[Federal Register Volume 76, Number 79 (Monday, April 25, 2011)]
[Rules and Regulations]
[Pages 22948-23040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8843]



[[Page 22947]]

Vol. 76

Monday,

No. 79

April 25, 2011

Part II





Federal Reserve System





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12 CFR Part 226



Truth in Lending; Final Rule

  Federal Register / Vol. 76 , No. 79 / Monday, April 25, 2011 / Rules 
and Regulations  

[[Page 22948]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-1393]
RIN 7100-AD55


Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: On February 22, 2010 and June 29, 2010, the Board published in 
the Federal Register final rules amending Regulation Z's provisions 
that apply to open-end (not home-secured) credit plans, in each case in 
order to implement provisions of the Credit Card Accountability 
Responsibility and Disclosure Act of 2009. The Board believes that 
clarification is needed regarding compliance with certain aspects of 
the final rules. Accordingly, to facilitate compliance, the Board is 
further amending specific portions of the regulations and official 
staff commentary.

DATES: Effective Date: October 1, 2011. Mandatory Compliance Date: 
October 1, 2011. Creditors may, at their option, comply with this rule 
prior to October 1, 2011.

FOR FURTHER INFORMATION CONTACT: Stephen Shin, Attorney, or Amy 
Henderson or Benjamin K. Olson, 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

The Credit Card Act

    The Credit Card Accountability Responsibility and Disclosure Act of 
2009 (Credit Card Act) was signed into law on May 22, 2009. Public Law 
111-24, 123 Stat. 1734 (2009). The Credit Card Act primarily amended 
the Truth in Lending Act (TILA) and instituted a number of new 
substantive and disclosure requirements to establish fair and 
transparent practices pertaining to open-end consumer credit plans.
    The requirements of the Credit Card Act that pertain to credit 
cards or other open-end credit for which the Board has rulemaking 
authority became effective in three stages. First, provisions generally 
requiring that consumers receive 45 days' advance notice of interest 
rate increases and significant changes in terms (TILA Section 127(i)) 
and provisions regarding the amount of time that consumers have to make 
payments (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 (TILA Section 171), over-the-limit 
transactions (TILA Section 127(k)), and student cards (TILA Sections 
127(c)(8), 127(p), and 140(f)) became 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 (TILA Section 149) and re-evaluation by creditors of rate 
increases (TILA Section 148) became effective on August 22, 2010 (15 
months after enactment).

Implementation of Credit Card Act

    The Board issued rules to implement the provisions of the Credit 
Card Act in stages, consistent with the statutory timeline established 
by Congress. On July 22, 2009, the Board published an interim final 
rule to implement the provisions of the Credit Card Act that became 
effective on August 20, 2009. See 74 FR 36077 (July 2009 Interim Final 
Rule). On January 12, 2010, the Board issued a final rule adopting in 
final form the requirements of the July 2009 interim final rule and 
implementing the provisions of the Credit Card Act that became 
effective on February 22, 2010. See 75 FR 7658 (February 2010 Final 
Rule). Independent of the Credit Card Act, this rule also incorporated 
the Board's comprehensive changes to the Regulation Z provisions 
applicable to open-end (not home-secured) credit, including amendments 
that affected 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. Finally, on June 29, 2010, the Board published a final 
rule implementing the provisions of the Credit Card Act that became 
effective on August 22, 2010. See 75 FR 37526 (June 2010 Final Rule).
    Since publication of the February 2010 and June 2010 Final Rules, 
the Board has become aware that clarification is needed to resolve 
confusion regarding how institutions must comply with particular 
aspects of those rules. In order to provide guidance and facilitate 
compliance with the final rules, the Board published proposed 
amendments to portions of the regulation and the accompanying staff 
commentary on November 2, 2010. See 75 FR 67458 (November 2010 Proposed 
Rule).
    In response to the proposed rule, the Board received approximately 
200 comment letters from members of Congress, credit card issuers and 
their employees, consumer groups and individual consumers, trade 
associations, and others. Based on a review of these comments and on 
its own analysis, the Board is adopting this final rule. The provisions 
of this rule are discussed in detail in Section III of this 
supplementary information. In the proposed rule, the Board encouraged 
commenters to limit their submissions to the issues addressed in the 
proposal, emphasizing that the purpose of this rulemaking is to clarify 
and facilitate compliance with the consumer protections contained in 
the February 2010 and June 2010 Final Rules, not to reconsider the need 
for--or the extent of--the protections in those rules. Accordingly, to 
the extent that commenters raised issues that are beyond the scope of 
the proposed rule, those issues are not addressed in this final rule.

II. Statutory Authority

    In the supplementary information for the February 2010 and June 
2010 Final Rules, the Board set forth the sources of its statutory 
authority under the Truth in Lending Act and the Credit Card Act. See 
75 FR 7662 and 75 FR 37528. For purposes of this final rule, the Board 
continues to rely on this legal authority.

III. Section-by-Section Analysis

Section 226.2 Definitions and Rules of Construction

2(a) Definitions

2(a)(15) Credit Card

2(a)(15)(ii) Credit Card Account Under an Open-End (Not Home-Secured) 
Consumer Credit Plan

    In the February 2010 Final Rule, the Board retained the pre-
existing definition of ``credit card'' as any card, plate, or other 
single credit device that may be used from time to time to obtain 
credit. See Sec.  226.2(a)(15)(i). However, the Board also added a new, 
somewhat narrower definition in order to implement the provisions of 
the Credit Card Act that apply to ``credit card account[s] under an 
open end consumer credit plan.'' Specifically, in a new Sec.  
226.2(a)(15)(ii), the Board defined ``credit card account under an 
open-end (not home-secured) consumer credit plan'' to mean any open-end 
credit account accessed by a credit card except: (1) A home-equity plan 
subject to the requirements of Sec.  226.5b that is

[[Page 22949]]

accessed by a credit card; or (2) an overdraft line of credit that is 
accessed by a debit card. This term is generally used in the provisions 
of Regulation Z that implement the Credit Card Act.
    The Board's February 2010 Final Rule declined requests from 
industry commenters to exempt all lines of credit accessed solely by an 
account number from the definition in Sec.  226.2(a)(15)(ii), noting 
Congress' apparent intent that the Credit Card Act apply broadly to all 
products that meet the definition of ``credit card.'' See 75 FR 7664-
7665. However, the Board understands that this determination has caused 
uncertainty about whether all credit products accessed by an account 
number are subject to TILA's credit card provisions.
    In particular, some institutions offer general purpose open-end 
lines of credit that are linked to a checking or other asset account 
with the same institution. The consumer can use the line's account 
number to request an extension of credit, which is then deposited into 
the asset account. The Board understands that there has been some 
confusion as to whether, in these circumstances, the account number is 
a ``credit card'' for purposes of Sec.  226.2(a)(15)(i) and therefore a 
``credit card account under an open-end (not home-secured) consumer 
credit plan'' for purposes of Sec.  226.2(a)(15)(ii). Because most if 
not all credit accounts can be accessed in some fashion by an account 
number, the Board does not believe that Congress generally intended to 
treat account numbers that access a credit account as credit cards for 
purposes of TILA. However, the Board is concerned that, when an account 
number can be used to access an open-end line of credit to purchase 
goods or services, it would be inconsistent with the purposes of the 
Credit Card Act to exempt the line of credit from the protections 
provided for credit card accounts. For example, creditors may offer 
open-end credit accounts designed for online purchases that function 
like a traditional credit card account but can only be accessed using 
an account number. In these circumstances, the Board believes that 
TILA's credit card protections should apply.
    Accordingly, the Board proposed to clarify the application of Sec.  
226.2(a)(15)(i) and (a)(15)(ii) to account numbers by amending comment 
2(a)(15)-2, which provides illustrative examples of credit devices that 
are and are not credit cards. Specifically, the Board proposed to add 
an additional example clarifying that an account number that accesses a 
credit account is not a credit card, unless the account number can 
access an open-end line of credit to purchase goods or services. The 
comment would further clarify that, if, for example, a creditor 
provides a consumer with an open-end line of credit that can be 
accessed by an account number in order to transfer funds into another 
account (such as an asset account with the same creditor), the account 
number is not a credit card for purposes of Sec.  226.2(a)(15)(i). 
However, if the account number can also access the line of credit in 
order to purchase goods or services (such as an account number that can 
be used to purchase goods or services on the Internet), the account 
number is a credit card for purposes of Sec.  226.2(a)(15)(i). 
Furthermore, if the line of credit can also be accessed by a card (such 
as a debit card or prepaid card), then that card is a credit card for 
purposes of Sec.  226.2(a)(15)(i).
    Consistent with this treatment of account numbers, the Board also 
proposed to amend Sec.  226.2(a)(15)(ii)(B)--which currently excludes 
overdraft lines of credit accessed by a debit card from the definition 
of ``credit card account under an open-end (not home-secured) consumer 
credit plan''--to also exclude overdraft lines of credit accessed by an 
account number (such as when a debit card number or checking account 
number is used to make an online purchase that overdraws the asset 
account). In addition, the Board proposed to adopt a new comment 
2(a)(15)-4, which clarifies the test used for determining whether an 
account is a credit card account under an open-end (not home-secured) 
consumer credit plan for purposes of Sec.  226.2(a)(15)(ii). Finally, 
for clarity and consistency, the Board proposed additional non-
substantive revisions to the exception for home-equity plans in Sec.  
226.2(a)(15)(ii)(A).
    Except as discussed below, the revisions to Sec.  226.2(a)(15)(ii) 
and the commentary to Sec.  226.2(a)(15) are adopted as proposed. While 
industry commenters generally supported or did not oppose this aspect 
of the proposal, comments from the prepaid card industry strongly 
objected to the reference to prepaid cards in the proposed example in 
comment 2(a)(15)-2. As discussed above, the Board's proposed amendments 
to comment 2(a)(15)-2 were intended to clarify Sec.  226.2(a)(15)(i)'s 
definition of ``credit card'' with respect to account numbers that 
access lines of credit, not prepaid cards that access lines of credit. 
Accordingly, the Board has revised the proposed example in comment 
2(a)(15)-2 to remove the specific reference to prepaid cards. However, 
a prepaid card is a credit card for purposes of Regulation Z if it 
falls within the general definition of ``credit card'' set forth in 
Sec.  226.2(a)(15) and the accompanying commentary.
    Consumer group commenters objected to the proposed revisions to 
comment 2(a)(15)-2, which could--in their view--create an incentive for 
creditors to develop new products designed to circumvent the Credit 
Card Act. However, the proposed revisions are intended to prevent 
circumvention by clarifying that an account number that accesses an 
open-end line of credit to purchase goods or services is generally 
treated as a credit card for purposes of Regulation Z. To the extent 
that additional products emerge that raise concerns regarding 
circumvention, further revisions to Regulation Z may be appropriate. 
Nevertheless, the Board has revised comment 2(a)(15)-2 to clarify that, 
when an account number can access an open-end line of credit to 
purchase goods or services, a creditor cannot evade Regulation Z's 
credit card provisions by treating the purchases as cash advances or as 
some other type of transaction.

2(a)(15)(iii) Charge Card

    The Board understands that there has been some confusion as to 
whether a charge card is a ``credit card account under an open-end (not 
home-secured) consumer credit plan,'' as defined in Sec.  
226.2(a)(15)(ii). Section 226.2(a)(15)(iii) defines a ``charge card'' 
as a credit card on an account for which no periodic rate is used to 
compute a finance charge. The Board has historically applied the same 
requirements to credit and charge cards, unless otherwise stated. See 
Sec.  226.2(a)(15); comment 2(a)(15)-3. Therefore, as discussed in the 
February 2010 Final Rule, the Board adopted a similar approach when 
implementing the provisions of the Credit Card Act. See 75 FR 7672-
7673. Nevertheless, for clarity and consistency, the Board proposed to 
amend comment 2(a)(15)-3 to state that references to a credit card 
account under an open-end (not home-secured) consumer credit plan in 
Subpart B (Open-End Credit) and Subpart G (Special Rules Applicable to 
Credit Card Accounts and Open-End Credit Offered to Students) include 
charge cards unless otherwise stated.
    The Board also proposed to update the list of provisions in comment 
2(a)(15)-3 that distinguish charge cards from credit cards. In 
addition, the Board proposed to remove the statement in the comment 
that, when the term ``credit card'' is used in the listed provisions, 
it

[[Page 22950]]

refers to credit cards other than charge cards. While generally 
accurate, this statement may be overbroad in certain circumstances. For 
example, the exemption in Sec.  226.7(b)(12)(v)(A) and the safe harbor 
in Sec.  226.52(b)(1)(ii)(C) are limited to charge card accounts that 
require payment of outstanding balances in full at the end of each 
billing cycle. Accordingly, the applicability of a particular provision 
should be determined based on a review of that provision and the 
relevant staff commentary.
    The Board did not receive significant comment on the proposed 
revisions to comment 2(a)(15)-3. Accordingly, that comment is revised 
as proposed.

Section 226.5 General Disclosure Requirements

5(b) Time of Disclosures

5(b)(2) Periodic Statements

    Prior to enactment of the Credit Card Act, TILA Section 163 
generally required creditors to send periodic statements for open-end 
consumer credit plans at least 14 days before the expiration of any 
period within which any credit extended may be repaid without incurring 
a finance charge (i.e., a ``grace period''). See 15 U.S.C. 1666b 
(2008). The Board's Regulation Z, however, extended this 14-day 
requirement to apply even if no grace period was provided. 
Specifically, prior to the 2009 amendments implementing the Credit Card 
Act, Sec.  226.5(b)(2)(ii) required that creditors mail or deliver 
periodic statements at least 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 other charges (such as late 
payment fees). See also former comment 5(b)(2)(ii)-1 (2008). Thus, 
before the Credit Card Act, creditors were generally required to 
provide consumers with at least 14 days to make payments for all open-
end consumer credit accounts.
    Effective August 20, 2009, the Credit Card Act amended TILA Section 
163 to generally prohibit a creditor from treating a payment as late or 
imposing additional finance charges with respect to open-end consumer 
credit plans unless the creditor mailed or delivered the periodic 
statement at least 21 days before the payment due date and the 
expiration of any grace period. See Credit Card Act Sec.  106(b)(1). 
The Board's July 2009 interim final rule made corresponding amendments 
to Sec.  226.5(b)(2)(ii) and the accompanying official staff 
commentary. See 74 FR 36077 (July 22, 2009). Because amended TILA 163 
required that periodic statements be mailed at least 21 days before the 
payment due date for all open-end consumer credit accounts even if no 
grace period was provided, the amendments to Sec.  226.5(b)(2)(ii) 
removed the pre-existing 14-day requirement as unnecessary.
    However, in November 2009, the Credit CARD Technical Corrections 
Act of 2009 (Technical Corrections Act) further amended TILA Section 
163. Pub. L. 111-93, 123 Stat. 2998 (Nov. 6, 2009). The Technical 
Corrections Act narrowed the requirement in TILA Section 163(a) that 
statements be mailed or delivered at least 21 days before the payment 
due date to apply only to credit card accounts, rather than to all 
open-end consumer credit plans. However, open-end consumer credit plans 
that provide a grace period remain subject to the 21-day requirement in 
TILA Section 163(b). In its February 2010 Final Rule, the Board 
narrowed the application of Sec.  226.5(b)(2)(ii) for consistency with 
the Technical Corrections Act. However, in doing so, the Board 
inadvertently failed to reinsert the 14-day requirement for open-end 
consumer credit plans without a grace period.
    The Board believes that it would be inconsistent with the purposes 
of the Credit Card Act for consumers to receive less time to make 
payments after its implementation than they did beforehand. 
Accordingly, pursuant to its authority under Section 105(a) of TILA and 
Section 2 of the Credit Card Act, the Board proposed to amend Sec.  
226.5(b)(2)(ii) to reinsert the 14-day requirement for open-end 
consumer credit plans that are not subject to the Credit Card Act's 21-
day requirements.
    Specifically, the Board proposed to revise Sec.  226.5(b)(2)(ii) to 
provide that, in these circumstances, the creditor must adopt 
reasonable procedures designed to ensure that: (1) Periodic statements 
are mailed or delivered at least 14 days prior to the date on which the 
required minimum periodic payment must be made to avoid being treated 
as late; and (2) payments received on or prior to that date are not 
treated as late for any purpose. The Board also proposed corresponding 
revisions to the commentary to Sec.  226.5(b)(2)(ii). Comments from 
industry and consumer groups supported these revisions, which are 
generally adopted as proposed. However, based on further analysis the 
Board has revised Sec.  226.5(b)(2)(ii)(B) to clarify that the 14-day 
requirement applies regardless of whether a grace period applies to the 
account. In other words, the fact that a grace period applies to an 
account does not permit the creditor to treat a payment as late during 
the 14-day period, even if that payment does not satisfy the 
requirements of the grace period.
    The Board also proposed to delete comment 5(b)(2)(iii)-1, which 
provided guidance regarding the pre-Credit Card Act versions of TILA 
Section 163 and Sec.  226.5(b)(2) and was inadvertently retained in the 
February 2010 Final Rule. Prior to enactment of the Credit Card Act, 
TILA Section 163(b) stated that the 14-day mailing requirement did 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 specified * * * because of an act of God, 
war, natural disaster, strike, or other excusable or justifiable cause. 
* * *'' Comment 5(b)(2)(iii)-1 clarified that these exceptions did not 
extend to the failure to provide a periodic statement because of a 
computer malfunction. Consumer groups opposed the deletion of this 
comment, arguing that the Board should reaffirm that a computer 
malfunction never excuses a creditor from providing periodic statements 
in a timely manner.
    The Credit Card Act and the Board's final rules replaced the 
exceptions in TILA Section 163(b) with a requirement that creditors 
adopt ``reasonable procedures'' for ensuring that periodic statements 
are mailed or delivered consistent with the appropriate timelines. In 
the February 2010 Final Rule, the Board noted that the Credit Card 
Act's removal of the statutory exceptions was 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. See 
75 FR 7667. Similarly, the Board believes that it is appropriate to 
evaluate a creditor's procedures for responding to a computer 
malfunction for reasonableness. Accordingly, the final rule deletes 
comment 5(b)(2)(iii)-1.

Section 226.5a Credit and Charge Card Applications and Solicitations

5a(b) Required Disclosures

5a(b)(1) Annual Percentage Rate

Limitations on Rate Decreases
    Section 226.5a(b)(1) requires that the tabular disclosure provided 
with credit and charge card applications and solicitations state 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. Section 
226.5a(b)(1)(i)

[[Page 22951]]

clarifies this disclosure requirement when a rate is a variable rate. 
In part, Sec.  226.5a(b)(1)(i) provides that a card issuer may not 
disclose any applicable limitations on rate increases or decreases in 
the table.
    Section 226.55 sets forth limitations on rate increases applicable 
to credit card accounts under an open-end (not home-secured) consumer 
credit plan. Section 226.55(b)(2) provides that a card issuer may 
increase an annual percentage rate when (1) the rate varies according 
to an index that is not under the card issuer's control and is 
available to the general public, and (2) the rate increase is due to an 
increase in that index. In the February 2010 Final Rule, the Board 
adopted comment 55(b)(2)-2 that clarified that a card issuer exercises 
control over the operation of an 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.
    In November 2010, the Board proposed to amend Sec.  226.5a(b)(1)(i) 
for conformity with comment 55(b)(2)-2. The Board is aware that, as a 
practical matter, Sec.  226.55(b)(2) and comment 55(b)(2)-2 preclude 
card issuers from imposing a variable rate that is subject to a fixed 
minimum rate. Accordingly, the Board proposed to delete as unnecessary 
language in Sec.  226.5a(b)(1)(i) providing that a card issuer may not 
disclose any applicable limitations on rate decreases in the table. The 
Board received no comment on this change, which is adopted as proposed.
    In the supplementary information to the November 2010 Proposed 
Rule, the Board noted that Sec.  226.6(b)(2)(i)(A) contains analogous 
language regarding limitations on rate decreases. However, Sec.  
226.55(b)(2) applies only to credit card accounts under an open-end 
(not home-secured) consumer credit plan while Sec.  226.6(b) applies to 
all open-end (not home-secured) credit. Therefore, the Board did not 
propose to delete the reference to limitations on rate decreases from 
Sec.  226.6(b)(2)(i)(A). But see Sec.  226.9(c)(2)(v)(C) regarding the 
notice requirements that apply to an open-end (not home-secured) plan 
with a variable rate that is subject to a fixed minimum rate.
Loss of Employee Preferential Rates
    If a rate may increase as a penalty for one or more events 
specified in the account agreement, Sec.  226.5a(b)(1)(iv) requires 
that the card issuer disclose 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. This disclosure generally must appear in the 
Sec.  226.5a table; however, Sec.  226.5a(b)(1)(iv)(B) provides that, 
for introductory rates as defined in Sec.  226.16(g)(2)(ii), the card 
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. The Board adopted this format requirement for the 
disclosure regarding loss of an introductory rate in part due to 
concerns that including this information in the tabular disclosure 
could lead to ``information overload.'' See 74 FR 5244, 5286.
    The Board noted in the November 2010 Proposed Rule that some 
issuers may offer preferential or reduced rates at account opening that 
are not ``introductory rates'' as defined in Sec.  226.16(g)(2)(ii). 
For example, an issuer may offer a preferential rate to its employees. 
Eligibility for the preferential or reduced rate is conditioned upon 
the consumer's continued employment with the issuer. Accordingly, if 
the consumer's employment is terminated, the contract provides that the 
rate will increase from the reduced preferential rate to a higher rate, 
such as the standard rate on the account.\1\
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    \1\ The Board notes that 45 days' advance notice is required 
pursuant to Sec.  226.9(g) prior to imposition of the higher rate. 
See 74 FR 5346. In addition, the limitations set forth in Sec.  
226.55 apply.
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    In the November 2010 Proposed Rule, the Board proposed to adopt a 
new Sec.  226.5a(b)(1)(iv)(C), which would require that disclosures 
regarding the loss of an employee preferential rate be placed directly 
below the tabular disclosure. Proposed Sec.  226.5a(b)(1)(iv)(C) 
generally mirrored Sec.  226.5a(b)(1)(iv)(B) and provided that if a 
card issuer discloses in the table a preferential annual percentage 
rate for which only employees of the creditor or employees of a third 
party are eligible, the card issuer must briefly disclose directly 
beneath the table the circumstances under which such preferential rate 
may be revoked, and the rate that will apply after such preferential 
rate is revoked. The Board also proposed a new Sec.  
226.6(b)(2)(i)(D)(3) that would mirror proposed Sec.  
226.5a(b)(1)(iv)(C) and would require that brief disclosures regarding 
the loss of an employee preferential rate be placed directly below the 
tabular disclosure provided at account opening. The Board also proposed 
conforming amendments to the formatting requirements set forth in 
Sec. Sec.  226.5a(a)(2)(iii) and 226.6(b)(1)(ii). For ease of 
reference, this section of supplementary information addresses both 
proposed Sec.  226.5a(b)(1)(iv)(C) and Sec.  226.6(b)(2)(i)(D)(3).
    The Board also proposed a new comment 5a(b)(1)-5.iv to provide 
guidance regarding the disclosure below the table of the circumstances 
under which an employee preferential rate may be revoked. Proposed 
comment 5a(b)(1)-5.iv generally mirrored relevant portions of the 
guidance set forth in comment 5a(b)(1)-5.ii regarding the revocation of 
introductory rates. In addition, proposed comment 5a(b)(1)-5.iv 
clarified that the description of the circumstances in which an 
employee preferential rate could be revoked should be brief. For 
example, if an issuer may increase an employee preferential rate based 
upon termination of the employee's employment relationship with the 
issuer or a third party, the proposed comment clarified that an issuer 
may describe this circumstance as ``if your employment with [issuer or 
third party] ends.''
    Several industry commenters expressed concerns that the proposal 
would add new disclosure requirements for employee preferred rates. One 
commenter stated that when a creditor offers an employee rate it is not 
usually disclosed in the tabular disclosures provided pursuant to 
Sec. Sec.  226.5a and 226.6(b). This commenter stated that the tabular 
disclosures are drafted for general use and, if an employee applies, 
the account terms are subsequently amended to provide for the employee 
preferred rate. The commenter asked the Board to clarify that the 
proposal would not require creditors to disclose employee preferential 
rates in the tables provided pursuant to Sec. Sec.  226.5a and 
226.6(b). Two other industry commenters expressed concerns that the 
proposal would require a new disclosure to be included in application 
and account-opening disclosures relating to the potential loss of an 
employee preferred rate. These commenters argued that such disclosure 
requirements, particularly when paired with the advance notice 
requirements of Sec.  226.9 and the limitations on rate increases in 
Sec.  226.55, could result in reduced availability of beneficial 
employee rate programs, because issuers would be required to provide 
special disclosures to employees who receive preferred employee rates, 
while at the same time the advance notice requirements and limitations 
on rate increases would apply when the consumer's employment ends. 
These commenters recommended that the temporary rate exception be 
expanded

[[Page 22952]]

to permit issuers to increase rates, or fees where appropriate, based 
on termination of a consumer's employment, without being subject to 45-
day advance notice or the limitations in Sec.  226.55.
    The Board notes that proposed Sec. Sec.  226.5a(b)(1)(iv)(C) and 
226.6(b)(2)(i)(D)(3) were not intended to impose any new disclosure 
requirements regarding employee preferential rates, but were rather 
intended to clarify the placement requirements for disclosures that are 
already required under Regulation Z. Sections 226.5a(b)(1) and 
226.6(b)(2)(i) currently require disclosure of 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. Thus, the Board 
believes that under current Regulation Z requirements, employee 
preferential rates must be included in the tabular disclosures provided 
pursuant to Sec. Sec.  226.5a and 226.6(b), if they are, or will be, 
included in the initial account agreement.\2\ In addition, Sec. Sec.  
226.5a(b)(1)(iv)(A) and 226.6(b)(2)(i)(D) currently require that 
certain additional disclosures be provided if a rate may increase as a 
penalty for one or more events specified in the account agreement. As 
stated in the supplementary information to its final rule published on 
January 29, 2009, the Board believes that an increase in rate due to 
the termination of a consumer's employment is a type of rate increase 
as a penalty, even if the circumstances under which the change may 
occur are set forth in the account agreement. See 74 FR 5244, 5346 
(January 2009 Final Rule). Accordingly, the Board believes that 
Sec. Sec.  226.5a(b)(1)(iv)(A) and 226.6(b)(2)(i)(D) currently require 
disclosures regarding the revocation of an employee preferential rate 
that is offered at account opening.
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    \2\ If an employee preferential rate is not included in the 
initial account agreement, but is instead added by an amendment to 
the agreement after account opening, such a rate is not required to 
be disclosed in the tabular disclosures pursuant to Sec. Sec.  
226.5a and 226.6(b). But see Sec.  226.9(c)(2) and (g) for other 
disclosure requirements that may apply.
---------------------------------------------------------------------------

    The Board noted in the proposal that the proposed placement 
requirement would be appropriate in order to prevent ``information 
overload'' and to focus consumers' attention on the disclosures that 
they find the most important. The Board continues to believe that it is 
appropriate to require that disclosures regarding the revocation of an 
employee preferential rate be provided with the tabular disclosures 
provided with credit card applications and solicitations and at account 
opening. However, the Board is concerned that including this 
information, which is likely relevant only to a limited subset of 
consumers, in the tabular disclosure may distract other consumers from 
other key disclosures. Accordingly, the Board is adopting Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) generally as proposed.
    One industry commenter stated that the Board also should apply 
proposed Sec. Sec.  226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) to 
situations in which a preferential rate is offered to a bank's 
insiders, such as executive officers, directors, or principal 
shareholders. The commenter noted that applicable regulations may 
permit preferential rates to be offered to such individuals, but that 
such preferential rates might not be covered by proposed Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) because insiders such as 
executive officers, directors, or principal shareholders are not 
employees of the creditor. The Board believes that it is appropriate to 
extend the guidance in Sec. Sec.  226.5a(b)(1)(iv)(C) and 
226.6(b)(2)(i)(D)(3) to apply to individuals who, while not technically 
employees of the card issuer or third party, have a similar affiliation 
to such entities. The Board believes that, as with employee 
preferential rates, requiring that disclosures regarding the revocation 
of preferential rates offered to such insiders be placed in the tabular 
disclosure may distract some consumers from other key disclosures and 
contribute to information overload. Thus, as adopted, Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) would apply if a card 
issuer or creditor discloses in the table a preferential annual 
percentage rate for which only employees of the card issuer or 
creditor, employees of a third party, or other individuals with similar 
affiliations with the card issuer, creditor, or third party, such as 
executive officers, directors, or principal shareholders, are eligible.
    Consumer group commenters agreed with the Board's statement that 
termination of an employee preferential rate is not a promotional rate 
but is in fact a contingent rate increase. These commenters supported 
the inclusion of footnote 1 in the supplementary information to the 
proposal, which noted that 45 days' advance notice is required pursuant 
to Sec.  226.9(g) prior to imposition of a higher rate upon loss of an 
employee promotional rate and that the limitations set forth in Sec.  
226.55 apply to the rate increase. Consumer groups requested that the 
substance of this footnote be incorporated into the commentary and that 
comment 55(b)(1)-4 be amended to expressly prohibit application of a 
rate increase due to loss of an employee preferential rate to existing 
balances on the account. For the reasons stated in the supplementary 
information to the January 2009 Final Rule and February 2010 Final 
Rule, the Board believes that rate increases that occur upon expiration 
of an employee preferential rate should continue to be subject to the 
advance notice requirements of Sec.  226.9(g) and the substantive 
limitations in Sec.  226.55. See, e.g., 74 FR 5346, 75 FR 7736. 
However, the Board believes that Regulation Z already clearly provides 
that rate increases upon loss of an employee preferential rate require 
45 days' advance notice under Sec.  226.9(g) and are subject to the 
limitations in Sec.  226.55.
    Proposed Sec. Sec.  226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) 
would have applied only to loss of employee preferential rates. The 
Board solicited comment on whether there are other types of 
preferential or reduced rates that are not introductory rates as 
defined in Sec.  226.16(g)(2)(ii) but for which similar treatment under 
Sec.  226.5a would be appropriate. Several industry commenters 
identified other scenarios in which creditors or card issuers may offer 
preferred rates that do not meet the definition of ``introductory 
rates'' in Sec.  226.16(g)(2)(ii). For example, an issuer or creditor 
may offer preferred rates for making payments automatically via 
electronic recurring payments or payroll deduction. Other creditors may 
offer preferred rates as relationship rewards, for example for 
maintaining a deposit account with the creditor or for maintaining a 
minimum balance in a deposit account with the creditor. If the consumer 
fails to continue to meet the conditions associated with the 
preferential rate, the preferential rate will be revoked and a higher 
rate will be imposed.\3\
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    \3\ Similar to employee preferential rates, the Board notes that 
45 days' advance notice is required pursuant to Sec.  226.9(g) prior 
to imposition of the higher rate when the consumer ceases to meet 
the conditions for such preferential rates. In addition, the 
limitations set forth in Sec.  226.55 apply.
---------------------------------------------------------------------------

    At this time, the Board is not extending the guidance in Sec. Sec.  
226.5a(b)(1)(iv)(C) and 226.6(b)(2)(i)(D)(3) to address the loss of 
preferred rates offered in other circumstances, such as preferred rates 
offered to consumers who make automatic payments or preferred rates 
otherwise offered as relationship rewards. Unlike employee preferred 
rates, which are likely relevant only to a subset of an issuer or 
creditor's

[[Page 22953]]

consumers, the Board believes that relationship rewards or a discount 
for making automatic payments may be relevant to a much larger portion 
of a creditor's customer base. In addition, the Board believes that 
creditors may be more likely to market credit products on the basis of 
preferred rates based on automatic payments or other relationship 
rewards than on the basis of discounted rates that are available only 
if the consumer is employed with the creditor or another specific third 
party. Accordingly, the Board is concerned that permitting disclosures 
regarding the loss of preferential rate programs made available to the 
general public, such as those based upon automatic payments or as other 
types of relationship rewards, to be placed below the Sec. Sec.  226.5a 
and 226.6 tables may detract from consumers' awareness and 
understanding of the circumstances under which such preferred rates can 
be terminated by the creditor.
Disclosure of How Long a Penalty Rate Will Remain in Effect
    If a rate may increase as a penalty for one or more events 
specified in the account agreement, Sec.  226.5a(b)(1)(iv) requires 
that the card issuer disclose 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. The Board understands that, in light of several 
provisions of the Credit Card Act, there is confusion regarding how 
issuers must disclose the period for which the penalty rate will remain 
in effect. The Board understands that historically some issuers' card 
agreements provided that penalty rates, once triggered, could remain in 
effect indefinitely. However, the enactment of the Credit Card Act 
established certain circumstances in which a card issuer must reduce 
the rate even after penalty pricing has been triggered. In particular, 
Sec.  226.55(b)(4) requires a card issuer to reduce a rate that was 
raised based upon a delinquency of more than 60 days, if the consumer 
makes the first six required minimum payments on time following the 
effective date of the rate increase. In addition, Sec.  226.59 requires 
a card issuer to periodically review accounts on which a rate increase 
has been imposed and, where appropriate based on the review, reduce the 
rate applicable to the account.
    As a consequence of Sec. Sec.  226.55(b)(4) and 226.59, the Board 
understands that it may be unclear how issuers should disclose the 
duration for which a penalty rate will be in effect, for example if the 
contract provides that the penalty rate may remain in effect 
indefinitely, except to the extent otherwise required by Sec. Sec.  
226.55(b)(4) and 226.59. Accordingly, the Board proposed to amend 
comment 5a(b)(1)-5.i to clarify that a card issuer may not disclose in 
the table any limitations imposed by Sec. Sec.  226.55(b)(4) and 226.59 
on the duration of increased rates. Proposed comment 5a(b)(1)-5.i set 
forth two examples. First, the proposed comment provided that if a card 
issuer reserves the right to apply the increased rate to any balances 
indefinitely, the issuer should disclose that the penalty rate may 
apply indefinitely, even though Sec. Sec.  226.55(b)(4) and 226.59 may 
impose limitations on the continued application of a penalty rate to 
certain balances. The second example provided that if the issuer 
generally provides that the increased rate will apply until the 
consumer makes twelve timely consecutive required minimum periodic 
payments, the issuer should disclose that the penalty rate will apply 
until the consumer makes twelve consecutive timely minimum payments, 
even though Sec. Sec.  226.55(b)(4) and 226.59 may impose limitations 
on the continued application of a penalty rate to certain balances.\4\
---------------------------------------------------------------------------

    \4\ The Board notes that the second example in proposed comment 
5a(b)(1)-5.i erroneously referred to Sec.  226.54(b)(4) instead of 
Sec.  226.55(b)(4). This typographical error has been corrected in 
the final rule.
---------------------------------------------------------------------------

    One industry commenter supported the proposed changes to comment 
5a(b)(1)-5.i. However, two other industry commenters expressed concerns 
regarding this aspect of the proposal. These commenters stated that 
comment 5a(b)(1)-5.i could contribute to consumer confusion and reduce 
a card issuer's incentive to implement practices that are more 
beneficial to consumers than the minimum requirements of Regulation Z. 
The commenters expressed concern that if an issuer discloses a practice 
that is more beneficial to consumers than the requirements of 
Sec. Sec.  226.55(b)(4) and 226.59--for example, that the issuer will 
lower the rate if the consumer makes three consecutive timely minimum 
payments--consumers will assume that the disclosed practice is 
detrimental to their interests.
    The Board notes that Sec.  226.5a(b)(1)(iv) requires issuers to 
disclose a brief description of how long a penalty rate will remain in 
effect. While the proposed clarification provided that a card issuer 
may not disclose in the table any limitations imposed by Sec. Sec.  
226.55(b)(4) and 226.59 on the duration of increased rates, Sec.  
226.5a(b)(1)(iv) nonetheless requires a card issuer to provide a 
disclosure regarding the duration of penalty rates. For example, if an 
issuer's account agreement generally provides for no automatic cure for 
penalty rates (except as required pursuant to Sec.  226.55(b)(4)), the 
issuer would be required to disclose that the penalty rate may remain 
in effect indefinitely. Similarly, if the account agreement provides 
for a more advantageous cure for penalty rates than is required 
pursuant to Sec.  226.55(b)(4), for example that penalty rates will be 
reduced if the consumer makes three consecutive timely payments, the 
issuer would disclose that fact. Accordingly, the Board believes that 
consumers will be able to compare the practices of different issuers 
and that a disclosure of an automatic penalty pricing cure based upon 
three consecutive timely payments will compare favorably with the 
disclosure provided by an issuer who offers no cure for penalty pricing 
except to the extent required under Sec. Sec.  226.55(b)(4) and 226.59.
    Accordingly, the Board is adopting the changes to comment 5a(b)(1)-
5.i as proposed. The Board believes more complex disclosures explaining 
the applicability of the rules in Sec. Sec.  226.55(b)(4) and 226.59 
would be confusing to consumers, and would be of limited assistance in 
shopping for credit, given that those provisions apply to all issuers. 
In addition, consumers to whose accounts the cure right under Sec.  
226.55(b)(4) applies will be notified of that right when they receive a 
notice under Sec.  226.9(c)(2) or (g) disclosing the associated rate 
increase.

Other Amendments to Sec.  226.5a(b)(1)

    The Board also proposed an amendment to comment 5a(b)(1)-5.ii to 
correct a technical error. As discussed above, pursuant to Sec.  
226.5a(b)(1)(iv)(B), information regarding the revocation of an 
introductory rate is required to be disclosed directly beneath the 
table. Comment 5a(b)(1)-5.ii, which discusses the disclosures regarding 
the revocation of an introductory rate, contained an erroneous 
reference to a disclosure in, rather than beneath, the table. 
Accordingly, the Board proposed a technical amendment to comment 
5a(b)(1)-5.ii for conformity with the placement requirements in Sec.  
226.5a(b)(1)(iv)(B). The Board received no comments on this technical 
correction, which is adopted as proposed.

5a(b)(2) Fees for Issuance or Availability

    Comment 5a(b)(2)-4 states that, if fees required to be disclosed 
are waived or reduced for a limited time, the introductory fees or the 
fact of fee

[[Page 22954]]

waivers may be disclosed 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. For the reasons discussed below, the Board has 
revised this comment to clarify that the card issuer must comply with 
the disclosure requirements in Sec. Sec.  226.9(c)(2)(v)(B) and 
226.55(b)(1).

5a(b)(5) Grace Period

    Section 226.5a(b)(5) requires that the tabular disclosure provided 
with credit and charge card applications and solicitations state 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.
    Comment 5a(b)(5)-1 states that 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 the requirements in Sec.  226.5a(b)(5) 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.'' This model language was developed through extensive 
consumer testing.
    In the February 2010 Final Rule, the Board adopted comment 
5a(b)(5)-4, which clarifies that Sec.  226.5a(b)(5) does not require a 
card issuer to disclose the limitations on the imposition of finance 
charges in Sec.  226.54. Implementing the Credit Card Act, Sec.  226.54 
provides that, when a consumer pays some but not all of the balance 
subject to a grace period prior to the expiration of the grace period, 
the card issuer is prohibited from imposing finance charges on the 
portion of the balance paid. In adopting comment 5a(b)(5)-4, the Board 
was concerned that the inclusion of language attempting to describe the 
limitations set forth in Sec.  226.54 could reduce the effectiveness of 
the grace period disclosure in the table. The Board also stated its 
belief that a disclosure of the limitations set forth in Sec.  226.54 
is not necessary insofar as the model language set forth in comment 
5a(b)(5)-1 accurately states that a consumer generally will not be 
charged any interest on purchases if the entire balance is paid by the 
due date each month. Thus, although Sec.  226.54 limits the imposition 
of finance charges if the consumer pays less than the entire balance 
shown on the periodic statement, the model language achieves its 
intended purpose of explaining succinctly how a consumer can avoid all 
interest charges on purchases.
    Many issuers offer a grace period on all purchases under which no 
interest will be charged on purchases shown on a periodic statement if 
a consumer pays his or her outstanding balance shown on the periodic 
statement in full by the due date in the previous and/or the current 
billing cycle(s). Many of these issuers are using the model language 
set forth in comment 5a(b)(5)-1, or substantially similar language, to 
describe the grace period and the conditions on its availability. 
Nonetheless, other issuers have chosen not to use the model language 
set forth in comment 5a(b)(5)-1, even though the issuers would be 
permitted to do so. Some of the issuers that have chosen not to use the 
model language are disclosing the grace period in more technical 
detail, including a discussion of the limitations on imposition of 
finance charges under Sec.  226.54, and the impact of payment 
allocation on whether interest will be charged on purchases due to the 
loss of a grace period. Other issuers are including detailed language 
to explain the conditions on the grace period, such as an explanation 
that the consumer will not be charged any interest on new purchases, or 
any portion of a new purchase, paid by the due date on the consumer's 
current billing statement if the consumer paid his or her entire 
balance on the previous billing statement in full by the due date on 
that statement.
    Thus, in the November 2010 Proposed Rule, the Board proposed to 
revise comment 5a(b)(5)-1 to clarify that issuers must not disclose in 
the table required by Sec.  226.5a the limitations on the imposition of 
finance charges as a result of a loss of a grace period in Sec.  
226.54, or the impact of payment allocation on whether interest is 
charged on purchases as a result of a loss of a grace period. However, 
issuers would not have been prohibited from disclosing this information 
outside the table. Comment 5a(b)(5)-4, which states that card issuers 
are not required to disclose the limitations set forth in Sec.  226.54, 
would have been deleted. As discussed above, the Board believed the 
inclusion of language attempting to describe the limitations set forth 
in Sec.  226.54 or the impact of payment allocation on whether interest 
will be charged on purchases due to the loss of a grace period could 
reduce the effectiveness of the grace period disclosure in the table.
    In addition, the Board proposed to revise comment 5a(b)(5)-1 to 
clarify that, for purposes of the tabular disclosures required by Sec.  
226.5a, certain issuers must use the disclosure language set forth in 
proposed comment 5a(b)(5)-1. Specifically, proposed comment 5a(b)(5)-1 
noted that some issuers may offer a grace period on all purchases under 
which interest will not be charged on purchases if the consumer pays 
the outstanding balance shown on a periodic statement in full by the 
due date shown on that statement for one or more billing cycles. The 
proposed comment would have clarified that in these circumstances, 
Sec.  226.5a(b)(5) requires that the issuer disclose the grace period 
and the conditions for its applicability using the following language, 
or substantially similar language, 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.'' As discussed above, this disclosure language 
was developed through extensive consumer testing, and the Board 
believed this disclosure language achieves its intended purpose of 
explaining succinctly how a consumer can avoid all interest charges on 
purchases.
    The Board recognized that some issuers may structure their grace 
periods differently than as described above, and the disclosure 
language described above may not be accurate for those issuers. 
Proposed comment 5a(b)(5)-1 noted that some issuers may offer a grace 
period on all purchases under which interest may be charged on 
purchases even if the consumer pays the outstanding balance shown on a 
periodic statement in full by the due date shown on that statement each 
billing cycle. As an example, the proposal noted that an issuer may 
charge interest on purchases if the consumer uses the account for a 
cash advance, regardless of whether the outstanding balance shown on 
the periodic statement is paid in full by the due date shown on that 
statement. In these circumstances, proposed comment 5a(b)(5)-1 
clarified that Sec.  226.5a(b)(5) requires the issuer to amend the 
above disclosure language to describe accurately the conditions on the 
applicability of the grace period. Nonetheless, under the proposal, 
these issuers in disclosing the grace period and the conditions on its 
availability in the Sec.  226.5a table still would not have been 
allowed to disclose the limitations on the imposition of finance 
charges as a result of a loss of a grace period in

[[Page 22955]]

Sec.  226.54, or the impact of payment allocation on whether interest 
is charged on purchases as a result of a loss of a grace period.
    Consumer group commenters objected to the proposed example in 
comment 5a(b)(5)-1, arguing that, when a consumer pays the outstanding 
balance shown on a periodic statement in full by the due date shown on 
that statement, a card issuer should not be permitted to charge 
interest on purchases based on the consumer's use of the account for a 
cash advance. As discussed below, these commenters requested that the 
Board ban this and other issuer practices related to grace periods 
using its authority under the Federal Trade Commission Act (FTC Act). 
In revising comment 5a(b)(5)-1, the Board intended to clarify the 
requirements for disclosing grace periods, not to opine on whether 
particular grace period practices are permissible. Accordingly, the 
final version of comment 5a(b)(5)-1 does not include the proposed 
example.
    One industry commenter opposed the proposed modifications to 
comment 5a(b)(5)-1 that would prohibit a card issuer from disclosing in 
the table any limitations on the imposition of finance charges as a 
result of a loss of a grace period in Sec.  226.54, or the impact of 
payment allocation on whether interest is charged on purchases as a 
result of a loss of a grace period. The commenter believes the impact 
of payment allocation on whether interest is charged on purchases as 
the result of a loss of a grace period is very important information 
for an applicant attempting to determine the cost of a credit program 
based on how they intend to use various features of the account. For 
example, if a customer must pay one credit feature in full (due to 
payment allocation requirements) before payments are applied to a 
second credit feature nearing the end of its grace period, the 
commenter believed that the consumer should be alerted to such a 
situation in the table because it could require a significant 
commitment of resources by the consumer to avoid paying interest on the 
second credit feature. The commenter requested that the Board adopt 
model language that would address this situation, such as the following 
language: ``We will not charge you interest if you pay the full balance 
of credit feature 1 and any balance in credit feature 2 in full by the 
due date each billing period.''
    Except as discussed above, comment 5a(b)(5)-1 is adopted as 
proposed. As noted earlier, the Board believes the inclusion of 
language attempting to describe the limitations set forth in Sec.  
226.54 or the impact of payment allocation on whether interest will be 
charged on purchases due to the loss of a grace period could reduce the 
effectiveness of the grace period disclosure in the table. Under 
comment 5a(b)(5)-1, an issuer must use the following language to 
describe the grace period 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.'' This language achieves its intended purpose of 
explaining succinctly how a consumer can avoid all interest charges on 
purchases, namely by paying the entire balance by the due date each 
month.
    Ban on certain types of grace periods. In response to the November 
2010 Proposed Rule, several consumer groups requested that the Board 
develop model language for different types of grace periods and require 
the use of such model language for all issuers. In addition, the 
consumer groups requested that the Board use its authority under the 
FTC Act to limit issuers to the types of grace period for which there 
is model language. These consumer groups believe that some issuers are 
making grace period disclosures, and structuring grace periods 
themselves, in a manner that is confusing, deceptive, or unfair. In the 
November 2010 Proposed Rule, the Board did not propose to use its FTC 
Act authority to ban issuers from using certain types of grace periods, 
and is not adopting such a ban as part of the final rule.
    Conditions on the grace period for certain future promotional 
offers. One industry commenter requested that the Board revise proposed 
comment 5a(b)(5)-1 to clarify that an issuer is not required to 
disclose in the table any conditions that a future promotional offer 
might place on the grace period. Specifically, this commenter indicated 
that some promotional offers place limitations on the grace period. For 
example, a promotional offer may provide that the grace period is 
eliminated for purchases under that offer, even if the customer pays 
his or her balance in full. The commenter argued that if the promotion 
is part of the account-opening offer, it is appropriate to include the 
specific limitations in the account-opening table. The commenter 
argued, however, that if the promotion is not offered at account-
opening, it would not be appropriate to include the specific 
limitations in the account-opening table because they may never apply. 
The commenter believed that such disclosure would be confusing to 
consumers and potentially incorrect and misleading. In this case, the 
commenter believed that the applicable grace period disclosures should 
be given with the promotional materials.
    To avoid consumer confusion, the Board believes that issuers should 
not include in the table any conditions that a future promotional offer 
might place on the grace period. The Board believes that it is more 
appropriate for issuers to treat any conditions that a future 
promotional offer might place on the grace period as a change to the 
grace period under Sec.  226.9(c)(2), or under Sec.  226.9(b)(3) if the 
change is applicable only to checks that access a credit card account. 
The Board notes that if the change in the grace period is applicable 
only to checks that access a credit card account, the issuer is not 
required to provide a disclosure pursuant to Sec.  226.9(c)(2) 
(including the 45-day notice requirement), so long as the issuer 
complies with the disclosure requirements in Sec.  226.9(b)(3). See 
comment 9(c)(2)-4. The Board recognizes that comment 9(c)(2)-1 
indicates that no notice of a change in terms need be given under Sec.  
226.9(c)(2) if the specific change is set forth initially. For comment 
9(c)(2)-1 to apply, however, both the triggering event and the 
resulting modification must be stated with specificity. The Board 
believes that comment 9(c)(2)-1 is not applicable in these situations. 
The Board believes that creditors are not able to identify with 
sufficient specificity at account opening which future promotional 
offers would trigger the additional conditions on the grace period in a 
way that consumers would understand.
    Other grace period disclosures. The proposal provides that the 
Sec.  226.54 limitations on imposition of finance charges must not be 
disclosed when describing a grace period in the disclosure table under 
Sec.  226.5a(b)(5), or in the account-opening table under Sec.  
226.6(b)(2)(v). One industry commenter suggested that the Board clarify 
that the Sec.  226.54 limitations on imposition of finance charges must 
not be disclosed with respect to any grace period disclosure required 
by the regulation, such as the disclosure of any grace period related 
to checks that access credit card accounts under Sec.  
226.9(b)(3)(i)(D), on the periodic statement under Sec.  226.7(b)(8), 
or on the renewal notice under Sec.  226.9(e).
    1. Grace period disclosure for checks that access a credit card 
account. Section 226.9(b)(3)(i)(D) provides that with respect to checks 
that access a credit card account, creditors generally must disclose on 
the front of the page containing those checks whether or not

[[Page 22956]]

any grace period will apply to the check transactions. This grace 
period disclosure must be disclosed in a table, along with other 
disclosures relating to the checks. Comment 9(b)(3)(i)(D)-1 currently 
provides that 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.''
    As discussed above, one industry commenter suggested that the Board 
clarify that the Sec.  226.54 limitations on imposition of finance 
charges must not be disclosed with respect to the disclosure of any 
grace period related to checks that access credit card accounts under 
Sec.  226.9(b)(3)(i)(D), consistent with proposed guidance in comment 
5a(b)(5)-1 and comments 6(b)(2)(v)-1 and -3. For the reasons discussed 
below, the final rule revises comment 9(b)(3)(i)(D)-1 to be consistent 
with guidance adopted under comment 5a(b)(5)-1 and comments 6(b)(2)(v)-
1 and -3. Specifically, revised comment 9(b)(3)(i)(D)-1 clarifies that 
creditors in disclosing any grace period related to checks that access 
a credit card under Sec.  226.9(b)(3)(i)(D) must not disclose the 
limitations on the imposition of finance charges as a result of a loss 
of a grace period in Sec.  226.54, or the impact of payment allocation 
on whether interest is charged on transactions as a result of a loss of 
a grace period. The revised comment notes that some creditors may offer 
a grace period on credit extended by the use of an access check under 
which interest will not be charged on the check transactions if the 
consumer pays the outstanding balance shown on a periodic statement in 
full by the due date shown on that statement for one or more billing 
cycles. In these circumstances, comment 9(b)(3)(i)(D)-1 clarifies that 
Sec.  226.9(b)(3)(i)(D) requires that the creditor disclose the grace 
period using the following language, or substantially similar language, 
as applicable: ``Your due date is [at least] ---- days after the close 
of each billing cycle. We will not charge you any interest on check 
transactions if you pay your entire balance by the due date each 
month.'' Revised comment 9(b)(3)(i)(D)-1 notes, however, that other 
creditors may offer a grace period on check transactions under which 
interest may be charged on check transactions even if the consumer pays 
the outstanding balance shown on a periodic statement in full by the 
due date shown on that statement each billing cycle. In these 
circumstances, revised comment 9(b)(3)(i)(D)-1 clarifies that Sec.  
226.9(b)(3)(i)(D) requires the creditor to amend the above disclosure 
language to describe accurately the conditions on the applicability of 
the grace period.
    The Board believes that it is appropriate to adopt similar guidance 
for disclosure of a grace period applicable to access checks, as is 
adopted for disclosure of a grace period in the disclosure table under 
Sec.  226.5a and the account-opening table under Sec.  226.6. The grace 
period disclosure on checks accessing a credit card account required 
under Sec.  226.9(b)(3)(i)(D) must be disclosed in a tabular format on 
the front of the page containing the checks, along with other required 
disclosures. The Board believes that the language contained in revised 
comment 9(b)(3)(i)(D)-1 for describing the grace period succinctly 
communicates to the consumer how he or she can avoid all interest 
charges on the check transactions, namely by paying the entire balance 
on the account by the due date each month. The Board believes the 
inclusion of language attempting to describe the limitations set forth 
in Sec.  226.54 or the impact of payment allocation on whether interest 
will be charged on the check transactions due to the loss of a grace 
period could reduce the effectiveness of the grace period disclosure, 
and could distract consumers from other important information disclosed 
in the table.
    2. Grace period disclosure on periodic statements. Section 
226.7(b)(8) provides that a creditor must disclose on the periodic 
statement the date by which or the time period within which the new 
balance or any portion of the new balance shown on that periodic 
statement must be paid to avoid additional finance charges. Comment 
7(b)(8)-3 clarifies that Sec.  226.7(b)(8) does not require a card 
issuer to disclose the limitations on the imposition of finance charges 
in Sec.  226.54. The final rule retains in comment 7(b)(8)-3 the 
clarification that Sec.  226.7(b)(8) does not require a card issuer to 
disclose the limitations on the imposition of finance charges in Sec.  
226.54. The final rule also revises comment 7(b)(8)-3 to clarify that 
Sec.  226.7(b)(8) does not require a card issuer to disclose the impact 
of payment allocation on whether interest is charged on transactions as 
a result of a loss of a grace period. Thus, under revised comment 
7(b)(8)-3, a creditor would not be required to disclose under Sec.  
226.7(b)(8) the limitations on the imposition of finance charges as a 
result of a loss of a grace period in Sec.  226.54, or the impact of 
payment allocation on whether interest is charged on transactions as a 
result of a loss of a grace period.
    Nonetheless, unlike for the disclosure of the grace period in the 
tables under Sec. Sec.  226.5a, 226.6, and 226.9(b)(3), a creditor in 
disclosing the grace period on the periodic statement under Sec.  
226.7(b)(8) would retain the flexibility to disclose the limitations on 
the imposition of finance charges as a result of a loss of a grace 
period in Sec.  226.54, and the impact of payment allocation on whether 
interest is charged on transactions as a result of a loss of a grace 
period. The Board believes that it is appropriate to provide creditors 
with additional flexibility in describing the grace period on the 
periodic statement because this disclosure is not subject to tabular or 
other format requirements. In addition, the information about the 
limitations on the imposition of finance charges as result of a loss of 
a grace period in Sec.  226.54, and the impact of payment allocation on 
whether interest is charged on transactions as a result of a loss of a 
grace period could be more relevant to consumers on the periodic 
statement, as consumers decide how much to pay in a particular billing 
cycle. Some consumers might find this information useful in evaluating 
the impact of a partial payment on whether they will pay interest on 
transactions in that billing cycle as a result of a loss of the grace 
period.
    3. Grace period disclosures on renewal notices under Sec.  
226.9(e). In some instances, a card issuer is required under Sec.  
226.9(e) to send a notice to the consumer prior to the renewal of a 
consumer's credit or charge card. In this renewal notice, the card 
issuer must disclose certain account terms that would apply if the 
account were renewed, such as any grace period applicable to purchases 
as described in Sec.  226.5a(b)(5). The Board does not believe, 
however, that any additional guidance is needed with respect to how a 
card issuer must disclose the grace period disclosure in the renewal 
notice under Sec.  226.9(e). Under Sec.  226.9(e), the grace period 
disclosure must be described using the same level of detail as the 
grace period disclosure in Sec.  226.5a(b)(5). See Sec.  
226.9(e)(1)(i). Thus, guidance in Sec.  226.5a(b)(5) and related 
commentary would be applicable to the grace period disclosure in the 
renewal notice under Sec.  226.9(e).
    4. Disclosure of change to the grace period under Sec.  
226.9(c)(2). The Board also notes if a creditor changes any

[[Page 22957]]

grace period disclosed under Sec.  226.6(b)(2)(v), the creditor must 
disclose the change under Sec.  226.9(c)(2), except as provided in 
Sec.  226.9(c)(2)(v). The Board does not believe, however, that any 
additional guidance is needed with respect to how to disclose any 
change to the grace period under Sec.  226.9(c)(2). Under Sec.  
226.9(c)(2)(iv)(D), the new grace period must be described using the 
same level of detail as required when disclosing the grace period in 
the account-opening table under Sec.  226.6(b)(2). Thus, guidance in 
Sec.  226.6(b)(2)(v) and related commentary is applicable to the grace 
period disclosure in the change-in-terms notice required under Sec.  
226.9(c)(2).

5a(b)(6) Balance Computation Method

    Section 226.5a(b)(6) requires that a card issuer disclose on or 
with a credit card application or solicitation information about the 
method it uses to determine the balance for purchases on which the 
finance charge is computed. Comment 5a(b)(6)-1 provides guidance on how 
to comply with this requirement to disclose balance computation 
information for purchase balances. This comment also contains a cross-
reference to the commentary to Sec.  226.5a(g) for guidance on 
particular balance computation methods. In the November 2010 Proposed 
Rule, the Board proposed to delete this cross-reference as obsolete 
because there currently is no commentary to Sec.  226.5a(g). The Board 
adopts this deletion as proposed. For clarity, the final rule also 
revises comment 5a(b)(6)-1 to reference Sec.  226.5a(g), where 
particular balance computation methods are described in the regulation.

Section 226.6 Account-Opening Disclosures

6(b) Rules Affecting Open-End (Not Home-Secured) Plans

6(b)(2) Required Disclosures for Account-Opening Table for Open-End 
(Not Home-Secured) Plans

6(b)(2)(i) Annual Percentage Rate

    The Board proposed to replace the reference to ``card issuer'' in 
Sec.  226.6(b)(2)(i)(B) with ``creditor'' in order to correct a 
typographical error and to provide clarity and consistency with the 
scope of Sec.  226.6(b). The Board did not receive significant comment 
on this aspect of the proposal, which is adopted as proposed.
    In addition, for the reasons discussed in the supplementary 
information to Sec.  226.5a(b)(1), the Board is adopting new Sec.  
226.6(b)(2)(i)(D)(3), which requires that certain information regarding 
revocation of an employee preferential rate be disclosed directly 
beneath the account-opening table.

6(b)(2)(v) Grace Period

    Section 226.6(b)(2)(v) requires that the account-opening summary 
table state the date by which or the period within which any credit 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.
    Many creditors offer a grace period on purchases, but do not offer 
a grace period on cash advances and balance transfers. Samples G-17(B) 
and G-17(C) provide guidance on complying with Sec.  226.6(b)(2)(v) 
when a creditor offers a grace period on purchases but no grace period 
on balance transfers and cash advances. See comment 6(b)(2)(v)-3. 
Specifically, Samples G-17(B) and G-17(C) contain the following model 
language to meet the requirements in Sec.  226.6(b)(2)(v): ``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. We will begin charging interest on 
cash advances and balance transfers on the transaction date.'' This 
model language was developed through extensive consumer testing.
    Comment 6(b)(2)(v)-1 provides model language for creditors to use 
when they provide a grace period on all types of transactions for the 
account. Specifically, this comment states that an issuer 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 
the requirements in Sec.  226.6(b)(2)(v) 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.''
    In addition, for the reasons discussed in the section-by-section 
analysis to Sec.  226.5a(b)(5), in the February 2010 Final Rule, the 
Board adopted comment 6(b)(2)(v)-4, which clarifies that Sec.  
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. 
Implementing the Credit Card Act, Sec.  226.54 provides that, when a 
consumer pays some but not all of the balance subject to a grace period 
prior to the expiration of the grace period, the card issuer is 
prohibited from imposing finance charges on the portion of the balance 
paid. In adopting comment 6(b)(2)-4, the Board was concerned that the 
inclusion of language attempting to describe the limitations set forth 
in Sec.  226.54 could reduce the effectiveness of the grace period 
disclosure in the table.
    As discussed above, many creditors offer a grace period on 
purchases, but do not offer a grace period on cash advances and balance 
transfers. Many of these creditors are using the model language set 
forth in Samples G-17(B) and G-17(C), or substantially similar 
language, to meet the requirements in Sec.  226.6(b)(2)(v). 
Nonetheless, other creditors have chosen not to use this model 
language, even though the creditors could do so. Some of the creditors 
that have chosen not to use the model language are disclosing the grace 
period for purchases in more technical detail, including a discussion 
of the limitations on imposition of finance charges under Sec.  226.54, 
and the impact of payment allocation on whether interest will be 
charged on purchases due to the loss of a grace period. Other creditors 
are including detailed language to explain the conditions on the grace 
period for purchases, such as an explanation that the consumer will not 
be charged any interest on new purchases, or any portion of a new 
purchase, paid by the due date on the consumer's current billing 
statement if the consumer paid his or her entire balance on the 
previous billing statement in full by the due date on that statement.
    Consistent with proposed changes to comment 5a(b)(5)-1 and for the 
reasons discussed in the section-by-section analysis to Sec.  
226.5a(b)(5), the Board proposed to revise comment 6(b)(2)(v)-1 to 
clarify that creditors must not disclose in the table required by Sec.  
226.6(b) the limitations on the imposition of finance charges as a 
result of a loss of a grace period in Sec.  226.54, or the impact of 
payment allocation on whether interest is charged on transactions as a 
result of a loss of a grace period. The Board believed the inclusion of 
language attempting to describe the limitations set forth in Sec.  
226.54 and the impact of payment allocation on whether interest will be 
charged on transactions due to the loss of a grace period could reduce 
the effectiveness of the grace period disclosure required by Sec.  
226.6(b)(2)(v). Comment 6(b)(2)(v)-4, which states that card issuers 
are not required to disclose the limitations set forth in Sec.  226.54, 
would have been deleted.

[[Page 22958]]

    In addition, consistent with proposed changes to comment 5a(b)(5)-1 
and for the reasons discussed in the section-by-section analysis to 
Sec.  226.5a(b)(5), the Board proposed to revise comment 6(b)(2)(v)-3 
to clarify that Sec.  226.6(b)(2)(v) requires certain creditors that 
provide a grace period on purchases but not on cash advances and 
balance transfers to use the disclosure language this is currently set 
forth in Samples G-17(B) and G-17(C). Specifically, proposed comment 
6(b)(2)(v)-3 noted that some creditors do not offer a grace period on 
cash advances and balance transfers, but offer a grace period for all 
purchases under which interest will not be charged on purchases if the 
consumer pays the outstanding balance shown on a periodic statement in 
full by the due date shown on that statement for one or more billing 
cycles. Proposed comment 6(b)(2)(v)-3 would have clarified that in 
these circumstances, Sec.  226.6(b)(2)(v) requires that the creditor 
disclose the grace period for purchases and the conditions for its 
applicability, and the lack of a grace period for cash advances and 
balance transfers using the following language, or substantially 
similar language, 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. We will begin charging interest on cash advances and 
balance transfers on the transaction date.'' This disclosure language, 
which also is set forth in the ``Paying Interest'' row in Samples G-
17(B) and G-17(C), was developed through extensive consumer testing. 
The Board believed this disclosure language achieves its intended 
purpose of explaining succinctly how a consumer can avoid all interest 
charges on purchases, while explaining that no grace period is offered 
for cash advances and balance transfers.
    The Board recognized that some creditors may offer a grace period 
on purchases but structure their grace periods differently than as 
described above, and the disclosure language described above may not be 
accurate for those creditors. Proposed comment 6(b)(2)(v)-3 noted that 
some creditors may offer a grace period on all purchases under which 
interest may be charged on purchases even if the consumer pays the 
outstanding balance shown on a periodic statement in full by the due 
date shown on that statement each billing cycle. Proposed comment 
6(b)(2)(v)-3 would have clarified that in these circumstances, Sec.  
226.6(a)(2)(v) requires the creditor to amend the above disclosure 
language to accurately describe the conditions on the applicability of 
the grace period. Nonetheless, under the proposal, these creditors in 
disclosing the grace period and the conditions on its availability 
still would not have been allowed to disclose the limitations on the 
imposition of finance charges as a result of a loss of a grace period 
in 226.54, or the impact of payment allocation on whether interest is 
charged on purchases as a result of a loss of a grace period.
    Similarly, some creditors may not offer a grace period on cash 
advances and balance transfers, and will begin charging interest on 
these transactions from a date other than the transaction date, such as 
the posting date. Proposed comment 6(b)(2)(v)-3 would have clarified 
that in these circumstances, Sec.  226.6(a)(2)(v) requires the creditor 
to amend the above disclosure language to be accurate.
    Consistent with the proposed changes to comment 6(b)(2)(v)-3, the 
Board also proposed changes to comment 6(b)(2)(v)-1 which discusses 
circumstances where a creditor offers a grace period on all types of 
transactions on the account, including purchases, cash advances, and 
balances transfers. Specifically, proposed comment 6(b)(2)(v)-1 noted 
that some creditors may offer a grace period on all types of 
transactions under which interest will not be charged on transactions 
if the consumer pays the outstanding balance shown on a periodic 
statement in full by the due date shown on that statement for one or 
more billing cycles. In these circumstances, proposed comment 
6(b)(2)(v)-1 would have clarified that Sec.  226.6(b)(2)(v) requires 
that the creditor disclose the grace period and the conditions for its 
applicability using the following language, or substantially similar 
language, 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.'' Proposed comment 6(b)(2)(v)-1 also noted that other creditors 
may offer a grace period on all types of transactions under which 
interest may be charged on transactions even if the consumer pays the 
outstanding balance shown on a periodic statement in full by the due 
date shown on that statement each billing cycle. This proposed comment 
would have clarified that in these circumstances, Sec.  226.6(b)(2)(v) 
requires the creditor to amend the above disclosure language to 
describe accurately the conditions on the applicability of the grace 
period.
    Consistent with changes to comment 5a(b)(5)-1 and for the reasons 
discussed in the section-by-section analysis to Sec.  226.5a(b)(5), the 
final rule adopts comments 6(b)(2)(v)-1 and -3 as proposed, except 
that--as discussed above with respect to comment 5a(b)(5)-1--the Board 
has removed the proposed example regarding the loss of a grace period 
on purchases when the account is used for a cash advance. The Board 
believes the inclusion of language attempting to describe the 
limitations set forth in Sec.  226.54 and the impact of payment 
allocation on whether interest will be charged on transactions due to 
the loss of a grace period could reduce the effectiveness of the grace 
period disclosure required by Sec.  226.6(b)(2)(v). Comment 6(b)(2)(v)-
3 clarifies that Sec.  226.6(b)(2)(v) requires the creditor to disclose 
the grace period for purchases and the conditions for its 
applicability, and the lack of a grace period for cash advances and 
balance transfers using the following language, or substantially 
similar language, 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. We will begin charging interest on cash advances and 
balance transfers on the transaction date.'' This disclosure language, 
which also is set forth in the ``Paying Interest'' row in Samples G-
17(B) and G-17(C), was developed through extensive consumer testing. 
The Board believed this disclosure language achieves its intended 
purpose of explaining succinctly how a consumer can avoid all interest 
charges on purchases, while explaining that no grace period is offered 
for cash advances and balance transfers.

6(b)(2)(vi) Balance Computation Method

    Section 226.6(b)(2)(vi) requires that a creditor disclose 
information about balance computation methods as part of the account-
opening disclosures. Specifically, Sec.  226.6(b)(2)(vi) provides that 
a creditor must disclose the name of the balance computation method 
listed in Sec.  226.5a(g) that is used 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 Sec.  
226.6(b)(4)(i)(D) is provided with the account-opening disclosures. The 
information required by Sec.  226.6(b)(2)(vi) must appear directly 
beneath the account-opening summary table. See Sec.  226.6(b)(2)(ii).
    The names of the balance computation methods listed in

[[Page 22959]]

Sec.  226.5a(g) describe balance computation methods for purchases 
(e.g., ``average daily balance (including new purchases)'' and 
``average daily balance (excluding new purchases)''). Nonetheless, 
unlike Sec.  226.5a(b)(6), creditors are required in Sec.  
226.6(b)(2)(vi) to disclose the balance computation method used for 
each feature on the account. Samples G-17(B) and G-17(C) provide 
guidance on how to disclose the balance computation method where the 
same method is used for all features on the account. See comment 
6(b)(2)(vi)-1. Samples G-17(B) and G-17(C) disclose, as an example, the 
``average daily balance (including new purchases)'' as the method that 
is being used to calculate the balance for all features on the account. 
Thus, for simplicity, where the balance for each feature is computed 
using the same balance computation method, a creditor may use the name 
of the appropriate balance computation method listed in Sec.  226.5a(g) 
(e.g., ``average daily balance (including new purchases)'') to satisfy 
the requirement to disclose the name of the method for all features on 
the account, even though the name only refers to purchases.
    Questions have been asked, however, regarding whether a creditor 
may revise the names of the balance computation methods listed in Sec.  
226.5a(g) to be more accurate by referring more broadly to all new 
transactions (rather than referring only to ``new purchases'') when the 
same method is used to calculate the balances for all features on the 
account. For example, creditors have asked whether they can revise the 
name listed in Sec.  226.5a(g)(i) to disclose it as ``average daily 
balance (including new transactions)'' when this method is used to 
calculate the balances for all features of the account. Also, creditors 
have asked whether they may revise the names listed in Sec.  226.5a(g) 
to be applicable to features other than purchases. Creditors in some 
cases may disclose the balance computation methods separately for each 
feature, such as when a different balance computation method applies to 
purchases than to cash advances.
    To address these compliance issues and to provide additional 
flexibility to creditors, in the November 2010 Proposed Rule, the Board 
proposed to revise comment 6(b)(2)(vi)-1 to provide that in cases where 
the balance for each feature is computed using the same balance 
computation method, a single identification of the name of the balance 
computation method is sufficient. In that case, the proposed comment 
would have made clear that a creditor may use an appropriate name 
listed in Sec.  226.5a(g) (e.g., ``average daily balance (including new 
purchases)'') to satisfy the requirement to disclose the name of the 
method for all features on the account, even though the name only 
refers to purchases. For example, if a creditor uses the average daily 
balance method including new transactions as the balance computation 
method for all features, a creditor may use the name ``average daily 
balance (including new purchases)'' listed in Sec.  226.5a(g)(i) to 
satisfy the requirement to disclose the name of the balance computation 
method for all features. As an alternative, the proposed comment would 
have provided that a creditor may revise the balance computation names 
listed in Sec.  226.5a(g) to refer more broadly to all new credit 
transactions, such as using the language ``new transactions'' or 
``current transactions'' (e.g., ``average daily balance (including new 
transactions)''), rather than simply referring to new purchases when 
the same method is used to calculate the balances for all features of 
the account.
    In addition, the Board proposed to add comment 6(b)(2)(vi)-2 to 
address situations where a creditor is disclosing the name of the 
balance computation methods separately for each feature. In that case, 
in using the names listed in Sec.  226.5a(g) to satisfy the 
requirements of Sec.  226.6(b)(2)(vi) for features other than 
purchases, proposed comment 6(b)(2)(vi)-2 would have made clear that a 
creditor must revise the names listed in Sec.  226.5a(g) to refer to 
the other features. For example, under proposed comment 6(b)(2)(vi)-2, 
when disclosing the name of the balance computation method applicable 
to cash advances, a creditor would have been required to revise the 
name listed in Sec.  226.5a(g)(i) to disclose it as ``average daily 
balance (including new cash advances)'' when the balance for cash 
advances is figured by adding the outstanding balance (including new 
cash advances and deducting payments and credits) for each day in the 
billing cycle, and then dividing by the number of days in the billing 
cycle. Similarly, under proposed comment 6(b)(2)(vi)-2, a creditor 
would have been required to revise the name listed in Sec.  
226.5a(g)(ii) to disclose it as ``average daily balance (excluding new 
cash advances)'' when the balance for cash advances is figured by 
adding the outstanding balance (excluding new cash advances 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 Board received several comments supporting proposed comment 
6(b)(2)(vi)-2, and no comments opposing it. For the reasons discussed 
above, the Board adopts comment 6(b)(2)(vi)-2 as proposed.
    Balance computation methods that consider transactions from 
previous cycles. One industry commenter requested that the Board 
confirm that the balance computation methods listed in Sec.  226.5a(g) 
can be used for transactions that accrue interest beginning on the 
transaction date even if the transaction date is prior to the first day 
of the cycle in which the transaction posts to the account, which may 
be the case for cash advances. The Board notes that Sec.  226.54 
provides that a card issuer cannot 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 balances for days in billing cycles that precede the most 
recent billing cycle. Nonetheless, Sec.  226.54 does not apply if 
transactions are not eligible for a grace period. See comment 54(a)(1)-
1. Thus, in certain instances, a card issuer is not prohibited by Sec.  
226.54 from calculating interest charges beginning on the transaction 
date even if the transaction date is prior to the first day of the 
cycle in which the transaction posts to the account. Nonetheless, a 
creditor that uses such a balance computation method may not use the 
names of the balance computation methods listed in Sec.  226.5a(g) to 
describe such method. The balance computation methods listed in Sec.  
226.5a(g) contemplate that the balances are computed using only days in 
the current billing cycle. For balance computation methods that 
calculate the balance using days from the previous cycle, the creditor 
may not use the names of the balance computation methods listed in 
Sec.  226.5a(g). Instead, the creditor must provide an explanation of 
the method underneath the disclosure table required under Sec.  226.5a 
and the account-opening table required under Sec.  226.6. See Sec.  
226.5a(b)(2)(iii), Sec.  226.5a(b)(6), Sec.  226.6(b)(1)(ii), and Sec.  
226.6(b)(2)(vi). In describing this balance computation method below 
the tables required under Sec.  226.5a and Sec.  226.6, the creditor 
must clearly explain the method in as much detail as set forth in the 
descriptions of balance methods in Sec.  226.5a(g). See comment 
5a(b)(6)-1.
    Using the phrase ``(including new transactions'') in describing 
balance computation method for Sec.  226.5a. One industry commenter 
requested that, consistent with proposed comment 6(b)(2)(vi)-2, the 
Board clarify that an issuer may use either the name ``daily balance 
(including new purchases)'' or ``daily balance (including new

[[Page 22960]]

transactions)'' to disclose the balance computation method underneath 
the disclosure table required by Sec.  226.5a. The final rule does not 
contain this clarification. Section 226.5a(b)(6) requires that a card 
issuer disclose on or with a credit card application or solicitation 
information about the balance computation method it uses for purchases. 
Under Sec.  226.5a(b)(6), an issuer is not required to disclose the 
balance computation method used for other features on the account. 
Accordingly, the names of the balance computation methods listed in 
Sec.  226.5a(g) describe balance computation methods for purchases 
(e.g., ``average daily balance (including new purchases)'' and 
``average daily balance (excluding new purchases)''). Thus, the Board 
believes it is appropriate to continue to describe the balance 
computation methods in Sec.  226.5a(g) with respect to purchases.

Section 226.7 Periodic Statement

7(b) Rules Affecting Open-End (Not Home-Secured) Plans

7(b)(5) Balance on Which Finance Charge Computed

    Section 226.7(b)(5) provides that a creditor must disclose on the 
periodic statement 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. 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 must provide a brief explanation of the method used.
    Comment 7(b)(5)-7 provides guidance on the use of one balance 
computation method explanation or name when multiple balances are 
disclosed. Specifically, comment 7(b)(5)-7 notes that 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. In addition, 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).
    The comment does not specify, however, whether in this case a 
creditor may use the balance computation method names listed in Sec.  
226.5a(g) (e.g., ``average daily balance (including new purchases)'') 
as the single identification of the name of the balance computation 
method used for all features, even though the name only refers to 
purchases. In addition, as discussed in the section-by-section analysis 
to Sec.  226.6(b)(2)(vi), questions have been asked as to whether a 
creditor may revise the names of the balance computation methods listed 
in Sec.  226.5a(g) to refer more broadly to all new transactions 
(rather than referring only to ``new purchases'') when the same method 
is used to calculate the balances for all features on the account. For 
example, creditors have asked whether they may revise the name listed 
in Sec.  226.5a(g)(i) to disclose it as ``average daily balance 
(including new transactions)'' when this method is used to calculate 
the balances for all features of the account. Also, creditors have 
asked whether they may revise the names listed in Sec.  226.5a(g) to be 
applicable to features other than purchases. Creditors in some cases 
may disclose the balance computation methods separately for each 
feature, such as when a different balance computation method applies to 
purchases than for cash advances.
    To address these issues and to provide flexibility to creditors, 
consistent with proposed guidance in comment 6(b)(2)(vi), the Board 
proposed to revise comment 7(b)(5)-7 to provide that in cases where 
each balance was computed using the same balance computation method, a 
creditor may use an appropriate name listed in Sec.  226.5a(g) (e.g., 
``average daily balance (including new purchases)'') as the single 
identification of the name of the balance computation method applicable 
to all features, even though the name only refers to purchases. For 
example, under proposed comment 7(b)(5)-7, if a creditor uses the 
average daily balance method including new transactions as the balance 
computation method for all features, a creditor would have been allowed 
to use the name ``average daily balance (including new purchases)'' 
listed in Sec.  226.5a(g)(i) to satisfy the requirement to disclose the 
name of the balance computation method for all features. As an 
alternative, the proposed comment provided that a creditor may revise 
the balance computation names listed in Sec.  226.5a(g) to refer more 
broadly to all new credit transactions, such as using the language 
``new transactions'' or ``current transactions'' (e.g., ``average daily 
balance (including new transactions)''), rather than simply referring 
to new purchases when the same method is used to calculate the balances 
for all features of the account.
    Also consistent with proposed comment 6(b)(2)(vi)-2, the Board 
proposed to add a new comment 7(b)(5)-8 to address situations where a 
creditor is disclosing the name of the balance computation methods 
separately for each feature. Proposed comment 7(b)(5)-8 would have 
provided that in those cases, where a creditor is using the names 
listed in Sec.  226.5a(g) to satisfy the requirements of Sec.  
226.7(b)(5) for features other than purchases, a creditor must revise 
the names listed in Sec.  226.5a(g) to refer to the other features. For 
example, under proposed comment 7(b)(5)-8, when disclosing the name of 
the balance computation method applicable to cash advances, a creditor 
would have been required to revise the name listed in Sec.  
226.5a(g)(i) to disclose it as ``average daily balance (including new 
cash advances)'' when the balance for cash advances is figured by 
adding the outstanding balance (including new cash advances and 
deducting payments and credits) for each day in the billing cycle, and 
then dividing by the number of days in the billing cycle. Similarly, a 
creditor would have been required to revise the name listed in Sec.  
226.5a(g)(ii) to disclose it as ``average daily balance (excluding new 
cash advances)'' when the balance for cash advances is figured by 
adding the outstanding balance (excluding new cash advances 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 Board received several comments supporting proposed comments 
7(b)(5)-7 and -8, and no comments opposing them. For the reasons 
discussed above, the Board adopts these comments as proposed.

[[Page 22961]]

7(b)(6) Charges Imposed

    Section 226.7(b)(6) generally requires the disclosure of the 
amounts of any charges imposed on a plan, which consists of finance 
charges attributable to periodic interest rates (disclosed as Interest 
Charged), and charges imposed as part of a plan other than charges 
attributable to periodic interest rates (disclosed as Fees). In 
addition, calendar year-to-date totals for both interest and fees must 
be disclosed. Comment 7(b)(6)-3 provides guidance for disclosing 
calendar-year-to-date totals for fees. In order to avoid inconsistency, 
the Board proposed to amend comment 7(b)(6)-3 to clarify that this 
guidance applies to fees as well as interest charged. The Board did not 
receive significant comment on this clarification, which is adopted in 
the final rule. The Board has modified the proposed comment to clarify 
that creditors must disclose separate totals for interest and fees.

7(b)(8) Grace Period

    See discussion regarding Sec.  226.5a(b)(5).

7(b)(12) Repayment Disclosures

    Section 226.7(b)(12) requires that for a credit card account under 
an open-end (not home-secured) consumer credit plan, card issuers 
generally must disclose the following repayment 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 length 
of time it would take to repay the outstanding balance if the consumer 
pays only the required minimum monthly payments and no further advances 
are made; (3) the total cost to the consumer of paying the balance in 
full if the consumer pays only the required minimum monthly payment and 
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; (5) the total cost to the 
consumer of paying the balance in full if the consumer pays the balance 
over 36 months; (6) the total savings of paying the balance in 36 
months (rather than making only minimum payments); and (7) a toll-free 
telephone number at which the consumer may receive information about 
accessing consumer credit counseling. See Sec.  226.7(b)(12)(i).
    To simplify the disclosures, Sec.  226.7(b)(12)(i) and (ii) provide 
that card issuers must round the following disclosures to the nearest 
whole dollar when disclosing them on the periodic statement: (1) The 
minimum payment total cost estimate, (2) the estimated monthly payment 
for repayment in 36 months, (3) the total cost estimate for repayment 
in 36 months, and (4) the savings estimate for repayment in 36 months. 
See Sec.  226.7(b)(12)(i)(C), (b)(12)(i)(F)(1)(i), 
(b)(12)(i)(F)(1)(iii), (b)(12)(i)(F)(1)(iv) and (b)(12)(ii)(C). Some 
card issuers have requested, however, that they be permitted to provide 
these disclosures on the periodic statement rounded to the nearest cent 
to be more accurate and to avoid potential consumer confusion that 
rounding to the dollar might cause in certain circumstances. For 
example, assume that a consumer's balance is $3,000 and the APR on the 
account is 14.4%. The estimated monthly payment to repay the balance in 
36 months would be $103.12 (rounded to the nearest cent). A card issuer 
would be required to disclose on the periodic statement the estimated 
monthly payment for repayment in 36 months as $103, and the total cost 
estimate for repayment in 36 months as $3,712. (The total cost estimate 
for repayment in 36 months is calculated by multiplying $103.12 times 
36, and rounding that result to the nearest whole dollar.) Nonetheless, 
if a consumer pays $103 each month for 36 months, the consumer will 
have paid only $3,708 (not the $3,712 shown on the statement). Thus, 
rounding the disclosures to whole dollars when providing them on the 
periodic statement in some cases may make the disclosures appear to be 
inconsistent with each other.
    To provide additional flexibility to card issuers, in the November 
2010 Proposed Rule, the Board proposed to revise Sec.  226.7(b)(12)(i) 
and (b)(12)(ii) to allow card issuers, at their option, to provide the 
following disclosures on the periodic statement either rounded to the 
nearest whole dollar or to the nearest cent: (1) The minimum payment 
total cost estimate, (2) the estimated monthly payment for repayment in 
36 months, (3) the total cost estimate for repayment in 36 months, and 
(4) the savings estimate for repayment in 36 months. Nonetheless, 
proposed comment 7(b)(12)-1 would have provided that an issuer's 
rounding for all of these disclosures must be consistent. Under 
proposed comment 7(b)(12)-1, an issuer would have been allowed to round 
all of these disclosures to the nearest whole dollar when providing 
them on periodic statements, or round all of these disclosures to the 
nearest cent. An issuer would not have been allowed, however, to round 
some of the disclosures to the nearest whole dollar, while rounding 
other disclosures to the nearest cent. The Board believed that 
requiring an issuer to be consistent in how it rounds these disclosures 
helps to ensure that these disclosures remain consistent with each 
other.
    The Board received several comments supporting the proposed changes 
to Sec.  226.7(b)(12)(i) and (b)(12)(ii) and comment 7(b)(12)-1, and no 
comments opposing them. For the reasons discussed above, the Board 
adopts these changes as proposed.

7(b)(14) Deferred Interest or Similar Transactions

    Section 226.7(b)(14) generally requires disclosure 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 finance charges on the 
front of each periodic statement issued during the deferred interest 
period. In order to avoid potential confusion, the Board proposed to 
amend Sec.  226.7(b)(14) and its commentary to clarify that the 
disclosure required by Sec.  226.7(b)(14) may be on the front of any 
page of each periodic statement issued during the deferred interest 
period that reflects the deferred interest or similar transaction. 
Industry commenters generally supported the proposal.
    However, consumer group commenters opposed the proposal as well as 
deferred interest plans generally. These commenters argued that the 
deferred interest disclosure should be on the front of the first page 
of the periodic statement, or in the alternative, grouped with the 
disclosure of the deferred interest balance, deferred interest APR, and 
accrued interest for the deferred interest balance.
    The clarifications in Sec.  226.7(b)(14) and its commentary is 
adopted as proposed. The Board believes this clarification ensures that 
consumers continue to receive conspicuous disclosure of the end of the 
deferred interest period and also provides greater certainty and 
flexibility to creditors in order to facilitate compliance.

Section 226.9 Subsequent Disclosure Requirements

9(b) Disclosures for Supplemental Credit Access Devices and Additional 
Features

9(b)(3) Checks That Access a Credit Card Account

    Section 226.9(b)(3) sets forth requirements for disclosures that 
must be provided with checks that access a credit card account. These 
disclosures

[[Page 22962]]

set forth certain key terms, such as the rates that will apply to the 
checks, any transaction fees applicable to the checks, and whether or 
not a grace period is given within which any credit extended by use of 
the checks may be repaid without incurring interest charges. In the 
November 2010 Proposed Rule, the Board proposed to clarify that if any 
rate disclosed pursuant to Sec.  226.9(b)(3) is a variable rate, the 
card issuer must disclose that the rate may vary and how the rate is 
determined. Proposed Sec.  226.9(b)(3)(iii) generally mirrored the 
disclosure requirements for variable rates set forth in Sec. Sec.  
226.5a(b)(1)(i) and 226.6(b)(2)(i)(A). In describing how the applicable 
rate will be determined, the proposal would have required the card 
issuer to identify the type of index or formula that is used in setting 
the rate. The proposal would not have permitted disclosure of the value 
of the index and the amount of the margin that are used to calculate 
the variable rate in the table. In addition, the proposal would not 
have permitted a card issuer to disclose any applicable limitations on 
rate increases in the table.
    One card issuer commented in support of the proposed variable-rate 
disclosure requirements in Sec.  226.9(b)(3)(iii). One other card 
issuer agreed that it is important that variable rate information be 
disclosed to consumers who receive checks that access a credit card 
account, but questioned the benefit of providing the proposed variable 
rate disclosures to consumers who have already received variable rate 
disclosures at account opening. Several other issuers commented that 
requiring additional disclosures about variable rates could contribute 
to information overload and impose burden on issuers that may result in 
reduced availability of promotional offers in connection with checks 
that access a credit card account. Two such commenters recommended that 
the final rule limit the requirement to provide variable rate 
disclosures to situations where the promotional or post-promotional 
rates or fees that apply to the checks exceed the rates applicable 
prior to the promotion.
    The Board continues to believe that it is important that consumers 
be informed if the rates that apply to checks that access a credit card 
account are variable rates, to better assist consumers with making an 
informed decision regarding use of the checks. Accordingly, the Board 
is adopting Sec.  226.9(b)(3)(iii) as proposed. Even if variable rates 
are disclosed at account opening, the Board also believes it is 
important that consumers receive information regarding any applicable 
variable rate at the same time that they receive other disclosures 
regarding the check offer, including the annual percentage rates that 
will apply to the checks. The Board is concerned that even if variable 
rates are disclosed at account opening, consumers may not be aware when 
they receive a check offer that the rates that apply to those checks 
and that must be disclosed pursuant to Sec.  226.9(b)(3) also will be 
variable rates. Indeed, it may be confusing or even misleading for the 
rates disclosed pursuant to Sec.  226.9(b)(3) to state nothing 
regarding the fact that the rates that apply to the checks are 
variable, when disclosures of annual percentage rates provided with 
credit card applications and solicitations and at account opening are 
required to set forth certain information identifying a rate as 
variable. The variable-rate disclosure requirements in new Sec.  
226.9(b)(3)(iii) are based on the approach in Sec. Sec.  
226.5a(b)(1)(i) and 226.6(b)(2)(i)(A), which was informed by consumer 
testing conducted on behalf of the Board. The Board believes that Sec.  
226.9(b)(3)(iii) strikes the appropriate balance between informing 
consumers of key information regarding the variable rate or rates 
applicable to checks that access a credit card account and avoiding 
overly detailed information that may be confusing to consumers.
    Section 226.9(b)(3)(i) requires that the disclosures given in 
connection with checks that access a credit card account be in the form 
of a table with headings, content, and form substantially similar to 
Sample G-19. In the November 2010 Proposed Rule, the Board proposed a 
new comment 9(b)(3)(i)-2 to clarify that a card issuer may include in 
the tabular disclosure provided pursuant to Sec.  226.9(b)(3) 
disclosures regarding the terms offered on non-check transactions, 
provided that such transactions are subject to the same terms that are 
required to be disclosed pursuant to Sec.  226.9(b)(3)(i) for the 
checks that access a credit card account. Proposed comment 9(b)(3)(i)-2 
stated, however, that a card issuer may not include in the table 
information regarding additional terms that are not required 
disclosures for access checks pursuant to Sec.  226.9(b)(3).
    Commenters who addressed this aspect of the proposal supported 
comment 9(b)(3)(i)-2, which is adopted as proposed. As stated in the 
November 2010 Proposed Rule, the Board believes that if a card issuer 
offers a single set of terms that apply both to checks that access a 
credit card account and to other transactions, it is appropriate to 
permit the card issuer to present one combined tabular disclosure. For 
example, a card issuer may offer a single set of promotional terms that 
apply both to checks that access a credit card account and to balance 
transfers made without use of an access check. Under these 
circumstances, it is unnecessary to require card issuers to provide two 
substantively identical but separate sets of disclosures, one for check 
transactions and one for other balance transfers. Accordingly, the 
Board believes that comment 9(b)(3)(i)-2 will ensure that consumers 
receive clear disclosures regarding checks that access a credit card 
account, while at the same time minimizing the operational burden that 
would be associated with providing two sets of disclosures of 
substantively identical terms.
    Finally, the Board has revised the guidance regarding grace periods 
in comment 9(b)(3)(i)(D)-1 consistent with the revisions to the 
commentary for Sec.  226.5a(b)(5), which are discussed in detail above.

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

    Comment 9(c)(2)-1 states that, 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). The Board proposed to revise this comment to clarify 
that the initial disclosure of the change must be provided consistent 
with any applicable requirements. For example, no notice of a change in 
terms is required when a promotional rate expires, provided that the 
card issuer disclosed the terms associated with that promotional rate 
consistent with Sec.  226.9(c)(2)(v)(B). Commenters supported this 
revision, which is adopted as proposed.

9(c)(2)(i) Changes Where Written Advance Notice is Required

9(c)(2)(ii) Significant Changes in Account Terms

    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) states that, when a significant change 
in account terms as described in Sec.  226.9(c)(2)(ii) is made to a 
term required to be disclosed under Sec.  226.6(b)(3), (b)(4), or 
(b)(5), a creditor must generally provide a written notice at least 45 
days prior to the effective date of the change. Section 226.9(c)(2)(i) 
defines a ``significant change in account terms'' as a change to a term 
required to

[[Page 22963]]

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.
    The Board is aware that some confusion has arisen regarding the 
references to Sec.  226.6(b)(3), (b)(4), and (b)(5) contained in Sec.  
226.9(c)(2). In particular, given that ``significant change in account 
terms'' is defined in Sec.  226.9(c)(2)(ii) generally with respect to 
terms required to be disclosed in the account-opening table under Sec.  
226.6(b)(1) and (b)(2), several creditors asked the Board to clarify 
what advance notice requirements apply when a change is made to a term 
required to be disclosed under Sec.  226.6(b)(3), (b)(4), or (b)(5) 
that (1) may impact a term required to be disclosed in the account-
opening table pursuant to Sec.  226.6(b)(1) and (b)(2), but (2) is not 
a term that itself is required or permitted to be included in the 
account-opening table. For example, the Board was asked whether 45 
days' advance notice is required prior to changing the date or schedule 
on which the value of a variable annual percentage rate is adjusted, if 
the formula for computing the value of the variable rate otherwise 
remains the same (i.e., based on the same index and margin). The Board 
notes that the variable annual percentage rate is a term required to be 
disclosed pursuant to Sec.  226.6(b)(1) and (b)(2). In contrast, the 
date or schedule on which the rate is computed is not required or 
permitted to be disclosed in the tabular disclosure pursuant to Sec.  
226.6(b)(1) and (b)(2). However, the date or schedule on which the rate 
is computed is required to be disclosed at account opening outside of 
the table pursuant to Sec.  226.6(b)(4).
    The Board proposed several amendments to Sec.  226.6(b)(1) and 
(b)(2) to clarify the advance notice requirements for changes to terms 
specified in Sec.  226.6(b)(3), (b)(4), or (b)(5) that are not also 
terms required to be disclosed under Sec.  226.6(b)(1) and (b)(2). 
First, the Board proposed to delete as unnecessary the references to 
Sec.  226.6(b)(3), (b)(4) and (b)(5), as well as a reference to 
increases in the required minimum periodic payment, from Sec.  
226.9(c)(2)(i). The Board noted in the November 2010 Proposed Rule that 
defining the term ``significant change in account terms'' exclusively 
in Sec.  226.9(c)(2)(ii) and deleting the references to Sec.  
226.6(b)(3), (b)(4) and (b)(5) and increases in the required minimum 
periodic payment in Sec.  226.9(c)(2)(i) would alleviate confusion 
regarding compliance with the change-in-terms notice requirements.
    Second, the Board proposed to amend the definition of ``significant 
change in account terms'' in Sec.  226.9(c)(2)(ii) to clarify to which 
terms the 45-day advance notice requirements in Sec.  226.9(c)(2) 
apply. The proposal would have amended Sec.  226.9(c)(2)(ii) to define 
``significant change in account terms'' as 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, a change to a term required to be 
disclosed under Sec.  226.6(b)(4), or the acquisition of a security 
interest.
    Two industry commenters objected to the proposed amendment 
clarifying that changes to terms required to be disclosed under Sec.  
226.6(b)(4) are ``significant changes in account terms.'' These 
commenters argued that 45 days' advance notice of changes in terms 
required to be disclosed under Sec.  226.6(b)(4) is unnecessary and 
that 45 days' advance notice should be required only in connection with 
changes to those terms that are required to be disclosed in the account 
opening disclosure table. The commenters argued that advance notice of 
changes in terms required to be disclosed under Sec.  226.6(b)(4) would 
better be addressed by state or contract law, and that highlighting 
these changes by requiring notice pursuant to Sec.  226.9(c)(2) could 
contribute to ``information overload.'' Finally, these commenters 
indicated that application of the advance notice rules to changes in 
terms required to be disclosed under Sec.  226.6(b)(4) would increase 
regulatory burden and administrative costs.
    In contrast, consumer groups and one industry commenter supported 
the Board's proposal to expressly provide that changes to terms 
required to be disclosed under Sec.  226.6(b)(4) are ``significant 
changes in account terms.'' The industry commenter acknowledged that 
the clarification could result in the provision of more change-in-terms 
notices but agreed that the changes are significant to the consumer and 
should be subject to 45 days' advance notice.
    One industry commenter erroneously stated that the proposal would 
create a new requirement that 45 days' advance notice be given prior to 
changing the balance computation method applicable to an open-end (not 
home-secured) account. This commenter argued that a change in the 
balance computation method is not a significant change in account terms 
and that 45 days' advance notice should not be required. The Board 
notes that the balance computation method is a term required to be 
disclosed under Sec.  226.6(b)(1) and (b)(2), and therefore a change in 
the balance computation method currently is a ``significant change in 
account terms'' under existing Sec.  226.9(c)(2)(ii), and would remain 
a ``significant change in account terms'' under the November 2010 
Proposed Rule.
    The Board is adopting the changes to Sec.  226.9(c)(2)(i) and 
(c)(2)(ii) as proposed. Accordingly, Sec.  226.9(c)(2)(ii) as adopted 
specifically categorizes changes in terms required to be disclosed 
under Sec.  226.6(b)(4) as ``significant change[s] in account terms.'' 
Section 226.6(b)(4) requires disclosure of certain information 
regarding periodic rates that may be used to calculate interest. The 
Board believes that changes in the manner in which annual percentage 
rates are computed, for example, changes in the frequency with which a 
variable rate may increase, are significant changes because they may 
impact the amount of interest imposed on a consumer's account, which is 
one of the key costs associated with open-end (not home-secured) 
credit. While certain details regarding rates mandated by Sec.  
226.6(b)(4) are not required or permitted to be disclosed in the 
account-opening table, changes in the manner in which an interest rate 
is computed may have a direct impact on the annual percentage rate 
expressed as a yearly rate, which is a required disclosure in the 
account-opening table under Sec.  226.6(b)(1) and (b)(2). For example, 
for variable rates Sec.  226.6(b)(4) requires disclosure of the 
frequency with which the rate may increase and the circumstances under 
which the rate may increase, both of which may impact the computation 
of the rate required to be disclosed in the account-opening table. 
Thus, the Board continues to believe that 45 days' advance notice of 
such changes is appropriate to ensure that consumers can take actions 
to mitigate the potential impact of changes in the way in which the 
annual percentage rate or rates applicable to their accounts are 
computed.
    As discussed below, the Board notes that the final rule provides 
creditors with flexibility in how to format the notice of a change to a 
term required to be disclosed pursuant to Sec.  226.6(b)(4); if the 
change does not result in a change to a term required to be disclosed 
pursuant to Sec.  226.6(b)(1) or (b)(2), the notice would not be 
required to be presented in a tabular format pursuant to Sec.  
226.9(c)(2)(iv)(D). The Board believes that this flexibility will 
alleviate burden on creditors, while ensuring that the changes of the 
most importance to consumers are appropriately highlighted.
    Proposed Sec.  226.9(c)(2)(ii) did not specifically identify 
changes in terms

[[Page 22964]]

required to be disclosed under Sec.  226.6(b)(3) in the list of 
``significant change[s] in account terms.'' The Board stated in the 
proposal that it believes a reference to Sec.  226.6(b)(3) is 
unnecessary, for several reasons. Section 226.6(b)(3) addresses 
disclosure of charges imposed as part of an open-end (not home-secured) 
plan. Certain charges imposed as part of a plan are specifically 
required to be disclosed in the account-opening table under Sec.  
226.6(b)(1) and (b)(2), while other charges imposed as part of the plan 
are not required or permitted to be disclosed in the table. Therefore, 
the 45-day advance notice requirement would continue to apply to 
charges that are identified in Sec.  226.6(b)(3) that are also required 
to be disclosed in the account-opening table under Sec.  226.6(b)(1) 
and (b)(2). In addition, Sec.  226.9(c)(2)(iii) sets forth a special 
rule for notice of changes to charges imposed as part of the plan that 
are not required to be disclosed in the account-opening table. In 
particular, for charges imposed as part of the plan under Sec.  
226.6(b)(3) that are not required to be disclosed in the account-
opening table under Sec.  226.6(b)(1) and (b)(2), Sec.  
226.9(c)(2)(iii) requires a creditor to either, at its option (1) 
provide at least 45 days' written advance notice before the change 
becomes effective, or (2) provide notice orally or in writing of the 
amount of the charge to an affected consumer at a relevant time before 
the consumer agrees to or becomes obligated to pay the charge.
    Consumer group commenters objected to the existing rule set forth 
in Sec.  226.9(c)(2)(iii), to the extent that it permits new fees that 
are not disclosed in the account opening table to be disclosed orally 
at a relevant time before the consumer agrees or becomes obligated to 
pay the charge. Consumer groups believe that the addition of a new fee, 
other than one-time fees for time-sensitive matters, should require a 
change in terms notice. However, for the reasons discussed in the 
supplementary information to the January 2009 Final Rule, the Board is 
not expanding the 45-day advance notice requirements to charges imposed 
as part of the plan under Sec.  226.6(b)(3) that are not required to be 
disclosed in the account-opening table under Sec.  226.6(b)(1) and 
(b)(2). See, e.g., 74 FR 5273, 74 FR 5345.
    The Board proposed one wording change to Sec.  226.9(c)(2)(iii) and 
comment 9(c)(2)(iii)-1; the proposal would have replaced the word 
``may'' with ``must,'' in order to clarify that increases in, or the 
introduction of new, charges imposed as part of the plan under Sec.  
226.6(b)(3) must be disclosed in accordance with Sec.  
226.9(c)(2)(iii). The Board received no comments on this change, which 
is adopted as proposed.
    Finally, unlike current Sec.  226.9(c)(2)(i), the definition of 
``significant change[s] in account terms'' in proposed Sec.  
226.9(c)(2)(ii) did not expressly reference the disclosures required by 
Sec.  226.6(b)(5). Section 226.6(b)(5) requires that a creditor 
disclose, to the extent applicable, certain information regarding 
voluntary credit insurance, debt cancellation or debt suspension 
coverage, security interests, and a statement regarding the consumer's 
billing rights. The disclosures regarding voluntary credit insurance 
and similar products and the statement of billing rights set forth in 
Sec.  226.6(b)(5) are not terms of the account, but specific 
disclosures that must be given. Accordingly, given that these are not 
terms of the account, the Board noted in the proposal that there are no 
corresponding changes in terms for which it is appropriate to require 
advance notice.\5\ In contrast, the acquisition of a security interest 
is expressly included in Sec.  226.9(c)(2)(ii)'s definition of 
``significant change in account terms'' for which 45 days' advance 
notice must generally be provided. The Board received no comments on 
this aspect of the proposal, which is adopted as proposed.
---------------------------------------------------------------------------

    \5\ The Board notes that charges for voluntary credit insurance, 
debt cancellation or debt suspension coverage are ``charges imposed 
as part of the plan'' under Sec.  226.6(b)(3)(ii)(F), and 
accordingly changes in the cost of such coverage are required to be 
disclosed in accordance with Sec.  226.9(c)(2)(iii).
---------------------------------------------------------------------------

    The Board is also amending Sec.  226.9(c)(2)(i)(A) to correct a 
technical issue; this amendment is not intended as a substantive change 
to the change-in-terms notice requirements. Consumer group commenters 
noted that in the February 2010 Final Rule, the Board created a new 
Sec.  226.9(c)(2)(i)(B) to address change-in-terms notice requirements 
for changes agreed to by the consumer. As discussed in the 
supplementary information to the February 2010 Final Rule, new Sec.  
226.9(c)(2)(i)(B) generally included guidance that was formerly 
included in the commentary to Sec.  226.9(c)(2), which was moved into 
the regulation for clarity. See 75 FR 7693. Section 226.9(c)(2)(i)(B) 
sets forth guidance regarding which changes are deemed to be ``agreed 
to'' by the consumer. Consumer group commenters on the November 2010 
Proposed Rule expressed concerns that the retention in the February 
2010 Final Rule of a separate reference to changes agreed to by the 
consumer in Sec.  226.9(c)(2)(i)(A) could be read as creating a 
different, broader standard than the one set forth in Sec.  
226.9(c)(2)(i)(B). Accordingly, the Board is amending Sec.  
226.9(c)(2)(i)(A) to expressly cross-reference Sec.  226.9(c)(2)(i)(B), 
in order to clarify that the guidance in Sec.  226.9(c)(2)(i)(B) is 
intended to exclusively address what it means for a change to be 
``agreed to by the consumer.''

9(c)(2)(iv) Disclosure Requirements

    As discussed above, the Board is amending Sec.  226.9(c)(2)(ii) to 
expressly provide that changes to terms required to be disclosed under 
Sec.  226.6(b)(4) are ``significant change[s] in account terms.'' The 
Board proposed several conforming changes to Sec.  226.9(c)(2)(iv), 
which sets forth the disclosure requirements for the 45-day advance 
notice of a significant change in account terms. First, the Board 
proposed to amend Sec.  226.9(c)(2)(iv)(A)(1) to provide that the 
notice must include a summary of changes made to terms required to be 
disclosed under Sec.  226.6(b)(4). Second, the Board proposed to amend 
Sec.  226.9(c)(2)(iv)(D)(1) to clarify the formatting requirements for 
the notice provided in advance of a change to a term required to be 
disclosed under Sec.  226.6(b)(4). Section 226.9(c)(2)(iv)(D)(1) 
generally requires that the summary of changes included with a change-
in-terms notice be in a tabular format, with headings and format 
substantially similar to any of the account-opening tables found in G-
17 to appendix G. However, terms required to be disclosed under Sec.  
226.6(b)(4), such as the margin for a variable rate, are not permitted 
to be included in the account-opening table, and therefore would not be 
in a tabular format in the samples in G-17 to appendix G. Accordingly, 
the Board proposed to amend Sec.  226.9(c)(2)(iv)(D)(1) to expressly 
state that the summary of a term required to be disclosed under Sec.  
226.6(b)(4) that is not required to be disclosed under Sec.  
226.6(b)(1) and (b)(2) need not be in a tabular format.
    The Board received only one comment on this aspect of the proposal, 
from an industry commenter that supported this flexible approach to 
providing disclosures of changes to terms required to be disclosed 
under Sec.  226.6(b)(4). Accordingly, the Board is adopting the changes 
to Sec.  226.9(c)(2)(iv)(A)(1) and (c)(2)(iv)(D)(1) as proposed.
Right To Reject
    The Board proposed several changes related to disclosure of the 
right to reject certain types of changes. When a creditor makes a 
significant change in account terms on a credit card account

[[Page 22965]]

under an open-end (not home-secured) consumer credit plan, Sec.  
226.9(c)(2)(iv)(B) generally requires the creditor to disclose certain 
information regarding the consumer's right to reject that change under 
Sec.  226.9(h). Section 226.9(c)(2)(iv)(B) also lists several types of 
changes to which the right to reject does not apply, including a change 
in the balance computation method necessary to comply with Sec.  
226.54. The Board adopted this exemption in the February 2010 Final 
Rule in order to facilitate compliance with the limitations on the 
imposition of finance charges in Sec.  226.54, which implemented the 
Credit Card Act's prohibition on the two-cycle balance computation 
method. See 75 FR 7696, 7730.
    Because Sec.  226.54 went into effect on February 22, 2010, the 
Board proposed to remove the exemption in Sec.  226.9(c)(2)(iv)(B) for 
changes necessary to comply with Sec.  226.54. In its place, the Board 
proposed to adopt an exemption stating that, when a fee has been 
reduced consistent with the Servicemembers Civil Relief Act (SCRA), 50 
U.S.C. app. 501 et seq., or a similar Federal or State statute or 
regulation, the right to reject does not apply to an increase in that 
fee once the statute or regulation no longer applies, provided that the 
amount of the increased fee does not exceed the amount of that fee 
prior to the reduction.
    As discussed in greater detail below with respect to Sec.  
226.55(b)(6), the SCRA and some state statutes generally require 
creditors to reduce interest rates and fees for consumers who are in 
military service. When the SCRA or similar state statute ceases to 
apply, Sec.  226.9(c) generally requires the creditor to provide 45 
days' advance notice of any increase in a rate or fee. The right to 
reject does not apply to rate increases, but Sec.  226.55(b)(6) limits 
the ability of a card issuer to increase the rate that applies to the 
existing balance on a credit card account under an open-end (not home-
secured) consumer credit plan in these circumstances. Specifically, 
Sec.  226.55(b)(6) provides that, if the SCRA requires a card issuer to 
reduce an interest rate on an existing balance when a consumer enters 
military service, the rate applied to that balance when the consumer 
leaves military service cannot exceed the rate that applied prior to 
military service. In other words, consumers cannot be charged higher 
rates once the SCRA ceases to apply than they were before the SCRA 
began to apply.
    The Board understands that, in order to comply with the SCRA and 
similar Federal or State statutes or regulations, many creditors reduce 
or cease to impose annual fees, late payment fees, and other types of 
fees while a consumer is in military service. Although the right to 
reject generally applies to increases in fees required to be disclosed 
under Sec.  226.6(b)(1) and (b)(2) (such as annual fees and late 
payment fees), the Board believes that, when a consumer leaves military 
service and the legal requirements of the SCRA or a similar Federal or 
State statute or regulation cease to apply, it is appropriate to permit 
creditors to return fees to pre-existing levels. Accordingly, the Board 
proposed to exempt such increases from the right to reject, although 
the right to reject would continue to apply if a creditor sought to 
apply a fee that exceeded the amount of the fee prior to the consumer 
entering military service. Commenters generally supported this aspect 
of the proposal, which is adopted as proposed.
    Section 226.9(c)(2)(iv)(B) also provides that the right to reject 
does not apply to changes to an annual percentage rate applicable to a 
consumer's account. As discussed above, the Board has amended the 
definition of ``significant change in account terms'' under Sec.  
226.9(c)(2)(ii) to expressly include changes to terms required to be 
disclosed under Sec.  226.6(b)(4). Section 226.6(b)(4) requires 
disclosure of certain information regarding periodic rates that may be 
used to calculate interest. One industry commenter asked the Board to 
expressly provide that changes to terms required to be disclosed under 
Sec.  226.6(b)(4) do not trigger the right to reject under Sec.  
226.9(c)(2)(iv)(B). The Board believes that the broad language of Sec.  
226.9(c)(2)(iv)(B), which refers to ``a change in an annual percentage 
rate applicable to a consumer's account'' generally encompasses changes 
to terms required to be disclosed under Sec.  226.6(b)(4).\6\ 
Accordingly, while the Board believes that the right to reject does not 
apply to most changes to terms required to be disclosed under Sec.  
226.6(b)(4), it is not adopting any amendments to the text of Sec.  
226.9(c)(2)(iv)(B) to address such changes.
---------------------------------------------------------------------------

    \6\ The right to reject would apply, however, to changes to a 
balance computation method applicable to a consumer's account; the 
balance computation method is a required disclosure pursuant to both 
Sec.  226.6(b)(2)(vi) and (b)(4)(i)(D).
---------------------------------------------------------------------------

Changes in Type of Rate
    Comments 9(c)(2)(iv)-3 and -4 and comments 9(c)(2)(v)-3 and -4 
clarify that, if a creditor is changing a rate applicable to a 
consumer's account from a non-variable rate to a variable rate (or vice 
versa), the creditor must provide a notice pursuant to Sec.  226.9(c) 
even if the new rate is lower than the prior rate. The Board proposed 
to revise this guidance to clarify that notice is not required pursuant 
to Sec.  226.9(c)(2) when a lower rate is applied in connection with a 
promotional or other temporary rate program or a workout or temporary 
hardship arrangement, provided that the terms of that program or 
arrangement are disclosed consistent with Sec.  226.9(c)(2)(v)(B) or 
(c)(2)(v)(D). In these circumstances, the Board believes that the 45-
day notice requirement would unnecessarily delay application of a lower 
rate to a consumer's account in circumstances where Sec.  
226.9(c)(2)(v)(B) or (c)(2)(v)(D) generally require that the consumer 
be informed of the terms associated with the lower rate before it is 
applied to the account. Furthermore, when a promotional or temporary 
rate or workout or temporary hardship arrangement is applied to an 
account, the substantive limitations in Sec.  226.55(b)(1) and (b)(5) 
protect consumers from unanticipated increases in the rates that apply 
to existing balances.
    The Board also proposed to clarify that notice pursuant to Sec.  
226.9(c)(2) is not required when the creditor applies a lower rate in 
order to comply with the SCRA or a similar Federal or State statute or 
regulation. Finally, in order to eliminate redundancy and ensure 
consistent guidance, the Board proposed to replace comments 9(c)(2)(v)-
3 and -4 with cross references to comments 9(c)(2)(iv)-3 and -4.
    Commenters generally supported these proposed revisions, which are 
adopted as proposed. In addition, as suggested by consumer group 
commenters, the Board has added a cross reference in comment 
9(c)(2)(iv)-4 to comment 55(b)(2)-4, which addresses the limitations in 
Sec.  226.55(b)(2) on changing the rate that applies to a protected 
balance from a non-variable rate to a variable rate.
    Finally, the Board has clarified that a creditor is not required to 
provide a notice under Sec.  226.9(c) when changing a variable rate to 
a lower non-variable rate or a non-variable rate to a lower variable 
rate in order to comply with Sec.  226.55(b)(4). Section 226.55(b)(4) 
permits a card issuer to increase the rate that applies to an existing 
credit card balance if the account becomes more than 60 days 
delinquent. However, if the consumer makes the next six required 
minimum payments on time, Sec.  226.55(b)(4) requires the card issuer 
to lower the rate on the existing balance to

[[Page 22966]]

the pre-existing rate. For example, assume that a credit card account 
became more than 60 days delinquent and that, after providing 45 days 
advance notice, the card issuer increased the rate on the existing 
balance from a 15% variable rate to a 30% non-variable penalty rate. If 
the consumer made the next six required minimum payments on time, Sec.  
226.55(b)(4) requires the card issuer to lower the rate that applies to 
the existing balance to the 15% variable rate. However, the card issuer 
is not required to provide 45 days advance notice before doing so.

9(c)(2)(v) Notice Not Required

Temporary Rate Exception
    Section 226.9(c)(2) generally requires that 45 days' advance notice 
be provided of significant changes in account terms for open-end (not 
home-secured) consumer credit plans. Several exceptions to this 45-day 
advance notice requirement are set forth in Sec.  226.9(c)(2)(v). 
Section 226.9(c)(2)(v)(B) sets forth an exception for increases in 
annual percentage rates upon the expiration of a period of time, 
provided that prior to the commencement of that period, the creditor 
discloses to the consumer clearly and conspicuously in writing the 
length of the period and the annual percentage rate that will apply 
after that period. Section 226.9(c)(2)(v)(B)(2) requires that the 
disclosure of the length of the period and the rate that will apply 
after expiration of the period must be disclosed in close proximity and 
equal prominence to the first listing of the disclosure of the rate 
that applies during the specified period of time.
    In November 2010, the Board proposed to clarify the proximity and 
prominence requirements for the disclosure of introductory rates that 
are disclosed at account opening. The Board noted that there is 
confusion regarding how to comply with the proximity and prominence 
rules in Sec.  226.9(c)(2)(v)(B) when an introductory rate is being 
disclosed in the account-opening table. The rules in Sec.  226.6(b) 
contain prescriptive formatting and font size requirements for the 
disclosures required to be provided in tabular form at account opening. 
Section 226.6(b)(1) requires that the tabular disclosure have headings, 
content, and format substantially similar to any of the applicable 
tables in G-17 in appendix G. In addition, Sec.  226.6(b)(2)(i) 
requires that annual percentage rates for purchases be disclosed in the 
tabular disclosure provided at account opening in 16-point font. 
Section 226.6(b)(1)(i) requires that annual percentage rates required 
to be disclosed pursuant to Sec.  226.6(b)(2)(i), including 
introductory rates required to be disclosed under Sec.  
226.6(b)(2)(i)(F), be disclosed in bold text.
    Sample G-17(C) contains a sample disclosure of an introductory rate 
on purchases, where the introductory and standard annual percentage 
rates are presented in bold 16-point font in accordance with Sec.  
226.6(b)(1)(i) and (b)(2)(i). However, the disclosure of the 
introductory period is displayed in 10-point font and is not presented 
in bold text, consistent with Sec.  226.6(b). Accordingly, the Board 
sought to address confusion regarding whether the Sec.  226.6(b) 
tabular disclosure would be deemed to comply with the formatting 
requirements in Sec.  226.9(c)(2)(v)(B)(2), because the period is 
disclosed in a smaller font than the font in which the relevant rates 
are disclosed, and is not in bold text.
    Specifically, the Board proposed to adopt a new comment 9(c)(2)(v)-
10 which states that a disclosure of the information described in Sec.  
226.9(c)(2)(v)(B)(1) provided in the account-opening table in 
accordance with Sec.  226.6(b) complies with the requirements of Sec.  
226.9(c)(2)(v)(B)(2), if the listing of the introductory rate in such 
tabular disclosure also is the first listing as described in comment 
9(c)(2)(v)-6. The Board proposed to renumber existing comments 
9(c)(2)(v)-10 through 9(c)(2)(v)-12 accordingly.
    Industry commenters generally supported proposed comment 
9(c)(2)(v)-10. These commenters indicated that permitting promotional 
rates to be disclosed in the account-opening table under Sec.  
226.9(c)(2)(v)(B), even if the duration of the period is disclosed in a 
smaller, non-bold font, would facilitate creditors' ability to continue 
to make beneficial promotional offers to consumers. However, several 
industry commenters objected to the language limiting comment 
9(c)(2)(v)-10 to circumstances where the listing of the introductory 
rate in the tabular disclosure is the first listing of the rate. These 
commenters expressed particular concern regarding private label credit 
card programs that provide a cover page at account opening which 
includes a reference to the temporary rate offer. Accordingly, for such 
programs, commenters indicated that the account-opening table often may 
not be the first listing of the promotional rate. These commenters 
stated that the Board should permit lenders to comply with the 
disclosure requirement for temporary and introductory rates by 
including the required information in the account-opening table 
provided pursuant to Sec.  226.6(b) even if it is not the first 
listing.
    The Board is adopting comment 9(c)(2)(v)-10 as proposed. The Board 
continues to believe that additional clarification is appropriate as to 
the relationship between the formatting requirements of Sec. Sec.  
226.9(c)(2)(v)(B)(2) and 226.6(b). The Board believes that if the 
information described in Sec.  226.9(c)(2)(v)(B)(2) is included in the 
account-opening table provided pursuant to, and in compliance with, 
Sec.  226.6(b), it should be deemed to meet the equal prominence and 
close proximity requirements of Sec.  226.9(c)(2)(v)(B). The format and 
presentation of information in the account-opening table was informed 
by the Board's consumer testing, and the Board believes that the 
requirements of Sec.  226.6(b) are appropriate and sufficient to convey 
key information regarding introductory rates to consumers.
    The Board notes that Sec.  226.9(c)(2)(v)(B)(2) and comment 
9(c)(2)(v)-6, which were adopted in the February 2010 Final Rule, apply 
the close proximity and equal prominence requirements for the Sec.  
226.9(c)(2)(v)(B) disclosures to the first listing of the temporary 
rate. The Board adopted this ``first listing'' rule in response to 
concerns raised by a commenter that, as originally proposed, Sec.  
226.9(c)(2)(v)(B) could have been construed to apply the close 
proximity and equal prominence requirements to each disclosure of the 
promotional rate, not just the first listing. See 75 FR 7699. The Board 
proposed comment 9(c)(2)(v)-10, not as a reconsideration of the ``first 
listing'' rule set forth in Sec.  226.9(c)(2)(v)(B)(2) and comment 
9(c)(2)(v)-6, but to clarify the relationship between the formatting 
requirements of Sec. Sec.  226.9(c)(2)(v)(B) and 226.6(b). The Board 
continues to believe that the ``first listing'' standard set forth in 
Sec.  226.9(c)(2)(v)(B)(2) and comment 9(c)(2)(v)-6 is appropriate, to 
ensure that consumers notice the disclosures required under Sec.  
226.9(c)(2)(v)(B) by requiring that those disclosures be closely 
proximate and equally prominent to the most prominent disclosure of the 
temporary rate.
    Consumer groups did not oppose proposed comment 9(c)(2)(v)-10 but 
urged the Board to also require that creditors comply with Sec.  
226.16(g) as part of compliance with in Sec.  226.9(c)(2)(v)(B), 
especially when the first listing of the introductory rate is not in 
the account-opening table. However, the Board is not expressly 
requiring compliance with Sec.  226.16(g) as a condition of the 
exception set forth in Sec.  226.9(c)(2)(v)(B), for several reasons.

[[Page 22967]]

First, the requirements of Sec.  226.16(g) apply independently of the 
change-in-terms provisions in Sec.  226.9(c)(2). The Board is concerned 
that making compliance with the advertising requirements in Sec.  
226.16(g) a prerequisite for compliance with Sec.  226.9(c)(2)(v)(B) 
could be misconstrued as suggesting that the requirements of Sec.  
226.16(g) do not otherwise independently apply. Second, Sec.  226.16(g) 
applies to advertisements of an open-end (not home-secured) plan. The 
definition of advertisement is set forth in Sec.  226.2(a) and related 
staff commentary; comment 2(a)(2)-1.ii.F expressly states that 
communications about an existing credit account (for example, a 
promotion encouraging additional or different uses of an existing 
credit card account) are not advertisements. In contrast, Sec.  
226.9(c)(2)(v)(B) applies to promotional rates offered on both new and 
existing accounts; therefore, any reference to compliance with Sec.  
226.16(g) would be inapplicable in cases where a creditor is utilizing 
the exception in Sec.  226.9(c)(2)(v)(B) for a promotion offered on an 
existing account.
    One commenter urged the Board to clarify, given an issuer's ability 
to combine application disclosures with account-opening disclosures, 
that placing the temporary rate information in the tabular disclosure 
provided pursuant to Sec.  226.5a would meet the timing, proximity, and 
prominence requirements of Sec.  226.9(c)(2)(v)(B). The Board believes 
that no additional clarification is necessary. In certain 
circumstances, comment 5a-2 permits the account-opening summary table 
described under Sec.  226.6(b)(1) to be substituted for the disclosures 
required by Sec.  226.5a. Accordingly, when an issuer combines 
application disclosures with account-opening disclosures, the 
disclosures being provided are the Sec.  226.6(b) disclosures, to which 
comment 9(c)(2)(v)-10 already applies.
    Comment 9(c)(2)(v)-5 sets forth guidance regarding the disclosure 
requirements for temporary rates when the temporary rate reduction is 
initially offered to the consumer by telephone. Comment 9(c)(2)(v)-5 
states 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 rate that will be in effect 
for a specified period of time (a temporary rate) if: (1) The consumer 
accepts the offer of the temporary rate by telephone; (2) 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 (3) 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.
    As discussed in the supplementary information to the February 2010 
Final Rule, this rule for telephone offers of promotional rates is 
intended to ensure that consumers may take immediate advantage of 
promotions that they believe to be beneficial, while protecting 
consumers by allowing them to terminate the promotion and thus avoid 
adverse consequences, upon receipt of written disclosures. Consistent 
with the rationale discussed in the February 2010 Final Rule, the Board 
proposed to amend comment 9(c)(2)(v)-5.ii to provide that, in 
connection with telephone offers of temporary rates or fees,\7\ the 
creditor need not permit the consumer to reject the temporary rate or 
temporary fee offer if the rate or rates or fee that will apply 
following expiration of the temporary rate do not exceed the rate or 
rates or fee that applied immediately prior to commencement of the 
temporary rate. The Board noted that, since such an offer never results 
in the increase in an interest rate or fee even on a prospective basis, 
it may be unnecessary to provide consumers with the opportunity to 
reject such an offer. The Board also proposed a conforming change to 
comment 9(c)(2)(v)-5.iii.
---------------------------------------------------------------------------

    \7\ As discussed below, the Board proposed to extend the 
exception in Sec.  226.9(c)(2)(v)(B) to apply to temporary fee 
reductions; accordingly, proposed comment 9(c)(2)(v)-5.ii applied 
both to temporary rate and temporary fee offers.
---------------------------------------------------------------------------

    Several industry commenters supported the proposed amendment to 
comment 9(c)(2)(v)-5.ii. These commenters stated that it makes little 
sense to offer a consumer a right to reject a temporary rate or fee 
offer if the rejection can only result in the consumer's account being 
subject to higher fees or charges. Consumer group commenters, on the 
other hand, opposed the proposed amendment to comment 9(c)(2)(v)-5.ii. 
Consumer groups indicated that even if the rate that will apply after a 
temporary rate expires does not exceed the rate that applied 
immediately prior to commencement of the temporary rate, a consumer 
might wish to reject the promotional offer if he or she purchased goods 
without comprehending that the promotional rate was temporary. These 
commenters stated that at a minimum, the Board should provide consumers 
with the right to return any goods without charge when the consumer 
bought goods based upon telephone disclosure of a promotional rate 
program.
    The Board is adopting comment 9(c)(2)(v)-5.ii as proposed. The 
Board believes that it is not necessary to provide consumers with a 
right to reject a temporary rate or fee offer when the rate or fee that 
will apply upon expiration of the temporary offer does not exceed the 
rate or fee that applied immediately prior to commencement of the 
promotion. In these circumstances, consumers still must receive oral 
disclosures in advance of the terms of the promotion, including the 
period for which the reduced rate or fee will be in effect. An issuer 
that fails to provide these oral disclosures has not complied with 
Sec.  226.9(c)(2)(v)(B) and must provide 45 days' advance notice prior 
to raising the rate or fee upon expiration of the promotion; in 
addition, in circumstances where Sec.  226.55 applies, such issuers are 
prohibited from increasing the rate or fee applicable to existing 
balances. Finally, the Board believes that when the rate or fee that 
will be in effect after the promotion expires does not exceed the 
standard rate or fee in effect prior to the commencement of the 
promotion, this situation presents less potential for harm to consumers 
than when the rate or fee after the promotion expires will exceed the 
rate or fee in effect prior to commencement of the promotion.
    Exception for Temporary Reductions in Fees
    The Board also proposed to amend Sec.  226.9(c)(2)(v)(B) to provide 
an exception to the advance notice requirements for increases in fees 
that occur after the expiration of a specified period of time. The 
Board declined to adopt a specific exception for temporary or 
promotional fee programs in the February 2010 Final Rule because the 
Credit Card Act did not contain such an exception and because an 
exception did not appear to be necessary. See 75 FR 7699. In the 
supplementary information to the February 2010 Final Rule, the Board 
noted that nothing in Regulation Z prohibits a creditor from providing 
notice of a future 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). See 75 FR 7699.

[[Page 22968]]

    However, upon further review, the Board proposed in November 2010 
to use its authority under TILA Section 105(a) to specifically address 
the advance notice requirements for temporary or promotional fees in 
order to encourage issuers to disclose and structure such programs in a 
consistent manner that enables consumers to understand the associated 
costs. Accordingly, the Board proposed to amend Sec.  226.9(c)(2)(v)(B) 
to apply to increases in fees upon the expiration of a specified period 
of time. Thus, proposed Sec.  226.9(c)(2)(v)(B) permitted a card issuer 
to increase a fee after a specified period of time without providing 45 
days' advance notice, if the card issuer provides the consumer in 
advance with a clear and conspicuous written disclosure of the length 
of the period and the fee or charge that will apply after expiration of 
the period. In addition, the Board proposed to amend comments 
9(c)(2)(v)-5 through 9(c)(2)(v)-7 to expressly refer to temporary fee 
offers.
    In addition, for clarity, and for consistency with the proposed 
changes to Sec.  226.9(c)(2)(v)(B), the Board also proposed to amend 
comment 9(c)(2)(v)-2, which addresses skip features offered in 
connection with open-end (not home-secured) consumer credit plans. 
Comment 9(c)(2)(v)-2 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. Comment 9(c)(2)(v)-2 was previously amended in the February 
2010 Final Rule for conformity with the exception in Sec.  
226.9(c)(2)(v)(B) for temporary reductions in interest rates. In 
particular, the Board added a new comment 9(c)(2)(v)-2.ii that 
clarifies the notice requirements for temporary reductions in interest 
rates. See 75 FR 7702. Because the Board proposed to expand Sec.  
226.9(c)(2)(v)(B) to cover promotional fee offers in addition to 
promotional rate offers, the Board proposed in November 2010 to amend 
comment 9(c)(2)(v)-2.ii to also cover temporary reductions in fees; 
comment 9(c)(2)(v)-2.i would accordingly apply only to programs that 
permit a consumer to skip or reduce a payment.
    Industry commenters generally supported the proposed amendment that 
would create an exception to the 45-day advance notice requirements for 
temporary fee arrangements disclosed in advance in accordance with 
Sec.  226.9(c)(2)(v)(B). Commenters indicated that the proposed 
clarifications provide necessary guidance regarding the content of a 
notice of a temporary fee, and stated that adopting the proposed 
amendments to Sec.  226.9(c)(2)(v)(B) would help to facilitate the 
continued availability of temporary fee reductions.
    Consumer group commenters expressed concerns regarding the proposed 
amendments to Sec.  226.9(c)(2)(v)(B), but did not oppose promotional 
fee programs. Consumer groups indicated that it is important for 
consumers to receive advance notice when the period for a promotional 
fee expires and an increased fee will be imposed, and suggested that 
this is particularly necessary for promotional programs for annual 
fees. If a specific promotion provides, for example, that no annual fee 
will be imposed during the first year after account opening but that an 
annual fee will be imposed in subsequent years, consumer groups believe 
that consumers may forget the terms of the promotion during the first 
year and be unduly surprised when a fee is imposed in year two. 
Consumer groups urged the Board to require a notice stating that the 
post-promotional fee will, or may, be imposed in the next billing 
cycle, on the periodic statement for the billing cycle prior to 
expiration of the promotional period.
    The Board is adopting the changes to Sec.  226.9(c)(2)(v)(B) and 
the related staff commentary generally as proposed. The Board believes 
that it is appropriate to establish standardized disclosure 
requirements for promotional fee offers that permit creditors to 
provide advance disclosures of temporary fees, the period for which 
those temporary fees will be in effect, and the fee that will apply 
upon expiration of the temporary fee. Offers of temporarily reduced 
fees can benefit consumers and the Board believes that the amendments 
to Sec.  226.9(c)(2)(v)(B) and the related staff commentary 
appropriately balance ensuring that consumers receive important 
information regarding the terms of a temporarily reduced fee with 
promoting the continued availability of offers that benefit consumers.
    The Board notes that consumers will continue to receive advance 
notice prior to imposition of an annual fee on a credit or charge card 
account pursuant to Sec.  226.9(e) in addition to the notice set forth 
in Sec.  226.9(c)(2)(v)(B). The Board recognizes that Sec.  226.9(e) 
requires only 30 days or one billing cycle's advance notice, rather 
than the 45 days' advance notice required for changes in terms under 
Sec.  226.9(c)(2). However, Sec.  226.9(e) does require that the 
renewal notice provided prior to imposition of an annual fee disclose 
how and when the cardholder may terminate credit availability under the 
account to avoid paying the fee. Accordingly, the Board notes that for 
annual fees imposed on credit card accounts, the consumer will receive 
both the Sec.  226.9(c)(2)(v)(B) notice prior to commencement of the 
promotion and a notice pursuant to Sec.  226.9(e) immediately prior to 
imposition of the annual fee.
    Several industry commenters urged the Board to provide additional 
guidance regarding the treatment under Sec.  226.9(c)(2) of temporary 
waivers of penalty fees. These commenters stated that temporary penalty 
fee waivers should be excluded from all notice requirements, including 
disclosure requirements for promotional fee reductions. These 
commenters indicated that a temporary reduction of the penalty fee 
should not trigger notice to the consumer because the reduction is an 
accommodation made only in circumstances where the consumer has not 
complied with the terms of the account agreement. One commenter noted 
that penalty fee waivers or reductions are typically provided in 
connection with workout programs rather than as a part of a marketing 
solicitation or offer.
    The Board agrees with commenters that it would be appropriate to 
provide an exception to Sec.  226.9(c)(2) for penalty fee waivers 
offered in connection with workout or similar programs. The Board 
understands that such waivers of penalty fees are generally an 
accommodation to consumers and that creditors do not market such 
waivers, given that penalty fees may only be imposed if consumers 
violate the terms of the account. Section 226.9(c)(2)(v)(D) sets forth 
an exception to the 45-day advance notice requirements for certain 
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 following the increase does not exceed the rate that 
applied prior to the commencement of the workout or temporary hardship 
arrangement. Accordingly, the final rule amends Sec.  226.9(c)(2)(v)(D) 
and comment 9(c)(2)(v)-11 to refer to fees required to be disclosed 
pursuant to Sec.  226.6(b)(2)(viii) (late payment fees), (b)(2)(ix) 
(over-the-limit fees), and (b)(2)(xi) (returned-payment fees). The 
Board believes that this expansion of the workout exception under Sec.  
226.9(c)(2)(v) will encourage the waiver or reduction of penalty fees 
as part of a workout or other temporary hardship arrangement, which may 
be beneficial to consumers who are subject to such arrangements.

[[Page 22969]]

Variable Rate Exception
    Section 226.9(c)(2)(v)(C) contains an exception to the 45-day 
advance notice requirements for increases in variable annual percentage 
rates in accordance with a credit card agreement that provides for a 
change in the rate according to operation of an index that is not under 
the control of the creditor and is available to the general public. In 
November 2010, the Board proposed to correct a typographical error in 
Sec.  226.9(c)(2)(v)(C). In the proposal that led to the February 2010 
Final Rule, proposed Sec.  226.9(c)(2)(v)(C) referred to an increase 
``in accordance with a credit card or other account agreement.'' In the 
February 2010 Final Rule, the phrase ``or other account'' was 
inadvertently deleted, without explanation in the supplementary 
information. The Board's intent was for the exception in Sec.  
226.9(c)(2)(v)(C) to apply both to credit card accounts and to other 
open-end (not home-secured) consumer credit plans. Accordingly, the 
Board proposed to insert the phrase ``or other account'' into Sec.  
226.9(c)(2)(v)(C).
    The exception to the advance notice requirements for an increase in 
a variable annual percentage rate is conditioned on the rate varying 
according to the operation of an index that is not under the control of 
the creditor and is available to the general public. Comment 
9(c)(2)(v)-11 contains a cross-reference to comment 55(b)(2)-2 for 
guidance on when an index is deemed to be under the ``card issuer's'' 
control. The Board noted in the proposal that there has been some 
confusion regarding the relationship between comment 55(b)(2)-2 and the 
exception set forth in Sec.  226.9(c)(2)(v)(C). Comment 55(b)(2)-2 
provides that an index is under a card issuer's control if, among other 
things, 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. The substantive limitations on 
rate increases in Sec.  226.55 and comment 55(b)(2)-2 apply only to 
credit card accounts under an open-end (not home-secured) consumer 
credit plan, while the advance notice requirements in Sec.  226.9(c)(2) 
and the variable-rate exception in Sec.  226.9(c)(2)(v)(C) apply to all 
open-end (not home-secured) consumer credit plans. Thus, the Board has 
been asked whether the variable-rate exception to the advance notice 
requirements set forth in Sec.  226.9(c)(2)(v)(C) applies to an open-
end (not home-secured) consumer credit plan that is not a credit card 
account, if the variable rate is subject to a fixed minimum or 
``floor.''
    The Board proposed to clarify that a variable rate plan that is 
subject to a fixed minimum or ``floor'' does not meet the conditions of 
the exception to the advance notice requirements set forth in Sec.  
226.9(c)(2)(v)(C). The Board stated that is appropriate to adopt a 
consistent interpretation of ``an index that is not under the control 
of the creditor'' for all open-end (not home-secured) credit. 
Accordingly, the Board proposed to amend comment 9(c)(2)(v)-11 
(renumbered as comment 9(c)(2)(v)-12) to refer to guidance on when an 
index is deemed to be under ``a creditor's'' control, rather than ``the 
card issuer's'' control. The substantive provisions of Sec.  226.55 
would have continued to apply only to credit card accounts under an 
open-end (not home-secured) consumer credit plan; however, the proposed 
change clarified that 45 days' advance notice is required prior to a 
rate increase on a variable-rate plan subject to a fixed minimum or 
floor, for all open-end (not home-secured) plans.
    Consumer groups supported both aspects of the proposed changes to 
Sec.  226.9(c)(2)(v)(C), and stated that variable rate ``floors'' 
should be discouraged for all types of open-end credit. Several 
industry commenters opposed the portion of the guidance that would 
apply consistent guidance regarding when a variable rate plan is deemed 
to be outside of a creditor's control to all open-end (not home-
secured) plans. These commenters stated that it is unnecessary to 
establish a consistent interpretation and that it would stifle 
competitive pricing. These commenters further argued that this 
clarification exceeds Congressional intent and the scope of the Credit 
Card Act.
    The Board is adopting the changes to Sec.  226.9(c)(2)(v)(C) and 
comment 9(c)(2)(v)-12 as proposed. The Board notes that it is adopting 
this clarification using its TILA Section 105(a) authority, rather than 
pursuant to the Credit Card Act, because this clarification pertains to 
open-end (not home-secured) credit that is not a credit card under an 
open-end (not home-secured) consumer credit plan. The Board continues 
to believe that, for consistency, it is appropriate to limit the 
variable rate exception to the change-in-terms notice requirements to 
only those rates that vary according to the operation of an index that 
is not under the control of the creditor and is available to the 
general public. The Board notes that for open-end (not home-secured) 
plans that are not credit card accounts under an open-end (not home-
secured) consumer credit plan, the regulation does not prohibit 
variable rates that are subject to a minimum or ``floor,'' but for such 
rates the creditor must comply with the advance notice requirements of 
Sec.  226.9(c).
9(e) Disclosures Upon Renewal of Credit or Charge Card
    Section 226.9(e), which implements TILA Section 127(d), sets forth 
the disclosures that card issuers must provide in connection with 
renewal of a consumer's credit or charge card account. Section 
226.9(e)(1) requires, in part, that a card issuer that has 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 must mail or deliver a written renewal notice to the 
cardholder.
    The Board did not propose any amendments to Sec.  226.9(e) or its 
associated commentary in the November 2010 Proposed Rule. However, the 
Board has become aware of a typographical error in the title to comment 
9(e)-10, which is currently entitled ``Disclosure of changes in terms 
not required to be disclosed pursuant to Sec.  226.6(b)(1) and 
(b)(2).'' For conformity with the substance of the comment and the rule 
set forth in Sec.  226.9(e), the Board is correcting the error by 
deleting the word ``not'' from the title of comment 9(e)-10.

Section 226.10 Payments

10(b) Specific Requirements for Payments

10(b)(4) Nonconforming Payments

    Section 226.10 sets forth rules regarding the prompt crediting of 
payments and the permissibility of assessing fees to make expedited 
payments. Section 226.10(a) generally requires that payments be 
credited to a consumer's account as of the date of receipt, except that 
Sec.  226.10(b) permits creditors to specify reasonable requirements 
for payments provided that those requirements enable most consumers to 
make conforming payments. Section 226.10(b)(4) addresses the crediting 
of payments that do not conform to the requirements specified by the 
creditor; if a creditor specifies requirements for the consumer to 
follow in making payments as permitted under Sec.  226.10 but accepts a 
payment that does not conform to the requirements, such nonconforming 
payments must be credited within five days of receipt.
    In November 2010, the Board proposed several amendments to Sec.  
226.10 intended to address confusion regarding the distinction between

[[Page 22970]]

conforming payments, which must be credited as of the date of receipt, 
and nonconforming payments, which must be credited within five days of 
receipt. Currently, Sec.  226.10(b)(4) refers to requirements specified 
``on or with the periodic statement,'' which may be read to suggest 
that payments received by any means not specified on or with the 
periodic statement generally are nonconforming payments. However, the 
rule in Sec.  226.10(b) that permits a creditor to specify reasonable 
requirements for making payments is silent as to the manner in which 
these requirements must be communicated to consumers in order for such 
payments to be considered conforming payments. In addition, comment 
10(b)-2 expressly provides that if a creditor promotes electronic 
payment via its Web site, any payments made via the Web site are 
generally conforming payments for purposes of Sec.  226.10(b), which 
indicates that conforming payments are not only those payments made via 
methods specified on the periodic statement.
    Specifically, the Board proposed to amend comment 10(b)-2 to 
provide that if a creditor promotes a specific payment method, any 
payments made via that method (prior to any cut-off time specified by 
the creditor to the extent permitted by Sec.  226.10(b)(2)), are 
generally conforming payments for purposes of Sec.  226.10(b). To 
provide further guidance, the Board also proposed to add two additional 
examples to comment 10(b)-2. Proposed comment 10(b)(2)-ii stated that 
if a creditor promotes payment by telephone (for example, by including 
the option to pay by telephone in a menu of options provided to 
consumers at a toll-free number disclosed on its periodic statement), 
payments made by telephone would generally be conforming payments for 
purposes of Sec.  226.10(b). Similarly, proposed comment 10(b)(2)-iii 
stated that if a creditor promotes in-person payments, for example by 
stating in an advertisement that payments may be made in person at its 
branch locations, such in-person payments made at a branch or office of 
the creditor generally would be conforming payments for purposes of 
Sec.  226.10(b).\8\ In contrast, the supplementary information to the 
proposal noted that proposed comment 10(b)-2 would not apply if the 
creditor makes a general promotional statement regarding payments that 
does not refer to a specific payment method, for example a statement 
that the creditor offers ``many convenient payment options.'' For 
conformity, the Board also proposed to amend Sec.  226.10(b)(4), which 
addresses the treatment of nonconforming payments. The proposal amended 
Sec.  226.10(b)(4) to provide 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 via a payment method that the creditor does not otherwise 
promote, the creditor shall credit the payment within five days of 
receipt.
---------------------------------------------------------------------------

    \8\ The Board notes that the requirements of Sec.  226.10(b)(3), 
when applicable, are not conditioned on whether the card issuer 
promotes in-person payments at its branches or offices. Section 
226.10(b)(3) applies to credit card accounts under an open-end (not 
home-secured) consumer credit plan and generally requires that 
payments made in person at a branch or office of a card issuer that 
is a financial institution be considered received on the date on 
which the consumer makes the payment.
---------------------------------------------------------------------------

    Consumer group commenters generally supported the Board's proposal 
to clarify that payments made via any specific method of payment 
promoted by the creditor generally are conforming payments for purposes 
of Sec.  226.10. Consumer groups urged the Board to adopt a broad 
definition of what it means to ``promote'' a method of payment, and 
suggested that making any statement offering a particular payment 
option should constitute promotion. These commenters further urged the 
Board to clearly specify in the regulation that payments made via a 
promoted method are conforming payments.
    Industry commenters generally supported the Board's efforts to 
clarify the definition of a ``conforming payment.'' However, industry 
commenters expressed concerns regarding the Board's specific guidance 
regarding what constitutes ``promotion'' of a method of payment. Two 
such commenters noted that the Board's proposed examples were helpful, 
but noted that they were not fully explanatory; these commenters asked 
the Board to provide further guidance as to the definition of 
``promotes.'' Several industry commenters were concerned that the 
Board's proposal would treat all payment methods made available to 
consumers as promoted, and therefore as conforming payments. These 
commenters argued that there is a distinction between actively 
promoting a payment option and responding to a consumer inquiry as to 
permissible alternatives for making payments, and urged the Board to 
adopt a narrower approach. One commenter stated that the final rule 
should be revised to indicate that there must be active advertising or 
encouragement of use of a particular payment method, rather than a mere 
listing of a method, in order for a method to be deemed promoted. This 
commenter stated that listing a payment option on a periodic statement 
or disclosing a payment option on a toll-free number should not, by 
itself, constitute promoting or advertising a particular payment 
option.
    Several industry commenters identified specific payment methods 
that they believe should not be treated as ``conforming payments.'' 
Many of these commenters urged the Board not to treat payments made 
through third-party payment intermediaries as promoted payment methods 
that constitute conforming payments. These commenters stated that a 
consumer might, for example, ask a customer service representative of 
the issuer for information about payment options. In response, the 
issuer's representative might provide the consumer with a list of such 
options that includes, among others, a third-party payment option. The 
commenters stated that the use of the third-party payment option should 
not be considered a promoted payment option, because the card issuer 
has no control over the receipt and handling of the payment through 
that third party. Commenters noted that there might be particular 
operational concerns and costs associated with treating such payments 
as conforming and noted that some card issuers might cease to disclose 
such payment methods among their suggested payment alternatives.
    One other industry commenter indicated that the Board should 
clarify that payments made to a debt management program, a portion of 
which may ultimately be sent to a card issuer, should not be considered 
conforming payments. This commenter expressed concern that the required 
disclosure pursuant to Sec.  226.7(b)(12)(i)(E) of information 
regarding credit counseling services might be deemed to constitute 
promotion of debt management agencies. This commenter also asked the 
Board to clarify that payments made to third-party collection agencies 
do not constitute conforming payments. This commenter noted that a 
cardholder's account must become delinquent before payments may be made 
to a third party collection agency and that issuers would accordingly 
be unlikely to promote third party collection agencies as a payment 
method.
    The Board continues to believe that additional clarification is 
appropriate regarding the distinction between conforming and 
nonconforming payments, in order to facilitate compliance with the rule 
and to ensure that payments are posted promptly in accordance with 
consumer expectations

[[Page 22971]]

and the intent of TILA Section 164. TILA Section 164, as amended by the 
Credit Card Act, provides in part that payments received 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 Board 
believes that, if a creditor promotes a specific method of making 
payments, the intent of TILA Section 164 is best effectuated by a rule 
that requires payments made by that method to be credited as of the 
date of receipt. The Board believes that if a creditor promotes that 
payments may be made via a certain method, it would be inappropriate to 
permit the creditor to delay crediting such payments for five days 
after receipt.
    Accordingly, the Board is adopting the amendments to comment 10(b)-
2 and Sec.  226.10(b)(4) generally as proposed. However, Sec.  
226.10(b)(4) has been restructured without intended substantive change 
from the proposal, to more clearly provide that payments made via a 
promoted method are conforming payments. For the reasons discussed 
above, the Board is adopting a new Sec.  226.10(b)(4)(ii) which states 
that if a creditor promotes a method for making payments, such payments 
shall be considered conforming payments under Sec.  226.10(b) and shall 
be credited 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.
    The Board acknowledges, however, that additional guidance would be 
helpful as to whether certain actions by the creditor constitute 
promotion of a particular payment method. The Board believes that as a 
practical matter, not every payment method made available or disclosed 
to consumers is ``promoted,'' and accordingly is declining to adopt a 
rule providing that every statement offering a particular payment 
option constitutes promotion. Whether promotion has occurred is a fact-
specific determination and, accordingly, the Board believes that 
``promotion'' is best defined by a set of illustrative examples, 
including those examples that were proposed in November 2010 and are 
being adopted as part of comment 10(b)-2.
    In addition, the Board is adopting a new comment 10(b)-2.iv to 
address payments made via a third-party payment method. Comment 10(b)-
2.iv states that if a creditor promotes that payments may be made 
through an unaffiliated third party, such as by disclosing the Web site 
address of that third party on the periodic statement, payments made 
via that third party's Web site generally are conforming payments for 
purposes of Sec.  226.10(b). In contrast, if a customer service 
representative of the creditor confirms to a consumer that payments may 
be made via an unaffiliated third party, but the creditor does not 
otherwise promote that method of payment, Sec.  226.10(b) permits the 
creditor to treat payments made via such third party as nonconforming 
payments in accordance with Sec.  226.10(b)(4). The Board believes that 
if a creditor advertises or prominently discloses a third-party payment 
method on the periodic statement, it would be inconsistent with 
consumer expectations for payments made by that method to be credited 
only after five days. However, the Board acknowledges that same-day 
crediting of payments made via unaffiliated third parties may raise 
special operational concerns and that mere confirmation by a customer 
service representative that a payment may be made via a specific third 
party does not by itself constitute ``promotion.''
    The Board is not adopting any additional guidance at this time 
regarding payments made to debt management programs or third-party 
collection agencies. The Board believes that whether a payment must be 
treated as conforming is best determined by looking at whether the 
creditor promotes the payment method rather than to the identity of the 
party accepting the payment. Accordingly, a payment made to a debt 
management program or third-party collection agency would not 
constitute a conforming payment unless the creditor promotes that 
method of payment. In addition, the required disclosure pursuant to 
Sec.  226.7(b)(12)(i)(E) of information regarding credit counseling 
services does not by itself constitute promotion of debt management 
programs as payment methods. The disclosure required pursuant to Sec.  
226.7(b)(12)(i)(E) is a general statement regarding the availability of 
credit counseling services; as set forth on Model Forms G-18(C), this 
disclosure consists solely of a toll-free telephone number and a 
statement that the consumer may call this number for more information 
about credit counseling services. The required disclosure does not 
suggest that a consumer may make payments via this toll-free number 
and, accordingly, the Board does not believe that this constitutes 
promotion of payment through a debt management program. In addition, 
while the Board believes it will depend on the specific facts and 
circumstances in any given case, the Board agrees with commenters that 
creditors do not generally promote payments via third party collection 
agencies, because promotion of such payments would entail promoting 
that consumers may permit their accounts to become delinquent.

10(e) Limitations on Fees Related to Method of Payment

    Section 226.10(e), which implements TILA Section 127(l), generally 
prohibits a card issuer from imposing a separate fee for allowing 
consumers to make a payment by any method, unless such payment method 
involves expedited service by a customer service representative of the 
card issuer. The Board understands that card issuers may use third-
party service providers to provide payment-related services on behalf 
of the issuer, such as receiving or processing payments from consumers. 
In some circumstances, in lieu of the card issuer imposing a fee for 
making a payment, the third-party service provider may charge consumers 
a fee for making a payment. Proposed comment 10(e)-4 clarified that 
third-party service providers or other third parties who receive 
payments on behalf of a card issuer are prohibited from charging a 
separate fee for payment, except as otherwise permitted by paragraph 
(e).
    Several industry commenters requested that the Board clarify that 
the proposal does not apply to independent payment services which 
receive payments on behalf of the consumer and transmit the payments to 
an issuer at the direction of the consumer. In addition, one commenter 
asserted that the restriction on imposing a fee in paragraph (e) should 
not apply to third parties simply because the issuer makes 
administrative arrangements to receive payments through a third party 
or arranges for a discounted payment rate for customers to make a 
payment through a third party. Commenters expressed concern that the 
proposal would inhibit innovation in or availability of payment 
methods. One commenter also requested further clarification regarding 
payments initiated from a deposit account at a financial institution 
that offers bill payment services and also issues credit cards.
    Consumer group commenters generally supported the proposed 
clarification. A member of Congress also supported the proposed 
clarification and asserted that permitting third-party service 
providers to charge a fee to allow a consumer to make a payment would 
undermine the intent of the Credit Card Act, which adopted TILA Section 
127(l).
    Based on the comments and further analysis, the Board believes that 
it

[[Page 22972]]

would be inconsistent with the intent of the Credit Card Act for 
consumers to pay a separate fee for making a payment through a third 
party that provides payment-related services, such as collecting, 
receiving, or processing a payment, on behalf of an issuer, unless the 
issuer itself would be permitted to charge the fee. Accordingly, in 
order to effectuate the purposes of the Credit Card Act and to prevent 
circumvention, the Board is revising Sec.  226.10(e) and adopting 
comment 10(e)-4 with revisions and illustrative examples. The Board is 
adopting these amendments in order to clarify that a third party that 
collects, receives, or processes payments on behalf of an issuer is 
prohibited from charging a consumer a separate fee for making a 
payment, except as otherwise permitted by paragraph (e).
    For example, if an issuer uses a service provider to receive, 
collect, or process payments made through the issuer's Web site or made 
through an automated telephone payment service, the limitation in Sec.  
226.10(e) applies because the third party is processing or receiving 
payments on behalf of the card issuer. In contrast, however, if a 
consumer makes a payment to the card issuer from a checking account at 
a depository institution using a payment service provided by the 
depository institution, the limitation in Sec.  226.10(e) would not 
apply because the depository institution is not collecting, receiving, 
or processing a payment on behalf of the card issuer.

10(f) Changes by Card Issuer

    The Board proposed to replace a reference to ``consumer'' in 
comment 226.10(f)-3.ii with ``card issuer'' in order to correct a 
typographical error. The Board received no significant comment on this 
aspect of the proposal, which is adopted as proposed.

Section 226.12 Special Credit Card Provisions

12(c) Right of Cardholder to Assert Claims or Defenses Against Card 
Issuer

    Section 226.12(c)(1) provides that, when a cardholder asserts a 
claim or defense against a card issuer, 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. Comment 12(c)-4 clarifies that 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. It 
further clarifies that, to determine the amount of credit outstanding, 
payments and other credits shall be applied to: Late charges in the 
order of entry to the account; then to finance charges in the order of 
entry to the account; and then to any other debits in the order of 
entry to the account. It also clarifies that, 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. Although the 
February 2010 Final Rule moved this language into the commentary from a 
footnote to Sec.  226.12, the guidance itself remained unchanged.
    The Board understands that there has been some confusion about the 
interaction between the guidance on applying payments in comment 12(c)-
4 and the payment allocation requirements in Sec.  226.53. For credit 
card accounts under an open-end (not home-secured) consumer credit 
plan, Sec.  226.53 generally requires card issuers to apply payments 
above the minimum first to the balance with the highest rate. However, 
comment 53-3 clarifies that, when a consumer has asserted a claim or 
defense against a card issuer pursuant to Sec.  226.12(c), the card 
issuer must apply any payment above the minimum in a manner that avoids 
or minimizes any reduction in the amount subject to that claim or 
defense. Illustrative examples are provided.
    In order to remove any inconsistency and to facilitate compliance, 
the Board proposed to revise comment 12(c)-4 to clarify that, with 
respect to credit card accounts under an open-end (not home-secured) 
consumer credit plan, Sec.  226.53 and the guidance in comment 53-3 
control. However, with respect to other types of credit card accounts 
(such as credit cards that access home-equity plans), the Board 
proposed to retain the long-standing guidance in comment 12(c)-4.
    Commenters generally supported the proposed revisions to comment 
12(c)-4, which--except as discussed below--are adopted with non-
substantive, organizational changes. One industry commenter noted that 
some card issuers use a single platform to service all types of credit 
card accounts, regardless of whether an account is a credit card 
account under an open-end (not home-secured) consumer credit plan 
subject to Sec.  226.53. This commenter requested clarification that, 
for purposes of comment 12(c)-4, issuers are permitted to apply a 
single set of payment allocation procedures to all credit card accounts 
by following Sec.  226.53 and comment 53-3. Because a card issuer's 
voluntary compliance with the guidance in comment 53-3 will generally 
minimize the assessment of interest charges and any reduction in 
disputed amounts, the Board has revised comment 12(c)-4 to provide the 
requested guidance.

Section 226.13 Billing Error Resolution

13(c) Time for Resolution; General Procedures

    Section 226.13(c)(2) generally requires a creditor to complete the 
billing error investigation procedures within two billing cycles (but 
no later than 90 days) after receiving a billing error notice. To 
ensure that creditors promptly complete their investigations under 
TILA, the Board adopted a new comment 13(c)(2)-2 in the February 2010 
Final Rule to clarify that a creditor must conclusively determine 
whether an error occurred within two complete billing cycles (but in no 
event later than 90 days) after receiving a billing error notice. Once 
this period has expired, the comment further clarified that the 
creditor may not reverse any amounts previously credited for an 
asserted billing error, even if the creditor subsequently obtains 
evidence indicating that the billing error did not occur as asserted.
    Since adoption of the comment, the Board has received questions 
regarding whether Sec.  226.13(c)(2) would prohibit a creditor from 
reversing amounts previously credited by the creditor after conclusion 
of the two billing cycle time frame if the consumer subsequently 
receives a credit in the amount of the error from the merchant or 
person that had honored the credit card. Such an occurrence might 
arise, for example, because the error investigation time frames under 
card network rules provide merchants additional time beyond the time 
frame under Sec.  226.13 to respond to a consumer error claim. As a 
result, a merchant may not issue a credit to the consumer's account 
until after the creditor has already resolved the error claim in the 
consumer's favor in order to comply with the time frame established 
under Regulation Z. In those cases, the consumer could receive more 
than one credit for the same billing error, one from the creditor and 
another from the merchant or other person honoring the credit card.
    The purpose of the billing error resolution time frame is to enable 
consumers to have their error claims investigated and resolved 
promptly. That is, TILA Section 161, as implemented by Sec.  226.13, is 
intended to bring finality to the billing error resolution process, and 
to avoid the potential of undue surprise for consumers caused by the 
reversal of

[[Page 22973]]

previously credited funds when a creditor fails to complete its 
investigation in a timely manner. In contrast, the potential for 
consumer harm would not arise when a consumer has already been made 
whole for the error by the person honoring the credit card. In such a 
case, the Board believes that the creditor should be permitted to 
reverse amounts previously credited by the creditor to correct the 
error in order to avoid giving the consumer a windfall for that 
transaction.
    Accordingly, the Board proposed to revise comment 13(c)(2)-2 to 
clarify that the requirement to complete an error investigation within 
two billing cycles does not prevent a creditor from reversing amounts 
it has previously credited to a consumer's account in circumstances 
where a consumer's account has been credited more than once for the 
same billing error. The proposed comment further clarified that the 
reversal of the credit by the creditor is appropriate so long as the 
total amount of the remaining credits is equal to or more than the 
amount of the error and the consumer does not incur any fees or other 
charges as a result of the timing of the creditor's reversal.
    Industry and consumer group commenters supported these revisions, 
which are adopted as proposed. Accordingly, to ensure compliance with 
the requirements of Sec.  226.13, a creditor should delay the reversal 
of the amounts the creditor has previously credited to the consumer's 
account until after the subsequent merchant credit has posted to the 
consumer's account. An illustrative example is set forth in the 
comment.

Section 226.14 Determination of Annual Percentage Rate

14(a) General Rule

    The Board proposed to clarify the effect of a leap year on 
determining the annual percentage rate for disclosures required for 
open-end (not home-secured) credit accounts. Proposed comment 14(a)-6 
clarified that a creditor generally may disregard any variance in the 
annual percentage rate which occurs solely by reason of the addition of 
February 29 in a leap year. For example, a creditor may use 365 days as 
the number of periods in a leap year when computing an annual 
percentage rate. In addition, if an annual percentage rate is computed 
using 366 days as the number of periods in a leap year, a variance in 
rate which occurs solely because of the addition of February 29 in the 
annual percentage rate computation would not trigger disclosure and 
other requirements under Sec. Sec.  226.9 and 226.55. One industry 
commenter supported the Board's proposed clarification. The Board 
believes that the clarification promotes accuracy in the disclosure of 
annual percentage rates and minimizes potential consumer confusion and 
operational burden for creditors. Accordingly, the Board is adopting 
comment 14(a)-6 as proposed.

Section 226.16 Advertising

16(g) Promotional Rates and Fees

    Section 226.16(g) currently sets forth the requirements for 
advertisements of promotional or introductory rates on open-end (not 
home-secured) plans. In general, Sec.  226.16(g) requires that certain 
advertisements of promotional or introductory rates state the 
promotional period, post-promotional rate, and, in some cases, the term 
``introductory'' or ``intro,'' in order to promote consumer 
understanding of the terms of such a promotional or introductory rate 
offer. As discussed elsewhere in this supplementary information, the 
Board is adopting changes to Sec. Sec.  226.9(c)(2) and 226.55 to 
implement additional disclosure requirements and limitations for offers 
of temporary reduced or promotional fees. The Board proposed conforming 
changes to Sec.  226.16(g) to require that certain advertisements of 
promotional fees also state the promotional period, post-promotional 
fee, and, in some cases, the term ``introductory'' or ``intro,'' in 
order to promote consumer understanding of the terms of such 
promotional or introductory fee offers. The Board proposed these 
changes using its authority under TILA Section 105(a) to effectuate the 
purposes of TILA.
    The disclosure requirements under proposed Sec.  226.16(g) 
generally applied to ``promotional fee[s],'' as defined in new Sec.  
226.16(g)(2)(iv). In particular, proposed Sec.  226.16(g)(2)(iv) 
defined ``promotional fee'' as a fee required to be disclosed under 
Sec.  226.6(b)(1) and (b)(2) on an open-end (not home-secured) plan for 
a specified period of time that is lower than the fee that will be in 
effect at the end of that period. Accordingly, the proposed advertising 
requirements for promotional fee offers applied only when the 
promotional fee being offered is a fee required to be disclosed in the 
account-opening table provided pursuant to Sec.  226.6(b). As noted in 
the November 2010 Proposed Rule, based in part on the Board's consumer 
testing, Sec.  226.6(b)(1) and (b)(2) require disclosure of the fees 
that are the most important to consumers. Accordingly, the Board 
believes that these key fees are those for which a creditor is the most 
likely to advertise a promotion. In addition, the application of the 
Sec.  226.16(g) disclosure requirements to fees required to be 
disclosed pursuant to Sec.  226.6(b)(1) and (b)(2) is consistent with 
the approach that the Board has taken in Sec.  226.9(c)(2)(ii) when 
defining ``significant changes in account terms.'' The Board also 
proposed several additional amendments to Sec.  226.16(g) and the 
associated commentary in order to conform the advertising disclosures 
for promotional fees to the advertising disclosures for promotional 
rate offers in Sec.  226.16(g).
    Commenters on this aspect of the proposal generally supported the 
proposed amendments to Sec.  226.16(g) that would impose advertising 
requirements similar to those for promotional rate offers on 
promotional fees. Accordingly, the Board is adopting amendments to 
Sec.  226.16(g) and the related commentary generally as proposed. The 
Board continues to believe that requiring that creditors clearly 
disclose the conditions of a promotional fee offer will promote the 
informed use of credit by consumers.
    One commenter stated that the Board should revise the definition of 
``promotional fee'' in proposed Sec.  226.16(g)(2)(iv) to clarify that 
a promotional fee offer may be limited to a specific balance or 
specific transaction. The Board agrees that it is appropriate to 
clarify that a promotional fee offer may be limited in this manner and 
notes that such a limitation would be consistent with the definition of 
``promotional rate'' in Sec.  226.16(g)(2)(i). Accordingly, the final 
rule defines ``promotional fee'' as a fee required to be disclosed 
under Sec.  226.6(b)(1) and (b)(2) applicable to an open-end (not home-
secured) plan, or 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 fee that will be in effect at the end of that period for 
such plan or types of balances or transactions. The Board notes that as 
adopted, Sec.  226.16(g)(2)(i) clarifies that promotional fees may 
apply either to the plan as a whole, such as an annual fee, or to 
particular balances or transactions, such as a balance transfer fee.
    The Board has included a reference to ``types'' of balances or 
transactions in Sec.  226.16(g)(2)(i) to reflect the fact that a 
creditor may structure an introductory fee offer such that a creditor 
will waive or reduce a fee only for one or more specific transactions, 
while other transactions of the same type will be subject to a standard 
fee set forth in the account agreement. In such circumstances, the 
waived or reduced fee is nonetheless a ``promotional fee''

[[Page 22974]]

for purposes of Sec.  226.16(g)(2)(i). For example, a card issuer may 
waive the balance transfer fee on any balances transferred at account 
opening; for other balance transfers, the issuer imposes a standard 
balance transfer fee of 3% of the amount of the balance. Although no 
fee will be imposed on the balance transfer made pursuant to the 
introductory offer, because other transactions of the same type are 
subject to a standard 3% fee, the $0 fee imposed on the balance 
transferred at account opening constitutes a ``promotional fee'' 
pursuant to Sec.  226.16(g)(2)(i).
    Several industry commenters objected to the Board's proposal to 
require creditors to disclose the term ``introductory'' or ``intro'' in 
immediate proximity to each listing of the introductory fee in a 
written or electronic advertisement pursuant to proposed Sec.  
226.16(g)(3). These commenters asked the Board to consider providing 
additional flexibility, to permit creditors to use phrases such as ``no 
annual fee for the first year'' or ``$40 annual fee waived for the 
first year,'' and noted that they believe these phrases to be more 
understandable and succinct than use of the term ``introductory,'' as 
required by the proposal. One commenter stated that for one-time fees 
(such as a waiver of balance transfer fees associated with the 
application), the term ``introductory'' would not add value to the 
consumer, because there will never be a balance transfer fee associated 
with the specific balance transfer that was the subject of the 
promotional fee offer.
    The Board is adopting the requirement to use the term 
``introductory'' or ``intro,'' as proposed, in connection with written 
or electronic advertisements of introductory fees. The Board believes 
that having consistent rules for advertisements of introductory rates 
and introductory fees will promote consumer understanding of 
introductory fees. In particular, the Board has concerns that 
permitting different terminology for introductory fees than 
introductory rates may detract from consumer understanding that 
introductory fees are, like introductory rates, being offered only for 
a limited time or on a particular transaction or transactions. 
Accordingly, the Board is not revising Sec.  226.16(g)(3) to permit 
statements such as ``no annual fee for the first year'' and ``$40 
annual fee waived for the first year,'' and the final rule requires, 
consistent with the proposal, that issuers use the word 
``introductory'' or ``intro'' to highlight the temporary nature of such 
offers.

Section 226.30 Limitation on Rates

    The Board proposed to make a technical correction to comment 30-
8.i.C to correct a typographical error. The Board did not receive any 
significant comments on this aspect of the proposal, which is adopted 
as proposed.

Section 226.51 Ability to Pay

The Credit Card Act and the Board's February 2010 Final Rule
    In its February 2010 Final Rule, the Board adopted Sec.  226.51, 
which implements the provisions of the Credit Card Act that require 
card issuers to assess a consumer's ability to pay before opening a new 
credit card account or increasing the credit limit on an existing 
account. Section 226.51(a) implements TILA Section 150, which provides 
that ``[a] card issuer may not open any credit card account for any 
consumer under an open end 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 payments under the terms 
of such account.'' Section 226.51(b) implements TILA Section 127(c)(8), 
which prohibits a card issuer from opening a credit card account for a 
consumer who is under the age of 21 unless the consumer has submitted a 
written application that meets certain requirements. Specifically, the 
application must require either: (1) ``submission by the consumer of 
financial information, including through an application, indicating an 
independent means of repaying any obligation arising from the proposed 
extension of credit in connection with the account''; or (2) the 
signature of a cosigner who has such means, is 21 or older, and assumes 
joint liability for the account.\9\
---------------------------------------------------------------------------

    \9\ Section 226.51(b) also implements TILA Section 127(p), which 
requires that, when a cosigner has assumed joint liability for a 
credit card account issued to an underage consumer, the account's 
credit limit may not be increased unless the cosigner approves in 
writing, and assumes joint liability for, the increase.
---------------------------------------------------------------------------

    The Board generally intended Sec.  226.51 to establish consistent 
standards for evaluating a consumer's ability to pay. Specifically, 
Sec.  226.51 requires that card issuers establish and maintain 
reasonable written policies and procedures to consider the income or 
assets and the current obligations of all consumers, regardless of age. 
See Sec.  226.51(a)(1)(ii), (b)(1)(i), and (b)(2)(ii)(B). For all 
consumers, a card issuer must consider either 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. See id. 
Furthermore, regardless of a consumer's age, it would be unreasonable 
for a card 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. See id.
    Section 226.51 does not require card issuers to verify a consumer's 
income or assets before opening a new account or increasing the credit 
limit on an existing account. Instead, a card issuer may consider a 
consumer's income or assets based on information from a variety of 
sources, including information provided by a consumer on a credit card 
application. See comment 51(a)(1)-4. In the February 2010 Final Rule, 
the Board stated that verification was not required by TILA Section 150 
and could be burdensome for both consumers and card issuers, especially 
when accounts are opened at point of sale or by telephone. For example, 
a consumer who wants to open a credit card account in a store to get a 
discount or a promotional rate on a purchase is unlikely to be carrying 
paystubs or other documents that verify his or her income. Similarly, 
because these types of documents typically contain personally 
identifiable information about the consumer, the card issuer would need 
to establish procedures for safeguarding that information. The Board 
concluded that these burdens outweighed the benefits of requiring 
verification because, unlike the subprime mortgage market, there was no 
evidence of widespread inflation of consumers' incomes in the credit 
card market. The Board also noted that, because credit card accounts 
are generally unsecured, card issuers have the incentive to verify 
income when either the information supplied by the consumer is 
inconsistent with the data the card issuer has already obtained or when 
the risk in the amount of the credit line warrants such verification. 
See 75 FR 7721.
November 2010 Proposed Rule
    Some card issuers request on their application forms that 
applicants provide their ``income'' or ``salary,'' while other issuers 
request that applicants provide their ``household income.'' In the 
November 2010 Proposed Rule, the Board acknowledged that there has been 
some confusion as to whether information provided by a consumer in 
response to a request for ``household income'' can be used by a card 
issuer to satisfy the requirements of Sec.  226.51. In particular, the 
Board noted that there has been uncertainty as to whether

[[Page 22975]]

Sec.  226.51 established different standards for underage and adult 
consumers with respect to the consideration of household income and 
assets.
    In order to resolve this confusion, the November 2010 Proposed Rule 
would have amended Sec.  226.51 to require that, regardless of the 
consumer's age, a card issuer must consider the consumer's independent 
ability to make the required payments. The Board further proposed to 
clarify in a revised comment 51(a)(1)-4 that consideration of 
information regarding the consumer's household income or assets does 
not by itself satisfy this requirement. Thus, if a card issuer 
requested on its application forms that applicants state their 
``household income,'' the proposed rule generally would not have been 
permitted the issuer to use the income information provided by an 
applicant to satisfy the ability-to-pay requirement. In contrast, 
however, the income information provided by an applicant could be used 
if a card issuer requested on its application forms that applicants 
simply state their ``income'' or ``salary.''
Comments
    Consumer group commenters supported the proposed rule, noting that 
it would limit card issuers' ability to extend credit to consumers who 
do not have sufficient income or assets and must rely on the income or 
assets of a spouse or other household member who is not liable on the 
account. In particular, these commenters expressed concern that, while 
a married couple may have sufficient collective income to make the 
required payments on their credit card debts during the marriage, the 
spouse who is solely liable for those debts may not have sufficient 
income to make the payments if the marriage ends. Thus, they argued, 
consumers and issuers are better protected if spouses apply jointly and 
are collectively liable for credit card debt incurred during a 
marriage.
    Comments from members of Congress, credit card issuers, retailers, 
trade associations, and individual consumers generally supported 
applying the proposed limitations on the consideration of spousal and 
other household income when an applicant or accountholder is under the 
age of 21. However, these commenters strongly objected to the 
application of these limitations to consumers who are 21 or older. They 
argued that this aspect of the proposed rule was inconsistent with the 
Credit Card Act and the Board's Regulation B and would reduce access to 
credit, particularly for married women who do not work outside the 
home.
Final Rule
    Pursuant to its authority under TILA Section 105(a) and Section 2 
of the Credit Card Act, the Board is generally adopting the amendments 
to Sec.  226.51 and its commentary as proposed. Specifically, the Board 
is amending Sec.  226.51 to require that a card issuer consider a 
consumer's independent ability to make the required payments on a 
credit card account, regardless of the consumer's age. Furthermore, the 
Board is revising comment 51(a)(1)-4 to clarify that a card issuer may 
not use the income or assets of a person who is not liable for debts 
incurred on the account to satisfy the requirements of Sec.  226.51, 
unless a Federal or State statute or regulation grants a consumer who 
is liable on the account an ownership interest in such income or 
assets. Thus, if a card issuer prompts an applicant to provide his or 
her ``household income'' on a credit card application, the card issuer 
cannot rely solely on the information provided by an applicant to 
satisfy the requirements of Sec.  226.51. Instead, the card issuer 
would need to obtain additional information about an applicant's 
independent income (such as by contacting the applicant). However, if a 
card issuer requests that applicants provide their income without 
reference to household income (such as by requesting ``income'' or 
``salary''), the issuer may rely on the information provided by 
applicants to satisfy the requirements of Sec.  226.51.
    As discussed below, the Board believes that this final rule 
effectuates the purpose of the Credit Card Act's ability-to-pay 
requirement by protecting consumers from incurring unaffordable levels 
of credit card debt. The following discussion also addresses concerns 
raised by commenters.
    Consistency with the Credit Card Act. The Board believes that 
applying an independent ability-to-pay requirement to consumers age 21 
and older is consistent with both the language and the intent of TILA 
Section 150. Specifically, TILA Section 150 requires card issuers to 
consider ``the ability of the consumer to make the required payments'' 
(emphasis added), which indicates that Congress intended card issuers 
to consider only the ability to pay of the consumer or consumers who 
are responsible for making payments on the account. Thus, it would be 
inconsistent with TILA Section 150 to permit card issuers to establish 
a consumer's ability to pay based on the income or assets of 
individuals who are not liable for debts incurred on the account.
    Some industry commenters argued that the Credit Card Act's use of 
the term ``independent'' in TILA Section 127(c)(8)(B)(ii) but not in 
TILA Section 150 indicates Congress' intent to establish a less 
stringent standard for consideration of spousal or other household 
income when the consumer is 21 or older. However, as discussed above, 
the Board believes that interpreting the Credit Card Act to permit card 
issuers to establish a consumer's ability to pay based on the income or 
assets of individuals who are not responsible for making payments on 
the account would be inconsistent with the language and intent of TILA 
Section 150. Furthermore, the Board believes that it would be contrary 
to the intent of the Credit Card Act to interpret the differences 
between TILA Section 127(c)(8)(B)(ii) and TILA Section 150 as limiting 
the Board's authority to establish reasonable standards for evaluating 
a consumer's ability to pay.\10\
---------------------------------------------------------------------------

    \10\ See Credit Card Act Sec.  2 (granting the Board the 
authority to ``issue such rules * * * as it considers necessary to 
carry out this Act. * * *'').
---------------------------------------------------------------------------

    Other commenters argued that a spouse who has access to household 
income has the ``ability * * * to make the required payments,'' even if 
the spouse does not have a legal ownership interest in the income. 
Under this interpretation, if the income of an applicant's spouse is 
deposited into a checking or other account to which the applicant has 
access, the applicant would have the ability to use that income to make 
the required payments. The Board agrees that TILA Section 150 could be 
interpreted in this manner. However, this interpretation could not be 
limited to circumstances involving spouses without requiring card 
issuers to treat unmarried consumers less favorably than married 
consumers, which would be inconsistent with the Equal Credit 
Opportunity Act, 15 U.S.C. 1691 (ECOA), as implemented in the Board's 
Regulation B (12 CFR Part 202).\11\
---------------------------------------------------------------------------

    \11\ Regulation B prohibits a creditor from discriminating 
against an applicant on a prohibited basis (which includes marital 
status) regarding any aspect of a credit transaction. See 12 CFR 
202.2(z), 202.4(a). Under Regulation B, a creditor discriminates 
against an applicant if it treats the applicant less favorably than 
other applicants. See 12 CFR 202.2(n).
---------------------------------------------------------------------------

    Furthermore, the Board is concerned that, if this interpretation 
were applied to all consumers regardless of marital status, it could 
encourage consumers to provide--and card issuers to extend credit based 
on--overstated income information. Specifically, a consumer may 
understand a credit card application asking for ``household income'' to 
request the income of all

[[Page 22976]]

household members, including those who are not liable for debts 
incurred on the account. For example, if an adult applicant lives with 
his or her parents, the applicant may understand ``household income'' 
to include the parents' income even if the parents are not liable on 
the account. In the subprime mortgage lending market, the Board found 
that lenders relying on overstated incomes to make loans could not 
accurately assess consumers' repayment ability.\12\ The Board believes 
that TILA Section 150 was intended to prevent similar practices in the 
credit card market.\13\
---------------------------------------------------------------------------

    \12\ See 73 FR 44522, 44539-44551 (July 30, 2008) (discussing 
the Board's concerns regarding overstated income in the context of 
higher-priced mortgage loans secured by the consumer's principal 
dwelling).
    \13\ Some card issuers stated that credit card accounts opened 
based on household income do not have a higher rate of delinquency 
or loss than accounts opened based on individual income. However, 
they did not provide any data in support of this statement.
---------------------------------------------------------------------------

    Consistency with Regulation B. In the November 2020 Proposed Rule, 
the Board noted that there has been some confusion as to whether 
Regulation B requires a card issuer to consider spousal or other 
household income when considering a consumer's ability to pay under 
Sec.  226.51. Accordingly, the Board clarified that Regulation B does 
not compel a card issuer to consider spousal or other household income 
when considering an applicant's ability to pay under either Sec.  
226.51(a) or (b). Furthermore, in the proposal, the Board clarified 
that card issuers would not violate Regulation B by virtue of complying 
with the requirements in Sec.  226.51(a) or (b). Thus, to the extent 
that Sec.  226.51 does not permit a card issuer to consider spousal or 
other household income, the Board's November 2010 Proposed Rule stated 
that the card issuer does not violate Regulation B by excluding such 
income from consideration.
    Nevertheless, some commenters raised concerns that this aspect of 
the proposed rule was inconsistent with Regulation B. In particular, 
these commenters argued that, because Regulation B limits card issuers' 
ability to request information concerning an applicant's spouse (such 
as the spouse's income),\14\ issuers must request ``household income'' 
on their application forms in order to avoid violating Regulation B.
---------------------------------------------------------------------------

    \14\ See 12 CFR 202.5(c). However, Regulation B does permit a 
creditor to request information concerning an applicant's spouse if, 
for example, the spouse will be permitted to use the account, the 
spouse will be contractually liable on the account, the applicant is 
relying on the spouse's income as a basis for repayment of the 
credit requested, or the applicant resides in a community property 
state. See 12 CFR 202.5(c)(2).
---------------------------------------------------------------------------

    These commenters did not raise any new issues with respect to the 
relationship between Sec.  226.51 and Regulation B. Thus, as in the 
proposal, the Board concludes that a card issuer does not violate 
Regulation B by virtue of complying with Sec.  226.51. Several 
commenters requested that the Board delay finalizing this rule until 
such time as Regulation B could be amended to resolve any conflicts. 
However, because this rule does not conflict with Regulation B, the 
Board does not believe that such amendments are necessary.
    Effect on access to credit. Comments from members of Congress, 
credit card issuers, retailers, trade associations, and individual 
consumers expressed concern that the proposed rule would unfairly 
restrict access to credit for consumers who do not work outside the 
home, particularly married women. These commenters stated that, in 
families where only one spouse is employed outside the home, the other 
spouse is often responsible for managing the family's finances and 
making major purchases that require access to credit (such as opening a 
new credit card account in a store in order to finance the purchase of 
an appliance).\15\ These commenters argued that, if a spouse who is not 
employed cannot rely on the employed spouse's income when applying for 
credit, the application would likely be denied, despite the fact that 
the employed spouse's income can be used to make the required payments 
on the account.\16\ Commenters also raised similar concerns with 
respect to low-income families where both spouses work (particularly 
military families) because the spouses may need to pool their incomes 
in order to satisfy the ability-to-pay requirements of Sec.  226.51.
---------------------------------------------------------------------------

    \15\ The Board notes, however, that commenters did not submit 
any data supporting this statement.
    \16\ Again, commenters generally did not submit data 
substantiating this contention. One credit card issuer estimated 
that, if the proposed rule were adopted, over 10% of applications 
that are currently approved would be denied. However, the issuer did 
not provide any information about how this estimate was made.
---------------------------------------------------------------------------

    The Board believes that TILA Section 150 was intended to strengthen 
credit card underwriting standards in order to protect consumers from 
incurring unaffordable levels of credit card debt. Consistent with this 
intent, the Board adopted Sec.  226.51, which requires that, before 
opening a new credit card account or increasing the credit limit on an 
existing account, card issuers must evaluate whether a consumer has the 
income or assets necessary to make the required payments on the credit 
card account and on any other debts. Thus, to the extent that credit 
card issuers previously extended credit to consumers who lacked 
sufficient income or assets to repay debts incurred on the account, 
Sec.  226.51 now prohibits them from doing so. Similarly, to the extent 
that card issuers are currently extending credit based on the income of 
persons who are not liable on the account, the Board believes that it 
is consistent with the purposes of TILA Section 150 and Sec.  226.51 to 
restrict this practice.
    Furthermore, for the following reasons, the Board believes that 
married women who do not work outside the home and low-income families 
will continue to have access to credit. First, the final rule permits 
card issuers to ask for ``income'' or ``salary'' on their application 
forms and to use the information provided by applicants to satisfy the 
ability-to-pay requirement. As noted above, some card issuers currently 
request ``income'' or ``salary'' on their applications, while other 
issuers request ``household income.'' The Board is unaware of any 
evidence that card issuers who request ``income'' or ``salary'' extend 
less credit to married women who do not work outside the home or to 
low-income families than issuers that request ``household income.''
    Second, nothing in Sec.  226.51 prohibits card issuers from 
considering the combined incomes of spouses or other household members 
who apply for credit jointly. Indeed, comment 51(a)(1)-6 currently 
states that, when two or more consumers open an account jointly, the 
card issuer may consider their collective ability to make the required 
payments. Thus, a consumer who does not have sufficient income to open 
a credit card account independently can open an account by applying 
jointly with a spouse who has sufficient income. The Board understands 
that a joint application could be inconvenient or impracticable in 
certain circumstances, such as when a consumer's spouse is not 
available to apply in a retail setting. However, the Board does not 
believe that these concerns warrant permitting issuers to extend credit 
based on the income of persons who are not liable on the account.
    Third, consumers without sufficient income to open a credit card 
account independently can obtain access to credit and build a credit 
history by becoming authorized users on the credit card account of a 
spouse, which is a common practice. In particular, the Board notes that 
a long-standing

[[Page 22977]]

provision of Regulation B provides that, when a consumer is permitted 
to use a spouse's account, a creditor that furnishes credit information 
to the credit bureaus generally must reflect the participation of both 
spouses for that account.\17\
---------------------------------------------------------------------------

    \17\ See 12 CFR 202.10.
---------------------------------------------------------------------------

    Finally, as noted above, the final rule permits a card issuer to 
consider the income of a consumer's spouse if a Federal or State 
statute or regulation grants the consumer an ownership interest in that 
income. For example, in community property states such as California 
and Texas, spouses are presumed to have joint ownership of property 
acquired during the marriage. Thus, if an applicant resides in a 
community property state, the applicant's income would generally 
include the income of the applicant's spouse for purposes of Sec.  
226.51(a). In these circumstances, a card issuer could--consistent with 
Regulation B--request that applicants who reside in community property 
states provide information regarding their spouses' incomes.\18\
---------------------------------------------------------------------------

    \18\ See 12 CFR 202.5(c)(2)(iv), (d)(1).
---------------------------------------------------------------------------

Additional Revisions to Commentary
    The Board has also made the following revisions to the commentary 
to Sec.  226.51:
     Comments 51(a)(1)-1 and -2 have been amended to clarify 
that, consistent with the revisions to Sec.  226.51(a), card issuers 
must consider the consumer's independent ability to make the required 
payments.
     Comments 51(a)(1)-4 and -6 and comment 51(b)(1)-2 have 
been amended to clarify that card issuers generally are not permitted 
to consider the income or assets of persons who are not liable for 
debts incurred on the account (such as authorized users).
     In order to improve clarity, the guidance in comment 
51(a)(1)-4 has been reorganized into three subparagraphs.
     Consistent with the proposed amendments to Sec. Sec.  
226.9, 226.16, and 226.55 regarding fees that increase after a 
specified period of time, comment 51(a)(2)-3 has been amended to 
clarify that, when estimating the required minimum periodic payments 
for purposes of the safe harbor in Sec.  226.51(a)(2)(ii), the issuer 
must use the fee that will apply after the specified period. This 
approach is consistent with the guidance regarding promotional rates in 
comment 51(a)(2)-2.
     The Board has adopted a new comment 51(b)(1)-2 to clarify 
that information regarding income and assets that satisfies the 
requirements of Sec.  226.51(a) also satisfies the requirements in 
Sec.  226.51(b)(1) for consumers under the age of 21.

Section 226.52 Limitations on Fees

52(a) Limitations Prior to Account Opening and During First Year After 
Account Opening

    Section 226.52(a)(1) generally limits the total amount of fees that 
a consumer may be required to pay with respect to a credit card account 
under an open-end (not home-secured) consumer credit plan to 25 percent 
of the account's credit limit at account opening.\19\ This limitation 
applies ``during the first year after the account is opened.'' However, 
the Board understands that some card issuers are requiring consumers to 
pay application, processing, or similar fees prior to account opening 
that, when combined with other fees charged after account opening, 
exceed the 25 percent threshold in Sec.  226.52(a)(1). As discussed 
below, to the extent that Sec.  226.52(a)(1) permits this practice, the 
Board is concerned that the regulation is inconsistent with the 
purposes of TILA (as amended by the Credit Card Act). Accordingly, 
pursuant to its authority under TILA Section 105(a) and Section 2 of 
the Credit Card Act, the Board proposed to amend Sec.  226.52(a)(1) to 
apply to fees the consumer is required to pay prior to account opening.
---------------------------------------------------------------------------

    \19\ Late payment fees, over-the-limit fees, and returned 
payment fees are exempt from this requirement, as are fees that the 
consumer is not required to pay with respect to the account. See 
Sec.  226.52(a)(2).
---------------------------------------------------------------------------

    The Credit Card Act amended TILA Section 127 by creating a new 
paragraph (n). See Credit Card Act Sec.  105. Section 127(n)(1) 
provides that, ``[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, 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.'' 15 
U.S.C. 1637(n)(1). Section 127(n)(2) further provides that Section 
127(n) may not ``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).
    As discussed in the February 2010 Final Rule, the Board believes 
that Section 127(n) was intended to prevent card issuers from requiring 
consumers to pay excessive fees in order to obtain a credit card 
account. See 75 FR 7724-7726. Many subprime credit card issuers require 
payment of substantial one-time fees when an account is opened (such as 
application fees, program fees, and annual fees). By linking the 
maximum amount of permissible fees to the amount of credit extended, 
Section 127(n)(1) and Sec.  226.52(a)(1) establish a direct 
relationship between the costs and benefits associated with opening a 
credit card account. If, for example, a card issuer provides a consumer 
with a $500 credit limit when the account is opened, the issuer is 
prohibited from requiring the consumer to pay more than $125 in non-
exempt fees at account opening. Furthermore, in order to ensure that 
the statutory relationship between fees and the account's credit limit 
is maintained for a reasonable period of time, Section 127(n)(1) and 
Sec.  226.52(a)(1) apply for one year after an account is opened. Thus, 
a card issuer that charges non-exempt fees that equal 25 percent of the 
credit limit at account opening cannot require the consumer to pay any 
transaction fees, monthly maintenance fees, or other non-exempt fees 
for one year after account opening.

52(a)(1) General Rule

Fees Charged Prior to Account Opening

    The Board understands that, because Sec.  226.52(a)(1) states that 
its limitations apply ``during the first year after the account is 
opened,'' there has been some uncertainty as to whether those 
limitations apply to fees that a consumer is required to pay prior to 
account opening. As noted above, some card issuers are currently 
requiring consumers to pay application or processing fees prior to 
account opening that, when combined with other fees charged to the 
account after account opening, exceed 25 percent of the account's 
initial credit limit. While this practice is consistent with the 
current language of Sec.  226.52(a)(1), the Board believes that it is 
inconsistent with the intent of Section 127(n)(1) insofar as it alters 
the statutory relationship between the costs and benefits of opening a 
credit card account. Accordingly, in order to effectuate the purpose of 
Section 127(n)(1), the Board proposed to use its authority under TILA 
Section 105(a) and Section 2 of the Credit Card Act to amend Sec.  
226.52(a)(1) to apply the 25 percent limitation to fees the consumer is 
required to pay before

[[Page 22978]]

account opening and during the first year after account opening.\20\
---------------------------------------------------------------------------

    \20\ Although TILA Section 127(n)(2) refers to the ``imposition 
or payment of advance fees,'' the Board does not interpret this 
reference as excluding ``advance fees'' from the application of 
Section 127(n)(1). On the contrary, Section 127(n)(2) specifically 
states that Section 127(n) cannot ``be construed as authorizing any 
imposition or payment of advance fees otherwise prohibited by any 
provision of law,'' which the Board understands to mean that a fee 
that falls under the 25 percent threshold may nevertheless be 
subject to other legal restrictions. For example, comment 52(a)(3)-1 
cites 16 CFR Sec.  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.''
---------------------------------------------------------------------------

    Consumer groups, a member of Congress, and a credit card issuer 
supported the proposed amendment on the grounds that it would prevent 
evasion and further the purposes of TILA Section 127(n). In contrast, 
the proposal was opposed by other industry commenters (including 
employees of a credit card issuer that focuses on the subprime market). 
These commenters argued that the proposed amendment was inconsistent 
with the plain language of the Credit Card Act insofar as it would 
apply the 25 percent limitation to fees charged prior to account 
opening. They also argued that the proposal would force subprime credit 
card issuers to reduce credit availability by limiting revenue derived 
from fees. However, for the reasons discussed above, the Board believes 
that the proposed rule is necessary to preserve the statutory 
relationship between the costs and benefits of opening a credit card 
account. Accordingly, in order to effectuate the purposes of TILA 
Section 127(n) and to prevent evasion, the Board is adopting this 
aspect of the proposal in the final rule. See TILA Section 105(a); 
Credit Card Act Sec.  2.
Account Opening
    The proposed rule noted that some confusion exists regarding when 
the one-year period in Sec.  226.52(a)(1) begins and ends. In order to 
resolve any uncertainty as to when the 25 percent limitation in Sec.  
226.52(a)(1) ceases to apply, the Board proposed to amend Sec.  
226.52(a)(1) to provide that, for purposes of that paragraph, an 
account is considered open no earlier than the date on which the 
account may first be used by the consumer to engage in transactions. 
This approach is generally consistent with Sec.  226.5(b)(1)(i), which 
provides that the account-opening disclosures required by Sec.  226.6 
must be provided before the first transaction is made under the plan. 
Although Sec.  226.5(b)(1)(iv) and (b)(1)(v) permit creditors to 
collect membership fees and application fees excludable from the 
finance charge under Sec.  226.4(c)(1) before providing account-opening 
disclosures in certain circumstances, the Board is concerned that, 
because the ability to engage in transactions is a primary benefit of a 
credit card account, it would be inconsistent with the purpose of 
Section 127(n)(1) if the one-year period expired less than one year 
after the consumer could first use the account for transactions.
    Although consumer groups supported this aspect of the proposal, 
industry commenters noted that, in certain circumstances, it would be 
operationally burdensome to track the precise date on which a 
particular account can first be used for transactions. These commenters 
conceded that the date an account is opened on a card issuer's system 
will coincide with the date the account can first be used for 
transactions when the account is opened at the point of sale in order 
to purchase merchandise. However, they stated that these dates will not 
coincide when a credit card is mailed to a consumer because the date 
the account can first be used for transactions will depend on how long 
it takes for the card to be delivered and how long the consumer waits 
after delivery to activate the card. Industry commenters recommended 
that, in order to establish a consistent standard, the first year after 
account opening under Sec.  226.52(a) instead be measured from the date 
the account is opened on the card issuer's system.
    The Board is concerned that deducting delivery time from the one-
year period in TILA Section 127(n) would reduce protections for 
consumers. However, in order to reduce the operational burden on card 
issuers, the Board is adopting new comment 52(a)(1)-4 to provide 
additional guidance regarding how a card issuer determines the date on 
which the account may first be used by the consumer to engage in 
transactions. As an initial matter, this comment clarifies that a card 
issuer may consider an account open for purposes of Sec.  226.52(a)(1) 
on the date the account is first used by the consumer for a transaction 
(such as when an account is opened at point of sale in order to make a 
purchase). In addition, to address circumstances in which a credit card 
and account-opening disclosures are mailed or delivered to consumers, 
the comment provides several alternative methods of determining the 
date on which the account may first be used for transactions (even if 
the account is not actually used for a transaction on that date).
    First, if a card issuer requires consumers to comply with 
reasonable activation procedures for preventing fraud or unauthorized 
use of a new account (such as requiring the consumer to provide 
information that verifies his or her identity over the telephone after 
receiving the card) before permitting the consumer to use the account 
for transactions, the card issuer may consider the account open on the 
date the consumer complies with those procedures, provided that the 
account may be used for transactions on that date.
    Second, a card issuer may consider an account open for purposes of 
Sec.  226.52(a)(1) on the date that is seven days after the card issuer 
mails or delivers to the consumer account-opening disclosures that are 
consistent with Sec.  226.6, provided that the consumer may use the 
account for transactions after complying with any reasonable activation 
procedures for preventing fraud or unauthorized use. The Board has 
previously used seven days as a general measure of the amount of time 
required for credit card mailings to reach consumers.\21\ Accordingly, 
the Board believes that a seven-day period reasonably estimates the 
amount of time required for account-opening disclosures to reach 
consumers by mail.
---------------------------------------------------------------------------

    \21\ See 74 FR 5498, 5511 (Jan. 29, 2009) (discussing rationale 
behind adoption of a 21-day period between mailing or delivery of 
periodic statements and the payment due date); see also Credit Card 
Act Sec.  106(b) (adopting same 21-day period in revised TILA 
Section 163).
---------------------------------------------------------------------------

    The following example illustrates the application of this guidance: 
Assume that a card issuer approves a consumer's application for a 
credit card account under an open-end (not home-secured) consumer 
credit plan and establishes the account on its internal systems on July 
1 of year one. On July 5, the card issuer mails or delivers to the 
consumer account-opening disclosures that are consistent with Sec.  
226.6. If the consumer may use the account for transactions after 
complying with any reasonable procedures imposed by the card issuer for 
preventing fraud and unauthorized use, the card issuer may consider the 
account open on July 12 of year one for purposes of Sec.  226.52(a)(1) 
regardless of when the consumer actually activates the account. 
Accordingly, Sec.  226.52(a)(1) ceases to apply to the account on July 
12 of year two.
    While this guidance should alleviate much of the burden associated 
with tracking the date on which an account is opened for purposes of 
Sec.  226.52(a),

[[Page 22979]]

the Board recognizes that, in some cases, it may be difficult for card 
issuers to determine the specific date on which account-opening 
disclosures are mailed or delivered to a particular consumer. 
Accordingly, comment 52(a)(1)-4 further clarifies that, if a card 
issuer has reasonable procedures designed to ensure that account-
opening disclosures that are consistent with Sec.  226.6 are mailed or 
delivered to consumers no later than a certain number of days after the 
card issuer establishes the account on its system, the card issuer may 
add that number of days to the seven-day period for purposes of 
determining when the account was opened under Sec.  226.52(a)(1). As 
discussed above, Congress and the Board have adopted a similar 
``reasonable procedures'' standard for the provision of credit card 
periodic statements.\22\ Accordingly, for purposes of Sec.  
226.52(a)(1), the Board believes that the same standard is appropriate 
for the provision of credit card account-opening disclosures.\23\
---------------------------------------------------------------------------

    \22\ See Credit Card Act Sec.  106(b); Sec.  226.5(b)(2).
    \23\ The Board notes that the account-opening definition in 
Sec.  226.52(a)(1) and the guidance in the accompanying commentary 
should not be construed as altering the timing requirements for the 
provision of account-opening disclosures under Sec.  226.5(b)(1)(i), 
which--as discussed above--require creditors to provide account-
opening disclosures that are consistent with Sec.  226.6 before the 
first transaction is made on the account.
---------------------------------------------------------------------------

    Using the facts in the example above, if the card issuer 
establishes the account on its internal systems on July 1 of year one 
and has adopted reasonable procedures designed to ensure that account-
opening disclosures are mailed or delivered to consumers no later than 
three days after an account is established, the issuer may consider the 
account open on July 11 of year one for purposes of Sec.  226.52(a)(1). 
Therefore, Sec.  226.52(a)(1) ceases to apply to the account on July 11 
of year two.
Additional Amendments
    The Board understands that the references in Sec.  226.52(a)(1) and 
comment 52(a)(1)-1 to the charging of fees to a credit card account 
have raised concerns as to whether Sec.  226.52(a)(1) permits card 
issuers to require consumers to pay an unlimited amount of fees with 
respect to a credit card account so long as none of those fees are 
actually charged to the account. Although this language was based on 
the language of the Credit Card Act, the Board does not believe that 
Congress intended to permit card issuers to evade the 25 percent 
limitation by collecting fees from the consumer by other means. Indeed, 
as discussed in the February 2010 Final Rule, the Board believes that 
Congress intended the 25 percent limitation to apply not only to fees 
charged to a credit card account but also to fees collected from other 
sources with respect to the account (such as fees that are charged to a 
consumer's deposit account). See 75 FR 7724-7726. Accordingly, in order 
to resolve any ambiguity, the Board proposed to use its authority under 
TILA Section 105(a) and Section 2 of the Credit Card Act to simplify 
Sec.  226.52(a)(1) by removing this language. The Board also proposed 
to amend the commentary to Sec.  226.52(a)(1) for consistency with the 
proposed revisions discussed above and to make certain non-substantive 
clarifications and corrections. Consumer groups and most industry 
commenters supported this aspect of the proposal. Although some 
industry commenters argued that the Board should strictly apply the 
statutory language, the Board believes that doing so would undermine 
the purpose of the Credit Card Act. Accordingly, the Board is adopting 
this aspect of the proposal.

52(a)(2) Fees Not Subject to Limitations

    The Board understands that there has been some uncertainty as to 
whether minimum interest charges are subject to Sec.  226.52(a)(1). The 
Board has previously concluded elsewhere in Regulation Z that such 
charges should be treated as fees. See comment 7(b)(6)-4. Accordingly, 
for consistency, the Board proposed to amend comment 52(a)(2)-1 to 
clarify that, while Sec.  226.52(a)(1) does not apply to charges 
attributable to periodic interest rates, it applies to charges imposed 
as a substitute for interest when the interest charge would not 
otherwise exceed a minimum threshold. In addition, the Board proposed 
to clarify that Sec.  226.52(a)(1) applies to other fixed finance 
charges.
    Consumer group commenters supported the proposed revisions. 
However, one industry commenter requested that, because Sec.  
226.52(a)(1) does not apply to accrued interest, only the difference 
between the accrued interest and the minimum interest charge be 
considered a fee. For example, the commenter suggested that, if the 
interest accrued during a billing cycle is 40 cents and the minimum 
interest charge is $1.00, only 60 cents should be considered a fee 
under Sec.  226.52(a)(1). The Board declines to adopt this approach 
because, in these circumstances, the card issuer is not imposing 
accrued interest. Instead, the card issuer has chosen to impose a 
higher, pre-determined charge in lieu of interest. Furthermore, 
subdividing the minimum interest charge into accrued interest and fee 
portions would be inconsistent with the disclosure of minimum interest 
charges in the tables provided with applications and solicitations and 
at account opening. Sections 226.5a and 226.6 require that the minimum 
interest charge be disclosed in the tables with headings, content, and 
format substantially similar to the model forms in Appendix G-10 and G-
17, which disclose the minimum interest charge as a single, specific 
amount. See Sec. Sec.  226.5a(a)(2), (b)(3); 226.6(b)(1), (b)(2)(iii). 
Furthermore, as noted above, card issuers are required to treat the 
entire minimum interest charge as a fee for purposes of the periodic 
statement disclosures required by Sec.  226.7(b)(6). The Board is 
concerned that permitting issuers to subdivide the minimum interest 
charge into interest and fees in these disclosures would be confusing 
to consumers. Similarly, if issuers were permitted to subdivide the 
minimum interest charge for purposes of Sec.  226.52(a) but not for 
purposes of the disclosures in Sec.  226.7, consumers would not be able 
to, for example, use the fee disclosures on their periodic statements 
to determine whether the total amount of fees imposed are consistent 
with the 25 percent limitation. Accordingly, the revisions to comment 
52(a)(2)-1 are adopted as proposed.

52(a)(3) Rule of Construction

    The Board proposed to correct a typographical error in Sec.  
226.52(a)(3) by replacing the words ``This paragraph (a)'' with 
``Paragraph (a) of this section.'' The Board did not receive any 
significant comment on this correction, which is adopted as proposed.

52(b) Limitations on Penalty Fees

    Section 226.52(b)(1) prohibits card issuers from imposing fees for 
violating the terms or other requirements of an open-end (not home-
secured) consumer credit plan unless the dollar amount of the fee 
either represents a reasonable proportion of the total costs incurred 
by the issuer as a result of the type of violation or complies with the 
applicable safe harbor amount. Furthermore, under Sec.  226.52(b)(2), 
the dollar amount of the fee cannot exceed the dollar amount associated 
with the violation and a card issuer cannot impose more than one fee 
based on a single event or transaction. In order to facilitate 
compliance, the Board proposed to amend Sec.  226.52(b) and the 
accompanying commentary to provide additional guidance and illustrative 
examples. As discussed below, those amendments are generally adopted as 
proposed.

[[Page 22980]]

52(b)(1)(ii) Safe Harbors

    The safe harbors in Sec.  226.52(b)(1)(ii)(A)-(B) provide that a 
card issuer generally may impose a fee of $25 for an initial violation 
and a fee of $35 for any additional violation of the same type during 
the next six billing cycles. As discussed below, the Board proposed to 
make several significant amendments to Sec.  226.52(b)(1)(ii) and its 
commentary. In addition, the Board proposed several non-substantive 
clarifying or organizational amendments.\24\ Except as noted below, 
these amendments were generally supported by commenters and are adopted 
as proposed.
---------------------------------------------------------------------------

    \24\ In particular, the Board proposed to move the language in 
Sec.  226.52(b)(1)(ii)(A) and (B) regarding adjustments to the safe 
harbor amounts based on changes in the Consumer Price Index to a new 
Sec.  226.52(b)(1)(ii)(D).
---------------------------------------------------------------------------

Multiple Violations During a Billing Cycle
    The safe harbors in Sec.  226.52(b)(1)(ii) address circumstances in 
which a violation is repeated in one of the six billing cycles 
following the billing cycle during which the initial violation 
occurred. However, the safe harbors do not expressly address 
circumstances in which a repeated violation occurs in the same billing 
cycle as the initial violation. The Board proposed to correct this 
oversight by amending Sec.  226.52(b)(1)(ii)(B) to state that a card 
issuer may impose a $35 fee for a subsequent violation of the same type 
that occurs during the same billing cycle or during the next six 
billing cycles.
    There are relatively few circumstances in which a card issuer may 
impose multiple fees for multiple violations of the same type during a 
billing cycle. Section 226.56(j)(1) prohibits card issuers from 
imposing more than one over-the-limit fee per billing cycle. 
Furthermore, Sec.  226.52(b)(2)(ii) prohibits the imposition of more 
than one penalty fee based on a single event or transaction, which 
prevents card issuers from imposing more than one late payment fee 
during a billing cycle. In addition, as discussed in comment 
52(b)(2)(i)-1, a card issuer may not impose multiple returned payment 
fees by submitting the same check for payment multiple times. Although 
consumer group commenters suggested that multiple returned payment fees 
could be prohibited in these circumstances, the Board believes that a 
card issuer should be permitted to impose two returned payment fees 
during a billing cycle if a consumer makes two separate payments that 
are returned during that billing cycle. Furthermore, in these 
circumstances, the Board believes that it is consistent with the 
purpose of the safe harbors in Sec.  226.52(b)(1)(ii)(A)-(B) to permit 
the card issuer to impose a $35 fee for the second returned payment. 
Accordingly, the Board has revised Sec.  226.52(b)(1)(ii)(B) to clarify 
that this is permitted. The Board has also amended comment 
52(b)(1)(ii)-1 for consistency with the revisions to Sec.  
226.52(b)(1)(ii)(A)-(B) and provided an illustrative example in comment 
52(b)(2)(ii)-1.
Multiple Over-the-Limit Fees
    The Board has adopted the proposed revisions to comment 
52(b)(1)(ii)-1.ii in order to provide additional guidance regarding the 
relationship between the safe harbors in Sec.  226.52(b)(1)(ii), the 
prohibition on imposing multiple fees based on a single event or 
transaction in Sec.  226.52(b)(2)(ii), and the limitations on fees for 
exceeding the credit limit in Sec.  226.56(j)(1). Consistent with the 
Credit Card Act, Sec.  226.56(j)(1) permits card issuers to impose 
multiple over-the-limit fees based on a single over-the-limit 
transaction when the consumer does not make payments sufficient to 
bring the balance under the credit limit by the next payment due date 
(although no more than three fees may be imposed with respect to any 
single transaction). See Credit Card Act Sec.  102(a); TILA Section 
127(k); see also 75 FR 7751-7752. Consumer group commenters argued 
that, notwithstanding this statutory language, the Board should use its 
authority under TILA Section 105(a) and Section 2 of the Credit Card 
Act to prohibit the imposition of multiple over-the-limit fees in these 
circumstances. However, because it appears that Congress intended to 
permit this practice, the Board does not believe that it would be 
appropriate to interpret Sec.  226.52(b) as prohibiting such fees. 
Accordingly, the Board has provided additional guidance in comment 
52(b)(1)(ii)-1.ii clarifying that, to the extent permitted by Sec.  
226.56(j)(1), Sec.  226.52(b)(2)(ii) does not prohibit a card issuer 
from imposing fees for exceeding the credit limit in consecutive 
billing cycles based on a single over-the-limit transaction. The Board 
has further clarified that, in these circumstances, the second and 
third over-the-limit fees permitted by Sec.  226.56(j)(1) may be $35, 
consistent with the safe harbor for repeated violations in Sec.  
226.52(b)(1)(ii)(B). A cross-reference has been inserted to comment 
52(b)(2)(ii)-1, where similar guidance and an illustrative example are 
also be provided.
Waiver of Penalty Fees
    As discussed in the June 2010 Final Rule, the safe harbor in Sec.  
226.52(b)(1)(ii) was designed to permit card issuers to increase the 
penalty for repeated violations of the same type in order to, among 
other things, deter consumers from engaging in future violations. See 
75 FR 37531-37534, 37540-37543. In order to accomplish this purpose, 
the Board proposed to revise Sec.  226.52(b)(1)(ii)(B) to clarify that, 
under the safe harbor, the higher $35 fee could only be imposed if the 
card issuer had previously imposed the lower $25 fee for a violation of 
the same type. The Board is adopting these revisions as proposed.
    However, industry commenters raised concerns about when a fee would 
be considered ``imposed'' under the proposed amendment. In particular, 
these commenters noted that card issuers often voluntarily choose to 
waive the penalty fee for an initial violation but would lose the 
incentive do so if they could not impose the higher fee for subsequent 
violations. Because the waiver of penalty fees is beneficial to 
consumers, the Board has clarified in comment 52(b)(1)(ii)-1.i that a 
fee has been imposed for purposes of Sec.  226.52(b)(1)(ii) even if the 
card issuer waives or rebates all or part of the fee. Thus, under the 
safe harbor, a card issuer may waive the $25 fee for an initial 
violation and still impose a $35 fee for a repeated violation of the 
same type during the same billing cycle or the next six billing cycles.
    The Board notes that, in order to demonstrate compliance with the 
safe harbors in Sec.  266.52(b)(1)(ii), a card issuer must be able to 
establish that the $35 fee was not imposed for the first violation of a 
particular type during the relevant billing cycles. One method that 
card issuers may use to accomplish this is to disclose the imposition 
of the initial $25 fee and the waiver of that fee on the consumer's 
periodic statements.

52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation

    Section 226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing 
a fee based on account inactivity (including the consumer's failure to 
use the account for a particular number or dollar amount of 
transactions or a particular type of transaction). As an illustrative 
example, comment 52(b)(2)(i)-5 states that Sec.  226.52(b)(2)(i)(B)(2) 
prohibits a card issuer from imposing a $50 fee when a consumer fails 
to use the account for $2,000 in purchases over the course of a year. 
Furthermore, to prevent circumvention, the comment clarifies

[[Page 22981]]

that Sec.  226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing 
a $50 annual fee on all accounts but waiving the fee if the consumer 
uses the account for $2,000 in purchases over the course of a year.
    The Board understands that comment 52(b)(2)(i)-5 has created some 
confusion as to whether card issuers are prohibited from considering 
account activity as a factor when, for example, responding to an 
individual consumer's request that an annual fee be waived. This was 
not the Board's intent. Instead, the example in comment 52(b)(2)(i)-5 
was intended to clarify that card issuers are prohibited from achieving 
indirectly through a systematic waiver of annual fees a result that is 
directly prohibited by Sec.  226.52(b)(2)(i)(B)(2): establishing a 
program under which only consumers who do not use an account for at 
least $2,000 in purchases over the course of a year are charged an 
additional $50. Accordingly, the Board proposed to amend comment 
52(b)(2)(i)-5 to clarify that, if a card issuer does not promote the 
waiver or rebate of the annual fee for purposes of Sec.  226.55(e), 
Sec.  226.52(b)(2)(i)(B)(2) does not prohibit the issuer from 
considering account activity when waiving or rebating annual fees on 
individual accounts (such as in response to a consumer's request).\25\
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    \25\ The promotion of waivers and rebates is discussed in detail 
below with respect to Sec.  226.55(e).
---------------------------------------------------------------------------

    Industry commenters generally supported the proposed revisions. 
However, consumer group commenters requested that waivers based on 
account activity only be permitted when requested by the consumer, even 
if the possibility of a waiver is not promoted to consumers. As 
discussed in greater detail below with respect to Sec.  226.55(e), the 
Board believes that a card issuer waiver program or policy that is not 
promoted does not raise the same circumvention concerns as a promoted 
program or policy. Accordingly, the amendments to comment 52(b)(2)(i)-5 
are adopted as proposed, with non-substantive revisions.

52(b)(2)(ii) Multiple Fees Based on a Single Event or Transaction

    The Board proposed to amend comment 52(b)(2)(ii)-1 to provide 
additional examples further illustrating the application of Sec.  
226.52(b)(2)(ii). Among other things, these examples clarify that--if 
the required minimum periodic payment is not made during a billing 
cycle and a late payment fee is imposed--the card issuer may include 
the unpaid amount in the required minimum periodic payment due during 
the next billing cycle and impose a second late payment fee under Sec.  
226.52(b)(2)(ii) if the consumer fails to make the second minimum 
payment. However, the examples also clarify that--if a consumer makes a 
required minimum periodic payment by the applicable due date--the card 
issuer may not impose a late payment fee based on the consumer's 
failure to also pay past due amounts that the card issuer chose not to 
include in that required minimum periodic payment.
    The Board understands that, for loss mitigation and other purposes, 
some card issuers do not include past due amounts in the required 
minimum periodic payment. The Board acknowledges that this practice is 
beneficial to consumers to the extent that it prevents some delinquent 
consumers from becoming even more delinquent. For example, if a card 
issuer does not include past due amounts in the required minimum 
periodic payment, a consumer could remain one payment past due 
indefinitely without ever becoming more than 60 days delinquent and 
thereby avoid the application of a penalty rate to existing balances 
pursuant to Sec.  226.55(b)(4). However, a consumer who makes the 
required minimum periodic payment reflected on the periodic statement 
by the due date should not be charged a late payment fee. It is 
inconsistent with the purpose of Sec.  226.52(b)(2)(ii) for a consumer 
to be charged more than one late payment fee based on the failure to 
make a single required minimum periodic payment.
    Consumer group and one industry commenter supported this aspect of 
the proposal. In contrast, two industry commenters opposed it on the 
grounds that the card issuer cannot include the past due amount in the 
next minimum payment when a payment is returned after the periodic 
statement has been mailed or delivered to the consumer. However, it is 
unclear how often this scenario occurs. Furthermore, although the card 
issuer cannot impose a late payment fee if the consumer pays the amount 
reflected on the statement by the due date, the card issuer is 
permitted to impose a fee based on the returned payment. Accordingly, 
for the reasons discussed above, the revisions to comment 52(b)(2)(ii)-
1 are adopted as proposed.

Section 226.53 Allocation of Payments

53(b) Special Rules

    Section 226.53(a) implements TILA Section 164(b)(1), which requires 
that card issuers generally allocate amounts paid by the consumer in 
excess of the required minimum periodic payment first to the balance 
with the highest annual percentage rate and then to other balances in 
descending order based on the applicable rate. However, TILA Section 
164(b)(2) and Sec.  226.53(b)(1) set forth a special rule for accounts 
with balances subject to a deferred interest or similar program. In 
these circumstances, a card issuer is required to allocate excess 
payments first to the balance subject to the program during the two 
billing cycles immediately preceding expiration of the program. In 
addition, in the February 2010 Final Rule, the Board used its authority 
under TILA Section 105(a) and Section 2 of the Credit Card Act to adopt 
Sec.  226.53(b)(2), which permits card issuers to allocate excess 
payments among the balances in the manner requested by the consumer 
when a balance on the account is subject to a deferred interest or 
similar program. See 75 FR 7728-7729.
    The Board understands that there is some concern regarding the 
appropriate allocation of payments when an account has multiple 
balances, one of which is secured. For example, some private label 
credit cards permit consumers to purchase equipment that is subject to 
a security interest (such as a motorcycle, snowmachine, or riding 
lawnmower) as well as related items that are not (such as helmets and 
other accessories). If the rate that applies to an unsecured balance is 
higher than the rate that applies to the secured balance, Sec.  
226.53(a) currently requires the card issuer to apply excess payments 
first to the unsecured balance. While this allocation method is 
generally beneficial to consumers insofar as it minimizes interest 
charges, it could also make it difficult for a consumer to pay off the 
secured balance in order to obtain a release of the security interest. 
For example, if a consumer wishes to pay off the secured balance in 
order to sell, trade in, or otherwise dispose of the property in which 
the card issuer has a security interest, Sec.  226.53(a) requires the 
consumer to pay off not only the secured balance but also any other 
balances to which a higher rate applies.
    The Board believes that, in this narrow set of circumstances, it is 
beneficial to consumers to provide greater flexibility regarding the 
allocation of excess payments. Accordingly, pursuant to its authority 
under TILA Section 105(a) and Section 2 of the Credit Card Act, the 
Board proposed to redesignate the special rules for accounts with 
deferred interest or similar balances as Sec.  226.53(b)(1)(i) and 
(b)(1)(ii) and to adopt a new special rule for accounts with secured 
balances

[[Page 22982]]

in Sec.  226.53(b)(2). Specifically, revised Sec.  226.53(b)(2) 
provided that, when a balance on a credit card account under an open-
end (not home-secured) consumer credit plan is secured, the card issuer 
may, at its option, allocate any amount paid by the consumer in excess 
of the required minimum periodic payment to that balance if requested 
by the consumer, even if a higher rate applies to another balance.
    The Board also proposed to revise the commentary to Sec.  226.53 
consistent with the proposed revisions to Sec.  226.53(b). In 
particular, the Board proposed to clarify that the guidance in comment 
53(b)-3 on what constitutes a consumer request when an account has a 
deferred interest or similar balance also applies when an account has a 
secured balance.
    Industry and consumer group commenters generally supported the 
proposal, although consumer groups expressed concern that a special 
payment allocation rule for secured credit card balances could 
encourage the use of open-end credit accounts for transactions that are 
more appropriately treated as closed-end credit. Accordingly, the Board 
is adopting the proposed revisions to Sec.  226.53 and its commentary 
pursuant to its authority under TILA Section 105(a) and Section 2 of 
the Credit Card Act, while specifically noting that, in order to 
qualify as open-end credit under Regulation Z, an account must meet the 
definition of open-end credit in Sec.  226.2(a)(20) and its commentary.

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

55(a) General Rule

    Section 226.55 implements the restrictions on increases in annual 
percentage rates and certain fees and charges in TILA Sections 171 and 
172. 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) unless specifically 
permitted by one of the exceptions in Sec.  226.55(b). The Board 
understands that there has been some confusion as to whether an 
increase in a rate, fee, or charge is subject to this prohibition when 
the consumer was previously notified of the circumstances giving rise 
to the increase. Accordingly, in order to remove any ambiguity, the 
Board proposed to amend comment 55(a)-1 to clarify that--except as 
specifically provided in Sec.  226.55(b)--the prohibition in Sec.  
226.55(a) applies even if the circumstances under which an increase 
will occur are disclosed in advance. Commenters generally supported 
this revision, which is adopted as proposed.

55(b) Exceptions

    Section 226.55(b) contains exceptions to the general rule in Sec.  
226.55(a). As a general matter, these exceptions are not mutually 
exclusive, and a card issuer may increase a rate, fee, or charge 
pursuant to one exception even if that increase would not be permitted 
under a different exception. Comment 55(b)-1 provides illustrative 
examples of the interaction between the different exceptions in Sec.  
226.55(b).
    The Board proposed to amend comment 55(b)-1 to provide additional 
guidance regarding the interaction between the exception in Sec.  
226.55(b)(4) for accounts that become more than 60 days delinquent, the 
exception in Sec.  226.55(b)(5) for accounts subject to a workout or 
temporary hardship arrangement, and the exception in Sec.  226.55(b)(6) 
for accounts subject to the SCRA or a similar Federal or State statute 
or regulation. Section 226.55(b)(4)(ii) implements the ``cure'' 
provision in TILA Section 171(b)(4)(B), which allows a consumer whose 
rate has been increased as a result of a delinquency of more than 60 
days to ``terminate'' the increase (in other words, reduce the rate to 
the pre-existing value) by making the next six required minimum 
payments by the due date. For example, if the rate on a $1,000 balance 
was increased from 12% to 30% on January 31 based on a delinquency of 
more than 60 days, Sec.  226.55(b)(4)(ii) requires the card issuer to 
reduce the rate on any remaining portion of the $1,000 balance to 12% 
if the consumer makes the required minimum periodic payments for 
February, March, April, May, June, and July by the relevant due date.
    However, the Board understands that, in certain circumstances, a 
consumer may enter into a workout or temporary hardship arrangement or 
enter military service after a rate has been increased based on a 
delinquency of more than 60 days but before the consumer has made the 
six timely payments necessary to obtain a reduction under Sec.  
226.55(b)(4)(ii). Section 226.55(b)(5) implements TILA Section 
171(b)(3), which provides that a card issuer may increase the rate on 
an existing balance when a workout or temporary hardship arrangement is 
completed or fails, so long as the increased rate does not exceed the 
rate that applied prior to the arrangement. For example, if a card 
issuer reduced a consumer's rate on a $1,000 balance from 30% to 15% as 
part of a workout or temporary hardship arrangement, Sec.  226.55(b)(5) 
would permit the card issuer to increase the rate on any remaining 
portion of the $2,000 balance to 30% upon completion or failure of the 
arrangement.
    Similarly, when the rate that applies to a balance is reduced 
pursuant to the SCRA because the consumer enters military service, 
Sec.  226.55(b)(6) permits the card issuer to reinstate the pre-
existing rate for that balance once the consumer leaves military 
service. For example, if a card issuer reduced a consumer's rate on a 
$1,000 balance from 30% to 6% pursuant to the SCRA, Sec.  226.55(b)(6) 
would permit the card issuer to increase the rate on any remaining 
portion of the $1,000 balance to 30% once the consumer leaves military 
service and the SCRA no longer applies.
    Accordingly, when a consumer obtains a Sec.  226.55(b)(4)(ii) 
reduction during a workout or temporary hardship arrangement or while 
in military service, it is unclear whether Sec.  226.55(b)(5) or (b)(6) 
would permit the card issuer to negate that reduction by returning 
existing balances to the rate that applied prior to commencement of the 
arrangement or military service. Because Sec.  226.55(b)(4)(ii) 
implements a specific statutory requirement that a rate increase based 
on a delinquency of more than 60 days be terminated if the consumer 
makes the next six required minimum payments on time, the Board 
believes it would be inconsistent with the intent of that requirement 
to interpret the exceptions in Sec.  226.55(b)(5) and (b)(6) as 
overriding the reduction in rate. Thus, the Board proposed revisions to 
comment 55(b)-1 clarifying that, if Sec.  226.55(b)(4)(ii) requires a 
card issuer to decrease the rate, fee, or charge that applies to a 
balance while the account is subject to a workout or temporary hardship 
arrangement or subject to the SCRA or a similar Federal or State 
statute or regulation, the card issuer may not impose a higher rate, 
fee, or charge on that balance pursuant to Sec.  226.55(b)(5) or 
(b)(6).
    The Board also proposed the following illustrative example: Assume 
that, on January 1, the annual percentage rate that applies to a $1,000 
balance is increased from 12% to 30% pursuant to Sec.  226.55(b)(4). On 
February 1, the rate on that balance is decreased from 30% to 15% 
consistent with Sec.  226.55(b)(5) as a part of a workout or temporary 
hardship arrangement. On July 1, Sec.  226.55(b)(4)(ii) requires the 
card issuer to reduce the rate that applies to any remaining portion of 
the $1,000 balance from 15% to 12%. If the consumer subsequently 
completes or fails to comply with the terms of the

[[Page 22983]]

workout or temporary hardship arrangement, the card issuer may not 
increase the 12% rate on any remaining portion of the $1,000 balance 
pursuant to Sec.  226.55(b)(5).
    Consumer group commenters supported this aspect of the proposal, 
while one industry commenter argued that the proposed amendments would 
make card issuers less inclined to provide workout or temporary 
hardship arrangements. Because workout and temporary hardship 
arrangements can provide important benefits to card issuers as well as 
consumers by reducing the likelihood that a delinquent account will 
become a loss, the Board does not believe that the proposed revisions 
to comment 55(b)-1 will result in a significant reduction in the 
availability of such arrangements. Accordingly, for the reasons 
discussed above, the Board is adopting this aspect of the proposal.

55(b)(1) Temporary Rate, Fee, or Charge Exception

    Section 226.55(b)(1) implements TILA Section 171(b)(1), which 
permits a card issuer to increase a temporary or promotional rate upon 
expiration of a period of at least six months, provided that the card 
issuer discloses in advance the length of the period and the rate that 
will apply after expiration. However, neither Sec.  226.55(b)(1) nor 
TILA Section 171(b)(1) addresses circumstances in which an annual fee 
or other fee or charge subject to Sec.  226.55 increases after a 
specified period of time. As discussed above, the Board declined to 
adopt a specific exception for temporary or promotional fee programs in 
the February 2010 Final Rule because the Credit Card Act did not 
contain such an exception and because an exception did not appear to be 
necessary. See 75 FR 7734 n. 48; see also id. 7699, 7706-7707. Indeed, 
the Board noted that nothing in the February 2010 Final Rule prohibited 
a creditor from providing notice of an increase in a fee at the same 
time it temporarily reduces the fee, provided that information 
regarding the reduction is not interspersed with the content required 
to be disclosed pursuant to Sec.  226.9(c)(2)(iv). See 75 FR 7699; see 
also comment 5a(b)(2)-4.
    Nevertheless, as discussed above with respect to Sec.  
226.9(c)(2)(v)(B), the Board believes that, upon further review, it is 
appropriate to use its authority under TILA Section 105(a) and Section 
2 of the Credit Card Act to specifically address temporary or 
promotional programs for fees or charges subject to Sec.  226.55 in 
order to encourage issuers to disclose and structure such programs in a 
consistent manner that enables consumers to understand the associated 
costs. Accordingly, the Board proposed to amend Sec.  226.55(b)(1) to 
apply to temporary or promotional programs for fees and charges 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii). Thus, Sec.  226.55(b)(1), as amended, would permit a card 
issuer to, for example, increase an annual fee after a specified period 
of time if the card issuer provides the consumer in advance with a 
clear and conspicuous written disclosure of the length of the period 
and the fee or charge that will apply after expiration of the period.
    In addition, the Board proposed to amend comments 55(b)(1)-2-4 for 
consistency with the proposed revisions to Sec.  226.55(b)(1), to 
provide additional illustrative examples, and to make other non-
substantive clarifications. The Board also proposed a new comment 
55(b)(1)-5 to clarify that, although the limitations in Sec.  
226.55(b)(1)(ii) on applying an increased rate to certain types of 
transactions would also apply to increased fees or charges subject to 
Sec.  226.55, card issuers generally are not prohibited from increasing 
a fee or charge that applies to the account as whole (to the extent 
consistent with the notice requirements in Sec. Sec.  226.9 and 
226.55(b)(3)). Finally, the Board proposed to add an additional example 
to comment 55(b)-3 to clarify the application of Sec.  226.55 when the 
specified time periods for temporary rates overlap.
    Commenters generally supported the proposed revisions, although 
several industry commenters argued that promotional fee reductions 
should be exempted from the requirement in Sec.  226.55(b)(1) that 
promotional reductions last at least six months. In support of this 
argument, these commenters noted that Sec.  226.55(b)(1)'s six-month 
requirement implements TILA Section 172(b), which applies only to 
promotional reductions in rates. See Credit Card Act Sec.  101(d). 
However, as discussed above and in the February 2010 Final Rule, the 
Credit Card Act does not contain any exception for promotional fee 
reductions. Thus, in using its authority under TILA Section 105(a) and 
Section 2 of the Credit Card Act to establish such an exception, the 
Board believes that it is important to ensure that consumers receive 
the same protections with respect to promotional fee reductions that 
they receive with respect to promotional rate reductions. Accordingly, 
the Board adopts the revisions to Sec.  226.55(b)(1) and its commentary 
as proposed.

55(b)(3) Advance Notice Exception

    Section 226.55(b)(3) provides that a card issuer may generally 
increase the rate, fee, or charge that will apply to new transactions 
after complying with the notice requirements in Sec.  226.9. However, 
Sec.  226.55(b)(3)(iii) further provides that a card issuer cannot use 
this exception to increase a rate, fee, or charge during the first year 
after account opening.
    The Board understands that there has been some confusion regarding 
the circumstances under which an increased fee or charge applies to an 
existing balance (as opposed to the account as a whole) and therefore 
does not qualify for the exception in Sec.  226.55(b)(3). In 
particular, there has been uncertainty as to whether an increased fee 
or charge can be applied to a closed account or an account on which 
transaction privileges have been suspended. Because an account cannot 
be used for new transactions in these circumstances, an increased fee 
or charge subject to Sec.  226.55 could only be applied to the 
account's existing balance. In addition, Sec. Sec.  
226.52(b)(2)(i)(B)(3) and 226.55(d)(1) generally prohibit a card issuer 
from applying a new or increased fee or charge to a closed account. 
Accordingly, to provide greater clarity, the Board proposed to amend 
Sec.  226.55(b)(3)(iii) to state that Sec.  226.55(b)(3) does not 
permit a card issuer to increase a rate, fee, or charge subject to 
Sec.  226.55 while an account is closed or while the card issuer does 
not permit the consumer to use the account for new transactions.
    Consumer group commenters supported the proposed revisions, but 
industry commenters raised concerns regarding the burden of determining 
whether an account is closed or transaction privileges are suspended 
before increasing a rate, fee, or charge. These commenters noted that 
transaction privileges on an account may be temporarily suspended 
because the consumer has exceeded his or her credit limit, because the 
account is more than 60 days' delinquent, because the account is 
subject to a workout or temporary hardship agreement, or because the 
issuer is investigating potential fraudulent use of the account. They 
also noted that an account may be open and transactions may be 
permitted when the card issuer provides 45 days' advance notice of the 
increase consistent with Sec.  226.9, but the account may be closed or 
transaction privileges may be suspended by the time the card issuer is 
permitted to implement the increase.

[[Page 22984]]

    Industry commenters argued that issuers should be permitted to 
increase rates, fees, and charges on closed accounts and accounts where 
transaction privileges have been suspended, noting that Sec.  226.55 
would still prevent issuers from applying increased rates to existing 
balances and that consumers would still have the right to reject an 
increased fee or charge under Sec.  226.9(h). However, when an account 
cannot be used for new transactions, the Board believes that it would 
be inconsistent with the purpose of the Credit Card Act to permit 
increases that can only be applied to the account's existing balance. 
Furthermore, with respect to increases in fees and charges, the Board 
is concerned that consumers will be less likely to notice changes to a 
closed account and therefore less likely to exercise their right to 
reject. Accordingly, the Board is adopting the proposed amendment to 
Sec.  226.55(b)(3)(iii) clarifying that issuers are prohibited from 
increasing rates and fees and charges subject to Sec.  226.55 when an 
account is closed or while the card issuer does not permit the consumer 
to use the account for new transactions.
    However, the Board recognizes that certain suspensions of 
transaction privileges (particularly those related to potential 
fraudulent use of the account) may last for relatively short periods of 
time. In these circumstances, the Board does not believe that, as a 
general matter, it is necessary for the card issuer to provide an 
additional Sec.  226.9 notice simply because transaction privileges may 
have been suspended on the date the original notice was sent, the date 
the increase was scheduled to go into effect, or some date in between. 
Accordingly, the Board has adopted a new comment 55(b)(3)-6, which 
clarifies that, if Sec.  226.9 permits a card issuer to apply an 
increased rate, fee, or charge on a particular date and the account is 
closed on that date or transaction privileges are suspended on that 
date, 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. This 
guidance is consistent with the guidance provided by the Board in 
comment 55(b)-2.iii for mid-cycle increases. However, comment 55(b)(3)-
6 would further clarify that, if the account is closed or the card 
issuer does not permit the consumer to use the account for new 
transactions on the first day of the following billing cycle, then the 
card issuer must provide a new notice of the increased rate, fee, or 
charge consistent with Sec.  226.9.
    Finally, consistent with the amendments to Sec.  226.52(a)(1), the 
Board has clarified that, for purposes of Sec.  226.55(b)(3)(iii), an 
account is considered open no earlier than the date on which the 
account may first be used by the consumer to engage in transactions. In 
addition, the Board has adopted a new comment 55(b)(3)-7, which 
clarifies that an account is considered open for purposes of Sec.  
226.55(b)(3)(iii) on any date that the card issuer may consider the 
account open for purposes of Sec.  226.52(a)(1).

55(b)(6) Servicemembers Civil Relief Act Exception

    Section 226.55(b)(6) provides that, when a card issuer is required 
by the SCRA to reduce the annual percentage rate for an account to 6% 
when the consumer enters military service, the card issuer may increase 
the rate once the SCRA no longer applies, subject to certain 
limitations. However, Sec.  226.55(b)(6) does not address circumstances 
in which the SCRA's broad definition of ``interest'' requires the card 
issuer to reduce not only the annual percentage rate but also fees or 
charges while the consumer is in military service. See 50 U.S.C. app. 
527(d)(1) (defining ``interest'' as including ``service charges, 
renewal charges, fees, or any other charges (except bona fide 
insurance) with respect to an obligation or liability''). Accordingly, 
the Board proposed to amend Sec.  226.55(b)(6) and the relevant 
commentary to clarify that, to the extent the SCRA also requires the 
card issuer to reduce a fee or charge required to be disclosed under 
Sec.  226.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii), the card issuer is 
generally permitted to increase that fee or charge once the SCRA no 
longer applies.
    The Board also understands that many states have enacted statutes 
that--like the SCRA--require creditors to reduce rates, fees, and 
charges while a consumer is in military service. See, e.g., La. Rev. 
Stat. Ann. Sec.  29:312; N.Y. Mil. Law art. 13 Sec.  323-a; R.I. Gen. 
Laws Sec.  30-7-10; Utah Code Ann. Sec.  39-7-111. Accordingly, in 
order to clarify that Sec.  226.55 does not prevent a card issuer from 
increasing a rate, fee, or charge to the pre-existing amount once a 
state law requirement no longer applies, the Board proposed to amend 
the exception in Sec.  226.55(b)(6) to apply to decreases imposed 
pursuant to the SCRA or ``a similar federal or state statute or 
regulation.'' The Board also proposed corresponding amendments to the 
relevant commentary.
    Finally, the Board noted in the proposal that, while the SCRA and 
some similar state statutes only require creditors to reduce the rates, 
fees, and charges that apply to obligations incurred before the 
consumer enters military service, some card issuers voluntarily apply 
the reduced rate, fee, or charge to transactions that occur after the 
consumer has entered military service. Accordingly, the Board proposed 
to adopt a new comment 55(b)(6)-2 clarifying that, if a card issuer 
decreases all rates, fees, and charges to amounts that are consistent 
with the SCRA or a similar Federal or State statute or regulation 
(including rates, fees, and charges that apply to new transactions), 
the card issuer may increase those rates, fees, and charges consistent 
with Sec.  226.55(b)(6). The Board also proposed to revise the example 
in current comment 55(b)(6)-2 to illustrate the application of this 
guidance and redesignate that example as comment 55(b)(6)-3.
    Commenters generally supported the proposed revisions. However, 
consumer group commenters expressed concern that the guidance in new 
comment 55(b)(6)-2 could be construed to permit increases in rates, 
fee, or charges that are unrelated to a consumer leaving military 
service. Because this was not the Board's intent, the proposed comment 
has been revised to clarify that the guidance applies only when other 
rates, fees, or charges have been reduced pursuant to the SCRA or a 
similar Federal or State statute or regulation. Otherwise, the 
revisions to Sec.  226.55(b)(6) and its commentary are adopted as 
proposed.

55(c) Treatment of Protected Balances

    Section 226.55(c) addresses the treatment of ``protected 
balances,'' which are the existing balances to which a card issuer may 
not apply an increased rate, fee, or charge under Sec.  226.55. Comment 
55(c)(1)-3 provides guidance regarding the application of increased 
fees or charges to protected balances. In particular, this comment 
clarifies that, while a card issuer is prohibited from applying an 
increased fee or charge that is subject to Sec.  226.55 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. The Board has revised this comment to clarify 
that a card issuer's ability to increase a fee or charge is also 
subject to the limitations in Sec.  226.55(b)(3)(iii) on increasing 
fees during the first year after account opening, while an account is 
closed, or while transaction privileges are suspended.

[[Page 22985]]

    The Board also proposed to add a new comment 55(c)(1)-4 clarifying 
that nothing in Sec.  226.55 prohibits a card issuer from changing the 
balance computation method that applies to new transactions as well as 
protected balances. The Board did not receive any significant comment 
on this guidance, which is adopted as proposed. However, the Board 
notes that, before changing the balance computation method, a card 
issuer must comply with the notice requirements in Sec.  226.9(c)(2).

55(e) Promotional Waivers or Rebates of Interest, Fees, and Other 
Charges

    Some card issuers offer promotional programs under which interest 
charges or fees will be waived or rebated so long as the consumer pays 
on time and otherwise complies with the account terms. For example, a 
card issuer might offer a promotion under which interest accrues on 
purchases at an annual percentage rate of 15% but will be waived for 
six months if the consumer pays on time each billing cycle. While this 
type of promotional program may be intended to encourage timely 
payment, a consumer who relies on the promotion when making 
transactions and then, for example, inadvertently pays one day late 
will experience a significant and potentially unexpected increase in 
the cost of those transactions. In contrast, if a consumer relies on a 
promotional rate when making transactions, TILA Section 171(b)(1) and 
Sec.  226.55(b)(1) do not permit the card issuer to increase the cost 
of those transactions by revoking the promotional rate unless the 
account becomes more than 60 days past due. Thus, the Board is 
concerned that the revocation of promotional waiver or rebate programs 
based on so-called ``hair trigger'' violations of the account terms may 
be inconsistent with the purposes of the Credit Card Act.
    In order to address these concerns, the Board proposed to use its 
authority under TILA Section 105(a) and Section 2 of the Credit Card 
Act to add a new Sec.  226.55(e), which clarified that, if a card 
issuer promotes the waiver or rebate of interest, fees, or other 
charges subject to Sec.  226.55, any cessation of the waiver or rebate 
constitutes an increase in a rate, fee, or charge for purposes of Sec.  
226.55. Thus, for example, if a card issuer promotes an interest waiver 
program, the card issuer must comply with Sec.  226.55(b)(1) by 
disclosing the length of the promotion and the rate that will apply 
after the promotion expires. Furthermore, the card issuer would be 
prohibited from effectively increasing the interest charges for 
existing balances by ceasing or terminating the waiver during the 
promotional period, unless the account becomes more than 60 days 
delinquent consistent with Sec.  226.55(b)(4).
    Comments from a member of Congress, consumer groups, and a credit 
card issuer supported Sec.  226.55(e) on the grounds that it is 
necessary to prevent evasion of the Credit Card Act's limitations on 
card issuers' ability to increase the costs associated with existing 
balances. In contrast, some industry commenters opposed Sec.  
226.55(e), arguing that it would unnecessarily restrict issuers' 
ability to offer waivers and rebates that benefit consumers. However, 
because Sec.  226.55(e) permits card issuers to offer waiver or rebate 
programs that are consistent with the Credit Card Act's limitations and 
generally does not restrict issuers' ability to waive or rebate 
interest, fee, and other charges on an individualized basis (as 
discussed below), the Board does not believe that it will result in a 
substantial reduction in benefits for consumers. Accordingly, in order 
to ensure that consumers' existing credit card balances receive the 
protections in the Credit Card Act and Sec.  226.55, the Board is 
adopting Sec.  226.55(e) as proposed.
    As discussed in the proposal, Sec.  226.55(e) is intended to 
address promotional programs involving waivers or rebates of interest, 
fees, and charges. The Board does not intend to restrict a card 
issuer's ability to waive or rebate interest, fees, or other charges in 
order to resolve disputes, address compliance concerns, or retain 
customers. Accordingly, proposed comment 55(e)-1 clarified that nothing 
in Sec.  226.55 prohibits a card issuer from waiving or rebating 
finance charges due to a periodic interest rate or a fee or charge 
required to be disclosed under Sec.  226.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii). This proposed comment also provided examples of 
promotional waiver or rebate programs that would comply with Sec.  
226.55. In order to address concerns raised by consumer group 
commenters, the Board has revised this comment to clarify that Sec.  
226.55(e) applies to both temporary and permanent terminations of 
waivers or rebates as well as to both partial and full terminations. 
Otherwise, this comment is adopted as proposed.
    Proposed comment 55(e)-2 clarified the circumstances under which a 
card issuer would be considered to promote a waiver or rebate program 
for purposes of Sec.  226.55(e). As a general matter, this comment 
followed the existing guidance regarding advertisements in Sec.  
226.2(a)(2) and the accompanying commentary. Thus, under the proposed 
guidance, a card issuer promotes a waiver or rebate program for 
purposes of Sec.  226.55(e) if, for example, it discloses the waiver or 
rebate in a newspaper, magazine, leaflet, promotional flyer, catalog, 
sign, or point-of-sale display. Similarly, a card issuer promotes a 
waiver or rebate program for purposes of Sec.  226.55(e) if it 
discloses the waiver or rebate on radio or television or through 
electronic advertisements (such as on the Internet). See comment 
2(a)(2)-1.i. In contrast, a card issuer generally does not promote a 
program for purposes of Sec.  226.55(e) if it discloses the waiver or 
rebate in a communication that is not an advertisement for purposes of 
Sec.  226.2(a)(2), such as in educational materials that do not solicit 
business. See comment 2(a)(2)-1.ii.
    However, the proposed comment deviated from the guidance in comment 
2(a)(2)-1 in one important respect. Comments 2(a)(2)-1.ii.A and F 
provide, respectively, as examples of communications that are not 
advertisements ``direct personal contacts'' and ``[c]ommunications 
about an existing credit account (for example, a promotion encouraging 
additional or different uses of an existing credit card account).'' 
While these exclusions are appropriate for purposes of Sec.  
226.2(a)(2), the Board believes that it would be inconsistent with the 
purpose of Sec.  226.55(e) to exclude from coverage direct personal 
contacts regarding waiver or rebate programs or the promotion of waiver 
or rebate programs to existing accountholders. Accordingly, proposed 
comment 55(e)-2 clarified that programs disclosed to existing 
accountholders through direct personal contacts or otherwise are 
generally subject to Sec.  226.55(e), unless the disclosure is either 
provided in relation to an inquiry or dispute about a specific charge 
or occurs after the card issuer has waived or rebated the interest, 
fees, or other charges. Thus, the comment clarified that a card issuer 
is not promoting a waiver or rebate for purposes of Sec.  226.55(e) if, 
for example, a consumer calls the issuer to dispute a fee that appears 
on his or her periodic statement and the issuer offers to waive the fee 
in order to resolve the dispute. Similarly, a card issuer is not 
promoting a waiver or rebate if it waives interest charges that were 
erroneously imposed and then discloses that waiver on a periodic 
statement or in a letter. This guidance is consistent with the Board's 
desire to avoid restricting card issuers' ability to waive or rebate 
interest, fees, or other charges in order to resolve disputes, address 
compliance concerns, or retain customers.

[[Page 22986]]

    Proposed comment 55(e)-2 also provided a number of additional 
examples of circumstances in which a waiver or rebate is not promoted 
for purposes of Sec.  226.55(e), including when a card issuer 
communicates with a consumer about a waiver or rebate in relation to an 
inquiry or dispute about a specific charge, when a card issuer waives 
or rebates interest, fees, or other charges in order to comply with a 
legal requirement (such as the fee limitations in Sec.  226.52(a)), 
when a card issuer discloses a grace period, and when a card issuer 
provides an undisclosed period after the payment due date during which 
interest, fees, or other charges are waived or rebated even if a 
payment has not been received. The Board solicited comment on other 
examples of circumstances in which a card issuer may waive or rebate 
interest, fees, or charges subject to Sec.  226.55 without promoting 
the waiver or rebate.
    Industry commenters argued that a number of additional categories 
of communications should not be considered promotion under Sec.  
226.55(e), including any offer of a waiver or rebate in connection with 
a ``customer accommodation'' or ``customer service policy,'' an offer 
of a waiver or rebate made to ``maintain a relationship,'' or ``actions 
or conditions outside the credit card account relationship.'' The Board 
is concerned that these exclusions would be too vague to accomplish the 
purposes of Sec.  226.55(e) or to provide clear guidance to card 
issuers. Furthermore, as noted above, comment 55(e)-2 clarifies that 
Sec.  226.55(e) does not interfere with a card issuer's ability to 
accommodate customers or maintain customer relationships by, for 
example, disclosing a waiver in relation to a consumer's inquiry or 
dispute about a specific charge or disclosing a waiver after the fact. 
In addition, although industry commenters suggested that communications 
regarding waivers or rebates offered in relation to workout or 
temporary hardship arrangements not be considered promotions for 
purposes of Sec.  226.55(e), the Board does not believe that such an 
exclusion is necessary because, consistent with Sec.  226.55(b)(5), a 
card issuer may waive or rebate fees and charges subject to Sec.  
226.55 during a workout or temporary hardship arrangement and then 
return the fee or charge to its previous amount once the arrangement 
ends.
    Consumer group commenters argued that, for purposes of Sec.  
226.55(e), promotion should include any disclosure of a prospective 
waiver or rebate unless the waiver or rebate is provided in response to 
a consumer inquiry or dispute. The Board is concerned, however, that 
this definition of promotion may be overbroad.
    Consumer group commenters also objected to the guidance in proposed 
comment 55(e)-2 clarifying that a card issuer is not promoting a waiver 
or rebate for purposes of Sec.  226.55(e) if it provides benefits (such 
as rewards points or cash back based on purchases or finance charges) 
that can be applied to the account as credits, provided that the 
benefits are not promoted as reducing interest, fees, or other charges 
subject to Sec.  226.55. These commenters argued that such programs are 
sufficiently similar to promotional waiver or rebate programs that they 
should be subject to the same requirements. The Board disagrees, 
provided that--as stated in comment 55(e)-2--the card issuer does not 
promote the rewards as reducing interest, fees, or other charges.
    In the proposal, the Board noted that many card issuers promote 
rewards programs under which consumers can earn points, cash back, or 
similar benefits based on purchases, interest charges, or other 
factors. The Board further noted that some card issuers condition these 
benefits on the consumer making timely payments and otherwise complying 
with the account terms. Because TILA Sections 171 and 172 do not 
address these types of benefits, the loss of rewards generally does not 
raise the same concerns regarding circumvention as the loss of a waiver 
or rebate of interest, fees, or other charges subject to Sec.  226.55. 
Accordingly, although the Board has made certain non-substantive 
revisions to comment 55(e)-2, it is otherwise adopted as proposed.
    Finally, proposed comment 55(e)-3 provided guidance regarding the 
relationship between Sec.  226.55(e) and a grace period. Specifically, 
this comment clarified that Sec.  226.55(e) does not apply to the 
waiver of finance charges due to a periodic rate consistent with a 
grace period, as defined in Sec.  226.5(b)(2)(ii)(3). The Board did not 
receive any significant comment on this guidance, which is adopted as 
proposed.

Section 226.58 Internet Posting of Credit Card Agreements

58(b) Definitions

58(b)(1) Agreement

    Section 226.58(b)(1) defines ``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, as defined in Sec.  226.2(a)(15). 
The Board did not propose any changes to Sec.  226.58(b)(1). One 
commenter asked the Board to exclude from the scope of Sec.  226.58 
lines of credit accessed by debit cards that can be used only at 
automated teller machines. These products are credit card accounts 
under an open-end (not home-secured) consumer credit plan, as defined 
in Sec.  226.2(a)(15), and agreements related to these products 
therefore fall within the Sec.  226.58(b)(1) definition. The commenter 
argued that these products do not function like other credit cards and 
that including agreements for these products in the Board's database 
would not facilitate comparison shopping by consumers.
    The Board is not adopting this suggested change. When adopting the 
February 2010 Final Rule, the Board considered several comments 
requesting that the Board exclude lines of credit accessed by a debit 
card that can be used only at automated teller machines from the 
requirements of the Credit Card Act generally. The Board declined to 
exclude these products, citing Congress's apparent intent that the 
Credit Card Act apply broadly and the lack of an alternative regulatory 
regime for these products. See 75 FR 7664. Consistent with the approach 
the Board has taken in implementing other sections of the Credit Card 
Act, lines of credit accessed by debit cards that can be used only at 
automated teller machines remain subject to Sec.  226.58.

58(b)(4) Card Issuer

    The Board proposed to add new Sec.  226.58(b)(4) to define the term 
``card issuer'' solely for purposes of Sec.  226.58. The proposed 
definition provided that, solely for purposes of Sec.  226.58, card 
issuer or issuer means the entity to which a consumer is legally 
obligated, or would be legally obligated, under the terms of a credit 
card agreement. The Board also proposed to add new comment 58(b)(4)-1 
to provide an example of how the definition of card issuer would apply.
    One commenter objected to the addition of the definition of card 
issuer. This commenter stated that, given the complex nature of the 
relationships between institutions that partner to issue credit cards, 
the Board should not mandate which institution must make quarterly 
submissions to the Board or post agreements on its Web site under Sec.  
226.58. This commenter also argued that the Board should not adopt the 
proposed definition unless the Board is aware of actual confusion 
regarding the allocation of responsibilities under Sec.  226.58.

[[Page 22987]]

    The Board continues to believe that it is appropriate to adopt the 
definition of card issuer as proposed. It is precisely because of the 
complex nature of relationships between institutions that partner to 
issue credit cards that the Board believes it is beneficial to adopt 
the proposed definition. The Board understands that these relationships 
can vary, for example, with respect to which institution uses its name 
and brand in marketing materials, develops and implements underwriting 
criteria, sets interest rates and other terms, approves applications, 
provides monthly statements and other disclosures to consumers, 
collects payments, and absorbs the risk of default or fraud. Without a 
bright-line rule defining which institution is the issuer, institutions 
may find it difficult to determine their obligations under Sec.  
226.58. Indeed, the Board understands that there is significant 
uncertainty regarding the application of Sec.  226.58 where 
institutions partner to issue credit cards. For example:
     The de minimis exception in Sec.  226.58(c)(5) provides 
that an issuer is not required to submit agreements to the Board under 
Sec.  226.58(c)(1) if the issuer has fewer than 10,000 open credit card 
accounts as of the last business day of the calendar quarter. If two 
institutions are involved in issuing a credit card, one institution may 
have fewer than 10,000 open accounts while the other has more than 
10,000 open accounts. It may be difficult to determine whether the de 
minimis exception applies in such a case.
     Section 226.58(d) requires an issuer to post and maintain 
on its publicly available Web site the credit card agreements the 
issuer is required to submit to the Board. Where two institutions are 
involved in issuing a credit card, it may be unclear which institution 
should post and maintain the agreements on its Web site.
     Similarly, Sec.  226.58(e)(2) provides that an issuer that 
does not maintain an interactive Web site is permitted to allow 
individual cardholders to request copies of their agreements solely by 
calling a readily available telephone line, rather than both by using 
the issuer's Web site and by calling a readily available telephone 
line. If two institutions are involved in issuing a credit card, one 
institution may maintain a Web site from which cardholders can access 
specific information about their accounts while the other does not. In 
such cases, it may be difficult to determine whether the Sec.  
226.58(e)(2) special rule applies.
    The Board is adopting the Sec.  226.58(b)(4) definition of card 
issuer and comment 58(b)(4)-1 as proposed. The definition would apply 
solely with respect to Sec.  226.58 and would not change the definition 
of card issuer for purposes of other provisions of Regulation Z. Also 
as proposed, the Board is renumbering Sec.  226.58(b)(4), (b)(5), 
(b)(6), and (b)(7) as Sec.  226.58(b)(5), (b)(6), (b)(7), and (b)(8), 
respectively, and is making conforming changes to references to these 
subsections.
    Based on its review of the comments and further analysis, the final 
rule also includes new comments 58(b)(4)-2 and 58(b)(4)-3, which 
provide additional clarification regarding the application of Sec.  
226.58 to institutions that partner to issue credit cards. Comment 
58(b)(4)-2 provides that an institution that is the card issuer as 
defined in Sec.  226.58(b)(4) has a legal obligation to comply with the 
requirements of Sec.  226.58. However, the comment clarifies that a 
card issuer generally may use a third-party service provider to satisfy 
its obligations under Sec.  226.58, provided that the issuer acts in 
accordance with regulatory guidance regarding use of third-party 
service providers and other applicable regulatory guidance. In some 
cases, an issuer may wish to arrange for the institution with which it 
partners to issue credit cards to fulfill the requirements of Sec.  
226.58 on the issuer's behalf.
    For example, a retailer and a bank work together to issue credit 
cards. Under Sec.  226.58(b)(4), the bank is the issuer of these credit 
cards for purposes of Sec.  226.58. However, the retailer services the 
credit card accounts, including mailing account opening materials and 
periodic statements to cardholders. While the bank is responsible for 
ensuring compliance with Sec.  226.58, the bank may arrange for the 
retailer (or another appropriate third-party service provider) to 
submit credit card agreements to the Board under Sec.  226.58 on the 
bank's behalf. The bank must comply with regulatory guidance regarding 
use of third-party service providers and other applicable regulatory 
guidance.
    Comment 58(b)(4)-3 provides additional information regarding the 
posting of agreements on issuer Web sites when institutions partner to 
issue credit cards. As explained in comments 58(d)-2 and 58(e)-3, 
discussed below, if an issuer provides cardholders with access to 
specific information about their individual accounts, such as balance 
information or copies of statements, through a third-party Web site, 
the issuer is deemed to maintain that Web site for purposes of Sec.  
226.58. Such a Web site is deemed to be maintained by the issuer for 
purposes of Sec.  226.58 even where, for example, an unaffiliated 
entity designs the Web site and owns and maintains the information 
technology infrastructure that supports the Web site, cardholders with 
credit cards from multiple issuers can access individual account 
information through the same Web site, and the Web site is not labeled, 
branded, or otherwise held out to the public as belonging to the 
issuer. A partner institution's Web site is an example of a third-party 
Web site that may be deemed to be maintained by the issuer for purposes 
of Sec.  226.58.
    For example, a retailer and a bank work together to issue credit 
cards. Under Sec.  226.58(b)(4), the bank is the issuer of these credit 
cards for purposes of Sec.  226.58. The bank does not have a Web site. 
However, cardholders can access information about their individual 
accounts, such as balance information and copies of statements, through 
a Web site maintained by the retailer. The retailer designs the Web 
site and owns and maintains the information technology infrastructure 
that supports the Web site. The Web site is branded and held out to the 
public as belonging to the retailer. Because cardholders can access 
information about their individual accounts through this Web site, the 
Web site is deemed to be maintained by the bank for purposes of Sec.  
226.58. The bank therefore may comply with Sec.  226.58(d) by ensuring 
that agreements offered to the public are posted on the retailer's Web 
site in accordance with Sec.  226.58(d). The bank may comply with Sec.  
226.58(e) by ensuring that cardholders can request copies of their 
individual agreements through the retailer's Web site in accordance 
with Sec.  226.58(e)(1). The bank need not create and maintain a Web 
site branded and held out to the public as belonging to the bank in 
order to comply with Sec.  226.58(d) and (e) as long as the bank 
ensures that the retailer's Web site complies with these sections.
    Comment 58(b)(4)-3 also notes that Sec.  226.58(d)(1) provides 
that, with respect to an agreement offered solely for accounts under 
one or more private label credit card plans, an issuer may comply with 
Sec.  226.58(d) by posting the agreement 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. The comment clarifies that this rule is not 
conditioned on cardholders' ability to access account-specific 
information through the merchant's Web site.

[[Page 22988]]

58(b)(6) Pricing Information

    The Board proposed to amend the Sec.  226.58(b)(6) definition of 
``pricing information'' to omit the information listed in Sec.  
226.6(b)(4). The Board solicited comment on whether the definition of 
pricing information should continue to include some or all of the 
additional disclosure regarding rates specified in Sec.  226.6(b)(4), 
or whether the Board should omit this disclosure from the definition. 
Commenters generally supported this revision, which is adopted as 
proposed.

58(c) Submission of Agreements to Board

58(c)(1) Quarterly Submissions

    Quarterly Submission Deadlines. The Board proposed to amend Sec.  
226.58(c)(1) to state that quarterly submissions must be sent 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. These quarterly 
submission deadlines were inadvertently omitted from the February 2010 
Final Rule. The Board received no comments objecting to this change and 
is adopting the amendment to Sec.  226.58(c)(1) as proposed.
    Submission of Amended Agreements. The Board proposed to revise 
Sec.  226.58(c)(1)(iii) to clarify that an issuer is required to submit 
an amended agreement to the Board only if the issuer offered the 
amended agreement to the public as of the last business day of the 
preceding calendar quarter. Amended agreements that the issuer no 
longer offered to the public as of the last business day of the 
preceding calendar quarter are not required to be submitted to the 
Board.
    The Board received no comments objecting to this change and is 
adopting the proposed revision to Sec.  226.58(c)(1)(iii). The Board 
also is adopting the corresponding revisions to Sec.  226.58(c)(3), as 
discussed below.
    Notice of Withdrawal of Agreements. The Board proposed to amend 
Sec.  226.58(c)(1)(iv) to include cross references to Sec.  
226.58(c)(6) and (c)(7), in addition to Sec.  226.58(c)(4) and (c)(5). 
These cross references were unintentionally omitted from the February 
2010 Final Rule. The Board received no comments objecting to this 
change and is adopting the amendment to Sec.  226.58(c)(1)(iv) as 
proposed.

58(c)(2) Timing of First Two Submissions

    The Board proposed to delete the special rules in Sec.  
226.58(c)(2) for the initial and second submissions to the Board and to 
reserve Sec.  226.58(c)(2). Section 226.58(c)(2) provided special rules 
for the timing and contents of submissions required to be sent to the 
Board by February 22, 2010, and August 2, 2010. Because the February 
22, 2010, and August 2, 2010, deadlines have passed, Sec.  226.58(c)(2) 
has no prospective relevance. The Board received no comments objecting 
to this change. As proposed, the special rules are deleted and Sec.  
226.58(c)(2) is reserved.

58(c)(3) Amended Agreements

    The Board proposed to amend Sec.  226.58(c)(3) to clarify that an 
issuer is required to submit an amended agreement to the Board only if 
the issuer offered the amended agreement to the public as of the last 
business day of the preceding calendar quarter. Amended agreements that 
the issuer no longer offered to the public as of the last business day 
of the calendar quarter should not be submitted to the Board. The Board 
also proposed to revise comment 58(c)(3)-2 to reflect this 
clarification and to add new comment 58(c)(3)-3, which provides an 
example of the application of revised Sec.  226.58(c)(3). The Board 
also proposed to renumber existing comment 58(c)(3)-3, regarding 
change-in-terms notices, as 58(c)(3)-4. The Board received no comments 
objecting to these changes and is adopting them as proposed.

58(c)(8) Form and Content of Agreements Submitted to the Board

    The Board proposed to revise Sec.  226.58(c)(8)(i)(C)(1) to clarify 
that billing rights notices are not deemed to be part of the agreement 
for purposes of Sec.  226.58 and therefore are not required to be 
included in agreements submitted to the Board. As the Board noted in 
its proposal, Sec.  226.58(c)(8)(i)(C)(1) is not intended to provide an 
exhaustive list of the State and Federal law disclosures that are not 
deemed to be part of an agreement under Sec.  226.58. As indicated by 
the use of the phrase ``such as,'' the listed disclosures are merely 
examples of ``disclosures required by state or federal law.'' The Board 
does not believe it is feasible to include in Sec.  
226.58(c)(8)(i)(C)(1) a comprehensive list of all such disclosures, as 
such a list would be extensive and would change as State and Federal 
laws and regulations are amended. However, because billing rights 
notices appear to be a specific source of confusion for card issuers 
and others, the Board proposed to address their treatment by amending 
Sec.  226.58(c)(8)(i)(C)(1).
    Two commenters expressed their support for this change. No 
commenters objected. The Board is adopting the revision to Sec.  
226.58(c)(8)(i)(C)(1) as proposed.
    Section 226.58(c)(8)(ii)(A) states that pricing information must be 
set forth in a single addendum that contains only the pricing 
information. The Board did not propose any changes to Sec.  
226.58(c)(8)(ii)(A). However, one commenter asked the Board to allow 
creditors submitting agreements to the Board to include additional 
disclosures in the addendum. The commenter stated that some creditors 
use complex automated systems to prepare the addenda that are submitted 
to the Board. Removing information that is not required therefore may 
impose burdensome programming costs on some issuers.
    Section 226.58(c)(8)(i)(C) specifies that certain items, such as 
disclosures required by State or Federal law, are not deemed to be part 
of an agreement for purposes of Sec.  226.58 and therefore are not 
required to be included in submissions to the Board. The Board notes, 
however, that issuers are not prohibited by this or any other provision 
of Sec.  226.58 from including these items in submitted agreements if 
an issuer chooses to do so. The Board believes it is appropriate to 
provide similar flexibility with respect to information included in the 
pricing information addendum under Sec.  226.58(c)(8)(ii) and therefore 
is amending this section.
    As amended, Sec.  226.58(c)(8)(ii)(A) continues to provide that 
pricing information must be set forth in a single addendum to the 
agreement. However, under amended Sec.  226.58(c)(8)(ii)(A), issuers 
are permitted, but not required, to include in this addendum any other 
information listed in Sec.  226.6(b) regarding account-opening 
disclosures for open-end (not home-secured) plans, provided that the 
information is complete and accurate as of the applicable date under 
Sec.  226.58.
    The Board continues to believe that certain information listed in 
Sec.  226.6(b) is unlikely to substantially assist consumers in 
shopping for a credit card, and therefore should not be required in 
agreements submitted to the Board under Sec.  226.58. For example, the 
Board continues to believe that the Web site reference and billing 
error rights reference required to be included in account-opening 
disclosures by Sec. Sec.  226.6(b)(2)(xiv) and (b)(2)(xv) are not 
useful bases for comparison shopping because they do not vary, and 
therefore are not necessary in agreements submitted to the Board under 
Sec.  226.58. However, it appears that amending Sec.  
226.58(c)(8)(ii)(A) to permit the inclusion of other information listed 
in

[[Page 22989]]

Sec.  226.6(b) will reduce the compliance burden for some issuers 
without undermining the usefulness of the agreements provided pursuant 
to Sec.  226.58.

58(d) Posting of Agreements Offered to the Public

    Section 226.58(d) requires card issuers to post and maintain on 
their publicly available Web site the credit card agreements that the 
issuer submits to the Board under Sec.  226.58(c). As discussed above, 
the Board understands that there has been some confusion regarding the 
application of Sec.  226.58 where institutions partner to issue credit 
cards. In order to provide additional information regarding the 
application of Sec.  226.58 to these relationships, the Board is 
adopting new Sec.  226.58(b)(4), defining card issuer for purposes of 
Sec.  226.58, and new comments 58(b)(4)-1, 58(b)(4)-2, and 58(b)(4)-3, 
discussed above. The Board also is revising comment 58(e)-3 to clarify 
the application of Sec.  226.58(e) to institutions that provide 
cardholders with access to account-specific information through Web 
sites maintained by third parties, as discussed below. Because the 
Board believes it also would be beneficial to provide similar 
clarification regarding Sec.  226.58(d), the final rule includes 
corresponding revisions to comment 58(d)-2.
    Comment 58(d)-2 explains that, 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 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)). As revised, 
comment 58(d)-2 clarifies that if an issuer provides cardholders with 
access to specific information about their individual accounts, such as 
balance information or copies of statements, through a third-party Web 
site, the issuer is deemed to maintain that Web site for purposes of 
Sec.  226.58. Such a Web site is deemed to be maintained by the issuer 
for purposes of Sec.  226.58 even where, for example, an unaffiliated 
entity designs the Web site and owns and maintains the information 
technology infrastructure that supports the Web site, cardholders with 
credit cards from multiple issuers can access individual account 
information through the same Web site, and the Web site is not labeled, 
branded, or otherwise held out to the public as belonging to the 
issuer. Therefore, issuers that provide cardholders with access to 
account-specific information through a third-party Web site can comply 
with Sec.  226.58(d) by ensuring that the agreements the issuer submits 
to the Board are posted on the third-party Web site in accordance with 
Sec.  226.58(d). To avoid potential confusion, revised comment 58(d)-2 
also notes that, in contrast, the Sec.  226.58(d)(1) rule regarding 
agreements for private label credit cards is not conditioned on 
cardholders' ability to access account-specific information through the 
merchant's Web site.

58(e) Agreements for All Open Accounts

58(e)(2) Special Rule for Issuers Without Interactive Web Sites

    The Board proposed to revise comment 58(e)-3 to clarify the 
application of Sec.  226.58(e)(2) to issuers that provide online access 
to individual account information through third-party interactive Web 
sites. Section 226.58(e)(2) provides that an issuer that does not 
maintain an interactive Web site (i.e., a Web site from which a 
cardholder can access specific information about his or her individual 
account) may provide cardholders with the ability to request a copy of 
their agreements by calling a readily available telephone line, the 
number for which is: (1) Displayed on the issuer's Web site and clearly 
identified as to purpose; or (2) included on each periodic statement 
sent to the cardholder and clearly identified as to purpose.
    The Board understands that some issuers provide cardholders with 
access to specific information about their individual accounts, such as 
balance information or copies of statements, through a third-party 
interactive Web site. As revised, comment 58(e)-3 clarifies that, in 
these circumstances, an issuer is considered to maintain an interactive 
Web site for purposes of the Sec.  226.58(e)(2) special rule. Such a 
Web site is deemed to be maintained by the issuer for purposes of Sec.  
226.58(e)(2) even where, for example, an unaffiliated entity designs 
the Web site and owns and maintains the information technology 
infrastructure that supports the Web site, cardholders with credit 
cards from multiple issuers can access individual account information 
through the same Web site, and the Web site is not labeled, branded, or 
otherwise held out to the public as belonging to the issuer. An issuer 
that provides cardholders with access to specific information about 
their individual accounts through such a Web site is not permitted to 
use the procedures described in the Sec.  226.58(e)(2) special rule. 
Instead, such an issuer must comply with Sec.  226.58(e)(1).
    The Board did not receive any comments objecting to the proposed 
revision of comment 58(e)-3. The comment is revised as proposed.

Section 226.59 Reevaluation of Rate Increases

59(a) General Rule

    Section 226.59 implements TILA Section 148, which was added by the 
Credit Card Act. TILA Section 148, as implemented in Sec.  226.59(a), 
generally requires card issuers that increase an annual percentage rate 
applicable to a credit card account under an open-end (not home-
secured) consumer credit plan, based on the credit risk of the 
consumer, market conditions, or other factors, to evaluate factors 
described in the rule no less frequently than once every six months 
and, as appropriate based upon that review, reduce the annual 
percentage rate applicable to the consumer's account. Consistent with 
TILA Section 148, Sec.  226.59 generally applies to rate increases made 
on or after January 1, 2009.
    Since publication of the June 2010 Final Rule, several issuers 
requested additional clarification regarding what constitutes a rate 
increase for purposes of Sec.  226.59. In particular, issuers requested 
additional guidance regarding the circumstances in which a change in 
the type of rate--for example, from a non-variable rate to a variable 
rate--is considered to be a rate increase triggering review obligations 
under Sec.  226.59.
    The Board proposed new comment 59(a)(1)-3 to clarify the 
applicability of the rate reevaluation requirements when a card issuer 
changes the type of rate applicable to a credit card account under an 
open-end (not home-secured) consumer credit plan.\26\ Proposed comment 
59(a)(1)-3.i provided that a change from a variable rate to a non-
variable rate or from a non-variable rate to a variable rate generally 
is not a rate increase for purposes of Sec.  226.59, if the rate in 
effect immediately prior to the change in the type of rate is equal to 
or greater than to the rate in effect immediately after the change. The 
proposed comment stated that, for example, a change from a variable 
rate of 15.99% to a non-variable rate of 15.99% is not a rate increase 
for purposes of Sec.  226.59 at the time of the change. Proposed 
comment 59(a)(1)-3.i

[[Page 22990]]

also cross-referenced Sec.  226.55 for limitations on the 
permissibility of changing from a non-variable rate to a variable rate.
---------------------------------------------------------------------------

    \26\ The proposal would have renumbered existing comments 
59(a)(1)-3 and 59(a)(1)-4 accordingly.
---------------------------------------------------------------------------

    Proposed comment 59(a)(1)-3.ii set forth special guidance regarding 
a change from a non-variable to a variable rate. Proposed comment 
59(a)(1)-3.ii stated that a change from a non-variable to a variable 
rate constitutes a rate increase for purposes of Sec.  226.59 if the 
variable rate exceeds the non-variable rate that would have applied if 
the change in type of rate had not occurred. The proposed comment 
illustrated the applicability of Sec.  226.59 to a change from a non-
variable to a variable rate with the following example: assume a new 
credit card account under an open-end (not home-secured) consumer 
credit plan is opened on January 1 of year 1 and that a non-variable 
annual percentage rate of 12% applies to all transactions on the 
account. On January 1 of year 2, upon 45 days' advance notice pursuant 
to Sec.  226.9(c)(2), the rate on all new transactions is changed to a 
variable rate that is currently 12% and is determined by adding a 
margin of 10 percentage points to a publicly-available index not under 
the card issuer's control. The change from the 12% non-variable rate to 
the 12% variable rate is not a rate increase for purposes of Sec.  
226.59(a). On April 1 of year 2, the value of the variable rate 
increases to 12.5%. The increase in the variable rate from 12% to 12.5% 
is a rate increase for purposes of Sec.  226.59, and the card issuer 
must begin periodically conducting reviews of the account pursuant to 
Sec.  226.59.
    Similarly, proposed comment 59(a)(1)-3.iii stated that a change 
from a variable to a non-variable rate constitutes a rate increase for 
purposes of Sec.  226.59 if the non-variable rate exceeds the variable 
rate that would have applied if the change in the type of rate had not 
occurred. The proposed comment set forth the following illustrative 
example: assume a new credit card account under an open-end (not home-
secured) consumer credit plan is opened on January 1 of year 1 and that 
a variable annual percentage rate that is currently 15% and is 
determined by adding a margin of 10 percentage points to a publicly-
available index not under the card issuer's control applies to all 
transactions on the account. On January 1 of year 2, upon 45 days' 
advance notice pursuant to Sec.  226.9(c)(2), the rate on all existing 
balances and new transactions is changed to a non-variable rate that is 
currently 15%. The change from the 15% variable rate to the 15% non-
variable rate on January 1 of year 2 is not a rate increase for 
purposes of Sec.  226.59(a). On April 1 of year 2, the value of the 
variable rate that would have applied to the account decreases to 
12.5%. Accordingly, on April 1 of year 2, the non-variable rate of 15% 
exceeds the 12.5% variable rate that would have applied but for the 
change in type of rate. At this time, the change to the non-variable 
rate of 15% constitutes a rate increase for purposes of Sec.  226.59, 
and the card issuer must begin periodically conducting reviews of the 
account pursuant to Sec.  226.59.
    One credit union trade association supported proposed comment 
59(a)(1)-3. Other industry commenters generally supported the portion 
of the proposal that clarified that a change to the type of rate is not 
a rate increase for purposes of Sec.  226.59 if the rate following the 
change is equal or less than to the rate prior to the change. However, 
industry commenters opposed the proposed commentary to Sec.  226.59(a) 
that provided that such a change in type of rate does constitute a rate 
increase for purposes of Sec.  226.59 at the point in time when the 
rate that applies (whether variable or non-variable) exceeds the rate 
that would have applied if the change in the type of rate had not 
occurred. Several of these commenters argued that reevaluation of a 
rate increase due to a change in a predisclosed index that is beyond 
the control of the issuer is not necessary and that TILA Section 148 
was not intended to cover rate increases where the change is due to an 
increase in an index beyond the issuer's control. These commenters 
urged the Board to modify the proposal to provide that issuers must 
conduct a rate reevaluation under Sec.  226.59 only if the rate that 
applies immediately after the change in type of rate exceeds the rate 
that applied prior to the change. One commenter raised particular 
concerns regarding portfolio-wide changes to variable rate structures, 
such as the removal of rate floors or conversions from non-variable to 
variable rates, that were implemented in order to facilitate compliance 
with the Credit Card Act.
    Consumer group commenters, on the other hand, opposed the portion 
of proposed comment 59(a)(1)-3 that would provide that a change in type 
of rate is not an increase when, at the time of the change, the result 
is an equal or lower rate. These commenters expressed particular 
concern regarding changes from non-variable to variable rates and urged 
the Board to treat the change in type of rate as triggering review 
requirements under Sec.  226.59, in all cases, at the time of the 
change. Consumer groups were particularly concerned that, as proposed, 
comment 59(a)(1)-3 could permit an issuer to review only the increase 
in the index used to compute the variable rate, and would not require 
consideration of the margin selected for determination of the new 
variable rate at the time of the change. These commenters raised an 
example of a consumer's rate being changed from a non-variable rate of 
15% to a rate determined by adding a margin of 10% to a prime rate. As 
proposed, these commenters were concerned that Sec.  226.59 and comment 
59(a)(1)-3 would not require the issuer to review the decision to 
impose a margin of 10% on the consumer's account.
    The Board is generally adopting comment 59(a)(1)-3 as proposed. The 
Board believes, as stated in the supplementary information to the June 
2010 Final Rule, that the rate reevaluation requirements of TILA 
Section 148 as implemented in Sec.  226.59 should not apply to an 
increase in a variable rate due to fluctuations in the index on which 
that rate is based. See 75 FR 37549. Accordingly, the Board used its 
authority under TILA Section 105(a) to provide that Sec.  226.59(a) 
applies only to those rate increases for which 45 days' advance notice 
is required under Sec.  226.9(c)(2) or (g). For example, if a card 
issuer discloses at account-opening a variable rate applicable to 
purchases, currently 15.99%, that will vary based on an index outside 
the issuer's control, there is no review requirement when that variable 
rate increases to 16.99% due to fluctuations in the index. However, the 
Board believes that it would be inconsistent with the intent of TILA 
Section 148 to create an exception to the review requirements of Sec.  
226.59 in the circumstances where the rate increase would not have 
occurred but for the issuer changing the type of rate. In those 
circumstances, from the consumer's perspective, the change in type of 
rate resulted in a rate increase relative to the rate that would 
otherwise have applied to the account.
    For example, assume that a consumer opens an account on January 1 
of year one where the disclosed rate applicable to purchases is a non-
variable rate of 12%. On June 1 of year 2, after providing 45 days' 
advance notice pursuant to Sec.  226.9(c)(2), the issuer changes the 
rate applicable to the consumer's new purchases to a variable rate that 
is currently 12%. On September 1 of year 2, the variable rate increases 
to 12.99% due to fluctuations in an index outside of the control of the 
issuer. Given that the rate now exceeds the 12% rate disclosed to the 
consumer at account opening, the Board believes that a rate increase 
has occurred and

[[Page 22991]]

that it would be inappropriate to except this rate increase from Sec.  
226.59. The Board believes that it would be reasonable for a consumer 
in this situation to expect that purchases would continue to be subject 
to a 12% non-variable rate and that, accordingly, the subsequent 
increase in the rate to 12.99%, based on fluctuations in the value of 
the index, constitutes a rate increase from the perspective of that 
consumer. The Board believes that this situation is distinguishable 
from the situation where a consumer opens an account that is subject to 
a variable rate and, thus, is on notice from the time of account 
opening that the rate is subject to change in accordance with the 
relevant index.
    As discussed in the proposal, the Board notes that in several other 
contexts, Regulation Z treats a change in a type of rate as equivalent 
to a rate increase. For example, comments 9(c)(2)(iv)-3 and 
9(c)(2)(iv)-4 clarify that 45 days' advance notice is generally 
required under Sec.  226.9(c)(2) when the annual percentage rate on an 
open-end (not home-secured) consumer credit plan is changed from a 
variable to a non-variable rate or from a non-variable to a variable 
rate. In addition, comment 55(b)(2)-4 treats changing a non-variable 
rate to a variable rate as equivalent to a rate increase for purposes 
of Sec.  226.55.
    The Board believes that this clarification regarding changes in 
types of rates is appropriate to effectuate the purposes of TILA 
Section 148. As discussed in the supplementary information to its final 
rule published on January 29, 2009, a change from one type of rate to 
another (e.g., variable or non-variable) may, over time, result in the 
new rate being higher than the rate that would have applied but for the 
change, even if at the time of the change the prior rate exceeded the 
new rate. See 74 FR 5345. For this reason, as discussed above, comments 
9(c)(2)(iv)-3 and 9(c)(2)(iv)-4 clarify that 45 days' advance notice is 
generally required under Sec.  226.9(c)(2) when the annual percentage 
rate on an open-end (not home-secured) consumer credit plan is changed 
from a variable to a non-variable rate or from a non-variable to a 
variable rate. The Board believes that consistent treatment is 
generally appropriate under Sec.  226.59, because a change in type of 
rate may, over time, result in a rate increase on a consumer's account; 
however, the Board is applying the review requirement under Sec.  
226.59 only if and when the new rate exceeds the rate that would have 
applied if the change in type of rate had not occurred. For example, a 
consumer who has an existing account with a non-variable rate may have 
an expectation that the rate generally will not change. However, if the 
issuer changes the non-variable rate to a variable rate, an increase in 
the index value may result in the rate applicable to the consumer's 
account increasing, and exceeding the non-variable rate that previously 
applied. Accordingly, the Board believes that in such circumstances a 
rate increase has occurred and must be reviewed under Sec.  226.59.
    The Board notes that the removal of variable rate floors would not, 
by itself, give rise to review requirements pursuant to Sec.  226.59. 
The removal of a variable rate floor, in the absence of other changes, 
can only result in a reduction in the annual percentage rate imposed on 
a consumer's account. See 75 FR 37550. However, to the extent that an 
issuer concurrently removed the floor applicable to a consumer's 
account and increased the margin at the same time, the Board believes 
that the change should be subject to the review requirements of Sec.  
226.59, if the rate following the change exceeds the rate in effect 
prior to the change.
    In addition, industry commenters indicated that developing and 
maintaining a system to track rate increases that are tied to an index 
over time would be burdensome. These commenters noted that because 
index values may continue to rise and fall over a period of months or 
years, the proposal would in effect require issuers to track the new 
rate and rate in effect prior to the change in type of rate 
indefinitely. Several commenters requested that the final rule permit 
an issuer to cease reviewing the change in the index after a single 
review. The Board is aware that new comment 59(a)(1)-3 does impose an 
ongoing review requirement; however, the Board believes that this is 
consistent with the intent of TILA Section 148. In the June 2010 Final 
Rule, the Board expressly declined to adopt a specific time limit for 
the review obligation under Sec.  226.59. See 75 FR 37559. The Board 
noted that TILA Section 148 does not expressly create such a time 
limit. The Board continues to believe that many issuers will implement 
automated systems to perform the periodic reevaluation of rate 
increases and, accordingly, once these systems are in place, there 
should not be undue burden associated with the ongoing review of 
accounts subject to Sec.  226.59.
    The Board has modified comments 59(a)(1)-3.ii and 59(a)(1)-3.iii 
from the proposal to address consumer groups' concerns that, as 
proposed, Sec.  226.59 would require only that the issuer review 
changes in the index on which a variable rate is based rather than the 
margin applicable to the consumer's account, when the rate increase 
results from a change in type of rate. As adopted, the examples in 
comments 59(a)(1)-3.ii and 59(a)(1)-3.iii clarify that the relevant 
rate increase for purposes of the reevaluation under Sec.  226.59 is 
the increase from the rate (variable or non-variable) that would have 
applied if the change in type of rate had not occurred to the rate 
(variable or non-variable) that applies after the rate increase. For 
example, assume the consumer's account was subject to a non-variable 
rate of 8% prior to the change and was converted to a variable rate 
(index plus margin) that was also 8% on the effective date of the 
change. After six months, the consumer's rate increases--based on an 
increase in the index value--to a variable rate of 10%. The increase 
that must be evaluated for purposes of Sec.  226.59 is the increase 
from the non-variable rate of 8% to a variable rate of 10%. In other 
words, the issuer may not review just the increase in the index value, 
i.e., the change from a variable rate of 8% to a variable rate of 10%, 
but must also review the original rate conversion.
    Several industry commenters indicated that it was unclear how an 
issuer must conduct the review required by Sec.  226.59, for rate 
increases resulting from a change in type of rate, and urged the Board 
to clarify that Sec.  226.59 does not require issuers to revert to the 
type of rate that applied to the account prior to the change. For 
example, if an issuer converted an account from a non-variable rate to 
a variable rate, these commenters urged the Board to provide that Sec.  
226.59 should under no circumstances require the issuer to convert the 
account back to a non-variable rate. The Board agrees that Sec.  226.59 
is not intended to dictate the type of rate that an issuer must apply 
to a consumer's account. Accordingly, the Board is renumbering existing 
comment 59(a)(1)-5 as comment 59(a)(1)-5.i and adopting a new comment 
59(a)(1)-5.ii which would provide that if a rate increase subject to 
Sec.  226.59 involves a change from a variable rate to a non-variable 
rate or from a non-variable rate to a variable rate, Sec.  226.59 does 
not require that the issuer reinstate the same type of rate that 
applied prior to the change. However, the comment would explain that 
the amount of any rate decrease that is required must be determined 
based upon the card issuer's reasonable policies and procedures

[[Page 22992]]

under Sec.  226.59(b) for consideration of factors described in Sec.  
226.59(a) and (d).

59(d) Factors

    Section 226.59(d) sets forth guidance regarding the factors that an 
issuer must consider when conducting reviews of a rate increase 
pursuant to Sec.  226.59. Section 226.59(d)(1) sets forth the general 
rule and states that, except as provided in Sec.  226.59(d)(2) (which 
is discussed below), a card issuer must review either: (1) the factors 
on which the increase in an annual percentage rate was originally 
based; or (2) the factors that the card issuer currently considers when 
determining the annual percentage rates applicable to similar new 
credit card accounts. Section 226.59(d)(2) sets forth a special rule 
for certain rate increases imposed between January 1, 2009 and February 
21, 2010. Section 226.59(d)(2) provides that, when conducting the first 
two reviews required under Sec.  226.59(a) for rate increases imposed 
between January 1, 2009 and February 21, 2010, an issuer must consider 
the factors that it currently considers when determining the annual 
percentage rates applicable to similar new credit card accounts, unless 
the rate increase was based solely upon factors specific to the 
consumer, such as a decline in the consumer's credit risk, the 
consumer's delinquency or default, or a violation of the terms of the 
account.
    As discussed in the supplementary information to the June 2010 
Final Rule, Sec.  226.59(d)(2) was adopted to address the Board's 
concerns regarding portfolio-wide rate increases made following the 
enactment of the Credit Card Act but prior to the effective date of 
many of the substantive protections contained in the statute. Some rate 
increases that occurred prior to February 22, 2010 resulted from 
adjustments in issuers' pricing practices to take into account the 
limitations that the Credit Card Act imposed on rate increases on 
existing balances. The Board was concerned that permitting card issuers 
to review the factors on which the rate increase was based may not 
result in a meaningful review in these circumstances, because the legal 
restrictions imposed by the Credit Card Act have continuing 
application. In other words, if a card issuer were to consider the 
factors on which the rate increase was based--i.e., the enactment of 
the Credit Card Act's legal restrictions regarding rate increases--it 
might determine that a rate decrease is not required.
    Accordingly, the Board adopted Sec.  226.59(d)(2) to require card 
issuers to consider, for a brief transition period, the factors that 
they use when setting the rates applicable to similar new accounts for 
rate increases imposed prior to February 22, 2010, if the rate increase 
was not based on consumer-specific factors. For the reasons discussed 
in the supplementary information to the June 2010 Final Rule, the 
requirement to consider the factors that an issuer evaluates when 
setting the rates applicable to similar new accounts applies only 
during the first two review periods following the effective date of 
Sec.  226.59 and only for rate increases imposed between January 1, 
2009 and February 21, 2010.
    For rate increases based solely on consumer behavior or other 
consumer-specific factors, Sec.  226.59(d) does not distinguish between 
rate increases imposed prior to or after February 22, 2010. 
Accordingly, for such rate increases an issuer may consider either the 
factors on which the increase in an annual percentage rate was 
originally based or the factors that the card issuer currently 
considers when determining the annual percentage rates applicable to 
similar new credit card accounts. Consumer-specific factors, such as a 
consumer's credit score or payment history on the account, can and do 
change over time. Accordingly, the Board noted in the supplementary 
information to the June 2010 Final Rule that it believes consideration 
of the consumer-specific factors that an issuer considered when 
imposing the rate increase would result in a meaningful review and, 
where appropriate, rate decreases, for rate increases imposed between 
January 1, 2009 and February 21, 2010.
    As discussed in the supplementary information to the November 2010 
Proposed Rule, the Board understands that some confusion has arisen 
regarding compliance with the special rule set forth in Sec.  
226.59(d)(2) in the case where two rate increases occurred between 
January 1, 2009 and February 21, 2010, one of which was based on 
conditions that are not specific to the consumer and one of which was 
based on consumer-specific behavior. The Board understands that there 
is particular concern regarding the application of the rule if the 
issuer made a market-based rate increase and subsequently increased the 
rate to a penalty rate, due to a late payment or other consumer 
behavior that violates the terms of the account. The Board proposed a 
new comment 59(d)-6 to clarify the application of the rule in these 
circumstances. Proposed comment 59(d)-6 noted that Sec.  226.59(d)(2) 
applies if an issuer increased the rate applicable to a credit card 
account under an open-end (not home-secured) consumer credit plan 
between January 1, 2009 and February 21, 2010, and the increase was not 
based solely upon factors specific to the consumer. The proposed 
comment further noted that in some cases, a credit card account may 
have been subject to multiple rate increases during the period from 
January 1, 2009 to February 21, 2010. Some such rate increases may have 
been based solely upon factors specific to the consumer, while others 
may have been based on factors not specific to the consumer, such as 
the issuer's cost of funds or market conditions. The proposed comment 
clarified that in such circumstances, when conducting the first two 
reviews required under Sec.  226.59, the card issuer may separately 
review: (A) rate increases imposed based on factors not specific to the 
consumer, using the factors described in Sec.  226.59(d)(1)(ii) (as 
required by Sec.  226.59(d)(2)); and (B) rate increases imposed based 
on consumer-specific factors, using the factors described in Sec.  
226.59(d)(1)(i). If the review of factors described in Sec.  
226.59(d)(1)(i) indicates that it is appropriate to continue to apply a 
penalty rate to the account as a result of the consumer's payment 
history or other behavior on the account, proposed comment 59(d)-6 
clarified that Sec.  226.59 permits the card issuer to continue to 
impose the penalty rate, even if the review of the factors described in 
Sec.  226.59(d)(1)(ii) would otherwise require a rate decrease.
    Proposed comment 59(d)-6.ii set forth the following example: Assume 
a credit card account was subject to a rate of 15% on all transactions 
as of January 1, 2009. On May 1, 2009, the issuer increased the rate on 
existing balances and new transactions to 18%, based upon market 
conditions or other factors not specific to the consumer or the 
consumer's account. Subsequently, on September 1, 2009, based on a 
payment that was received five days after the due date, the issuer 
increased the applicable rate on existing balances and new transactions 
from 18% to a penalty rate of 25%. When conducting the first review 
required under Sec.  226.59, the card issuer reviews the rate increase 
from 15% to 18% using the factors described in Sec.  226.59(d)(1)(ii) 
(as required by Sec.  226.59(d)(2)), and separately but concurrently 
reviews the rate increase from 18% to 25% using the factors described 
in paragraph Sec.  226.59(d)(1)(i). The review of the rate increase 
from 15% to 18% based upon the factors described in Sec.  
226.59(d)(1)(ii) indicates that a similarly situated new consumer would 
receive a rate of 17%. The review

[[Page 22993]]

of the rate increase from 18% to 25% based upon the factors described 
in Sec.  226.59(d)(1)(i) indicates that it is appropriate to continue 
to apply the 25% penalty rate based upon the consumer's late payment. 
Section 226.59 permits the rate on the account to remain at 25%.
    The Board noted in the proposal that the intent of the special rule 
in Sec.  226.59(d)(2) was not to require card issuers to reduce penalty 
rates, if the consumer's credit risk or behavior on the account 
justifies the maintenance of a penalty rate in order to account for the 
additional risk of nonpayment posed by the consumer. The Board 
indicated that the clarification in proposed comment 59(d)-6 would be 
appropriate in order to ensure that Sec.  226.59(d)(2) does not lead to 
unintended consequences in cases where a market-based rate increase and 
a rate increase due to the imposition of a penalty rate both occurred 
between January 1, 2009 and February 21, 2010.
    The Board received no significant comment opposing comment 59(d)-6. 
Two industry commenters supported proposed comment 59(d)-6 and stated 
that it was prudent in light of safe and sound underwriting 
considerations. One of these commenters stated that the Board should 
clarify that comment 59(d)-6 applies to any rate increase based on 
factors specific to the consumer and not just to penalty rates. The 
Board is adopting comment 59(d)-6 generally as proposed, with several 
modifications to clarify that the comment applies to rates increased 
based on factors specific to the consumer, regardless of whether those 
rates are penalty rates. In particular, the last sentence of comment 
59(d)-6.i as adopted states that if the review of factors described in 
Sec.  226.59(d)(1)(i) indicates that it is appropriate to continue to 
apply a penalty or other increased rate to the account as a result of 
the consumer's payment history or other factors specific to the 
consumer, Sec.  226.59 permits the card issuer to continue to impose 
the penalty or other increased rate, even if the review of the factors 
described in Sec.  226.59(d)(1)(ii) would otherwise require a rate 
decrease.

59(f) Termination of Obligation To Review Factors

    Section 226.59(f) generally provides that the obligation to conduct 
periodic reevaluations of a rate increase ceases to apply if the issuer 
reduces the annual percentage rate applicable to the account to a rate 
equal to or lower than the rate that was in effect immediately prior to 
the increase. The Board noted in the November 2010 Proposed Rule that 
some confusion had arisen regarding the relationship between the 
general rule in Sec.  226.59(a) and the termination provision in Sec.  
226.59(f). For example, a card issuer may periodically review a 
consumer's account on which the rate has been increased, consistent 
with Sec.  226.59(d)(1)(ii), by evaluating the factors that it 
currently considers when determining the annual percentage rates 
applicable to similar new credit card accounts. In the course of 
conducting such a review, the card issuer may determine that it would 
offer a lower rate on a new account than the rate that applied, prior 
to the rate increase, to the existing account being reviewed. In these 
circumstances, issuers have asked the Board for guidance regarding the 
amount of the rate reduction required under Sec.  226.59.
    The Board proposed to clarify that in these circumstances, Sec.  
226.59 requires that the rate on the existing account be reduced to the 
rate that was in effect prior to the rate increase, not to the lower 
rate that would be offered to a comparable new consumer. To clarify the 
relationship between Sec.  226.59(a) and (f), the Board proposed to 
adopt a new comment 59(f)-2, which set forth the following illustrative 
example: Assume that on January 1, 2011, a consumer opens a new credit 
card account under an open-end (not home-secured) consumer credit plan. 
The annual percentage rate applicable to purchases is 15%. Upon 
providing 45 days' advance notice and to the extent permitted under 
Sec.  226.55, the card issuer increases the rate applicable to new 
purchases to 18%, effective on September 1, 2012. The card issuer 
conducts reviews of the increased rate in accordance with Sec.  226.59 
on January 1, 2013 and July 1, 2013, based on the factors described in 
Sec.  226.59(d)(1)(ii). Based on the January 1, 2013 review, the rate 
applicable to purchases remains at 18%. In the review conducted on July 
1, 2013, the card issuer determines that, based on the relevant 
factors, the rate it would offer on a comparable new account would be 
14%. Consistent with Sec.  226.59(f), Sec.  226.59(a) requires that the 
card issuer reduce the rate on the existing account to the 15% rate 
that was in effect prior to the September 1, 2012 rate increase.
    Commenters who addressed proposed comment 59(f)-2 supported this 
aspect of the proposal and, accordingly, comment 59(f)-2 is adopted as 
proposed. As noted in the supplementary information to the November 
2010 Proposed Rule, the review requirements of TILA Section 148 are 
triggered only if an annual percentage rate applicable to a credit card 
account is increased. The Board believes that if Congress had intended 
for all annual percentage rates on all credit card accounts to be 
reviewed indefinitely, regardless of whether the account is subject to 
a rate increase, it would have so provided in the Credit Card Act. 
Accordingly, the Board continues to believe that it would be 
inappropriate to require card issuers to reduce a rate on a credit card 
account to a rate that is lower than the rate that applied to the 
account prior to the increase.

Appendix M1--Repayment Disclosures

    As discussed in the section-by-section analysis to Sec.  
226.7(b)(12), Appendix M1 contains guidance for how to calculate the 
repayment disclosures required to be disclosed under Sec.  
226.7(b)(12). Specifically, Sec.  226.7(b)(12)(i) generally requires 
card issuers to disclose the following repayment 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 length 
of time it would take to repay the outstanding balance if the consumer 
pays only the required minimum monthly payments and no further advances 
are made; (3) the total cost to the consumer of paying the balance in 
full if the consumer pays only the required minimum monthly payments 
and no further advances are made; (4) the minimum payment amount that 
would be required for the consumer to pay off the outstanding balance 
in 36 months, if no further advances are made; (5) the total cost to 
the consumer of paying the balance in full if the consumer pays the 
balance over 36 months; (6) the total savings of paying the balance in 
36 months (rather than making only minimum payments); and (7) a toll-
free telephone number at which the consumer may receive information 
about accessing consumer credit counseling.
    Section 226.7(b)(12)(i) and (ii) provides that card issuers must 
round the following disclosures to the nearest whole dollar when 
disclosing them on the periodic statement: (1) The minimum payment 
total cost estimate, (2) the estimated minimum payment for repayment in 
36 months, (3) the total cost estimate for repayment in 36 months, and 
(4) the savings estimate for repayment in 36 months. See 
226.7(b)(12)(i)(C), (b)(12)(i)(F)(1)(i), (b)(12)(i)(F)(1)(iii), 
(b)(12)(i)(F)(1)(iv) and (b)(12)(ii)(C). For the reasons discussed in 
the section-by-section analysis to Sec.  226.7(b)(12), in the November 
2010 Proposed Rule, the Board proposed to

[[Page 22994]]

revise Sec.  226.7(b)(12)(i) and (ii) to allow card issuers to round 
these disclosures to either the nearest whole dollar or to the nearest 
cent when disclosing them on the periodic statement. Currently, 
paragraph (f) of Appendix M1 references rounding disclosures to the 
nearest whole dollar when calculating the total saving estimate for 
repayment in 36 months. Specifically, paragraph (f) of Appendix M1 
states that when calculating the savings 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 Appendix M1 
(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 Appendix M1 (rounded to the 
nearest whole dollar as set forth in Sec.  226.7(b)(12)(i)(C)).
    Consistent with the proposed changes to Sec.  226.7(b)(12), in the 
November 2010 Proposed Rule, the Board proposed to revise paragraph (f) 
of Appendix M1 to indicate that a card issuer, at its option, may round 
the disclosures either to the nearest whole dollar or to the nearest 
cent in calculating the savings estimate for repayment in 36 months. 
Under the proposal, if a card issuer chose under Sec.  226.7(b)(12) to 
round the disclosures to the nearest whole dollar, the card issuer 
would have been required to calculate the savings estimate for 
repayment in 36 months by subtracting the total cost estimate for 
repayment in 36 months calculated under paragraph (e) of Appendix M1 
(rounded to the nearest whole dollar) from the minimum payment total 
cost estimate calculated under paragraph (c) of Appendix M1 (rounded to 
the nearest whole dollar). If a card issuer chose, however, to round 
the disclosures to the nearest cent, the card issuer would have been 
required to calculate the savings estimate for repayment in 36 months 
by subtracting the total cost estimate for repayment in 36 months 
calculated under paragraph (e) of Appendix M1 (rounded to the nearest 
cent) from the minimum payment total cost estimate calculated under 
paragraph (c) of Appendix M1 (rounded to the nearest cent). The Board 
believed that this would ensure that the savings estimate for repayment 
in 36 months would be calculated consistent with how the other 
disclosures would be shown on the periodic statement.
    The Board received several comments supporting the proposed changes 
to Appendix M1, and no comments opposing them. For the reasons 
discussed above, the Board adopts these changes as proposed.

IV. Mandatory Compliance Dates

    A. Mandatory compliance date. Consistent with TILA Section 105(d), 
this final rule is effective and compliance is mandatory on October 1, 
2011. However, creditors may, at their option, comply with this rule 
prior to that date.
    Most commenters requested an October 1, 2011 effective date. 
Although some industry commenters requested additional time to comply, 
the Board believes that, given the largely technical nature of this 
final rule, an October 1, 2011 effective date provides creditors with 
sufficient time to bring their systems and practices into compliance.
    B. Prospective application. This final rule is prospective in 
application. The following paragraphs set forth additional guidance and 
examples as to how a creditor must comply with the final rule by the 
mandatory compliance date. Except as otherwise stated, the final rule 
applies to existing as well as new accounts and balances.
    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 October 1, 2011 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 
September 30, 2011, it is not required to comply with the new 
requirements, even if the consumer does not receive it until October 7, 
2011. In contrast, a direct-mail application or solicitation that is 
mailed to consumers on or after October 1, 2011 must comply with the 
final rule. If a creditor 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 October 1, 2011 must comply with the new rule. However, if a 
creditor issues an application or solicitation by making it available 
to the public prior to October 1, 2011 (for example, by restocking an 
in-store display of ``take-one'' applications on September 15, 2011), 
those applications need not comply with the new rule, even if a 
consumer may pick up one of the applications from the display after 
October 1, 2011. Any ``take-one'' applications that the creditor uses 
to restock the display on or after October 1, 2011, however, must 
comply with the final rule.
    D. Account-opening disclosures (Sec.  226.6). Account-opening 
disclosures furnished on or after October 1, 2011 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 September 
30, 2011 but the account-opening disclosures are not mailed until 
October 2, 2011, 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 day on which the 
consumer receives the disclosures. Thus, if a creditor mails the 
account-opening disclosures on September 30, 2011, the disclosures are 
not required to comply with the final rule, even if the consumer 
receives those disclosures on October 7, 2011.
    E. Periodic statements (Sec. Sec.  226.5(b)(2) and 226.7). Periodic 
statements mailed or delivered on or after October 1, 2011 must comply 
with Sec. Sec.  226.5(b)(2) and 226.7, as revised by the final rule. 
For example, if a creditor mails a periodic statement to the consumer 
on September 30, 2011, that statement is not required to comply with 
the final rule, even if the consumer does not receive the statement 
until October 7, 2011. However, a statement mailed on October 1, 2011 
must comply with the final rule.
    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) (as revised by the final rule) for checks that access a 
credit account that are provided on or after October 1, 2011. Thus, for 
example, if a creditor mails access checks to a consumer on September 
30, 2011, these checks are not required to comply with new Sec.  
226.9(b)(3), even if the consumer receives them on October 7, 2011. 
However, checks mailed on October 1, 2011 must comply with the final 
rule.
    G. Notices of changes in terms and penalty rate increases (Sec.  
226.9(c)(2)).
    In general. 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 the date on which the notice is provided, not the 
effective date of the change. Thus, the requirements of the final rule 
apply to notices mailed or delivered on or after October 1, 2011. For 
example, if a creditor provides a notice on September 30, 2011, the 
notice is not required to comply with new Sec.  226.9(c)(2), even if 
the consumer receives the notice on October 7, 2011 and the change 
disclosed in the notice is effective on November 15, 2011.

[[Page 22995]]

    Promotional fees. The final rule applies the existing requirements 
for promotional rate programs in Sec.  226.9(c)(2)(v)(B) to promotional 
programs under which a fee will increase after a specified period of 
time. Some creditors may have outstanding promotional fee programs that 
were in place before the effective date of this final rule, but under 
which the promotional fee will not expire until after October 1, 2011. 
For example, on January 1, 2010, a creditor may have opened an account 
with annual fee of $0 for the first year and a $50 annual fee 
thereafter. These creditors may have concerns about whether the 
disclosures that they have provided to consumers regarding these 
promotional programs are sufficient to qualify for the exception in 
revised Sec.  226.9(c)(2)(v)(B). In order to address these concerns, 
the Board is providing the following guidance, which is modeled after 
the guidance provided with respect to promotional rates in the July 
2009 Interim Final Rule and the February 2010 Final Rule. See 74 FR 
36091-36092; 75 FR 7783-7784.
    The Board notes that, as revised by this final rule, Sec.  
226.9(c)(2)(v)(B) requires written disclosures of the term of the 
promotional fee and the fee that will apply when the promotional fee 
expires. The final rule further requires that the term of the 
promotional fee and the fee that will apply when the promotional fee 
expires be disclosed in close proximity and equally prominent to the 
disclosure of the promotional fee. The Board anticipates that many 
creditors offering such a promotional fee program may already have 
complied with these advance notice requirements in connection with 
offering the promotional program.
    The Board is nonetheless aware that some other creditors may be 
uncertain as to whether written disclosures provided at the time an 
existing promotional fee program was offered are sufficient to comply 
with the exception in Sec.  226.9(c)(2)(v)(B). For example, for 
promotional fee offers provided after October 1, 2011, the disclosure 
under Sec.  226.9(c)(2)(v)(B)(1) must include the fee that will apply 
after the expiration of the promotional period. For an existing 
promotional fee program, a creditor might instead have disclosed this 
fee narratively--for example, by stating that the annual fee would be 
reduced to $0 for one year and that the ``standard'' or ``pre-
existing'' annual fee would apply thereafter. The Board does not 
believe that it is appropriate to require a creditor to provide 45 
days' advance notice before expiration of the promotional period when 
the creditor provided disclosures that were generally consistent with 
Sec.  226.9(c)(2)(v)(B) but were not technically compliant because they 
described the post-promotional fee narratively. This would have the 
impact of imposing the requirements of this final rule retroactively, 
to disclosures given prior to the October 1, 2011 effective date. 
Therefore, a creditor that made disclosures prior to October 1, 2011 
that generally complied with Sec.  226.9(c)(2)(v)(B) but that described 
the type of post-promotional fee rather than disclosing the actual fee 
is not required to provide an additional notice pursuant to Sec.  
226.9(c)(2) before expiration of the promotional fee in order to use 
the exception.
    Similarly, the Board acknowledges that there may be some creditors 
with outstanding promotional fee 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 fee. 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 fee programs. That interpretation of the 
rule would in effect require creditors to comply with the precise 
requirements of the exception before issuance of this final rule or its 
October 1, 2011 effective date.
    However, the Board believes at the same time that it would be 
inconsistent with the final rule for creditors that provided no advance 
notice of the term of the promotion and the post-promotional fee to 
receive an exemption from the general notice requirements of Sec.  
229.9(c)(2). Consequently, any creditor that, prior to October 1, 2011, 
provides a written disclosure to consumers subject to an existing 
promotional fee program stating the length of the promotional period 
and the fee that will apply after the promotional fee expires is not 
required to provide an additional notice pursuant to Sec.  226.9(c)(2) 
prior to applying the post-promotional fee. In addition, any creditor 
that provided, prior to October 1, 2011, oral disclosures of the length 
of the promotional period and the fee that will apply after the 
promotional period also need not provide an additional notice under 
Sec.  226.9(c)(2). However, any creditor subject to Sec.  226.9(c)(2) 
that has not provided advance notice of the term of a promotion and the 
fee that will apply upon expiration of that promotion in the manner 
described above prior to October 1, 2011 will be required to provide 45 
days' advance notice containing the content set forth in this final 
rule before raising the fee.
    H. Advertising rules (Sec.  226.16). Advertisements occurring on or 
after October 1, 2011, such as an advertisement broadcast on the radio, 
published in a newspaper, or mailed on October 1, 2011 or later, must 
comply with revised Sec.  226.16.
    I. Ability to pay rules (Sec.  226.51). The revisions to Sec.  
226.51 apply to the opening of new accounts on or after October 1, 2011 
as well as to credit line increases on existing accounts on or after 
October 1, 2011. However, consistent with the February 2010 Final Rule, 
revised Sec.  226.51 does not apply to accounts opened in response to 
firm offers of credit made consistent with the Fair Credit Reporting 
Act before October 1, 2011, provided that the income requirements 
established by the creditor as specific criteria prior to prescreening 
were consistent with the version of Sec.  226.51 in effect at that 
time. See 75 FR 7785; see also 15 U.S.C. 1681(l)(1)(A).
    In addition, if an application is required to comply with the 
revised disclosure requirements in Sec.  226.5a (as discussed above), 
the application must also request income information in a manner 
consistent with revised Sec.  226.51 if the card issuer intends to rely 
on the information to comply with Sec.  226.51. For example, if direct-
mail applications requesting that consumers age 21 or older provide 
their ``household income'' are mailed to consumers on September 30, 
2011, the card issuer may rely on the income information provided by 
consumers on the applications for purposes of Sec.  226.51, even if the 
applications were not received by consumers until October 7, 2011. 
However, if the same applications are mailed to consumers on or after 
October 1, 2011, the card issuer cannot rely solely on the income 
information provided by consumers on the applications.
    Similarly, if a card issuer makes applications available to the 
general public (such as ``take-one'' applications), any new 
applications issued by the card issuer on or after October 1, 2011 must 
request income information in a manner consistent with revised Sec.  
226.51 if the card issuer intends to rely on the information to comply 
with Sec.  226.51. For example, if a card issuer restocks an in-store 
display of ``take-one'' applications requesting that consumers age 21 
or older provide their ``household income'' on September 15, 2011, the 
card issuer may rely on the income information provided by consumers on 
the applications for purposes of Sec.  226.51, even though a consumer 
may

[[Page 22996]]

pick up one of the applications from the display after October 1, 2011. 
However, any ``take-one'' applications that the card issuer uses to 
restock the display on or after October 1, 2011 must request income 
information in a manner consistent with revised Sec.  226.51 if the 
card issuer intends to rely on the information to comply with Sec.  
226.51.
    J. Limitations on fees (Sec.  226.52).
    Limitations on fees imposed prior to or during first year (Sec.  
226.52(a)). The revisions to Sec.  226.52(a) are effective on October 
1, 2011. Accordingly, the revised limitations on the imposition of fees 
in Sec.  226.52(a) apply to accounts opened and fees imposed on or 
after October 1, 2011. However, revised Sec.  226.52(a) does not 
require card issuers to waive or rebate fees imposed prior to October 
1, 2011. For example, assume that a card issuer imposes a $50 
application fee on August 1, 2011, the account is opened on August 2 
with a $400 credit limit, and $100 in account-opening fees are imposed 
on August 3. Revised Sec.  226.52(a) does not require the card issuer 
to waive or rebate $50 in fees on October 1, 2011. However, beginning 
on October 1, 2011, revised Sec.  226.52(a) prohibits the card issuer 
from imposing any additional non-exempt fees with respect to the 
account until August 2, 2012.
    The revised definition of account opening in Sec.  226.52(a) 
applies only to accounts opened on or after October 1, 2011. Because 
many card issuers currently track only the date that accounts are 
opened on their systems, it would be difficult for card issuers to 
determine the account-opening date consistent with revised Sec.  
226.52(a) for accounts opened prior to October 1.
    Limitations on penalty fees (Sec.  226.52(b)). The revisions to 
Sec.  226.52(b) are effective on October 1, 2011. However, the final 
rule does not require card issuers to waive or rebate fees imposed 
prior to October 1, 2011. For example, assume that a card issuer does 
not impose a late payment fee when a consumer pays late in August 2011, 
but imposes a $35 late payment when the consumer pays late in September 
2011. Revised Sec.  226.52(b)(1)(ii)(B) does not require the issuer to 
waive or rebate $10 on October 1, 2011, nor does it prevent the card 
issuer from imposing a $35 fee if the consumer pays late again in 
November 2011.
    K. Limitations on increasing annual percentage rates, fees, and 
charges (Sec.  226.55). The revisions to Sec.  226.55 are effective on 
October 1, 2011.
    Temporary fees (Sec.  226.55(b)(1)). See the transition guidance 
provided above regarding Sec.  226.9(c)(2)(v)(B) for guidance regarding 
application of the disclosure requirements in Sec.  226.55(b)(1)(i) to 
promotional fee programs established prior to October 1, 2011. The 
requirement in Sec.  226.55(b)(1) that temporary fees expire after a 
period of no less than six months applies to temporary fees offered on 
or after October 1, 2011. Thus, for example, if a card issuer offered a 
temporary fee on September 1, 2011 that applied until January 1, 2012, 
Sec.  226.55(b)(1) would not prohibit the card issuer from applying an 
increased fee on January 1 so long as the card issuer previously 
disclosed the period during which the temporary fee would apply and the 
increased fee that would apply thereafter.
    Increases in rates and certain fees and charges that apply to new 
transactions (Sec.  226.55(b)(3)); treatment of protected balances 
(Sec.  226.55(c)). The revisions to Sec.  226.55(b)(3)(iii) regarding 
the circumstances under which an increased fee or charge that is 
subject to Sec.  226.55 applies to an existing balance (as opposed to 
the account as a whole) apply to any increase in a fee or charge on or 
after October 1, 2011. However, a card issuer is not required to waive, 
rebate, or reduce any fee or charge imposed consistent with Regulation 
Z prior to October 1, 2011. Furthermore, as discussed above with 
respect to Sec.  226.52(a), the revised definition of account opening 
under Sec.  226.55(b)(3)(iii) applies only to accounts opened on or 
after October 1, 2011.
    Promotional waivers or rebates of interest, fees, and charges 
(Sec.  226.55(e)). New Sec.  226.55(e) applies to any waiver or rebate 
of interest, fees, or charges subject to Sec.  226.55 that is promoted 
by a card issuer and applied to an account on or after October 1, 2011. 
If a card issuer waives or rebates interest, fees, or charges subject 
to Sec.  226.55 prior to October 1, 2011, Sec.  226.55(e) does not 
prohibit the issuer from ceasing to waive or rebate such interest, 
fees, or charges on or after October 1 unless the card issuer promotes 
the waiver or rebate on or after October 1.
    L. Internet posting of credit card agreements (Sec.  226.58). 
Because the final rule becomes effective on October 1, 2011, the 
submissions that issuers must send to the Board by May 2, 2011 
(reflecting agreements offered to the public as of the end of the first 
calendar quarter, March 31, 2011) and by August 1, 2011 (reflecting 
agreements offered to the public as of the end of the second calendar 
quarter, June 30, 2011) are not subject to the final rule. Compliance 
with the final rule is required for submissions that issuers must send 
to the Board by October 31, 2011 (reflecting agreements offered as of 
the end of the third calendar quarter, September 30, 2011) and to 
subsequent submissions.

V. Regulatory Analysis

    This final rule clarifies aspects of the Board's February and June 
2010 Final Rules implementing the Credit Card Act. Section VI of the 
supplementary information to the February 2010 Final Rule and section 
VII of the supplementary information to the June 2010 Final Rule set 
forth the Board's analyses and determinations under the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) (RFA) with respect to those 
rules. See 75 FR 7789-7791, 75 FR 37565-37567. In addition, section VII 
of the supplementary information to the February 2010 Final Rule and 
section VIII of the supplementary information to the June 2010 Final 
Rule set forth the Board's analyses and determinations under the 
Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 5 CFR Part 1320 
Appendix A.1) with respect to those rules. See 75 FR 7791, 75 FR 37567-
37568. Because the final rule's amendments are clarifications and do 
not alter the substance of these analyses and determinations, the Board 
continues to rely on those analyses and determinations for purposes of 
this rulemaking.\27\
---------------------------------------------------------------------------

    \27\ In the proposal, the Board noted that the amendments to 
Sec.  226.9(c)(2)(v)(B) permit a card issuer to provide the consumer 
in advance with certain written disclosures of a fee increase upon 
expiration of a specified period of time, without providing 45 days' 
advance notice pursuant to Sec.  226.9(c)(2). The Board anticipated 
that the proposed rule would impose no additional burden on card 
issuers that are small entities because the clarification provides 
an alternative means of complying with disclosures that are 
otherwise required by Sec.  226.9(c)(2). The Board did not receive 
any significant comment on this preliminary determination, which is 
adopted in this final rule.
---------------------------------------------------------------------------

    RFA. The Small Business Administration's Office of Advocacy (SBA) 
submitted a comment on the initial regulatory flexibility analysis 
(IRFA) in the Board's proposed rule. Otherwise, the Board did not 
receive substantive comments specifically addressing this analysis. 
Section 1601 of the Small Business Jobs Act of 2010 and Executive Order 
13272 generally require Federal agencies to respond in a final rule to 
written comments submitted by the SBA on a proposed rule, unless the 
public interest is not served by doing so. The Board's response to the 
SBA's comment letter is set forth below.
    The SBA expressed concern that the Board's IRFA did not adequately 
assess the impact of the proposed rule on small entities. The SBA 
encouraged the Board

[[Page 22997]]

to issue a second IRFA to determine the impact on small entities and to 
consider alternatives that meet the Board's objectives while minimizing 
the impact on small entities. For the reasons stated below, the Board 
believes the analysis in its IRFA complied with the requirements of the 
RFA. Accordingly, the Board is proceeding with a final rule.
    This rulemaking is part of a series of rules that have extensively 
revised and expanded the regulatory requirements for entities that 
offer open-end (not home-secured) consumer credit, particularly credit 
card accounts. In January 2009, the Board adopted a final rule that 
comprehensively amended the requirements of Regulation Z that apply to 
credit card accounts and other open-end (not home-secured) consumer 
credit. See 74 FR 5244 (Jan. 29, 2009). In that rule, the Board 
performed a RFA analysis and determined that the amendments would have 
a significant economic impact on a substantial number of small 
entities. See id. at 5390-5392.
    In May 2009, the Credit Card Accountability, Responsibility, and 
Disclosure Act of 2009 (Credit Card Act) was signed in to law, which 
required the Board to extensively revise the January 2009 final rule 
and to issue three stages of additional rules. See Pub. L. No. 111-24, 
123 Stat. 1734 (2009); see also 75 FR 37526 (describing rulemaking 
requirements of the Credit Card Act). Consistent with the requirements 
of the Credit Card Act, the Board issued an interim final rule in July 
2009 and final rules in February and June 2010. See 74 FR 36077 (July 
22, 2009); 75 FR 7658 (Feb. 22, 2010); 75 FR 37526 (June 29, 2010). In 
each of these rules, the Board conducted an RFA analysis and determined 
that the amendments to Regulation Z would have a significant economic 
impact on a substantial number of small entities, relying in part on 
the RFA analyses and determinations in the Board's prior credit card 
rules. See 74 FR 36092-36093; 75 FR 7789-7791; 75 FR 37565-37567. These 
analyses and determinations were not challenged by the SBA or other 
commenters.
    Most recently, the Board issued a proposed rule in November 2010 to 
clarify aspects of the February and June 2010 credit card rules in 
order to facilitate compliance. See 75 FR 67459 (Nov. 2, 2010). In that 
proposal, the Board stated that it would continue to rely on the RFA 
analyses and determinations in its prior credit card rulemakings 
because the proposed clarifications would not, if adopted, alter the 
substance of those analyses and determinations. See id. 67486.
    The SBA suggested in its comment letter that the Board's reliance 
on the RFA analyses and determinations in prior credit card rulemakings 
was not appropriate. However, the RFA specifically provides that, 
``[i]n order to avoid duplicative action, an agency may consider a 
series of closely related rules as one rule for the purposes of [the 
RFA analysis].'' 5 U.S.C. 605(c). Thus, the Board has met or exceeded 
the requirements of the RFA by performing separate analyses for each of 
the credit card rulemakings preceding the November 2010 proposed 
clarifications.
    The SBA also commented that the Board failed to consider updated 
information about the number of small entities that may be impacted by 
the proposed clarifications. Although the total number of small 
entities likely to be affected by the Board's regulations is unknown 
because the open-end credit provisions of Regulation Z have broad 
applicability to individuals and businesses that extend even small 
amounts of consumer credit, the Board estimated in prior rulemakings 
that, based on data from Reports of Condition and Income (call 
reports), there were approximately 4,100 card issuers with assets of 
$175 million or less. See 74 FR 5391 (citing June 2008 call report 
data). Based on the most recent final call report data (from September 
2010), the Board estimates that there are approximately 3,700 such 
issuers. Notwithstanding this reduction in the number of affected small 
entities, the Board continues to believe that its credit card 
regulations (including this final rule) will have a significant 
economic impact on a substantial number of small entities.
    Finally, the SBA suggested that the Board did not sufficiently 
address alternatives to the proposed rule which would minimize the 
impact on small entities. However, the Board solicited comment on 
alternatives to several of the proposed requirements. See, e.g., 75 FR 
67474. Furthermore, as discussed above in III. Section-by-Section 
Analysis, the Board has provided specific model language and transition 
guidance based on the comments in order to ease compliance and 
operational burden on small entities.
    PRA. 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 Cynthia Ayouch, Acting 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.

VI. List of Revisions to Official Staff Interpretations

    For clarity, the following is a list of revisions made by this 
final rule to the Official Staff Interpretations:
    Section 226.2--Definitions and Rules of Construction, 2(a)(15) 
Credit card: Paragraphs 2. and 3. are revised and paragraph 4. is 
added.
    Section 226.5--General Disclosure Requirements, 5(b)(2) Periodic 
statements:
    (1) Paragraph 5(b)(2)(ii): Paragraphs 1. through 4. are revised; 
and
    (2) The heading Paragraph 5(b)(2)(iii) and paragraph 1. under that 
heading are deleted.
    Section 226.5a--Credit and Charge Card Applications and 
Solicitations, 5a(b) Required disclosures:
    (1) 5a(b)(1) Annual percentage rate: Paragraph 5. is revised;
    (2) 5a(b)(2) Fees for issuance or availability: paragraph 4. is 
revised;
    (3) 5a(b)(5) Grace period: Paragraph 1. is revised and paragraph 4. 
is deleted; and
    (4) 5a(b)(6) Balance computation method: Paragraph 1. is revised.
    Section 226.6--Account-Opening Disclosures, 6(b) Rules affecting 
open-end (not home-secured) plans, 6(b)(2) Required disclosures for 
account-opening table for open-end (not home-secured) plans:
    (1) 6(b)(2)(v) Grace period: Paragraphs 1. and 3. are revised and 
paragraph 4. is deleted; and
    (2) 6(b)(2)(vi) Balance computation method: Paragraph 1. is revised 
and paragraph 2. is added.
    Section 226.7--Periodic Statement, 7(b) Rules affecting open-end 
(not home-secured) plans:
    (1) Paragraph 1. is revised;
    (2) 7(b)(5) Balance on which finance charge computed: Paragraphs 7. 
and 8. are revised;
    (3) 7(b)(6) Charges imposed: Paragraph 3. is revised;
    (4) 7(b)(8) Grace period: Paragraph 3. is revised; and
    (5) 7(b)(12) Repayment disclosures: Paragraph 1. is added.
    Section 226.9-Subsequent Disclosure Requirements:
    (1) 9(b) Disclosures for supplemental credit access devices and 
additional features, 9(b)(3) Checks that access a credit card account:
    (i) 9(b)(3)(i) Disclosures: Paragraph 2. is added; and
    (ii) 9(b)(3)(i)(D): Paragraph 1. is revised;

[[Page 22998]]

    (2) 9(c) Change in terms, 9(c)(2) Rules affecting open-end (not 
home-secured) plans:
    (i) Paragraph 1. is revised;
    (ii) 9(c)(2)(iii) Charges not covered by Sec.  226.6(b)(1) and 
(b)(2): Paragraph 1. is revised;
    (iii) 9(c)(2)(iv) Disclosure requirements: Paragraphs 3. and 4. are 
revised;
    (iv) 9(c)(2)(v) Notice not required: Paragraphs 2., 3., 4., 5., 6., 
7., 10., 11., and 12. are revised and paragraph 13. is added; and
    (v) 9(e) Disclosures upon renewal of credit or charge card: 
Paragraph 10. is revised.
    Section 226.10--Payments:
    (1) 10(b) Specific requirements for payments: Paragraph 2. is 
revised;
    (2) 10(e) Limitations on fees related to method of payment: 
Paragraph 4. is added; and
    (3) 10(f) Changes by card issuer: Paragraph 3. is revised.
    Section 226.12--Special Credit Card Provisions, 12(c) Right of 
cardholder to assert claims or defenses against card issuer: Paragraph 
4. is revised.
    Section 226.13--Billing Error Resolution, 13(c) Time for 
resolution; general procedures, Paragraph 13(c)(2): Paragraph 2. is 
revised.
    Section 226.14--Determination of Annual Percentage Rate, 14(a) 
General rule: Paragraph 6. is added.
    Section 226.16--Advertising:
    (1) Paragraphs 1. and 2. are revised; and
    (2) 16(g) Promotional rates: Paragraphs 2., 3., and 4. are revised.
    Section 226.30--Limitation on Rates: Paragraph 8. is revised.
    Section 226.51--Ability to Pay:
    (1) 51(a) General rule, 51(a)(1) Consideration of ability to pay: 
Paragraphs 1., 2., 4. and 6. are revised;
    (2) 51(a)(2) Minimum periodic payments: Paragraph 3. is revised; 
and
    (3) 51(b) Rules affecting young consumers, 51(b)(1) Applications 
from young consumers: Paragraph 2. is revised.
    Section 226.52--Limitations on Fees:
    (1) 52(a) Limitations during first year after account opening:
    (i) The subheading 52(a) Limitations during first year after 
account opening is revised to read 52(a) Limitations prior to account 
opening and during first year after account opening;
    (ii) 52(a)(1) General rule: Paragraphs 1., 2., and 3. are revised 
and paragraph 4. is added; and
    (iii) 52(a)(2) Fees not subject to limitations: Paragraph 1. is 
revised;
    (2) 52(b) Limitations on penalty fees:
    (i) 52(b)(1)(ii) Safe harbors: Paragraph 1. is revised; and
    (ii) 52(b)(2) Prohibited fees:
    (A) 52(b)(2)(i) Fees that exceed dollar amount associated with 
violation: paragraph 5. is revised; and
    (B) 52(b)(2)(ii) Multiple fees based on single event or 
transaction: Paragraph 1. is revised.
    Section 226.53--Allocation of Payments:
    (1) Paragraphs 4. and 5. are revised; and
    (2) The subheading 53(b) Special rule for accounts with balances 
subject to deferred interest or similar programs is revised to read 
53(b) Special rules and, under that subheading, paragraphs 1., 2., and 
3. are revised.
    Section 226.55-- Limitations on Increasing Annual Percentage Rates, 
Fees, and Charges:
    (1) 55(a) General rule: Paragraph 1. is revised;
    (2) 55(b) Exceptions: Paragraphs 1. and 3. are revised;
    (3) The subheading 55(b)(1) Temporary rate exception is revised to 
read 55(b)(1) Temporary rate, fee, or charge exception and, under that 
subheading, paragraphs 2. and 4. are revised and paragraph 5. is added;
    (4) 55(b)(3) Advance notice exception: Paragraphs 6. and 7. are 
added;
    (5) 55(b)(6) Servicemembers Civil Relief Act exception: Paragraphs 
1. and 2. are revised and paragraph 3. is added;
    (6) 55(c) Treatment of protected balances, 55(c)(1) Definition of 
protected balance: Paragraph 3. is revised and paragraph 4. is added; 
and
    (7) The subheading 55(e) Promotional waivers or rebates of 
interest, fees, and other charges is added and, under that subheading, 
paragraphs 1., 2., and 3. are added.
    Section 226.58--Internet Posting of Credit Card Agreements:
    (1) 58(b) Definitions:
    (i) 58(b)(1) Agreement: Paragraph 1. is revised;
    (ii) 58(b)(2) Amends: Paragraph 1. is revised;
    (iii) The subheading 58(b)(4) Card issuer is added and paragraphs 
1., 2., and 3. are added under that subheading;
    (iv) The subheading 58(b)(4) Offers is revised to read 58(b)(5) 
Offers;
    (v) The subheading 58(b)(5) Open account is revised to read 
58(b)(6) Open account; and
    (vi) The subheading 58(b)(7) Private label credit card account and 
private label credit card plan is revised to read 58(b)(8) Private 
label credit card account and private label credit card plan and, under 
that subheading, paragraphs 2. and 4. are revised;
    (2) 58(c) Submission of agreements to Board, 58(c)(3) Amended 
agreements: Paragraph 2. is revised, paragraph 3. is renumbered as 
paragraph 4., and a new paragraph 3. is added;
    (3) 58(d) Posting of agreements offered to the public: Paragraph 2. 
is revised; and
    (4) 58(e) Agreements for all open accounts: Paragraph 3. is 
revised.
    Section 226.59--Reevaluation of Rate Increases:
    (1) 59(a) General rule, 59(a)(1) Evaluation of increased rate: 
Paragraphs 3. and 4. are renumbered as paragraphs 4. and 5. and a new 
paragraph 3. is added;
    (2) 59(d) Factors: Paragraph 6. is added; and
    (3) 59(f) Termination of obligation to review factors: Paragraph 2. 
is added.

List of Subjects in 12 CFR Part 226

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

Authority and Issuance

    For the reasons set forth in the preamble, the Board 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; Pub. L. No. 
111-203, 124 Stat. 1376.

Subpart B--Open-End Credit

0
2. Section 226.2(a)(15)(ii) is revised to read as follows:


Sec.  226.2  Definitions and rules of construction.

    (a) * * *
    (15) * * *
    (ii) Credit card account under an open-end (not home-secured) 
consumer credit plan means any open-end credit account that is accessed 
by a credit card, except:
    (A) A home-equity plan subject to the requirements of Sec.  226.5b 
that is accessed by a credit card; or
    (B) An overdraft line of credit that is accessed by a debit card or 
an account number.
* * * * *

0
3. Section 226.5 is amended by revising the heading for paragraph 
(b)(2)(ii)(A) and revising paragraph (b)(2)(ii)(B) to read as follows:


Sec.  226.5  General disclosure requirements.

* * * * *
    (b) * * *

[[Page 22999]]

    (2) * * *
    (ii) * * *
    (A) Credit card accounts under an open-end (not home-secured) 
consumer credit plan. * * *
* * * * *
    (B) Open-end consumer credit plans. For accounts under an open-end 
consumer credit plan, a creditor must adopt reasonable procedures 
designed to ensure that:
    (1) If a grace period applies to the account:
    (i) Periodic statements are mailed or delivered at least 21 days 
prior to the date on which the grace period expires; and
    (ii) The creditor does not impose finance charges as a result of 
the loss of the 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.
    (2) Regardless of whether a grace period applies to the account:
    (i) Periodic statements are mailed or delivered at least 14 days 
prior to the date on which the required minimum periodic payment must 
be received in order to avoid being treated as late for any purpose; 
and
    (ii) The creditor does not treat as late for any purpose a required 
minimum periodic payment received by the creditor within 14 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]
---------------------------------------------------------------------------

* * * * *
0
4. Section 226.5a is amended by revising paragraphs (a)(2)(iii), 
(b)(1)(i), and (b)(1)(iv) to read as follows:


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

    (a) * * *
    (2) * * *
    (iii) Disclosures required by paragraphs (b)(1)(iv)(B), 
(b)(1)(iv)(C) and (b)(6) of this section must be placed directly 
beneath the table.
* * * * *
    (b) * * *
    (1) * * *
    (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 shall not be included in the table.
* * * * *
    (iv) Penalty rates. (A) In general. Except as provided in paragraph 
(b)(1)(iv)(B) and (C) 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 this paragraph (b)(1) 
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.
    (C) Employee preferential rates. If a card issuer discloses in the 
table a preferential annual percentage rate for which only employees of 
the card issuer, employees of a third party, or other individuals with 
similar affiliations with the card issuer or third party, such as 
executive officers, directors, or principal shareholders are eligible, 
the card issuer must briefly disclose directly beneath the table the 
circumstances under which such preferential rate may be revoked, and 
the rate that will apply after such preferential rate is revoked.
* * * * *

0
5. Section 226.6 is amended by revising paragraphs (b)(1)(ii), 
(b)(2)(i)(B), and (b)(2)(i)(D) to read as follows:


Sec.  226.6  Account-opening disclosures.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Location. Only the information required or permitted by 
paragraphs (b)(2)(i) through (v) (except for (b)(2)(i)(D)(2)) and 
(b)(2)(vii) through (xiv) of this section shall be in the table. 
Disclosures required by paragraphs (b)(2)(i)(D)(2), (b)(2)(i)(D)(3), 
(b)(2)(vi), and (b)(2)(xv) of this section shall be placed directly 
below the table. Disclosures required by paragraphs (b)(3) through (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.
* * * * *
    (2) * * *
    (i) * * *
    (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 creditor 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.
* * * * *
    (D) Penalty rates. (1) In general. Except as provided in paragraph 
(b)(2)(i)(D)(2) and (b)(2)(i)(D)(3) 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

[[Page 23000]]

the rate that will apply after the introductory rate is revoked.
    (3) Employee preferential rates. If a creditor discloses in the 
table a preferential annual percentage rate for which only employees of 
the creditor, employees of a third party, or other individuals with 
similar affiliations with the creditor or third party, such as 
executive officers, directors, or principal shareholders are eligible, 
the creditor must briefly disclose directly beneath the table the 
circumstances under which such preferential rate may be revoked, and 
the rate that will apply after such preferential rate is revoked.
* * * * *


0
6. Section 226.7 is amended by revising paragraphs (b)(12) and (b)(14) 
to read as follows:


Sec.  226.7  Periodic statement.

* * * * *
    (b) * * *
    (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 either to the nearest whole dollar or to the nearest cent, 
at the card issuer's option;
    (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 either to the nearest whole 
dollar or to the nearest cent, at the card issuer's option;
    (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;
    (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 either to the nearest whole 
dollar or to the nearest cent, at the card issuer's option; 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 either to the nearest whole dollar or to the 
nearest cent, at the card issuer's option.
    (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, after rounding as set forth in 
paragraph (b)(12)(f)(1)(i) of this section 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 either to the nearest whole 
dollar or to the nearest cent, at the issuer's option;
    (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.
* * * * *
    (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 any page 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
7. Section 226.9 is amended by adding paragraph (b)(3)(ii) and by 
revising paragraphs (c)(2)(i)(A), (c)(2)(ii), (c)(2)(iii), 
(c)(2)(iv)(A)(1), (c)(2)(iv)(B), (c)(2)(iv)(D), (c)(2)(v)(B)(1) through 
(3), (c)(2)(v)(C), and (c)(2)(v)(D).
    The additions and revisions read as follows:


Sec.  226.9  Subsequent disclosure requirements.

* * * * *
    (b) * * *
    (3) * * *

[[Page 23001]]

    (iii) Variable rates. If any annual percentage rate required to be 
disclosed pursuant to paragraph (b)(3)(i) 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 shall not be included in the 
table.
    (c) * * *
    (2) * * *
    (i) * * *
    (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, 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 as described in paragraph (c)(2)(i)(B) of this section; for such 
changes, notice must be given in accordance with the timing 
requirements of paragraph (c)(2)(i)(B) of this section. 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.
* * * * *
    (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, a change to a term 
required to be disclosed under Sec.  226.6(b)(4), 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 must 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) * * *
    (A) * * *
    (1) A summary of the changes made to terms required by Sec.  
226.6(b)(1) and (b)(2) or Sec.  226.6(b)(4), a description of any 
increase in the required minimum periodic payment, and a description of 
any security interest being acquired by the creditor;
* * * * *
    (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, an increase in a fee as a result of a 
reevaluation of a determination made under Sec.  226.52(b)(1)(i) or an 
adjustment to the safe harbors in Sec.  226.52(b)(1)(ii) to reflect 
changes in the Consumer Price Index, a change in an annual percentage 
rate applicable to a consumer's account, an increase in a fee 
previously reduced consistent with 50 U.S.C. app. 527 or a similar 
Federal or State statute or regulation if the amount of the increased 
fee does not exceed the amount of that fee prior to the reduction, or 
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:
* * * * *
    (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, a summary of a term required to be disclosed 
under Sec.  226.6(b)(4) that is not required to be disclosed under 
Sec.  226.6(b)(1) and (b)(2), or a description of any security interest 
being acquired by the creditor), 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).
* * * * *
    (v) * * *
    (B) When the change is an increase in an annual percentage rate or 
fee 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 or fee that would apply 
after expiration of the period;
    (2) The disclosure of the length of the period and the annual 
percentage rate or fee 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 or fee that applies during the 
specified period of time; and
    (3) The annual percentage rate or fee that applies after that 
period does not exceed the rate or fee 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 or other account 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), (b)(2)(viii), (b)(2)(ix), (b)(2)(ix) 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:
* * * * *

0
8. Section 226.10 is amending by revising paragraphs (b)(4) and (e) to 
read as follows:


Sec.  226.10  Payments.

* * * * *

[[Page 23002]]

    (b) * * *
    (4) Nonconforming payments. (i) In general. Except as provided in 
paragraph (b)(4)(ii) of this section, 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.
    (ii) Payment methods promoted by creditor. If a creditor promotes a 
method for making payments, such payments shall be considered 
conforming payments in accordance with this paragraph (b) and shall be 
credited 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.
* * * * *
    (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. For purposes of 
paragraph (e) of this section, the term ``creditor'' includes a third 
party that collects, receives, or processes payments on behalf of a 
creditor.
* * * * *

0
9. Section 226.16(g) is revised to read as follows:


Sec.  226.16  Advertising.

* * * * *
    (g) Promotional rates and fees. (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 a 
promotional rate or promotional fee may be applicable.
    (iv) Promotional fee means a fee required to be disclosed under 
Sec.  226.6(b)(1) and (2) applicable to an open-end (not home-secured) 
plan, or 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 fee that will be in effect at the end of that period for such plan 
or types of balances or transactions.
    (v) Introductory fee means a promotional fee offered in connection 
with the opening of an account.
    (3) Stating the term ``introductory''. If any annual percentage 
rate or fee that may be applied to the account is an introductory rate 
or introductory fee, the term introductory or intro must be in 
immediate proximity to each listing of the introductory rate or 
introductory fee in a written or electronic advertisement.
    (4) Stating the promotional period and post-promotional rate or 
fee. If any annual percentage rate that may be applied to the account 
is a promotional rate under paragraph (g)(2)(i) of this section or any 
fee that may be applied to the account is a promotional fee under 
paragraph (g)(2)(iv) of this section, the information in paragraphs 
(g)(4)(i) and, as applicable, (g)(4)(ii) or (iii) of this section must 
be stated in a clear and conspicuous manner in the advertisement. If 
the rate or fee is stated in a written or electronic advertisement, the 
information in paragraphs (g)(4)(i) and, as applicable, (g)(4)(ii) or 
(iii) of this section must also be stated in a prominent location 
closely proximate to the first listing of the promotional rate or 
promotional fee.
    (i) When the promotional rate or promotional fee will end;
    (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; and
    (iii) The fee that will apply after the end of the promotional 
period.
    (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.
* * * * *

0
10. Section 226.51 is amended by revising paragraphs (a)(1) 
and(b)(1)(ii)(B) to read as follows:


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 consumer's independent ability 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 independent income or assets and current 
obligations. Reasonable policies and procedures to consider a 
consumer's independent ability to make the required payments include 
the 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 independent income or assets.
* * * * *
    (b) * * *
    (1) * * *
    (ii) * * *
    (B) Financial information indicating such cosigner, guarantor, or 
joint applicant has the independent ability to make the required 
minimum periodic payments on such debts, consistent with paragraph (a) 
of this section.
* * * * *

0
11. Section 226.52 is amended by revising the heading to paragraph (a) 
and by revising paragraphs (a)(1), (a)(3), and (b)(1)(ii) to read as 
follows:


Sec.  226.52  Limitations on fees.

    (a) Limitations prior to account opening and during first year 
after account opening. (1) General rule. Except as provided in 
paragraph (a)(2) of this section, the total amount of fees a consumer 
is required to pay with respect to a credit card account under an open-
end (not home-secured) consumer credit plan prior to account opening 
and during the first year after account opening must not exceed 25 
percent of the credit limit in effect when

[[Page 23003]]

the account is opened. For purposes of this paragraph, an account is 
considered open no earlier than the date on which the account may first 
be used by the consumer to engage in transactions.
* * * * *
    (3) Rule of construction. Paragraph (a) of this section does not 
authorize the imposition or payment of fees or charges otherwise 
prohibited by law.
    (b) * * *
    (1) * * *
    (ii) Safe harbors. A card issuer may impose a fee for violating the 
terms or other requirements of an account if the dollar amount of the 
fee does not exceed, as applicable:
    (A) $25.00;
    (B) $35.00 if the card issuer previously imposed a fee pursuant to 
paragraph (b)(1)(ii)(A) of this section for a violation of the same 
type that occurred during the same billing cycle or one of the next six 
billing cycles; or
    (C) Three percent of the delinquent balance on a charge card 
account that requires payment of outstanding balances in full at the 
end of each billing cycle if the card issuer has not received the 
required payment for two or more consecutive billing cycles.
    (D) The amounts in paragraphs (b)(1)(ii)(A) and (b)(1)(ii)(B) of 
this section will be adjusted annually by the Board to reflect changes 
in the Consumer Price Index.
* * * * *

0
12. Section 226.53 is amended by revising paragraph (b) to read as 
follows:


Sec.  226.53  Allocation of payments.

* * * * *
    (b) Special rules. (1) Accounts with balances subject to deferred 
interest or similar program. 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:
    (i) 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
    (ii) 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.
    (2) Accounts with secured balances. When a balance on a credit card 
account under an open-end (not home-secured) consumer credit plan is 
secured, the card issuer may at its option allocate any amount paid by 
the consumer in excess of the required minimum periodic payment to that 
balance if requested by the consumer.

0
13. Section 226.55 is amended by revising paragraphs (b)(1), 
(b)(3)(iii), and (b)(6), and by adding paragraph (e) to read as 
follows:


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

* * * * *
    (b) * * *
    (1) Temporary rate, fee, or charge 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) 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, fee, 
or charge 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, fee, 
or charge to transactions that occurred prior to the period that 
exceeds the annual percentage rate, fee, or charge 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, fee, or charge to transactions 
that occurred within 14 days after provision of the notice that exceeds 
the annual percentage rate, fee, or charge 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, fee, 
or charge to transactions that occurred during the period that exceeds 
the increased annual percentage rate, fee, or charge disclosed pursuant 
to paragraph (b)(1)(i) of this section.
* * * * *
    (3) * * *
    (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), (iii), or (xii) during the first year 
after the account is opened, while the account is closed, or while the 
card issuer does not permit the consumer to use the account for new 
transactions. For purposes of this paragraph, an account is considered 
open no earlier than the date on which the account may first be used by 
the consumer to engage in transactions.
* * * * *
    (6) Servicemembers Civil Relief Act exception. If an annual 
percentage rate or a fee or charge required to be disclosed under Sec.  
226.6(b)(2)(ii), (iii), or (xii) has been decreased pursuant to 50 
U.S.C. app. 527 or a similar Federal or State statute or regulation, a 
card issuer may increase that annual percentage rate, fee, or charge 
once 50 U.S.C. app. 527 or the similar statute or regulation no longer 
applies, provided that the card issuer must not apply to any 
transactions that occurred prior to the decrease an annual percentage 
rate, fee, or charge that exceeds the annual percentage rate, fee, or 
charge that applied to those transactions prior to the decrease.
* * * * *
    (e) Promotional waivers or rebates of interest, fees, and other 
charges. If a card issuer promotes the waiver or rebate of finance 
charges due to a periodic interest rate or fees or charges required to 
be disclosed under Sec.  226.6(b)(2)(ii), (iii), or (xii) and applies 
the waiver or rebate to a credit card account under an open-end (not 
home-secured) consumer credit plan, any cessation of the waiver or 
rebate on that account constitutes an increase in an annual percentage 
rate, fee, or charge for purposes of this section.

0
14. Section 226.58 is amended by:
0
A. Revising paragraphs (b)(1) and (2);
0
B. Redesignating paragraphs (b)(4) through (7) as paragraphs (b)(5) 
through (8);
0
C. Adding a new paragraph (b)(4); and
0
D. Revising paragraphs (c)(1) and (3), removing and reserving paragraph 
(c)(2), and revising paragraph (c)(8) to read as follows:


Sec.  226.58  Internet posting of credit card agreements.

* * * * *
    (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)

[[Page 23004]]

consumer credit plan. ``Agreement'' or ``credit card agreement'' also 
includes the pricing information, as defined in Sec.  226.58(b)(7).
    (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)(7), is 
deemed to be substantive.
* * * * *
    (4) Card issuer. For purposes of this section, ``card issuer'' or 
``issuer'' means the entity to which a consumer is legally obligated, 
or would be legally obligated, under the terms of a credit card 
agreement.
* * * * *
    (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. Quarterly submissions must be sent 
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. Each submission 
must 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 and that the 
card issuer offered to the public as of the last business day of 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), (c)(5), (c)(6), and (c)(7).
    (2) [Reserved].
    (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 
and the card issuer offered the amended agreement to the public as of 
the last business day of the calendar quarter in which the change 
became effective, 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.
* * * * *
    (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, billing rights notices, 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. The addendum must contain all of 
the pricing information, as defined by Sec.  226.58(b)(7). The addendum 
may, but is not required to, contain any other information listed in 
Sec.  226.6(b), provided that information is complete and accurate as 
of the applicable date under Sec.  226.58. The addendum may not contain 
any other 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.
* * * * *

0
15. Appendix M1 to part 226 is amended by revising paragraph (f) to 
read as follows:

Appendix M1 to Part 226--Repayment Disclosures

* * * * *
    (f) Calculating the savings estimate for repayment in 36 months. 
When calculating the savings estimate for repayment in 36 months, if 
a card issuer chooses under Sec.  226.7(b)(12)(i) to round the 
disclosures to the nearest whole dollar when disclosing them on the 
periodic statement, the card issuer must calculate the savings 
estimate for repayment in 36 months by subtracting the total cost 
estimate for repayment in 36 months calculated under paragraph (e) 
of this appendix (rounded to the nearest whole dollar) from the 
minimum payment total cost estimate calculated under paragraph (c) 
of this appendix (rounded to the nearest whole dollar). If a card 
issuer chooses under Sec.  227.7(b)(12)(i), however, to round the 
disclosures to the nearest cent when disclosing them on the periodic 
statement, the card issuer must calculate the savings estimate for 
repayment in 36 months by subtracting the total cost estimate for 
repayment in 36 months calculated under paragraph (e) of this 
appendix (rounded to the nearest cent) from the minimum payment

[[Page 23005]]

total cost estimate calculated under paragraph (c) of this appendix 
(rounded to the nearest cent). 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
16. In Supplement I to Part 226:
0
A. Under Section 226.2--Definitions and Rules of Construction, 
subheading 2(a)(15) Credit card, paragraphs 2. and 3. are revised and 
paragraph 4. is added.
0
B. Under Section 226.5--General Disclosure Requirements, subheading 
5(b)(2) Periodic statements:
0
i. Under Paragraph 5(b)(2)(ii), paragraphs 1. through 4. are revised; 
and
0
ii. The heading Paragraph 5(b)(2)(iii) and paragraph 1. under that 
heading are removed.
0
C. Under Section 226.5a--Credit and Charge Card Applications and 
Solicitations, 5a(b) Required disclosures is revised.
0
D. Under Section 226.6--Account-Opening Disclosures, subheading 6(b) 
Rules affecting open-end (not home-secured) plans, 6(b)(2) Required 
disclosures for account-opening table for open-end (not home-secured) 
plans is revised.
0
E. Under Section 226.7--Periodic Statement, 7(b) Rules affecting open-
end (not home-secured) plans is revised.
0
F. Under Section 226.9-Subsequent Disclosure Requirements:
0
i. Under 9(b) Disclosures for supplemental credit access devices and 
additional features, 9(b)(3) Checks that access a credit card account 
is revised;
0
ii. Under 9(c) Change in terms, 9(c)(2) Rules affecting open-end (not 
home-secured) plans is revised;
0
iii. Under 9(e) Disclosures upon renewal of credit or charge card, 
paragraph 10. is revised.
0
G. Under Section 226.10--Payments:
0
i. Under 10(b) Specific requirements for payments, paragraph 2. is 
revised;
0
ii. Under 10(e) Limitations on fees related to method of payment, 
paragraph 4. is added; and
0
iii. Under 10(f) Changes by card issuer, paragraph 3. is revised.
0
H. Under Section 226.12--Special Credit Card Provisions, subheading 
12(c) Right of cardholder to assert claims or defenses against card 
issuer, paragraph 4. is revised.
0
I. Under Section 226.13--Billing Error Resolution, subheading 13(c) 
Time for resolution; general procedures, subheading Paragraph 13(c)(2), 
paragraph 2. is revised.
0
J. Under Section 226.14--Determination of Annual Percentage Rate, 
subheading 14(a) General rule, paragraph 6. is added.
0
K. Under Section 226.16--Advertising:
0
i. Paragraphs 1. and 2. are revised; and
0
ii. 16(g) Promotional rates is revised.
0
L. Under Section 226.30--Limitation on Rates, paragraph 8. is revised.
0
M. Section 226.51--Ability to Pay is revised.
0
N. Section 226.52--Limitations on Fees is revised.
0
O. Under Section 226.53-- Allocation of Payments:
0
i. Paragraphs 4. and 5. are revised; and
0
ii. 53(b) is revised.
0
P. Under Section 226.55-- Limitations on Increasing Annual Percentage 
Rates, Fees, and Charges:
0
i. 55(a) General rule is revised;
0
ii. Under 55(b) Exceptions, paragraphs 1. and 3. are revised;
0
iii. 55(b)(1) Temporary rate exception is revised;
0
iv. Under 55(b)(3) Advance notice exception, paragraphs 6. and 7. are 
added;
0
v. 55(b)(6) Servicemembers Civil Relief Act exception is revised;
0
vi. Under 55(c) Treatment of protected balances, 55(c)(1) Definition of 
protected balance is revised; and
0
vii. 55(e) Promotional waivers or rebates of interest, fees, and other 
charges is added.
0
Q. Under Section 226.58--Internet Posting of Credit Card Agreements:
0
i. 58(b) Definitions is revised;
0
ii. Under 58(c) Submission of agreements to Board, 58(c)(3) Amended 
agreements is revised;
0
iii. 58(d) Posting of agreements offered to the public is revised; and
0
iv. 58(e) Agreements for all open accounts is revised.
0
R. Under Section 226.59-Reevaluation of Rate Increases:
0
i. Under 59(a) General rule, 59(a)(1) Evaluation of increased rate is 
revised;
0
ii. Under 59(d) Factors, paragraph 6. is added; and
0
iii. 59(f) Termination of obligation to review factors is revised.
    The revisions and additions read as follows:

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart A--General

* * * * *

Sec.  226.2--Definitions and Rules of Construction

* * * * *
    2(a)(15) Credit card.
* * * * *
    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.
    C. An account number that accesses a credit account, unless the 
account number can access an open-end line of credit to purchase 
goods or services. For example, if a creditor provides a consumer 
with an open-end line of credit that can be accessed by an account 
number in order to transfer funds into another account (such as an 
asset account with the same creditor), the account number is not a 
credit card for purposes of Sec.  226.2(a)(15)(i). However, if the 
account number can also access the line of credit to purchase goods 
or services (such as an account number that can be used to purchase 
goods or services on the Internet), the account number is a credit 
card for purposes of Sec.  226.2(a)(15)(i), regardless of whether 
the creditor treats such transactions as purchases, cash advances, 
or some other type of transaction. Furthermore, if the line of 
credit can also be accessed by a card (such as a debit card), that 
card is a credit card for purposes of Sec.  226.2(a)(15)(i).
    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. In particular, 
references to credit card accounts under an open-end (not home-
secured) consumer credit plan in Subparts B and G generally include 
charge cards. The term charge card is, however, distinguished from 
credit card or credit card account under an open-end (not home-
secured) consumer credit plan in Sec. Sec.  226.5a, 
226.6(b)(2)(xiv), 226.7(b)(11), 226.7(b)(12), 226.9(e), 226.9(f), 
226.28(d), 226.52(b)(1)(ii)(C), and appendices G-10 through G-13.
    4. Credit card account under an open-end (not home-secured) 
consumer credit plan. An

[[Page 23006]]

open-end consumer credit account is a credit card account under an 
open-end (not home-secured) consumer credit plan for purposes of 
Sec.  226.2(a)(15)(ii) if:
    i. The account is accessed by a credit card, as defined in Sec.  
226.2(a)(15)(i); and
    ii. The account is not excluded under Sec.  226.2(a)(15)(ii)(A) 
or (a)(15)(ii)(B).
* * * * *

Subpart B--Open-End Credit

Sec.  226.5--General Disclosure Requirements

* * * * *
    5(b)(2) Periodic statements.
* * * * *
    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 or 14-day 
period required by Sec.  226.5(b)(2)(ii) when determining, as 
applicable, the payment due date for purposes of Sec.  
226.5(b)(2)(ii)(A), the date on which any grace period expires for 
purposes of Sec.  226.5(b)(2)(ii)(B)(1), or the date after which the 
payment will be treated as late for purposes of Sec.  
226.5(b)(2)(ii)(B)(2). For example:
    A. If a creditor has adopted reasonable procedures designed to 
ensure that periodic statements for a credit card account under an 
open-end (not home-secured) consumer credit plan or an account under 
an open-end consumer credit plan that provides a grace period are 
mailed or delivered to consumers no later than three days after the 
closing date of the billing cycle, the payment due date for purposes 
of Sec.  226.5(b)(2)(ii)(A) and the date on which any grace period 
expires for purposes of Sec.  226.5(b)(2)(ii)(B)(1) 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) 
and (b)(2)(ii)(B)(1) on treating a payment as late and imposing 
finance charges apply for 24 days after the closing date of the 
billing cycle.
    B. If a creditor has adopted reasonable procedures designed to 
ensure that periodic statements for an account under an open-end 
consumer credit plan that does not provide a grace period are mailed 
or delivered to consumers no later than five days after the closing 
date of the billing cycle, the date on which a payment must be 
received in order to avoid being treated as late for purposes of 
Sec.  226.5(b)(2)(ii)(B)(2) must be no less than 19 days after the 
closing date of the billing cycle. Similarly, in these 
circumstances, the limitation in Sec.  226.5(b)(2)(ii)(B)(2) on 
treating a payment as late for any purpose applies for 19 days after 
the closing date of the billing cycle.
    2. Treating a payment as late for any purpose. Treating a 
payment as late for any purpose includes increasing the annual 
percentage rate as a penalty, reporting the consumer as delinquent 
to a credit reporting agency, 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 prohibitions in Sec.  226.5(b)(2)(ii)(A)(2) and (b)(2)(B)(2)(ii) 
on treating a payment as late for any purpose apply only during the 
21-day or 14-day period (as applicable) 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, for a credit card account under an open-end (not 
home-secured) consumer credit plan, 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.
    iv. Assume that, for an account under an open-end consumer 
credit plan that does not provide a grace period, a periodic 
statement mailed on September 10 states that a required minimum 
periodic payment of $100 is due on September 24. If the creditor 
does not receive any payment on or before September 24, Sec.  
226.5(b)(2)(ii)(B)(2)(ii) does not prohibit the creditor from 
treating the required minimum periodic payment as late.
    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)(1). Section 
226.5(b)(2)(ii)(B)(1) 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)(1) 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)(1)(ii) 
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)(i) 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)(1)(ii) 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)(1)(ii) 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 for a credit card 
account under an open-end (not home-secured) consumer credit plan 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. A 
card issuer that complies with Sec.  226.5(b)(2)(ii)(A) as discussed 
above with respect to a charge card account has also complied with 
Sec.  226.5(b)(2)(ii)(B)(2). Section 226.5(b)(2)(ii)(B)(1) 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

[[Page 23007]]

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 for a credit card 
account under an open-end (not home-secured) consumer credit plan 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. Similarly, although Sec.  
226.5(b)(2)(ii)(B)(2) applies to open-end consumer credit accounts 
in these circumstances, Sec.  226.5(b)(2)(ii)(B)(2)(ii) does not 
prohibit a creditor from continuing treating prior payments as late 
during the 14-day period following mailing or delivery of a periodic 
statement. Section 226.5(b)(2)(ii)(B)(1) 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.
* * * * *

Sec.  226.5a--Credit and Charge Card Applications and Solicitations

* * * * *
    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 or employee preferential 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 to any balances indefinitely, to 
the extent permitted by Sec. Sec.  226.55(b)(4) and 226.59, the 
issuer should disclose that the penalty rate may apply indefinitely. 
The card issuer may not disclose in the table any limitations 
imposed by Sec. Sec.  226.55(b)(4) and 226.59 on the duration of 
increased rates. For example, if the issuer generally provides that 
the increased rate will apply until the consumer makes twelve timely 
consecutive required minimum periodic payments, except to the extent 
that Sec. Sec.  226.55(b)(4) and 226.59 apply, the issuer should 
disclose that the penalty rate will apply until the consumer makes 
twelve consecutive timely minimum payments. (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 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

[[Page 23008]]

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 
directly beneath 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.''
    iv. Employee preferential rates. An issuer is required to 
disclose directly beneath the table the circumstances under which an 
employee preferential rate may be revoked, and the rate that will 
apply after the revocation. In describing the rate that will apply 
after revocation of the employee preferential rate, if the rate that 
will apply after revocation of the employee preferential 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 employee preferential 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 employee 
preferential rate. The description of the circumstances in which an 
employee preferential rate could be revoked should be brief. For 
example, if an issuer may increase an employee preferential rate 
based upon termination of the employee's employment relationship 
with the issuer or a third party, issuers may describe this 
circumstance as ``if your employment with [issuer or third party] 
ends.''
    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.

[[Page 23009]]

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:
    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 disclosed 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 in accordance with the 
requirements of Sec. Sec.  226.9(c)(2)(v)(B) and 226.55(b)(1).
    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, however, may not disclose under Sec.  226.5a(b)(5) the 
limitations on the imposition of finance charges as a result of a 
loss of a grace period in Sec.  226.54, or the impact of payment 
allocation on whether interest is charged on purchases as a result 
of a loss of a grace period. Some issuers may offer a grace period 
on all purchases under which interest will not be charged on 
purchases if the consumer pays the outstanding balance shown on a 
periodic statement in full by the due date shown on that statement 
for one or more billing cycles. In these circumstances, Sec.  
226.5a(b)(5) requires that the issuer disclose the grace period and 
the conditions for its applicability using the following language, 
or substantially similar language, 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.'' However, other issuers may 
offer a grace period on all purchases under which interest may be 
charged on purchases even if the consumer pays the outstanding 
balance shown on a periodic statement in full by the due date shown 
on that statement each billing cycle. In these circumstances, Sec.  
226.5a(b)(5) requires the issuer to amend the above disclosure 
language to describe accurately the conditions on the applicability 
of the grace period.
    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.
    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 Sec.  
226.5a(g), 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 Sec.  
226.5a(g), 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).
    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).

[[Page 23010]]

    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 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.
* * * * *

Sec.  226.6--Account-Opening Disclosures

* * * * *
    6(b) Rules affecting open-end (not home-secured) plans.
* * * * *
    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, however, may not 
disclose under Sec.  226.6(b)(2)(v) the limitations on the 
imposition of finance charges as a result of a loss of a grace 
period in Sec.  226.54, or the impact of payment allocation on 
whether interest is charged on transactions as a result of a loss of 
a grace period. Some creditors may offer a grace period on all types 
of transactions under which interest will not be charged on 
transactions if the consumer pays the outstanding balance shown on a 
periodic statement in full by the due date shown on that statement 
for one or more billing cycles. In these circumstances, Sec.  
226.6(b)(2)(v) requires that the creditor disclose the grace period 
and the conditions for its applicability using the following 
language, or substantially similar language, 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.'' However, other 
creditors may offer a grace period on all types of transactions 
under which interest may be charged on transactions even if the 
consumer pays the outstanding balance shown on a periodic statement 
in full by the due date shown on that statement each billing cycle. 
In these circumstances, Sec.  226.6(b)(2)(v) requires the creditor 
to amend the above disclosure language to describe accurately the 
conditions on the applicability of the grace period.
    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. Some creditors do not offer a 
grace period on cash advances and balance transfers, but offer a 
grace period for all purchases under which interest will not be 
charged on purchases if the consumer pays the outstanding balance 
shown on a periodic statement in full by the due date shown on that 
statement for one or more billing cycles. In these circumstances, 
Sec.  226.6(b)(2)(v) requires that the creditor disclose the grace 
period for purchases and the conditions for its applicability, and 
the lack of a grace period for cash advances and balance transfers 
using the following language, or substantially similar language, 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. 
We will begin charging interest on cash advances and balance 
transfers on the transaction date.'' However, other creditors may 
offer a grace period on all purchases under which interest may be 
charged on purchases even if the consumer pays the outstanding 
balance shown on a periodic statement in full by the due date shown 
on that statement each billing cycle. In these circumstances, Sec.  
226.6(a)(2)(v) requires the creditor to amend the above disclosure 
language to describe accurately the conditions on the applicability 
of the grace period. Also, some creditors may not offer a grace 
period on cash advances and balance transfers, and will begin 
charging interest on these transactions from a date other than the 
transaction date, such as the posting date. In these circumstances, 
Sec.  226.6(a)(2)(v) requires the creditor to amend the above 
disclosure language to be accurate.
    6(b)(2)(vi) Balance computation method.
    1. Use of same balance computation method for all features. In 
cases where the balance for each feature is computed using the same 
balance computation method, a single identification of the name of 
the balance computation method is sufficient. In this case, a 
creditor may use an appropriate name listed in Sec.  226.5a(g) 
(e.g., ``average daily balance (including new purchases)'') to 
satisfy the requirement to disclose the name of the method for all 
features on the account, even though the name only refers to 
purchases. For example, if a creditor uses the average daily balance 
method including new transactions for all features, a creditor may 
use the name ``average daily balance (including new purchases)'' 
listed in Sec.  226.5a(g)(i) to satisfy the requirement to disclose 
the name of the balance computation method for all features. As an 
alternative, in this situation, a creditor may revise the balance 
computation names listed in Sec.  226.5a(g) to refer more broadly to 
all new credit transactions, such as using the language ``new 
transactions'' or ``current transactions'' (e.g., ``average daily 
balance (including new transactions)''), rather than simply 
referring to new purchases when the same method is used to calculate 
the balances for all features of the account. 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.
    2. Use of balance computation names in Sec.  226.5a(g) for 
balances other than purchases. The names of the balance computation 
methods listed in Sec.  226.5a(g) describe balance computation 
methods for purchases. When a creditor is disclosing the name of the 
balance computation methods separately for each feature, in using 
the names listed in Sec.  226.5a(g) to satisfy the requirements of 
Sec.  226.6(b)(2)(vi) for features other than purchases, a creditor 
must revise the names listed in Sec.  226.5a(g) to refer to the 
other features. For example, when disclosing the name of the balance 
computation method applicable to cash advances, a creditor must 
revise the name listed in Sec.  226.5a(g)(i) to disclose it as 
``average daily balance (including new cash advances)'' when the 
balance for cash advances is figured by adding the outstanding 
balance (including new cash advances and deducting payments and 
credits) for each day in the billing cycle, and then dividing by the 
number of days in the billing cycle. Similarly, a creditor must 
revise the name listed in Sec.  226.5a(g)(ii) to disclose it as 
``average daily balance (excluding new cash advances)'' when the 
balance for cash advances is figured by adding the outstanding 
balance (excluding new cash advances and deducting payments and 
credits) for each day in the billing cycle, and then dividing by the 
number of days in the billing cycle. See comment 6(b)(2)(vi)-1 for 
guidance on the use of one balance computation name when the same 
balance computation 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.''
* * * * *

Sec.  226.7--Periodic Statement

* * * * *
    7(b) Rules affecting open-end (not home-secured) plans.

[[Page 23011]]

    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 any page 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 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%

[[Page 23012]]

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). In 
these cases, a creditor may use an appropriate name listed in Sec.  
226.5a(g) (e.g., ``average daily balance (including new 
purchases)'') as the single identification of the name of the 
balance computation method applicable to all features, even though 
the name only refers to purchases. For example, if a creditor uses 
the average daily balance method including new transactions for all 
features, a creditor may use the name ``average daily balance 
(including new purchases)'' listed in Sec.  226.5a(g)(i) to satisfy 
the requirement to disclose the name of the balance computation 
method for all features. As an alternative, in this situation, a 
creditor may revise the balance computation names listed in Sec.  
226.5a(g) to refer more broadly to all new credit transactions, such 
as using the language ``new transactions'' or ``current 
transactions'' (e.g., ``average daily balance (including new 
transactions)''), rather than simply referring to new purchases, 
when the same method is used to calculate the balances for all 
features of the account.
    8. Use of balance computation names in Sec.  226.5a(g) for 
balances other than purchases. The names of the balance computation 
methods listed in Sec.  226.5a(g) describe balance computation 
methods for purchases. When a creditor is disclosing the name of the 
balance computation methods separately for each feature, in using 
the names listed in Sec.  226.5a(g) to satisfy the requirements of 
Sec.  226.7(b)(5) for features other than purchases, a creditor must 
revise the names listed in Sec.  226.5a(g) to refer to the other 
features. For example, when disclosing the name of the balance 
computation method applicable to cash advances, a creditor must 
revise the name listed in Sec.  226.5a(g)(i) to disclose it as 
``average daily balance (including new cash advances)'' when the 
balance for cash advances is figured by adding the outstanding 
balance (including new cash advances and deducting payments and 
credits) for each day in the billing cycle, and then dividing by the 
number of days in the billing cycle. Similarly, a creditor must 
revise the name listed in Sec.  226.5a(g)(ii) to disclose it as 
``average daily balance (excluding new cash advances)'' when the 
balance for cash advances is figured by adding the outstanding 
balance (excluding new cash advances and deducting payments and 
credits) for each day in the billing cycle, and then dividing by the 
number of days in the billing cycle. See comment 7(b)(5)-7 for 
guidance on the use of one balance computation method explanation or 
name when multiple balances are disclosed.
    7(b)(6) Charges imposed.
    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

[[Page 23013]]

disclose the dollar cost attributable to interest as an ``interest 
charge'' and the credit insurance cost as a ``fee.''
    3. Total fees and interest charged 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 calendar-year-to-date totals at the 
end of the calendar year by separately aggregating finance charges 
attributable to periodic interest rates and 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 separate year-to-date totals for interest charged and 
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 separate year-to-date totals for 
interest charged and fees imposed January 1, 2011, through December 
31, 2011.
    B. A creditor may disclose calendar-year-to-date totals at the 
end of the calendar year by separately aggregating finance charges 
attributable to periodic interest rates and 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 separate year-to-date totals for interest charged and 
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. Limitation 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 as a 
result of a loss of a grace period in Sec.  226.54, or the impact of 
payment allocation on whether interest is charged on transactions as 
a result of a loss of a grace period.
    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 23014]]

    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.
    1. Rounding. In disclosing on the periodic statement 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 under 
Sec.  226.7(b)(12)(i) or (b)(12)(ii) as applicable, a card issuer, 
at its option, must either round these disclosures to the nearest 
whole dollar or to the nearest cent. Nonetheless, an issuer's 
rounding for all of these disclosures must be consistent. An issuer 
may round all of these disclosures to the nearest whole dollar when 
disclosing them on the periodic statement, or may round all of these 
disclosures to the nearest cent. An issuer may not, however, round 
some of the disclosures to the nearest whole dollar, while rounding 
other disclosures to the nearest cent.
    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

[[Page 23015]]

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
    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.
* * * * *

Sec.  226.9--Subsequent Disclosure Requirements

* * * * *
    9(b) Disclosures for supplemental credit access devices and 
additional features.
* * * * *
    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.
    2. Combined disclosures for checks and other transactions 
subject to the same terms. A card issuer may include in the tabular 
disclosure provided pursuant to Sec.  226.9(b)(3) disclosures 
regarding the terms offered on non-check transactions, provided that 
such transactions are subject to the same terms that are required to 
be disclosed pursuant to Sec.  226.9(b)(3)(i) for the checks that 
access a credit card account. However, a card issuer may not include 
in the table information regarding additional terms that are not 
required disclosures for checks that access a credit card account 
pursuant to Sec.  226.9(b)(3).
    Paragraph 9(b)(3)(i)(D).
    1. Grace period. A creditor may not disclose under Sec.  
226.9(b)(3)(i)(D) the limitations on the imposition of finance 
charges as a result of a loss of a grace period in Sec.  226.54, or 
the impact of payment allocation on whether interest is charged on 
transactions as a result of a loss of a grace period. Some creditors 
may offer a grace period on credit extended by the use of an access 
check under which interest will not be charged on the check 
transactions if the consumer pays the outstanding balance shown on a 
periodic statement in full by the due date shown on that statement 
for one or more billing cycles. In these circumstances, Sec.  
226.9(b)(3)(i)(D) requires that the creditor disclose the grace 
period using the following language, or substantially similar 
language, as applicable: ``Your due date is [at least] ---- days 
after the close of each billing cycle. We will not charge you any 
interest on check transactions if you pay your entire balance by the 
due date each month.'' However, other creditors may offer a grace 
period on check transactions under which interest may be charged on 
check transactions even if the consumer pays the outstanding balance 
shown on a periodic statement in full by the due date shown on that 
statement each billing cycle. In these circumstances, Sec.  
226.9(b)(3)(i)(D) requires the creditor to amend the above 
disclosure language to describe accurately the conditions on the 
applicability of the grace period. Creditors may use the following 
language to describe that no grace period on check transactions is 
offered, as applicable: ``We will begin

[[Page 23016]]

charging interest on these checks on the transaction date.''
    9(c) Change in terms.
* * * * *
    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 consistent with any 
applicable requirements, such as rate or fee increases upon 
expiration of a specific period of time that were disclosed in 
accordance with Sec.  226.9(c)(2)(v)(B) or 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 a rate or fee 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).
    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 must 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.
    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 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 a rate applicable to a consumer's account from 
a variable rate to a non-variable rate, the creditor generally 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. However, a creditor is not required to provide a 
notice under Sec.  226.9(c) if the creditor provides the disclosures 
required by Sec.  226.9(c)(2)(v)(B) or (c)(2)(v)(D) in connection 
with changing a variable rate to a lower non-variable rate. 
Similarly, a creditor is not required to provide a notice under 
Sec.  226.9(c) when changing a variable rate to a lower non-variable 
rate in order to comply with 50 U.S.C. app. 527 or a similar Federal 
or State statute or regulation. Finally, a creditor is not required 
to provide a notice under Sec.  226.9(c) when changing a variable 
rate to a lower non-variable rate in order to comply with Sec.  
226.55(b)(4).
    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

[[Page 23017]]

non-variable rate to a variable rate, the creditor generally 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. However, a creditor is not required to provide a 
notice under Sec.  226.9(c) if the creditor provides the disclosures 
required by Sec.  226.9(c)(2)(v)(B) or (c)(2)(v)(D) in connection 
with changing a non-variable rate to a lower variable rate. 
Similarly, a creditor is not required to provide a notice under 
Sec.  226.9(c) when changing a non-variable rate to a lower variable 
rate in order to comply with 50 U.S.C. app. 527 or a similar Federal 
or State statute or regulation. Finally, a creditor is not required 
to provide a notice under Sec.  226.9(c) when changing a non-
variable rate to a lower variable rate in order to comply with Sec.  
226.55(b)(4). See comment 55(b)(2)-4 regarding the limitations in 
Sec.  226.55(b)(2) on changing the rate that applies to a protected 
balance from a non-variable rate to a variable rate.
    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 the late payment fee on a 
credit card account is being increased, and 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).
    11. Reasons for increase. i. In general. Section 
226.9(c)(2)(iv)(A)(8) requires card issuers to disclose the 
principal reason(s) for increasing an annual percentage rate 
applicable to a credit card account under an open-end (not home-
secured) consumer credit plan. The regulation does not mandate a 
minimum number of reasons that must be disclosed. However, the 
specific reasons disclosed under Sec.  226.9(c)(2)(iv)(A)(8) are 
required to relate to and accurately describe the principal factors 
actually considered by the card issuer in increasing the rate. A 
card issuer may describe the reasons for the increase in general 
terms. For example, the notice of a rate increase triggered by a 
decrease of 100 points in a consumer's credit score may state that 
the increase is due to ``a decline in your creditworthiness'' or ``a 
decline in your credit score.'' Similarly, a notice of a rate 
increase triggered by a 10% increase in the card issuer's cost of 
funds may be disclosed as ``a change in market conditions.'' In some 
circumstances, it may be appropriate for a card issuer to combine 
the disclosure of several reasons in one statement. However, Sec.  
226.9(c)(2)(iv)(A)(8) requires that the notice specifically disclose 
any violation of the terms of the account on which the rate is being 
increased, such as a late payment or a returned payment, if such 
violation of the account terms is one of the four principal reasons 
for the rate increase.
    ii. Example. Assume that a consumer made a late payment on the 
credit card account on which the rate increase is being imposed, 
made a late payment on a credit card account with another card 
issuer, and the consumer's credit score decreased, in part due to 
such late payments. The card issuer may disclose the reasons for the 
rate increase as a decline in the consumer's credit score and the 
consumer's late payment on the account subject to the increase. 
Because the late payment on the credit card account with the other 
issuer also likely contributed to the decline in the consumer's 
credit score, it is not required to be separately disclosed. 
However, the late payment on the credit card account on which the 
rate increase is being imposed must be specifically disclosed even 
if that late payment also contributed to the decline in the 
consumer's credit score.
    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. Skipped or reduced payments. If a credit 
program allows consumers to skip or reduce one or more payments 
during the year, no notice of the change in terms is required either 
prior to the reduction in payments or upon resumption of the higher 
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 payment schedule, 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 skip feature may also be used to notify the 
consumer of the resumption of the original payment schedule, either 
by stating explicitly when the higher resumes 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 or fees. If a credit 
program involves temporary reductions in an interest rate or fee, no 
notice of the change in terms is required either prior to the 
reduction or upon resumption of the original rate or fee 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 or fee, even 
though no notice is required prior to the reduction. The notice 
provided prior to resuming the original rate or fee 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. See 
comment 9(c)(2)(iv)-3.
    4. Changing from a non-variable rate to a variable rate. See 
comment 9(c)(2)(iv)-4.
    5. Temporary rate or fee 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) or the imposition 
of a fee that will be in effect for a specified period of time (a 
temporary fee) if:
    i. The consumer accepts the offer of the temporary rate or 
temporary fee by telephone;

[[Page 23018]]

    ii. The creditor permits the consumer to reject the temporary 
rate or temporary fee offer and have the rate or rates or fee 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), except that the creditor need 
not permit the consumer to reject a temporary rate or temporary fee 
offer if the rate or rates or fee that will apply following 
expiration of the temporary rate do not exceed the rate or rates or 
fee that applied immediately prior to commencement of the temporary 
rate or temporary fee; and
    iii. The disclosures required by Sec.  226.9(c)(2)(v)(B) and the 
consumer's right to reject the temporary rate or temporary fee offer 
and have the rate or rates or fee that previously applied to the 
consumer's account reinstated, if applicable, are disclosed to the 
consumer as part of the temporary rate or temporary fee 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 or fee in the disclosure provided to the consumer. 
For purposes of Sec.  226.9(c)(2)(v)(B), the first statement of the 
temporary rate or fee is the most prominent listing on the front 
side of the first page of the disclosure. If the temporary rate or 
fee does not appear on the front side of the first page of the 
disclosure, then the first listing of the temporary rate or fee 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 or fee that would apply after expiration of the 
period on a separate page or document from the temporary rate or fee 
and the length of the period, provided that the disclosure of the 
annual percentage rate or fee 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 or fee 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. Relationship between Sec. Sec.  226.9(c)(2)(v)(B) and 
226.6(b). A disclosure of the information described in Sec.  
226.9(c)(2)(v)(B)(1) provided in the account-opening table in 
accordance with Sec.  226.6(b) complies with the requirements of 
Sec.  226.9(c)(2)(v)(B)(2), if the listing of the introductory rate 
in such tabular disclosure also is the first listing as described in 
comment 9(c)(2)(v)-6.
    11. 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), (b)(2)(viii), 
(b)(2)(ix), (b)(2)(xi), 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.
    12. Index not under creditor's control. See comment 55(b)(2)-2 
for guidance on when an index is deemed to be under a creditor's 
control.
    13. Temporary rates--relationship to Sec.  226.59. i. General. 
Section 226.59 requires a card issuer to review rate increases 
imposed due to the revocation of a temporary rate. In some 
circumstances, Sec.  226.59 may require an issuer to reinstate a 
reduced temporary rate based on that review. If, based on a review 
required by Sec.  226.59, a creditor reinstates a temporary rate 
that had been revoked, the card issuer is not required to provide an 
additional notice to the consumer when the reinstated temporary rate 
expires, if the card issuer provided the disclosures required by 
Sec.  226.9(c)(2)(v)(B) prior to the original commencement of the 
temporary rate. See Sec.  226.55 and the associated commentary for 
guidance on the permissibility and applicability of rate increases.
    ii. Example. A consumer opens a new credit card account under an 
open-end (not home-secured) consumer credit plan on January 1, 2011. 
The annual percentage rate applicable to purchases is 18%. The card 
issuer offers the consumer a 15% rate on purchases made between 
January 1, 2012 and January 1, 2014. Prior to January 1, 2012, the 
card issuer discloses, in accordance with Sec.  226.9(c)(2)(v)(B), 
that the rate on purchases made during that period will increase to 
the standard 18% rate on January 1, 2014. In March 2012, the 
consumer makes a payment that is ten days late. The card issuer, 
upon providing 45 days' advance notice of the change under Sec.  
226.9(g), increases the rate on new purchases to 18% effective as of 
June 1, 2012. On December 1, 2012, the issuer performs a review of 
the consumer's account in accordance with Sec.  226.59. Based on 
that review, the card issuer is required to reduce the rate to the 
original 15% temporary rate as of January 15, 2013. On January 1, 
2014, the card issuer may increase the rate on purchases to 18%, as 
previously disclosed prior to January 1, 2012, without providing an 
additional notice to the consumer.
* * * * *
    9(e) Disclosures upon renewal of credit or charge card.
* * * * *
    10. Disclosure of changes in terms 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.
* * * * *

Sec.  226.10--Payments

* * * * *
    10(b) Specific requirements for payments.
* * * * *
    2. Payment methods promoted by creditor. If a creditor promotes 
a specific payment method, any payments made via that method (prior 
to any cut-off time specified by the creditor, to the extent 
permitted by Sec.  226.10(b)(2)) are generally conforming payments 
for purposes of Sec.  226.10(b). For example:
    i. 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).

[[Page 23019]]

    ii. If a creditor promotes payment by telephone (for example, by 
including the option to pay by telephone in a menu of options 
provided to consumers at a toll-free number disclosed on its 
periodic statement), payments made by telephone would generally be 
conforming payments for purposes of Sec.  226.10(b).
    iii. If a creditor promotes in-person payments, for example by 
stating in an advertisement that payments may be made in person at 
its branch locations, such in-person payments made at a branch or 
office of the creditor generally would be conforming payments for 
purposes of Sec.  226.10(b).
    iv. If a creditor promotes that payments may be made through an 
unaffiliated third party, such as by disclosing the Web site address 
of that third party on the periodic statement, payments made via 
that third party's Web site generally would be conforming payments 
for purposes of Sec.  226.10(b). In contrast, if a customer service 
representative of the creditor confirms to a consumer that payments 
may be made via an unaffiliated third party, but the creditor does 
not otherwise promote that method of payment, Sec.  226.10(b) 
permits the creditor to treat payments made via such third party as 
nonconforming payments in accordance with Sec.  226.10(b)(4).
* * * * *
    10(e) Limitations on fees related to method of payment.
* * * * *
    4. Creditor. For purposes of Sec.  226.10(e), the term 
``creditor'' includes a third party that collects, receives, or 
processes payments on behalf of a creditor. For example:
    i. Assume that a creditor uses a service provider to receive, 
collect, or process on the creditor's behalf payments made through 
the creditor's Web site or made through an automated telephone 
payment service. In these circumstances, the service provider would 
be considered a creditor for purposes of paragraph (e).
    ii. Assume that a consumer pays a fee to a money transfer or 
payment service in order to transmit a payment to the creditor on 
the consumer's behalf. In these circumstances, the money transfer or 
payment service would not be considered a creditor for purposes of 
paragraph (e).
    iii. Assume that a consumer has a checking account at a 
depository institution. The consumer makes a payment to the creditor 
from the checking account using a bill payment service provided by 
the depository institution. In these circumstances, the depository 
institution would not be considered a creditor for purposes of 
paragraph (e).
* * * * *
    10(f) Changes by card issuer.
* * * * *
    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 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 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.
* * * * *

Sec.  226.12--Special Credit Card Provisions

* * * * *
    12(c) Right of cardholder to assert claims or defenses against 
card issuer.
* * * * *
    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. However, when a consumer has asserted a claim 
or defense against a creditor pursuant to Sec.  226.12(c), the 
creditor must apply any payment or other credit in a manner that 
avoids or minimizes any reduction in the amount subject to that 
claim or defense. Accordingly, to determine the amount of credit 
outstanding for purposes of this section, payments and other credits 
must be applied first to amounts other than the disputed 
transaction.
    i. For examples of how to comply with Sec. Sec.  226.12 and 
226.53 for credit card accounts under an open-end (not home-secured) 
consumer credit plan, see comment 53-3.
    ii. For other types of credit card accounts, creditors may, at 
their option, apply payments consistent with Sec.  226.53 and 
comment 53-3. In the alternative, payments and other credits may be 
applied to: Late charges in the order of entry to the account; then 
to finance charges in the order of entry to the account; and then to 
any debits other than the transaction subject to the claim or 
defense in the order of entry to the account. In these 
circumstances, 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.
* * * * *

Sec.  226.13--Billing Error Resolution

* * * * *
    13(c) Time for resolution; general procedures.
* * * * *
    Paragraph 13(c)(2).
* * * * *
    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, Sec.  226.13(c)(2) prohibits a creditor 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. 
However, if a consumer receives more than one credit to correct the 
same billing error, Sec.  226.13 does not prevent a creditor from 
reversing amounts it has previously credited to correct that error, 
provided that the total amount of the remaining credits is equal to 
or more than the amount of the error and that the consumer does not 
incur any fees or other charges as a result of the timing of the 
creditor's reversal. For example, assume that a consumer asserts a 
billing error with respect to a $100 transaction and that the 
creditor posts a $100 credit to the consumer's account to correct 
that error during the time period set forth in Sec.  226.13(c)(2). 
However, following that time period, a merchant or other person 
honoring the credit card issues a $100 credit to the consumer to 
correct the same error. In these circumstances, Sec.  226.13(c)(2) 
does not prohibit the creditor from reversing its $100 credit once 
the $100 credit from the merchant or other person has posted to the 
consumer's account.
* * * * *

Sec.  226.14--Determination of Annual Percentage Rate

    14(a) General rule.
* * * * *
    6. Effect of leap year. Any variance in the annual percentage 
rate that occurs solely by reason of the addition of February 29 in 
a leap year, may be disregarded, and such a rate may be disclosed 
without regard to such variance.
* * * * *

Sec.  226.16--Advertising

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

[[Page 23020]]

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, as applicable, (g)(4)(ii) and (g)(4)(iii) must be equally 
prominent to the promotional rate or promotional fee to which it 
applies. If the information in Sec.  226.16(g)(4)(i) and, as 
applicable, (g)(4)(ii) and (g)(4)(iii) is the same type size as the 
promotional rate or promotional fee 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.
* * * * *
    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 or 
introductory fee 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, as applicable, (g)(4)(ii) and (g)(4)(iii) 
that is in the same paragraph as the first listing of the 
promotional rate or promotional fee 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 or promotional fee is the most prominent 
listing of the rate or fee 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 or promotional fee does not appear on the front 
side of the first page of the principal promotional document, then 
the first listing of the promotional rate or promotional fee is the 
most prominent listing of the rate or fee on the subsequent pages of 
the principal promotional document. If the promotional rate or 
promotional fee 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 or fee on the front side of 
the first page of each document listing the promotional rate or 
promotional fee. If the promotional rate or promotional fee does not 
appear on the front side of the first page of a document, then the 
first listing of the promotional rate or promotional fee is the most 
prominent listing of the rate or fee on the subsequent pages of the 
document. If the listing of the promotional rate or promotional fee 
with the largest type size on the front side of the first page (or 
subsequent pages if the promotional rate or promotional fee is not 
listed on the front side of the first page) of the principal 
promotional document (or each document listing the promotional rate 
or promotional fee if the promotional rate or promotional fee 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%).
* * * * *

Sec.  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 
above [a rate to be determined at some future point in time], 
whichever is less.
    D. The maximum interest rate will not exceed X%, or the state 
usury ceiling, whichever is less.
    ii. The following statements would not comply with this section:
    A. The interest rate will never be higher than X percentage 
points over the prevailing market rate.
    B. The interest rate will never be higher than X percentage 
points above [a rate to be determined at some future point in time].
    C. The interest rate will not exceed the state usury ceiling 
which is currently X%.
    iii. A creditor may state the maximum rate in terms of a maximum 
annual percentage rate that may be imposed. Under an open-end credit 
plan, this normally would be the corresponding annual percentage 
rate. (See generally Sec.  226.6(a)(1)(ii) and (b)(4)(i)(A).)
* * * * *

Sec.  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 independent ability 
to make the required minimum periodic payments under the terms of an 
account based on the consumer's independent 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 independent 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 and assets. i. Sources of information. For purposes of 
Sec.  226.51(a), a card issuer may consider the consumer's income 
and assets based on:
    A. Information provided by the consumer in connection with the 
credit card account under an open-end (not home-secured) consumer 
credit plan;
    B. Information provided by the consumer in connection with any 
other financial

[[Page 23021]]

relationship the card issuer or its affiliates have with the 
consumer (subject to any applicable information-sharing rules);
    C. Information obtained through third parties (subject to any 
applicable information-sharing rules); and
    D. Information obtained through any empirically derived, 
demonstrably and statistically sound model that reasonably estimates 
a consumer's income and assets.
    ii. Income and assets of persons liable for debts incurred on 
account. For purposes of Sec.  226.51(a), a card issuer may consider 
any current or reasonably expected income and assets of the consumer 
or consumers who are applying for a new account and will be liable 
for debts incurred on that account. Similarly, when a card issuer is 
considering whether to increase the credit limit on an existing 
account, the card issuer may consider any current or reasonably 
expected income and assets of the consumer or consumers who are 
accountholders and are liable for debts incurred on that account. A 
card issuer may also consider any current or reasonably expected 
income and assets of a cosigner or guarantor who is or will be 
liable for debts incurred on the account. However, a card issuer may 
not use the income and assets of an authorized user or other person 
who is not liable for debts incurred on the account to satisfy the 
requirements of Sec.  226.51, unless a Federal or State statute or 
regulation grants a consumer who is liable for debts incurred on the 
account an ownership interest in such income and assets. Information 
about current or reasonably expected income and assets includes, for 
example, 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.
    iii. Household income and assets. Consideration of information 
regarding a consumer's household income does not by itself satisfy 
the requirement in Sec.  226.51(a) to consider the consumer's 
independent ability to pay. For example, if a card issuer requests 
on its application forms that applicants provide their ``household 
income,'' the card issuer may not rely solely on the information 
provided by applicants to satisfy the requirements of Sec.  
226.51(a). Instead, the card issuer would need to obtain additional 
information about an applicant's independent income (such as by 
contacting the applicant). However, if a card issuer requests on its 
application forms that applicants provide their income without 
reference to household income (such as by requesting ``income'' or 
``salary''), the card issuer may rely on the information provided by 
applicants to satisfy the requirements of Sec.  226.51(a).
    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 for two or more consumers or a credit 
line increase on such an account, the card issuer may consider the 
collective ability of all persons who are or will be liable for 
debts incurred on the account 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.
    3. 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. If a mandatory fee is a promotional 
fee (as defined in Sec.  226.16(g)), the issuer must use the post-
promotional fee amount for purposes of Sec.  226.51(a)(2)(ii).
    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).
    2. Financial information. Information regarding income and 
assets that satisfies the requirements of Sec.  226.51(a) also 
satisfies the requirements of Sec.  226.51(b)(1). See comment 
51(a)(1)-4.
    51(b)(2) Credit line increases for 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).

Sec.  226.52--Limitations on Fees

    52(a) Limitations prior to account opening and during first year 
after account opening.
    52(a)(1) General rule.
    1. Application. The 25 percent limit in Sec.  226.52(a)(1) 
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's asset account 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

[[Page 23022]]

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 prior to account opening or during the first 
year after account opening. Section 226.52(a)(1) also prohibits the 
card issuer from requiring the consumer to open a separate credit 
account with the card issuer to fund the payment of additional non-
exempt fees prior to the opening of the credit card account or 
during the first year after the credit card account is opened.
    iii. Assume that, on January 1 of year one, a consumer is 
required to pay a $100 fee in order to apply for a credit card 
account. On January 5, the card issuer approves the consumer's 
application, assigns the account a credit limit of $1,000, and 
provides the consumer with account-opening disclosures consistent 
with Sec.  226.6. The date on which the account may first be used by 
the consumer to engage in transactions is January 5. The consumer is 
required to pay $150 in fees for the issuance or availability of 
credit, which Sec.  226.52(a)(1) permits the card issuer to charge 
to the account on January 5. However, because the $100 application 
fee is subject to the 25 percent limit in Sec.  226.52(a)(1), the 
card issuer is prohibited from requiring the consumer to pay any 
additional non-exempt fees with respect to the account until January 
5 of year two.
    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 the example in 
comment 52(a)(1)-1.i. 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 credit limit was 
reduced. For example:
    A. 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.
    B. Assume that, on June 25 of year one, a consumer is required 
to pay a $75 fee in order to apply for a credit card account. At 
account opening on July 1 of year one, the credit limit for the 
account is $500 and the consumer is required to pay $50 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 February 15 of year two, the card issuer decreases 
the credit limit for the account to $250. Section 226.52(a)(1) 
requires the card issuer to waive or remove fees from the account or 
to credit the account for an amount equal to $62.50 within a 
reasonable amount of time but no later than March 31 of year two.
    4. Date on which account may first be used by consumer to engage 
in transactions.
    i. Methods of compliance. For purposes of Sec.  226.52(a)(1), an 
account is considered open no earlier than the date on which the 
account may first be used by the consumer to engage in transactions. 
A card issuer may consider an account open for purposes of Sec.  
226.52(a)(1) on any of the following dates:
    A. The date the account is first used by the consumer for a 
transaction (such as when an account is established in connection 
with financing the purchase of goods or services).
    B. The date the consumer complies with any reasonable activation 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use of a new account (such as requiring the consumer to 
provide information that verifies his or her identity), provided 
that the account may be used for transactions on that date.
    C. The date that is seven days after the card issuer mails or 
delivers to the consumer account-opening disclosures that comply 
with Sec.  226.6, provided that the consumer may use the account for 
transactions after complying with any reasonable activation 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use of the new account (such as requiring the consumer 
to provide information that verifies his or her identity). If a card 
issuer has reasonable procedures designed to ensure that account-
opening disclosures that comply with Sec.  226.6 are mailed or 
delivered to consumers no later than a certain number of days after 
the card issuer establishes the account, the card issuer may add 
that number of days to the seven-day period for purposes of 
determining the date on which the account was opened.
    ii. Examples.
    A. Assume that, on July 1 of year one, a credit card account 
under an open-end (not home-secured) consumer credit plan is 
established in connection with financing the purchase of goods or 
services and a $500 transaction is charged to the account by the 
consumer. The card issuer may consider the account open on July 1 of 
year one for purposes of Sec.  226.52(a)(1). Accordingly, Sec.  
226.52(a)(1) ceases to apply to the account on July 1 of year two.
    B. Assume that, on July 1 of year one, a card issuer approves a 
consumer's application for a credit card account under an open-end 
(not home-secured) consumer credit plan and establishes the account 
on its internal systems. On July 5, the card issuer mails or 
delivers to the consumer account-opening disclosures that comply 
with Sec.  226.6. If the consumer may use the account for 
transactions on the date the consumer complies with any reasonable 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use, the card issuer may consider the account open on 
July 12 of year one for purposes of Sec.  226.52(a)(1). Accordingly, 
Sec.  226.52(a)(1) ceases to apply to the account on July 12 of year 
two.
    C. Same facts as in paragraph B above except that the card 
issuer has adopted reasonable procedures designed to ensure that 
account-opening disclosures that comply with Sec.  226.6 are mailed 
or delivered to consumers no later than three days after an account 
is established on its systems. If the consumer may use the account 
for transactions on the date the consumer complies with any 
reasonable procedures imposed by the card issuer for preventing 
fraud or unauthorized use, the card issuer may consider the account 
open on July 11 of year one for purposes of Sec.  226.52(a)(1). 
Accordingly, Sec.  226.52(a)(1) ceases to apply to the account on 
July 11 of year two. However, if the consumer uses the account for a 
transaction or complies with the card issuer's reasonable procedures 
for preventing fraud or unauthorized use on July 8 of year one, the 
card issuer may, at its option, consider the account open on that 
date for purposes of Sec.  226.52(a)(1) and Sec.  226.52(a)(1) 
therefore ceases to apply to the account on July 8 of year two.
    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 or other charges that a card issuer 
will or may require the consumer to pay with respect to a credit 
card account prior to account

[[Page 23023]]

opening and during the first year after account opening, other than 
charges attributable to periodic interest rates. 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 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);
    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));
    v. Fixed finance charges; and
    vi. Minimum charges imposed if a charge would otherwise have 
been determined by applying a periodic interest rate to a balance 
except for the fact that such charge is smaller than the minimum.
    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 
310.4(a)(4).
    52(b) Limitations on penalty fees.
    1. Fees for violating the account terms or other requirements. 
For purposes of Sec.  226.52(b), a fee includes any charge imposed 
by a card issuer based on an act or omission that violates the terms 
of the account or any other requirements imposed by the card issuer 
with respect to the account, other than charges attributable to 
periodic interest rates. Accordingly, for purposes of Sec.  
226.52(b), a fee does not include charges attributable to an 
increase in an annual percentage rate based on an act or omission 
that violates the terms or other requirements of an account.
    i. The following are examples of fees that are subject to the 
limitations in Sec.  226.52(b) or are prohibited by Sec.  226.52(b):
    A. Late payment fees and any other fees imposed by a card issuer 
if an account becomes delinquent or if a payment is not received by 
a particular date.
    B. Returned payment fees and any other fees imposed by a card 
issuer if a payment received via check, automated clearing house, or 
other payment method is returned.
    C. Any fee or charge for an over-the-limit transaction as 
defined in Sec.  226.56(a), to the extent the imposition of such a 
fee or charge is permitted by Sec.  226.56.
    D. Any fee imposed by a card issuer if payment on a check that 
accesses a credit card account is declined.
    E. Any fee or charge for a transaction that the card issuer 
declines to authorize. See Sec.  226.52(b)(2)(i)(B).
    F. Any fee imposed by a card issuer based on account inactivity 
(including the consumer's failure to use the account for a 
particular number or dollar amount of transactions or a particular 
type of transaction). See Sec.  226.52(b)(2)(i)(B).
    G. Any fee imposed by a card issuer based on the closure or 
termination of an account. See Sec.  226.52(b)(2)(i)(B).
    ii. The following are examples of fees to which Sec.  226.52(b) 
does not apply:
    A. Balance transfer fees.
    B. Cash advance fees.
    C. Foreign transaction fees.
    D. Annual fees and other fees for the issuance or availability 
of credit described in Sec.  226.5a(b)(2), except to the extent that 
such fees are based on account inactivity. See Sec.  
226.52(b)(2)(i)(B).
    E. 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, 
provided that such fees are not imposed as a result of a violation 
of the account terms or other requirements of an account.
    F. Fees for making an expedited payment (to the extent permitted 
by Sec.  226.10(e)).
    G. Fees for optional services (such as travel insurance).
    H. Fees for reissuing a lost or stolen card.
    2. Rounding to nearest whole dollar. A card issuer may round any 
fee that complies with Sec.  226.52(b) to the nearest whole dollar. 
For example, if Sec.  226.52(b) permits a card issuer to impose a 
late payment fee of $21.50, the card issuer may round that amount up 
to the nearest whole dollar and impose a late payment fee of $22. 
However, if the late payment fee permitted by Sec.  226.52(b) were 
$21.49, the card issuer would not be permitted to round that amount 
up to $22, although the card issuer could round that amount down and 
impose a late payment fee of $21.
    52(b)(1) General rule.
    1. Relationship between Sec.  226.52(b)(1)(i), (b)(1)(ii), and 
(b)(2).
    i. Relationship between Sec.  226.52(b)(1)(i) and (b)(1)(ii). A 
card issuer may impose a fee for violating the terms or other 
requirements of an account pursuant to either Sec.  226.52(b)(1)(i) 
or (b)(1)(ii).
    A. A card issuer that complies with the safe harbors in Sec.  
226.52(b)(1)(ii) is not required to determine that its fees 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of a type of violation under Sec.  
226.52(b)(1)(i).
    B. A card issuer may impose a fee for one type of violation 
pursuant to Sec.  226.52(b)(1)(i) and may impose a fee for a 
different type of violation pursuant to Sec.  226.52(b)(1)(ii). For 
example, a card issuer may impose a late payment fee of $30 based on 
a cost determination pursuant to Sec.  226.52(b)(1)(i) but impose 
returned payment and over-the-limit fees of $25 or $35 pursuant to 
the safe harbors in Sec.  226.52(b)(1)(ii).
    C. A card issuer that previously based the amount of a penalty 
fee for a particular type of violation on a cost determination 
pursuant to Sec.  226.52(b)(1)(i) may begin to impose a penalty fee 
for that type of violation that is consistent with Sec.  
226.52(b)(1)(ii) at any time (subject to the notice requirements in 
Sec.  226.9), provided that the first fee imposed pursuant to Sec.  
226.52(b)(1)(ii) is consistent with Sec.  226.52(b)(1)(ii)(A). For 
example, assume that a late payment occurs on January 15 and that, 
based on a cost determination pursuant to Sec.  226.52(b)(1)(i), the 
card issuer imposes a $30 late payment fee. Another late payment 
occurs on July 15. The card issuer may impose another $30 late 
payment fee pursuant to Sec.  226.52(b)(1)(i) or may impose a $25 
late payment fee pursuant to Sec.  226.52(b)(1)(ii)(A). However, the 
card issuer may not impose a $35 late payment fee pursuant to Sec.  
226.52(b)(1)(ii)(B). If the card issuer imposes a $25 fee pursuant 
to Sec.  226.52(b)(1)(ii)(A) for the July 15 late payment and 
another late payment occurs on September 15, the card issuer may 
impose a $35 fee for the September 15 late payment pursuant to Sec.  
226.52(b)(1)(ii)(B).
    ii. Relationship between Sec.  226.52(b)(1) and (b)(2). Section 
226.52(b)(1) does not permit a card issuer to impose a fee that is 
inconsistent with the prohibitions in Sec.  226.52(b)(2). For 
example, if Sec.  226.52(b)(2)(i) prohibits the card issuer from 
imposing a late payment fee that exceeds $15, Sec.  226.52(b)(1)(ii) 
does not permit the card issuer to impose a higher late payment fee.
    52(b)(1)(i) Fees based on costs.
    1. Costs incurred as a result of violations. Section 
226.52(b)(1)(i) does not require a card issuer to base a fee on the 
costs incurred as a result of a specific violation of the terms or 
other requirements of an account. Instead, for purposes of Sec.  
226.52(b)(1)(i), a card issuer must have determined that a fee for 
violating the terms or other requirements of an account represents a 
reasonable proportion of the costs incurred by the card issuer as a 
result of that type of violation. A card issuer may make a single 
determination for all of its credit card portfolios or may make 
separate determinations for each portfolio. The factors relevant to 
this determination include:
    i. The number of violations of a particular type experienced by 
the card issuer during a prior period of reasonable length (for 
example, a period of twelve months).
    ii. The costs incurred by the card issuer during that period as 
a result of those violations.
    iii. At the card issuer's option, the number of fees imposed by 
the card issuer as a result

[[Page 23024]]

of those violations during that period that the card issuer 
reasonably estimates it will be unable to collect. See comment 
52(b)(1)(i)-5.
    iv. At the card issuer's option, reasonable estimates for an 
upcoming period of changes in the number of violations of that type, 
the resulting costs, and the number of fees that the card issuer 
will be unable to collect. See illustrative examples in comments 
52(b)(1)(i)-6 through -9.
    2. Amounts excluded from cost analysis. The following amounts 
are not costs incurred by a card issuer as a result of violations of 
the terms or other requirements of an account for purposes of Sec.  
226.52(b)(1)(i):
    i. Losses and associated costs (including the cost of holding 
reserves against potential losses and the cost of funding delinquent 
accounts).
    ii. Costs associated with evaluating whether consumers who have 
not violated the terms or other requirements of an account are 
likely to do so in the future (such as the costs associated with 
underwriting new accounts). However, once a violation of the terms 
or other requirements of an account has occurred, the costs 
associated with preventing additional violations for a reasonable 
period of time are costs incurred by a card issuer as a result of 
violations of the terms or other requirements of an account for 
purposes of Sec.  226.52(b)(1)(i).
    3. Third party charges. As a general matter, amounts charged to 
the card issuer by a third party as a result of a violation of the 
terms or other requirements of an account are costs incurred by the 
card issuer for purposes of Sec.  226.52(b)(1)(i). For example, if a 
card issuer is charged a specific amount by a third party for each 
returned payment, that amount is a cost incurred by the card issuer 
as a result of returned payments. However, if the amount is charged 
to the card issuer by an affiliate or subsidiary of the card issuer, 
the card issuer must have determined that the charge represents a 
reasonable proportion of the costs incurred by the affiliate or 
subsidiary as a result of the type of violation. For example, if an 
affiliate of a card issuer provides collection services to the card 
issuer on delinquent accounts, the card issuer must have determined 
that the amounts charged to the card issuer by the affiliate for 
such services represent a reasonable proportion of the costs 
incurred by the affiliate as a result of late payments.
    4. Amounts charged by other card issuers. The fact that a card 
issuer's fees for violating the terms or other requirements of an 
account are comparable to fees assessed by other card issuers does 
not satisfy the requirements of Sec.  226.52(b)(1)(i).
    5. Uncollected fees. For purposes of Sec.  226.52(b)(1)(i), a 
card issuer may consider fees that it is unable to collect when 
determining the appropriate fee amount. Fees that the card issuer is 
unable to collect include fees imposed on accounts that have been 
charged off by the card issuer, fees that have been discharged in 
bankruptcy, and fees that the card issuer is required to waive in 
order to comply with a legal requirement (such as a requirement 
imposed by 12 CFR part 226 or 50 U.S.C. app. 527). However, fees 
that the card issuer chooses not to impose or chooses not to collect 
(such as fees the card issuer chooses to waive at the request of the 
consumer or under a workout or temporary hardship arrangement) are 
not relevant for purposes of this determination. See illustrative 
examples in comments 52(b)(2)(i)-6 through -9.
    6. Late payment fees. i. Costs incurred as a result of late 
payments. For purposes of Sec.  226.52(b)(1)(i), the costs incurred 
by a card issuer as a result of late payments include the costs 
associated with the collection of late payments, such as the costs 
associated with notifying consumers of delinquencies and resolving 
delinquencies (including the establishment of workout and temporary 
hardship arrangements).
    ii. Examples.
    A. Late payment fee based on past delinquencies and costs. 
Assume that, during year one, a card issuer experienced 1 million 
delinquencies and incurred $26 million in costs as a result of those 
delinquencies. For purposes of Sec.  226.52(b)(1)(i), a $26 late 
payment fee would represent a reasonable proportion of the total 
costs incurred by the card issuer as a result of late payments 
during year two.
    B. Adjustment based on fees card issuer is unable to collect. 
Same facts as above except that the card issuer imposed a late 
payment fee for each of the 1 million delinquencies experienced 
during year one but was unable to collect 25% of those fees (in 
other words, the card issuer was unable to collect 250,000 fees, 
leaving a total of 750,000 late payments for which the card issuer 
did collect or could have collected a fee). For purposes of Sec.  
226.52(b)(2)(i), a late payment fee of $35 would represent a 
reasonable proportion of the total costs incurred by the card issuer 
as a result of late payments during year two.
    C. Adjustment based on reasonable estimate of future changes. 
Same facts as paragraphs A. and B. above except the card issuer 
reasonably estimates that--based on past delinquency rates and other 
factors relevant to potential delinquency rates for year two--it 
will experience a 2% decrease in delinquencies during year two (in 
other words, 20,000 fewer delinquencies for a total of 980,000). The 
card issuer also reasonably estimates that it will be unable to 
collect the same percentage of fees (25%) during year two as during 
year one (in other words, the card issuer will be unable to collect 
245,000 fees, leaving a total of 735,000 late payments for which the 
card issuer will be able to collect a fee). The card issuer also 
reasonably estimates that--based on past changes in costs incurred 
as a result of delinquencies and other factors relevant to potential 
costs for year two--it will experience a 5% increase in costs during 
year two (in other words, $1.3 million in additional costs for a 
total of $27.3 million). For purposes of Sec.  226.52(b)(1)(i), a 
$37 late payment fee would represent a reasonable proportion of the 
total costs incurred by the card issuer as a result of late payments 
during year two.
    7. Returned payment fees. i. Costs incurred as a result of 
returned payments. For purposes of Sec.  226.52(b)(1)(i), the costs 
incurred by a card issuer as a result of returned payments include:
    A. Costs associated with processing returned payments and 
reconciling the card issuer's systems and accounts to reflect 
returned payments;
    B. Costs associated with investigating potential fraud with 
respect to returned payments; and
    C. Costs associated with notifying the consumer of the returned 
payment and arranging for a new payment.
    ii. Examples.
    A. Returned payment fee based on past returns and costs. Assume 
that, during year one, a card issuer experienced 150,000 returned 
payments and incurred $3.1 million in costs as a result of those 
returned payments. For purposes of Sec.  226.52(b)(1)(i), a $21 
returned payment fee would represent a reasonable proportion of the 
total costs incurred by the card issuer as a result of returned 
payments during year two.
    B. Adjustment based on fees card issuer is unable to collect. 
Same facts as above except that the card issuer imposed a returned 
payment fee for each of the 150,000 returned payments experienced 
during year one but was unable to collect 15% of those fees (in 
other words, the card issuer was unable to collect 22,500 fees, 
leaving a total of 127,500 returned payments for which the card 
issuer did collect or could have collected a fee). For purposes of 
Sec.  226.52(b)(2)(i), a returned payment fee of $24 would represent 
a reasonable proportion of the total costs incurred by the card 
issuer as a result of returned payments during year two.
    C. Adjustment based on reasonable estimate of future changes. 
Same facts as paragraphs A. and B. above except the card issuer 
reasonably estimates that--based on past returned payment rates and 
other factors relevant to potential returned payment rates for year 
two--it will experience a 2% increase in returned payments during 
year two (in other words, 3,000 additional returned payments for a 
total of 153,000). The card issuer also reasonably estimates that it 
will be unable to collect 25% of returned payment fees during year 
two (in other words, the card issuer will be unable to collect 
38,250 fees, leaving a total of 114,750 returned payments for which 
the card issuer will be able to collect a fee). The card issuer also 
reasonably estimates that--based on past changes in costs incurred 
as a result of returned payments and other factors relevant to 
potential costs for year two--it will experience a 1% decrease in 
costs during year two (in other words, a $31,000 reduction in costs 
for a total of $3.069 million). For purposes of Sec.  
226.52(b)(1)(i), a $27 returned payment fee would represent a 
reasonable proportion of the total costs incurred by the card issuer 
as a result of returned payments during year two.
    8. Over-the-limit fees. i. Costs incurred as a result of over-
the-limit transactions. For purposes of Sec.  226.52(b)(1)(i), the 
costs incurred by a card issuer as a result of over-the-limit 
transactions include:
    A. Costs associated with determining whether to authorize over-
the-limit transactions; and
    B. Costs associated with notifying the consumer that the credit 
limit has been exceeded and arranging for payments to reduce the 
balance below the credit limit.
    ii. Costs not incurred as a result of over-the-limit 
transactions. For purposes of

[[Page 23025]]

Sec.  226.52(b)(1)(i), costs associated with obtaining the 
affirmative consent of consumers to the card issuer's payment of 
transactions that exceed the credit limit consistent with Sec.  
226.56 are not costs incurred by a card issuer as a result of over-
the-limit transactions.
    iii. Examples.
    A. Over-the-limit fee based on past fees and costs. Assume that, 
during year one, a card issuer authorized 600,000 over-the-limit 
transactions and incurred $4.5 million in costs as a result of those 
over-the-limit transactions. However, because of the affirmative 
consent requirements in Sec.  226.56, the card issuer was only 
permitted to impose 200,000 over-the-limit fees during year one. For 
purposes of Sec.  226.52(b)(1)(i), a $23 over-the-limit fee would 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of over-the-limit transactions during year 
two.
    B. Adjustment based on fees card issuer is unable to collect. 
Same facts as above except that the card issuer was unable to 
collect 30% of the 200,000 over-the-limit fees imposed during year 
one (in other words, the card issuer was unable to collect 60,000 
fees, leaving a total of 140,000 over-the-limit transactions for 
which the card issuer did collect or could have collected a fee). 
For purposes of Sec.  226.52(b)(2)(i), an over-the-limit fee of $32 
would represent a reasonable proportion of the total costs incurred 
by the card issuer as a result of over-the-limit transactions during 
year two.
    C. Adjustment based on reasonable estimate of future changes. 
Same facts as paragraphs A. and B. above except the card issuer 
reasonably estimates that--based on past over-the-limit transaction 
rates, the percentages of over-the-limit transactions that resulted 
in an over-the-limit fee in the past (consistent with Sec.  226.56), 
and factors relevant to potential changes in those rates and 
percentages for year two--it will authorize approximately the same 
number of over-the-limit transactions during year two (600,000) and 
impose approximately the same number of over-the-limit fees 
(200,000). The card issuer also reasonably estimates that it will be 
unable to collect the same percentage of fees (30%) during year two 
as during year one (in other words, the card issuer was unable to 
collect 60,000 fees, leaving a total of 140,000 over-the-limit 
transactions for which the card issuer will be able to collect a 
fee). The card issuer also reasonably estimates that--based on past 
changes in costs incurred as a result of over-the-limit transactions 
and other factors relevant to potential costs for year two--it will 
experience a 6% decrease in costs during year two (in other words, a 
$270,000 reduction in costs for a total of $4.23 million). For 
purposes of Sec.  226.52(b)(1)(i), a $30 over-the-limit fee would 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of over-the-limit transactions during year 
two.
    9. Declined access check fees. i. Costs incurred as a result of 
declined access checks. For purposes of Sec.  226.52(b)(1)(i), the 
costs incurred by a card issuer as a result of declining payment on 
a check that accesses a credit card account include:
    A. Costs associated with determining whether to decline payment 
on access checks;
    B. Costs associated with processing declined access checks and 
reconciling the card issuer's systems and accounts to reflect 
declined access checks;
    C. Costs associated with investigating potential fraud with 
respect to declined access checks; and
    D. Costs associated with notifying the consumer and the merchant 
or other party that accepted the access check that payment on the 
check has been declined.
    ii. Example. Assume that, during year one, a card issuer 
declined 100,000 access checks and incurred $2 million in costs as a 
result of those declined checks. The card issuer imposed a fee for 
each declined access check but was unable to collect 10% of those 
fees (in other words, the card issuer was unable to collect 10,000 
fees, leaving a total of 90,000 declined access checks for which the 
card issuer did collect or could have collected a fee). For purposes 
of Sec.  226.52(b)(1)(i), a $22 declined access check fee would 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of declined access checks during year two.
    52(b)(1)(ii) Safe harbors.
    1. Multiple violations of same type.
    i. Same billing cycle or next six billing cycles. A card issuer 
cannot impose a fee for a violation pursuant to Sec.  
226.52(b)(1)(ii)(B) unless a fee has previously been imposed for the 
same type of violation pursuant to Sec.  226.52(b)(1)(ii)(A). Once a 
fee has been imposed for a violation pursuant to Sec.  
226.52(b)(1)(ii)(A), the card issuer may impose a fee pursuant to 
Sec.  226.52(b)(1)(ii)(B) for any subsequent violation of the same 
type until that type of violation has not occurred for a period of 
six consecutive complete billing cycles. A fee has been imposed for 
purposes of Sec.  226.52(b)(1)(ii) even if the card issuer waives or 
rebates all or part of the fee.
    A. Late payments. For purposes of Sec.  226.52(b)(1)(ii), a late 
payment occurs during the billing cycle in which the payment may 
first be treated as late consistent with the requirements of 12 CFR 
Part 226 and the terms or other requirements of the account.
    B. Returned payments. For purposes of Sec.  226.52(b)(1)(ii), a 
returned payment occurs during the billing cycle in which the 
payment is returned to the card issuer.
    C. Transactions that exceed the credit limit. For purposes of 
Sec.  226.52(b)(1)(ii), a transaction that exceeds the credit limit 
for an account occurs during the billing cycle in which the 
transaction occurs or is authorized by the card issuer.
    D. Declined access checks. For purposes of Sec.  
226.52(b)(1)(ii), a check that accesses a credit card account is 
declined during the billing cycle in which the card issuer declines 
payment on the check.
    ii. Relationship to Sec. Sec.  226.52(b)(2)(ii) and 
226.56(j)(1). If multiple violations are based on the same event or 
transaction such that Sec.  226.52(b)(2)(ii) prohibits the card 
issuer from imposing more than one fee, the event or transaction 
constitutes a single violation for purposes of Sec.  
226.52(b)(1)(ii). Furthermore, consistent with Sec.  
226.56(j)(1)(i), no more than one violation for exceeding an 
account's credit limit can occur during a single billing cycle for 
purposes of Sec.  226.52(b)(1)(ii). However, Sec.  226.52(b)(2)(ii) 
does not prohibit a card issuer from imposing fees for exceeding the 
credit limit in consecutive billing cycles based on the same over-
the-limit transaction to the extent permitted by Sec.  226.56(j)(1). 
In these circumstances, the second and third over-the-limit fees 
permitted by Sec.  226.56(j)(1) may be imposed pursuant to Sec.  
226.52(b)(1)(ii)(B). See comment 52(b)(2)(ii)-1.
    iii. Examples. The following examples illustrate the application 
of Sec.  226.52(b)(1)(ii)(A) and (b)(1)(ii)(B) with respect to 
credit card accounts under an open-end (not home-secured) consumer 
credit plan that are not charge card accounts. For purposes of these 
examples, assume 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 payment due date for the account is the twenty-fifth day of 
the month.
    A. Violations of same type (late payments). A required minimum 
periodic payment of $50 is due on March 25. On March 26, a late 
payment has occurred because no payment has been received. 
Accordingly, consistent with Sec.  226.52(b)(1)(ii)(A), the card 
issuer imposes a $25 late payment fee on March 26. In order for the 
card issuer to impose a $35 late payment fee pursuant to Sec.  
226.52(b)(1)(ii)(B), a second late payment must occur during the 
April, May, June, July, August, or September billing cycles.
    (1) The card issuer does not receive any payment during the 
March billing cycle. A required minimum periodic payment of $100 is 
due on April 25. On April 20, the card issuer receives a $50 
payment. No further payment is received during the April billing 
cycle. Accordingly, consistent with Sec.  226.52(b)(1)(ii)(B), the 
card issuer may impose a $35 late payment fee on April 26. 
Furthermore, the card issuer may impose a $35 late payment fee for 
any late payment that occurs during the May, June, July, August, 
September, or October billing cycles.
    (2) Same facts as in paragraph A. above. On March 30, the card 
issuer receives a $50 payment and the required minimum periodic 
payments for the April, May, June, July, August, and September 
billing cycles are received on or before the payment due date. A 
required minimum periodic payment of $60 is due on October 25. On 
October 26, a late payment has occurred because the required minimum 
periodic payment due on October 25 has not been received. However, 
because this late payment did not occur during the six billing 
cycles following the March billing cycle, Sec.  226.52(b)(1)(ii) 
only permits the card issuer to impose a late payment fee of $25.
    B. Violations of different types (late payment and over the 
credit limit). The credit limit for an account is $1,000. Consistent 
with Sec.  226.56, the consumer has affirmatively consented to the 
payment of transactions that exceed the credit limit. A required 
minimum periodic payment of $30 is due on August 25. On August 26, a 
late payment has occurred because no payment has been received.

[[Page 23026]]

Accordingly, consistent with Sec.  226.52(b)(1)(ii)(A), the card 
issuer imposes a $25 late payment fee on August 26. On August 30, 
the card issuer receives a $30 payment. On September 10, a 
transaction causes the account balance to increase to $1,150, which 
exceeds the account's $1,000 credit limit. On September 11, a second 
transaction increases the account balance to $1,350. On September 
23, the card issuer receives the $50 required minimum periodic 
payment due on September 25, which reduces the account balance to 
$1,300. On September 30, the card issuer imposes a $25 over-the-
limit fee, consistent with Sec.  226.52(b)(1)(ii)(A). On October 26, 
a late payment has occurred because the $60 required minimum 
periodic payment due on October 25 has not been received. 
Accordingly, consistent with Sec.  226.52(b)(1)(ii)(B), the card 
issuer imposes a $35 late payment fee on October 26.
    C. Violations of different types (late payment and returned 
payment). A required minimum periodic payment of $50 is due on July 
25. On July 26, a late payment has occurred because no payment has 
been received. Accordingly, consistent with Sec.  
226.52(b)(1)(ii)(A), the card issuer imposes a $25 late payment fee 
on July 26. On July 30, the card issuer receives a $50 payment. A 
required minimum periodic payment of $50 is due on August 25. On 
August 24, a $50 payment is received. On August 27, the $50 payment 
is returned to the card issuer for insufficient funds. In these 
circumstances, Sec.  226.52(b)(2)(ii) permits the card issuer to 
impose either a late payment fee or a returned payment fee but not 
both because the late payment and the returned payment result from 
the same event or transaction. Accordingly, for purposes of Sec.  
226.52(b)(1)(ii), the event or transaction constitutes a single 
violation. However, if the card issuer imposes a late payment fee, 
Sec.  226.52(b)(1)(ii)(B) permits the issuer to impose a fee of $35 
because the late payment occurred during the six billing cycles 
following the July billing cycle. In contrast, if the card issuer 
imposes a returned payment fee, the amount of the fee may be no more 
than $25 pursuant to Sec.  226.52(b)(1)(ii)(A).
    2. Adjustments based on Consumer Price Index. For purposes of 
Sec.  226.52(b)(1)(ii)(A) and (b)(1)(ii)(B), the Board shall 
calculate each year price level adjusted amounts 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 amounts in Sec.  
226.52(b)(1)(ii)(A) and (b)(1)(ii)(B) has risen by a whole dollar, 
those amounts will be increased by $1.00. Similarly, when the 
cumulative change in the adjusted minimum value derived from 
applying the annual Consumer Price level to the current amounts in 
Sec.  226.52(b)(1)(ii)(A) and (b)(1)(ii)(B) has decreased by a whole 
dollar, those amounts will be decreased by $1.00. The Board will 
publish adjustments to the amounts in Sec.  226.52(b)(1)(ii)(A) and 
(b)(1)(ii)(B).
    3. Delinquent balance for charge card accounts. Section 
226.52(b)(1)(ii)(C) provides that, when a charge card issuer that 
requires payment of outstanding balances in full at the end of each 
billing cycle has not received the required payment for two or more 
consecutive billing cycles, the card issuer may impose a late 
payment fee that does not exceed three percent of the delinquent 
balance. For purposes of Sec.  226.52(b)(1)(ii)(C), the delinquent 
balance is any previously billed amount that remains unpaid at the 
time the late payment fee is imposed pursuant to Sec.  
226.52(b)(1)(ii)(C). Consistent with Sec.  226.52(b)(2)(ii), a 
charge card issuer that imposes a fee pursuant to Sec.  
226.52(b)(1)(ii)(C) with respect to a late payment may not impose a 
fee pursuant to Sec.  226.52(b)(1)(ii)(B) with respect to the same 
late payment. The following examples illustrate the application of 
Sec.  226.52(b)(1)(ii)(C):
    i. Assume that a charge card issuer requires payment of 
outstanding balances in full at the end of each billing cycle and 
that the billing cycles for the account begin on the first day of 
the month and end on the last day of the month. At the end of the 
June billing cycle, the account has a balance of $1,000. On July 5, 
the card issuer provides a periodic statement disclosing the $1,000 
balance consistent with Sec.  226.7. During the July billing cycle, 
the account is used for $300 in transactions, increasing the balance 
to $1,300. At the end of the July billing cycle, no payment has been 
received and the card issuer imposes a $25 late payment fee 
consistent with Sec.  226.52(b)(1)(ii)(A). On August 5, the card 
issuer provides a periodic statement disclosing the $1,325 balance 
consistent with Sec.  226.7. During the August billing cycle, the 
account is used for $200 in transactions, increasing the balance to 
$1,525. At the end of the August billing cycle, no payment has been 
received. Consistent with Sec.  226.52(b)(1)(ii)(C), the card issuer 
may impose a late payment fee of $40, which is 3% of the $1,325 
balance that was due at the end of the August billing cycle. Section 
226.52(b)(1)(ii)(C) does not permit the card issuer to include the 
$200 in transactions that occurred during the August billing cycle.
    ii. Same facts as above except that, on August 25, a $100 
payment is received. Consistent with Sec.  226.52(b)(1)(ii)(C), the 
card issuer may impose a late payment fee of $37, which is 3% of the 
unpaid portion of the $1,325 balance that was due at the end of the 
August billing cycle ($1,225).
    iii. Same facts as in paragraph A. above except that, on August 
25, a $200 payment is received. Consistent with Sec.  
226.52(b)(1)(ii)(C), the card issuer may impose a late payment fee 
of $34, which is 3% of the unpaid portion of the $1,325 balance that 
was due at the end of the August billing cycle ($1,125). In the 
alternative, the card issuer may impose a late payment fee of $35 
consistent with Sec.  226.52(b)(1)(ii)(B). However, Sec.  
226.52(b)(2)(ii) prohibits the card issuer from imposing both fees.
    52(b)(2) Prohibited fees.
    1. Relationship to Sec.  226.52(b)(1). A card issuer does not 
comply with Sec.  226.52(b) if it imposes a fee that is inconsistent 
with the prohibitions in Sec.  226.52(b)(2). Thus, the prohibitions 
in Sec.  226.52(b)(2) apply even if a fee is consistent with Sec.  
226.52(b)(1)(i) or (b)(1)(ii). For example, even if a card issuer 
has determined for purposes of Sec.  226.52(b)(1)(i) that a $27 fee 
represents a reasonable proportion of the total costs incurred by 
the card issuer as a result of a particular type of violation, Sec.  
226.52(b)(2)(i) prohibits the card issuer from imposing that fee if 
the dollar amount associated with the violation is less than $27. 
Similarly, even if Sec.  226.52(b)(1)(ii) permits a card issuer to 
impose a $25 fee, Sec.  226.52(b)(2)(i) prohibits the card issuer 
from imposing that fee if the dollar amount associated with the 
violation is less than $25.
    52(b)(2)(i) Fees that exceed dollar amount associated with 
violation.
    1. Late payment fees. For purposes of Sec.  226.52(b)(2)(i), the 
dollar amount associated with a late payment is the amount of the 
required minimum periodic payment due immediately prior to 
assessment of the late payment fee. Thus, Sec.  226.52(b)(2)(i)(A) 
prohibits a card issuer from imposing a late payment fee that 
exceeds the amount of that required minimum periodic payment. For 
example:
    i. Assume that a $15 required minimum periodic payment is due on 
September 25. The card issuer does not receive any payment on or 
before September 25. On September 26, the card issuer imposes a late 
payment fee. For purposes of Sec.  226.52(b)(2)(i), the dollar 
amount associated with the late payment is the amount of the 
required minimum periodic payment due on September 25 ($15). Thus, 
under Sec.  226.52(b)(2)(i)(A), the amount of that fee cannot exceed 
$15 (even if a higher fee would be permitted under Sec.  
226.52(b)(1)).
    ii. Same facts as above except that, on September 25, the card 
issuer receives a $10 payment. No further payments are received. On 
September 26, the card issuer imposes a late payment fee. For 
purposes of Sec.  226.52(b)(2)(i), the dollar amount associated with 
the late payment is the full amount of the required minimum periodic 
payment due on September 25 ($15), rather than the unpaid portion of 
that payment ($5). Thus, under Sec.  226.52(b)(2)(i)(A), the amount 
of the late payment fee cannot exceed $15 (even if a higher fee 
would be permitted under Sec.  226.52(b)(1)).
    iii. Assume that a $15 required minimum periodic payment is due 
on October 28 and the billing cycle for the account closes on 
October 31. The card issuer does not receive any payment on or 
before November 3. On November 3, the card issuer determines that 
the required minimum periodic payment due on November 28 is $50. On 
November 5, the card issuer imposes a late payment fee. For purposes 
of Sec.  226.52(b)(2)(i), the dollar amount associated with the late 
payment is the amount of the required minimum periodic payment due 
on October 28 ($15), rather than the amount of the required minimum 
periodic payment due on November 28 ($50). Thus, under Sec.  
226.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even 
if a higher fee would be permitted under Sec.  226.52(b)(1)).
    2. Returned payment fees. For purposes of Sec.  226.52(b)(2)(i), 
the dollar amount associated with a returned payment is the amount 
of the required minimum periodic payment due immediately prior to 
the date on which the

[[Page 23027]]

payment is returned to the card issuer. Thus, Sec.  
226.52(b)(2)(i)(A) prohibits a card issuer from imposing a returned 
payment fee that exceeds the amount of that required minimum 
periodic payment. However, if a payment has been returned and is 
submitted again for payment by the card issuer, there is no 
additional dollar amount associated with a subsequent return of that 
payment and Sec.  226.52(b)(2)(i)(B) prohibits the card issuer from 
imposing an additional returned payment fee. For example:
    i. 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 is the twenty-fifth day of the month. A minimum 
payment of $15 is due on March 25. The card issuer receives a check 
for $100 on March 23, which is returned to the card issuer for 
insufficient funds on March 26. For purposes of Sec.  
226.52(b)(2)(i), the dollar amount associated with the returned 
payment is the amount of the required minimum periodic payment due 
on March 25 ($15). Thus, Sec.  226.52(b)(2)(i)(A) prohibits the card 
issuer from imposing a returned payment fee that exceeds $15 (even 
if a higher fee would be permitted under Sec.  226.52(b)(1)). 
Furthermore, Sec.  226.52(b)(2)(ii) prohibits the card issuer from 
assessing both a late payment fee and a returned payment fee in 
these circumstances. See comment 52(b)(2)(ii)-1.
    ii. Same facts as above except that the card issuer receives the 
$100 check on March 31 and the check is returned for insufficient 
funds on April 2. The minimum payment due on April 25 is $30. For 
purposes of Sec.  226.52(b)(2)(i), the dollar amount associated with 
the returned payment is the amount of the required minimum periodic 
payment due on March 25 ($15), rather than the amount of the 
required minimum periodic payment due on April 25 ($30). Thus, Sec.  
226.52(b)(2)(i)(A) prohibits the card issuer from imposing a 
returned payment fee that exceeds $15 (even if a higher fee would be 
permitted under Sec.  226.52(b)(1)). Furthermore, Sec.  
226.52(b)(2)(ii) prohibits the card issuer from assessing both a 
late payment fee and a returned payment fee in these circumstances. 
See comment 52(b)(2)(ii)-1.
    iii. Same facts as paragraph i. above except that, on March 28, 
the card issuer presents the $100 check for payment a second time. 
On April 1, the check is again returned for insufficient funds. 
Section 226.52(b)(2)(i)(B) prohibits the card issuer from imposing a 
returned payment fee based on the return of the payment on April 1.
    iv. 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 is the twenty-fifth day of the month. A minimum 
payment of $15 is due on August 25. The card issuer receives a check 
for $15 on August 23, which is not returned. The card issuer 
receives a check for $50 on September 5, which is returned to the 
card issuer for insufficient funds on September 7. Section 
226.52(b)(2)(i)(B) does not prohibit the card issuer from imposing a 
returned payment fee in these circumstances. Instead, for purposes 
of Sec.  226.52(b)(2)(i), the dollar amount associated with the 
returned payment is the amount of the required minimum periodic 
payment due on August 25 ($15). Thus, Sec.  226.52(b)(2)(i)(A) 
prohibits the card issuer from imposing a returned payment fee that 
exceeds $15 (even if a higher fee would be permitted under Sec.  
226.52(b)(1)).
    3. Over-the-limit fees. For purposes of Sec.  226.52(b)(2)(i), 
the dollar amount associated with extensions of credit in excess of 
the credit limit for an account is the total amount of credit 
extended by the card issuer in excess of the credit limit during the 
billing cycle in which the over-the-limit fee is imposed. Thus, 
Sec.  226.52(b)(2)(i)(A) prohibits a card issuer from imposing an 
over-the-limit fee that exceeds that amount. Nothing in Sec.  
226.52(b) permits a card issuer to impose an over-the-limit fee if 
imposition of the fee is inconsistent with Sec.  226.56. The 
following examples illustrate the application of Sec.  
226.52(b)(2)(i)(A) to over-the-limit fees:
    i. Assume that the billing cycles for a credit card account with 
a credit limit of $5,000 begin on the first day of the month and end 
on the last day of the month. Assume also that, consistent with 
Sec.  226.56, the consumer has affirmatively consented to the 
payment of transactions that exceed the credit limit. On March 1, 
the account has a $4,950 balance. On March 6, a $60 transaction is 
charged to the account, increasing the balance to $5,010. On March 
25, a $5 transaction is charged to the account, increasing the 
balance to $5,015. On the last day of the billing cycle (March 31), 
the card issuer imposes an over-the-limit fee. For purposes of Sec.  
226.52(b)(2)(i), the dollar amount associated with the extensions of 
credit in excess of the credit limit is the total amount of credit 
extended by the card issuer in excess of the credit limit during the 
March billing cycle ($15). Thus, Sec.  226.52(b)(2)(i)(A) prohibits 
the card issuer from imposing an over-the-limit fee that exceeds $15 
(even if a higher fee would be permitted under Sec.  226.52(b)(1)).
    ii. Same facts as above except that, on March 26, the card 
issuer receives a payment of $20, reducing the balance below the 
credit limit to $4,995. Nevertheless, for purposes of Sec.  
226.52(b)(2)(i), the dollar amount associated with the extensions of 
credit in excess of the credit limit is the total amount of credit 
extended by the card issuer in excess of the credit limit during the 
March billing cycle ($15). Thus, consistent with Sec.  
226.52(b)(2)(i)(A), the card issuer may impose an over-the-limit fee 
of $15.
    4. Declined access check fees. For purposes of Sec.  
226.52(b)(2)(i), the dollar amount associated with declining payment 
on a check that accesses a credit card account is the amount of the 
check. Thus, when a check that accesses a credit card account is 
declined, Sec.  226.52(b)(2)(i)(A) prohibits a card issuer from 
imposing a fee that exceeds the amount of that check. For example, 
assume that a check that accesses a credit card account is used as 
payment for a $50 transaction, but payment on the check is declined 
by the card issuer because the transaction would have exceeded the 
credit limit for the account. For purposes of Sec.  226.52(b)(2)(i), 
the dollar amount associated with the declined check is the amount 
of the check ($50). Thus, Sec.  226.52(b)(2)(i)(A) prohibits the 
card issuer from imposing a fee that exceeds $50. However, the 
amount of this fee must also comply with Sec.  226.52(b)(1)(i) or 
(b)(1)(ii).
    5. Inactivity fees. Section 226.52(b)(2)(i)(B)(2) prohibits a 
card issuer from imposing a fee with respect to a credit card 
account under an open-end (not home-secured) consumer credit plan 
based on inactivity on that account (including the consumer's 
failure to use the account for a particular number or dollar amount 
of transactions or a particular type of transaction). For example, 
Sec.  226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a 
$50 fee when a credit card account under an open-end (not home-
secured) consumer credit plan is not used for at least $2,000 in 
purchases over the course of a year. Similarly, Sec.  
226.52(b)(2)(i)(B)(2) prohibits a card issuer from imposing a $50 
annual fee on all accounts of a particular type but waiving the fee 
on any account that is used for at least $2,000 in purchases over 
the course of a year if the card issuer promotes the waiver or 
rebate of the annual fee for purposes of Sec.  226.55(e). However, 
if the card issuer does not promote the waiver or rebate of the 
annual fee for purposes of Sec.  226.55(e), Sec.  
226.52(b)(2)(i)(B)(2) does not prohibit a card issuer from 
considering account activity along with other factors when deciding 
whether to waive or rebate annual fees on individual accounts (such 
as in response to a consumer's request).
    6. Closed account fees. Section 226.52(b)(2)(i)(B)(3) prohibits 
a card issuer from imposing a fee based on the closure or 
termination of an account. For example, 226.52(b)(2)(i)(B)(3) 
prohibits a card issuer from:
    i. Imposing a one-time fee to consumers who close their 
accounts.
    ii. Imposing a periodic fee (such as an annual fee, a monthly 
maintenance fee, or a closed account fee) after an account is closed 
or terminated if that fee was not imposed prior to closure or 
termination. This prohibition applies even if the fee was disclosed 
prior to closure or termination. See also comment 55(d)-1.
    iii. Increasing a periodic fee (such as an annual fee or a 
monthly maintenance fee) after an account is closed or terminated. 
However, a card issuer is not prohibited from continuing to impose a 
periodic fee that was imposed before the account was closed or 
terminated.
    52(b)(2)(ii) Multiple fees based on single event or transaction.
    1. Single event or transaction. Section 226.52(b)(2)(ii) 
prohibits a card issuer from imposing more than one fee for 
violating the terms or other requirements of an account based on a 
single event or transaction. If Sec.  226.56(j)(1) permits a card 
issuer to impose fees for exceeding the credit limit in consecutive 
billing cycles based on the same over-the-limit transaction, those 
fees are not based on a single event or transaction for purposes of 
Sec.  226.52(b)(2)(ii). The following examples illustrate the 
application of Sec.  226.52(b)(2)(ii). Assume for purposes of these 
examples 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 for the account is the twenty-fifth day of 
the month.

[[Page 23028]]

    i. Assume that the required minimum periodic payment due on 
March 25 is $20. On March 26, the card issuer has not received any 
payment and imposes a late payment fee. Consistent with Sec. Sec.  
226.52(b)(1)(ii)(A) and (b)(2)(i), the card issuer may impose a $20 
late payment fee on March 26. However, Sec.  226.52(b)(2)(ii) 
prohibits the card issuer from imposing an additional late payment 
fee if the $20 minimum payment has not been received by a subsequent 
date (such as March 31).
    A. On April 3, the card issuer provides a periodic statement 
disclosing that a $70 required minimum periodic payment is due on 
April 25. This minimum payment includes the $20 minimum payment due 
on March 25 and the $20 late payment fee imposed on March 26. On 
April 20, the card issuer receives a $20 payment. No additional 
payments are received during the April billing cycle. Section 
226.52(b)(2)(ii) does not prohibit the card issuer from imposing a 
late payment fee based on the consumer's failure to make the $70 
required minimum periodic payment on or before April 25. 
Accordingly, consistent with Sec.  226.52(b)(1)(ii)(B) and 
(b)(2)(i), the card issuer may impose a $35 late payment fee on 
April 26.
    B. On April 3, the card issuer provides a periodic statement 
disclosing that a $20 required minimum periodic payment is due on 
April 25. This minimum payment does not include the $20 minimum 
payment due on March 25 or the $20 late payment fee imposed on March 
26. On April 20, the card issuer receives a $20 payment. No 
additional payments are received during the April billing cycle. 
Because the card issuer has received the required minimum periodic 
payment due on April 25 and because Sec.  226.52(b)(2)(ii) prohibits 
the card issuer from imposing a second late payment fee based on the 
consumer's failure to make the $20 minimum payment due on March 25, 
the card issuer cannot impose a late payment fee in these 
circumstances.
    ii. Assume that the required minimum periodic payment due on 
March 25 is $30.
    A. On March 25, the card issuer receives a check for $50, but 
the check is returned for insufficient funds on March 27. Consistent 
with Sec. Sec.  226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card 
issuer may impose a late payment fee of $25 or a returned payment 
fee of $25. However, Sec.  226.52(b)(2)(ii) prohibits the card 
issuer from imposing both fees because those fees would be based on 
a single event or transaction.
    B. Same facts as paragraph ii.A. above except that that card 
issuer receives the $50 check on March 27 and the check is returned 
for insufficient funds on March 29. Consistent with Sec. Sec.  
226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a 
late payment fee of $25 or a returned payment fee of $25. However, 
Sec.  226.52(b)(2)(ii) prohibits the card issuer from imposing both 
fees because those fees would be based on a single event or 
transaction. If no payment is received on or before the next payment 
due date (April 25), Sec.  226.52(b)(2)(ii) does not prohibit the 
card issuer from imposing a late payment fee.
    iii. Assume that the required minimum periodic payment due on 
July 25 is $30. On July 10, the card issuer receives a $50 payment, 
which is not returned. On July 20, the card issuer receives a $100 
payment, which is returned for insufficient funds on July 24. 
Consistent with Sec.  226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card 
issuer may impose a returned payment fee of $25. Nothing in Sec.  
226.52(b)(2)(ii) prohibits the imposition of this fee.
    iv. Assume that the credit limit for an account is $1,000 and 
that, consistent with Sec.  226.56, the consumer has affirmatively 
consented to the payment of transactions that exceed the credit 
limit. On March 31, the balance on the account is $970 and the card 
issuer has not received the $35 required minimum periodic payment 
due on March 25. On that same date (March 31), a $70 transaction is 
charged to the account, which increases the balance to $1,040. 
Consistent with Sec.  226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card 
issuer may impose a late payment fee of $25 and an over-the-limit 
fee of $25. Section 226.52(b)(2)(ii) does not prohibit the 
imposition of both fees because those fees are based on different 
events or transactions. No additional transactions are charged to 
the account during the March, April, or May billing cycles. If the 
account balance remains more than $35 above the credit limit on 
April 26, the card issuer may impose an over-the-limit fee of $35 
pursuant to Sec.  226.52(b)(1)(ii)(B), to the extent consistent with 
Sec.  226.56(j)(1). Furthermore, if the account balance remains more 
than $35 above the credit limit on May 26, the card issuer may again 
impose an over-the-limit fee of $35 pursuant to Sec.  
226.52(b)(1)(ii)(B), to the extent consistent with Sec.  
226.56(j)(1). Thereafter, Sec.  226.56(j)(1) does not permit the 
card issuer to impose additional over-the-limit fees unless another 
over-the-limit transaction occurs. However, if an over-the-limit 
transaction occurs during the six billing cycles following the May 
billing cycle, the card issuer may impose an over-the-limit fee of 
$35 pursuant to Sec.  226.52(b)(1)(ii)(B).
    v. Assume that the credit limit for an account is $5,000 and 
that, consistent with Sec.  226.56, the consumer has affirmatively 
consented to the payment of transactions that exceed the credit 
limit. On July 23, the balance on the account is $4,950. On July 24, 
the card issuer receives the $100 required minimum periodic payment 
due on July 25, reducing the balance to $4,850. On July 26, a $75 
transaction is charged to the account, which increases the balance 
to $4,925. On July 27, the $100 payment is returned for insufficient 
funds, increasing the balance to $5,025. Consistent with Sec. Sec.  
226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a 
returned payment fee of $25 or an over-the-limit fee of $25. 
However, Sec.  226.52(b)(2)(ii) prohibits the card issuer from 
imposing both fees because those fees would be based on a single 
event or transaction.
    vi. Assume that the required minimum periodic payment due on 
March 25 is $50. On March 20, the card issuer receives a check for 
$50, but the check is returned for insufficient funds on March 22. 
Consistent with Sec. Sec.  226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the 
card issuer may impose a returned payment fee of $25. On March 25, 
the card issuer receives a second check for $50, but the check is 
returned for insufficient funds on March 27. Consistent with 
Sec. Sec.  226.52(b)(1)(ii)(A), (b)(1)(ii)(B), and (b)(2)(i)(A), the 
card issuer may impose a late payment fee of $25 or a returned 
payment fee of $35. However, Sec.  226.52(b)(2)(ii) prohibits the 
card issuer from imposing both fees because those fees would be 
based on a single event or transaction.
    vii. Assume that the required minimum periodic payment due on 
February 25 is $100. On February 25, the card issuer receives a 
check for $100. On March 3, the card issuer provides a periodic 
statement disclosing that a $120 required minimum periodic payment 
is due on March 25. On March 4, the $100 check is returned to the 
card issuer for insufficient funds. Consistent with Sec. Sec.  
226.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a 
late payment fee of $25 or a returned payment fee of $25 with 
respect to the $100 payment. However, Sec.  226.52(b)(2)(ii) 
prohibits the card issuer from imposing both fees because those fees 
would be based on a single event or transaction. On March 20, the 
card issuer receives a $120 check, which is not returned. No 
additional payments are received during the March billing cycle. 
Because the card issuer has received the required minimum periodic 
payment due on March 25 and because Sec.  226.52(b)(2)(ii) prohibits 
the card issuer from imposing a second fee based on the $100 payment 
that was returned for insufficient funds, the card issuer cannot 
impose a late payment fee in these circumstances.

Sec.  226.53--Allocation of Payments

* * * * *
    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)(1)(ii), 
Sec.  226.53(b)(1)(i) requires the card issuer to apply any excess 
payments first to the $1,000 purchase balance except during the last 
two

[[Page 23029]]

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. * * *
    v. * * *
    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)(1)(ii). 
Thus, Sec.  226.53(b)(1)(i) 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)(i) 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)(i) 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)(1)(ii). 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)(1)(ii) permits the card 
issuer to allocate the $800 excess payment in the manner requested 
by the consumer.
    53(b) Special rules.
    1. Deferred interest and similar programs. Section 226.53(b)(1) 
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)(1), 
``deferred interest'' has the same meaning as in Sec.  226.16(h)(2) 
and associated commentary. Section 226.53(b)(1) 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)(1). 
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)(1) 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 deferred interest or similar program during 
billing cycle. For purposes of Sec.  226.53(b)(1)(i), 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)(1)(ii). 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)(i) 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)(i) 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(a) or (b)(1)(i), 
as applicable. 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(a) or (b)(1)(i), as 
applicable. Similarly, a card issuer that accepts requests pursuant 
to Sec.  226.53(b)(1)(ii) or (b)(2) must allocate amounts paid by a 
consumer in excess of the required minimum periodic payment 
consistent with Sec.  226.53(a) or (b)(1)(i), as applicable, if the 
consumer does not submit a request. Furthermore, a card issuer that 
accepts requests pursuant to Sec.  226.53(b)(1)(ii) or (b)(2) must 
allocate consistent with Sec.  226.53(a) or (b)(1)(i), as 
applicable, 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)(1)(ii) or (b)(2). A consumer has made a request for 
purposes of Sec.  226.53(b)(1)(ii) or (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 or the period of time that a balance on the account is 
secured.
    B. The consumer completes and submits to the card issuer 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 or the period of 
time that a balance on the account is secured.
    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(a) or 
(b)(1)(i), as applicable, instead be allocated in a different 
manner.
    iii. Examples of consumer requests that do not satisfy Sec.  
226.53(b)(1)(ii) or (b)(2). A consumer has not made a request for 
purposes of Sec.  226.53(b)(1)(ii) or (b)(2) if:
    A. The terms and conditions of the account agreement contain 
preprinted language stating that by applying to open an account, by 
using that account for transactions subject to a deferred interest 
or similar program, or by using the account to purchase property in 
which the card issuer holds a security interest 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, purchasing property in which the card 
issuer holds a security interest, making a payment, or receiving 
account services or features.
* * * * *

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

    55(a) General rule.
    1. Increase in rate, fee, or charge. 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). 
Except as specifically provided in Sec.  226.55(b), this prohibition 
applies even if the circumstances under which an increase will occur 
are disclosed in advance. 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

[[Page 23030]]

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 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

[[Page 23031]]

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 generally 
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. However, if Sec.  
226.55(b)(4)(ii) requires a card issuer to decrease the rate, fee, 
or charge that applies to a balance while the account is subject to 
a workout or temporary hardship arrangement or subject to 50 U.S.C. 
app. 527 or a similar Federal or State statute or regulation, the 
card issuer may not impose a higher rate, fee, or charge on that 
balance pursuant to Sec.  226.55(b)(5) or (b)(6) upon completion or 
failure of the arrangement or once 50 U.S.C. app. 527 or the similar 
Federal or State statute or regulation no longer applies. For 
example, assume that, on January 1, the annual percentage rate that 
applies to a $1,000 balance is increased from 12% to 30% pursuant to 
Sec.  226.55(b)(4). On February 1, the rate on that balance is 
decreased from 30% to 15% consistent with Sec.  226.55(b)(5) as a 
part of a workout or temporary hardship arrangement. On July 1, 
Sec.  226.55(b)(4)(ii) requires the card issuer to reduce the rate 
that applies to any remaining portion of the $1,000 balance from 15% 
to 12%. If the consumer subsequently completes or fails to comply 
with the terms of the workout or temporary hardship arrangement, the 
card issuer may not increase the 12% rate that applies to any 
remaining portion of the $1,000 balance pursuant to Sec.  
226.55(b)(5).
* * * * *
    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

[[Page 23032]]

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 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.
    C. Application of lower temporary rate during specified period. 
Same facts as in paragraph iii. above. On June 30 of year two, the 
account has a purchase balance of $1,000 at the 15% non-variable 
rate. On July 1, the card issuer provides a notice pursuant to Sec.  
226.9(c) informing the consumer that the rate for the $1,000 balance 
and new purchases will decrease to a non-variable rate of 12% 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 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 August 15 of year two, 
the consumer makes a $500 purchase. On October 1, the card issuer 
provides another notice pursuant to Sec.  226.9(c) informing the 
consumer that the rate for the $1,000 balance, the $500 purchase, 
and new purchases will decrease to a non-variable rate of 5% for six 
months (from October 1 of year two through March 31 of year three) 
and that, beginning on April 1 of year three, the rate for purchases 
will increase to a variable rate that is currently 23% and is 
determined by adding a margin of 13 percentage points to the 
previously-disclosed index. On November 15 of year two, the consumer 
makes a $300 purchase. On April 1 of year three, Sec.  226.55 
permits the card issuer to begin accruing interest using the 
following rates for any remaining portion of the following balances: 
The 15% non-variable rate for the $1,000 balance; the variable rate 
determined using the 10-point margin for the $500 purchase; and the 
variable rate determined using the 13-point margin for the $300 
purchase.
* * * * *
    55(b)(1) Temporary rate, fee, or charge 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, fee, or charge must apply for a specified period of six months 
or longer before a card issuer can increase that rate, fee, or 
charge pursuant to Sec.  226.55(b)(1). The specified period must 
expire no less than six months after the date on which the card 
issuer 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, fee, or charge 
applies. Section 226.55(b)(1) does not prohibit a card issuer from 
limiting the application of a temporary annual percentage rate, fee, 
or charge to a particular category of transactions (such as to 
balance transfers or to purchases over $100). However, in 
circumstances where the card issuer limits application of the 
temporary rate, fee, or charge to a single 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.
    vii. Assume that a card issuer discloses at account opening on 
January 1 of year one that the annual fee for the account is $0 
until January 1 of year two, when the fee will increase to $50. On 
January 1 of year two, the card issuer may impose the $50 annual 
fee. However, the issuer must also comply with the notice 
requirements in Sec.  226.9(e).
    viii. Assume that a card issuer discloses at account opening on 
January 1 of year one that the monthly maintenance fee for the 
account is $0 until July 1 of year one, when the fee will increase 
to $10. Beginning on July 1 of year one, the card issuer may impose 
the $10 monthly maintenance fee (to the extent consistent with Sec.  
226.52(a)).
    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

[[Page 23033]]

$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 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 increases. Section 226.55(b)(1) 
permits a card issuer to increase a temporary annual percentage 
rate, fee, or charge 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, fee, or charge 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.
    iii. Assume that a card issuer discloses at account opening on 
January 1 of year one that the annual fee for the account is $10 but 
may be increased to $50 if a consumer's required minimum periodic 
payment is received after the payment due date, which is the 
fifteenth of the month. The payment due on July 15 is not received 
until July 23. Section 226.55 does not permit the card issuer to 
impose the $50 annual fee at this time. Furthermore, Sec.  
226.55(b)(3) does not permit the card issuer to increase the $10 
annual fee during the first year after account opening. However, 
Sec.  226.55(b)(3) does permit the card issuer to impose the $50 fee 
(or a different fee) on January 1 of year two if, on or before 
November 16 of year one, the issuer informs the consumer of the 
increased fee consistent with Sec.  226.9(c) and the consumer does 
not reject that increase pursuant to Sec.  226.9(h).
    iv. Assume that a card issuer discloses at account opening on 
January 1 of year one that the annual fee for a credit card account 
under an open-end (not home-secured) consumer credit plan is $0 but 
may be increased to $100 if the consumer's balance in a deposit 
account provided by the card issuer or its affiliate or subsidiary 
falls below $5,000. On June 1 of year one, the balance on the 
deposit account is $4,500. Section 226.55 does not permit the card 
issuer to impose the $100 annual fee at this time. Furthermore, 
Sec.  226.55(b)(3) does not permit the card issuer to increase the 
$0 annual fee during the first year after account opening. However, 
Sec.  226.55(b)(3) does permit the card issuer to impose the $100 
fee (or a different fee) on January 1 of year two if, on or before 
November 16 of year one, the issuer informs the consumer of the 
increased fee consistent with Sec.  226.9(c) and the consumer does 
not reject that increase pursuant to Sec.  226.9(h).
    5. Application of increased fees and charges. Section 
226.55(b)(1)(ii) limits the ability of a card issuer to apply an 
increased fee or charge to certain transactions. However, to the 
extent consistent with Sec.  226.55(b)(3), (c), and (d), a card 
issuer generally is not prohibited from increasing a fee or charge 
that applies to the account as a whole. See comments 55(c)(1)-3 and 
55(d)-1.
* * * * *
    55(b)(3) Advance notice exception.
* * * * *
    6. Delayed implementation of increase. Section 226.55(b)(3)(iii) 
does not prohibit a card issuer from notifying a consumer of an 
increase in an annual percentage rate, fee, or charge consistent 
with Sec.  226.9(b), (c), or (g). However, Sec.  226.55(b)(3)(iii) 
does prohibit application of an increased rate, fee, or charge 
during the first year after the account is opened, while the account 
is closed, or while the card issuer does not permit the consumer to 
use the account for new transactions. If Sec.  226.9(b), (c), or (g) 
permits a card issuer to apply an increased rate, fee, or charge on 
a particular date and the account is closed on that date or the card 
issuer does not permit the consumer to use the account for new 
transactions on that date, the card issuer may delay application of 
the increased rate, fee, or charge until the first day of the 
following billing cycle without

[[Page 23034]]

relinquishing the ability to apply that rate, fee, or charge 
(assuming the increase is otherwise consistent with Sec.  226.55). 
See examples in comment 55(b)-2.iii. However, if the account is 
closed or the card issuer does not permit the consumer to use the 
account for new transactions on the first day of the following 
billing cycle, then the card issuer must provide a new notice of the 
increased rate, fee, or charge consistent with Sec.  226.9(b), (c), 
or (g).
    7. Date on which account may first be used by consumer to engage 
in transactions. For purposes of Sec.  226.55(b)(3)(iii), an account 
is considered open no earlier than the date on which the account may 
first be used by the consumer to engage in transactions. An account 
is considered open for purposes of Sec.  226.55(b)(3)(iii) on any 
date that the card issuer may consider the account open for purposes 
of Sec.  226.52(a)(1). See comment 52(a)(1)-4.
* * * * *
    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. Except as provided in Sec.  
226.55(b)(3)(iii), 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. To the extent consistent with Sec.  
226.55(b)(3)(iii), 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 generally may add or 
increase an annual or a monthly maintenance fee for an account after 
complying with the notice requirements in Sec.  226.9(c), including 
notifying the consumer of the right to reject the new or increased 
fee under Sec.  226.9(h). However, except as otherwise provided in 
Sec.  226.55(b), an increased fee or charge cannot be applied to an 
account while the account is closed or while the card issuer does 
not permit the consumer to use the account for new transactions. See 
Sec.  226.55(b)(3)(iii); see also Sec. Sec.  226.52(b)(2)(i)(B)(3) 
and 226.55(d)(1). Furthermore, 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.
    4. Changing balance computation method. Nothing in Sec.  226.55 
prohibits a card issuer from changing the balance computation method 
that applies to new transactions as well as protected balances.
* * * * *
    55(e) Promotional waivers or rebates of interest, fees, and 
other charges.
    1. Generally. Nothing in Sec.  226.55 prohibits a card issuer 
from waiving or rebating finance charges due to a periodic interest 
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, if a card 
issuer promotes and applies the waiver or rebate to an account, the 
card issuer cannot temporarily or permanently cease or terminate any 
portion of the waiver or rebate on that account unless permitted by 
one of the exceptions in Sec.  226.55(b). For example:
    i. A card issuer applies an annual percentage rate of 15% to 
balance transfers but promotes a program under which all of the 
interest accrued on transferred balances will be waived or rebated 
for one year. If, prior to the commencement of the one-year period, 
the card issuer discloses the length of the period and the annual 
percentage rate that will apply to transferred balances after 
expiration of that period consistent with Sec.  226.55(b)(1)(i), 
Sec.  226.55(b)(1) permits the card issuer to begin imposing 
interest charges on transferred balances after one year. 
Furthermore, if, during the one-year period, a required minimum 
periodic payment is not received within 60 days of the payment due 
date, Sec.  226.55(b)(4) permits the card issuer to begin imposing 
interest charges on transferred balances (after providing a notice 
consistent with Sec.  226.9(g) and Sec.  226.55(b)(4)(i)). However, 
if a required minimum periodic payment is not more than 60 days 
delinquent or if the consumer otherwise violates the terms or other 
requirements of the account, Sec.  226.55 does not permit the card 
issuer to begin imposing interest charges on transferred balances 
until the expiration of the one-year period.
    ii. A card issuer imposes a monthly maintenance fee of $10 but 
promotes a program under which the fee will be waived or rebated for 
the six months following account opening. If, prior to account 
opening, the card issuer discloses the length of the period and the 
monthly maintenance fee that will be imposed after expiration of 
that period consistent with Sec.  226.55(b)(1)(i), Sec.  
226.55(b)(1) permits the card issuer to begin imposing the monthly 
maintenance fee six months after account opening. Furthermore, if, 
during the six-month period, a required minimum periodic payment is 
not received within 60 days of the payment due date, Sec.  
226.55(b)(4) permits the card issuer to begin imposing the monthly 
maintenance fee (after providing a notice consistent with Sec.  
226.9(c) and Sec.  226.55(b)(4)(i)). However, if a required minimum 
periodic payment is not more than 60 days delinquent or if the 
consumer otherwise violates the terms or other requirements of the 
account, Sec.  226.55 does not permit the card issuer to begin 
imposing the monthly maintenance fee until the expiration of the 
six-month period.
    2. Promotion of waiver or rebate. For purposes of Sec.  
226.55(e), a card issuer generally promotes a waiver or rebate if 
the card issuer discloses the waiver or rebate in an advertisement 
(as defined in Sec.  226.2(a)(2)). See comment 2(a)(2)-1. In 
addition, a card issuer generally promotes a waiver or rebate for 
purposes of Sec.  226.55(e) if the card issuer discloses the waiver 
or rebate in communications regarding existing accounts (such as 
communications regarding a promotion that encourages additional or 
different uses of an existing account). However, a card issuer does 
not promote a waiver or rebate for purposes of Sec.  226.55(e) if 
the advertisement or communication relates to an inquiry or dispute 
about a specific charge or to interest, fees, or charges that have 
already been waived or rebated.
    i. Examples of promotional communications. The following are 
examples of circumstances in which a card issuer is promoting a 
waiver or rebate for purposes of Sec.  226.55(e):
    A. A card issuer discloses the waiver or rebate in a newspaper, 
magazine, leaflet, promotional flyer, catalog, sign, or point-of-
sale display, unless the disclosure relates to interest, fees, or 
charges that have already been waived.
    B. A card issuer discloses the waiver or rebate on radio or 
television or through electronic advertisements (such as on the 
Internet), unless the disclosure relates to interest, fees, or 
charges that have already been waived or rebated.
    C. A card issuer discloses a waiver or rebate to individual 
consumers, such as by telephone, letter, or electronic 
communication, through direct mail literature, or on or with account 
statements, unless the disclosure relates to an inquiry or dispute 
about a specific charge or to interest, fees, or charges that have 
already been waived or rebated.
    ii. Examples of non-promotional communications. The following 
are examples of circumstances in which a card issuer is not 
promoting a waiver or rebate for purposes of Sec.  226.55(e):
    A. After a card issuer has waived or rebated interest, fees, or 
other charges subject to Sec.  226.55 with respect to an account, 
the issuer discloses the waiver or rebate to the accountholder on 
the periodic statement or

[[Page 23035]]

by telephone, letter, or electronic communication. However, if the 
card issuer also discloses prospective waivers or rebates in the 
same communication, the issuer is promoting a waiver or rebate for 
purposes of Sec.  226.55(e).
    B. A card issuer communicates with a consumer about a waiver or 
rebate of interest, fees, or other charges subject to Sec.  226.55 
in relation to an inquiry or dispute about a specific charge, 
including a dispute under Sec. Sec.  226.12 or 226.13.
    C. A card issuer waives or rebates interest, fees, or other 
charges subject to Sec.  226.55 in order to comply with a legal 
requirement (such as the limitations in Sec.  226.52(a)).
    D. A card issuer discloses a grace period, as defined in Sec.  
226.5(b)(2)(ii)(3).
    E. A card issuer provides a period after the payment due date 
during which interest, fees, or other charges subject to Sec.  
226.55 are waived or rebated even if a payment has not been 
received.
    F. A card issuer provides benefits (such as rewards points or 
cash back on purchases or finance charges) that can be applied to 
the account as credits, provided that the benefits are not promoted 
as reducing interest, fees, or other charges subject to Sec.  
226.55.
    3. Relationship of Sec.  226.55(e) to grace period. Section 
226.55(e) does not apply to the waiver of finance charges due to a 
periodic rate consistent with a grace period, as defined in Sec.  
226.5(b)(2)(ii)(3).
* * * * *

Sec.  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)(7). 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)(7); 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)(7), 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.
    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) Card issuer.
    1. Card issuer clarified. Section 226.58(b)(4) provides that, 
for purposes of Sec.  226.58, card issuer or issuer means the entity 
to which a consumer is legally obligated, or would be legally 
obligated, under the terms of a credit card agreement. For example, 
Bank X and Bank Y work together to issue credit cards. A consumer 
that obtains a credit card issued pursuant to this arrangement 
between Bank X and Bank Y is subject to an agreement that states 
``This is an agreement between you, the consumer, and Bank X that 
governs the terms of your Bank Y Credit Card.'' The card issuer in 
this example is Bank X, because the agreement creates a legally 
enforceable obligation between the consumer and Bank X. Bank X is 
the issuer even if the consumer applied for the card through a link 
on Bank Y's Web site and the cards prominently feature the Bank Y 
logo on the front of the card.
    2. Use of third-party service providers. An institution that is 
the card issuer as defined in Sec.  226.58(b)(4) has a legal 
obligation to comply with the requirements of Sec.  226.58. However, 
a card issuer generally may use a third-party service provider to 
satisfy its obligations under Sec.  226.58, provided that the issuer 
acts in accordance with regulatory guidance regarding use of third-
party service providers and other applicable regulatory guidance. In 
some cases, an issuer may wish to arrange for the institution with 
which it partners to issue credit cards to fulfill the requirements 
of Sec.  226.58 on the issuer's behalf. For example, Retailer and 
Bank work together to issue credit cards. Under the Sec.  
226.58(b)(4) definition, Bank is the issuer of these credit cards 
for purposes of Sec.  226.58. However, Retailer services the credit 
card accounts, including mailing account opening materials and 
periodic statements to cardholders. While Bank is responsible for 
ensuring compliance with Sec.  226.58, Bank may arrange for Retailer 
(or another appropriate third-party service provider) to submit 
credit card agreements to the Board under Sec.  226.58 on Bank's 
behalf. Bank must comply with regulatory guidance regarding use of 
third-party service providers and other applicable regulatory 
guidance.
    3. Partner institution Web sites. As explained in comments 
58(d)-2 and 58(e)-3, if an issuer provides cardholders with access 
to specific information about their individual accounts, such as 
balance information or copies of statements, through a third-party 
Web site, the issuer is deemed to maintain that Web site for 
purposes of Sec.  226.58. Such a Web site is deemed to be maintained 
by the issuer for purposes of Sec.  226.58 even where, for example, 
an unaffiliated entity designs the Web site and owns and maintains 
the information technology infrastructure that supports the Web 
site, cardholders with credit cards from multiple issuers can access 
individual account information through the same Web site, and the 
Web site is not labeled, branded, or otherwise held out to the 
public as belonging to the issuer. A partner institution's Web site 
is an example of a third-party Web site that may be deemed to be 
maintained by the issuer for purposes of Sec.  226.58. For example, 
Retailer and Bank work together to issue credit cards. Under the 
Sec.  226.58(b)(4) definition, Bank is the issuer of these credit 
cards for purposes of Sec.  226.58. Bank does not have a Web site. 
However, cardholders can access information about their individual 
accounts, such as balance information and copies of statements, 
through a Web site maintained by Retailer. Retailer designs the Web 
site and owns and maintains the information technology 
infrastructure that supports the Web site. The Web site is branded 
and held out to the public as belonging to Retailer. Because 
cardholders can access information about their individual accounts 
through this Web site, the Web site is deemed to be maintained by 
Bank for purposes of Sec.  226.58. Bank therefore may comply with 
Sec.  226.58(d) by ensuring that agreements offered to the public 
are posted on Retailer's Web site in accordance with Sec.  
226.58(d). Bank may comply with Sec.  226.58(e) by ensuring that 
cardholders can request copies of their individual agreements 
through Retailer's Web site in accordance with Sec.  226.58(e)(1). 
Bank need not create and maintain a Web site branded and held out to 
the public as belonging to Bank in order to comply with Sec. Sec.  
226.58(d) and (e) as long as Bank ensures that Retailer's Web site 
complies with these sections.

[[Page 23036]]

    In addition, Sec.  226.58(d)(1) provides that, with respect to 
an agreement offered solely for accounts under one or more private 
label credit card plans, an issuer may comply with Sec.  226.58(d) 
by posting the agreement 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. This rule is not conditioned on cardholders' ability to 
access account-specific information through the merchant's Web site.
    58(b)(5) 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)(6) 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)(8) 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)(8).
    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)(8)--
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)(8). 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)(8), even though the accounts are 
subject to different terms.
    58(c) Submission of agreements to Board.
* * * * *
    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. The issuer must submit the 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. However, the issuer is required to submit the amended 
agreement to the Board only if the issuer offered the amended 
agreement to the public as of the last business 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 for purposes of Sec.  
226.58(c)(3). On December 31, the last business day of the calendar 
quarter in which the change in the balance computation method became 
effective, the issuer still offers the agreement to the public as 
amended on November 15. The issuer must submit the entire amended 
agreement to the Board no later than January 31.
    3. Agreements amended but no longer offered to the public. A 
card issuer should submit an amended agreement to the Board under 
Sec.  226.58(c)(3) only if the issuer offered the amended agreement 
to the public as of the last business day of the calendar quarter in 
which the amendment became effective. Agreements that are not 
offered to the public as of the last day of the calendar quarter 
should not be submitted to the Board. For example, on December 31 a 
card issuer offers two agreements, Agreement A and Agreement B. The 
issuer submits these agreements to the Board by January 31 as 
required by Sec.  226.58. On February 15, the issuer amends both 
Agreement A and Agreement B. On February 28, the issuer stops 
offering Agreement A to the public. On March 15, the issuer amends 
Agreement B a second time. As a result, on March 31, the last 
business day of the calendar quarter, the issuer offers to the 
public one agreement--Agreement B as amended on March 15. By the 
April 30 quarterly submission deadline, the issuer must: (1) Notify 
the Board that it is withdrawing Agreement A because Agreement A is 
no longer offered to the public; and (2) submit to the Board 
Agreement B as amended on March 15. The

[[Page 23037]]

issuer should not submit to the Board either Agreement A as amended 
on February 15 or the earlier version of Agreement B (as amended on 
February 15), as neither was offered to the public on March 31, the 
last business day of the calendar quarter.
    4. 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(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)).
    If an issuer provides cardholders with access to specific 
information about their individual accounts, such as balance 
information or copies of statements, through a third-party Web site, 
the issuer is considered to maintain that Web site for purposes of 
Sec.  226.58. Such a third-party Web site is deemed to be maintained 
by the issuer for purposes of Sec.  226.58(d) even where, for 
example, an unaffiliated entity designs the Web site and owns and 
maintains the information technology infrastructure that supports 
the Web site, cardholders with credit cards from multiple issuers 
can access individual account information through the same Web site, 
and the Web site is not labeled, branded, or otherwise held out to 
the public as belonging to the issuer. Therefore, issuers that 
provide cardholders with access to account-specific information 
through a third-party Web site can comply with Sec.  226.58(d) by 
ensuring that the agreements the issuer submits to the Board are 
posted on the third-party Web site in accordance with Sec.  
226.58(d). (In contrast, the Sec.  226.58(d)(1) rule regarding 
agreements for private label credit cards is not conditioned on 
cardholders' ability to access account-specific information through 
the merchant's Web site.)
    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

[[Page 23038]]

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 
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. An issuer is 
considered to maintain an interactive Web site for purposes of the 
Sec.  226.58(e)(2) special rule if the issuer provide cardholders 
with access to specific information about their individual accounts, 
such as balance information or copies of statements, through a 
third-party interactive Web site. Such a Web site is deemed to be 
maintained by the issuer for purposes of Sec.  226.58(e)(2) even 
where, for example, an unaffiliated entity designs the Web site and 
owns and maintains the information technology infrastructure that 
supports the Web site, cardholders with credit cards from multiple 
issuers can access individual account information through the same 
Web site, and the Web site is not labeled, branded, or otherwise 
held out to the public as belonging to the issuer. An issuer that 
provides cardholders with access to specific information about their 
individual accounts through such a Web site is not permitted to 
comply with the special rule in Sec.  226.58(e)(2). Instead, such an 
issuer must comply with Sec.  226.58(e)(1).
    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.

Sec.  226.59--Reevaluation of Rate Increases

    59(a) General rule.
    59(a)(1) Evaluation of increased rate.
    1. Types of rate increases covered. Section 226.59(a) applies 
both to increases in annual percentage rates imposed on a consumer's 
account based on that consumer's credit risk or other circumstances 
specific to that consumer and to increases in annual percentage 
rates imposed based on factors that are not specific to the 
consumer, such as changes in market conditions or the issuer's cost 
of funds.
    2. Rate increases actually imposed. Under Sec.  226.59(a), a 
card issuer must review changes in factors only if the increased 
rate is actually imposed on the consumer's account. For example, if 
a card issuer increases the penalty rate for a credit card account 
under an open-end (not home-secured) consumer credit plan and the 
consumer's account has no balances that are currently subject to the 
penalty rate, the card issuer is required to provide a notice 
pursuant to Sec.  226.9(c) of the change in terms, but the 
requirements of Sec.  226.59 do not apply. However, if the 
consumer's account later becomes subject to the penalty rate, the 
card issuer is required to provide a notice pursuant to Sec.  
226.9(g) and the requirements of Sec.  226.59 begin to apply upon 
imposition of the penalty rate. Similarly, if a card issuer raises 
the cash advance rate applicable to a consumer's account but the 
consumer engages in no cash advance transactions to which that 
increased rate is applied, the card issuer is required to provide a 
notice pursuant to Sec.  226.9(c) of the change in terms, but the 
requirements of Sec.  226.59 do not apply. If the consumer 
subsequently engages in a cash advance transaction, the requirements 
of Sec.  226.59 begin to apply at that time.
    3. Change in type of rate. i. Generally. A change from a 
variable rate to a non-variable rate or from a non-variable rate to 
a variable rate is not a rate increase for purposes of Sec.  226.59, 
if the rate in effect immediately prior to the change in type of 
rate is equal to or greater than the rate in effect immediately 
after the change. For example, a change from a variable rate of 
15.99% to a non-variable rate of 15.99% is not a rate increase for 
purposes of Sec.  226.59 at the time of the change. See Sec.  226.55 
for limitations on the permissibility of changing from a non-
variable rate to a variable rate.
    ii. Change from non-variable rate to variable rate. A change 
from a non-variable to a variable rate constitutes a rate increase 
for purposes of Sec.  226.59 if the variable rate exceeds the non-
variable rate that would have applied if the change in type of rate 
had not occurred. For example, assume a new credit card account 
under an open-end (not home-secured) consumer credit plan is opened 
on January 1 of year 1 and that a non-variable annual percentage 
rate of 12% applies to all transactions on the account. On January 1 
of year 2, upon 45 days' advance notice pursuant to Sec.  
226.9(c)(2), the rate on all new transactions is changed to a 
variable rate that is currently 12% and is determined by adding a 
margin of 10 percentage points to a publicly-available index not 
under the card issuer's control. The change from the 12% non-
variable rate to the 12% variable rate on January 1 of year 2 is not 
a rate increase for purposes of Sec.  226.59(a). On April 1 of year 
2, the value of the variable rate increases to 12.5%. The increase 
in the rate from 12% to 12.5% is a rate increase for purposes of 
Sec.  226.59, and the card issuer must begin periodically conducting 
reviews of the account pursuant to Sec.  226.59. The increase that 
must be evaluated for purposes of Sec.  226.59 is the increase from 
a non-variable rate of 12% to a variable rate of 12.5%.
    iii. Change from variable rate to non-variable rate. A change 
from a variable to a non-variable rate constitutes a rate increase 
for purposes of Sec.  226.59 if the non-variable rate exceeds the 
variable rate that would have applied if the change in type of rate 
had not occurred. For example, assume a new credit card account 
under an open-end (not home-secured) consumer credit plan is opened 
on January 1 of year 1 and that a variable annual percentage rate 
that is currently 15% and is determined by adding a margin of 10 
percentage points to a publicly-available index not under the card 
issuer's control applies to all transactions on the account. On 
January 1 of year 2, upon 45 days' advance notice pursuant to Sec.  
226.9(c)(2), the rate on all existing balances and new transactions 
is changed to a non-variable rate that is currently 15%. The change 
from the 15% variable rate to the 15% non-variable rate on January 1 
of year 2 is not a rate increase for purposes of Sec.  226.59(a). On 
April 1 of year 2, the value of the variable rate that would have 
applied to the account decreases to 12.5%. Accordingly, on April 1 
of year 2, the non-variable rate of 15% exceeds the 12.5% variable 
rate that would have applied but for the change in type of rate. At 
this time, the change to the non-variable rate of 15% constitutes a 
rate increase for purposes of Sec.  226.59, and the card issuer must 
begin periodically conducting reviews of the account pursuant to 
Sec.  226.59. The increase

[[Page 23039]]

that must be evaluated for purposes of Sec.  226.59 is the increase 
from a variable rate of 12.5% to a non-variable rate of 15%.
    4. Rate increases prior to effective date of rule. For increases 
in annual percentage rates made on or after January 1, 2009, and 
prior to August 22, 2010, Sec.  226.59(a) requires the card issuer 
to review the factors described in Sec.  226.59(d) and reduce the 
rate, as appropriate, if the rate increase is of a type for which 45 
days' advance notice would currently be required under Sec.  
226.9(c)(2) or (g). For example, 45 days' notice is not required 
under Sec.  226.9(c)(2) if the rate increase results from the 
increase in the index by which a properly-disclosed variable rate is 
determined in accordance with Sec.  226.9(c)(2)(v)(C) or if the 
increase occurs upon expiration of a specified period of time and 
disclosures complying with Sec.  226.9(c)(2)(v)(B) have been 
provided. The requirements of Sec.  226.59 do not apply to such rate 
increases.
    5. Amount of rate decrease. i. General. Even in circumstances 
where a rate reduction is required, Sec.  226.59 does not require 
that a card issuer decrease the rate that applies to a credit card 
account to the rate that was in effect prior to the rate increase 
subject to Sec.  226.59(a). The amount of the rate decrease that is 
required must be determined based upon the card issuer's reasonable 
policies and procedures under Sec.  226.59(b) for consideration of 
factors described in Sec.  226.59(a) and (d). For example, assume a 
consumer's rate on new purchases is increased from a variable rate 
of 15.99% to a variable rate of 23.99% based on the consumer's 
making a required minimum periodic payment five days late. The 
consumer makes all of the payments required on the account on time 
for the six months following the rate increase. Assume that the card 
issuer evaluates the account by reviewing the factors on which the 
increase in an annual percentage rate was originally based, in 
accordance with Sec.  226.59(d)(1)(i). The card issuer is not 
required to decrease the consumer's rate to the 15.99% that applied 
prior to the rate increase. However, the card issuer's policies and 
procedures for performing the review required by Sec.  226.59(a) 
must be reasonable, as required by Sec.  226.59(b), and must take 
into account any reduction in the consumer's credit risk based upon 
the consumer's timely payments.
    ii. Change in type of rate. If the rate increase subject to 
Sec.  226.59 involves a change from a variable rate to a non-
variable rate or from a non-variable rate to a variable rate, Sec.  
226.59 does not require that the issuer reinstate the same type of 
rate that applied prior to the change. However, the amount of any 
rate decrease that is required must be determined based upon the 
card issuer's reasonable policies and procedures under Sec.  
226.59(b) for consideration of factors described in Sec.  226.59(a) 
and (d).
* * * * *
    59(d) Factors.
* * * * *
    6. Multiple rate increases between January 1, 2009 and February 
21, 2010. i. General. Section 226.59(d)(2) applies if an issuer 
increased the rate applicable to a credit card account under an 
open-end (not home-secured) consumer credit plan between January 1, 
2009 and February 21, 2010, and the increase was not based solely 
upon factors specific to the consumer. In some cases, a credit card 
account may have been subject to multiple rate increases during the 
period from January 1, 2009 to February 21, 2010. Some such rate 
increases may have been based solely upon factors specific to the 
consumer, while others may have been based on factors not specific 
to the consumer, such as the issuer's cost of funds or market 
conditions. In such circumstances, when conducting the first two 
reviews required under Sec.  226.59, the card issuer may separately 
review: (i) Rate increases imposed based on factors not specific to 
the consumer, using the factors described in Sec.  226.59(d)(1)(ii) 
(as required by Sec.  226.59(d)(2)); and (ii) rate increases imposed 
based on consumer-specific factors, using the factors described in 
Sec.  226.59(d)(1)(i). If the review of factors described in Sec.  
226.59(d)(1)(i) indicates that it is appropriate to continue to 
apply a penalty or other increased rate to the account as a result 
of the consumer's payment history or other factors specific to the 
consumer, Sec.  226.59 permits the card issuer to continue to impose 
the penalty or other increased rate, even if the review of the 
factors described in Sec.  226.59(d)(1)(ii) would otherwise require 
a rate decrease.
    ii. Example. Assume a credit card account was subject to a rate 
of 15% on all transactions as of January 1, 2009. On May 1, 2009, 
the issuer increased the rate on existing balances and new 
transactions to 18%, based upon market conditions or other factors 
not specific to the consumer or the consumer's account. 
Subsequently, on September 1, 2009, based on a payment that was 
received five days after the due date, the issuer increased the 
applicable rate on existing balances and new transactions from 18% 
to a penalty rate of 25%. When conducting the first review required 
under Sec.  226.59, the card issuer reviews the rate increase from 
15% to 18% using the factors described in Sec.  226.59(d)(1)(ii) (as 
required by Sec.  226.59(d)(2)), and separately but concurrently 
reviews the rate increase from 18% to 25% using the factors 
described in paragraph Sec.  226.59(d)(1)(i). The review of the rate 
increase from 15% to 18% based upon the factors described in Sec.  
226.59(d)(1)(ii) indicates that a similarly situated new consumer 
would receive a rate of 17%. The review of the rate increase from 
18% to 25% based upon the factors described in Sec.  226.59(d)(1)(i) 
indicates that it is appropriate to continue to apply the 25% 
penalty rate based upon the consumer's late payment. Section 226.59 
permits the rate on the account to remain at 25%.
    59(f) Termination of obligation to review factors.
    1. Revocation of temporary rates. i. In general. If an annual 
percentage rate is increased due to revocation of a temporary rate, 
Sec.  226.59(a) requires that the card issuer periodically review 
the increased rate. In contrast, if the rate increase results from 
the expiration of a temporary rate previously disclosed in 
accordance with Sec.  226.9(c)(2)(v)(B), the review requirements in 
Sec.  226.59(a) do not apply. If a temporary rate is revoked such 
that the requirements of Sec.  226.59(a) apply, Sec.  226.59(f) 
permits an issuer to terminate the review of the rate increase if 
and when the applicable rate is the same as the rate that would have 
applied if the increase had not occurred.
    ii. Examples. Assume that on January 1, 2011, a consumer opens a 
new credit card account under an open-end (not home-secured) 
consumer credit plan. The annual percentage rate applicable to 
purchases is 15%. The card issuer offers the consumer a 10% rate on 
purchases made between February 1, 2012 and August 1, 2013 and 
discloses pursuant to Sec.  226.9(c)(2)(v)(B) that on August 1, 2013 
the rate on purchases will revert to the original 15% rate. The 
consumer makes a payment that is five days late in July 2012.
    A. Upon providing 45 days' advance notice and to the extent 
permitted under Sec.  226.55, the card issuer increases the rate 
applicable to new purchases to 15%, effective on September 1, 2012. 
The card issuer must review that rate increase under Sec.  226.59(a) 
at least once each six months during the period from September 1, 
2012 to August 1, 2013, unless and until the card issuer reduces the 
rate to 10%. The card issuer performs reviews of the rate increase 
on January 1, 2013 and July 1, 2013. Based on those reviews, the 
rate applicable to purchases remains at 15%. Beginning on August 1, 
2013, the card issuer is not required to continue periodically 
reviewing the rate increase, because if the temporary rate had 
expired in accordance with its previously disclosed terms, the 15% 
rate would have applied to purchase balances as of August 1, 2013 
even if the rate increase had not occurred on September 1, 2012.
    B. Same facts as above except that the review conducted on July 
1, 2013 indicates that a reduction to the original temporary rate of 
10% is appropriate. Section 226.59(a)(2)(i) requires that the rate 
be reduced no later than 45 days after completion of the review, or 
no later than August 15, 2013. Because the temporary rate would have 
expired prior to the date on which the rate decrease is required to 
take effect, the card issuer may, at its option, reduce the rate to 
10% for any portion of the period from July 1, 2013, to August 1, 
2013, or may continue to impose the 15% rate for that entire period. 
The card issuer is not required to conduct further reviews of the 
15% rate on purchases.
    C. Same facts as above except that on September 1, 2012 the card 
issuer increases the rate applicable to new purchases to the penalty 
rate on the consumer's account, which is 25%. The card issuer 
conducts reviews of the increased rate in accordance with Sec.  
226.59 on January 1, 2013 and July 1, 2013. Based on those reviews, 
the rate applicable to purchases remains at 25%. The card issuer's 
obligation to review the rate increase continues to apply after 
August 1, 2013, because the 25% penalty rate exceeds the 15% rate 
that would have applied if the temporary rate expired in accordance 
with its previously disclosed terms. The card issuer's obligation to 
review the rate terminates if and when the annual percentage rate 
applicable to purchases is reduced to the 15% rate.

[[Page 23040]]

    2. Example--relationship to Sec.  226.59(a). Assume that on 
January 1, 2011, a consumer opens a new credit card account under an 
open-end (not home-secured) consumer credit plan. The annual 
percentage rate applicable to purchases is 15%. Upon providing 45 
days' advance notice and to the extent permitted under Sec.  226.55, 
the card issuer increases the rate applicable to new purchases to 
18%, effective on September 1, 2012. The card issuer conducts 
reviews of the increased rate in accordance with Sec.  226.59 on 
January 1, 2013 and July 1, 2013, based on the factors described in 
Sec.  226.59(d)(1)(ii). Based on the January 1, 2013 review, the 
rate applicable to purchases remains at 18%. In the review conducted 
on July 1, 2013, the card issuer determines that, based on the 
relevant factors, the rate it would offer on a comparable new 
account would be 14%. Consistent with Sec.  226.59(f), Sec.  
226.59(a) requires that the card issuer reduce the rate on the 
existing account to the 15% rate that was in effect prior to the 
September 1, 2012 rate increase.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, April 8, 2011.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2011-8843 Filed 4-22-11; 8:45 am]
BILLING CODE 6210-01-P