the 
payment due date beginning with the first payment due following the 
effective date of the increase, the card issuer must reduce any 
annual percentage rate, fee, or charge increased pursuant to Sec.  
226.55(b)(4) to the annual percentage rate, fee, or charge that 
applied prior to the increase with respect to transactions that 
occurred prior to or within 14 days after provision of the Sec.  
226.9(c) or (g) notice.
    i. Six consecutive payments immediately following effective date 
of increase. Section 226.55(b)(4)(ii) does not apply if the card 
issuer does not receive six consecutive required minimum periodic 
payments on or before the payment due date beginning with the 
payment due immediately following the effective date of the 
increase, even if, at some later point in time, the card issuer 
receives six consecutive required minimum periodic payments on or 
before the payment due date.
    ii. Rate, fee, or charge that does not exceed rate, fee, or 
charge that applied before increase. Although Sec.  226.55(b)(4)(ii) 
requires the card issuer to reduce an annual percentage rate, fee, 
or charge increased pursuant to Sec.  226.55(b)(4) to the annual 
percentage rate, fee, or charge that applied prior to the increase, 
this provision does not prohibit the card issuer from applying an 
increased annual percentage rate, fee, or charge consistent with any 
of the other exceptions in Sec.  226.55(b). For example, if a 
temporary rate applied prior to the Sec.  226.55(b)(4) increase and 
the temporary rate expired before a reduction in rate pursuant to 
Sec.  226.55(b)(4)(ii), the card issuer may apply an increased rate 
to the extent consistent with Sec.  226.55(b)(1). Similarly, if a 
variable rate applied prior to the Sec.  226.55(b)(4) increase, the 
card issuer may apply any increase in that variable rate to the 
extent consistent with Sec.  226.55(b)(2).
    iii. Delayed implementation of reduction. If Sec.  
226.55(b)(4)(ii) requires a card issuer to reduce an annual 
percentage rate, fee, or charge on a date that is not the first day 
of a billing cycle, the card issuer may delay application of the 
reduced rate, fee, or charge until the first day of the following 
billing cycle.
    iv. Examples. The following examples illustrate the application 
of Sec.  226.55(b)(4)(ii):
    A. Assume that the billing cycles for an account begin on the 
first day of the month and end on the last day of the month and that 
the required minimum periodic payments are due on the fifteenth day 
of the month. Assume also that the account has a $5,000 purchase 
balance to which a non-variable annual percentage rate of 15% 
applies. On May 16 of year one, the card issuer has not received the 
required minimum periodic payments due on the fifteenth day of 
March, April, or May and sends a Sec.  226.9(c) or (g) notice 
stating that the annual percentage rate applicable to the $5,000 
balance and to new transactions will increase to 28% effective July 
1. On July 1, Sec.  226.55(b)(4) permits the card issuer to apply 
the 28% rate to the $5,000 balance and to new transactions. The card 
issuer receives the required minimum periodic payments due on the 
fifteenth day of July, August, September, October, November, and 
December. On January 1 of year two, Sec.  226.55(b)(4)(ii) requires 
the card issuer to reduce the rate that applies to any remaining 
portion of the $5,000 balance to 15%. The card issuer is not 
required to reduce the rate that applies to any transactions that 
occurred on or after May 31 (which is the fifteenth day after 
provision of the Sec.  226.9(c) or (g) notice).
    B. Same facts as paragraph iv.A. above except that the 15% rate 
that applied to the $5,000 balance prior to the Sec.  226.55(b)(4) 
increase was scheduled to increase to 20% on August 1 of year one 
(pursuant to Sec.  226.55(b)(1)). On January 1 of year two, Sec.  
226.55(b)(4)(ii) requires the card issuer to reduce the rate that 
applies to any remaining portion of the $5,000 balance to 20%.
    C. Same facts as paragraph iv.A. above except that the 15% rate 
that applied to the $5,000 balance prior to the Sec.  226.55(b)(4) 
increase was scheduled to increase to 20% on March 1 of year two 
(pursuant to Sec.  226.55(b)(1)). On January 1 of year two, Sec.  
226.55(b)(4)(ii) requires the card issuer to reduce the rate that 
applies to any remaining portion of the $5,000 balance to 15%.
    D. Same facts as paragraph iv.A. above except that the 15% rate 
that applied to the $5,000 balance prior to the Sec.  226.55(b)(4) 
increase was a variable rate that was determined by adding a margin 
of 10 percentage points to a publicly-available index not under the 
card issuer's control (consistent with Sec.  226.55(b)(2)). On 
January 1 of year two, Sec.  226.55(b)(4)(ii) requires the card 
issuer to reduce the rate that applies to any remaining portion of 
the $5,000 balance to the variable rate determined using the 10-
point margin.
    E. For an example of the application of Sec.  226.55(b)(4)(ii) 
to deferred interest or similar programs, see comment 55(b)(1)-
3.ii.C.
    55(b)(5) Workout and temporary hardship arrangement exception.
    1. Scope of exception. Nothing in Sec.  226.55(b)(5) permits a 
card issuer to alter the requirements of Sec.  226.55 pursuant to a 
workout or temporary hardship arrangement. For example, a card 
issuer cannot increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), 
or (b)(2)(xii) pursuant to a workout or temporary hardship 
arrangement unless otherwise permitted by Sec.  226.55. In addition, 
a card issuer cannot require the consumer to make payments with 
respect to a protected balance that exceed the payments permitted 
under Sec.  226.55(c).
    2. Relationship to Sec.  226.9(c)(2)(v)(D). A card issuer that 
has complied with the disclosure requirements in Sec.  
226.9(c)(2)(v)(D) has also complied with the disclosure requirements 
in Sec.  226.55(b)(5)(i). See comment 9(c)(2)(v)-10. Thus, although 
the disclosures required by Sec.  226.55(b)(5)(i) must generally be 
provided in writing prior to commencement of the arrangement, a card 
issuer may comply with Sec.  226.55(b)(5)(i) by complying with Sec.  
226.9(c)(2)(v)(D), which states that the disclosure of the terms of 
the arrangement may be made orally by telephone, provided that the 
card issuer mails or delivers a written disclosure of the terms of 
the arrangement to the consumer as soon as reasonably practicable 
after the oral disclosure is provided.

[[Page 7912]]

    3. Rate, fee, or charge that does not exceed rate, fee, or 
charge that applied before workout or temporary hardship 
arrangement. Upon the completion or failure of a workout or 
temporary hardship arrangement, Sec.  226.55(b)(5)(ii) prohibits the 
card issuer from applying to any transactions that occurred prior to 
commencement of the arrangement an annual percentage rate, fee, or 
charge that exceeds the annual percentage rate, fee, or charge that 
applied to those transactions prior to commencement of the 
arrangement. However, this provision does not prohibit the card 
issuer from applying an increased annual percentage rate, fee, or 
charge upon completion or failure of the arrangement, to the extent 
consistent with any of the other exceptions in Sec.  226.55(b). For 
example, if a temporary rate applied prior to the arrangement and 
that rate expired during the arrangement, the card issuer may apply 
an increased rate upon completion or failure of the arrangement to 
the extent consistent with Sec.  226.55(b)(1). Similarly, if a 
variable rate applied prior to the arrangement, the card issuer may 
apply any increase in that variable rate upon completion or failure 
of the arrangement to the extent consistent with Sec.  226.55(b)(2).
    4. Examples.
    i. Assume that an account is subject to a $50 annual fee and 
that, consistent with Sec.  226.55(b)(4), the margin used to 
determine a variable annual percentage rate that applies to a $5,000 
balance is increased from 5 percentage points to 15 percentage 
points. Assume also that the card issuer and the consumer 
subsequently agree to a workout arrangement that reduces the annual 
fee to $0 and reduces the margin back to 5 points on the condition 
that the consumer pay a specified amount by the payment due date 
each month. If the consumer does not pay the agreed-upon amount by 
the payment due date, Sec.  226.55(b)(5) permits the card issuer to 
increase the annual fee to $50 and increase the margin for the 
variable rate that applies to the $5,000 balance up to 15 percentage 
points.
    ii. Assume that a consumer fails to make four consecutive 
monthly minimum payments totaling $480 on a consumer credit card 
account with a balance of $6,000 and that, consistent with Sec.  
226.55(b)(4), the annual percentage rate that applies to that 
balance is increased from a non-variable rate of 15% to a non-
variable penalty rate of 30%. Assume also that the card issuer and 
the consumer subsequently agree to a temporary hardship arrangement 
that reduces all rates on the account to 0% on the condition that 
the consumer pay an amount by the payment due date each month that 
is sufficient to cure the $480 delinquency within six months. If the 
consumer pays the agreed-upon amount by the payment due date during 
the six-month period and cures the delinquency, Sec.  226.55(b)(5) 
permits the card issuer to increase the rate that applies to any 
remaining portion of the $6,000 balance to 15% or any other rate up 
to the 30% penalty rate.
    55(b)(6) Servicemembers Civil Relief Act exception.
    1. Rate that does not exceed rate that applied before decrease. 
Once 50 U.S.C. app. 527 no longer applies, Sec.  226.55(b)(6) 
prohibits a card issuer from applying an annual percentage rate to 
any transactions that occurred prior to a decrease in rate pursuant 
to 50 U.S.C. app. 527 that exceeds the rate that applied to those 
transactions prior to the decrease. However, this provision does not 
prohibit the card issuer from applying an increased annual 
percentage rate once 50 U.S.C. app. 527 no longer applies, to the 
extent consistent with any of the other exceptions in Sec.  
226.55(b). For example, if a temporary rate applied prior to the 
decrease and that rate expired during the period that 50 U.S.C. app. 
527 applied to the account, the card issuer may apply an increased 
rate once 50 U.S.C. app. 527 no longer applies to the extent 
consistent with Sec.  226.55(b)(1). Similarly, if a variable rate 
applied prior to the decrease, the card issuer may apply any 
increase in that variable rate once 50 U.S.C. app. 527 no longer 
applies to the extent consistent with Sec.  226.55(b)(2).
    2. Example. Assume that on December 31 of year one the annual 
percentage rate that applies to a $5,000 balance on a credit card 
account is a variable rate that is determined by adding a margin of 
10 percentage points to a publicly-available index that is not under 
the card issuer's control. On January 1 of year two, the card issuer 
reduces the rate that applies to the $5,000 balance to a non-
variable rate of 6% pursuant to 50 U.S.C. app. 527. On January 1 of 
year three, 50 U.S.C. app. 527 ceases to apply and the card issuer 
provides a notice pursuant to Sec.  226.9(c) informing the consumer 
that on February 15 of year three the variable rate determined using 
the 10-point margin will apply to any remaining portion of the 
$5,000 balance. On February 15 of year three, Sec.  226.55(b)(6) 
permits the card issuer to begin accruing interest on any remaining 
portion of the $5,000 balance at the variable rate determined using 
the 10-point margin.
    55(c) Treatment of protected balances.
    55(c)(1) Definition of protected balance.
    1. Example of protected balance. Assume that, on March 15 of 
year two, an account has a purchase balance of $1,000 at a non-
variable annual percentage rate of 12% and that, on March 16, the 
card issuer sends a notice pursuant to Sec.  226.9(c) informing the 
consumer that the annual percentage rate for new purchases will 
increase to a non-variable rate of 15% on May 1. The fourteenth day 
after provision of the notice is March 29. On March 29, the consumer 
makes a $100 purchase. On March 30, the consumer makes a $150 
purchase. On May 1, Sec.  226.55(b)(3)(ii) permits the card issuer 
to begin accruing interest at 15% on the $150 purchase made on March 
30 but does not permit the card issuer to apply that 15% rate to the 
$1,100 purchase balance as of March 29. Accordingly, the protected 
balance for purposes of Sec.  226.55(c) is the $1,100 purchase 
balance as of March 29. The $150 purchase made on March 30 is not 
part of the protected balance.
    2. First year after account opening. Section 226.55(c) applies 
to amounts owed for a category of transactions to which an increased 
annual percentage rate or an increased fee or charge cannot be 
applied after the rate, fee, or charge for that category of 
transactions has been increased pursuant to Sec.  226.55(b)(3). 
Because Sec.  226.55(b)(3)(iii) does not permit a card issuer to 
increase an annual percentage rate or a fee or charge required to be 
disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
during the first year after account opening, Sec.  226.55(c) does 
not apply to balances during the first year after account opening.
    3. Increased fees and charges. Once an account has been open for 
more than one year, Sec.  226.55(b)(3) permits a card issuer to 
increase a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) after complying with 
the applicable notice requirements in Sec.  226.9(b) or (c), 
provided that the increased fee or charge is not applied to a 
protected balance. A card issuer is not prohibited from increasing a 
fee or charge that applies to the account as a whole or to balances 
other than the protected balance. For example, after the first year 
following account opening, a card issuer may add a new annual or a 
monthly maintenance fee to an account or increase such a fee so long 
as the fee is not based solely on the protected balance. However, if 
the consumer rejects an increase in a fee or charge pursuant to 
Sec.  226.9(h), the card issuer is prohibited from applying the 
increased fee or charge to the account and from imposing any other 
fee or charge solely as a result of the rejection. See Sec.  
226.9(h)(2)(i) and (ii); comment 9(h)(2)(ii)-2.
    55(c)(2) Repayment of protected balance.
    1. No less beneficial to the consumer. A card issuer may provide 
a method of repaying the protected balance that is different from 
the methods listed in Sec.  226.55(c)(2) so long as the method used 
is no less beneficial to the consumer than one of the listed 
methods. A method is no less beneficial to the consumer if the 
method results in a required minimum periodic payment that is equal 
to or less than a minimum payment calculated using the method for 
the account before the effective date of the increase. Similarly, a 
method is no less beneficial to the consumer if the method amortizes 
the balance in five years or longer or if the method results in a 
required minimum periodic payment that is equal to or less than a 
minimum payment calculated consistent with Sec.  226.55(c)(2)(iii). 
For example:
    i. If at account opening the cardholder agreement stated that 
the required minimum periodic payment would be either the total of 
fees and interest charges plus 1% of the total amount owed or $20 
(whichever is greater), the card issuer may require the consumer to 
make a minimum payment of $20 even if doing so would pay off the 
balance in less than five years or constitute more than 2% of the 
balance plus fees and interest charges.
    ii. A card issuer could increase the percentage of the balance 
included in the required minimum periodic payment from 2% to 5% so 
long as doing so would not result in amortization of the balance in 
less than five years.
    iii. A card issuer could require the consumer to make a required 
minimum periodic payment that amortizes the balance in four years so 
long as doing so would not more than double the percentage of the

[[Page 7913]]

balance included in the minimum payment prior to the date on which 
the increased annual percentage rate, fee, or charge became 
effective.
    55(c)(2)(ii) Five-year amortization period.
    1. Amortization period starting from effective date of increase. 
Section 226.55(c)(2)(ii) provides for an amortization period for the 
protected balance of no less than five years, starting from the date 
on which the increased annual percentage rate or fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), 
or (b)(2)(xii) became effective. A card issuer is not required to 
recalculate the required minimum periodic payment for the protected 
balance if, during the amortization period, that balance is reduced 
as a result of the allocation of payments by the consumer in excess 
of that minimum payment consistent with Sec.  226.53 or any other 
practice permitted by these rules and other applicable law.
    2. Amortization when applicable rate is variable. If the annual 
percentage rate that applies to the protected balance varies with an 
index, the card issuer may adjust the interest charges included in 
the required minimum periodic payment for that balance accordingly 
in order to ensure that the balance is amortized in five years. For 
example, assume that a variable rate that is currently 15% applies 
to a protected balance and that, in order to amortize that balance 
in five years, the required minimum periodic payment must include a 
specific amount of principal plus all accrued interest charges. If 
the 15% variable rate increases due to an increase in the index, the 
creditor may increase the required minimum periodic payment to 
include the additional interest charges.
    55(c)(2)(iii) Doubling repayment rate.
    1. Portion of required minimum periodic payment on other 
balances. Section 226.55(c)(2)(iii) addresses the portion of the 
required minimum periodic payment based on the protected balance. 
Section 226.55(c)(2)(iii) does not limit or otherwise address the 
card issuer's ability to determine the portion of the required 
minimum periodic payment based on other balances on the account or 
the card issuer's ability to apply that portion of the minimum 
payment to the balances on the account.
    2. Example. Assume that the method used by a card issuer to 
calculate the required minimum periodic payment for a credit card 
account requires the consumer to pay either the total of fees and 
accrued interest charges plus 2% of the total amount owed or $50, 
whichever is greater. Assume also that the account has a purchase 
balance of $2,000 at an annual percentage rate of 15% and a cash 
advance balance of $500 at an annual percentage rate of 20% and that 
the card issuer increases the rate for purchases to 18% but does not 
increase the rate for cash advances. Under Sec.  226.55(c)(2)(iii), 
the card issuer may require the consumer to pay fees and interest 
plus 4% of the $2,000 purchase balance. Section 226.55(c)(2)(iii) 
does not limit the card issuer's ability to increase the portion of 
the required minimum periodic payment that is based on the cash 
advance balance.
    55(d) Continuing application.
    1. Closed accounts. If a credit card account under an open-end 
(not home-secured) consumer credit plan with a balance is closed, 
Sec.  226.55 continues to apply to that balance. For example, if a 
card issuer or a consumer closes a credit card account with a 
balance, Sec.  226.55(d)(1) prohibits the card issuer from 
increasing the annual percentage rate that applies to that balance 
or imposing a periodic fee based solely on that balance that was not 
charged before the account was closed (such as a closed account fee) 
unless permitted by one of the exceptions in Sec.  226.55(b).
    2. Acquired accounts. If, through merger or acquisition (for 
example), a card issuer acquires a credit card account under an 
open-end (not home-secured) consumer credit plan with a balance, 
Sec.  226.55 continues to apply to that balance. For example, if a 
credit card account has a $1,000 purchase balance with an annual 
percentage rate of 15% and the card issuer that acquires that 
account applies an 18% rate to purchases, Sec.  226.55(d)(1) 
prohibits the card issuer from applying the 18% rate to the $1,000 
balance unless permitted by one of the exceptions in Sec.  
226.55(b).
    3. Balance transfers.
    i. Between accounts issued by the same creditor. If a balance is 
transferred from a credit card account under an open-end (not home-
secured) consumer credit plan issued by a creditor to another credit 
account issued by the same creditor or its affiliate or subsidiary, 
Sec.  226.55 continues to apply to that balance. For example, if a 
credit card account has a $2,000 purchase balance with an annual 
percentage rate of 15% and that balance is transferred to another 
credit card account issued by the same creditor that applies an 18% 
rate to purchases, Sec.  226.55(d)(2) prohibits the creditor from 
applying the 18% rate to the $2,000 balance unless permitted by one 
of the exceptions in Sec.  226.55(b). However, the creditor would 
not generally be prohibited from charging a new periodic fee (such 
as an annual fee) on the second account so long as the fee is not 
based solely on the $2,000 balance and the creditor has notified the 
consumer of the fee either by providing written notice 45 days 
before imposing the fee pursuant to Sec.  226.9(c) or by providing 
account-opening disclosures pursuant to Sec.  226.6(b). See also 
Sec.  226.55(b)(3)(iii); comment 55(b)(3)-3; comment 5(b)(1)(i)-6. 
Additional circumstances in which a balance is considered 
transferred for purposes of Sec.  226.55(d)(2) include when:
    A. A retail credit card account with a balance is replaced or 
substituted with a cobranded general purpose credit card account 
that can be used with a broader merchant base;
    B. A credit card account with a balance is replaced or 
substituted with another credit card account offering different 
features;
    C. A credit card account with a balance is consolidated or 
combined with one or more other credit card accounts into a single 
credit card account; and
    D. A credit card account is replaced or substituted with a line 
of credit that can be accessed solely by an account number.
    ii. Between accounts issued by different creditors. If a balance 
is transferred to a credit card account under an open-end (not home-
secured) consumer credit plan issued by a creditor from a credit 
card account issued by a different creditor or an institution that 
is not an affiliate or subsidiary of the creditor that issued the 
account to which the balance is transferred, Sec.  226.55(d)(2) does 
not prohibit the creditor to which the balance is transferred from 
applying its account terms to that balance, provided that those 
terms comply with this part. For example, if a credit card account 
issued by creditor A has a $1,000 purchase balance at an annual 
percentage rate of 15% and the consumer transfers that balance to a 
credit card account with a purchase rate of 17% issued by creditor 
B, creditor B may apply the 17% rate to the $1,000 balance. However, 
creditor B may not subsequently increase the rate on that balance 
unless permitted by one of the exceptions in Sec.  226.55(b).

Section 226.56--Requirements for Over-the-Limit Transactions

    56(b) Opt-in requirement.
    1. Policy and practice of declining over-the-limit transactions. 
Section 226.56(b)(1)(i)-(v), including the requirements to provide 
notice and obtain consumer consent, do not apply to any card issuer 
that has a policy and practice of declining to pay any over-the-
limit transactions for the consumer's credit card account when the 
card issuer has a reasonable belief that completing a transaction 
will cause the consumer to exceed the consumer's credit limit for 
that account. For example, if a card issuer only authorizes those 
transactions which, at the time of authorization, would not cause 
the consumer to exceed a credit limit, it is not subject to the 
requirement to provide consumers notice and an opportunity to 
affirmatively consent to the card issuer's payment of over-the-limit 
transactions. However, if an over-the-limit transaction is paid 
without the consumer providing affirmative consent, the card issuer 
may not charge a fee for paying the transaction.
    2. Over-the-limit transactions not required to be authorized or 
paid. Section 226.56 does not require a card issuer to authorize or 
pay an over-the-limit transaction even if the consumer has 
affirmatively consented to the card issuer's over-the-limit service.
    3. Examples of reasonable opportunity to provide affirmative 
consent. A card issuer provides a reasonable opportunity for the 
consumer to provide affirmative consent to the card issuer's payment 
of over-the-limit transactions when, among other things, it provides 
reasonable methods by which the consumer may affirmatively consent. 
A card issuer provides such reasonable methods if--
    i. On the application. The card issuer provides the notice on 
the application form that the consumer can fill out to request the 
service as part of the application;
    ii. By mail. The card issuer provides a form with the account-
opening disclosures or the periodic statement for the consumer to 
fill out and mail to affirmatively request the service;
    iii. By telephone. The card issuer provides a readily available 
telephone line that

[[Page 7914]]

consumers may call to provide affirmative consent.
    iv. By electronic means. The card issuer provides an electronic 
means for the consumer to affirmatively consent. For example, a card 
issuer could provide a form that can be accessed and processed at 
its Web site, where the consumer can check a box to opt in and 
confirm that choice by clicking on a button that affirms the 
consumer's consent.
    4. Separate consent required. A consumer's affirmative consent, 
or opt-in, to a card issuer's payment of over-the-limit transactions 
must be obtained separately from other consents or acknowledgments 
obtained by the card issuer. For example, a consumer's signature on 
a credit application to request a credit card would not by itself 
sufficiently evidence the consumer's consent to the card issuer's 
payment of over-the-limit transactions. However, a card issuer may 
obtain a consumer's affirmative consent by providing a blank 
signature line or a check box on the application that the consumer 
can sign or select to request the over-the-limit service, provided 
that the signature line or check box is used solely for purposes of 
evidencing the choice and not for any other purpose, such as to also 
obtain consumer consents for other account services or features or 
to receive disclosures electronically.
    5. Written confirmation. A card issuer may comply with the 
requirement in Sec.  226.56(b)(1)(iv) to provide written 
confirmation of the consumer's decision to affirmatively consent, or 
opt in, to the card issuer's payment of over-the-limit transactions 
by providing the consumer a copy of the consumer's completed opt-in 
form or by sending a letter or notice to the consumer acknowledging 
that the consumer has elected to opt into the card issuer's service. 
A card issuer may also satisfy the written confirmation requirement 
by providing the confirmation on the first periodic statement sent 
after the consumer has opted in. For example, a card issuer could 
provide a written notice consistent with Sec.  226.56(e)(2) on the 
periodic statement. A card issuer may not, however, assess any over-
the-limit fees or charges on the consumer's credit card account 
unless and until the card issuer has sent the written confirmation. 
Thus, if a card issuer elects to provide written confirmation on the 
first periodic statement after the consumer has opted in, it would 
not be permitted to assess any over-the-limit fees or charges until 
the next statement cycle.
    56(b)(2) Completion of over-the-limit transactions without 
consumer consent.
    1. Examples of over-the-limit transactions paid without consumer 
consent. Section 226.56(b)(2) provides that a card issuer may pay an 
over-the-limit transaction even if the consumer has not provided 
affirmative consent, so long as the card issuer does not impose a 
fee or charge for paying the transaction. The prohibition on 
imposing fees for paying an over-the-limit transaction applies even 
in circumstances where the card issuer is unable to avoid paying a 
transaction that exceeds the consumer's credit limit.
    i. Transactions not submitted for authorization. A consumer has 
not affirmatively consented to a card issuer's payment of over-the-
limit transactions. The consumer purchases a $3 cup of coffee using 
his credit card. Because of the small dollar amount of the 
transaction, the merchant does not submit the transaction to the 
card issuer for authorization. The transaction causes the consumer 
to exceed the credit limit. Under these circumstances, the card 
issuer is prohibited from imposing a fee or charge on the consumer's 
credit card account for paying the over-the-limit transaction 
because the consumer has not opted in to the card issuer's over-the-
limit service.
    ii. Settlement amount exceeds authorization amount. A consumer 
has not affirmatively consented to a card issuer's payment of over-
the-limit transactions. The consumer uses his credit card at a pay-
at-the-pump fuel dispenser to purchase $50 of fuel. Before 
permitting the consumer to use the fuel pump, the merchant verifies 
the validity of the card by requesting an authorization hold of $1. 
The subsequent $50 transaction amount causes the consumer to exceed 
his credit limit. Under these circumstances, the card issuer is 
prohibited from imposing a fee or charge on the consumer's credit 
card account for paying the over-the-limit transaction because the 
consumer has not opted in to the card issuer's over-the-limit 
service.
    iii. Intervening charges. A consumer has not affirmatively 
consented to a card issuer's payment of over-the-limit transactions. 
The consumer makes a $50 purchase using his credit card. However, 
before the $50 transaction is charged to the consumer's account, a 
separate recurring charge is posted to the account. The $50 purchase 
then causes the consumer to exceed his credit limit. Under these 
circumstances, the card issuer is prohibited from imposing a fee or 
charge on the consumer's credit card account for paying the over-
the-limit transaction because the consumer has not opted in to the 
card issuer's over-the-limit service.
    2. Permissible fees or charges when a consumer has not 
consented. Section 226.56(b)(2) does not preclude a card issuer from 
assessing fees or charges other than over-the-limit fees when an 
over-the-limit transaction is completed. For example, if a consumer 
has not opted in, the card issuer may assess a balance transfer fee 
in connection with a balance transfer, provided such a fee is 
assessed whether or not the transfer exceeds the credit limit. 
Section 226.56(b)(2) does not limit the card issuer's ability to 
debit the consumer's account for the amount of the over-the-limit 
transaction if the card issuer is permitted to do so under 
applicable law. The card issuer may also assess interest charges in 
connection with the over-the-limit transaction.
    56(c) Method of election.
    1. Card issuer-determined methods. A card issuer may determine 
the means available to consumers to affirmatively consent, or opt 
in, to the card issuer's payment of over-the-limit transactions. For 
example, a card issuer may decide to obtain consents in writing, 
electronically, or orally, or through some combination of these 
methods. Section 226.56(c) further requires, however, that such 
methods must be made equally available for consumers to revoke a 
prior consent. Thus, for example, if a card issuer allows a consumer 
to consent in writing or electronically, it must also allow the 
consumer to revoke that consent in writing or electronically.
    2. Electronic requests. A consumer consent or revocation request 
submitted electronically is not considered a consumer disclosure for 
purposes of the E-Sign Act.
    56(d) Timing and placement of notices.
    1. Contemporaneous notice for oral or electronic consent. Under 
Sec.  226.56(d)(1)(ii), if a card issuer seeks to obtain consent 
from the consumer orally or by electronic means, the card issuer 
must provide a notice containing the disclosures in Sec.  
226.56(e)(1) prior to and as part of the process of obtaining the 
consumer's consent.
    56(e) Content.
    1. Varying fee amounts. If the amount of an over-the-limit fee 
may vary, such as based on the amount of the over-the-limit 
transaction, the card issuer may indicate that the consumer may be 
assessed a fee ``up to'' the maximum fee.
    2. Notice content. In describing the consumer's right to 
affirmatively consent to a card issuer's payment of over-the-limit 
transactions, the card issuer may explain that any transactions that 
exceed the consumer's credit limit will be declined if the consumer 
does not consent to the service. In addition, the card issuer should 
explain that even if a consumer consents, the payment of over-the-
limit transactions is at the discretion of the card issuer. For 
example, the card issuer may indicate that it may decline a 
transaction for any reason, such as if the consumer is past due or 
significantly over the limit. The card issuer may also disclose the 
consumer's right to revoke consent.
    56(f) Joint relationships.
    1. Authorized users. Section 226.56(f) does not permit a card 
issuer to treat a request to opt in to or to revoke a prior request 
for the card issuer's payment of over-the-limit transactions from an 
authorized user that is not jointly liable on a credit card account 
as a consent or revocation request for that account.
    56(g) Continuing right to opt in or revoke opt-in.
    1. Fees or charges for over-the-limit transactions incurred 
prior to revocation. Section 226.56(g) provides that a consumer may 
revoke his or her prior consent at any time. If a consumer does so, 
this provision does not require the card issuer to waive or reverse 
any over-the-limit fees or charges assessed to the consumer's 
account for transactions that occurred prior to the card issuer's 
implementation of the consumer's revocation request. Nor does this 
requirement prevent the card issuer from assessing over-the-limit 
fees in subsequent cycles if the consumer's account balance 
continues to exceed the credit limit after the payment due date as a 
result of an over-the-limit transaction that occurred prior to the 
consumer's revocation of consent.
    56(h) Duration of opt-in.
    1. Card issuer ability to stop paying over-the-limit 
transactions after consumer consent. A card issuer may cease paying 
over-the-limit transactions for consumers that

[[Page 7915]]

have previously opted in at any time and for any reason. For 
example, a card issuer may stop paying over-the-limit transactions 
for a consumer to respond to changes in the credit risk presented by 
the consumer.
    56(j) Prohibited practices.
    1. Periodic fees or charges. A card issuer may charge an over-
the-limit fee or charge only if the consumer has exceeded the credit 
limit during the billing cycle. Thus, a card issuer may not impose 
any recurring or periodic fees for paying over-the-limit 
transactions (for example, a monthly ``over-the-limit protection'' 
service fee), even if the consumer has affirmatively consented to or 
opted in to the service, unless the consumer has in fact exceeded 
the credit limit during that cycle.
    2. Examples of limits on fees or charges imposed per billing 
cycle. Section 226.56(j)(1) generally prohibits a card issuer from 
assessing a fee or charge due to the same over-the-limit transaction 
for more than three billing cycles. The following examples 
illustrate the prohibition.
    i. Assume that a consumer has opted into a card issuer's payment 
of over-the-limit transactions. The consumer exceeds the credit 
limit during the December billing cycle and does not make sufficient 
payment to bring the account balance back under the limit for four 
consecutive cycles. The consumer does not engage in any additional 
transactions during this period. In this case, Sec.  226.56(j)(1) 
would permit the card issuer to charge a maximum of three over-the-
limit fees for the December over-the-limit transaction.
    ii. Assume the same facts as above except that the consumer 
makes sufficient payment to reduce his account balance by the 
payment due date during the February billing cycle. The card issuer 
may charge over-the-limit fees for the December and January billing 
cycles. However, because the consumer's account balance was below 
the credit limit by the payment due date for the February billing 
cycle, the card issuer may not charge an over-the-limit fee for the 
February billing cycle.
    iii. Assume the same facts as in paragraph i., except that the 
consumer engages in another over-the-limit transaction during the 
February billing cycle. Because the consumer has obtained an 
additional extension of credit which causes the consumer to exceed 
his credit limit, the card issuer may charge over-the-limit fees for 
the December transaction on the January, February and March billing 
statements, and additional over-the-limit fees for the February 
transaction on the April and May billing statements. The card issuer 
may not charge an over-the-limit fee for each of the December and 
the February transactions on the March billing statement because it 
is prohibited from imposing more than one over-the-limit fee during 
a billing cycle.
    3. Replenishment of credit line. Section 226.56(j)(2) does not 
prevent a card issuer from delaying replenishment of a consumer's 
available credit where appropriate, for example, where the card 
issuer may suspect fraud on the credit card account. However, a card 
issuer may not assess an over-the-limit fee or charge if the over-
the-limit transaction is caused by the card issuer's decision not to 
promptly replenish the available credit after the consumer's payment 
is credited to the consumer's account.
    4. Examples of conditioning. Section 226.56(j)(3) prohibits a 
card issuer from conditioning or otherwise tying the amount of a 
consumer's credit limit on the consumer affirmatively consenting to 
the card issuer's payment of over-the-limit transactions where the 
card issuer assesses an over-the-limit fee for the transaction. The 
following examples illustrate the prohibition.
    i. Amount of credit limit. Assume that a card issuer offers a 
credit card with a credit limit of $1,000. The consumer is informed 
that if the consumer opts in to the payment of the card issuer's 
payment of over-the-limit transactions, the initial credit limit 
would be increased to $1,300. If the card issuer would have offered 
the credit card with the $1,300 credit limit but for the fact that 
the consumer did not consent to the card issuer's payment of over-
the-limit transactions, the card issuer would not be in compliance 
with Sec.  226.56(j)(3). Section 226.56(j)(3) prohibits the card 
issuer from tying the consumer's opt-in to the card issuer's payment 
of over-the-limit transactions as a condition of obtaining the 
credit card with the $1,300 credit limit.
    ii. Access to credit. Assume the same facts as above, except 
that the card issuer declines the consumer's application altogether 
because the consumer has not affirmatively consented or opted in to 
the card issuer's payment of over-the-limit transactions. The card 
issuer is not in compliance with Sec.  226.56(j)(3) because the card 
issuer has required the consumer's consent as a condition of 
obtaining credit.
    5. Over-the-limit fees caused by accrued fees or interest. 
Section 226.56(j)(4) prohibits a card issuer from imposing any over-
the-limit fees or charges on a consumer's account if the consumer 
has exceeded the credit limit solely because charges imposed as part 
of the plan as described in Sec.  226.6(b)(3) were charged to the 
consumer's account during the billing cycle. For example, a card 
issuer may not assess an over-the-limit fee or charge even if the 
credit limit was exceeded due to fees for services requested by the 
consumer if such fees would constitute charges imposed as part of 
the plan (such as fees for voluntary debt cancellation or suspension 
coverage). Section 226.56(j)(4) does not, however, restrict card 
issuers from assessing over-the-limit fees or charges due to accrued 
finance charges or fees from prior cycles that have subsequently 
been added to the account balance. The following examples illustrate 
the prohibition.
    i. Assume that a consumer has opted in to a card issuer's 
payment of over-the-limit transactions. The consumer's account has a 
credit limit of $500. The billing cycles for the account begin on 
the first day of the month and end on the last day of the month. The 
account is not eligible for a grace period as defined in Sec.  
226.5(b)(2)(ii)(B)(3). On December 31, the only balance on the 
account is a purchase balance of $475. On that same date, $50 in 
fees charged as part of the plan under Sec.  226.6(b)(3)(i) and 
interest charges are imposed on the account, increasing the total 
balance at the end of the December billing cycle to $525. Although 
the total balance exceeds the $500 credit limit, Sec.  226.56(j)(4) 
prohibits the card issuer from imposing an over-the-limit fee or 
charge for the December billing cycle in these circumstances because 
the consumer's credit limit was exceeded solely because of the 
imposition of fees and interest charges during that cycle.
    ii. Same facts as above except that, on December 31, the only 
balance on the account is a purchase balance of $400. On that same 
date, $50 in fees imposed as part of the plan under Sec.  
226.6(b)(3)(i), including interest charges, are imposed on the 
account, increasing the total balance at the end of the December 
billing cycle to $450. The consumer makes a $25 payment by the 
January payment due date and the remaining $25 in fees imposed as 
part of the plan in December is added to the outstanding balance. On 
January 25, an $80 purchase is charged to the account. At the close 
of the cycle on January 31, an additional $20 in fees imposed as 
part of the plan are imposed on the account, increasing the total 
balance to $525. Because Sec.  226.56(j)(4) does not require the 
issuer to consider fees imposed as part of the plan for the prior 
cycle in determining whether an over-the-limit fee may be properly 
assessed for the current cycle, the issuer need not take into 
account the remaining $25 in fees and interest charges from the 
December cycle in determining whether fees imposed as part of the 
plan caused the consumer to exceed the credit limit during the 
January cycle. Thus, under these circumstances, Sec.  226.56(j)(4) 
does not prohibit the card issuer from imposing an over-the-limit 
fee or charge for the January billing cycle because the $20 in fees 
imposed as part of the plan for the January billing cycle did not 
cause the consumer to exceed the credit limit during that cycle.

Section 226.57--Reporting and Marketing Rules for College Student 
Open-End Credit

    57(a) Definitions.
    57(a)(1) College student credit card.
    1. Definition. The definition of college student credit card 
excludes home-equity lines of credit accessed by credit cards and 
overdraft lines of credit accessed by debit cards. A college student 
credit card includes a college affinity card within the meaning of 
TILA Section 127(r)(1)(A). In addition, a card may fall within the 
scope of the definition regardless of the fact that it is not 
intentionally targeted at or marketed to college students. For 
example, an agreement between a college and a card issuer may 
provide for marketing of credit cards to alumni, faculty, staff, and 
other non-student consumers who have a relationship with the 
college, but also contain provisions that contemplate the issuance 
of cards to students. A credit card issued to a student at the 
college in connection with such an agreement qualifies as a college 
student credit card.
    57(a)(5) College credit card agreement.
    1. Definition. Section 226.57(a)(5) defines ``college credit 
card agreement'' to include any business, marketing or promotional 
agreement between a card issuer and a

[[Page 7916]]

college or university (or an affiliated organization, such as an 
alumni club or a foundation) if the agreement provides for the 
issuance of credit cards to full-time or part-time students. 
Business, marketing or promotional agreements may include a broad 
range of arrangements between a card issuer and an institution of 
higher education or affiliated organization, including arrangements 
that do not meet the criteria to be considered college affinity card 
agreements as discussed in TILA Section 127(r)(1)(A). For example, 
TILA Section 127(r)(1)(A) specifies that under a college affinity 
card agreement, the card issuer has agreed to make a donation to the 
institution or affiliated organization, the card issuer has agreed 
to offer discounted terms to the consumer, or the credit card will 
display pictures, symbols, or words identified with the institution 
or affiliated organization; even if these conditions are not met, an 
agreement may qualify as a college credit card agreement, if the 
agreement is a business, marketing or promotional agreement that 
contemplates the issuance of college student credit cards to college 
students currently enrolled (either full-time or part-time) at the 
institution. An agreement may qualify as a college credit card 
agreement even if marketing of cards under the agreement is targeted 
at alumni, faculty, staff, and other non-student consumers, as long 
as cards may also be issued to students in connection with the 
agreement.
    57(b) Public disclosure of agreements.
    1. Public disclosure. Section 226.57(b) requires an institution 
of higher education to publicly disclose any contract or other 
agreement made with a card issuer or creditor for the purpose of 
marketing a credit card. Examples of publicly disclosing such 
contracts or agreements include, but are not limited to, posting 
such contracts or agreements on the institution's Web site or making 
such contracts or agreements available upon request, provided the 
procedures for requesting the documents are reasonable and free of 
cost to the requestor, and the requested contracts or agreements are 
provided within a reasonable time frame.
    2. Redaction prohibited. An institution of higher education must 
publicly disclose any contract or other agreement made with a card 
issuer for the purpose of marketing a credit card in its entirety 
and may not redact any portion of such contract or agreement. Any 
clause existing in such contracts or agreements, providing for the 
confidentiality of any portion of the contract or agreement, would 
be invalid to the extent it restricts the ability of the institution 
of higher education to publicly disclose the contract or agreement 
in its entirety.
    57(c) Prohibited inducements.
    1. Tangible item clarified. A tangible item includes any 
physical item, such as a gift card, a t-shirt, or a magazine 
subscription, that a card issuer or creditor offers to induce a 
college student to apply for or open an open-end consumer credit 
plan offered by such card issuer or creditor. Tangible items do not 
include non-physical inducements such as discounts, rewards points, 
or promotional credit terms.
    2. Inducement clarified. If a tangible item is offered to a 
person whether or not that person applies for or opens an open-end 
consumer credit plan, the tangible item has not been offered to 
induce the person to apply for or open the plan. For example, 
refreshments offered to a college student on campus that are not 
conditioned on whether the student has applied for or agreed to open 
an open-end consumer credit plan would not violate Sec.  226.57(c).
    3. Near campus clarified. A location that is within 1,000 feet 
of the border of the campus of an institution of higher education, 
as defined by the institution of higher education, is considered 
near the campus of an institution of higher education.
    4. Mailings included. The prohibition in Sec.  226.57(c) on 
offering a tangible item to a college student to induce such student 
to apply for or open an open-end consumer credit plan offered by 
such card issuer or creditor applies to any solicitation or 
application mailed to a college student at an address on or near the 
campus of an institution of higher education.
    5. Related event clarified. An event is related to an 
institution of higher education if the marketing of such event uses 
the name, emblem, mascot, or logo of an institution of higher 
education, or other words, pictures, symbols identified with an 
institution of higher education in a way that implies that the 
institution of higher education endorses or otherwise sponsors the 
event.
    6. Reasonable procedures for determining if applicant is a 
student. Section 226.57(c) applies solely to offering a tangible 
item to a college student. Therefore, a card issuer or creditor may 
offer any person who is not a college student a tangible item to 
induce such person to apply for or open an open-end consumer credit 
plan offered by such card issuer or creditor, on campus, near 
campus, or at an event sponsored by or related to an institution of 
higher education. The card issuer or creditor must have reasonable 
procedures for determining whether an applicant is a college student 
before giving the applicant the tangible item. For example, a card 
issuer or creditor may ask whether the applicant is a college 
student as part of the application process. The card issuer or 
creditor may rely on the representations made by the applicant.
    57(d) Annual report to the Board.
    57(d)(2) Contents of report.
    1. Memorandum of understanding. Section 226.57(d)(2) requires 
that the report to the Board include, among other items, a copy of 
any memorandum of understanding between the card issuer and the 
institution (or affiliated organization) that ``directly or 
indirectly relates to the college credit card agreement or that 
controls or directs any obligations or distribution of benefits 
between any such entities.'' Such a memorandum of understanding 
includes any document that amends the college credit card agreement, 
or that constitutes a further agreement between the parties as to 
the interpretation or administration of the agreement. For example, 
a memorandum of understanding required to be included in the report 
would include a document that provides details on the dollar amounts 
of payments from the card issuer to the university, to supplement 
the original agreement which only provided for payments in general 
terms (e.g., as a percentage). A memorandum of understanding for 
these purposes would not include email (or other) messages that 
merely discuss matters such as the addresses to which payments 
should be sent or the names of contact persons for carrying out the 
agreement.

Section 226.58--Internet Posting of Credit Card Agreements

    58(b) Definitions.
    58(b)(1) Agreement.
    1. Inclusion of pricing information. For purposes of this 
section, a credit card agreement is deemed to include certain 
information, such as annual percentage rates and fees, even if the 
issuer does not otherwise include this information in the basic 
credit contract. This information is listed under the defined term 
``pricing information'' in Sec.  226.58(b)(6). For example, the 
basic credit contract may not specify rates, fees and other 
information that constitutes pricing information as defined in Sec.  
226.58(b)(6); instead, such information may be provided to the 
cardholder in a separate document sent along with the card. However, 
this information nevertheless constitutes part of the agreement for 
purposes of Sec.  226.58.
    2. Provisions contained in separate documents included. A credit 
card agreement is defined as the written document or documents 
evidencing the terms of the legal obligation, or the prospective 
legal obligation, between a card issuer and a consumer for a credit 
card account under an open-end (not home-secured) consumer credit 
plan. An agreement therefore may consist of several documents that, 
taken together, define the legal obligation between the issuer and 
consumer. For example, provisions that mandate arbitration or allow 
an issuer to unilaterally alter the terms of the card issuer's or 
consumer's obligation are part of the agreement even if they are 
provided to the consumer in a document separate from the basic 
credit contract.
    58(b)(2) Amends.
    1. Substantive changes. A change to an agreement is substantive, 
and therefore is deemed an amendment of the agreement, if it alters 
the rights or obligations of the parties. Section 226.58(b)(2) 
provides that any change in the pricing information, as defined in 
Sec.  226.58(b)(6), is deemed to be substantive. Examples of other 
changes that generally would be considered substantive include: (i) 
Addition or deletion of a provision giving the issuer or consumer a 
right under the agreement, such as a clause that allows an issuer to 
unilaterally change the terms of an agreement; (ii) addition or 
deletion of a provision giving the issuer or consumer an obligation 
under the agreement, such as a clause requiring the consumer to pay 
an additional fee; (iii) changes that may affect the cost of credit 
to the consumer, such as changes in a provision describing how the 
minimum payment will be calculated; (iv) changes that may affect how 
the terms of the agreement are construed or applied, such as changes 
in a choice-of-law provision; and (v) changes that may affect the 
parties to whom the agreement may apply, such as provisions 
regarding authorized users or assignment of the agreement.

[[Page 7917]]

    2. Non-substantive changes. Changes that generally would not be 
considered substantive include, for example: (i) Correction of 
typographical errors that do not affect the meaning of any terms of 
the agreement; (ii) changes to the card issuer's corporate name, 
logo, or tagline; (iii) changes to the format of the agreement, such 
as conversion to a booklet from a full-sheet format, changes in 
font, or changes in margins; (iv) changes to the name of the credit 
card to which the program applies; (v) reordering sections of the 
agreement without affecting the meaning of any terms of the 
agreement; (vi) adding, removing, or modifying a table of contents 
or index; and (vii) changes to titles, headings, section numbers, or 
captions.
    58(b)(4) Offers.
    1. Cards offered to limited groups. A card issuer is deemed to 
offer a credit card agreement to the public even if the issuer 
solicits, or accepts applications from, only a limited group of 
persons. For example, a card issuer may market affinity cards to 
students and alumni of a particular educational institution, or may 
solicit only high-net-worth individuals for a particular card; in 
these cases, the agreement would be considered to be offered to the 
public. Similarly, agreements for credit cards issued by a credit 
union are considered to be offered to the public even though such 
cards are available only to credit union members.
    2. Individualized agreements. A card issuer is deemed to offer a 
credit card agreement to the public even if the terms of the 
agreement are changed immediately upon opening of an account to 
terms not offered to the public.
    58(b)(5) Open account
    1. Open account clarified. The definition of open account 
includes a credit card account under an open-end (not home-secured) 
consumer credit plan if either: (i) The cardholder can obtain 
extensions of credit on the account; or (ii) there is an outstanding 
balance on the account that has not been charged off. Under this 
definition, an account that meets either of these criteria is 
considered to be open even if the account is inactive. Similarly, if 
an account has been closed for new activity (for example, due to 
default by the cardholder), but the cardholder is still making 
payments to pay off the outstanding balance, the account is 
considered open.
    58(b)(7) Private label credit card account and private label 
credit card plan.
    1. Private label credit card account. The term private label 
credit card account means a credit card account under an open-end 
(not home-secured) consumer credit plan with a credit card that can 
be used to make purchases only at a single merchant or an affiliated 
group of merchants. This term applies to any such credit card 
account, regardless of whether it is issued by the merchant or its 
affiliate or by an unaffiliated third party.
    2. Co-branded credit cards. The term private label credit card 
account does not include accounts with so-called co-branded credit 
cards. Credit cards that display the name, mark, or logo of a 
merchant or affiliated group of merchants as well as the mark, logo, 
or brand of payment network are generally referred to as co-branded 
cards. While these credit cards may display the brand of the 
merchant or affiliated group of merchants as the dominant brand on 
the card, such credit cards are usable at any merchant that 
participates in the payment network. Because these credit cards can 
be used at multiple unaffiliated merchants, accounts with such 
credit cards are not considered private label credit card accounts 
under Sec.  226.58(b)(7).
    3. Affiliated group of merchants. The term ``affiliated group of 
merchants'' means two or more affiliated merchants or other persons 
that are related by common ownership or common corporate control. 
For example, the term would include franchisees that are subject to 
a common set of corporate policies or practices under the terms of 
their franchise licenses. The term also applies to two or more 
merchants or other persons that agree among each other, by contract 
or otherwise, to accept a credit card bearing the same name, mark, 
or logo (other than the mark, logo, or brand of a payment network), 
for the purchase of goods or services solely at such merchants or 
persons. For example, several local clothing retailers jointly agree 
to issue credit cards called the ``Main Street Fashion Card'' that 
can be used to make purchases only at those retailers. For purposes 
of this section, these retailers would be considered an affiliated 
group of merchants.
    4. Private label credit card plan. Which credit card accounts 
issued by a particular issuer constitute a private label credit card 
plan is determined by where the credit cards can be used. All of the 
private label credit card accounts issued by a particular card 
issuer with credit cards usable at the same merchant or affiliated 
group of merchants constitute a single private label credit card 
plan, regardless of whether the rates, fees, or other terms 
applicable to the individual credit card accounts differ. For 
example, a card issuer has 3,000 open private label credit card 
accounts with credit cards usable only at Merchant A and 5,000 open 
private label credit card accounts with credit cards usable only at 
Merchant B and its affiliates. The card issuer has two separate 
private label credit card plans, as defined by Sec.  226.58(b)(7)--
one plan consisting of 3,000 open accounts with credit cards usable 
only at Merchant A and another plan consisting of 5,000 open 
accounts with credit cards usable only at Merchant B and its 
affiliates.
    The example above remains the same regardless of whether (or the 
extent to which) the terms applicable to the individual open 
accounts differ. For example, assume that, with respect to the card 
issuer's 3,000 open accounts with credit cards usable only at 
Merchant A in the example above, 1,000 of the open accounts have a 
purchase APR of 12 percent, 1,000 of the open accounts have a 
purchase APR of 15 percent, and 1,000 of the open accounts have a 
purchase APR of 18 percent. All of the 5,000 open accounts with 
credit cards usable only at Merchant B and Merchant B's affiliates 
have the same 15 percent purchase APR. The card issuer still has 
only two separate private label credit card plans, as defined by 
Sec.  226.58(b)(7). The open accounts with credit cards usable only 
at Merchant A do not constitute three separate private label credit 
card plans under Sec.  226.58(b)(7), even though the accounts are 
subject to different terms.
    58(c) Submission of agreements to Board.
    58(c)(1) Quarterly submissions.
    1. Quarterly submission requirement. Section 226.58(c)(1) 
requires card issuers to send quarterly submissions to the Board no 
later than the first business day on or after January 31, April 30, 
July 31, and October 31 of each year. For example, a card issuer has 
already submitted three credit card agreements to the Board. On 
October 15, the card issuer stops offering agreement A. On November 
20, the card issuer amends agreement B. On December 1, the issuer 
starts offering a new agreement D. The card issuer must submit to 
the Board no later than the first business day on or after January 
31: (i) Notification that the card issuer is withdrawing agreement 
A, because it is no longer offered to the public; (ii) the amended 
version of agreement B; and (iii) agreement D.
    2. No quarterly submission required. Under Sec.  226.58(c)(1), a 
card issuer is not required to make any submission to the Board at a 
particular quarterly submission deadline if, during the previous 
calendar quarter, the card issuer did not take any of the following 
actions: (i) Offering a new credit card agreement that was not 
submitted to the Board previously; (ii) amending an agreement 
previously submitted to the Board; and (iii) ceasing to offer an 
agreement previously submitted to the Board. For example, a card 
issuer offers five agreements to the public as of September 30 and 
submits these to the Board by October 31, as required by Sec.  
226.58(c)(1). Between September 30 and December 31, the card issuer 
continues to offer all five of these agreements to the public 
without amending them and does not begin offering any new 
agreements. The card issuer is not required to make any submission 
to the Board by the following January 31.
    3. Quarterly submission of complete set of updated agreements. 
Section 226.58(c)(1) permits a card issuer to submit to the Board on 
a quarterly basis a complete, updated set of the credit card 
agreements the card issuer offers to the public. For example, a card 
issuer offers agreements A, B, and C to the public as of March 31. 
The card issuer submits each of these agreements to the Board by 
April 30 as required by Sec.  226.58(c)(1). On May 15, the card 
issuer amends agreement A, but does not make any changes to 
agreements B or C. As of June 30, the card issuer continues to offer 
amended agreement A and agreements B and C to the public. At the 
next quarterly submission deadline, July 31, the card issuer must 
submit the entire amended agreement A and is not required to make 
any submission with respect to agreements B and C. The card issuer 
may either: (i) Submit the entire amended agreement A and make no 
submission with respect to agreements B and C; or (ii) submit the 
entire amended agreement A and also resubmit agreements B and C. A 
card issuer may choose to resubmit to the Board all of the 
agreements it offered to the public as of a particular quarterly 
submission deadline even if the card issuer has not introduced any 
new agreements or

[[Page 7918]]

amended any agreements since its last submission and continues to 
offer all previously submitted agreements.
    58(c)(3) Amended agreements.
    1. No requirement to resubmit agreements not amended. Under 
Sec.  226.58(c)(3), if a credit card agreement has been submitted to 
the Board, the agreement has not been amended, and the card issuer 
continues to offer the agreement to the public, no additional 
submission regarding that agreement is required. For example, a 
credit card issuer begins offering an agreement in October and 
submits the agreement to the Board the following January 31, as 
required by Sec.  226.58(c)(1). As of March 31, the card issuer has 
not amended the agreement and is still offering the agreement to the 
public. The card issuer is not required to submit anything to the 
Board regarding that agreement by April 30.
    2. Submission of amended agreements. If a card issuer amends a 
credit card agreement previously submitted to the Board, Sec.  
226.58(c)(3) requires the card issuer to submit the entire amended 
agreement to the Board by the first quarterly submission deadline 
after the last day of the calendar quarter in which the change 
became effective. For example, a card issuer submits an agreement to 
the Board on October 31. On November 15, the issuer changes the 
balance computation method used under the agreement. Because an 
element of the pricing information has changed, the agreement has 
been amended and the card issuer must submit the entire amended 
agreement to the Board no later than January 31.
    3. Change-in-terms notices not permissible. Section 226.58(c)(3) 
requires that if an agreement previously submitted to the Board is 
amended, the card issuer must submit the entire revised agreement to 
the Board. A card issuer may not fulfill this requirement by 
submitting a change-in-terms or similar notice covering only the 
terms that have changed. In addition, amendments must be integrated 
into the text of the agreement (or the addenda described in Sec.  
226.58(c)(8)), not provided as separate riders. For example, a card 
issuer changes the purchase APR associated with an agreement the 
issuer has previously submitted to the Board. The purchase APR for 
that agreement was included in the addendum of pricing information, 
as required by Sec.  226.58(c)(8). The card issuer may not submit a 
change-in-terms or similar notice reflecting the change in APR, 
either alone or accompanied by the original text of the agreement 
and original pricing information addendum. Instead, the card issuer 
must revise the pricing information addendum to reflect the change 
in APR and submit to the Board the entire text of the agreement and 
the entire revised addendum, even though no changes have been made 
to the provisions of the agreement and only one item on the pricing 
information addendum has changed.
    58(c)(4) Withdrawal of agreements.
    1. Notice of withdrawal of agreement. Section 226.58(c)(4) 
requires a card issuer to notify the Board if any agreement 
previously submitted to the Board by that issuer is no longer 
offered to the public by the first quarterly submission deadline 
after the last day of the calendar quarter in which the card issuer 
ceased to offer the agreement. For example, on January 5 a card 
issuer stops offering to the public an agreement it previously 
submitted to the Board. The card issuer must notify the Board that 
the agreement is being withdrawn by April 30, the first quarterly 
submission deadline after March 31, the last day of the calendar 
quarter in which the card issuer stopped offering the agreement.
    58(c)(5) De minimis exception.
    1. Relationship to other exceptions. The de minimis exception is 
distinct from the private label credit card exception under Sec.  
226.58(c)(6) and the product testing exception under Sec.  
226.58(c)(7). The de minimis exception provides that a card issuer 
with fewer than 10,000 open credit card accounts is not required to 
submit any agreements to the Board, regardless of whether those 
agreements qualify for the private label credit card exception or 
the product testing exception. In contrast, the private label credit 
card exception and the product testing exception provide that a card 
issuer is not required to submit to the Board agreements offered 
solely in connection with certain types of credit card plans with 
fewer than 10,000 open accounts, regardless of the card issuer's 
total number of open accounts.
    2. De minimis exception. Under Sec.  226.58(c)(5), a card issuer 
is not required to submit any credit card agreements to the Board 
under Sec.  226.58(c)(1) if the card issuer has fewer than 10,000 
open credit card accounts as of the last business day of the 
calendar quarter. For example, a card issuer offers five credit card 
agreements to the public as of September 30. However, the card 
issuer has only 2,000 open credit card accounts as of September 30. 
The card issuer is not required to submit any agreements to the 
Board by October 31 because the issuer qualifies for the de minimis 
exception.
    3. Date for determining whether card issuer qualifies clarified. 
Whether a card issuer qualifies for the de minimis exception is 
determined as of the last business day of each calendar quarter. For 
example, as of December 31, a card issuer offers three agreements to 
the public and has 9,500 open credit card accounts. As of January 
30, the card issuer still offers three agreements, but has 10,100 
open accounts. As of March 31, the card issuer still offers three 
agreements, but has only 9,700 open accounts. Even though the card 
issuer had 10,100 open accounts at one time during the calendar 
quarter, the card issuer qualifies for the de minimis exception 
because the number of open accounts was less than 10,000 as of March 
31. The card issuer therefore is not required to submit any 
agreements to the Board under Sec.  226.58(c)(1) by April 30.
    4. Date for determining whether card issuer ceases to qualify 
clarified. Whether a card issuer has ceased to qualify for the de 
minimis exception under Sec.  226.58(c)(5) is determined as of the 
last business day of the calendar quarter, For example, as of June 
30, a card issuer offers three agreements to the public and has 
9,500 open credit card accounts. The card issuer is not required to 
submit any agreements to the Board under Sec.  226.58(c)(1) because 
the card issuer qualifies for the de minimis exception. As of July 
15, the card issuer still offers the same three agreements, but now 
has 10,000 open accounts. The card issuer is not required to take 
any action at this time, because whether a card issuer qualifies for 
the de minimis exception under Sec.  226.58(c)(5) is determined as 
of the last business day of the calendar quarter. As of September 
30, the card issuer still offers the same three agreements and still 
has 10,000 open accounts. Because the card issuer had 10,000 open 
accounts as of September 30, the card issuer ceased to qualify for 
the de minimis exception and must submit the three agreements it 
offers to the Board by October 31, the next quarterly submission 
deadline.
    5. Option to withdraw agreements clarified. Section 226.58(c)(5) 
provides that if a card issuer that did not previously qualify for 
the de minimis exception qualifies for the de minimis exception, the 
card issuer must continue to make quarterly submissions to the Board 
as required by Sec.  226.58(c)(1) until the card issuer notifies the 
Board that the issuer is withdrawing all agreements it previously 
submitted to the Board. For example, a card issuer has 10,001 open 
accounts and offers three agreements to the public as of December 
31. The card issuer has submitted each of the three agreements to 
the Board as required under Sec.  226.58(c)(1). As of March 31, the 
card issuer has only 9,999 open accounts. The card issuer has two 
options. First, the card issuer may notify the Board that the card 
issuer is withdrawing each of the three agreements it previously 
submitted. Once the card issuer has notified the Board, the card 
issuer is no longer required to make quarterly submissions to the 
Board under Sec.  226.58(c)(1). Alternatively, the card issuer may 
choose not to notify the Board that it is withdrawing its 
agreements. In this case, the card issuer must continue making 
quarterly submissions to the Board as required by Sec.  
226.58(c)(1). The card issuer might choose not to withdraw its 
agreements if, for example, the card issuer believes that it likely 
will cease to qualify for the de minimis exception again in the near 
future.
    58(c)(6) Private label credit card exception.
    1. Private label credit card exception. Under Sec.  
226.58(c)(6)(i), a card issuer is not required to submit to the 
Board a credit card agreement if, as of the last business day of the 
calendar quarter, the agreement: (A) Is offered for accounts under 
one or more private label credit card plans each of which has fewer 
than 10,000 open accounts; and (B) is not offered to the public 
other than for accounts under such a plan. For example, a card 
issuer offers to the public a credit card agreement offered solely 
for private label credit card accounts with credit cards that can be 
used only at Merchant A. The card issuer has 8,000 open accounts 
with such credit cards usable only at Merchant A. The card issuer is 
not required to submit this agreement to the Board under Sec.  
226.58(c)(1) because the agreement is offered for a private label 
credit card plan with fewer than 10,000 open accounts, and the 
credit card agreement is not offered to the public other than for 
accounts under that private label credit card plan.
    In contrast, assume the same card issuer also offers to the 
public a different credit card

[[Page 7919]]

agreement that is offered solely for private label credit card 
accounts with credit cards usable only at Merchant B. The card 
issuer has 12,000 open accounts with such credit cards usable only 
at Merchant B. The private label credit card exception does not 
apply. Although this agreement is offered for a private label credit 
card plan (i.e., the 12,000 private label credit card accounts with 
credit cards usable only at Merchant B), and the agreement is not 
offered to the public other than for accounts under that private 
label credit card plan, the private label credit card plan has more 
than 10,000 open accounts. (The card issuer still is not required to 
submit to the Board the agreement offered in connection with credit 
cards usable only at Merchant A, as each agreement is evaluated 
separately under the private label credit card exception.)
    2. Card issuers with small private label and other credit card 
plans. Whether the private label credit card exception applies is 
determined on an agreement-by-agreement basis. Therefore, some 
agreements offered by a card issuer may qualify for the private 
label credit card exception even though the card issuer also offers 
other agreements that do not qualify, such as agreements offered for 
accounts with cards usable at multiple unaffiliated merchants or 
agreements offered for accounts under private label plans with 
10,000 or more open accounts.
    3. De minimis exception distinguished. The private label credit 
card exception under Sec.  226.58(c)(6) is distinct from the de 
minimis exception under Sec.  226.58(c)(5). The private label credit 
card exception exempts card issuers from submitting certain 
agreements to the Board regardless of the card issuer's overall size 
as measured by total number of open accounts. In contrast, the de 
minimis exception exempts a particular card issuer from submitting 
any credit card agreements to the Board if the card issuer has fewer 
than 10,000 total open accounts. For example, a card issuer offers 
to the public two credit card agreements. Agreement A is offered 
solely for private label credit card accounts with credit cards 
usable only at Merchant A. The card issuer has 5,000 open credit 
card accounts with such credit cards usable only at Merchant A. 
Agreement B is offered solely for credit card accounts with cards 
usable at multiple unaffiliated merchants that participate in a 
major payment network. The card issuer has 40,000 open credit card 
accounts with such payment network cards. The card issuer is not 
required to submit agreement A to the Board under Sec.  226.58(c)(1) 
because agreement A qualifies for the private label credit card 
exception under Sec.  226.58(c)(6). Agreement A is offered for 
accounts under a private label credit card plan with fewer than 
10,000 open accounts (i.e., the 5,000 accounts with credit cards 
usable only at Merchant A) and is not otherwise offered to the 
public. The card issuer is required to submit agreement B to the 
Board under Sec.  226.58(c)(1). The card issuer does not qualify for 
the de minimis exception under Sec.  226.58(c)(5) because it has 
more than 10,000 open accounts, and agreement B does not qualify for 
the private label credit card exception under Sec.  226.58(c)(6) 
because it is not offered solely for accounts under a private label 
credit card plan with fewer than 10,000 open accounts.
    4. Agreement otherwise offered to the public. An agreement 
qualifies for the private label exception only if it is offered for 
accounts under one or more private label credit card plans with 
fewer than 10,000 open accounts and is not offered to the public 
other than for accounts under such a plan. For example, a card 
issuer offers a single agreement to the public. The agreement is 
offered for private label credit card accounts with credit cards 
usable only at Merchant A. The card issuer has 9,000 such open 
accounts with credit cards usable only at Merchant A. The agreement 
also is offered for credit card accounts with credit cards usable at 
multiple unaffiliated merchants that participate in a major payment 
network. The agreement does not qualify for the private label credit 
card exception. The agreement is offered for accounts under a 
private label credit card plan with fewer than 10,000 open accounts. 
However, the agreement also is offered to the public for accounts 
that are not part of a private label credit card plan and therefore 
does not qualify for the private label credit card exception.
    Similarly, an agreement does not qualify for the private label 
credit card exception if it is offered in connection with one 
private label credit card plan with fewer than 10,000 open accounts 
and one private label credit card plan with 10,000 or more open 
accounts. For example, a card issuer offers a single credit card 
agreement to the public. The agreement is offered for two types of 
accounts. The first type of account is a private label credit card 
account with a credit card usable only at Merchant A. The second 
type of account is a private label credit card account with a credit 
card usable only at Merchant B. The card issuer has 10,000 such open 
accounts with credit cards usable only at Merchant A and 5,000 such 
open accounts with credit cards usable only at Merchant B. The 
agreement does not qualify for the private label credit card 
exception. While the agreement is offered for accounts under a 
private label credit card plan with fewer than 10,000 open accounts 
(i.e., the 5,000 open accounts with credit cards usable only at 
Merchant B), the agreement is also offered for accounts not under 
such a plan (i.e., the 10,000 open accounts with credit cards usable 
only at Merchant A).
    5. Agreement used for multiple small private label plans. The 
private label exception applies even if the same agreement is used 
for more than one private label credit card plan with fewer than 
10,000 open accounts. For example, a card issuer has 15,000 total 
open private label credit card accounts. Of these, 7,000 accounts 
have credit cards usable only at Merchant A, 5,000 accounts have 
credit cards usable only at Merchant B, and 3,000 accounts have 
credit cards usable only at Merchant C. The card issuer offers to 
the public a single credit card agreement that is offered for all 
three types of accounts and is not offered for any other type of 
account. The card issuer is not required to submit the agreement to 
the Board under Sec.  226.58(c)(1). The agreement is used for three 
different private label credit card plans (i.e., the accounts with 
credit cards usable at Merchant A, the accounts with credit cards 
usable at Merchant B, and the accounts with credit cards usable at 
Merchant C), each of which has fewer than 10,000 open accounts, and 
the card issuer does not offer the agreement for any other type of 
account. The agreement therefore qualifies for the private label 
credit card exception under Sec.  226.58(c)(6).
    6. Multiple agreements used for one private label credit card 
plan. The private label credit card exception applies even if a card 
issuer offers more than one agreement in connection with a 
particular private label credit card plan. For example, a card 
issuer has 5,000 open private label credit card accounts with credit 
cards usable only at Merchant A. The card issuer offers to the 
public three different agreements each of which may be used in 
connection with private label credit card accounts with credit cards 
usable only at Merchant A. The agreements are not offered for any 
other type of credit card account. The card issuer is not required 
to submit any of the three agreements to the Board under Sec.  
226.58(c)(1) because each of the agreements is used for a private 
label credit card plan which has fewer than 10,000 open accounts and 
none of the three is offered to the public other than for accounts 
under such a plan.
    58(c)(8) Form and content of agreements submitted to the Board.
    1. ``As of'' date clarified. Agreements submitted to the Board 
must contain the provisions of the agreement and pricing information 
in effect as of the last business day of the preceding calendar 
quarter. For example, on June 1, a card issuer decides to decrease 
the purchase APR associated with one of the agreements it offers to 
the public. The change in the APR will become effective on August 1. 
If the card issuer submits the agreement to the Board on July 31 
(for example, because the agreement has been otherwise amended), the 
agreement submitted should not include the new lower APR because 
that APR was not in effect on June 30, the last business day of the 
preceding calendar quarter.
    2. Pricing agreement addendum. Pricing information must be set 
forth in the separate addendum described in Sec.  
226.58(c)(8)(ii)(A) even if it is also stated elsewhere in the 
agreement.
    3. Pricing agreement variations do not constitute separate 
agreements. Pricing information that may vary from one cardholder to 
another depending on the cardholder's creditworthiness or state of 
residence or other factors must be disclosed by setting forth all 
the possible variations or by providing a range of possible 
variations. Two agreements that differ only with respect to 
variations in the pricing information do not constitute separate 
agreements for purposes of this section. For example, a card issuer 
offers two types of credit card accounts that differ only with 
respect to the purchase APR. The purchase APR for one type of 
account is 15 percent, while the purchase APR for the other type of 
account is 18 percent. The provisions of the agreement and pricing 
information for the two types of accounts are otherwise identical. 
The card

[[Page 7920]]

issuer should not submit to the Board one agreement with a pricing 
information addendum listing a 15 percent purchase APR and another 
agreement with a pricing information addendum listing an 18 percent 
purchase APR. Instead, the card issuer should submit to the Board 
one agreement with a pricing information addendum listing possible 
purchase APRs of 15 or 18 percent.
    4. Optional variable terms addendum. Examples of provisions that 
might be included in the variable terms addendum include a clause 
that is required by law to be included in credit card agreements in 
a particular state but not in other states (unless, for example, a 
clause is included in the agreement used for all cardholders under a 
heading such as ``For State X Residents''), the name of the credit 
card plan to which the agreement applies (if this information is 
included in the agreement), or the name of a charitable organization 
to which donations will be made in connection with a particular card 
(if this information is included in the agreement).
    5. Integrated agreement requirement. Card issuers may not 
provide provisions of the agreement or pricing information in the 
form of change-in-terms notices or riders. The only two addenda that 
may be submitted as part of an agreement are the pricing information 
addendum and optional variable terms addendum described in Sec.  
226.58(c)(8). Changes in provisions or pricing information must be 
integrated into the body of the agreement, pricing information 
addendum, or optional variable terms addendum described in Sec.  
226.58(c)(8). For example, it would be impermissible for a card 
issuer to submit to the Board an agreement in the form of a terms 
and conditions document dated January 1, 2005, four subsequent 
change in terms notices, and 2 addenda showing variations in pricing 
information. Instead, the card issuer must submit a document that 
integrates the changes made by each of the change in terms notices 
into the body of the original terms and conditions document and a 
single addendum displaying variations in pricing information.
    58(d) Posting of agreements offered to the public.
    1. Requirement applies only to agreements submitted to the 
Board. Card issuers are only required to post and maintain on their 
publicly available Web site the credit card agreements that the card 
issuer must submit to the Board under Sec.  226.58(c). If, for 
example, a card issuer is not required to submit any agreements to 
the Board because the card issuer qualifies for the de minimis 
exception under Sec.  226.58(c)(5), the card issuer is not required 
to post and maintain any agreements on its Web site under Sec.  
226.58(d). Similarly, if a card issuer is not required to submit a 
specific agreement to the Board, such as an agreement that qualifies 
for the private label exception under Sec.  226.58(c)(6), the card 
issuer is not required to post and maintain that agreement under 
Sec.  226.58(d) (either on the card issuer's publicly available Web 
site or on the publicly available Web sites of merchants at which 
private label credit cards can be used). (The card issuer in both of 
these cases is still required to provide each individual cardholder 
with access to his or her specific credit card agreement under Sec.  
226.58(e) by posting and maintaining the agreement on the card 
issuer's Web site or by providing a copy of the agreement upon the 
cardholder's request.)
    2. Card issuers that do not otherwise maintain Web sites. Unlike 
Sec.  226.58(e), Sec.  226.58(d) does not include a special rule for 
card issuers that do not otherwise maintain a Web site. If a card 
issuer is required to submit one or more agreements to the Board 
under Sec.  226.58(c), that card issuer must post those agreements 
on a publicly available Web site it maintains (or, with respect to 
an agreement for a private label credit card, on the publicly 
available Web site of at least one of the merchants at which the 
card may be used, as provided in Sec.  226.58(d)(1)).
    3. Private label credit card plans. Section 226.58(d) provides 
that, with respect to an agreement offered solely for accounts under 
one or more private label credit card plans, a card issuer may 
comply by posting and maintaining the agreement on the Web site of 
at least one of the merchants at which the cards issued under each 
private label credit card plan with 10,000 or more open accounts may 
be used. For example, a card issuer has 100,000 open private label 
credit card accounts. Of these, 75,000 open accounts have credit 
cards usable only at Merchant A and 25,000 open accounts have credit 
cards usable only at Merchant B and Merchant B's affiliates, 
Merchants C and D. The card issuer offers to the public a single 
credit card agreement that is offered for both of these types of 
accounts and is not offered for any other type of account.
    The card issuer is required to submit the agreement to the Board 
under Sec.  226.58(c)(1). (The card issuer has more than 10,000 open 
accounts, so the Sec.  226.58(c)(5) de minimis exception does not 
apply. The agreement is offered solely for two different private 
label credit card plans (i.e., one plan consisting of the accounts 
with credit cards usable at Merchant A and one plan consisting of 
the accounts with credit cards usable at Merchant B and its 
affiliates, Merchants C and D), but both of these plans have more 
than 10,000 open accounts, so the Sec.  226.58(c)(6) private label 
credit card exception does not apply. Finally, the agreement is not 
offered solely in connection with a product test by the card issuer, 
so the Sec.  226.58(c)(7) product test exception does not apply.)
    Because the card issuer is required to submit the agreement to 
the Board under Sec.  226.58(c)(1), the card issuer is required to 
post and maintain the agreement on the card issuer's publicly 
available Web site under Sec.  226.58(d). However, because the 
agreement is offered solely for accounts under one or more private 
label credit card plans, the card issuer may comply with Sec.  
226.58(d) in either of two ways. First, the card issuer may comply 
by posting and maintaining the agreement on the card issuer's own 
publicly available Web site. Alternatively, the card issuer may 
comply by posting and maintaining the agreement on the publicly 
available Web site of Merchant A and the publicly available Web site 
of at least one of Merchants B, C and D. It would not be sufficient 
for the card issuer to post the agreement on Merchant A's Web site 
alone because Sec.  226.58(d) requires the card issuer to post the 
agreement on the publicly available Web site of ``at least one of 
the merchants at which cards issued under each private label credit 
card plan may be used'' (emphasis added).
    In contrast, assume that a card issuer has 100,000 open private 
label credit card accounts. Of these, 5,000 open accounts have 
credit cards usable only at Merchant A and 95,000 open accounts have 
credit cards usable only at Merchant B and Merchant B's affiliates, 
Merchants C and D. The card issuer offers to the public a single 
credit card agreement that is offered for both of these types of 
accounts and is not offered for any other type of account.
    The card issuer is required to submit the agreement to the Board 
under Sec.  226.58(c)(1). (The card issuer has more than 10,000 open 
accounts, so the Sec.  226.58(c)(5) de minimis exception does not 
apply. The agreement is offered solely for two different private 
label credit card plans (i.e., one plan consisting of the accounts 
with credit cards usable at Merchant A and one plan consisting of 
the accounts with credit cards usable at Merchant B and its 
affiliates, Merchants C and D), but one of these plans has more than 
10,000 open accounts, so the Sec.  226.58(c)(6) private label credit 
card exception does not apply. Finally, the agreement is not offered 
solely in connection with a product test by the card issuer, so the 
Sec.  226.58(c)(7) product test exception does not apply.)
    Because the card issuer is required to submit the agreement to 
the Board under Sec.  226.58(c)(1), the card issuer is required to 
post and maintain the agreement on the card issuer's publicly 
available Web site under Sec.  226.58(d). However, because the 
agreement is offered solely for accounts under one or more private 
label credit card plans, the card issuer may comply with Sec.  
226.58(d) in either of two ways. First, the card issuer may comply 
by posting and maintaining the agreement on the card issuer's own 
publicly available Web site. Alternatively, the card issuer may 
comply by posting and maintaining the agreement on the publicly 
available Web site of at least one of Merchants B, C and D. The card 
issuer is not required to post and maintain the agreement on the 
publicly available Web site of Merchant A because the card issuer's 
private label credit card plan consisting of accounts with cards 
usable only at Merchant A has fewer than 10,000 open accounts.
    58(e) Agreements for all open accounts.
    1. Requirement applies to all open accounts. The requirement to 
provide access to credit card agreements under Sec.  226.58(e) 
applies to all open credit card accounts, regardless of whether such 
agreements are required to be submitted to the Board pursuant to 
Sec.  226.58(c) (or posted on the card issuer's Web site pursuant to 
Sec.  226.58(d)). For example, a card issuer that is not required to 
submit agreements to the Board because it qualifies for the de 
minimis exception under Sec.  226.58(c)(5)) would still be required 
to provide cardholders with access to their specific agreements 
under Sec.  226.58(e). Similarly, an agreement that is no longer

[[Page 7921]]

offered to the public would not be required to be submitted to the 
Board under Sec.  226.58(c), but would still need to be provided to 
the cardholder to whom it applies under Sec.  226.58(e).
    2. Readily available telephone line. Section 226.58(e) provides 
that card issuers that provide copies of cardholder agreements upon 
request must provide the cardholder with the ability to request a 
copy of their agreement by calling a readily available telephone 
line. To satisfy the readily available standard, the financial 
institution must provide enough telephone lines so that consumers 
get a reasonably prompt response. The institution need only provide 
telephone service during normal business hours. Within its primary 
service area, an institution must provide a local or toll-free 
telephone number. It need not provide a toll-free number or accept 
collect long-distance calls from outside the area where it normally 
conducts business.
    3. Issuers without interactive Web sites. Section 226.58(e)(2) 
provides that a card issuer that does not maintain a Web site from 
which cardholders can access specific information about their 
individual accounts is not required to provide a cardholder with the 
ability to request a copy of the agreement by using the card 
issuer's Web site. A card issuer without a Web site of any kind 
could comply by disclosing the telephone number on each periodic 
statement; a card issuer with a non-interactive Web site could 
comply in the same way, or alternatively could comply by displaying 
the telephone number on the card issuer's Web site.
    4. Deadline for providing requested agreements clarified. 
Sections 226.58(e)(1)(ii) and (e)(2) require that credit card 
agreements provided upon request must be sent to the cardholder or 
otherwise made available to the cardholder in electronic or paper 
form no later than 30 days after the cardholder's request is 
received. For example, if a card issuer chooses to respond to a 
cardholder's request by mailing a paper copy of the cardholder's 
agreement, the card issuer must mail the agreement no later than 30 
days after receipt of the cardholder's request. Alternatively, if a 
card issuer chooses to respond to a cardholder's request by posting 
the cardholder's agreement on the card issuer's Web site, the card 
issuer must post the agreement on its Web site no later than 30 days 
after receipt of the cardholder's request. Section 226.58(e)(3)(v) 
provides that a card issuer may provide cardholder agreements in 
either electronic or paper form regardless of the form of the 
cardholder's request.
* * * * *

Appendix F--Optional Annual Percentage Rate Computations for Creditors 
Offering Open-End Plans Subject to the Requirements of Sec.  226.5b

    1. Daily rate with specific transaction charge. If the finance 
charge results from a charge relating to a specific transaction and 
the application of a daily periodic rate, see comment 14(c)(3)-2 for 
guidance on an appropriate calculation method.

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

    1. Permissible changes. Although use of the model forms and 
clauses is not required, creditors using them properly will be 
deemed to be in compliance with the regulation with regard to those 
disclosures. Creditors may make certain changes in the format or 
content of the forms and clauses and may delete any disclosures that 
are inapplicable to a transaction or a plan without losing the act's 
protection from liability, except formatting changes may not be made 
to model forms and samples in 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, 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.
    2. Debt-cancellation coverage. This regulation does not 
authorize creditors to characterize debt-cancellation fees as 
insurance premiums for purposes of this regulation. Creditors may 
provide a disclosure that refers to debt cancellation or debt 
suspension coverage whether or not the coverage is considered 
insurance. Creditors may use the model credit insurance disclosures 
only if the debt cancellation coverage constitutes insurance under 
state law.

Appendix G--Open-End Model Forms and Clauses

    1. Models G-1 and G-1(A). The model disclosures in G-1 and G-
1(A) (different balance computation methods) may be used in both the 
account-opening disclosures under Sec.  226.6 and the periodic 
disclosures under Sec.  226.7. As is clear from the models given, 
``shorthand'' descriptions of the balance computation methods are 
not sufficient, except where Sec.  226.7(b)(5) applies. For 
creditors using model G-1, the phrase ``a portion of'' the finance 
charge should be included if the total finance charge includes other 
amounts, such as transaction charges, that are not due to the 
application of a periodic rate. If unpaid interest or finance 
charges are subtracted in calculating the balance, that fact must be 
stated so that the disclosure of the computation method is accurate. 
Only model G-1(b) contains a final sentence appearing in brackets, 
which reflects the total dollar amount of payments and credits 
received during the billing cycle. The other models do not contain 
this language because they reflect plans in which payments and 
credits received during the billing cycle are subtracted. If this is 
not the case, however, the language relating to payments and credits 
should be changed, and the creditor should add either the disclosure 
of the dollar amount as in model G-1(b) or an indication of which 
credits (disclosed elsewhere on the periodic statement) will not be 
deducted in determining the balance. (Such an indication may also 
substitute for the bracketed sentence in model G-1(b).) (See the 
commentary to Sec.  226.7(a)(5) and (b)(5).) For open-end plans 
subject to the requirements of Sec.  226.5b, creditors may, at their 
option, use the clauses in G-1 or G-1(A).
    2. Models G-2 and G-2(A). These models contain the notice of 
liability for unauthorized use of a credit card. For home-equity 
plans subject to the requirements of Sec.  226.5b, at the creditor's 
option, a creditor either may use G-2 or G-2(A). For open-end plans 
not subject to the requirements of Sec.  226.5b, creditors properly 
use G-2(A).
    3. Models G-3, G-3(A), G-4 and G-4(A).
    i. These set out models for the long-form billing-error rights 
statement (for use with the account-opening disclosures and as an 
annual disclosure or, at the creditor's option, with each periodic 
statement) and the alternative billing-error rights statement (for 
use with each periodic statement), respectively. For home-equity 
plans subject to the requirements of Sec.  226.5b, at the creditor's 
option, a creditor either may use G-3 or G-3(A), and for creditors 
that use the short form, G-4 or G-4(A). For open-end (not home-
secured) plans that not subject to the requirements of Sec.  226.5b, 
creditors properly use G-3(A) and G-4(A). Creditors must provide the 
billing-error rights statements in a form substantially similar to 
the models in order to comply with the regulation. The model 
billing-rights statements may be modified in any of the ways set 
forth in the first paragraph to the commentary on appendices G and 
H. The models may, furthermore, be modified by deleting inapplicable 
information, such as:
    A. The paragraph concerning stopping a debit in relation to a 
disputed amount, if the creditor does not have the ability to debit 
automatically the consumer's savings or checking account for 
payment.
    B. The rights stated in the special rule for credit card 
purchases and any limitations on those rights.
    ii. The model billing rights statements also contain optional 
language that creditors may use. For example, the creditor may:
    A. Include a statement to the effect that notice of a billing 
error must be submitted on something other than the payment ticket 
or other material accompanying the periodic disclosures.
    B. Insert its address or refer to the address that appears 
elsewhere on the bill.
    C. Include instructions for consumers, at the consumer's option, 
to communicate with the creditor electronically or in writing.

[[Page 7922]]

    iii. Additional information may be included on the statements as 
long as it does not detract from the required disclosures. For 
instance, information concerning the reporting of errors in 
connection with a checking account may be included on a combined 
statement as long as the disclosures required by the regulation 
remain clear and conspicuous.
* * * * *
    5. Model G-10(A), samples G-10(B) and G-10(C), model G-10(D), 
sample G-10(E), model G-17(A), and samples G-17(B), 17(C) and 17(D). 
i. Model G-10(A) and Samples G-10(B) and G-10(C) illustrate, in the 
tabular format, the disclosures required under Sec.  226.5a for 
applications and solicitations for credit cards other than charge 
cards. Model G-10(D) and Sample G-10(E) illustrate the tabular 
format disclosure for charge card applications and solicitations and 
reflect the disclosures in the table. Model G-17(A) and Samples G-
17(B), G-17(C) and G-17(D) illustrate, in the tabular format, the 
disclosures required under Sec.  226.6(b)(2) for account-opening 
disclosures.
    ii. Except as otherwise permitted, disclosures must be 
substantially similar in sequence and format to Models G-10(A), G-
10(D) and G-17(A). While proper use of the model forms will be 
deemed in compliance with the regulation, card issuers and other 
creditors offering open-end (not home-secured) plans are permitted 
to disclose the annual percentage rates for purchases, cash 
advances, or balance transfers in the same row in the table for any 
transaction types for which the issuer or creditor charges the same 
annual percentage rate. Similarly, card issuer and other creditors 
offering open-end (not home-secured) plans are permitted to disclose 
fees of the same amount in the same row if the fees are in the same 
category. Fees in different categories may not be disclosed in the 
same row. For example, a transaction fee and a penalty fee that are 
of the same amount may not be disclosed in the same row. Card 
issuers and other creditors offering open-end (not home-secured) 
plans are also permitted to use headings other than those in the 
forms if they are clear and concise and are substantially similar to 
the headings contained in model forms, with the following 
exceptions. The heading ``penalty APR'' must be used when describing 
rates that may increase due to default or delinquency or as a 
penalty, and in relation to required insurance, or debt cancellation 
or suspension coverage, the term ``required'' and the name of the 
product must be used. (See also Sec. Sec.  226.5a(b)(5) and 
226.6(b)(2)(v) for guidance on headings that must be used to 
describe the grace period, or lack of grace period, in the 
disclosures required under Sec.  226.5a for applications and 
solicitations for credit cards other than charge cards, and the 
disclosures required under Sec.  226.6(b)(2) for account-opening 
disclosures, respectively.)
    iii. Models G-10(A) and G-17(A) contain two alternative headings 
(``Minimum Interest Charge'' and ``Minimum Charge'') for disclosing 
a minimum interest or fixed finance charge under Sec. Sec.  
226.5a(b)(3) and 226.6(b)(2)(iii). If a creditor imposes a minimum 
charge in lieu of interest in those months where a consumer would 
otherwise incur an interest charge but that interest charge is less 
than the minimum charge, the creditor should disclose this charge 
under the heading ``Minimum Interest Charge'' or a substantially 
similar heading. Other minimum or fixed finance charges should be 
disclosed under the heading ``Minimum Charge'' or a substantially 
similar heading.
    iv. Models G-10(A), G-10(D) and G-17(A) contain two alternative 
headings (``Annual Fees'' and ``Set-up and Maintenance Fees'') for 
disclosing fees for issuance or availability of credit under Sec.  
226.5a(b)(2) or Sec.  226.6(b)(2)(ii). If the only fee for issuance 
or availability of credit disclosed under Sec.  226.5a(b)(2) or 
Sec.  226.6(b)(2)(ii) is an annual fee, a creditor should use the 
heading ``Annual Fee'' or a substantially similar heading to 
disclose this fee. If a creditor imposes fees for issuance or 
availability of credit disclosed under Sec.  226.5a(b)(2) or Sec.  
226.6(b)(2)(ii) other than, or in addition to, an annual fee, the 
creditor should use the heading ``Set-up and Maintenance Fees'' or a 
substantially similar heading to disclose fees for issuance or 
availability of credit, including the annual fee.
    v. Although creditors are not required to use a certain paper 
size in disclosing the Sec. Sec.  226.5a or 226.6(b)(1) and (2) 
disclosures, samples G-10(B), G-10(C), G-17(B), G-17(C) and G-17(D) 
are designed to be printed on an 8\1/2\ x 14 inch sheet of paper. A 
creditor may use a smaller sheet of paper, such as 8\1/2\ x 11 inch 
sheet of paper. If the table is not provided on a single side of a 
sheet of paper, the creditor must include a reference or references, 
such as ``SEE BACK OF PAGE for more important information about your 
account.'' at the bottom of each page indicating that the table 
continues onto an additional page or pages. A creditor that splits 
the table onto two or more pages must disclose the table on 
consecutive pages and may not include any intervening information 
between portions of the table. In addition, the following formatting 
techniques were used in presenting the information in the sample 
tables to ensure that the information is readable:
    A. A readable font style and font size (10-point Arial font 
style, except for the purchase annual percentage rate which is shown 
in 16-point type).
    B. Sufficient spacing between lines of the text.
    C. Adequate spacing between paragraphs when several pieces of 
information were included in the same row of the table, as 
appropriate. For example, in the samples in the row of the tables 
with the heading ``APR for Balance Transfers,'' the forms disclose 
two components: the applicable balance transfer rate and a cross 
reference to the balance transfer fee. The samples show these two 
components on separate lines with adequate space between each 
component. On the other hand, in the samples, in the disclosure of 
the late payment fee, the forms disclose two components: the late 
payment fee, and the cross reference to the penalty rate. Because 
the disclosure of both these components is short, these components 
are disclosed on the same line in the tables.
    D. Standard spacing between words and characters. In other 
words, the text was not compressed to appear smaller than 10-point 
type.
    E. Sufficient white space around the text of the information in 
each row, by providing sufficient margins above, below and to the 
sides of the text.
    F. Sufficient contrast between the text and the background. 
Generally, black text was used on white paper.
    vi. While the Board is not requiring issuers to use the above 
formatting techniques in presenting information in the table (except 
for the 10-point and 16-point font requirement), the Board 
encourages issuers to consider these techniques when deciding how to 
disclose information in the table, to ensure that the information is 
presented in a readable format.
    vii. Creditors are allowed to use color, shading and similar 
graphic techniques with respect to the table, so long as the table 
remains substantially similar to the model and sample forms in 
appendix G.
    6. Model G-11. Model G-11 contains clauses that illustrate the 
general disclosures required under Sec.  226.5a(e) in applications 
and solicitations made available to the general public.
* * * * *
    8. Samples G-18(A)-(D). For home-equity plans subject to the 
requirements of Sec.  226.5b, if a creditor chooses to comply with 
the requirements in Sec.  226.7(b), the creditor may use Samples G-
18(A) through G-18(D) to comply with these requirements, as 
applicable.
    9. Samples G-18(D). Sample G-18(D) illustrates how credit card 
issuers may comply with proximity requirements for payment 
information on periodic statements. Creditors that offer card 
accounts with a charge card feature and a revolving feature may 
change the disclosure to make clear to which feature the disclosures 
apply.
    10. Forms G-18(F)-(G). Forms G-18(F) and G-18(G) are intended as 
a compliance aid to illustrate front sides of a periodic statement, 
and how a periodic statement for open-end (not home-secured) plans 
might be designed to comply with the requirements of Sec.  226.7. 
The samples contain information that is not required by Regulation 
Z. The samples also present information in additional formats that 
are not required by Regulation Z.
    i. Creditors are not required to use a certain paper size in 
disclosing the Sec.  226.7 disclosures. However, Forms G-18(F) and 
G-18(G) are designed to be printed on an 8 x 14 inch sheet of paper.
    ii. The due date for a payment, if a late payment fee or penalty 
rate may be imposed, must appear on the front of the first page of 
the statement. See Sample G-18(D) that illustrates how a creditor 
may comply with proximity requirements for other disclosures. The 
payment information disclosures appear in the upper right-hand 
corner on Samples G-18(F) and G-18(G), but may be located elsewhere, 
as long as they appear on the front of the first page of the 
periodic statement. The summary of account activity presented on 
Samples G-18(F) and G-18(G) is not itself a required disclosure, 
although the previous balance and the new balance, presented in the 
summary, must be disclosed in a clear and conspicuous manner on 
periodic statements.

[[Page 7923]]

    iii. Additional information not required by Regulation Z may be 
presented on the statement. The information need not be located in 
any particular place or be segregated from disclosures required by 
Regulation Z, although the effect of proximity requirements for 
required disclosures, such as the due date, may cause the additional 
information to be segregated from those disclosures required to be 
disclosed in close proximity to one another. Any additional 
information must be presented consistent with the creditor's 
obligation to provide required disclosures in a clear and 
conspicuous manner.
    iv. Model Forms G-18(F) and G-18(G) demonstrate two examples of 
ways in which transactions could be presented on the periodic 
statement. Model Form G-18(G) presents transactions grouped by type 
and Model Form G-18(F) presents transactions in a list in 
chronological order. Neither of these approaches to presenting 
transactions is required; a creditor may present transactions 
differently, such as in a list grouped by authorized user or other 
means.
    11. Model Form G-19. See Sec.  226.9(b)(3) regarding the 
headings required to be disclosed when describing in the tabular 
disclosure a grace period (or lack of a grace period) offered on 
check transactions that access a credit card account.
    12. Sample G-24. Sample G-24 includes two model clauses for use 
in complying with Sec.  226.16(h)(4). Model clause (a) is for use in 
connection with credit card accounts under an open-end (not home-
secured) consumer credit plan. Model clause (b) is for use in 
connection with other open-end credit plans.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, January 11, 2010.
Jennifer J. Johnson,
Secretary of the Board.

    Note: The following attachment will not appear in the Code of 
Federal Regulations.

Attachment I--Consumer and College Credit Card Agreement

Submission Technical Specifications Document

Initial Submission Requirements

I. Introduction

    This document provides technical specifications for complying 
with the initial submission requirements of sections 204 and 305 of 
the Credit Card Act of 2009 and 12 CFR 226.57(d) and 226.58. These 
provisions require card issuers to submit to the Board of Governors 
of the Federal Reserve System (``Board''):
     Agreements between the issuer and a consumer under a 
credit card account for an open-end (not home-secured) consumer 
credit plan (``consumer agreements''); and
     An annual report regarding any college credit card 
agreement to which the issuer is a party (``college agreements'').

II. General Submission Information

    Issuers must first determine the type of agreements they are 
required to submit. Once identified, issuers are required to submit 
their initial set of agreements (consumer and/or college) to the 
Board on CD or DVD. A complete submission consists of a transmittal 
sheet file, agreement documents, and college agreement metadata file 
(if appropriate).

General Submission Requirements

    1. The CD/DVD must be mailed to the Federal Reserve Board by the 
dates specified in 12 CFR 226.57(d) (college agreements) and 226.58 
(consumer agreements).
    a. Initial submissions of consumer agreements, including 
agreements offered to the public as of December 31, 2009, must be 
sent to the Board no later than February 22, 2010.
    b. Initial submissions of college agreements, providing 
information for the 2009 calendar year, must be sent to the Board no 
later than February 22, 2010.
    2. The CD/DVD must be mailed to: Credit Card Act Submission, 
Federal Reserve Board, 20th and Constitution Avenue, NW., Stop 806, 
Washington, DC 20551.
    3. The agreement documents, transmittal sheet file, and college 
metadata file (if appropriate) must be the only files submitted on 
the CD/DVD.
    4. The CD/DVD must be labeled with the following information.

a. Issuer name
b. DUNS number
c. Federal Tax ID number
d. Filer \1\ name
---------------------------------------------------------------------------

    \1\ Contact person who is submitting the agreements on behalf of 
the issuer.
---------------------------------------------------------------------------

e. Filer phone number
f. Filer email address
g. Agreement type(s)--Consumer Agreements and/or College Agreements
h. Number of agreements on the CD/DVD
i. If submitting both types, identify how many of each type.

    5. All submitted CDs/DVDs must be virus-free.
    6. No zip file(s) will be accepted.
    a. Each CD/DVD must contain a directory for each type of 
agreement submitted.
    b. Directories must be labeled as Consumer Agreements or College 
Agreements and contain the respective agreement documents.
    7. Issuers must submit a transmittal sheet file with information 
describing the issuer. The transmittal sheet file will contain a 
single record containing issuer identification and contact 
information.
    a. The naming convention for the transmittal sheet file is 
DUNSnumber--TS.txt.
    b. Since the transmittal sheet contains issuer-specific 
information and not agreement-specific information, the transmittal 
sheet file should be in the root directory and not in the consumer 
agreements or college agreements directory.
    c. Addendum A provides an example of a transmittal sheet file.

Consumer Agreements

    1. Issuers must submit each consumer agreement in two formats.
    a. Plain text
    i. The plain text version must be a Section 508 \2\ accessible 
document.
---------------------------------------------------------------------------

    \2\ Section 508 of the Rehabilitation Act of 1973, 29 U.S.C. 
794d, as amended, and implementing regulations, 36 CFR Part 1194.
---------------------------------------------------------------------------

    b. PDF
    2. Each individual agreement must be submitted in both plain 
text and PDF formats and each version must include all provisions of 
the agreement and pricing information, as described in 12 CFR 
226.58. Issuers must submit a single PDF file and a single plain 
text file for each agreement.
    3. Consumer agreement documents must use the following file 
naming convention.
    a. DUNSnumber--X.txt (and .pdf)
    i. X = agreement number (1, 2, 3, etc.)
    4. Documents in the consumer agreement directory must include 
only the plain text and PDF versions of each agreement.

College Agreements

    1. College agreements must be submitted in either Word or PDF 
format. Issuers are not required to submit college agreements in 
both formats.
    2. Issuers must submit a single Word or PDF file for each 
institution of higher education or affiliated organization with 
which the issuer has a college credit card agreement.
    a. For example, if an issuer has college credit card agreements 
with 3 such entities, that issuer must submit 3 Word or PDF files. 
Issuers should not submit an individual agreement in the form of 
multiple Word or PDF files.
    3. College agreement documents must use the following file 
naming convention.
    a. DUNSnumber--Y.doc(x) (or .pdf)
    i. Y = the name of the institution of higher education or 
affiliated organization
    4. Issuers also must submit a metadata file with information 
describing each of the college agreement documents.
    a. The naming convention for the college agreement metadata file 
is DUNSnumber--CollegeMetadata.txt.
    b. Addendum A provides an example of a college agreement 
metadata file.
    5. Documents in the college agreement directory must include 
only the college agreement document(s) and the metadata file.

III. File Specifications

    Both the transmittal sheet file and the college agreement 
metadata file must be submitted in a tab delimited text format. The 
transmittal sheet file must be submitted in the root directory of 
the CD/DVD. The college agreement metadata file must be included 
with the college agreement documents in the college agreement 
directory.

Transmittal Sheet File

    The following file layout defines the required fields that must 
be included in the transmittal sheet file. The file is a one record 
file that provides issuer identification and contact information.

[[Page 7924]]



------------------------------------------------------------------------
             Element label                 Comments, values, keys, etc.
------------------------------------------------------------------------
Datestamp..............................  Date of submission.
                                         Format is century, year, month,
                                          day. For example, February 22,
                                          2010, would be 20100222.
D-U-N-S (Data Universal Numbering        Dun and Bradstreet unique
 System) number.                          numbering system.
                                         Format is 999999999 (no
                                          hyphens).
Federal Tax ID number..................  Issuer's Federal Tax
                                          Identification Number (also
                                          known as Employer
                                          Identification Number or EIN).
                                         Format is 999999999 (no
                                          hyphens).
FFIEC Regulator Code...................  If issuer is a federally
                                          regulated financial
                                          institution, enter one of the
                                          following to indicate the
                                          institution's primary federal
                                          regulator:
                                         1--OCC
                                         2--FRS
                                         3--FDIC
                                         4--OTS
                                         5--NCUA
                                         If issuer is not a federally
                                          regulated financial
                                          institution, enter NA.
Financial Regulator Identification       If issuer is a federally
 Number.                                  regulated financial
                                          institution, enter the Charter
                                          Number for OCC- and NCUA-
                                          regulated institutions, the
                                          RSSD ID for FRS-regulated
                                          institutions, the Certificate
                                          Number for FDIC-regulated
                                          institutions, or the Docket
                                          Number for OTS-regulated
                                          institutions.
                                         If issuer is not a federally
                                          regulated financial
                                          institution, enter NA.
Issuer Name............................  Organization/business name.
Issuer Address.........................  Organization/business street
                                          address.
Issuer City............................  Organization/business city.
Issuer State...........................  Organization/business state
                                          (two character abbreviation).
Issuer Zip Code........................  Organization/business zip code.
Filer Name.............................  Name of contact person who is
                                          submitting agreements on
                                          behalf of the issuer.
Filer Phone Number.....................  Contact person's phone number.
                                         Format is XXX-XXX-XXXX.
Filer Email Address....................  Contact person's e-mail
                                          address.
Agreement Type.........................  Value is Consumer Agreement,
                                          College Agreement or Both.
------------------------------------------------------------------------

College Agreement Metadata File

    The following data must be included in the college agreement 
metadata file. Each record provides descriptive information about 
one college agreement.

------------------------------------------------------------------------
             Element label                 Comments, values, keys, etc.
------------------------------------------------------------------------
Agreement File Name....................  Name of the college agreement
                                          document.
                                         Format is DUNSnumber--Y.pdf/
                                          doc(x).
                                         Y = the name of the institution
                                          of higher education or
                                          affiliated organization.
Institution/Affiliated Organization      Value is University, Alumni
 Type.                                    Association, or Foundation.
Payment Amount.........................  Amount of payments to
                                          institution/affiliated
                                          organization during reporting
                                          period.
Payment Terms Reference................  Page number(s) in the college
                                          agreement document where terms
                                          under which payments are
                                          calculated are located or NA.
New Accounts...........................  Number of accounts opened
                                          pursuant to the agreement
                                          during the reporting period.
Total Accounts.........................  Total number of accounts opened
                                          pursuant to the agreement that
                                          were open at end of the
                                          reporting period.
------------------------------------------------------------------------

Addendum A--Examples

Transmittal Sheet File

    The following is an example of a transmittal sheet file. The 
data fields should be tab-delimited.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
20100222         123456789        987654321        2      123456         Issuer     123 Main   Credit     DC       20551        Joe Filer........  202-555-9999     [email protected]  Both
                                                                          Bank       Street     City
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

College Agreement Metadata File

    The following is an example of a college agreement metadata file 
for a submission of two college agreements. The data fields should 
be tab-delimited.

[[Page 7925]]



----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
123456789--CreditUniversity.do  University.......            $XX,XXX  Page 3, Page 18,           25         1049
 c.                                                                    Page 30.
123456789--CollegeofCreditAlum  Alumni                       $XX,XXX  Page 6, Page 24.           40         2098
 niAssn.pdf.                     Association.
----------------------------------------------------------------------------------------------------------------

[FR Doc. 2010-624 Filed 2-19-10; 8:45 am]
BILLING CODE 6210-01-P